CONSTRUCTION LOAN AGREEMENT

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Borrower: Timberline Software Corporation  Lender:  Pacific One Bank
          9600 S.W. Nimbus Avenue                   P.O. Box 40108
          Beaverton, Oregon 97008                   Portland, Oregon  97240-0108
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THIS  CONSTRUCTION  LOAN  AGREEMENT  between  Timberline  Software   Corporation
("Borrower")  and  Pacific  One  Bank  ("Lender")  is made and  executed  on the
following terms and conditions.  Borrower has applied to Lender for loans in the
total  principal  amount of Nine Million Seven Hundred Fifty Thousand and 00/100
Dollars  ($9,750,000.00)  in order to  construct  the  Improvements  on the Real
Property described below.  Lender is willing to lend the loan amount to Borrower
solely under the terms and  conditions  specified in this  Agreement  and in the
Related Documents,  to each of which Borrower agrees.  Borrower  understands and
agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower's representations, warranties, and agreements as set forth in this
Agreement,  and (b) all such Loans shall be and remain  subject to the following
terms and conditions of this Agreement.

TERM.  This  Agreement  shall be  effective  as of December  1, 1997,  and shall
continue  thereafter  until all Indebtedness has been paid in full and all other
obligations  of Borrower  hereunder  have been performed in full and the parties
terminate this Agreement in writing.

DEFINITIONS.  The following words shall have the following meanings when used in
this  Agreement.  Terms not otherwise  defined in this Agreement  shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar  amounts  shall mean amounts in lawful  money of the United  States of
America.

       Agreement.  The word "Agreement"  means this Construction Loan Agreement,
       as this  Construction Loan Agreement may be amended or modified from time
       to time,  together  with all  exhibits  and  schedules  attached  to this
       Construction Loan Agreement from time to time.

       Architecture  Contract.  The  words  "Architecture   Contract"  mean  the
       contract between Borrower and Mahlum & Nordfors Smith Gordon  Architects,
       PC, who designed the Project.

       Borrower.  The word "Borrower" means Timberline Software Corporation.

       Collateral.  The word "Collateral"  means and includes without limitation
       all  property  and assets  granted  as  collateral  security  for a Loan,
       whether  real  or  personal   property,   whether  granted   directly  or
       indirectly,  whether granted now or in the future, and whether granted in
       the form of a security  interest,  mortgage,  deed of trust,  assignment,
       pledge, chattel mortgage,  chattel trust, factor's lien, equipment trust,
       conditional sale, trust receipt,  lien,  charge,  lien or title retention
       contract,  lease or  consignment  intended as a security  device,  or any
       other  security  or lien  interest  whatsoever,  whether  created by law,
       contract, or otherwise.

       Construction Contract. The words "Construction Contract" mean and include
       the contract between Borrower and Westwood  Swinerton  Construction,  the
       general   contractor  for  the  Project,   and  any   subcontracts   with
       subcontractors,  materialmen, laborers, or any other person or entity for
       performance  of work on the Project or the  delivery of  materials to the
       Project.

       Current Assets.  The words "Current Assets" mean assets owned by Borrower
       that will be converted into cash in the normal course of business  within
       one year.

       Current  Liabilities.  The words "Current  Liabilities"  mean liabilities
       that will be paid in the  normal  course of  business  within one year by
       expending current assets or otherwise.

       Debt Service Ratio. The words "Debt Service Ratio" mean net profits, plus
       depreciation  and  amortization,  divided by the current maturity of long
       term debt.
<PAGE>


       Event of Default.  The words  "Event of Default"  mean and include any of
       the Events of Default set forth below in the  section  titled  "Events of
       Default."

       Grantor.  The  word  "Grantor"  means  and  includes  each and all of the
       persons or entities  granting a Security  Interest in any  Collateral for
       the  Indebtedness,  including without  limitation all Borrowers  granting
       such a Security Interest.

       Guarantor. The word "Guarantor" means and includes without limitation all
       guarantors, sureties, and accommodation parties.

       Improvements.   The  word  "Improvements"   means  and  includes  without
       limitation  all existing and future  buildings,  structures,  facilities,
       fixtures, additions, and similar construction on the Property.

       Indebtedness.   The  word  "Indebtedness"   means  and  includes  without
       limitation  all Loans,  together  with all other  obligations,  debts and
       liabilities of Borrower to Lender, or any one or more of them, as well as
       all  claims  by  Lender  against  Borrower,  or any one or more of  them;
       whether now or hereafter existing,  voluntary or involuntary,  due or not
       due, absolute or contingent, liquidated or unliquidated; whether Borrower
       may be liable  individually or jointly with others;  whether Borrower may
       be obligated as a guarantor,  surety, or otherwise; whether recovery upon
       such Indebtedness may be or hereafter may become barred by any statute of
       limitations; and whether such Indebtedness may be or hereafter may become
       otherwise unenforceable.

       Lender.  The word "Lender"  means Pacific One Bank,  its  successors  and
       assigns.

       Loan. The word "Loan" means the Note and any other loans made to Borrower
       under this Agreement and the Related Documents as described below.

       Loan Fund.  The words  "Loan Fund" mean the  undisbursed  proceeds of the
       Loan  under  this  Agreement  together  with  any  equity  funds or other
       deposits required from Borrower under this Agreement.

       Note. The word "Note" means the promissory note or credit agreement dated
       December 1, 1997, in the original  principal amount of Nine Million Seven
       Hundred Fifty Thousand and 00/100 Dollars  ($9,750,000.00)  from Borrower
       to Lender,  together with all renewals of,  extensions of,  modifications
       of,  refinancings  of,  consolidations  of,  and  substitutions  for  the
       promissory note or agreement.

       Plans and Specifications.  The words "Plans and Specifications"  mean the
       plans and  specifications  for the Project  which have been  approved and
       initialed by Lender,  together  with such changes and additions as may be
       approved by Lender in writing.

       Project.  The word "Project" means the construction and completion of all
       Improvements contemplated by this Agreement, including without limitation
       the erection of the building or structure,  installation of equipment and
       fixtures,  landscaping, and all other work necessary to make the Property
       usable and complete for the intended  purposes.  The Project includes the
       following work: an office building containing approximately 88,000 square
       feet.

       Project  Documents.  The  words  "Project  Documents"  mean the Plans and
       Specifications,  all studies,  data and drawings relating to the Project,
       whether  prepared by or for  Borrower,  the  Construction  Contract,  the
       Architecture Contract, and all other contracts and agreements relating to
       the Project or the construction of the Improvements.

       Property.  The word "Property" means the Real Property  together with all
       Improvements,  all  equipment,  fixtures,  and other articles of personal
       property now or  subsequently  attached or affixed to the real  property,
       together with all accessions,  parts,  and additions to, all replacements
       of, and all  substitutions  for any of such  property,  and all  proceeds
       (including  insurance  proceeds and refunds of premiums) from any sale or
       other disposition of such property.

<PAGE>


       Real Property.  The words "Real Property" mean the real property  located
       in Washington  County,  State of Oregon, and legally described as:

              Lots 6 and 7, CORPORATE  CENTER AT CORNELL OAKS,  recorded January
              26,  1995 in Plat  Book  95,  Pages 27  through  32,  recorded  as
              Document No.  95005969,  situated in the County of Washington  and
              State of Oregon.

              TOGETHER WITH a  non-exclusive  right,  privilege and easement for
              ingress  and  egress  of  pedestrian  and  vehicular   traffic  as
              disclosed  by  Easement   Agreement   recorded   August  5,  1997,
              Recorder's Fee No.
              97071989.

       Related Documents. The words "Related Documents" mean and include without
       limitation all promissory  notes,  credit  agreements,  loan  agreements,
       guaranties, security agreements, mortgages, deeds of trust, and all other
       instruments, agreements and documents, whether now or hereafter existing,
       executed in connection with the Indebtedness.

       Security  Agreement.  The words  "Security  Agreement"  mean and  include
       without  limitation any agreements,  promises,  covenants,  arrangements,
       understandings or other agreements,  whether created by law, contract, or
       otherwise,  evidencing,  governing,  representing, or creating a Security
       Interest.

