Document:

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                                                                    EXHIBIT 10.4

After Recording Return To:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention:   Val A. Soupios, Esq.

                       DEED OF TRUST, SECURITY AGREEMENT
                       AND FIXTURE FILING WITH ASSIGNMENT
                               OF LEASES AND RENTS

GRANTOR:

1.      PACIFIC AEROSPACE & ELECTRONICS, INC.

2.      CASHMERE MANUFACTURING CO., INC.

3.      NORTHWEST TECHNICAL INDUSTRIES, INC.

GRANTEE:

1.      FIRST UNION NATIONAL BANK, as collateral agent for Holders listed on
        Schedule A to Note Purchase Agreement (Beneficiary)

2.      LAND TITLE COMPANY OF CHELAN -- DOUGLAS COUNTY, INC. (Trustee)

Legal Description:

Abbreviated form:  Units 1-4 Confluence Pk Condo (Exhibit A)
                   Portion of East half of West half of Section 20, Township 30
                     North, Range 2 West, Clallam County, Washington (Exhibit B)
                   Lts 6-14, Block 1, Steward's Plat of Mission & ptn lot 16 &
                     Lts 17-18 JF Woodring's Plat of Mission (Exhibit C)

Additional legal on Exhibits A- C of document

Assessor's Property Tax Parcel Account Number(s):
23-20-28-525-010          (Unit 1, Exhibit A)
23-20-28-525-020          (Unit 2, Exhibit A)
23-20-28-525-030          (Unit 3, Exhibit A)
23-20-28-525-040          (Unit 4, Exhibit A)
023020-31000              (Exhibit B)
23-19-04-850-065          (Portion of Exhibit C)
23-19-04-850-065          (Balance of Exhibit C)

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Reference number(s) of Related Document(s):

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                        DEED OF TRUST, SECURITY AGREEMENT
                       AND FIXTURE FILING WITH ASSIGNMENT
                               OF LEASES AND RENTS

               THIS DEED OF TRUST is made this 25th day of March, 2002, between
PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation, CASHMERE
MANUFACTURING CO., INC., a Washington corporation, and NORTHWEST TECHNICAL
INDUSTRIES, INC., a Washington corporation (individually and collectively, as
Grantor), whose address is 430 Olds Station Road, Wenatchee, Washington 98020 to
LAND TITLE COMPANY OF CHELAN - DOUGLAS COUNTY, INC., as Trustee, whose address
is 16 South Mission Street, P.O. Box 1726, Wenatchee, Washington 98807-1726 to
FIRST UNION NATIONAL BANK, as collateral agent for the holders set forth on
Schedule A (each a "Holder" and collectively the "Holders") to that certain Note
Purchase Agreement dated as of March 19, 2002 (the "Note Purchase Agreement")
by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
("Grantor"), Jefferies & Company, Inc. ("Initial Purchaser") and First Union
National Bank, as Collateral Agent ("Agent" or "Beneficiary") whose address is
401 South Tryon Street - Suite 1200, Mail Code NC-1179, Charlotte, North
Carolina 28202.

           1. Granting Clause. Grantor irrevocably grants, bargains, sells and
conveys to Trustee and its successors and assigns in trust, with power of sale
and with right of entry and possession as provided herein, all of Grantor's
estate, right, title, interest, claim and demand, now owned or hereafter
acquired, in and to the following:

                  (a) The property in Chelan and Clallam Counties, Washington,
described in Exhibits "A" -- "C" attached hereto and incorporated herein by this
reference (individually and collectively, the "Property" which term shall
include all or any part of the Property, any improvements thereon and all of the
property described in this Section 1).

                  (b) All land lying in streets and roads adjoining the
Property, and all access rights and easements pertaining to the Property.

                  (c) All the lands, tenements, privileges, reversions,
remainders, irrigation and water rights and stock, oil and gas rights,
royalties, minerals and mineral rights, all development rights and credits, air
rights, hereditaments and appurtenances belonging or in any way pertaining to
the Property.

                  (d) All buildings, structures, improvements, fixtures,
equipment and machinery and property now or hereafter attached to or used in
connection with the use, occupancy or operation of the Property including, but
not limited to, heating and incinerating apparatus and equipment, boilers,
engines, motors, generating equipment, telephone and other communication
systems, piping and plumbing fixtures, ranges, cooking apparatus and mechanical
kitchen equipment, refrigerators, cooling, ventilating, sprinkling and vacuum
cleaning systems, fire extinguishing apparatus, gas and electric fixtures,
irrigation equipment, carpeting, underpadding, elevators, escalators,
partitions,

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mantles, built-in mirrors, window shades, blinds, screens, storm sash, awnings,
furnishings of public spaces, halls and lobbies, and shrubbery and plants. All
property mentioned in this subsection 1(d) shall be deemed part of the realty
and not severable wholly or in part without material injury to the Property.

                  (e) All rents, royalties, issues, profits, revenue, income,
recoveries, reimbursements and other benefits of the Property, all existing and
future leases of the Property (including extensions, renewals and subleases),
all agreements for use and occupancy of the Property (all such leases and
agreements whether written or oral, are hereafter referred to as the "Leases"),
and all right, title and interest of Grantor thereunder, including, without
limitation, all guaranties of lessees' performance under the Leases, together
with the immediate and continuing right to collect and receive all of the rents,
income, receipts, revenues, issues, profits and other income of any nature now
or hereafter due (including any income of any nature coming due during any
redemption period) under the Leases or from or arising out of the Property
including minimum rents, additional rents, percentage rents, parking or common
area maintenance contributions, tax and insurance contributions, deficiency
rents, liquidated damages following default in any Lease, all proceeds payable
under any policy of insurance covering loss of rents resulting from
untenantability caused by destruction or damage to the Property, all proceeds
payable as a result of exercise of an option to purchase the Property, all
proceeds derived from the termination or rejection of any Lease in a bankruptcy
or other insolvency proceeding, all security deposits or other deposits for the
performance of any lessee's obligations under the Leases, and all proceeds from
any rights and claims of any kind which Grantor may have against any lessee
under the Leases or any occupants of the Property (all of the above are
hereafter collectively referred to as the "Rents"). This subsection 1(e) is in
addition to other provisions of this Deed of Trust providing for the assignment
of rents and leases to Beneficiary, and is subject to the right, power and
authority given to the Beneficiary in Section 7 hereof to collect and apply the
Rents.

                  (f) All of Grantor's rights to further encumber said Property
for debt and all Grantor's rights to enter into any lease agreement which would
create a tenancy that is or may become subordinate in any respect to any
mortgage or deed of trust other than this Deed of Trust.

                  (g) All reciprocal easement agreements, declarations,
development agreements, developer's or utility agreements, and any similar such
agreements or declarations now or hereafter affecting the Collateral (as defined
below) or any part thereof.

                  (h) All (a) development work product prepared in connection
with the Collateral, including, but not limited to, engineering, drainage,
traffic, soil and other studies and tests; water, sewer, gas, electrical and
telephone approvals, taps and connections; surveys, drawings, plans and
specifications; and subdivision, zoning and platting materials; (b) building and
other permits, rights, licenses and approvals relating to the Collateral; (c)
contracts and agreements (including, without limitation, contracts with
architects and engineers, construction contracts and contracts for the
maintenance, management or leasing of the Collateral), contract rights, logos,
trademarks, trade names,

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copyrights and other general intangibles used or useful in connection with the
ownership, operation or occupancy of the Collateral or any part thereof; (d)
financing commitments (debt or equity) issued to Grantor in respect of the
Collateral and all amounts payable to Grantor thereunder; (e) contracts for the
sale of all or any portion of the Collateral, and all amounts payable by the
purchasers thereunder; (f) operating and other bank accounts, and monies
therein, of Grantor relating to the Collateral, including, without limitation,
any accounts relating to real estate taxes or assessments; (g) interest rate
protection agreements entered into by Grantor in respect of the loan, whether
pursuant to the Note Purchase Agreement or otherwise; and (h) commercial tort
claims related to the Collateral.

                  (i) All rights of Grantor under promissory notes, letters of
credit, electronic chattel paper, proceeds from accounts, payment intangibles,
and general intangibles related to the Collateral, as the terms "accounts",
"general intangibles", and "payment intangibles" are defined in the applicable
Uniform Commercial Code Article 9, as the same may be modified or amended from
time to time.

                  (j) All other assets of Grantor related in any way to the
Collateral, subject to certain limitations that may be set forth herein.

                  (k) All proceeds of the conversion, voluntary or involuntary,
of any of the foregoing into cash or liquidated claims, including, without
limitation, proceeds of insurance and condemnation awards, and all rights of
Grantor to refunds of real estate taxes and assessments.

                  (l) All of Grantor's right, title and interest, as lessee, in,
to and under the leases listed on Exhibit D hereto (the "Leased Property"),
subject to Grantor's obtaining any required approvals by Landlord.

               The Property is not used principally or primarily for
agricultural purposes.

           2. Collateral. The following described estate, property and rights of
Grantor are also included as security for the performance of each covenant and
agreement of Grantor contained herein and the payment of all sums of money
secured hereby:

                  (a) All furniture, furnishings, appliances, machinery,
vehicles, equipment and all other property of any kind now or hereafter located
on the Property, used or intended to be used on the Property wherever actually
located, or purchased with the proceeds of the Notes (as defined herein), and
all rights of Grantor as lessee of any property described in this Section 2 and
subsection 1(d) above.

                  (b) All compensation, awards, damages, rights of action and
proceeds (including insurance proceeds and any interest on any of the foregoing)
arising out of or relating to a taking or damaging of the Property by reason of
any public or private improvement, condemnation proceeding (including change of
grade), fire, earthquake or other casualty, injury or decrease in the value of
the Property.

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                  (c) All returned premiums or other payments on any insurance
policies pertaining to the Property and any refunds or rebates of taxes or
assessments on the Property.

                  (d) All rights to the payment of money, accounts receivable,
deferred payments, refunds, cost savings, payments and deposits, whether now or
later to be received from third parties (including all utility deposits),
architectural and engineering plans, specifications and drawings, contract
rights, governmental permits and licenses, and agreements and purchase orders
which pertain to or are incidental to the design or construction of any
improvements on the Property, Grantor's rights under any payment, performance,
or other bond in connection with construction of improvements on the Property,
and all construction materials, supplies, and equipment delivered to the
Property or intended to be used in connection with the construction of
improvements on the Property wherever actually located.

                  (e) All contracts and agreements pertaining to or affecting
the Property including, but not limited to, management, operating and franchise
agreements, licenses, trade names and trademarks.

                  (f) All of Grantor's interest in and to the loan account, the
loan funds, whether disbursed or not, and Grantor's own funds now or later to be
held on deposit as equity funds or for payment of bills relating to the
Property.

                  (g) All commitments or agreements, now or hereafter in
existence, which will provide Grantor with proceeds to satisfy the Secured
Obligations (defined below) and the right to receive the proceeds due under such
commitments or agreements including refundable deposits and fees.

                  (h) All books and records pertaining to any and all of the
property described above, including computerreadable memory and any computer
hardware or software necessary to access and process such memory.

                  (i) All additions, accessions, replacements, substitutions,
proceeds and products of the property described in this Section 2 and of any of
the Property which is personal property.

               The Property and all of the property and rights described in
Section 1 and 2 are referred to herein collectively as the "Collateral."

           3. Security Agreement. To the extent that any of the Collateral may
be determined to be personal property, Grantor as debtor hereby grants Holders
and Beneficiary as agent for the Holders as secured party a security interest in
all such personal property or fixtures to secure payment and performance of the
Secured Obligations (defined below). This Deed of Trust constitutes a security
agreement, a financing statement and fixture filing pursuant to the Uniform
Commercial Code with respect to any and all property now or hereafter described
in any Uniform Commercial Code Financing Statement naming Grantor as Debtor and
Beneficiary as Secured Party affecting or related to the use and enjoyment of
the Property. Grantor agrees that it will

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not terminate or amend any financing statements filed in connection with the
Secured Obligations (as hereinafter defined) without Beneficiary's prior
consent. The remedies for any violation of the covenants, terms and conditions
of the agreements herein contained shall be (a) as prescribed herein, or (b) by
general law, or (c) as to such part of the security which is also reflected in
any such Financing Statement by the specific statutory consequences now or
hereafter enacted and specified in the Uniform Commercial Code, all at
Beneficiary's sole election. Grantor and Beneficiary agree that the filing of
such a Financing Statement in the records normally having to do with personal
property shall never be construed as in anywise derogating from or impairing
this declaration and hereby stated intention of the parties hereto, that
everything used in connection with the production of income from the property
that is the subject of this Deed of Trust and/or adapted for use therein and/or
which is described or reflected in this Deed of Trust is, and at all times and
for all purposes and in all proceedings both legal or equitable shall be,
regarded as part of the real estate irrespective of whether (a) any such item is
physically attached to the improvements, (b) serial numbers are used for the
better identification of certain equipment items capable of being thus
identified in any list filed with the Beneficiary, or (c) any such item is
referred to or reflected in any such Financing Statement so filed at any time.

           4. Financing Statement. This Deed of Trust shall also serve as a
financing statement filed for record in the real estate records as a fixture
filing pursuant to the Uniform Commercial Code. This Deed of Trust may be given
to secure an obligation incurred to refinance an obligation incurred for the
construction of an improvement on the Property, including the acquisition of the
Property.

           5. Obligations Secured. THIS DEED OF TRUST IS FOR THE PURPOSE OF
SECURING the following ("Secured Obligations"):

                  (a) Payment of the sum of up to THIRTY-SIX MILLION DOLLARS
($36,000,000) or so much thereof with interest thereon as shall be evidenced by
all notes described in the Note Purchase Agreement or other instruments
evidencing the indebtedness secured by this Deed of Trust including all
renewals, amendments, modifications or extensions thereof and substitutions
therefor.

                  (b) Payment of any further sums now or hereafter advanced or
loaned by Beneficiary or Holders (including any assignee of Beneficiary or
Holders) to any Borrower under the Note Purchase Agreement or any of their
successors or assigns, and payment of every other present and future obligation
owing by any Borrower to Beneficiary or Holders (or any such assignee) of any
kind, and all renewals, modifications, and extensions thereof, including any
interest, fees, costs, service charges and expenses connected with such
obligations (this Deed of Trust, the Note Purchase Agreement and all such other
documents, evidencing or securing the loan are hereafter collectively referred
to as the "Loan Documents") together with interest thereon at the rate set forth
in the Note Purchase Agreement unless otherwise specified in the Loan Documents
or agreed to in writing.

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                  (c) Performance of each agreement, term and condition set
forth or incorporated by reference in the Loan Documents, as such may be
amended, including without limitation the Note Purchase Agreement, which are
incorporated herein by reference, or contained herein.

           6. Performance of Obligations. Grantor shall promptly and timely pay
all sums due pursuant to the Loan Documents, strictly comply with all the terms
and conditions of the Loan Documents, and perform each Secured Obligation in
accordance with its terms.

           7. Assignment of Rents and Leases. Grantor hereby absolutely and
irrevocably assigns to Beneficiary all Grantor's interest in the Rents and
Leases whether now due, past due or to become due, and hereby gives to and
confers upon Beneficiary the right, power and authority to collect such Rents
and proceeds, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely, unconditionally and
irrevocably assigns, transfers and sets over all of the Rents now or hereafter
accruing to Beneficiary. Grantor irrevocably appoints Beneficiary its true and
lawful attorney at the option of Beneficiary at any time to demand, receive and
enforce payment, to give receipts, releases and satisfactions, and to sue,
either in the name of Grantor or in the name of Beneficiary, for all such Rents
and proceeds. It is understood and agreed that neither the foregoing assignment
of Rents and proceeds to Beneficiary nor the exercise by Beneficiary of any of
its rights or remedies under this Deed of Trust shall be deemed to make
Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in
any manner with respect to the Property or the use, occupancy or enjoyment or
operation of all or any portion thereof, unless and until Beneficiary, in person
or by agent, assumes actual possession thereof; nor shall appointment of a
receiver for the Property by any court at the request of Beneficiary or by
agreement with Grantor or the entering into possession of the Property or any
part thereof by such receiver be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Property or the use, occupancy, enjoyment or operation of all or
any portion thereof. This assignment is intended to be specific, perfected and
choate upon the recording of this Deed of Trust as provided in RCW 7.28.230.
This assignment shall be subject to the terms and conditions of any separate
assignment of leases and/or rents, whenever executed, in favor of Beneficiary
and covering the Property. Grantor warrants that it has made no prior assignment
of the Rents or Leases and will make no subsequent assignment without the prior
written consent of Beneficiary.

                  (a) Unless otherwise provided in any separate assignment of
leases and/or rents, and so long as Grantor is not in default under the Loan
Documents, Grantor may collect the Rents as they become due and not more than
one (1) month in advance. Grantor shall use the Rents to pay normal operating
expenses for the Property and sums due and payments required under the Loan
Documents. No Rents shall be collected for a period subsequent to the current
one month rental period and first or last month's rent. Grantor's right to
collect the Rents shall not constitute Beneficiary's consent to the use of cash
collateral in any bankruptcy proceeding.

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                  (b) If Grantor is in default under the Loan Documents, without
notice to Grantor, Beneficiary or its agents, or a court appointed receiver, may
collect the Rents. In doing so, Beneficiary may (i) evict lessees for nonpayment
of rent, (ii) terminate in any lawful manner any tenancy or occupancy, (iii)
lease the Property in the name of the then owner on such terms as it may deem
best and (iv) institute proceedings against any lessee for past due Rents. The
Rents received shall be applied to payment of the costs and expenses of
collecting the Rents, including a reasonable fee to Beneficiary, a receiver or
an agent, operating expenses for the Property and any sums due or payments
required under the Loan Documents, in such order as Beneficiary may determine.
Any excess shall be paid to Grantor, however, Beneficiary may withhold from any
excess a reasonable amount to pay sums anticipated to become due which exceed
the anticipated future Rents. Beneficiary's failure to collect or discontinuing
collection at any time shall not in any manner affect the subsequent enforcement
by Beneficiary of its rights to collect the Rents. Except in the case of a full
reinstatement of the Secured Obligations, the collection of the Rents shall not
cure or waive any default under the Loan Documents. Any Rents paid to
Beneficiary or a receiver shall be credited against the amount due from the
lessees under the Leases. In the event any lessee under the Leases becomes the
subject of any proceeding under the Bankruptcy Code or any other federal, state
or local statute which provides for the possible termination or rejection of the
Leases assigned hereby, Grantor covenants and agrees that in the event any of
the Leases are so rejected, no damages settlement shall be made without the
prior written consent of Beneficiary; any check in payment of damages for
rejection or termination of any such Lease will be made payable both to the
Grantor and Beneficiary; and Grantor hereby assigns any such payment to
Beneficiary and further covenants and agrees that upon request of Beneficiary,
it will duly endorse to the order of Beneficiary any such check, the proceeds of
which will be applied to any portion of the indebtedness secured hereunder in
such manner as Beneficiary may elect.

                  (c) Regardless of whether or not Beneficiary, in person or by
agent, takes actual possession of the Property or any part thereof, Beneficiary
is not and shall not be deemed to be:

                      (i)    "a mortgagee in possession" for any purpose; or

                      (ii)   responsible for performing any of the obligations
of the lessor any Lease; or

                      (iii)  responsible for any waste committed by lessees or
any other, any dangerous or defective condition of the Property, or any
negligence in the, upkeep, repair or control of the Property; or

                      (iv)   liable in any manner for the Property or the use,
occupancy, or operation of all or any part of it.

               In exercising its rights under this Section Beneficiary shall be
liable only for the proper application of and accounting for the Rents collected
by Beneficiary or its agents.

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           8.  Leases.

                  (a) Grantor shall fully comply with all of the terms,
conditions and provisions of the Leases so that the same shall not become in
default and to do all that is needful to preserve all said Leases in force. With
respect to any Lease of the whole or any part of the Property, Grantor shall
not, without the prior written consent of Beneficiary, which consent shall not
be unreasonably withheld, (i) permit assignment or subletting of all or part of
the lessee's rights under the Lease unless the right to assign or sublet is
expressly reserved by the lessee under the Lease, (ii) execute an assignment of
the rents or any part thereof from the Collateral without Beneficiary's prior
consent, (iii) modify or amend any lease so as to shorten the unexpired term
thereof or so as to decrease, waive or compromise in any manner the amount of
rents payable thereunder or materially expand the obligations of the lessor
thereunder, (iv) accept surrender of the Lease or terminate the Lease except in
accordance with the terms of the Lease providing for termination in the event of
a default, (v) accept prepayments of any installments of rents to become due
under such leases, except prepayments in the nature of security for the
performance of the lessees thereunder, (vi) modify, release or terminate any
guaranties of any such lease or (vii) in any other manner impair the value of
the Property or the security hereof. Any proceeds or damages resulting from a
lessee's default under any such Lease, at Beneficiary's option, shall be paid to
Beneficiary and applied against sums owed under the Loan Documents even though
such sums may not be due and payable. Except for non-delinquent real estate
taxes and assessments, Grantor shall not permit any lien to be created against
the Property which may be or may become prior to any Lease. If the Property is
partially condemned or suffers a casualty, Grantor shall promptly repair and
restore the Property in order to comply with the Leases.

                  (b) Grantor will not execute any lease of all or a substantial
portion of the Property except for actual occupancy by the lessee thereunder,
and will at all times promptly and faithfully perform, or cause to be performed,
all of the covenants, conditions and agreements contained in all leases of the
Property or portions thereof now or hereafter existing, on the part of the
lessor thereunder to be kept and performed and will at all times do all things
necessary to compel performance by the lessee under each lease of all
obligations, covenants and agreements by such lessee to be performed thereunder.
If any of such leases provide for the giving by the lessee of certificates with
respect to the status of such leases, Grantor shall exercise its right to
request such certificates within five (5) days of any demand therefor by
Beneficiary and shall deliver copies thereof to Beneficiary promptly upon
receipt.

                  (c) Each lease of the Property, or of any part thereof,
executed after the date hereof, shall provide that, in the event of the
enforcement by Trustee or Beneficiary of the remedies provided for hereby or by
law, the lessee thereunder will, upon request of any person succeeding to the
interest of Grantor as a result of such enforcement, automatically become the
lessee of said successor in interest, without change in the terms or other
provisions of such lease, provided, however, that said successor in interest
shall not be bound by (i) any payment of rent or additional rent for more than
one (1) month in advance, except prepayments in the nature of security for the
performance by said lessee of its obligations under said lease or (ii) any
amendment or

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<PAGE>

modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, (x) the lease is
subordinate to this Deed (but shall also provide that Beneficiary, at its
option, may subordinate this Deed to such lease) and (y) upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.

                  (d) Grantor shall furnish to Beneficiary upon request, but not
more than semi-annually, a certified leasing status report in respect of the
Property and a certified rent roll containing the names of all lessees of the
Property, the terms of their respective leases, the space occupied and the
rentals payable thereunder, together with copies, certified to be true and
complete, of such leases as may be requested by Beneficiary.

                  (e) Grantor shall, promptly upon Beneficiary's request,
deposit all tenant security deposits in respect of the Property into an account
with Beneficiary or as designated by Beneficiary, which deposits shall be held
and disbursed to tenants as required under the terms of their respective leases.

           9. Warranty of Title. Grantor warrants that it (i) has good and
marketable title to an indefeasible fee simple estate in the Property, unless
Grantor's present interest in the Property is described in Exhibits A through C
as a leasehold interest, in which case Grantor warrants that it lawfully
possesses and holds a valid leasehold interest in the Property as stated in
Exhibits A through C, (ii) has good and marketable title to the personal
property Collateral, and (iii) holds a valid leasehold interest as tenant under
the leases described in Exhibit D, and that said leases are prior to all liens,
charges and encumbrances on the lessor's interest thereunder, subject, in each
case, to no liens, encumbrances, easements, assessments, security interests,
claims or defects of any kind prior or subordinate to the lien of this Deed of
Trust, except those listed in Beneficiary's title insurance policy, listed on
Exhibit E hereto, or approved by Beneficiary in writing (the "Permitted
Exceptions") and real estate taxes for the current year. Grantor warrants that
the Permitted Exceptions and the real estate taxes are not delinquent or in
default, and that Grantor has the right to convey the Property to Trustee for
the benefit of Beneficiary, and the right to grant a security interest in the
personal property Collateral. Grantor has the full power and authority to
subject the Property to the lien hereof in the manner and form herein done and
intended hereafter to be done. Grantor will preserve such title, and Grantor
will forever warrant and defend title to the Collateral and will defend the
validity and priority of the lien of this Deed of Trust and the security
interest granted herein against any claims or demands.

           10. Prohibited Liens.

(a) Grantor shall not permit any governmental or statutory liens (including tax,
mechanic's or materialmen's liens) to be filed against the Property except for
real estate taxes and assessments not yet delinquent by non-payment and liens
permitted by the Loan Documents or approved by Beneficiary in writing. Grantor
will pay, from time to time when the same shall become due, all lawful claims
and demands of mechanics, materialmen, laborers, and others which, if unpaid,
might result in, or

                                       9
<PAGE>

permit the creation of, a lien on the Property or any part thereof, and in
general will do or cause to be done everything necessary so that the lien and
effect hereof shall be fully preserved, at the cost of Grantor and without
expense to Trustee or Beneficiary.

                  (b) Grantor will have the right to contest in good faith by an
appropriate legal or administrative proceeding the validity of any prohibited
lien, encumbrance or charge so long as (i) no default exists under the Loan
Documents, (ii) Grantor first deposits with Beneficiary a bond or other security
satisfactory to Beneficiary in the amount reasonably required by Beneficiary,
but not more than one and one--half (1 1/2) (i.e., 150%) of the amount of the
claim; (iii) Grantor immediately commences its contest of such lien, provided,
however, that within twenty (20) days after the filing of such lien Grantor
discharges said lien of record or records a bond which complies with the
requirements of RCW 60.04.161 eliminating such lien as an encumbrance on the
Property, and continuously pursues the contest in good faith and with due
diligence; (iv) foreclosure of the lien, encumbrance or charge is stayed; and
(v) Grantor pays any judgment rendered for the lien claimant or other third
party within ten (10) days after the entry of the judgment. If the contested
item is a mechanic's or materialmen's lien, Grantor will furnish Beneficiary
with an endorsement to its title insurance policy which insures the priority of
this Deed of Trust over the lien being contested. Grantor will discharge or
elect to contest and post an appropriate bond or other security within twenty
(20) days of written demand by Beneficiary.

           11. Payment of Taxes and Other Encumbrances. Grantor will pay when
due:

                  (a) All taxes, assessments and other governmental or public
charges affecting the Property, including assessments on appurtenant water
stock, and any accrued interest, cost and/or penalty thereon and upon request by
Beneficiary will submit receipts therefor to Beneficiary promptly following
payment;

                  (b) All encumbrances (including any debt secured by deeds of
trust), ground rents, liens and/or charges, with interest, on the Property or
any part thereof which appear to be prior, superior or on a parity hereto, and
all costs and fees related thereto;

                  (c) All charges for utilities or services, including, but not
limited to, electricity, gas, sewer and water;

                  (d) All costs, fees and expenses of this Deed of Trust,
including cost of evidence of title, Trustee's fees and attorneys' fees in
connection with sale pursuant to this Deed of Trust (whether completed or not)
together with interest from and after ten (10) days following demand for
repayment at the default interest rate set forth in the Note Purchase Agreement
until paid in full.

           12. Maintenance -- No Waste.

                  (a) Keep the Property in good condition and repair and not
commit or permit waste or deterioration of the Property;

                                       10
<PAGE>

                  (b) Not remove, demolish or substantially alter any portion of
the Property, except as approved in writing by Beneficiary and except such
alterations as may be required by laws, ordinances or regulations of
governmental authorities;

                  (c) Comply with all laws, ordinances, rules, regulations and
orders of governmental authorities now or hereafter affecting the Property or
requiring any alterations or improvements to be made thereon, and perform all of
its obligations under any covenant, condition, restriction or agreement of
record affecting the Property;

                  (d) Complete promptly and in good and workmanlike manner any
portion of the Property which may be constructed hereafter, and promptly restore
in like manner as obligated in Section 14, any portion of the Property which may
be damaged or destroyed, and pay, when due, all costs incurred and claims for
labor performed and materials furnished therefor;

                  (e) Not commit, suffer or permit any act to be done in, upon
or to the Property in violation of any law or ordinance or any covenant,
condition or restriction affecting the Property;

                  (f) Do any and all acts which, from the character or use of
the Property, may be reasonably necessary to protect and preserve the security
of Beneficiary, the specific enumerations herein not excluding the general;

                  (g) Not permit any construction liens against the Property;

                  (h) Not take or permit to be taken any actions that might
invalidate any insurance carried on the Property;

                  (i) Maintain in full force and effect all licenses (including
but not limited to any operating licenses or similar matters) required or
permitted in the operation of the improvements on the Property.

           13. Alterations Removal and Demolition. Grantor shall not
structurally alter, remove or demolish any building or improvement on the
Property without Beneficiary's prior written consent. Grantor shall not remove
any fixture or other item of property which is part of the Collateral without
Beneficiary's prior written consent unless the fixture or item of property is
replaced by an article of equal suitability owned by Grantor free and clear of
any lien or security interest.

           14. Restoration.

                  (a) After the happening of any casualty to the Property
whether or not required to be insured against under the policies to be provided
by Grantor hereunder, Grantor shall give prompt written notice thereof to
Beneficiary generally describing the nature and cause of such casualty and the
extent of the damage or destruction to the Property.

                                       11
<PAGE>

                  (b) Grantor hereby assigns to Beneficiary all proceeds of
insurance ("Insurance Proceeds") which Grantor may be entitled to receive. In
the event of any damage to or destruction of the Collateral, then, provided
there is not an Event of Default under the Note Purchase Agreement, the Notes,
the Deed of Trust or any of the Loan Documents (as defined in the Note Purchase
Agreement) and Beneficiary has reasonably determined that its security has not
been impaired, Grantor shall commence and diligently pursue to completion in
accordance with this Section 14 the repair, restoration and rebuilding of any
portion of the Collateral that has been partially damaged or destroyed in full
compliance with all legal requirements and to the same condition, character and
at least equal value and general utility as nearly as possible to that existing
prior to such damage or destruction (the "Restoration"), and Beneficiary shall
hold and disburse the Insurance Proceeds (less the cost, if any, to Beneficiary
of recovering and paying out such proceeds (including, without limitation,
attorneys' fees and expenses, adjuster's fees, and fees incurred in
Beneficiary's performance of its obligations hereunder)) (the "Net Insurance
Proceeds") in the manner hereinafter provided to the Restoration. In the event
that the Collateral is substantially destroyed or Beneficiary has determined
that its security has been impaired, the Beneficiary may, at its option, apply
the Net Insurance Proceeds to the reduction of the Secured Obligations and
secured by this Deed of Trust in such order as Beneficiary may determine and, at
Beneficiary's option and in its sole discretion, Beneficiary, may declare the
Secured Obligations immediately due and payable.

                  (c) In the event the Net Insurance Proceeds are to be used for
the Restoration, Grantor shall, prior to disbursement of any Net Insurance
Proceeds for any work in connection with the Restoration (the "Work"), deliver
or furnish to Beneficiary (i) complete plans and specifications for the Work
which (A) have been approved by all governmental authorities whose approval is
required, (B) bear the signed approval of an architect reasonably satisfactory
to Beneficiary (the "Architect") and (C) are accompanied by Architect's signed
estimate of the total estimated cost of the Restoration. Such plans and
specifications shall be subject to Beneficiary's approval, which approval shall
not be unreasonably withheld or delayed (the "Approved Plans and
Specifications"); (ii) the amount of money which, as determined by Beneficiary,
will be sufficient when added to the Net Insurance Proceeds, if any, to pay the
entire cost of the Restoration (all money as held by Beneficiary is referred to
herein as the "Restoration Funds"); (iii) copies of all permits and approvals
required by law in connection with the commencement and conduct of the
Restoration; and (iv) a contract for construction executed by Grantor and a
contractor satisfactory to Beneficiary (the "Contractor") in form, scope and
substance satisfactory to Beneficiary (including the customary retention) for
performance of the Work.

                  (d) After commencing the Work, Grantor shall perform or cause
Contractor to perform the Work diligently and in good faith in accordance with
the Approved Plans and Specifications approved by Beneficiary. So long as
Grantor is not in default under any of the Loan Documents, Beneficiary shall
disburse the Restoration Funds in increments to Grantor or as Grantor may
direct, from time to time as the Work progresses, to pay (or reimburse Grantor
for) the costs of the Restoration, but subject to the following conditions, any
of which Beneficiary may waive in its sole discretion:

                                       12
<PAGE>

                      (i) Beneficiary shall make such payments only upon not
less than ten (10) days' prior written notice from Grantor to Beneficiary and
Grantor's delivery to Beneficiary of (A) Grantor's written request for payment
(a "Request for Payment") accompanied by a certificate by Architect in form,
scope and substance satisfactory to Beneficiary which states that all of the
Work completed to that date has been done in compliance with the Approved Plans
and Specifications and in accordance with all provisions of law, that the amount
requested has been paid or is then due and payable and is properly a part of the
cost of the Restoration and that when added to all sums, if any, previously paid
out by Beneficiary, the requested amount does not exceed the value of the Work
done to the date of such certificate; (B) evidence satisfactory to Beneficiary
that there are no construction or similar liens for labor or material supplied
in connection with the Work to date or that any such liens have been adequately
provided for to Beneficiary's satisfaction; and (C) evidence satisfactory to
Beneficiary that the balance of the Restoration Funds remaining after making the
payments shall be sufficient to pay the balance of the cost of the Restoration
not completed to date (giving in such reasonable detail as Beneficiary may
require an estimate of the cost of such completion). Each Request for Payment
shall be accompanied by waivers of liens satisfactory to Beneficiary covering
that part of the Work previously paid for, if any, and by a search prepared by a
title company or by other evidence satisfactory to Beneficiary that no
construction liens or other liens or instruments for the retention of title in
respect of any part of the Work have been filed against the Property and not
discharged of record and that no encumbrance exists on or affecting the Property
other than encumbrances, if any, which are set forth in the title policy issued
to Beneficiary insuring the lien of this Deed of Trust; and

                      (ii) Any Request for Payment after the Restoration has
been completed shall be accompanied by a copy of any certificate or certificates
required by law to render occupancy of the Property legal.