       Security Interest. The words "Security Interest" mean and include without
       limitation  any type of  collateral  security,  whether  in the form of a
       lien,  charge,  mortgage,  deed of  trust,  assignment,  pledge,  chattel
       mortgage,  chattel trust,  factor's lien,  equipment  trust,  conditional
       sale,  trust  receipt,  lien  or  title  retention  contract,   lease  or
       consignment  intended as a security device, or any other security or lien
       interest whatsoever, whether created by law, contract, or otherwise.

       Subordinated  Debt. The words  "Subordinated  Debt" mean indebtedness and
       liabilities of Borrower which have been subordinated by written agreement
       to  indebtedness  owed  by  Borrower  to  Lender  in form  and  substance
       acceptable to Lender.

       Tangible Net Worth.  The words "Tangible Net Worth" mean Borrower's total
       assets  excluding  all  intangible  assets (i.e.,  goodwill,  trademarks,
       patents,  copyrights,  organizational  expenses,  and similar  intangible
       items, but including  leaseholds and leasehold  improvements)  less total
       Debt.

LOAN. The Loan shall be in the principal sum of Nine Million Seven Hundred Fifty
Thousand and 00/100 Dollars  ($9,750,000.00)  and shall bear interest on so much
of the  principal  sum as  shall  be  advanced  pursuant  to the  terms  of this
Agreement  and the  Related  Documents.  The Loan  shall bear  interest  on each
Advance from the date of the Advance in  accordance  with the terms of the Note.
Borrower  shall use the  proceeds  of the Loan solely for the payment of (a) the
costs of constructing  the  Improvements and equipping the Project in accordance
with the Construction  Contract;  (b) other costs and expenses incurred or to be
incurred in connection with the  construction  of the  Improvements as Lender in
its sole discretion shall approve; and (c) if permitted by Lender,  interest due
under  the  Note,  including  all  expenses  and all  loan and  commitment  fees
described in this Agreement.

FEES AND  EXPENSES.  Whether or not the Project shall be  consummated,  Borrower
shall assume and pay upon demand all  out-of-pocket  expenses incurred by Lender
in connection with the preparation of loan documents and the making of the Loan,
including  without  limitation the following:  (a) all closing costs,  fees, and
disbursements;  (b) all expenses of Lender's  legal  counsel;  and (c) all title
examination  fees,  title  insurance  premiums,  appraisal  fees,  survey costs,
required fees, and filing and recording fees.

CONSTRUCTION  PRIOR TO RECORDING  OF SECURITY  DOCUMENT.  In the event  Borrower
permits any work or materials to be  furnished  in  connection  with the Project
prior to execution of this Agreement,  no Loan Funds shall be advanced until (a)
Borrower  has signed the Related  Documents;  (b)  Lender's  mortgage or deed of
trust and other  Security  Interests in the Property have been duly recorded and
perfected;  and (c) Lender has been provided  evidence,  satisfactory to Lender,
that Borrower has obtained all insurance  required  under this  Agreement or any
Related  Agreement and that Lender's liens on the Property and  Improvements are
valid perfected first liens, subject only to such exceptions, if any, acceptable
to Lender.
<PAGE>

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of
the  date of this  Agreement  and as of the  date of each  disbursement  of Loan
proceeds:

       Organization.  Borrower  has the  full  power  and  authority  to own its
       properties  and to  transact  the  businesses  in which  it is  presently
       engaged or presently proposes to engage.

       Authorization. The execution, delivery, and performance of this Agreement
       by  Borrower,  to the extent to be  executed,  delivered  or performed by
       Borrower,  have been duly authorized by all necessary action by Borrower;
       do not require the  consent or approval of any other  person,  regulatory
       authority or  governmental  body; and do not conflict  with,  result in a
       violation  of, or  constitute  a default  under (a) any  provision of its
       articles of incorporation or organization, or bylaws, or any agreement or
       other  instrument  binding  upon  Borrower  or (b) any law,  governmental
       regulation, court decree, or order applicable to Borrower.

       Financial  Information.  Each financial statement of Borrower supplied to
       Lender truly and completely  disclosed  Borrower's financial condition as
       of the date of the  statement,  and  there has been no  material  adverse
       change in Borrower's  financial  condition  subsequent to the date of the
       most  recent  financial  statement  supplied to Lender.  Borrower  has no
       material  contingent  obligations  except as disclosed in such  financial
       statements.

       Litigation and Claims. No litigation or claim (including those for unpaid
       taxes)  against  Borrower is pending or threatened  which may  materially
       adversely affect Borrower's financial  condition,  and no other event has
       occurred  which may  materially  adversely  affect  Borrower's  financial
       condition or properties, other than litigation,  claims, or other events,
       if any,  that  have  been  disclosed  to and  acknowledged  by  Lender in
       writing.

       Title to Property.  Borrower has, or on the date of first disbursement of
       Loan proceeds will have,  good and marketable  title to the Property free
       and clear of all defects,  liens, and encumbrances,  excepting only liens
       for  taxes,  assessments,  or  governmental  charges  or  levies  not yet
       delinquent  or payable  without  penalty or interest,  and such liens and
       encumbrances as may be approved in writing by the Lender.

       Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
       "disposal,"   "release,"  and  "threatened  release,"  as  used  in  this
       Agreement, shall have the same meanings as set forth in the Comprehensive
       Environmental  Response,  Compensation,  and  Liability  Act of 1980,  as
       amended,  42 U.S.C.  Section  9601,  et seq.  ("CERCLA"),  the  Superfund
       Amendments and  Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
       the Hazardous Materials  Transportation  Act, 49 U.S.C.  Section 1801, et
       seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901,
       et seq., or other applicable state or Federal laws, rules, or regulations
       adopted  pursuant to any of the  foregoing  or intended to protect  human
       health or the environment  ("Environmental Laws"). Except as disclosed to
       and acknowledged by Lender in writing,  Borrower  represents and warrants
       that:  (a)  During  the  period of  Borrower's  ownership  of  Borrower's
       Property,  there  has  been no  use,  generation,  manufacture,  storage,
       treatment, disposal, release or threatened release of any hazardous waste
       or substance by any person on, under, or about the Property. (b) Borrower
       has no  knowledge  of, or reason to  believe  that there has been (i) any
       use, generation,  manufacture,  storage, treatment, disposal, release, or
       threatened  release  of any  hazardous  waste or  substance  by any prior
       owners or occupants  of the  Property,  or (ii) any actual or  threatened
       litigation or claims of any kind by any person  relating to such matters.
       (c)  Neither  Borrower  nor  any  tenant,  contractor,   agent  or  other
       authorized user of the Property shall use, generate,  manufacture, store,
       treat, dispose of, or release any hazardous waste or substance on, under,
       or about  the  Property;  and any such  activity  shall be  conducted  in
       compliance  with  all  applicable   federal,   state,   and  local  laws,
       regulations,  and ordinances,  including without limitation Environmental
       Laws.  Borrower  authorizes  Lender  and its  agents  to  enter  upon the
       Property  to  make  such   inspections  and  tests  as  Lender  may  deem
       appropriate to determine  compliance of the Property with this section of
       the  Agreement.  Any  inspections  or tests  made by Lender  shall be for
       Lender's  purposes  only  and  shall  not  be  construed  to  create  any
       responsibility  or  liability on the part of Lender to Borrower or to any
       other person.  The  representations  and warranties  contained herein are
       based on  Borrower's  due  diligence  in  investigating  the Property for
       hazardous  waste.  Borrower  hereby  (a)  releases  and waives any future
       claims against Lender for indemnity or contribution in the event Borrower
       becomes  liable for cleanup or other  costs under any such laws,  and (b)
       agrees to indemnify and hold harmless  Lender against any and all claims,
       losses,  liabilities,  damages,  penalties, and expenses which Lender may
       directly or indirectly  sustain or suffer resulting from a breach of this
<PAGE>

       section of the  Agreement  or as a  consequence  of any use,  generation,
       manufacture,  storage,  disposal, release or threatened release occurring
       prior to Borrower's ownership or interest in the Property, whether or not
       the same was or should have been known to  Borrower,  or as a result of a
       violation of any  Environmental  Laws.  The provisions of this section of
       the Agreement,  including the obligation to indemnify,  shall survive the
       payment of the  Indebtedness  and the  satisfaction of this Agreement and
       shall not be  affected  by Lender's  acquisition  of any  interest in the
       Property, whether by foreclosure or otherwise.

       Project Costs.  The Project costs are true and accurate  estimates of the
       costs  necessary to complete the  Improvements  in a good and workmanlike
       manner according to the Plans and Specifications presented by Borrower to
       Lender, and Borrower shall take all steps necessary to prevent the actual
       cost of the Improvements from exceeding the Project costs.

       Utility  Services.  All utility  services  appropriate  to the use of the
       Project after  completion of construction are available at the boundaries
       of the Property.

       Access. The Property is contiguous to publicly dedicated streets,  roads,
       or highways providing access to the Property.

       Assessment of Property.  The Property is and will continue to be assessed
       and taxed as an independent parcel by all governmental authorities.

       Compliance  with  Governing  Authorities.  Borrower  has  examined and is
       familiar with all the  easements,  covenants,  conditions,  restrictions,
       reservations, building laws, regulations, zoning ordinances, and federal,
       state, and local requirements  affecting the Project. The Project will at
       all times and in all respects conform to and comply with the requirements
       of such easements,  covenants,  conditions,  restrictions,  reservations,
       building laws,  regulations,  zoning ordinances,  and federal, state, and
       local requirements.

       Survival of  Representation  and  Warranties.  Borrower  understands  and
       agrees  that  Lender  is  relying  upon  the  above  representations  and
       warranties  in making the above  referenced  Loan to  Borrower.  Borrower
       further agrees that the foregoing representations and warranties shall be
       continuing in nature and shall remain in full force and effect until such
       time as  Borrower's  Loan and Note  shall be paid in full,  or until this
       Agreement shall be terminated in the manner provided above,  whichever is
       the last to occur.

CONDITIONS  PRECEDENT TO EACH ADVANCE.  Lender's  obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's  satisfaction of all of the conditions set forth in this
Agreement.

       Borrower's Payment. Borrower shall have first paid from its own funds the
       sum of Three Million Nine Hundred Eighty-Five Thousand and 00/100 Dollars
       ($3,985,000.00) toward construction of the Project.

       Compliance  with  Commitment  Letter.  Borrower shall have fully complied
       with that  Construction/Term  Loan Commitment Letter between Borrower and
       Lender dated July 17, 1997. In the event there is a conflict  between the
       terms of the Commitment  Letter and the terms of this  Construction  Loan
       Agreement or the Related  Documents,  the terms of the Construction  Loan
       Agreement or Related Documents shall prevail.

       Approval of General  Contractor.  Lender shall have  approved the general
       contractor   employed  in  connection   with  the   construction  of  the
       Improvements.  Lender shall have the right to communicate with any person
       to verify the facts disclosed by any application for any Advance,  or for
       any other purpose.

       Plans,  Specifications,  and  Permits.  Lender  shall have  received  and
       accepted a complete  set of Plans and  Specifications  setting  forth all
       Improvements for the Project, and Borrower shall have furnished to Lender
       copies of all permits and requisite  approvals of any  governmental  body
       necessary for the construction and use of the Project.

       Architecture and Construction Contracts. Borrower shall have furnished in
       form  and  substance  satisfactory  to  Lender  an  executed  copy of the
       Architecture Contract and an executed copy of the Construction Contract.
<PAGE>

       Support Documents.  Borrower shall provide to Lender in form satisfactory
       to Lender the following  support  documents  for the Loan:  Assignment of
       Architecture Contract and Assignment of Construction Contract. Budget and
       Schedule of  Estimated  Advances.  Lender  shall have  approved  detailed
       budget and cash flow projections of total Project costs and a schedule of
       the estimated amount and time of disbursements of each Advance.

       Borrower's  Authorization.  Borrower  shall  have  provided  in form  and
       substance  satisfactory to Lender properly  certified  resolutions,  duly
       authorizing  the  execution and delivery of the Loan  documents,  and the
       consummation  of the  Project,  and such other  authorizations  and other
       documents as Lender in its sole discretion may require.

       Survey. If requested by Lender, Borrower shall have furnished to Lender a
       survey of recent date, prepared and certified by a qualified surveyor and
       providing that the  Improvements,  if constructed in accordance  with the
       Plans and  Specifications,  shall lie wholly within the boundaries of the
       Property  without  encroachment  or violation  of any zoning  ordinances,
       building codes or  regulations,  or setback  requirements,  together with
       such other information as Lender in its sole discretion may require.

       Zoning.  Borrower shall have furnished  evidence  satisfactory  to Lender
       that  the  Property  is duly  and  validly  zoned  for the  construction,
       maintenance, and operation of the Project.

       Soils  Test.  Borrower  shall  have  provided  Lender  with  test  of the
       Property's soil. This report,  prepared by an engineering firm acceptable
       to Lender must  indicate  that the soil  conditions  of the  Property are
       sufficient to support the Project.

       Hazardous  Substance  Report.  Borrower shall have provided Lender with a
       report showing that the Property is free from hazardous substances.  This
       report must be prepared by an environmental  services company  acceptable
       to Lender. The report should detail a site reconnaissance,  research into
       appropriate  environmental  agency  files,  and a summary of findings and
       recommendations.  A 50-year  history of Property title and uses will also
       be provided.

       Title Insurance.  Borrower shall have provided to Lender an ALTA Lender's
       extended  coverage  policy of title  insurance with such  endorsements as
       Lender may require,  issued by a title  insurance  company  acceptable to
       Lender  and in a  form,  amount,  and  content  satisfactory  to  Lender,
       insuring or agreeing to insure that the  Mortgage or Deed of Trust on the
       Property  is or will  be  upon  recordation  a  valid  first  lien on the
       Property  free  and  clear  of  all  defects,  liens,  encumbrances,  and
       exceptions except those as specifically accepted by Lender in writing. If
       requested by Lender,  Borrower  shall  provide to Lender,  at  Borrower's
       expense, a foundation endorsement to the title policy upon the completion
       of each foundation for the Improvements,  showing no  encroachments,  and
       upon completion an endorsement which insures the lien-free  completion of
       the Improvements.

       Insurance.  Unless  waived by  Lender in  writing,  Borrower  shall  have
       delivered to Lender the following insurance policies or evidence thereof:
       (a) an all risks course of  construction  insurance  policy  covering the
       Improvements  issued in an amount and by a company  acceptable to Lender,
       containing a loss  payable or other  endorsement  satisfactory  to Lender
       insuring  Lender as mortgagee,  together with such other  endorsements as
       may be required by Lender, including stipulations that coverages will not
       be  cancelled  or  diminished  without at least  thirty  (30) days' prior
       written  notice to Lender;  (b) flood  insurance if required by Lender or
       applicable law; and (c) all other insurance required by this Agreement or
       by the Related Documents.

                                    WARNING
                                    -------

              Unless  Borrower  provides  Lender with  evidence of the insurance
              coverage as required  herein,  Lender may  purchase  insurance  at
              Borrower's  expense to protect Lender's  interest.  This insurance
              may,  but need  not,  also  protect  Borrower's  interest.  If the
              Collateral becomes damaged,  the coverage Lender purchases may not
              pay any claim Borrower  makes or any claim made against  Borrower.
              Borrower may later cancel this coverage by providing evidence that
              Borrower has obtained property coverage elsewhere.
<PAGE>

              Borrower is responsible for the cost of any insurance purchased by
              Lender.  The  cost of this  insurance  may be  added  to the  Note
              balance.  If the cost is added to the Note  balance,  the interest
              rate on the Note will apply to this added  amount.  The  effective
              date of coverage may be the date Borrower's  prior coverage lapsed
              or the date  Borrower  failed to provide  proof of  coverage.  The
              coverage Lender purchases may be considerably  more expensive than
              insurance  Borrower  can  obtain  on  Borrower's  own  and may not
              satisfy any need for  property  damage  coverage or any  mandatory
              liability insurance requirements imposed by applicable law.

       Payment  of Fees and  Expenses.  Borrower  shall  have paid to Lender all
       expenses specified in this Agreement as are then due and payable.

       Satisfactory  Construction.  All  work  usually  done  at  the  stage  of
       construction for which  disbursement is requested shall have been done in
       a good and  workmanlike  manner and all  materials  and fixtures  usually
       furnished  and  installed at that stage of  construction  shall have been
       furnished  and   installed,   all  in  compliance   with  the  Plans  and
       Specifications.  Borrower  shall also have  furnished to Lender  Property
       inspection reports and such other proofs as Lender may reasonably require
       to establish the progress of the work,  compliance with applicable  laws,
       freedom  of the  Property  from  liens,  and the basis for the  requested
       disbursement.