                  (e) Upon Beneficiary's receipt of the certificate of occupancy
for the Property and other customary evidence requested by Beneficiary that the
Restoration has been completed and the costs thereof paid in full, and
satisfactory evidence that no mechanic's or similar liens for labor or material
supplied in connection with the Restoration are outstanding against the Property
and Beneficiary's disbursement under the final Request for Payment, and provided
that Grantor is not then in default under any of the Loan Documents (as defined
in the Note Purchase Agreement), Beneficiary shall pay any remaining Restoration
Funds then held by Beneficiary to Grantor; provided, however, nothing contained
herein shall prevent Beneficiary from applying at any time the whole or any part
of the Restoration Funds to the curing of any Event of Default under the Loan
Documents.

                  (f) If (i) within sixty (60) days after the occurrence of any
damage or destruction to the Property requiring Restoration, Grantor fails to
submit to Beneficiary and receive Beneficiary's approval of plans and
specifications or fails to deposit with Beneficiary the additional amount
necessary to accomplish the Restoration as provided in Section 14, or (ii) after
such plans and specifications are approved by all such governmental authorities
and Beneficiary, Grantor fails to commence promptly or

                                       13
<PAGE>

diligently continue to completion the Restoration, or (iii) Grantor becomes
delinquent in payment to mechanics, materialmen or others for the costs incurred
in connection with the Restoration, then, in addition to all of the rights
herein set forth, Beneficiary may apply the Restoration Funds then or thereafter
held by Beneficiary to reduce the unpaid indebtedness secured hereby in such
order as Beneficiary may determine, and at Beneficiary's option and in its sole
discretion, Beneficiary may declare the Secured Obligations immediately due and
payable.

                  (g) In the event that Beneficiary applies all or any portion
of the Restoration Funds to reduce the unpaid indebtedness secured hereby as
provided in this Section 14, after payment in full of all sums secured hereby,
any remaining Restoration Funds shall be paid to Grantor.

           15. Compliance with Laws. Grantor shall comply with all laws,
ordinances, regulations, covenants, conditions, and restrictions affecting the
Property, including, without limitation, all applicable requirements of the Fair
Housing Act of 1968 (as amended) and the Americans With Disabilities Act of 1990
(as the same may be amended from time to time), and shall not commit or permit
any act upon or concerning the Property in violation of any such laws,
ordinances, regulations, covenants, conditions, and restrictions. Grantor agrees
to protect, defend, indemnify and hold Beneficiary harmless from and against all
liability threatened against or suffered by Beneficiary by reason of a breach by
Grantor of the foregoing representations, warranties, covenants and agreements.
The foregoing indemnity shall include the cost of all alterations to the
Property (including architectural, engineering, legal and accounting costs), all
fines, fees and penalties, and all legal and other expenses (including
attorneys' fees) incurred in connection with the Property being in violation of
any such laws, ordinances, regulations, covenants, conditions and restrictions,
and for the cost of collection of the sums due under the indemnity. In the event
that Beneficiary or its designee shall become the owner of or acquire an
interest in or rights to the Property by foreclosure or deed in lieu of
foreclosure of this Deed of Trust or by other means, the foregoing
indemnification obligation shall survive such foreclosure or deed in lieu of
foreclosure or other acquisition of the Property.

           16. Leased Premises. Grantor shall undertake, and shall use its
commercially reasonable efforts, to obtain, within sixty (60) days of the date
hereof, (a) any and all required approvals by, and consents of, all landlords
with respect to the assignment of leases to Beneficiary pursuant to Section 1(l)
hereof, and (b) any and all subordination and non-disturbance agreements
required by Beneficiary in connection with the Leased Premises, on terms and
conditions reasonably satisfactory to Beneficiary.

           17. Impairment of Collateral. Grantor will faithfully perform each
and every covenant to be performed by Grantor under any lien or encumbrance,
including, without limiting the generality hereof, mortgages, deeds of trust,
leases, declarations or covenants, conditions and/or restrictions and other
agreements which affect the Property, in law or in equity, which Beneficiary
reasonably believes may be prior or superior to or on a parity with the lien or
charge of this Deed of Trust. Grantor shall not, without Beneficiary's prior
written consent, change the general nature of the occupancy of the

                                       14
<PAGE>

Property, initiate, acquire or permit any change in any public or private
restrictions (including without limitation a zoning reclassification) limiting
the uses which may be made of the Property, or take or permit any action which
would impair the Collateral or Beneficiary's lien or security interest in the
Collateral. A breach of or a default under any such lien or encumbrance, or a
breach of any requirement of this Section 16 shall constitute an event of
default under this Deed of Trust.

           18. Inspection of Property. Beneficiary is authorized, by itself, its
agents, employees or workmen, to enter at any reasonable time upon any part of
the Property for the purpose of inspecting the same upon reasonable prior notice
(except in the case of an emergency for which no prior notice need be given),
and for the purpose of performing any of the acts it is authorized to perform
under the terms of this Deed of Trust. Grantor agrees to cooperate with
Beneficiary to facilitate such inspections.

           19. Grantor's Defense of Collateral. Grantor shall appear in and
defend any action or proceeding which may affect the Collateral or the rights or
powers of Beneficiary or Trustee, and to pay all costs and expenses, including
cost of evidence of title and attorneys' fees in a reasonable sum, in any action
or proceeding in which Beneficiary and/or Trustee may appear or be made a party,
including, but not limited to, foreclosure or other proceeding commenced by
those claiming a right to any part of the Property under subordinate liens, in
any action to partition or condemn all or part of the Property, whether or not
pursued to final judgment, and in any exercise of the power of sale contained
herein, whether or not the sale is actually consummated.

           20. Beneficiary's Right to Protect Collateral. Beneficiary may
commence, appear in, and defend any action or proceeding which may affect the
Collateral or the rights or powers of Beneficiary or Trustee, and in such event,
Beneficiary shall be allowed and paid all of Beneficiary's costs, charges and
expenses, including cost of evidence of title and attorneys' fees incurred in
such action or proceeding in which Beneficiary may appear. Beneficiary may pay,
purchase, contest or compromise any encumbrance, charge or lien not listed as a
Permitted Exception which in its judgment appears to be prior or superior to the
lien of this Deed of Trust. If Grantor fails to make any payment or do any act
required under the Loan Documents, Beneficiary, without any obligation to do so
and without releasing Grantor from any obligations under the Loan Documents, may
make the payment or cause the act to be performed in such manner and to such
extent as Beneficiary may deem necessary to protect the Collateral. Beneficiary
is authorized to enter upon the Property for such purposes. In exercising any of
these powers Beneficiary may incur such expenses, in its absolute discretion, it
deems necessary, including cost of evidence of title, employ an attorney, and
pay said attorneys' reasonable fees. Grantor hereby agrees to pay immediately
following demand, together with interest from and after ten (10) days following
demand for payment at the default interest rate set forth in the Note Purchase
Agreement until paid in full, all of Beneficiary's costs, charges, expenses and
accounts referred to above in this Section 19, including cost of evidence of
title and reasonable attorneys' fees incurred in such action or proceeding in
which Beneficiary may appear. All costs, charges and expenses so incurred,
together with interest thereon as aforesaid, shall be secured by the lien of
this Deed of Trust.

                                       15
<PAGE>

           21. Hazardous Substances. Grantor represents and warrants to
Beneficiary that to the best of Grantor's knowledge after due and diligent
inquiry, no hazardous or toxic waste or substances are being stored on the
Property or any adjacent property except in strict compliance with all
Environmental Laws nor have any such waste or substances been stored or used in,
on, under, over or about the Property or any adjacent property prior to or
during Grantor's ownership, possession or control of the Property. Grantor
agrees to provide written notice to Beneficiary immediately upon Grantor
becoming aware that the Property or any adjacent property is being or has been
contaminated with hazardous or toxic waste or substances. Grantor will not cause
nor permit any activities on the Property which directly or indirectly could
result in the Property or any other property becoming contaminated with
hazardous or toxic waste or substances. For purposes of this Deed of Trust, the
term "hazardous or toxic waste or substances " means any substance or material
defined or designated as hazardous or toxic wastes, hazardous or toxic material,
hazardous, toxic or radioactive substance or other similar term by any
applicable federal, state or local statute, regulation or ordinance now or
hereafter in effect.

           22. Insurance.

                  (a) Grantor shall maintain insurance on the Property with
premiums prepaid providing replacement cost coverage and insuring against loss
by fire and such other risks covered by extended coverage insurance, flood (but
only if the Property is in a federally-designated flood plain), and such other
perils and risks, including loss of rents and business interruption as may be
required by Beneficiary. Grantor shall also maintain commercial general
liability insurance. All insurance shall be with companies satisfactory to
Beneficiary and in such amounts as required by Beneficiary with lender's loss
payable clauses in favor of and in form satisfactory to Beneficiary. At least
thirty (30) days prior to the expiration of the term of any insurance policy,
Grantor shall furnish Beneficiary with written evidence of renewal or issuance
of a satisfactory replacement policy. If requested Grantor shall deliver copies
of all policies to Beneficiary. If Grantor fails to maintain such insurance
satisfactory to Beneficiary, Beneficiary may make the payment on behalf of
Grantor and any sums expended shall be added to principal and bear interest at
the default interest rate set forth in the Note Purchase Agreement. Each policy
of insurance shall provide Beneficiary with no less than forty-five (45) days
prior written notice of any cancellation, expiration, nonrenewal or
modification.

                  (b) In the event of any loss or damage to the Property, all
Insurance Proceeds shall be payable to Beneficiary, and Grantor hereby
authorizes and directs any affected insurance company to make payment of the
Insurance Proceeds directly to Beneficiary. The application or release by
Beneficiary of any Insurance Proceeds shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.

                  (c) In the event of the foreclosure of this Deed of Trust or
other transfer of the title to the Property in extinguishment, in whole or in
part, of the indebtedness secured hereby, all right, title and interest of
Grantor in and to any insurance policy, or premiums or payments in satisfaction
of claims or any other rights thereunder

                                       16
<PAGE>

then in force, shall pass to the purchaser or grantee notwithstanding the amount
of any bid at such foreclosure sale. Nothing contained herein shall prevent
accrual of interest as provided in the Note Purchase Agreement on any portion of
the principal balance due under the Note Purchase Agreement until such time as
the Insurance Proceeds are actually received and applied to reduce the principal
balance outstanding.

           23. Condemnation. Should the Property or any part thereof be taken or
damaged by reason of any public improvement, condemnation proceeding, or
conveyance in lieu thereof, or in any other manner, Beneficiary shall be
entitled to all compensation, awards and other payments or relief therefor, and
shall be entitled, at its option, to commence, appear in and prosecute in its
own name any action or proceeding. Grantor shall have the right, with the prior
written consent of the Beneficiary, to make a compromise or settlement in
connection with such taking or damage. All such compensation, awards, damages,
rights of action and proceeds (the "Condemnation Proceeds") are hereby assigned
to Beneficiary, who shall, after deducting therefrom all its reasonable
expenses, including attorneys' fees, apply or release the Condemnation Proceeds
with the same effect as provided in Section 14 above with respect to disposition
of insurance proceeds; provided, that if such Condemnation Proceeds are to be
utilized for restoration of the Property and there are any excess Condemnation
Proceeds after application thereof to the restoration of the Property,
Beneficiary shall be entitled to apply such excess to the reduction of any
indebtedness outstanding under the Note Purchase Agreement. Grantor agrees to
execute such further assignments of the Condemnation Proceeds as Beneficiary may
require. Nothing contained herein shall prevent the accrual of interest as
provided in the Note Purchase Agreement on any portion of the Condemnation
Proceeds to be applied to the principal balance due under the Note Purchase
Agreement until such Condemnation Proceeds are actually received and applied.

           24. Reserve Account.

                  (a) If Beneficiary so requires, Grantor shall pay to
Beneficiary monthly, together with and in addition to any payments of principal
and/or interest due under the Note Purchase Agreement, a sum, as estimated by
the Beneficiary, equal to the ground rents, if any, the real estate taxes and
assessments next due on the Property and the premiums next due on insurance
policies required under the Loan Documents, less all sums already paid therefor,
divided by the number of months to elapse before two (2) months prior to the
date when the ground rents, real estate taxes, assessments and insurance
premiums will become delinquent. The monthly reserve account payments and any
principal and/or interest payments due shall be paid in a single payment and
applied by Beneficiary in the following order: (i) ground rents, real estate
taxes, assessments and insurance premiums, (ii) expenditures made pursuant to
the Loan Documents and interest thereon, (iii) interest on the obligations of
Borrowers under Note Purchase Agreement, and (iv) principal due on the
obligations of Borrowers under Note Purchase Agreement. Grantor shall promptly
deliver to Beneficiary all bills and notices pertaining to the ground rents,
taxes, assessments and insurance premiums.

                                       17
<PAGE>

                  (b) The reserve account is solely for the protection of
Beneficiary. Beneficiary shall have no responsibility except to credit properly
the sums actually received by it. No interest will be paid on the funds in the
reserve account and Beneficiary shall have no obligation to deposit the funds in
an interest-bearing account. Upon assignment of this Deed of Trust by
Beneficiary, any funds in the reserve account shall be turned over to the
assignee and any responsibility of Beneficiary with respect thereto shall
terminate. Each transfer of the Property shall automatically transfer to the
grantee all rights of Grantor to any funds in the reserve account.

                  (c) If the total of the payments to the reserve exceeds the
amount of payments actually made by Beneficiary, plus such amounts as have been
reasonably accumulated in the reserve account toward payments to become due,
such excess may, at Beneficiary's election, be (i) credited by Beneficiary
against sums then due and payable under the Loan Documents or (ii) refunded to
Grantor as its name appears on the records of Beneficiary. If, however, the
reserve account does not have sufficient funds to make the payments when they
become due, Grantor shall pay to Beneficiary the amount necessary to make up the
deficiency within fifteen (15) days after written notice to Grantor. If this
Deed of Trust is foreclosed or if Beneficiary otherwise acquires the Property,
the Beneficiary shall, at the time of commencement of the proceedings or at the
time the Property is otherwise acquired, apply the remaining funds in the
reserve account, less such sums as will become due during the pendency of the
proceedings, against the sums due under the Loan Documents and/or to make
payments required under the Loan Documents.

           25. Repayment of Beneficiary's Expenditures. Grantor shall pay within
ten (10) days after written notice from Beneficiary all sums expended by
Beneficiary and all costs and expenses incurred by Beneficiary in taking any
actions pursuant to the Loan Documents, including attorneys' fees, accountants'
fees, appraisal and inspection fees, and the costs for title reports. If any
laws or regulations are passed subsequent to the date of this Deed of Trust
which require Beneficiary to incur out-of-pocket expenses in order to maintain,
modify, extend or foreclose this Deed of Trust, or revise the terms of the loan
secured hereby, Grantor shall reimburse Beneficiary for such expenses within ten
(10) days after written notice from Beneficiary. Expenditures by Beneficiary
shall bear interest from the date of such advance or expenditure at the default
interest rate set forth in the Note Purchase Agreement until paid, shall
constitute advances made under this Deed of Trust and shall be secured by and
have the same priority as the lien of this Deed of Trust. If Grantor fails to
pay any such expenditures, costs and expenses and interest thereon, Beneficiary
may, at its option, without foreclosing the lien of this Deed of Trust, commence
an independent action against Grantor for the recovery of the expenditures
and/or advance any undisbursed loan proceeds to pay the expenditures.

           26. Additional Security Documents. Grantor shall within fifteen (15)
days after request by Beneficiary execute and deliver any financing statement,
renewal, affidavit, certificate, continuation statement, or other document as
Beneficiary may request in order to perfect, preserve, continue, extend, or
maintain security interests or liens previously granted and the priority of the
security interests or liens. Grantor shall

                                       18
<PAGE>

pay all costs and expenses incurred by Beneficiary in connection with the
preparation, execution, recording, filing, and refiling of any such document.