       Certification. Borrower shall have furnished to Lender a certification by
       an engineer, architect, or other qualified inspector acceptable to Lender
       that the  construction of the Improvements has complied and will continue
       to comply with all applicable statutes,  ordinances,  codes, regulations,
       and similar requirements, including but not limited to the Americans with
       Disabilities Act of 1990.

       Lien  Waivers.   Borrower  shall  have  obtained  and  attached  to  each
       application for an Advance,  including the Advance to cover final payment
       to the general  contractor,  executed  acknowledgments of payments of all
       sums due and releases of mechanic's and materialmen's liens, satisfactory
       to Lender,  from any party having lien rights,  which  acknowledgments of
       payment and  releases of liens  shall cover all work,  labor,  equipment,
       materials  done,  supplied,   performed,   or  furnished  prior  to  such
       application for an Advance.

       Lack of  Default.  There  shall  not  exist at the time of any  Advance a
       condition  which  would   constitute  an  Event  of  Default  under  this
       Agreement.

DISBURSEMENT  OF  LOAN  PROCEEDS.   The  following   provisions  relate  to  the
disbursement of funds from the Loan Fund.

       Application for Advances.  Each application shall be stated on a standard
       AIA payment  request form or other form  approved by Lender,  executed by
       Borrower, certified by Mahlum & Nordfors Smith Gordon Architects, PC, and
       supported by such evidence as Lender shall reasonably  require.  Borrower
       shall apply only for  disbursement  with respect to work actually done by
       the  general   contractor  and  for  materials  and  equipment   actually
       incorporated  into the Project.  Each application for an Advance shall be
       deemed  a  certification  of  Borrower  that  as  of  the  date  of  such
       application,   all  representations  and  warranties   contained  in  the
       Agreement are true and correct,  and that Borrower is in compliance  with
       all of the  provisions  of this  Agreement.  Only one Loan  draw  will be
       allowed each month and all draws shall comply with the Lender's  Standard
       Construction  Loan  Procedures  dated  June 3,  1996  and any  subsequent
       amendments thereto.

       Loan To Value.  Unless  waived by  Lender  in  writing,  the ratio of the
       amount of the Loan to the value of the  Property as  completed  shall not
       exceed seventy-five  percent (75%). The term "value" as used herein shall
       be defined by Lender in its sole discretion unless agreed to the contrary
       by Lender in writing.

       Payments. At the sole option of Lender, Advances may be paid in the joint
       names  of  Borrower  and the  general  contractor,  subcontractor(s),  or
       supplier(s) in payment of sums due under the  Construction  Contract.  At
       its sole option,  Lender may directly pay the general  contractor and any
       subcontractors  or other  parties  the sums due  under  the  Construction
       Contract.  Borrower appoints Lender as its  attorney-in-fact to make such
       payments.  This  power  shall be deemed to be coupled  with an  interest,
       shall be  irrevocable,  and shall  survive an Event of Default under this
       Agreement.
<PAGE>

       Projected  Cost  Overruns.  If Lender at any time  determines in its sole
       discretion that the amount in the Loan Fund is  insufficient,  or will be
       insufficient,  to complete fully and to pay for the Project,  then within
       ten  (10)  days  after  receipt  of  a  written  request  and  supporting
       documentation  from Lender,  Borrower  shall  deposit in the Loan Fund an
       amount equal to the deficiency as determined by Lender.  The judgment and
       determination of Lender under this section shall be final and conclusive.

       Outside Project Audits. Lender may require in its sole discretion outside
       project  audits  with  costs  to be  borne  by  Borrower  as a  condition
       precedent to any disbursement of funds from the Loan Fund.

       Final Payment to General  Contractor.  Upon completion of the Project and
       fulfillment of the  Construction  Contract to the  satisfaction of Lender
       and provided  sufficient  Loan Funds are available,  Lender shall make an
       Advance to cover the final  payment  due to the general  contractor  upon
       delivery to Lender of  endorsements  to the ALTA title  insurance  policy
       following  the  posting  of the  completion  notice,  as  provided  under
       applicable law. Construction shall not be deemed complete for purposes of
       final disbursement unless and until Lender shall have received all of the
       following:

              (a)   Evidence  satisfactory  to  Lender  that all work  under the
                    Construction    Contract   requiring   inspection   by   any
                    governmental  authority  with  jurisdiction  has  been  duly
                    inspected and approved by such authority, that a certificate
                    of  occupancy   has  been  issued,   and  that  all  parties
                    performing  work have been paid,  or will be paid,  for such
                    work;

              (b)   A   certification   by  Mahlum  &  Nordfors   Smith   Gordon
                    Architects,   PC,  Chris  Foster  and  any  other  engineer,
                    architect,  or other qualified  inspector  acceptable to and
                    required by Lender that the Improvements have been completed
                    substantially    in   accordance    with   the   Plans   and
                    Specifications   and  the   Construction   Contract  and  in
                    conformance with all applicable statutes, ordinances, codes,
                    regulations,   and   similar   requirements,   that   direct
                    connection  has been made to all  utilities set forth in the
                    Plans and Specifications,  and that the Project is ready for
                    occupancy; and

              (c)   Acceptance  of  the  completed  Improvements  by  Lender
                    and Borrower.


       Notwithstanding  any other  provision of this  Agreement to the contrary,
       Lender may retain up to five percent  (5.00%) of the original Loan amount
       to  be  paid  as  the  final  payment  to  the  general  contractor  upon
       satisfaction of the conditions set forth above.

       Construction Default. If Borrower fails in any respect to comply with the
       provisions of this Agreement or if construction  ceases before completion
       regardless  of the  reason,  Lender,  at its  option,  may refuse to make
       further Advances,  may accelerate the Indebtedness under the terms of the
       Note,  and  without  thereby  impairing  any of its  rights,  powers,  or
       privileges,  may  enter  into  possession  of the  construction  site and
       perform or cause to be performed any and all work and labor  necessary to
       complete the Improvements, substantially in accordance with the Plans and
       Specifications.

       Damage or Destruction.  If any of the Property or Improvements is damaged
       or destroyed by casualty of any nature, within sixty (60) days thereafter
       Borrower shall restore the Property and  Improvements to the condition in
       which they were before such damage or  destruction  with funds other than
       those  in  the  Loan  Fund.   Lender  shall  not  be  obligated  to  make
       disbursements  under  this  Agreement  until  such  restoration  has been
       accomplished.

       Right to Advance Funds.  When any event occurs that Lender  determines in
       good faith may endanger  completion of the Project or the  fulfillment of
       any condition or covenant in this Agreement,  Lender may require Borrower
       to furnish,  within ten (10) days after  delivery  of a written  request,
       adequate security to eliminate, reduce, or indemnify Lender against, such
       danger. In addition, upon such occurrence,  Lender in its sole discretion
       may advance  funds or agree to undertake to advance funds to any party to
       eliminate,  reduce,  or  indemnify  Lender  against,  such  danger  or to
       complete the Project. All sums paid by Lender pursuant to such agreements
       or  undertakings  shall be for  Borrower's  account  and shall be without
<PAGE>

       prejudice to  Borrower's  rights,  if any, to receive such funds from the
       party to whom paid.  All sums  expended by Lender in the  exercise of its
       option to complete  the Project or protect  Lender's  interests  shall be
       payable to Lender on demand  together  with interest from the date of the
       Advance at the rate  applicable to the Loan. In addition,  any Advance of
       funds  under  this  Agreement,   including   without   limitation  direct
       disbursements  to the general  contractor  or other parties in payment of
       sums due under the  Construction  Contract,  shall be deemed to have been
       expended  by or on behalf of  Borrower  and to have been  secured  by the
       Mortgage or Deed of Trust on the Property.