           27. Conveyance of Property; Further Encumbrance. In the event that
all or any part of or any interest in the Property shall be sold, transferred,
leased (other than space leases without options to purchase), further
encumbered, conveyed, or a contract of sale or other conveyance entered into
with respect thereto, without the prior written consent of Beneficiary, then,
upon the occurrence of any one or more of the foregoing events, and regardless
of whether or not Grantor shall be in default under the Note Purchase Agreement
or this Deed of Trust or any Loan Document, Beneficiary may, at its option,
declare the then outstanding principal balance evidenced by the Note Purchase
Agreement plus accrued interest thereon immediately due and payable or, at its
sole option, it may consent to said conveyance or transfer in writing and may
increase the rate of the loan to the interest rate which Beneficiary would then
commit to make a mortgage loan to a borrower of comparable financial strength
and managerial expertise, and secured by similar security of comparable value
and character, and impose whatever other conditions it shall deem necessary to
compensate it for such increased risk resulting from the breach of the foregoing
covenants. Such increase in interest rate or imposition of additional terms
shall entitle Beneficiary to increase monthly payments under the Notes so that
the increased monthly installments will fully amortize the outstanding balance
of the indebtedness evidenced thereby over the unexpired amortization term of
the Notes. The execution and delivery by the Grantor of any joint venture
agreement, partnership agreement, declaration of trust or option agreement
whereunder any other person or corporation may become entitled, directly or
indirectly, to the possession or enjoyment of the Property, or the income or
other benefits derived or to be derived therefrom shall in each case be deemed
to be a conveyance or assignment of the Grantor's interest in the Property for
the purposes of this section, and shall require the prior written consent of the
Beneficiary.

           28. Release of Parties or Collateral. Without affecting the
obligations of any party under the Loan Documents and without affecting the lien
of this Deed of Trust and Beneficiary's security interest in the Collateral,
Beneficiary and/or Trustee may, without notice (a) release all or any Grantor,
any Borrower and/or any other party now or hereafter liable for any of the
Secured Obligations (including guarantors), (b) release all or any part of the
Collateral, (c) subordinate the lien of this Deed of Trust or Beneficiary's
security interest in the Collateral, (d) take and/or release any other security
for or guarantees of the Secured Obligations, (e) grant an extension of time for
performance of the Secured Obligations, (f) modify, waive, forbear, delay or
fail to enforce any of the Secured Obligations, (g) sell or otherwise realize on
any other security or guaranty prior to, contemporaneously with or subsequent to
a sale of all or any part of the Collateral, (h) make advances pursuant to the
Loan Documents including advances in excess of the amount provided for under the
Note Purchase Agreement, (i) consent to the making of any map or plat of the
Property, and (j) join in the grant of any easement on the Property. Any
subordinate lienholder shall be subject to all such releases, extensions or
modifications without notice to or consent from the subordinate lienholder.
Grantor shall pay any Trustee's, attorneys', title insurance, recording,
inspection or other fees or

                                       19
<PAGE>

expenses incurred in connection with release of Collateral, the making of a map,
plat or the grant of an easement.

           29. Default--Remedies. The occurrence of any Event of Default (as
defined in the Note Purchase Agreement) or Grantor's failure to comply with any
term or condition of the Loan Documents, including without limitation, this Deed
of Trust and payments due under the Note Purchase Agreement or other obligations
secured by this Deed of Trust, shall constitute an Event of Default. Upon the
occurrence of an Event of Default Beneficiary may declare all amounts owed under
the Secured Obligations, and all accrued and unpaid interest and other sums in
respect thereof, immediately due and payable after applicable notice as set
forth herein and/or exercise its rights and remedies under the Loan Documents
and applicable law including foreclosure of this Deed of Trust judicially or non
judicially by the Trustee pursuant to the power of sale. In the event of any
such Event of Default and upon written request of Beneficiary, Trustee shall
sell the Property in accordance with the Deed of Trust Act of the state of
Washington (RCW Chapter 61.24 as existing now or hereafter amended) and the
Uniform Commercial Code of the state of Washington, where applicable, at public
auction to the highest bidder. Any person except Trustee may bid at Trustee's
sale. Trustee shall apply the proceeds of the sale as follows: (i) to the
expenses of sale, including a reasonable Trustee's fee and attorneys' fee; (ii)
to all the Secured Obligations (principal and interest) and all other
indebtedness secured by this Deed of Trust or any other instrument, in such
order and amounts as Beneficiary may elect; (iii) the surplus, if any, shall be
distributed in accordance with said Deed of Trust Act. Trustee shall deliver to
the purchaser at the sale its deed, without warranty, which shall convey to the
purchaser the interest in the property which Grantor had or had the power to
convey at the time of its execution of this Deed of Trust and such as it may
have acquired thereafter. Trustee's deed shall recite the facts showing that the
sale was conducted in compliance with all the requirements of the law and of
this Deed of Trust, which recital shall be prima facie evidence of such
compliance and conclusive evidence thereof in favor of bona fide purchasers and
encumbrances for value. The power of sale conferred by this Deed of Trust and by
the Deed of Trust Act of the state of Washington is not an exclusive remedy, and
when not exercised Beneficiary may foreclose this Deed of Trust as a mortgage.

               Trustee is not obligated to notify any party hereto of pending
sale under any other deed of trust or of any action or proceeding in which
Grantor, Trustee or Beneficiary shall be a party, unless such action or
proceeding is brought by Trustee.

               Beneficiary may proceed as to the Collateral which constitutes
personal property in accordance with Beneficiary's rights and remedies in
respect to the Property or sell the Personal Property Collateral separately and
without regard to the remainder of the Property in accordance with Beneficiary's
rights and remedies provided by the Washington Uniform Commercial Code as well
as other rights and remedies available at law or in equity. Beneficiary's
exercise of any of its rights and remedies shall not constitute a waiver or cure
of a default. Beneficiary's failure to enforce any default shall not constitute
a waiver of the default or any subsequent default. In the event of foreclosure,
the cost of the title premium for the trustee sale guarantee (or equivalent
policy) shall be paid for by Grantor. In the event the Loan Documents are
referred to an

                                       20
<PAGE>

attorney for enforcement or preservation of Beneficiary's rights or remedies,
whether or not suit is filed or any proceedings are commenced, Grantor shall pay
all Beneficiary's costs and expenses including Trustee's and attorneys' fees
(including attorneys' fees for any appeal, bankruptcy proceeding or any other
proceeding), accountants' fees, appraisal and inspection fees and cost of a
title report.

           30. Cumulative Remedies. To the extent allowed by law, all
Beneficiary's and Trustee's rights and remedies specified in the Loan Documents
are cumulative, not mutually exclusive and not in substitution for any rights or
remedies available in law or equity. In order to obtain performance of Grantor's
obligations under the Loan Documents, without waiving its rights in the
Collateral, Beneficiary may proceed against Grantor or any Borrower or may
proceed against any other security or guaranty for the Secured Obligations, in
such order and manner as Beneficiary may elect. The commencement of proceedings
to enforce a particular remedy shall not preclude the discontinuance of the
proceedings and the commencement of proceedings to enforce a different remedy.

           31. Entry. Beneficiary, in person, by agent or by court appointed
receiver, may enter, take possession of, manage and operate all or any part of
the Property, and may also do any and all other things in connection with those
actions that Beneficiary may in its sole discretion consider necessary and
appropriate to protect the security of this Deed of Trust. Such other things may
include: taking and possessing all of Grantor's or the then owner's books and
records; entering into, enforcing, modifying, or canceling Leases on such terms
and conditions as Beneficiary may consider proper; obtaining and evicting
tenants; fixing or modifying Rents; collecting and receiving any payment of
money owing to Grantor; completing any unfinished construction; and/or
contracting for and making repairs and alterations. Grantor hereby irrevocably
constitutes and appoints Beneficiary as its attorney-in-fact to perform such
acts and execute such documents as Beneficiary in its sole discretion may
consider to be appropriate in connection with taking these measures.

           32. Appointment of Receiver. In the event of a default, Grantor
consents to and Beneficiary shall be entitled, without notice, without bond, and
without regard to the adequacy of the Collateral, to the appointment of a
receiver for the Collateral. The receiver shall have, in addition to all the
rights and powers customarily given to and exercised by a receiver, all the
rights and powers granted to Beneficiary by the Loan Documents. The receiver
shall be entitled to receive a reasonable fee for management of the Property. If
Grantor is an occupant of the Property, Beneficiary has the right to require
Grantor to pay rent at fair market rates and the right to remove Grantor from
Property if Grantor fails to pay rent.

           33. Sale of Property After Default. The Collateral may be sold
separately or as a whole, at the option of Beneficiary following a default. In
the event of a Trustee's sale of all the Collateral, Beneficiary hereby assigns
its security interest in the personal property Collateral to the Trustee.
Beneficiary may also realize on the personal property Collateral in accordance
with the remedies available under the Uniform Commercial Code or at law. In the
event of a Trustee's sale, Grantor, and the holder of any

                                       21
<PAGE>

subordinate liens or security interest with actual or constructive notice
hereof, waive any equitable, statutory or other right they may have to require
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein, or to direct the order in which
any of the Collateral will be sold in the event of any sale under this Deed of
Trust or foreclosure in the inverse order of alienation.

           34. Foreclosure of Lessee's Rights--Subordination. Beneficiary shall
have the right, of its option, to foreclose this Deed of Trust subject to the
rights of any lessees of the Property. Beneficiary's failure to foreclose
against any lessee shall not be asserted as a claim against Beneficiary or as a
defense against any claim by Beneficiary in any action or proceeding.
Beneficiary at any time may subordinate this Deed of Trust to any or all of the
Leases except that Beneficiary shall retain its priority claim to any
condemnation or insurance proceeds.

           35. Repairs During Redemption. In the event of a judicial foreclosure
the purchaser during any redemption period may make such repairs and alterations
to the Property as may be reasonably necessary for the proper operation, care,
preservation, protection and insuring of the Property. Any sums so paid,
together with interest from the date of the expenditure at the rate provided in
the judgment, shall be added to the amount required to be paid for redemption of
the Property.

           36. Reconveyance After Payment. Upon written request of Beneficiary
stating that all obligations secured by this Deed of Trust have been paid,
Trustee shall reconvey, without warranty, the Property then subject to the lien
of this Deed of Trust. The recitals in any reconveyance of any matters of fact
shall be conclusive proof of the truthfulness thereof. The grantee in the
reconveyance may be described as "the person or persons legally entitled
thereto." Grantor shall pay any costs, Trustee's fees and recording fees
incurred in so reconveying the Property.

           37. Nonwaiver of Terms and Conditions. Time is of the essence with
respect to performance of the obligations due under the Loan Documents.
Beneficiary's failure to require prompt enforcement of any required obligation
shall not constitute a waiver of the obligation due or any subsequent required
performance of the obligation. No term or condition of the Loan Documents may be
waived, modified or amended except by a written agreement signed by Grantor and
Beneficiary. Any waiver of any term or condition of the Loan Documents shall
apply only to the time and occasion specified in the waiver and shall not
constitute a waiver of the term or condition at any subsequent time or occasion.

           38. Waivers by Grantor. Without affecting any of Grantor's
obligations under the Loan Documents, Grantor waives the following:

                  (a) Any right to require Beneficiary to proceed against any
specific party liable for sums due under the Loan Documents or to proceed
against or exhaust any specific security for sums due under the Loan Documents.

                                       22
<PAGE>

                  (b) Diligence, demand for performance, notice of
nonperformance, presentment, protest and notice of dishonor and notice of new or
additional indebtedness of any Grantor, any Borrower or any other party liable
for sums due under the Loan Documents to Beneficiary.

                  (c) Any defense arising out of Beneficiary entering into
additional financing or other arrangements with any Grantor, any Borrower or any
party liable for sums due under the Loan Documents not relating to the Property
and any action taken by Beneficiary in connection with any such financing or
other arrangements or any pending financing or other arrangements not related to
the Property.

                  (d) Any defense arising out of the absence, impairment, or
loss of any or all rights of recourse, reimbursement, contribution or
subrogation or any other rights or remedies of Beneficiary against any Grantor,
any Borrower or any other party liable for sums due under the Loan Documents or
any Collateral.

                  (e) Any obligation of Beneficiary to see to the proper use and
application of any proceeds advanced pursuant to the Loan Documents.

           39. Right of Subrogation. Beneficiary is subrogated to the rights,
whether legal or equitable, of all beneficiaries, mortgagees, lienholders and
owners directly or indirectly paid off or satisfied in whole or in part by any
proceeds advanced by Beneficiary under the Loan Documents, regardless of whether
these parties assigned or released of record their rights or liens upon payment.

           40. Joint and Several Liability. If there is more than one Grantor of
this Deed of Trust, their obligations shall be joint and several.

           41. Statement of Amount Owing. Grantor upon request by Beneficiary
will furnish a written statement duly acknowledged of the amount due under the
Loan Documents and whether any offsets or defenses exist against the amount due.

           42. Books and Records Financial Statements. Grantor will keep and
maintain at Grantor's address stated above, or such other place as Beneficiary
may approve in writing, books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, contracts, leases and other instruments shall be subject to
examination, inspection and copying at any reasonable time by Beneficiary.
Grantor shall provide to Beneficiary within ninety (90) days after the end of
each of Grantor's fiscal years (or within twenty (20) days of Beneficiary's
written request therefor if Grantor is in default), for each Grantor, each
Borrower and for each guarantor of the Secured Obligations, a complete and
current financial statement and copy of its most recent federal income tax
return, together with a statement of income and expenses of the Property and a
statement of changes in financial position with respect to the Property for the
prior year, each in reasonable detail and certified by Grantor, each Borrower or
guarantor, as the case may be, and if Beneficiary shall require, by an
independent certified public accountant. At the same time, Grantor shall also
furnish a

                                       23
<PAGE>

current rent roll for the Property, certified by Grantor, showing the name of
each tenant, the space occupied, the lease expiration date, the monthly rent, a
schedule of gross receipts for each tenant obligated to pay rent based on a
percentage of receipts, the date to which rent has been paid and any deposit
Grantor is holding. Grantor's compliance with these provisions shall not limit
or affect Grantor's obligations to comply with financial, tax and operation
covenants and reporting requirements under any other agreement between Grantor
and Beneficiary whether or not such other agreement is related to the Secured
Obligations.

           43. Appraisals. In the event of a default Beneficiary may obtain a
current appraisal of the Property which is to be paid for by Grantor. Appraisals
may be commissioned by Beneficiary when required by laws and regulations which
govern Beneficiary's lending practices. The cost of all such appraisals will be
home by Grantor.

           44. Maximum Interest Rate. If any payment of interest, fees and/or
charges under the Loan Documents shall exceed the maximum amounts permitted by
any applicable law of the State of Washington, then the payment made or to be
made shall be reduced so that in no event shall any obligor pay or Beneficiary
receive an amount in excess of the maximum amount permitted by any applicable
law. If Beneficiary receives an excess amount, it shall be treated as a
prepayment of principal or shall be returned to the payor, at Beneficiary's
option.

           45. Evasion of Prepayment Fee. If Grantor is in default, whether
Beneficiary has accelerated the maturity of the indebtedness or not, any tender
of payment sufficient to satisfy all sums due under the Loan Documents trade at
any time prior to foreclosure sale shall constitute an evasion of the prepayment
terms of the Note Purchase Agreement, if any, and shall be deemed a voluntary
prepayment. Any such payment, to the extent permitted by law, shall include the
additional payment required under the prepayment fee provision in the Note
Purchase Agreement, if any.

           46. Payment of New Taxes. If any federal, state or local law is
passed subsequent to the date of this Deed of Trust which requires Beneficiary
to pay any tax because of this Deed of Trust or the sums due under the Loan
Documents (excluding income taxes), then Grantor shall pay to Beneficiary on
demand any such taxes if it is lawful for Grantor to pay them, or, in the
alternative Grantor may repay all sums due under the Loan Documents plus any
prepayment fee within thirty (30) days of such demand. If it is not lawful for
Grantor to pay such taxes, then at its option Beneficiary may declare a default
under the Loan Documents.

           47. Insolvency Proceedings. Grantor or any party liable on the
Secured Obligations (including guarantors) shall not make any assignment for the
benefit of creditors and shall not permit the institution of any proceedings
under any federal or state statutes pertaining to bankruptcy, insolvency,
arrangement, dissolution, liquidation or receivership whether or not an order
for relief is entered.

                                       24
<PAGE>

           48. Substitution of Trustee. Beneficiary may at any time discharge
the Trustee and appoint a successor Trustee who shall have all of the powers of
the original Trustee.

           49. In-House Counsel Fees. Whenever Grantor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.

           50. Notices. Any notice given by Grantor, Trustee or Beneficiary
shall be in writing and shall be effective (a) on personal delivery to the party
receiving the notice, or (b) on the third day after deposit in the United States
mail, postage prepaid with return receipt requested, addressed to the party at
the address set forth above, or with respect to the Grantor, to the address at
which Beneficiary customarily or last communicated with Grantor.