LIMITATION  OF  RESPONSIBILITY.  The making of any  Advance by Lender  shall not
constitute or be  interpreted  as either (a) an approval or acceptance by Lender
of the work done through the date of the  Advance,  or (b) a  representation  or
indemnity by Lender to any party against any deficiency or defect in the work or
against any breach of any contract.  Inspections  and approvals of the Plans and
Specifications,  the  Improvements,  the  workmanship  and materials used in the
Improvements,  and the exercise of any other right of inspection,  approval,  or
inquiry  granted to Lender in this Agreement are  acknowledged  to be solely for
the protection of Lender's  interests,  and under no circumstances shall they be
construed to impose any  responsibility or liability of any nature whatsoever on
Lender  to any  party.  Neither  Borrower  nor  any  contractor,  subcontractor,
materialman, laborer, or any other person shall rely, or have any right to rely,
upon  Lender's   determination  of  the   appropriateness  of  any  Advance.  No
disbursement or approval by Lender shall constitute a  representation  by Lender
as to the nature of the  Project,  its  construction,  or its  intended  use for
Borrower or for any other person, nor shall it constitute an indemnity by Lender
to Borrower or to any other  person  against  any  deficiency  or defects in the
Project or against any breach of any contract.

AFFIRMATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that,  while
this Agreement is in effect, Borrower will:

       Litigation. Promptly inform Lender in writing of (a) all material adverse
       changes in Borrower's  financial  condition,  and (b) all  litigation and
       claims and all threatened litigation and claims affecting Borrower or any
       Guarantor  which  could  materially  affect the  financial  condition  of
       Borrower or the financial condition of any Guarantor.

       .  Maintain  a  standard  modern  system of  accounting  administered  in
       accordance with generally accepted  accounting  principles.  Lender shall
       have the right to examine  the books of account of Borrower to the extent
       that they pertain to this Agreement and the Property,  and to discuss the
       affairs,  finances,  and accounts of Borrower to such extent, all at such
       reasonable  times and  intervals  as Lender  may  desire.  Borrower  will
       furnish to Lender,  (i) within one hundred twenty (120) days after and as
       of the close of each fiscal year,  the year-end  financial  statements of
       Borrower,  including a balance sheet and a statement of earnings  (income
       and loss) from  Borrower's  business,  as requested by Lender,  in detail
       satisfactory to Lender; (ii) upon an Event of Default,  and within twenty
       (20)  days  following  Lender's  request  therefor,  all  such  financial
       information as may be necessary or appropriate for Lender's determination
       of  Borrower's  net  operating  income  and  debt  service  with all such
       financial  information  being  prepared  and  certified  as  accurate  by
       Borrower;  (iii) from time to time,  upon Lender's  request,  tenant rent
       rolls,  leasing  summary  reports and cash flow  projections  (or updates
       thereof), setting forth the status of all existing and anticipated leases
       or subleases  affecting the Property and Borrower's  best estimate of the
       revenues to be  obtained  and the  expenses to be incurred in  connection
       with the operation of the Property for the following one-year period; and
       (iv) within thirty (30) days after and as of the close of each quarter of
       each fiscal  year,  the  quarter-end  financial  statements  of Borrower,
       including a balance  sheet and  statement  of earnings  (income and loss)
       from Borrower's  business and from the Property,  as requested by Lender,
       in detail  satisfactory  to Lender.  In addition  to the above,  Borrower
       shall furnish  Lender with,  as soon as available,  but in no event later
       than one hundred  twenty  (120) days after the end of each  fiscal  year,
       copies of Borrower's tax returns.

       Additional   Information.   Furnish  such   additional   information  and
       statements,  lists of assets and  liabilities,  agings of receivables and
       payables, inventory schedules, budgets, forecasts, tax returns, and other
       reports  with  respect to  Borrower's  financial  condition  and business
       operations as Lender may reasonably request from time to time.

       Construction  of the  Project.  Commence  construction  of the Project no
       later than December 1, 1997, and cause the Improvements to be constructed
       and  equipped in a diligent and orderly  manner and in strict  accordance
       with the Plans and  Specifications  approved by Lender,  the Construction
       Contract, and all applicable laws, ordinances,  codes,  regulations,  and
<PAGE>

       rights of adjoining or concurrent  property  owners,  and be completed to
       the  satisfaction  of Lender no later than May 1, 1999  (unless  extended
       pursuant to the extension option provision of the Note).

       Financial  Covenants and Ratios.  Comply with the following covenants and
       ratios:

              Tangible  Net Worth.  Maintain a minimum  Tangible  Net Worth plus
              Subordinated  Debt of not  less  than  Seven  Million  and  00/100
              Dollars ($7,000,000.00).

              Minimum Working  Capital.  Maintain minimum working capital of not
              less than Three Million and 00/100 Dollars ($3,000,000.00).

              Current  Ratio.  Maintain  a ratio of  Current  Assets to  Current
              Liabilities equal to or in excess of 1.10:1.00.

              Debt  Service  Ratio.  Maintain a minimum  Debt  Service  ratio of
              1.50:1.00.

       Except as provided above, all computations  made to determine  compliance
       with  the  requirements  contained  in this  paragraph  shall  be made in
       accordance with generally accepted  accounting  principles,  applied on a
       consistent  basis,  and  certified by Borrower as being true and correct.
       The above covenants shall be measured quarterly.

       Loan  Proceeds.  Use the Loan  funds  solely  for  payment  of bills  and
       expenses directly related to the Project.

       Workers'  Compensation  Coverage.  Provide to Lender proof of the general
       contractor's  compliance with all applicable  workers'  compensation laws
       and regulations with regard to all work performed on the Project.

       Defects.  Upon  demand of  Lender,  promptly  correct  any  defect in the
       Improvements  or any  departure  from the  Plans and  Specifications  not
       approved by Lender before  further work shall be done upon the portion of
       the Improvements affected.

       Project Claims and Litigation. Promptly inform Lender of (a) all material
       adverse changes in the financial condition of the general contractor; (b)
       any litigation and claims, actual or threatened, affecting the Project or
       the general  contractor,  which could  materially  affect the  successful
       completion  of the Project or the ability of the  general  contractor  to
       complete  the  Project as agreed;  and (c) any  condition  or event which
       constitutes a breach or default under any of the Related Documents or any
       contract related to the Project.

       Payment  of Claims and  Removal of Liens.  (a) Cause all claims for labor
       done  and  materials  and  services  furnished  in  connection  with  the
       Improvements  to be fully paid and  discharged  in a timely  manner,  (b)
       diligently  file or procure the filing of a valid notice of completion of
       the Improvements,  or such comparable  document as may be permitted under
       applicable  lien laws,  (c)  diligently  file or procure  the filing of a
       notice of  cessation,  or such  comparable  document as may be  permitted
       under  applicable  lien laws, upon the happening of cessation of labor on
       the Improvements for a continuous period of thirty (30) days or more, and
       (d) take all  reasonable  steps  necessary  to remove all claims of liens
       against the  Property,  the  Improvements  or any part of the Property or
       Improvements,  or any rights or interests  appurtenant to the Property or
       Improvements.  Upon Lender's request, Borrower shall make such demands or
       claims upon or against laborers,  materialmen,  subcontractors,  or other
       persons who have furnished or claim to have furnished labor, services, or
       materials in connection  with the  Improvements,  which demands or claims
       shall under the laws of the State of Oregon require  diligent  assertions
       of lien claims upon penalty of loss or waiver  thereof.  Borrower  shall,
       within  ten (10)  days  after  the  filing  of any  claim of lien that is
       disputed or  contested  by  Borrower,  provide  Lender with a surety bond
       issued by a surety  acceptable to Lender  sufficient to release the claim
       of lien or deposit with Lender an amount  satisfactory  to Lender for the
       possibility that the contest will be  unsuccessful.  If Borrower fails to
       remove  any lien on the  Property  or  Improvements  or provide a bond or
       deposit  pursuant  to this  provision,  Lender may pay such lien,  or may
       contest the validity of the lien,  and  Borrower  shall pay all costs and
       expenses of such contest, including Lender's reasonable attorneys' fees.

       Taxes  and  Claims.   Pay  and  discharge  when  due  all  of  Borrower's
       indebtedness,  obligations,  and claims that,  if unpaid,  might become a
       lien or charge upon the Property or Improvements; provided, however, that
       Borrower   shall  not  be  required  to  pay  and   discharge   any  such
       indebtedness,  obligation,  or claim so long as (a) its legality shall be
<PAGE>

       contested in good faith by appropriate proceedings, (b) the indebtedness,
       obligation,  or claim does not become a lien or charge upon the  Property
       or  Improvements,  and (c) Borrower  shall have  established on its books
       adequate reserves with respect to the amount contested in accordance with
       generally accepted accounting practices. If the indebtedness, obligation,
       or claim does become a lien or charge upon the Property or  Improvements,
       Borrower  shall  remove the lien or charge as provided  in the  preceding
       paragraph.  Performance.  Perform and comply with all terms,  conditions,
       and provisions  set forth in this Agreement and in all other  instruments
       and  agreements  between  Borrower  and  Lender,  and in all  other  loan
       agreements  now or  hereafter  existing  between  Borrower  and any other
       party. Borrower shall notify Lender immediately in writing of any default
       in connection with any agreement.

       Additional Assurances. Make, execute, and deliver to Lender such Security
       Agreements,  instruments,  documents,  and  other  agreements  reasonably
       necessary  to  document  and  secure  the  Loan and to  perfect  Lender's
       Security Interests in the Property and Improvements.

NEGATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

       Loans,  Acquisitions and Guaranties.  (a) Loan money or assets other than
       in the ordinary course of business,  (b) purchase or acquire any interest
       in any other  enterprise  or entity other than in the ordinary  course of
       business,  or (c) incur any obligation as surety or guarantor  other than
       in the ordinary course of business.

       Modification of Contract.  Make or permit to be made any  modification of
       the Construction Contract.

       Liens. Create or allow to be created any lien or charge upon the Property
       or the Improvements.

GENERAL PROJECT PROVISIONS.  The following provisions relate to the construction
and completion of the Project:

       Change Orders.  All requests for changes in the Plans and  Specifications
       involving  total  extra  costs in  excess  of one  percent  (1%) of total
       Project costs must be in writing,  signed by Borrower and the  architect,
       and  delivered to Lender for its  approval.  Borrower will not permit the
       performance of any work pursuant to any change order or  modification  of
       the Construction Contract or any subcontract without the written approval
       of Lender.  Borrower will obtain any required  permits or  authorizations
       from governmental  authorities  having  jurisdiction  before approving or
       requesting a new change order.

       Purchase  of  Materials;   Conditional  Sales  Contracts.  No  materials,
       equipment,  fixtures,  or  articles  of  personal  property  placed in or
       incorporated  into the Project shall be purchased or installed  under any
       Security  Agreement  or other  agreement  whereby the seller  reserves or
       purports to reserve title or the right of removal or repossession, or the
       right  to  consider   such  items  as  personal   property   after  their
       incorporation into the Project,  unless otherwise authorized by Lender in
       writing.

       Lender's Right of Entry and Inspection.  Lender and its agents shall have
       at all times the right of entry and free access to the  Property  and the
       right to inspect all work done, labor performed,  and materials furnished
       with respect to the Project. Lender shall have unrestricted access to and
       the right to copy all records, accounting books, contracts, subcontracts,
       bills,  statements,   vouchers,  and  supporting  documents  of  Borrower
       relating in any way to the Project.  Borrower agrees to pay on demand all
       of Lender's out-of-pocket expenses for periodic inspections,  reviews, or
       reports  that  Lender,  in  its  sole  discretion,  deems  necessary  and
       appropriate for disbursement of the Loan Fund.

       Lender's Right to Stop Work. If Lender in good faith  determines that any
       work or materials do not conform to the approved Plans and Specifications
       or  sound  building  practices,  or  otherwise  depart  from  any  of the
       requirements of this Agreement, Lender may require the work to be stopped
       and withhold disbursements until the matter is corrected.  In such event,
       Borrower will promptly correct the work to Lender's satisfaction. No such
       action by Lender  will  affect  Borrower's  obligation  to  complete  the
       Improvements on or before the completion date required herein.  Lender is
       under no duty to  supervise  or inspect the  construction  or examine any
       books and records.  Any  inspection or  examination  by Lender is for the

<PAGE>

       sole purpose of  protecting  Lender's  security and  preserving  Lender's
       rights under this Agreement. No default of Borrower will be waived by any
       inspection  by  Lender.  In no event will any  inspection  by Lender be a
       representation  that there has been or will be compliance  with the Plans
       and  Specifications  or that  the  construction  is free  from  defective
       materials or workmanship.

       Indemnity. Borrower shall indemnify and hold Lender harmless from any and
       all claims asserted against Lender or the Property by any person, entity,
       or  governmental  body,  or  arising  out of or in  connection  with  the
       Property, Improvements, or Project. Lender shall be entitled to appear in
       any action or proceeding to defend  itself  against such claims,  and all
       costs  incurred  by Lender in  connection  with such  defense,  including
       attorneys'  fees,  shall be paid by Borrower to Lender.  Lender shall, in
       its sole  discretion,  be entitled to settle or  compromise  any asserted
       claims against it, and such settlement shall be binding upon Borrower for
       purposes of this  indemnification.  All amounts paid by Lender under this
       paragraph  shall  be  secured  by the  Mortgage  or Deed of  Trust on the
       Property, shall be deemed an additional principal Advance under the Loan,
       payable upon demand,  and shall bear  interest at the rate  applicable to
       the Loan.

       Publicity.  Lender may display a sign at the construction  site informing
       the  public  that  Lender  is the  construction  lender  for the  Project
       provided Lender complies with all applicable laws and regulations. During
       construction,  any sign placed on the  Property  will  specify  Lender as
       providing  construction  financing.  Lender may obtain other publicity in
       connection  with  the  Project   through  press  releases,   including  a
       description  of  the  Property,   Project,  occupancy  and  rentals,  and
       participation  in  ground-breaking  and  opening  ceremonies  and similar
       events.

       Actions.  Lender shall have the right to  commence,  appear in, or defend
       any action or  proceeding  purporting  to affect the rights,  duties,  or
       liabilities  of the parties to this  Agreement,  or the  disbursement  of
       funds from the Loan Fund. In connection with this right, Lender may incur
       and pay  reasonable  costs and expenses,  including,  but not limited to,
       attorneys'  fees,  for both  trial and  appellate  proceedings.  Borrower
       covenants  to pay to Lender on demand all such  expenses,  together  with
       interest from the date Lender incurs the expense at the rate specified in
       the Note,  and Lender is authorized to disburse  funds from the Loan Fund
       for such purposes.

RIGHT OF SETOFF.  To the  extent any such  accounts  exist,  Borrower  grants to
Lender a  contractual  possessory  security  interest  in, and  hereby  assigns,
conveys, delivers,  pledges, and transfers to Lender all Borrower's right, title
and  interest in and to,  Borrower's  accounts  with Lender  (whether  checking,
savings, or some other account),  including without limitation all accounts held
jointly  with  someone  else and all  accounts  Borrower may open in the future,
excluding however all Keogh, and trust accounts.  Borrower authorizes Lender, to
the extent  permitted by  applicable  law, to charge or setoff all sums owing on
the Indebtedness against any and all such accounts.

EVENTS OF DEFAULT.  Each of the following  shall  constitute an Event of Default
under this Agreement:

       Default on  Indebtedness.  Failure of Borrower to make any payment within
       ten (10) days of when due on the Loans.

       Other  Defaults.  Failure of Borrower or any Grantor to comply with or to
       perform  when due any  other  term,  obligation,  covenant  or  condition
       contained  in  this  Agreement  or in any of the  Related  Documents,  or
       failure of  Borrower  or Grantor to comply  with or to perform  any other
       term, obligation,  covenant or condition contained in any other agreement
       between  Lender and  Borrower or Grantor.  If any  failure,  other than a
       failure to pay money, is curable and if Borrower or Grantor,  as the case
       may be,  has not been  given a notice  of a  similar  breach  within  the
       preceding  twelve (12)  months,  it may be cured (and no Event of Default
       will have  occurred)  if Borrower or Grantor,  as the case may be,  after
       receiving written notice from Lender demanding cure of such failure:  (a)
       cures the failure  within  thirty (30) days;  or (b) if the cure requires
       more than thirty (30) days,  immediately  initiates  steps  sufficient to
       cure the failure and  thereafter  continues and completes all  reasonable
       and necessary steps sufficient to produce  compliance  within ninety (90)
       days after notice is sent.

       False  Statements.  Any warranty,  representation,  or statement  made or
       furnished to Lender by or on behalf of Borrower or any Grantor under this
       Agreement or the Related Documents is false or misleading in any material
       respect, either now or at the time made or furnished.
<PAGE>


       Defective  Collateralization.  This  Agreement  or  any  of  the  Related
       Documents ceases to be in full force and effect (including failure of any
       collateral  document to create a valid and perfected security interest or
       lien) at any time and for any reason.