           51. Time. Time is of the essence in connection with all obligations
of Grantor herein.

           52. Successors and Assigns. This Deed of Trust applies to, inures to
the benefit of, and binds all parties hereto and their successors and assigns.
The terms "Grantor," "Trustee" and "Beneficiary" include their successors and
assigns.

           53. Controlling Document; Definitions. In the event of a conflict or
inconsistency between the terms and conditions of this Deed of Trust and the
terms and conditions of any other of the Loan Documents (except for any separate
assignment of rents and/or leases and any Note Purchase Agreement which shall
prevail over this Deed of Trust), the terms and conditions of this Deed of Trust
shall prevail. All capitalized terms not otherwise defined herein shall have the
same meaning as in the Note Purchase Agreement.

           54. Invalidity of Terms and Conditions. If any term or condition of
this Deed of Trust is found to be invalid, the invalidity shall not affect any
other term or condition of the Deed of Trust and the Deed of Trust shall be
construed as if not containing the invalid term or condition.

           55. Legislation Affecting Beneficiary's Rights. If enactment or
expiration of applicable laws has the effect of rendering any provision of the
Note Purchase Agreement or this Deed of Trust unenforceable according to its
terms, Beneficiary, at its option, may require immediate payment in full of all
sums secured by this Deed of Trust and may invoke any remedies permitted herein.

           56. Rules of Construction. This Deed of Trust shall be construed so
that, whenever applicable, the use of the singular shall include the plural, the
use of the plural shall include the singular, and the use of any gender shall be
applicable to all genders and shall include corporations, partnerships and
limited partnerships.

                                       25
<PAGE>

           57. Section Headlines. The headings to the various sections have been
inserted for convenience of reference only and shall not be used to construe
this Deed of Trust.

           58. Applicable Law. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of Washington.

           59. Commercial Purposes. The Secured Obligations were incurred
primarily for commercial, investment or business purposes and not for personal,
family or household purposes.

           60. Intentionally Omitted.

           61. Counterpart Notice. This Deed of Trust encumbers real property
situated in Chelan County and Clallam County in the State of Washington. In
order to facilitate recording in each of the two counties at the same time, this
Deed of Trust has been prepared in counterparts, each of which is identical to
this counterpart, except that Exhibit B of this counterpart describe only the
portion of the Mortgaged Property situated in the county in which this
counterpart is recorded. Grantor and Beneficiary intend and agree that the two
counterparts constitute one and the same deed of trust, that the lien thereof
shall attach to all property encumbered thereby on execution and delivery of any
one of the counterparts, and that to the extent permitted by law, foreclosure
thereof may be accomplished in a single judicial or nonjudicial proceeding in
any county in which any of the Mortgaged Property is located.

           62. Washington State Notice. Beneficiary hereby notifies Grantor as
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

           63. Prior Mortgages. If this Deed of Trust is subordinate to any
other mortgage(s) or similar security document(s) on all or part of the
Collateral, the following modifications shall apply hereto:

               1.   The following definition is added hereto:

                      "Prior Mortgage" means the mortgage(s) or similar security
               document(s) of all or part of the Collateral, to which this Deed
               of Trust is subordinate, set forth in the title policy insuring
               the lien hereof together with the note(s) secured thereby and all
               other documents securing said note(s).

               2.   The following is added at the end of the Granting Clause:

                      (m) all sums held by or under the control of the holder of
               the Prior Mortgage which were deposited on account of real estate
               taxes, insurance premiums or otherwise.

               3.   The following is added to the end of Section 9:

                                       26
<PAGE>

               Grantor further represents that neither Grantor nor any of its
               affiliates (nor any person or entity acting on behalf of any of
               them) is the holder of the Prior Mortgage or any participation or
               other interest therein or is the owner of a legal or equitable
               interest in any such holder.

               4.   The following is added to the end of Section 14:

                      (h) The foregoing provisions of this Section are subject
               to any provision of the Prior Mortgage requiring the application
               of insurance proceeds to restoration or requiring the payment of
               such proceeds to the holder of the Prior Mortgage.

               5.   The following is added to the end of Section 23:

               The foregoing provisions of this Section are subject to any
               provision of the Prior Mortgage requiring the application of
               condemnation proceeds to restoration or requiring the payment of
               such proceeds to the holder of the Prior Mortgage.

           64. Additional Provisions Concerning Prior Mortgages.

                  (a) Grantor shall perform or observe all covenants and
conditions to be performed or observed by the Grantor or grantor under the Prior
Mortgage.

                  (b) Upon notice from Beneficiary, simultaneously with the
making of each payment of principal and interest on the Prior Mortgage, Grantor
shall deliver to Beneficiary a copy of the check in the amount of such payment
delivered to the holder of the Prior Mortgage. Beneficiary shall have the right,
exercisable by notice to Grantor, to require Grantor to make payment of
principal and interest on the Prior Mortgage through Beneficiary and, if
Beneficiary exercises such right, Grantor shall deliver to Beneficiary a check
in the amount of each installment of such principal and interest, payable to the
order of the holder of the Prior Mortgage, not later than three (3) days prior
to the due date thereof and Beneficiary shall promptly forward such check to
said holder.

                  (c) Grantor hereby irrevocably designates Beneficiary its
agent and attorney-in-fact to perform or observe on behalf of Grantor any
covenant or condition which Grantor fails to perform or observe under the Prior
Mortgage within any applicable grace period specified in the Prior Mortgage, and
any advances made by Beneficiary in connection with such performance or
observance shall be repaid by Grantor on demand with interest at the default
interest rate set forth in the Note Purchase Agreement and the amount so
advanced, with interest, shall be secured hereby. Beneficiary shall have the
right, but not the obligation, to so perform or so observe. The performance or
observance of such covenant or condition by Beneficiary shall not prevent
Grantor's failure to so perform or observe from constituting an Event of
Default. In performing or observing any such covenant or condition, Beneficiary
shall have the right to enter upon the Collateral. Upon receipt by Beneficiary
from the holder of the Prior Mortgage of any notice of default under the Prior
Mortgage, Beneficiary may rely thereon and take any

                                       27
<PAGE>

action permitted by this Section to remedy such default notwithstanding that the
existence of such default or the nature thereof may be questioned or denied by
Grantor.

                  (d) Grantor shall not enter into any modification, amendment
or supplement to the Prior Mortgage nor acquire, whether directly or indirectly,
any interest whatsoever in the Prior Mortgage.

                                       28
<PAGE>

               The undersigned Grantor requests that a copy of any notices,
including but not limited to any Notice of Sale, be mailed to it at the address
herein before set forth.

                             PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
                             corporation

                             By:       /s/ Donald A. Wright
                                ------------------------------------------------
                                Name: Donald A. Wright
                                Title:   President and Chief Executive Officer

                             CASHMERE MANUFACTURING CO., INC., a Washington
                             corporation

                             By:       /s/ Donald A. Wright
                                ------------------------------------------------
                                Name: Donald A. Wright
                                Title:   Executive Vice President

                             NORTHWEST TECHNICAL INDUSTRIES, INC., a Washington
                             corporation

                             By:       /s/ Donald A. Wright
                                ------------------------------------------------
                                Name:  Donald A. Wright
                                Title:   Executive Vice President

<PAGE>

STATE OF WASHINGTON              )
                                 )ss.
COUNTY OF KING                   )

               I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the President and
Chief Executive Officer of PACIFIC AEROSPACE & ELECTRONICS, INC. to be the free
and voluntary act of such party for the uses and purposes mentioned in the
instrument.

Dated: March 15, 2002

                                    Notary Public: /s/ Susan R. Benson
                                    Print Name: Susan R. Benson
                                    My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)

STATE OF WASHINGTON              )
                                 )ss.
COUNTY OF KING                   )

               I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the Executive Vice
President of CASHMERE MANUFACTURING CO., INC. to be the free and voluntary act
of such party for the uses and purposes mentioned in the instrument.

Dated: March 15, 2002

                                    Notary Public: /s/ Susan R. Benson
                                    Print Name: Susan R. Benson
                                    My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)
<PAGE>

STATE OF WASHINGTON              )
                                 )ss.
COUNTY OF KING                   )

               I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the Executive Vice
President of NORTHWEST TECHNICAL INDUSTRIES, INC. to be the free and voluntary
act of such party for the uses and purposes mentioned in the instrument.

Dated: March 15, 2002

                                    Notary Public: /s/ Susan R. Benson
                                    Print Name: Susan R. Benson
                                    My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)
<PAGE>

                                    EXHIBIT B

                          Legal Description of Property

That portion of the East half of the West half of Section 20, Township 30 North,
Range 2 West, W.M., Clallam County, Washington, described as follows:

Beginning at a portion which is the Northeast corner of the Northwest quarter of
said Section 20; Thence South along the North-South center line of said Section
20 of a distance of 1,403 feet to the TRUE POINT OF BEGINNING of this
description; Thence continuing South along said center line 2,755 feet to the
intersection of the Northerly right of way boundary of the existing road
designated as the DNR P-1200 Road; Thence North 68 degrees 00 minutes West along
said boundary 615 feet; Thence North, parallel to said North-South center line,
2,525 feet; Thence East, parallel to the North East-West center line of said
Section 20, a distance of 577.5 feet, more or less, to the TRUE POINT OF
BEGINNING.

<PAGE>

                                    EXHIBIT D

                                     Leases

(1) Lease Agreement, Cashmere Manufacturing, Inc. 1994, dated November 4, 1994,
between Port of Chelan County and Cashmere Manufacturing Co., Inc.

(2) Lease Agreement, Pacific Coast Technologies, Inc. 1993, dated February 1,
1993, between Port of Chelan County and Pacific Coast Technologies, Inc.

(3) Lease Agreement 1999, dated December 30, 1998, between Port of Chelan County
and Pacific Aerospace & Electronics, Inc., as amended by that certain First
Addendum to 1999 Lease, dated November 21, 2001, between Port of Chelan County
and Pacific Aerospace & Electronics, Inc.

(4) Lease Agreement - PA&E IB#9 2000, dated July 13, 2000, between Port of
Chelan County and Pacific Aerospace & Electronics, Inc.

(5) Lease Agreement, dated March 31, 1994, between Erickson Realty, Ltd. and
Electronic Specialty Corporation.

(6) Lease, dated April 3, 1998, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated June 19, 2000, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated January 25, 2002, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated January 31, 2002, Sea-Land Development Corporation and Skagit
Engineering & Manufacturing, Inc.

(7) Lease Agreement, dated June 2, 2000, between 220TH Street, LLC and Skagit
Engineering Manufacturing, Inc. (d/b/a Pacific Aerospace Electronics, Inc. -
Engineering & Fabrication Division).

(8) Lease Agreement, dated August 6, 2001, between Pacific Aerospace &
Electronics, Inc. and North Central Educational Service District, as amended by
that certain Amendment No. 1 to Lease Agreement, dated December 17, 2001,
between Pacific Aerospace & Electronics, Inc. and North Central Educational
Service District.

<PAGE>

                                    EXHIBIT E

                                  Encumbrances

1. Property described in Exhibit A, as to Certain Equipment:

        (a) Master Equipment Lease Agreement, dated as of May 27, 1999, between
KeyCorp Leasing, A Division of Key Corporate Capital Inc., as Lessor, and
Pacific Aerospace & Electronics, Inc., as Lessee, as amended by Equipment
Schedule No. 02, dated as of June 14, 1999, between KeyCorp Leasing, A Division
of Key Corporate Capital Inc. and Pacific Aerospace & Electronics, Inc., with a
total cost of $233,443.08.

2. Lease Agreement, Pacific Coast Technologies, Inc. 1993, dated February 1,
1993, between Port of Chelan County and Pacific Coast Technologies, Inc.:

        (a) Commercial Security Agreement between Pacific Aerospace &
Electronics, Inc., as Borrower, Pacific Coast Technologies, Inc., as Grantor,
and KeyBank National Association, as Lender, securing the Promissory Note
between Pacific Aerospace & Electronics, Inc. and KeyBank National Association
in principal amount of $712,085.00, and

        (b) UCC-2 fixture filing between Pacific Coast Technologies, Inc., as
Debtor, and KeyBank National Association, as Secured Party, dated March 18,
1998.<PAGE>

                                                                    EXHIBIT 10.5

After Recording Return To:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Val A. Soupios, Esq.

                        DEED OF TRUST, SECURITY AGREEMENT
                       AND FIXTURE FILING WITH ASSIGNMENT
                               OF LEASES AND RENTS

GRANTOR:

1.     PACIFIC AEROSPACE & ELECTRONICS, INC.

2.     CASHMERE MANUFACTURING CO., INC.

3.     NORTHWEST TECHNICAL INDUSTRIES, INC.

GRANTEE:

1.     FIRST UNION NATIONAL BANK, as collateral agent for Holders listed on
       Schedule A to Note Purchase Agreement (Beneficiary)

2.     LAND TITLE COMPANY OF CHELAN -- DOUGLAS COUNTY, INC. (Trustee)

Legal Description:

Abbreviated form: Units 1-4 Confluence Pk Condo (Exhibit A)
                  Portion of East half of West half of Section 20, Township 30
                   North, Range 2 West, Clallam County, Washington (Exhibit B)
                  Lts 6-14, Block 1, Steward's Plat of Mission & ptn lot 16 &
                   Lts 17-18 JF Woodring's Plat of Mission (Exhibit C)
Additional legal on Exhibits A- C of document

Assessor's Property Tax Parcel Account Number(s):
23-20-28-525-010          (Unit 1, Exhibit A)
23-20-28-525-020          (Unit 2, Exhibit A)
23-20-28-525-030          (Unit 3, Exhibit A)
23-20-28-525-040          (Unit 4, Exhibit A)
023020-31000              (Exhibit B)
23-19-04-850-065          (Portion of Exhibit C)
23-19-04-850-065          (Balance of Exhibit C)

<PAGE>

Reference number(s) of Related Document(s):

                                       2
<PAGE>

                        DEED OF TRUST, SECURITY AGREEMENT
                       AND FIXTURE FILING WITH ASSIGNMENT
                               OF LEASES AND RENTS

              THIS DEED OF TRUST is made this 25th day of March, 2002, between
PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation, CASHMERE
MANUFACTURING CO., INC., a Washington corporation, and NORTHWEST TECHNICAL
INDUSTRIES, INC., a Washington corporation (individually and collectively, as
Grantor), whose address is 430 Olds Station Road, Wenatchee, Washington 98020 to
LAND TITLE COMPANY OF CHELAN - DOUGLAS COUNTY, INC., as Trustee, whose address
is 16 South Mission Street, P.O. Box 1726, Wenatchee, Washington 98807-1726 to
FIRST UNION NATIONAL BANK, as collateral agent for the holders set forth on
Schedule A (each a "Holder" and collectively the "Holders") to that certain Note
Purchase Agreement dated as of March 19, 2002 (the "Note Purchase Agreement")
by and among Pacific Aerospace & Electronics, Inc., a Washington corporation
("Grantor"), Jefferies & Company, Inc. ("Initial Purchaser") and First Union
National Bank, as Collateral Agent ("Agent" or "Beneficiary") whose address is
401 South Tryon Street - Suite 1200, Mail Code NC-1179, Charlotte, North
Carolina 28202.

       1. Granting Clause. Grantor irrevocably grants, bargains, sells and
conveys to Trustee and its successors and assigns in trust, with power of sale
and with right of entry and possession as provided herein, all of Grantor's
estate, right, title, interest, claim and demand, now owned or hereafter
acquired, in and to the following:

              (a) The property in Chelan and Clallam Counties, Washington,
described in Exhibits "A" -- "C" attached hereto and incorporated herein by this
reference (individually and collectively, the "Property" which term shall
include all or any part of the Property, any improvements thereon and all of the
property described in this Section 1).

              (b) All land lying in streets and roads adjoining the Property,
and all access rights and easements pertaining to the Property.

              (c) All the lands, tenements, privileges, reversions, remainders,
irrigation and water rights and stock, oil and gas rights, royalties, minerals
and mineral rights, all development rights and credits, air rights,
hereditaments and appurtenances belonging or in any way pertaining to the
Property.

              (d) All buildings, structures, improvements, fixtures, equipment
and machinery and property now or hereafter attached to or used in connection
with the use, occupancy or operation of the Property including, but not limited
to, heating and incinerating apparatus and equipment, boilers, engines, motors,
generating equipment, telephone and other communication systems, piping and
plumbing fixtures, ranges, cooking apparatus and mechanical kitchen equipment,
refrigerators, cooling, ventilating, sprinkling and vacuum cleaning systems,
fire extinguishing apparatus, gas and electric fixtures, irrigation equipment,
carpeting, underpadding, elevators, escalators, partitions,

<PAGE>

mantles, built-in mirrors, window shades, blinds, screens, storm sash, awnings,
furnishings of public spaces, halls and lobbies, and shrubbery and plants. All
property mentioned in this subsection 1(d) shall be deemed part of the realty
and not severable wholly or in part without material injury to the Property.