       Insolvency.  The dissolution or termination of Borrower's  existence as a
       going  business,  insolvency,  appointment  of a receiver for any part of
       Borrower's  property,  any assignment  for the benefit of creditors,  any
       type of creditor workout, or the commencement of any proceeding under any
       bankruptcy  or  insolvency  laws by or  against  Borrower.  The  death of
       Borrower (or any member or partner of Borrower)  shall also constitute an
       event of  default  hereunder.  Lender  may,  at its  option,  permit  the
       deceased's estate to assume unconditionally the obligations arising under
       the Note in a manner reasonably satisfactory to Lender, and, in so doing,
       cure the event of default.

       Creditor  Proceedings.  Commencement of foreclosure,  whether by judicial
       proceeding,  self-help, repossession or any other method, by any creditor
       of  Borrower  or any  creditor  of any  Grantor  against  any  collateral
       securing the Indebtedness.  This includes a garnishment,  attachment,  or
       levy on or of any of Borrower's  deposit  accounts with Lender.  However,
       this Event of Default shall not apply if there is a good faith dispute by
       Borrower  or  Grantor,  as  the  case  may  be,  as to  the  validity  or
       reasonableness   of  the  claim  which  is  the  basis  of  the  creditor
       proceeding, and if Borrower or Grantor gives Lender written notice of the
       creditor  proceeding  and  furnishes  reserves  or a surety  bond for the
       creditor proceeding satisfactory to Lender.

       Events Affecting  Guarantor.  Any Guarantor seeks,  claims,  or otherwise
       attempts to limit,  modify,  or revoke  such  Guarantor's  guaranty  with
       Lender  or  any  of the  preceding  events  occurs  with  respect  to any
       Guarantor of any of the  Indebtedness  or such  Guarantor dies or becomes
       incompetent.  Lender,  at its option,  may, but shall not be required to,
       permit the Guarantor's estate to assume  unconditionally  the obligations
       arising under the guaranty in a manner  satisfactory  to Lender,  and, in
       doing so, cure the Event of Default.

       Insecurity.  Lender, in good faith, deems itself insecure.

       Breach of Construction  Contract. The Improvements are not constructed in
       accordance  with the Plans and  Specifications  or in accordance with the
       terms of the Construction Contract.

       Cessation of Construction. Prior to the completion of construction of the
       Improvements  and  equipping  of the  Project,  the  construction  of the
       Improvements or the equipping of the Project is abandoned or work thereon
       ceases  for a period of more than ten (10)  days for any  reason,  or the
       Improvements  are not  completed  for  purposes  of final  payment to the
       general  contractor  prior to the completion date represented by Borrower
       to Lender, regardless of the reason for the delay.

       Transfer of  Property.  Sale,  transfer,  hypothecation,  assignment,  or
       conveyance of the Property or the  Improvements or any portion thereof or
       interest  therein by  Borrower  or any  Grantor  without  Lender's  prior
       written consent.

       Condemnation.  All or any material  portion of the Property is condemned,
       seized,  or  appropriated  without  compensation,  and Borrower  does not
       within   thirty   (30)  days  after  such   condemnation,   seizure,   or
       appropriation,  initiate and diligently  prosecute  appropriate action to
       contest in good faith the  validity  of such  condemnation,  seizure,  or
       appropriation.

EFFECT OF AN EVENT OF DEFAULT;  REMEDIES.  Upon the  occurrence  of any Event of
Default and at any time thereafter,  Lender may, at its option,  but without any
obligation  to do so, and in addition to any other right Lender may have, do any
one or more of the  following  without  notice  to  Borrower:  (a)  Cancel  this
Agreement;  (b) Institute appropriate  proceedings to enforce the performance of
this Agreement;  (c) Withhold  further  disbursement  of Loan Funds;  (d) Expend
funds  necessary to remedy the default;  (e) Take possession of the Property and
continue construction of the Project; (f) Accelerate maturity of the Note and/or
Indebtedness  and  demand  payment  of  all  sums  due  under  the  Note  and/or
Indebtedness; (g) Bring an action on the Note and/or Indebtedness; (h) Foreclose
the Mortgage or Deed of Trust on the Property in any manner available under law;
and (i)  Exercise  any  other  right or  remedy  which it has  under the Note or
Related  Documents,  or which is  otherwise  available at law or in equity or by
statute.
<PAGE>


COMPLETION  OF  IMPROVEMENTS  BY  LENDER.  If  Lender  takes  possession  of the
Property,  it may take any and all actions necessary in its judgment to complete
construction of the Improvements, including but not limited to making changes in
the Plans and Specifications, work, or materials and entering into, modifying or
terminating any contractual arrangements,  subject to Lender's right at any time
to  discontinue  any work without  liability.  If Lender  elects to complete the
Improvements,  it will not  assume any  liability  to  Borrower  or to any other
person  for  completing  the  Improvements  or for  the  manner  or  quality  of
construction  of the  Improvements,  and  Borrower  expressly  waives  any  such
liability.  Borrower irrevocably appoints Lender as its  attorney-in-fact,  with
full power of substitution,  to complete the  Improvements,  at Lender's option,
either in Borrower's name or in its own name. In any event, all sums expended by
Lender in completing the construction of the Improvements  will be considered to
have been  disbursed to Borrower and will be secured by the  collateral  for the
Loan.  Any such sums that cause the  principal  amount of the Loan to exceed the
face amount of the Note will be considered to be an additional Loan to Borrower,
bearing interest at the Note rate and being secured by the collateral. For these
purposes, Borrower assigns to Lender all of its right, title and interest in and
to the Project Documents;  however Lender will not have any obligation under the
Project  Documents  unless  Lender  expressly  hereafter  agrees to assume  such
obligations  in writing.  Lender  will have the right to exercise  any rights of
Borrower under the Project Documents upon the occurrence of an Event of Default.
All rights,  powers,  and remedies of Lender under this Agreement are cumulative
and  alternative,  and are in addition to all rights which Lender may have under
applicable law.

MISCELLANEOUS  PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:

       Agency.  Nothing in this  Agreement  shall be construed to constitute the
       creation of a partnership or joint venture between Lender and Borrower or
       any  contractor.  Lender is not an agent or  representative  of Borrower.
       This Agreement does not create a contractual  relationship with and shall
       not be  construed to benefit or bind Lender in any way with or create any
       contractual   duties  by  Lender   to  any   contractor,   subcontractor,
       materialman, laborer, or any other person.

       Amendments.   This  Agreement,   together  with  any  Related  Documents,
       constitutes the entire  understanding  and agreement of the parties as to
       the matters set forth in this Agreement. No alteration of or amendment to
       this Agreement  shall be effective  unless given in writing and signed by
       the party or parties  sought to be charged or bound by the  alteration or
       amendment.

       Applicable  Law. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
       BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT,  BORROWER AGREES
       UPON  LENDER'S  REQUEST  TO SUBMIT TO THE  JURISDICTION  OF THE COURTS OF
       MULTNOMAH COUNTY,  THE STATE OF OREGON.  LENDER AND BORROWER HEREBY WAIVE
       THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,  PROCEEDING,  OR  COUNTERCLAIM
       BROUGHT BY EITHER LENDER OR BORROWER  AGAINST THE OTHER.  THIS  AGREEMENT
       SHALL BE GOVERNED BY AND  CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE
       STATE OF OREGON.

       Arbitration. Except as provided below, Lender and Borrower agree that all
       disputes,  claims and  controversies  between them,  whether  individual,
       joint,  or class in nature,  arising from this  Agreement  or  otherwise,
       including  without  limitation  contract  and  tort  disputes,  shall  be
       arbitrated  pursuant  to the  then  effective  arbitration  rules  of the
       Arbitration Service of Portland,  Inc., or the then effective  commercial
       arbitration  rules of the  American  Arbitration  Association,  whichever
       organization is selected by the party which first  initiates  arbitration
       by filing a claim in accordance with the filing rules of the organization
       selected.  Notwithstanding the above, Lender's actions to take or dispose
       of any Collateral shall not be prohibited by this  arbitration  agreement
       nor  constitute  a waiver of this  arbitration  provision as to all other
       disputes. This includes, without limitation,  obtaining injunctive relief
       or a temporary  restraining  order;  foreclosing by notice and sale under
       any  deed  of  trust  or  mortgage;  obtaining  a writ of  attachment  or
       imposition of a receiver;  or exercising any rights  relating to personal
       property,  including taking or disposing of such property with or without
       judicial  process  pursuant to Article 9 of the Uniform  Commercial Code.
       Any disputes,  claims,  or  controversies  concerning  the  lawfulness or
       reasonableness  of any act,  or  exercise  of any right,  concerning  any
       Collateral,  including any claim to rescind,  reform, or otherwise modify
       any  agreement  relating  to the  Collateral,  shall also be  arbitrated,
       provided  however that no arbitrator shall have the right or the power to
       enjoin or restrain any act of any party. Judgment upon any award rendered
       by any  arbitrator  may be  entered  in any  court  having  jurisdiction.
<PAGE>

       Nothing in this Agreement shall preclude any party from seeking equitable
       relief  from  a  court  of   competent   jurisdiction.   The  statute  of
       limitations,  estoppel, waiver, laches, and similar doctrines which would
       otherwise  be  applicable  in an  action  brought  by a  party  shall  be
       applicable in any  arbitration  proceeding,  and the  commencement  of an
       arbitration  proceeding shall be deemed the commencement of an action for
       these purposes.