              (e) All rents, royalties, issues, profits, revenue, income,
recoveries, reimbursements and other benefits of the Property, all existing and
future leases of the Property (including extensions, renewals and subleases),
all agreements for use and occupancy of the Property (all such leases and
agreements whether written or oral, are hereafter referred to as the "Leases"),
and all right, title and interest of Grantor thereunder, including, without
limitation, all guaranties of lessees' performance under the Leases, together
with the immediate and continuing right to collect and receive all of the rents,
income, receipts, revenues, issues, profits and other income of any nature now
or hereafter due (including any income of any nature coming due during any
redemption period) under the Leases or from or arising out of the Property
including minimum rents, additional rents, percentage rents, parking or common
area maintenance contributions, tax and insurance contributions, deficiency
rents, liquidated damages following default in any Lease, all proceeds payable
under any policy of insurance covering loss of rents resulting from
untenantability caused by destruction or damage to the Property, all proceeds
payable as a result of exercise of an option to purchase the Property, all
proceeds derived from the termination or rejection of any Lease in a bankruptcy
or other insolvency proceeding, all security deposits or other deposits for the
performance of any lessee's obligations under the Leases, and all proceeds from
any rights and claims of any kind which Grantor may have against any lessee
under the Leases or any occupants of the Property (all of the above are
hereafter collectively referred to as the "Rents"). This subsection 1(e) is in
addition to other provisions of this Deed of Trust providing for the assignment
of rents and leases to Beneficiary, and is subject to the right, power and
authority given to the Beneficiary in Section 7 hereof to collect and apply the
Rents.

              (f) All of Grantor's rights to further encumber said Property for
debt and all Grantor's rights to enter into any lease agreement which would
create a tenancy that is or may become subordinate in any respect to any
mortgage or deed of trust other than this Deed of Trust.

              (g) All reciprocal easement agreements, declarations, development
agreements, developer's or utility agreements, and any similar such agreements
or declarations now or hereafter affecting the Collateral (as defined below) or
any part thereof.

              (h) All (a) development work product prepared in connection with
the Collateral, including, but not limited to, engineering, drainage, traffic,
soil and other studies and tests; water, sewer, gas, electrical and telephone
approvals, taps and connections; surveys, drawings, plans and specifications;
and subdivision, zoning and platting materials; (b) building and other permits,
rights, licenses and approvals relating to the Collateral; (c) contracts and
agreements (including, without limitation, contracts with architects and
engineers, construction contracts and contracts for the maintenance, management
or leasing of the Collateral), contract rights, logos, trademarks, trade names,

                                       2
<PAGE>

copyrights and other general intangibles used or useful in connection with the
ownership, operation or occupancy of the Collateral or any part thereof; (d)
financing commitments (debt or equity) issued to Grantor in respect of the
Collateral and all amounts payable to Grantor thereunder; (e) contracts for the
sale of all or any portion of the Collateral, and all amounts payable by the
purchasers thereunder; (f) operating and other bank accounts, and monies
therein, of Grantor relating to the Collateral, including, without limitation,
any accounts relating to real estate taxes or assessments; (g) interest rate
protection agreements entered into by Grantor in respect of the loan, whether
pursuant to the Note Purchase Agreement or otherwise; and (h) commercial tort
claims related to the Collateral.

              (i) All rights of Grantor under promissory notes, letters of
credit, electronic chattel paper, proceeds from accounts, payment intangibles,
and general intangibles related to the Collateral, as the terms "accounts",
"general intangibles", and "payment intangibles" are defined in the applicable
Uniform Commercial Code Article 9, as the same may be modified or amended from
time to time.

              (j) All other assets of Grantor related in any way to the
Collateral, subject to certain limitations that may be set forth herein.

              (k) All proceeds of the conversion, voluntary or involuntary, of
any of the foregoing into cash or liquidated claims, including, without
limitation, proceeds of insurance and condemnation awards, and all rights of
Grantor to refunds of real estate taxes and assessments.

              (l) All of Grantor's right, title and interest, as lessee, in, to
and under the leases listed on Exhibit D hereto (the "Leased Property"), subject
to Grantor's obtaining any required approvals by Landlord.

              The Property is not used principally or primarily for agricultural
purposes.

       2. Collateral. The following described estate, property and rights of
Grantor are also included as security for the performance of each covenant and
agreement of Grantor contained herein and the payment of all sums of money
secured hereby:

              (a) All furniture, furnishings, appliances, machinery, vehicles,
equipment and all other property of any kind now or hereafter located on the
Property, used or intended to be used on the Property wherever actually located,
or purchased with the proceeds of the Notes (as defined herein), and all rights
of Grantor as lessee of any property described in this Section 2 and subsection
1(d) above.

              (b) All compensation, awards, damages, rights of action and
proceeds (including insurance proceeds and any interest on any of the foregoing)
arising out of or relating to a taking or damaging of the Property by reason of
any public or private improvement, condemnation proceeding (including change of
grade), fire, earthquake or other casualty, injury or decrease in the value of
the Property.

                                       3
<PAGE>

              (c) All returned premiums or other payments on any insurance
policies pertaining to the Property and any refunds or rebates of taxes or
assessments on the Property.

              (d) All rights to the payment of money, accounts receivable,
deferred payments, refunds, cost savings, payments and deposits, whether now or
later to be received from third parties (including all utility deposits),
architectural and engineering plans, specifications and drawings, contract
rights, governmental permits and licenses, and agreements and purchase orders
which pertain to or are incidental to the design or construction of any
improvements on the Property, Grantor's rights under any payment, performance,
or other bond in connection with construction of improvements on the Property,
and all construction materials, supplies, and equipment delivered to the
Property or intended to be used in connection with the construction of
improvements on the Property wherever actually located.

              (e) All contracts and agreements pertaining to or affecting the
Property including, but not limited to, management, operating and franchise
agreements, licenses, trade names and trademarks.

              (f) All of Grantor's interest in and to the loan account, the loan
funds, whether disbursed or not, and Grantor's own funds now or later to be held
on deposit as equity funds or for payment of bills relating to the Property.

              (g) All commitments or agreements, now or hereafter in existence,
which will provide Grantor with proceeds to satisfy the Secured Obligations
(defined below) and the right to receive the proceeds due under such commitments
or agreements including refundable deposits and fees.

              (h) All books and records pertaining to any and all of the
property described above, including computerreadable memory and any computer
hardware or software necessary to access and process such memory.

              (i) All additions, accessions, replacements, substitutions,
proceeds and products of the property described in this Section 2 and of any of
the Property which is personal property.

              The Property and all of the property and rights described in
Section 1 and 2 are referred to herein collectively as the "Collateral."

       3. Security Agreement. To the extent that any of the Collateral may be
determined to be personal property, Grantor as debtor hereby grants Holders and
Beneficiary as agent for the Holders as secured party a security interest in all
such personal property or fixtures to secure payment and performance of the
Secured Obligations (defined below). This Deed of Trust constitutes a security
agreement, a financing statement and fixture filing pursuant to the Uniform
Commercial Code with respect to any and all property now or hereafter described
in any Uniform Commercial Code Financing Statement naming Grantor as Debtor and
Beneficiary as Secured Party affecting or related to the use and enjoyment of
the Property. Grantor agrees that it will

                                       4
<PAGE>

not terminate or amend any financing statements filed in connection with the
Secured Obligations (as hereinafter defined) without Beneficiary's prior
consent. The remedies for any violation of the covenants, terms and conditions
of the agreements herein contained shall be (a) as prescribed herein, or (b) by
general law, or (c) as to such part of the security which is also reflected in
any such Financing Statement by the specific statutory consequences now or
hereafter enacted and specified in the Uniform Commercial Code, all at
Beneficiary's sole election. Grantor and Beneficiary agree that the filing of
such a Financing Statement in the records normally having to do with personal
property shall never be construed as in anywise derogating from or impairing
this declaration and hereby stated intention of the parties hereto, that
everything used in connection with the production of income from the property
that is the subject of this Deed of Trust and/or adapted for use therein and/or
which is described or reflected in this Deed of Trust is, and at all times and
for all purposes and in all proceedings both legal or equitable shall be,
regarded as part of the real estate irrespective of whether (a) any such item is
physically attached to the improvements, (b) serial numbers are used for the
better identification of certain equipment items capable of being thus
identified in any list filed with the Beneficiary, or (c) any such item is
referred to or reflected in any such Financing Statement so filed at any time.

       4. Financing Statement. This Deed of Trust shall also serve as a
financing statement filed for record in the real estate records as a fixture
filing pursuant to the Uniform Commercial Code. This Deed of Trust may be given
to secure an obligation incurred to refinance an obligation incurred for the
construction of an improvement on the Property, including the acquisition of the
Property.

       5. Obligations Secured. THIS DEED OF TRUST IS FOR THE PURPOSE OF SECURING
the following ("Secured Obligations"):

              (a) Payment of the sum of up to THIRTY-SIX MILLION DOLLARS
($36,000,000) or so much thereof with interest thereon as shall be evidenced by
all notes described in the Note Purchase Agreement or other instruments
evidencing the indebtedness secured by this Deed of Trust including all
renewals, amendments, modifications or extensions thereof and substitutions
therefor.

              (b) Payment of any further sums now or hereafter advanced or
loaned by Beneficiary or Holders (including any assignee of Beneficiary or
Holders) to any Borrower under the Note Purchase Agreement or any of their
successors or assigns, and payment of every other present and future obligation
owing by any Borrower to Beneficiary or Holders (or any such assignee) of any
kind, and all renewals, modifications, and extensions thereof, including any
interest, fees, costs, service charges and expenses connected with such
obligations (this Deed of Trust, the Note Purchase Agreement and all such other
documents, evidencing or securing the loan are hereafter collectively referred
to as the "Loan Documents") together with interest thereon at the rate set forth
in the Note Purchase Agreement unless otherwise specified in the Loan Documents
or agreed to in writing.

                                       5
<PAGE>

              (c) Performance of each agreement, term and condition set forth or
incorporated by reference in the Loan Documents, as such may be amended,
including without limitation the Note Purchase Agreement, which are incorporated
herein by reference, or contained herein.

       6. Performance of Obligations. Grantor shall promptly and timely pay all
sums due pursuant to the Loan Documents, strictly comply with all the terms and
conditions of the Loan Documents, and perform each Secured Obligation in
accordance with its terms.

       7. Assignment of Rents and Leases. Grantor hereby absolutely and
irrevocably assigns to Beneficiary all Grantor's interest in the Rents and
Leases whether now due, past due or to become due, and hereby gives to and
confers upon Beneficiary the right, power and authority to collect such Rents
and proceeds, and Grantor, without limiting the generality of the Granting
Clause hereof, specifically hereby presently, absolutely, unconditionally and
irrevocably assigns, transfers and sets over all of the Rents now or hereafter
accruing to Beneficiary. Grantor irrevocably appoints Beneficiary its true and
lawful attorney at the option of Beneficiary at any time to demand, receive and
enforce payment, to give receipts, releases and satisfactions, and to sue,
either in the name of Grantor or in the name of Beneficiary, for all such Rents
and proceeds. It is understood and agreed that neither the foregoing assignment
of Rents and proceeds to Beneficiary nor the exercise by Beneficiary of any of
its rights or remedies under this Deed of Trust shall be deemed to make
Beneficiary a "mortgagee-in-possession" or otherwise responsible or liable in
any manner with respect to the Property or the use, occupancy or enjoyment or
operation of all or any portion thereof, unless and until Beneficiary, in person
or by agent, assumes actual possession thereof; nor shall appointment of a
receiver for the Property by any court at the request of Beneficiary or by
agreement with Grantor or the entering into possession of the Property or any
part thereof by such receiver be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Property or the use, occupancy, enjoyment or operation of all or
any portion thereof. This assignment is intended to be specific, perfected and
choate upon the recording of this Deed of Trust as provided in RCW 7.28.230.
This assignment shall be subject to the terms and conditions of any separate
assignment of leases and/or rents, whenever executed, in favor of Beneficiary
and covering the Property. Grantor warrants that it has made no prior assignment
of the Rents or Leases and will make no subsequent assignment without the prior
written consent of Beneficiary.

              (a) Unless otherwise provided in any separate assignment of leases
and/or rents, and so long as Grantor is not in default under the Loan Documents,
Grantor may collect the Rents as they become due and not more than one (1) month
in advance. Grantor shall use the Rents to pay normal operating expenses for the
Property and sums due and payments required under the Loan Documents. No Rents
shall be collected for a period subsequent to the current one month rental
period and first or last month's rent. Grantor's right to collect the Rents
shall not constitute Beneficiary's consent to the use of cash collateral in any
bankruptcy proceeding.

                                       6
<PAGE>

              (b) If Grantor is in default under the Loan Documents, without
notice to Grantor, Beneficiary or its agents, or a court appointed receiver, may
collect the Rents. In doing so, Beneficiary may (i) evict lessees for nonpayment
of rent, (ii) terminate in any lawful manner any tenancy or occupancy, (iii)
lease the Property in the name of the then owner on such terms as it may deem
best and (iv) institute proceedings against any lessee for past due Rents. The
Rents received shall be applied to payment of the costs and expenses of
collecting the Rents, including a reasonable fee to Beneficiary, a receiver or
an agent, operating expenses for the Property and any sums due or payments
required under the Loan Documents, in such order as Beneficiary may determine.
Any excess shall be paid to Grantor, however, Beneficiary may withhold from any
excess a reasonable amount to pay sums anticipated to become due which exceed
the anticipated future Rents. Beneficiary's failure to collect or discontinuing
collection at any time shall not in any manner affect the subsequent enforcement
by Beneficiary of its rights to collect the Rents. Except in the case of a full
reinstatement of the Secured Obligations, the collection of the Rents shall not
cure or waive any default under the Loan Documents. Any Rents paid to
Beneficiary or a receiver shall be credited against the amount due from the
lessees under the Leases. In the event any lessee under the Leases becomes the
subject of any proceeding under the Bankruptcy Code or any other federal, state
or local statute which provides for the possible termination or rejection of the
Leases assigned hereby, Grantor covenants and agrees that in the event any of
the Leases are so rejected, no damages settlement shall be made without the
prior written consent of Beneficiary; any check in payment of damages for
rejection or termination of any such Lease will be made payable both to the
Grantor and Beneficiary; and Grantor hereby assigns any such payment to
Beneficiary and further covenants and agrees that upon request of Beneficiary,
it will duly endorse to the order of Beneficiary any such check, the proceeds of
which will be applied to any portion of the indebtedness secured hereunder in
such manner as Beneficiary may elect.

              (c) Regardless of whether or not Beneficiary, in person or by
agent, takes actual possession of the Property or any part thereof, Beneficiary
is not and shall not be deemed to be:

                     (i) "a mortgagee in possession" for any purpose; or

                     (ii) responsible for performing any of the obligations of
the lessor under any Lease; or

                     (iii) responsible for any waste committed by lessees or any
other parties, any dangerous or defective condition of the Property, or any
negligence in the management, upkeep, repair or control of the Property; or

                     (iv) liable in any manner for the Property or the use,
occupancy, enjoyment or operation of all or any part of it.

              In exercising its rights under this Section Beneficiary shall be
liable only for the proper application of and accounting for the Rents collected
by Beneficiary or its agents.

                                       7
<PAGE>

       8. Leases.

              (a) Grantor shall fully comply with all of the terms, conditions
and provisions of the Leases so that the same shall not become in default and to
do all that is needful to preserve all said Leases in force. With respect to any
Lease of the whole or any part of the Property, Grantor shall not, without the
prior written consent of Beneficiary, which consent shall not be unreasonably
withheld, (i) permit assignment or subletting of all or part of the lessee's
rights under the Lease unless the right to assign or sublet is expressly
reserved by the lessee under the Lease, (ii) execute an assignment of the rents
or any part thereof from the Collateral without Beneficiary's prior consent,
(iii) modify or amend any lease so as to shorten the unexpired term thereof or
so as to decrease, waive or compromise in any manner the amount of rents payable
thereunder or materially expand the obligations of the lessor thereunder, (iv)
accept surrender of the Lease or terminate the Lease except in accordance with
the terms of the Lease providing for termination in the event of a default, (v)
accept prepayments of any installments of rents to become due under such leases,
except prepayments in the nature of security for the performance of the lessees
thereunder, (vi) modify, release or terminate any guaranties of any such lease
or (vii) in any other manner impair the value of the Property or the security
hereof. Any proceeds or damages resulting from a lessee's default under any such
Lease, at Beneficiary's option, shall be paid to Beneficiary and applied against
sums owed under the Loan Documents even though such sums may not be due and
payable. Except for non-delinquent real estate taxes and assessments, Grantor
shall not permit any lien to be created against the Property which may be or may
become prior to any Lease. If the Property is partially condemned or suffers a
casualty, Grantor shall promptly repair and restore the Property in order to
comply with the Leases.

              (b) Grantor will not execute any lease of all or a substantial
portion of the Property except for actual occupancy by the lessee thereunder,
and will at all times promptly and faithfully perform, or cause to be performed,
all of the covenants, conditions and agreements contained in all leases of the
Property or portions thereof now or hereafter existing, on the part of the
lessor thereunder to be kept and performed and will at all times do all things
necessary to compel performance by the lessee under each lease of all
obligations, covenants and agreements by such lessee to be performed thereunder.
If any of such leases provide for the giving by the lessee of certificates with
respect to the status of such leases, Grantor shall exercise its right to
request such certificates within five (5) days of any demand therefor by
Beneficiary and shall deliver copies thereof to Beneficiary promptly upon
receipt.

              (c) Each lease of the Property, or of any part thereof, executed
after the date hereof, shall provide that, in the event of the enforcement by
Trustee or Beneficiary of the remedies provided for hereby or by law, the lessee
thereunder will, upon request of any person succeeding to the interest of
Grantor as a result of such enforcement, automatically become the lessee of said
successor in interest, without change in the terms or other provisions of such
lease, provided, however, that said successor in interest shall not be bound by
(i) any payment of rent or additional rent for more than one (1) month in
advance, except prepayments in the nature of security for the performance by
said lessee of its obligations under said lease or (ii) any amendment or

                                       8
<PAGE>

modification of the lease made without the consent of Beneficiary or such
successor in interest. Each lease shall also provide that, (x) the lease is
subordinate to this Deed (but shall also provide that Beneficiary, at its
option, may subordinate this Deed to such lease) and (y) upon request by said
successor in interest, such lessee shall execute and deliver an instrument or
instruments confirming such attornment.

              (d) Grantor shall furnish to Beneficiary upon request, but not
more than semi-annually, a certified leasing status report in respect of the
Property and a certified rent roll containing the names of all lessees of the
Property, the terms of their respective leases, the space occupied and the
rentals payable thereunder, together with copies, certified to be true and
complete, of such leases as may be requested by Beneficiary.

              (e) Grantor shall, promptly upon Beneficiary's request, deposit
all tenant security deposits in respect of the Property into an account with
Beneficiary or as designated by Beneficiary, which deposits shall be held and
disbursed to tenants as required under the terms of their respective leases.

       9. Warranty of Title. Grantor warrants that it (i) has good and
marketable title to an indefeasible fee simple estate in the Property, unless
Grantor's present interest in the Property is described in Exhibits A through C
as a leasehold interest, in which case Grantor warrants that it lawfully
possesses and holds a valid leasehold interest in the Property as stated in
Exhibits A through C, (ii) has good and marketable title to the personal
property Collateral, and (iii) holds a valid leasehold interest as tenant under
the leases described in Exhibit D, and that said leases are prior to all liens,
charges and encumbrances on the lessor's interest thereunder, subject, in each
case, to no liens, encumbrances, easements, assessments, security interests,
claims or defects of any kind prior or subordinate to the lien of this Deed of
Trust, except those listed in Beneficiary's title insurance policy, listed on
Exhibit E hereto, or approved by Beneficiary in writing (the "Permitted
Exceptions") and real estate taxes for the current year. Grantor warrants that
the Permitted Exceptions and the real estate taxes are not delinquent or in
default, and that Grantor has the right to convey the Property to Trustee for
the benefit of Beneficiary, and the right to grant a security interest in the
personal property Collateral. Grantor has the full power and authority to
subject the Property to the lien hereof in the manner and form herein done and
intended hereafter to be done. Grantor will preserve such title, and Grantor
will forever warrant and defend title to the Collateral and will defend the
validity and priority of the lien of this Deed of Trust and the security
interest granted herein against any claims or demands.

       10. Prohibited Liens.

              (a) Grantor shall not permit any governmental or statutory liens
(including tax, mechanic's or materialmen's liens) to be filed against the
Property except for real estate taxes and assessments not yet delinquent by
non-payment and liens permitted by the Loan Documents or approved by Beneficiary
in writing. Grantor will pay, from time to time when the same shall become due,
all lawful claims and demands of mechanics, materialmen, laborers, and others
which, if unpaid, might result in, or

                                       9
<PAGE>

permit the creation of, a lien on the Property or any part thereof, and in
general will do or cause to be done everything necessary so that the lien and
effect hereof shall be fully preserved, at the cost of Grantor and without
expense to Trustee or Beneficiary.

              (b) Grantor will have the right to contest in good faith by an
appropriate legal or administrative proceeding the validity of any prohibited
lien, encumbrance or charge so long as (i) no default exists under the Loan
Documents, (ii) Grantor first deposits with Beneficiary a bond or other security
satisfactory to Beneficiary in the amount reasonably required by Beneficiary,
but not more than one and one--half (1 1/2) (i.e., 150%) of the amount of the
claim; (iii) Grantor immediately commences its contest of such lien, provided,
however, that within twenty (20) days after the filing of such lien Grantor
discharges said lien of record or records a bond which complies with the
requirements of RCW 60.04.161 eliminating such lien as an encumbrance on the
Property, and continuously pursues the contest in good faith and with due
diligence; (iv) foreclosure of the lien, encumbrance or charge is stayed; and
(v) Grantor pays any judgment rendered for the lien claimant or other third
party within ten (10) days after the entry of the judgment. If the contested
item is a mechanic's or materialmen's lien, Grantor will furnish Beneficiary
with an endorsement to its title insurance policy which insures the priority of
this Deed of Trust over the lien being contested. Grantor will discharge or
elect to contest and post an appropriate bond or other security within twenty
(20) days of written demand by Beneficiary.

       11. Payment of Taxes and Other Encumbrances. Grantor will pay when due:

              (a) All taxes, assessments and other governmental or public
charges affecting the Property, including assessments on appurtenant water
stock, and any accrued interest, cost and/or penalty thereon and upon request by
Beneficiary will submit receipts therefor to Beneficiary promptly following
payment;

              (b) All encumbrances (including any debt secured by deeds of
trust), ground rents, liens and/or charges, with interest, on the Property or
any part thereof which appear to be prior, superior or on a parity hereto, and
all costs and fees related thereto;

              (c) All charges for utilities or services, including, but not
limited to, electricity, gas, sewer and water;

              (d) All costs, fees and expenses of this Deed of Trust, including
cost of evidence of title, Trustee's fees and attorneys' fees in connection with
sale pursuant to this Deed of Trust (whether completed or not) together with
interest from and after ten (10) days following demand for repayment at the
default interest rate set forth in the Note Purchase Agreement until paid in
full.

       12. Maintenance -- No Waste.

              (a) Keep the Property in good condition and repair and not commit
or permit any waste or deterioration of the Property;

                                       10
<PAGE>

              (b) Not remove, demolish or substantially alter any portion of the
Property, except as approved in writing by Beneficiary and except such
alterations as may be required by laws, ordinances or regulations of
governmental authorities;

              (c) Comply with all laws, ordinances, rules, regulations and
orders of governmental authorities now or hereafter affecting the Property or
requiring any alterations or improvements to be made thereon, and perform all of
its obligations under any covenant, condition, restriction or agreement of
record affecting the Property;

              (d) Complete promptly and in good and workmanlike manner any
portion of the Property which may be constructed hereafter, and promptly restore
in like manner as obligated in Section 14, any portion of the Property which may
be damaged or destroyed, and pay, when due, all costs incurred and claims for
labor performed and materials furnished therefor;

              (e) Not commit, suffer or permit any act to be done in, upon or to
the Property in violation of any law or ordinance or any covenant, condition or
restriction affecting the Property;

              (f) Do any and all acts which, from the character or use of the
Property, may be reasonably necessary to protect and preserve the security of
Beneficiary, the specific enumerations herein not excluding the general;

              (g) Not permit any construction liens against the Property;

              (h) Not take or permit to be taken any actions that might
invalidate any insurance carried on the Property;

              (i) Maintain in full force and effect all licenses (including but
not limited to any operating licenses or similar matters) required or permitted
in the operation of the improvements on the Property.

       13. Alterations Removal and Demolition. Grantor shall not structurally
alter, remove or demolish any building or improvement on the Property without
Beneficiary's prior written consent. Grantor shall not remove any fixture or
other item of property which is part of the Collateral without Beneficiary's
prior written consent unless the fixture or item of property is replaced by an
article of equal suitability owned by Grantor free and clear of any lien or
security interest.

       14. Restoration.

              (a) After the happening of any casualty to the Property whether or
not required to be insured against under the policies to be provided by Grantor
hereunder, Grantor shall give prompt written notice thereof to Beneficiary
generally describing the nature and cause of such casualty and the extent of the
damage or destruction to the Property.

                                       11
<PAGE>

              (b) Grantor hereby assigns to Beneficiary all proceeds of
insurance ("Insurance Proceeds") which Grantor may be entitled to receive. In
the event of any damage to or destruction of the Collateral, then, provided
there is not an Event of Default under the Note Purchase Agreement, the Notes,
the Deed of Trust or any of the Loan Documents (as defined in the Note Purchase
Agreement) and Beneficiary has reasonably determined that its security has not
been impaired, Grantor shall commence and diligently pursue to completion in
accordance with this Section 14 the repair, restoration and rebuilding of any
portion of the Collateral that has been partially damaged or destroyed in full
compliance with all legal requirements and to the same condition, character and
at least equal value and general utility as nearly as possible to that existing
prior to such damage or destruction (the "Restoration"), and Beneficiary shall
hold and disburse the Insurance Proceeds (less the cost, if any, to Beneficiary
of recovering and paying out such proceeds (including, without limitation,
attorneys' fees and expenses, adjuster's fees, and fees incurred in
Beneficiary's performance of its obligations hereunder)) (the "Net Insurance
Proceeds") in the manner hereinafter provided to the Restoration. In the event
that the Collateral is substantially destroyed or Beneficiary has determined
that its security has been impaired, the Beneficiary may, at its option, apply
the Net Insurance Proceeds to the reduction of the Secured Obligations and
secured by this Deed of Trust in such order as Beneficiary may determine and, at
Beneficiary's option and in its sole discretion, Beneficiary, may declare the
Secured Obligations immediately due and payable.

              (c) In the event the Net Insurance Proceeds are to be used for the
Restoration, Grantor shall, prior to disbursement of any Net Insurance Proceeds
for any work in connection with the Restoration (the "Work"), deliver or furnish
to Beneficiary (i) complete plans and specifications for the Work which (A) have
been approved by all governmental authorities whose approval is required, (B)
bear the signed approval of an architect reasonably satisfactory to Beneficiary
(the "Architect") and (C) are accompanied by Architect's signed estimate of the
total estimated cost of the Restoration. Such plans and specifications shall be
subject to Beneficiary's approval, which approval shall not be unreasonably
withheld or delayed (the "Approved Plans and Specifications"); (ii) the amount
of money which, as determined by Beneficiary, will be sufficient when added to
the Net Insurance Proceeds, if any, to pay the entire cost of the Restoration
(all money as held by Beneficiary is referred to herein as the "Restoration
Funds"); (iii) copies of all permits and approvals required by law in connection
with the commencement and conduct of the Restoration; and (iv) a contract for
construction executed by Grantor and a contractor satisfactory to Beneficiary
(the "Contractor") in form, scope and substance satisfactory to Beneficiary
(including the customary retention) for performance of the Work.

              (d) After commencing the Work, Grantor shall perform or cause
Contractor to perform the Work diligently and in good faith in accordance with
the Approved Plans and Specifications approved by Beneficiary. So long as
Grantor is not in default under any of the Loan Documents, Beneficiary shall
disburse the Restoration Funds in increments to Grantor or as Grantor may
direct, from time to time as the Work progresses, to pay (or reimburse Grantor
for) the costs of the Restoration, but subject to the following conditions, any
of which Beneficiary may waive in its sole discretion:

                                       12
<PAGE>

                     (i) Beneficiary shall make such payments only upon not less
than ten (10) days' prior written notice from Grantor to Beneficiary and
Grantor's delivery to Beneficiary of (A) Grantor's written request for payment
(a "Request for Payment") accompanied by a certificate by Architect in form,
scope and substance satisfactory to Beneficiary which states that all of the
Work completed to that date has been done in compliance with the Approved Plans
and Specifications and in accordance with all provisions of law, that the amount
requested has been paid or is then due and payable and is properly a part of the
cost of the Restoration and that when added to all sums, if any, previously paid
out by Beneficiary, the requested amount does not exceed the value of the Work
done to the date of such certificate; (B) evidence satisfactory to Beneficiary
that there are no construction or similar liens for labor or material supplied
in connection with the Work to date or that any such liens have been adequately
provided for to Beneficiary's satisfaction; and (C) evidence satisfactory to
Beneficiary that the balance of the Restoration Funds remaining after making the
payments shall be sufficient to pay the balance of the cost of the Restoration
not completed to date (giving in such reasonable detail as Beneficiary may
require an estimate of the cost of such completion). Each Request for Payment
shall be accompanied by waivers of liens satisfactory to Beneficiary covering
that part of the Work previously paid for, if any, and by a search prepared by a
title company or by other evidence satisfactory to Beneficiary that no
construction liens or other liens or instruments for the retention of title in
respect of any part of the Work have been filed against the Property and not
discharged of record and that no encumbrance exists on or affecting the Property
other than encumbrances, if any, which are set forth in the title policy issued
to Beneficiary insuring the lien of this Deed of Trust; and

                     (ii) Any Request for Payment after the Restoration has been
completed shall be accompanied by a copy of any certificate or certificates
required by law to render occupancy of the Property legal.

              (e) Upon Beneficiary's receipt of the certificate of occupancy for
the Property and other customary evidence requested by Beneficiary that the
Restoration has been completed and the costs thereof paid in full, and
satisfactory evidence that no mechanic's or similar liens for labor or material
supplied in connection with the Restoration are outstanding against the Property
and Beneficiary's disbursement under the final Request for Payment, and provided
that Grantor is not then in default under any of the Loan Documents (as defined
in the Note Purchase Agreement), Beneficiary shall pay any remaining Restoration
Funds then held by Beneficiary to Grantor; provided, however, nothing contained
herein shall prevent Beneficiary from applying at any time the whole or any part
of the Restoration Funds to the curing of any Event of Default under the Loan
Documents.

              (f) If (i) within sixty (60) days after the occurrence of any
damage or destruction to the Property requiring Restoration, Grantor fails to
submit to Beneficiary and receive Beneficiary's approval of plans and
specifications or fails to deposit with Beneficiary the additional amount
necessary to accomplish the Restoration as provided in Section 14, or (ii) after
such plans and specifications are approved by all such governmental authorities
and Beneficiary, Grantor fails to commence promptly or

                                       13
<PAGE>

diligently continue to completion the Restoration, or (iii) Grantor becomes
delinquent in payment to mechanics, materialmen or others for the costs incurred
in connection with the Restoration, then, in addition to all of the rights
herein set forth, Beneficiary may apply the Restoration Funds then or thereafter
held by Beneficiary to reduce the unpaid indebtedness secured hereby in such
order as Beneficiary may determine, and at Beneficiary's option and in its sole
discretion, Beneficiary may declare the Secured Obligations immediately due and
payable.

              (g) In the event that Beneficiary applies all or any portion of
the Restoration Funds to reduce the unpaid indebtedness secured hereby as
provided in this Section 14, after payment in full of all sums secured hereby,
any remaining Restoration Funds shall be paid to Grantor.

       15. Compliance with Laws. Grantor shall comply with all laws, ordinances,
regulations, covenants, conditions, and restrictions affecting the Property,
including, without limitation, all applicable requirements of the Fair Housing
Act of 1968 (as amended) and the Americans With Disabilities Act of 1990 (as the
same may be amended from time to time), and shall not commit or permit any act
upon or concerning the Property in violation of any such laws, ordinances,
regulations, covenants, conditions, and restrictions. Grantor agrees to protect,
defend, indemnify and hold Beneficiary harmless from and against all liability
threatened against or suffered by Beneficiary by reason of a breach by Grantor
of the foregoing representations, warranties, covenants and agreements. The
foregoing indemnity shall include the cost of all alterations to the Property
(including architectural, engineering, legal and accounting costs), all fines,
fees and penalties, and all legal and other expenses (including attorneys' fees)
incurred in connection with the Property being in violation of any such laws,
ordinances, regulations, covenants, conditions and restrictions, and for the
cost of collection of the sums due under the indemnity. In the event that
Beneficiary or its designee shall become the owner of or acquire an interest in
or rights to the Property by foreclosure or deed in lieu of foreclosure of this
Deed of Trust or by other means, the foregoing indemnification obligation shall
survive such foreclosure or deed in lieu of foreclosure or other acquisition of
the Property.

       16. Leased Premises. Grantor shall undertake, and shall use its
commercially reasonable efforts, to obtain, within sixty (60) days of the date
hereof, (a) any and all required approvals by, and consents of, all landlords
with respect to the assignment of leases to Beneficiary pursuant to Section 1(l)
hereof, and (b) any and all subordination and non-disturbance agreements
required by Beneficiary in connection with the Leased Premises, on terms and
conditions reasonably satisfactory to Beneficiary.