       Authority to File Notices. Borrower appoints and designates Lender as its
       attorney-in-fact  to  file  for  record  any  notice  that  Lender  deems
       necessary to protect its interest under this Agreement.  This power shall
       be deemed coupled with an interest and shall be irrevocable while any sum
       or performance  remains due and owing under any of the Related Documents.
       Maintenance  of Depository  Relationship.  Borrower  shall,  at all times
       while any  portion of the Note  remains  unpaid,  maintain  a  depository
       relationship with Lender, or a subsidiary or affiliate of Lender,  unless
       the same is contrary to state or federal law or regulation.

       Caption Headings.  Caption headings in this Agreement are for convenience
       purposes  only  and  are  not to be  used  to  interpret  or  define  the
       provisions of this Agreement.

       Lender's Right to Sell Participations in the Loan. Lender may at any time
       sell, assign, transfer,  negotiate, grant participations in, or otherwise
       dispose  of,  to any  one  or  more  other  lenders  (hereinafter  called
       "Participants")  all or any part of the  indebtedness  of Borrower at any
       time  outstanding  under the Note, this Agreement,  or any of the Related
       Documents (collectively, the "Loan Documents"). Borrower acknowledges and
       agrees  that any such  disposition  will  give rise to an  obligation  of
       Borrower to each  Participant and that, in such event,  each  Participant
       shall, for all purposes  hereof,  be entitled to the benefits of the Loan
       Documents and all other documents,  instruments,  and agreements  therein
       described,  as its interest may appear. Borrower shall, from time to time
       at the request of Lender,  execute and  deliver,  or cause to be executed
       and  delivered,  to Lender or to such  party or  parties  (including  any
       Participant)   as  Lender  may  designate,   any  and  all  such  further
       instruments  as may in the opinion of Lender be necessary or desirable to
       give  full  force  and  effect to such  disposition,  including,  but not
       limited to, a new note or new notes to be issued in exchange for the Note
       and such estoppel  certificates or other  instruments as may be requested
       from Borrower to evidence the  continuing  validity of the Loan Documents
       and the absence of any default by Lender thereunder.  Notwithstanding the
       foregoing,  Borrower  acknowledges  that no Participant shall be deemed a
       direct lender or co-lender with Lender.

       Costs and  Expenses.  Borrower  agrees to pay upon demand all of Lender's
       out-of-pocket expenses, including attorneys' fees, incurred in connection
       with this Agreement or in connection with the Loans made pursuant to this
       Agreement.  Lender may pay someone  else to help collect the Loans and to
       enforce this Agreement, and Borrower will pay that amount. This includes,
       subject to any limits under applicable law, Lender's  attorneys' fees and
       legal expenses,  whether or not there is a lawsuit,  including attorneys'
       fees for arbitration  and bankruptcy  proceedings  (including  efforts to
       modify or vacate any  automatic  stay or  injunction),  appeals,  and any
       anticipated post-judgment collection services. Borrower also will pay any
       court costs, in addition to all other sums provided by law.

       Entire Agreement. This Agreement and the Related Documents constitute all
       of the  agreements  between  the  parties  relating  to the  Project  and
       supersede  all other prior or  concurrent  oral or written  agreements or
       understandings relating to the Project.

       Notices.  All notices  required to be given under this Agreement shall be
       given in writing and shall be effective  when actually  delivered or when
       deposited  in the United  States  mail,  first  class,  postage  prepaid,
       addressed  to the party to whom the notice is to be given at the  address
       shown  above.  Any party may change its address  for  notices  under this
       Agreement  by  giving  formal   written  notice  to  the  other  parties,
       specifying  that the  purpose  of the  notice  is to change  the  party's
       address. To the extent permitted by applicable law, if there is more than
       one  Borrower,  notice  to any  Borrower  will  constitute  notice to all
       Borrowers.  For notice purposes,  Borrower agrees to keep Lender informed
       at all times of Borrower's current address(es).

       Severability. If a court of competent jurisdiction finds any provision of
       this  Agreement  to be  invalid  or  unenforceable  as to any  person  or
       circumstance,  such finding  shall not render that  provision  invalid or
       unenforceable as to any other persons or circumstances.  If feasible, any
       such offending  provision shall be deemed to be modified to be within the
<PAGE>

       limits of enforceability or validity; however, if the offending provision
       cannot be so modified,  it shall be stricken and all other  provisions of
       this Agreement in all other respects shall remain valid and enforceable.

       Survival. All warranties, representations, and covenants made by Borrower
       in this Agreement or in any certificate or other instrument  delivered by
       Borrower to Lender under this Agreement  shall be considered to have been
       relied  upon by  Lender  and  will  survive  the  making  of the Loan and
       delivery  to  Lender  of  the  Related   Documents,   regardless  of  any
       investigation made by Lender or on Lender's behalf.

       Time of the Essence.  Time is of the essence hereof.

       Waiver.  Lender  shall not be deemed to have waived any rights under this
       Agreement unless such waiver is given in writing and signed by Lender. No
       delay or  omission  on the part of Lender in  exercising  any right shall
       operate as a waiver of such right or any other right.  A waiver by Lender
       of a provision of this  Agreement  shall not  prejudice  or  constitute a
       waiver of Lender's right otherwise to demand strict  compliance with that
       provision or any other  provision of this  Agreement.  No prior waiver by
       Lender, nor any course of dealing between Lender and Borrower, or between
       Lender and any  Grantor,  shall  constitute  a waiver of any of  Lender's
       rights or of any  obligations  of  Borrower  or of any  Grantor as to any
       future  transactions.  Whenever  the consent of Lender is required  under
       this  Agreement,  the  granting of such consent by Lender in any instance
       shall not constitute  continuing  consent in subsequent  instances  where
       such  consent is required and in all cases such consent may be granted or
       withheld in the sole discretion of Lender.

       Multiple Parties;  Corporate Authority. All obligations of Borrower under
       this Agreement shall be joint and several, and all references to Borrower
       shall mean each and every Borrower. This means that each of the Borrowers
       signing below is responsible for all obligations in this Agreement. Where
       any  one or more of the  parties  are  corporations  or  partnerships  or
       limited  liability  companies,  it is not necessary for Lender to inquire
       into the  powers of any of the  parties  or of the  officers,  directors,
       partners, members, or agents acting or purporting to act on their behalf.

UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDER AFTER
OCTOBER 3, 1989 CONCERNING  LOANS AND OTHER CREDIT  EXTENSIONS WHICH ARE NOT FOR
PERSONAL,  FAMILY OR  HOUSEHOLD  PURPOSES  OR SECURED  SOLELY BY THE  BORROWER'S
RESIDENCE MUST BE IN WRITING,  EXPRESS  CONSIDERATION AND BE SIGNED BY LENDER TO
BE ENFORCEABLE.

EACH BORROWER  ACKNOWLEDGES  HAVING READ ALL THE PROVISIONS OF THIS CONSTRUCTION
LOAN AGREEMENT,  AND EACH BORROWER AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED
AS OF DECEMBER 1, 1997.

BORROWER:

Timberline Software Corporation

By: /s/ Thomas P. Cox
   -------------------------------
Its: Senior Vice President
    ------------------------------


LENDER:

Pacific One Bank

By: /s/ Karen I. Rambeau
   -------------------------------
       Authorized Officer