       17. Impairment of Collateral. Grantor will faithfully perform each and
every covenant to be performed by Grantor under any lien or encumbrance,
including, without limiting the generality hereof, mortgages, deeds of trust,
leases, declarations or covenants, conditions and/or restrictions and other
agreements which affect the Property, in law or in equity, which Beneficiary
reasonably believes may be prior or superior to or on a parity with the lien or
charge of this Deed of Trust. Grantor shall not, without Beneficiary's prior
written consent, change the general nature of the occupancy of the

                                       14
<PAGE>

Property, initiate, acquire or permit any change in any public or private
restrictions (including without limitation a zoning reclassification) limiting
the uses which may be made of the Property, or take or permit any action which
would impair the Collateral or Beneficiary's lien or security interest in the
Collateral. A breach of or a default under any such lien or encumbrance, or a
breach of any requirement of this Section 16 shall constitute an event of
default under this Deed of Trust.

       18. Inspection of Property. Beneficiary is authorized, by itself, its
agents, employees or workmen, to enter at any reasonable time upon any part of
the Property for the purpose of inspecting the same upon reasonable prior notice
(except in the case of an emergency for which no prior notice need be given),
and for the purpose of performing any of the acts it is authorized to perform
under the terms of this Deed of Trust. Grantor agrees to cooperate with
Beneficiary to facilitate such inspections.

       19. Grantor's Defense of Collateral. Grantor shall appear in and defend
any action or proceeding which may affect the Collateral or the rights or powers
of Beneficiary or Trustee, and to pay all costs and expenses, including cost of
evidence of title and attorneys' fees in a reasonable sum, in any action or
proceeding in which Beneficiary and/or Trustee may appear or be made a party,
including, but not limited to, foreclosure or other proceeding commenced by
those claiming a right to any part of the Property under subordinate liens, in
any action to partition or condemn all or part of the Property, whether or not
pursued to final judgment, and in any exercise of the power of sale contained
herein, whether or not the sale is actually consummated.

       20. Beneficiary's Right to Protect Collateral. Beneficiary may commence,
appear in, and defend any action or proceeding which may affect the Collateral
or the rights or powers of Beneficiary or Trustee, and in such event,
Beneficiary shall be allowed and paid all of Beneficiary's costs, charges and
expenses, including cost of evidence of title and attorneys' fees incurred in
such action or proceeding in which Beneficiary may appear. Beneficiary may pay,
purchase, contest or compromise any encumbrance, charge or lien not listed as a
Permitted Exception which in its judgment appears to be prior or superior to the
lien of this Deed of Trust. If Grantor fails to make any payment or do any act
required under the Loan Documents, Beneficiary, without any obligation to do so
and without releasing Grantor from any obligations under the Loan Documents, may
make the payment or cause the act to be performed in such manner and to such
extent as Beneficiary may deem necessary to protect the Collateral. Beneficiary
is authorized to enter upon the Property for such purposes. In exercising any of
these powers Beneficiary may incur such expenses, in its absolute discretion, it
deems necessary, including cost of evidence of title, employ an attorney, and
pay said attorneys' reasonable fees. Grantor hereby agrees to pay immediately
following demand, together with interest from and after ten (10) days following
demand for payment at the default interest rate set forth in the Note Purchase
Agreement until paid in full, all of Beneficiary's costs, charges, expenses and
accounts referred to above in this Section 19, including cost of evidence of
title and reasonable attorneys' fees incurred in such action or proceeding in
which Beneficiary may appear. All costs, charges and expenses so incurred,
together with interest thereon as aforesaid, shall be secured by the lien of
this Deed of Trust.

                                       15
<PAGE>

       21. Hazardous Substances. Grantor represents and warrants to Beneficiary
that to the best of Grantor's knowledge after due and diligent inquiry, no
hazardous or toxic waste or substances are being stored on the Property or any
adjacent property except in strict compliance with all Environmental Laws nor
have any such waste or substances been stored or used in, on, under, over or
about the Property or any adjacent property prior to or during Grantor's
ownership, possession or control of the Property. Grantor agrees to provide
written notice to Beneficiary immediately upon Grantor becoming aware that the
Property or any adjacent property is being or has been contaminated with
hazardous or toxic waste or substances. Grantor will not cause nor permit any
activities on the Property which directly or indirectly could result in the
Property or any other property becoming contaminated with hazardous or toxic
waste or substances. For purposes of this Deed of Trust, the term "hazardous or
toxic waste or substances" means any substance or material defined or designated
as hazardous or toxic wastes, hazardous or toxic material, hazardous, toxic or
radioactive substance or other similar term by any applicable federal, state or
local statute, regulation or ordinance now or hereafter in effect.

       22. Insurance.

              (a) Grantor shall maintain insurance on the Property with premiums
prepaid providing replacement cost coverage and insuring against loss by fire
and such other risks covered by extended coverage insurance, flood (but only if
the Property is in a federally-designated flood plain), and such other perils
and risks, including loss of rents and business interruption as may be required
by Beneficiary. Grantor shall also maintain commercial general liability
insurance. All insurance shall be with companies satisfactory to Beneficiary and
in such amounts as required by Beneficiary with lender's loss payable clauses in
favor of and in form satisfactory to Beneficiary. At least thirty (30) days
prior to the expiration of the term of any insurance policy, Grantor shall
furnish Beneficiary with written evidence of renewal or issuance of a
satisfactory replacement policy. If requested Grantor shall deliver copies of
all policies to Beneficiary. If Grantor fails to maintain such insurance
satisfactory to Beneficiary, Beneficiary may make the payment on behalf of
Grantor and any sums expended shall be added to principal and bear interest at
the default interest rate set forth in the Note Purchase Agreement. Each policy
of insurance shall provide Beneficiary with no less than forty-five (45) days
prior written notice of any cancellation, expiration, nonrenewal or
modification.

              (b) In the event of any loss or damage to the Property, all
Insurance Proceeds shall be payable to Beneficiary, and Grantor hereby
authorizes and directs any affected insurance company to make payment of the
Insurance Proceeds directly to Beneficiary. The application or release by
Beneficiary of any Insurance Proceeds shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.

              (c) In the event of the foreclosure of this Deed of Trust or other
transfer of the title to the Property in extinguishment, in whole or in part, of
the indebtedness secured hereby, all right, title and interest of Grantor in and
to any insurance policy, or premiums or payments in satisfaction of claims or
any other rights thereunder

                                       16
<PAGE>

then in force, shall pass to the purchaser or grantee notwithstanding the amount
of any bid at such foreclosure sale. Nothing contained herein shall prevent
accrual of interest as provided in the Note Purchase Agreement on any portion of
the principal balance due under the Note Purchase Agreement until such time as
the Insurance Proceeds are actually received and applied to reduce the principal
balance outstanding.

       23. Condemnation. Should the Property or any part thereof be taken or
damaged by reason of any public improvement, condemnation proceeding, or
conveyance in lieu thereof, or in any other manner, Beneficiary shall be
entitled to all compensation, awards and other payments or relief therefor, and
shall be entitled, at its option, to commence, appear in and prosecute in its
own name any action or proceeding. Grantor shall have the right, with the prior
written consent of the Beneficiary, to make a compromise or settlement in
connection with such taking or damage. All such compensation, awards, damages,
rights of action and proceeds (the "Condemnation Proceeds") are hereby assigned
to Beneficiary, who shall, after deducting therefrom all its reasonable
expenses, including attorneys' fees, apply or release the Condemnation Proceeds
with the same effect as provided in Section 14 above with respect to disposition
of insurance proceeds; provided, that if such Condemnation Proceeds are to be
utilized for restoration of the Property and there are any excess Condemnation
Proceeds after application thereof to the restoration of the Property,
Beneficiary shall be entitled to apply such excess to the reduction of any
indebtedness outstanding under the Note Purchase Agreement. Grantor agrees to
execute such further assignments of the Condemnation Proceeds as Beneficiary may
require. Nothing contained herein shall prevent the accrual of interest as
provided in the Note Purchase Agreement on any portion of the Condemnation
Proceeds to be applied to the principal balance due under the Note Purchase
Agreement until such Condemnation Proceeds are actually received and applied.

       24. Reserve Account.

              (a) If Beneficiary so requires, Grantor shall pay to Beneficiary
monthly, together with and in addition to any payments of principal and/or
interest due under the Note Purchase Agreement, a sum, as estimated by the
Beneficiary, equal to the ground rents, if any, the real estate taxes and
assessments next due on the Property and the premiums next due on insurance
policies required under the Loan Documents, less all sums already paid therefor,
divided by the number of months to elapse before two (2) months prior to the
date when the ground rents, real estate taxes, assessments and insurance
premiums will become delinquent. The monthly reserve account payments and any
principal and/or interest payments due shall be paid in a single payment and
applied by Beneficiary in the following order: (i) ground rents, real estate
taxes, assessments and insurance premiums, (ii) expenditures made pursuant to
the Loan Documents and interest thereon, (iii) interest on the obligations of
Borrowers under Note Purchase Agreement, and (iv) principal due on the
obligations of Borrowers under Note Purchase Agreement. Grantor shall promptly
deliver to Beneficiary all bills and notices pertaining to the ground rents,
taxes, assessments and insurance premiums.

                                       17
<PAGE>

              (b) The reserve account is solely for the protection of
Beneficiary. Beneficiary shall have no responsibility except to credit properly
the sums actually received by it. No interest will be paid on the funds in the
reserve account and Beneficiary shall have no obligation to deposit the funds in
an interest-bearing account. Upon assignment of this Deed of Trust by
Beneficiary, any funds in the reserve account shall be turned over to the
assignee and any responsibility of Beneficiary with respect thereto shall
terminate. Each transfer of the Property shall automatically transfer to the
grantee all rights of Grantor to any funds in the reserve account.

              (c) If the total of the payments to the reserve exceeds the amount
of payments actually made by Beneficiary, plus such amounts as have been
reasonably accumulated in the reserve account toward payments to become due,
such excess may, at Beneficiary's election, be (i) credited by Beneficiary
against sums then due and payable under the Loan Documents or (ii) refunded to
Grantor as its name appears on the records of Beneficiary. If, however, the
reserve account does not have sufficient funds to make the payments when they
become due, Grantor shall pay to Beneficiary the amount necessary to make up the
deficiency within fifteen (15) days after written notice to Grantor. If this
Deed of Trust is foreclosed or if Beneficiary otherwise acquires the Property,
the Beneficiary shall, at the time of commencement of the proceedings or at the
time the Property is otherwise acquired, apply the remaining funds in the
reserve account, less such sums as will become due during the pendency of the
proceedings, against the sums due under the Loan Documents and/or to make
payments required under the Loan Documents.

       25. Repayment of Beneficiary's Expenditures. Grantor shall pay within ten
(10) days after written notice from Beneficiary all sums expended by Beneficiary
and all costs and expenses incurred by Beneficiary in taking any actions
pursuant to the Loan Documents, including attorneys' fees, accountants' fees,
appraisal and inspection fees, and the costs for title reports. If any laws or
regulations are passed subsequent to the date of this Deed of Trust which
require Beneficiary to incur out-of-pocket expenses in order to maintain,
modify, extend or foreclose this Deed of Trust, or revise the terms of the loan
secured hereby, Grantor shall reimburse Beneficiary for such expenses within ten
(10) days after written notice from Beneficiary. Expenditures by Beneficiary
shall bear interest from the date of such advance or expenditure at the default
interest rate set forth in the Note Purchase Agreement until paid, shall
constitute advances made under this Deed of Trust and shall be secured by and
have the same priority as the lien of this Deed of Trust. If Grantor fails to
pay any such expenditures, costs and expenses and interest thereon, Beneficiary
may, at its option, without foreclosing the lien of this Deed of Trust, commence
an independent action against Grantor for the recovery of the expenditures
and/or advance any undisbursed loan proceeds to pay the expenditures.

       26. Additional Security Documents. Grantor shall within fifteen (15) days
after request by Beneficiary execute and deliver any financing statement,
renewal, affidavit, certificate, continuation statement, or other document as
Beneficiary may request in order to perfect, preserve, continue, extend, or
maintain security interests or liens previously granted and the priority of the
security interests or liens. Grantor shall

                                       18
<PAGE>

pay all costs and expenses incurred by Beneficiary in connection with the
preparation, execution, recording, filing, and refiling of any such document.

       27. Conveyance of Property; Further Encumbrance. In the event that all or
any part of or any interest in the Property shall be sold, transferred, leased
(other than space leases without options to purchase), further encumbered,
conveyed, or a contract of sale or other conveyance entered into with respect
thereto, without the prior written consent of Beneficiary, then, upon the
occurrence of any one or more of the foregoing events, and regardless of whether
or not Grantor shall be in default under the Note Purchase Agreement or this
Deed of Trust or any Loan Document, Beneficiary may, at its option, declare the
then outstanding principal balance evidenced by the Note Purchase Agreement plus
accrued interest thereon immediately due and payable or, at its sole option, it
may consent to said conveyance or transfer in writing and may increase the rate
of the loan to the interest rate which Beneficiary would then commit to make a
mortgage loan to a borrower of comparable financial strength and managerial
expertise, and secured by similar security of comparable value and character,
and impose whatever other conditions it shall deem necessary to compensate it
for such increased risk resulting from the breach of the foregoing covenants.
Such increase in interest rate or imposition of additional terms shall entitle
Beneficiary to increase monthly payments under the Notes so that the increased
monthly installments will fully amortize the outstanding balance of the
indebtedness evidenced thereby over the unexpired amortization term of the
Notes. The execution and delivery by the Grantor of any joint venture agreement,
partnership agreement, declaration of trust or option agreement whereunder any
other person or corporation may become entitled, directly or indirectly, to the
possession or enjoyment of the Property, or the income or other benefits derived
or to be derived therefrom shall in each case be deemed to be a conveyance or
assignment of the Grantor's interest in the Property for the purposes of this
section, and shall require the prior written consent of the Beneficiary.

       28. Release of Parties or Collateral. Without affecting the obligations
of any party under the Loan Documents and without affecting the lien of this
Deed of Trust and Beneficiary's security interest in the Collateral, Beneficiary
and/or Trustee may, without notice (a) release all or any Grantor, any Borrower
and/or any other party now or hereafter liable for any of the Secured
Obligations (including guarantors), (b) release all or any part of the
Collateral, (c) subordinate the lien of this Deed of Trust or Beneficiary's
security interest in the Collateral, (d) take and/or release any other security
for or guarantees of the Secured Obligations, (e) grant an extension of time for
performance of the Secured Obligations, (f) modify, waive, forbear, delay or
fail to enforce any of the Secured Obligations, (g) sell or otherwise realize on
any other security or guaranty prior to, contemporaneously with or subsequent to
a sale of all or any part of the Collateral, (h) make advances pursuant to the
Loan Documents including advances in excess of the amount provided for under the
Note Purchase Agreement, (i) consent to the making of any map or plat of the
Property, and (j) join in the grant of any easement on the Property. Any
subordinate lienholder shall be subject to all such releases, extensions or
modifications without notice to or consent from the subordinate lienholder.
Grantor shall pay any Trustee's, attorneys', title insurance, recording,
inspection or other fees or

                                       19
<PAGE>

expenses incurred in connection with release of Collateral, the making of a map,
plat or the grant of an easement.

       29. Default -- Remedies. The occurrence of any Event of Default (as
defined in the Note Purchase Agreement) or Grantor's failure to comply with any
term or condition of the Loan Documents, including without limitation, this Deed
of Trust and payments due under the Note Purchase Agreement or other obligations
secured by this Deed of Trust, shall constitute an Event of Default. Upon the
occurrence of an Event of Default Beneficiary may declare all amounts owed under
the Secured Obligations, and all accrued and unpaid interest and other sums in
respect thereof, immediately due and payable after applicable notice as set
forth herein and/or exercise its rights and remedies under the Loan Documents
and applicable law including foreclosure of this Deed of Trust judicially or non
judicially by the Trustee pursuant to the power of sale. In the event of any
such Event of Default and upon written request of Beneficiary, Trustee shall
sell the Property in accordance with the Deed of Trust Act of the state of
Washington (RCW Chapter 61.24 as existing now or hereafter amended) and the
Uniform Commercial Code of the state of Washington, where applicable, at public
auction to the highest bidder. Any person except Trustee may bid at Trustee's
sale. Trustee shall apply the proceeds of the sale as follows: (i) to the
expenses of sale, including a reasonable Trustee's fee and attorneys' fee; (ii)
to all the Secured Obligations (principal and interest) and all other
indebtedness secured by this Deed of Trust or any other instrument, in such
order and amounts as Beneficiary may elect; (iii) the surplus, if any, shall be
distributed in accordance with said Deed of Trust Act. Trustee shall deliver to
the purchaser at the sale its deed, without warranty, which shall convey to the
purchaser the interest in the property which Grantor had or had the power to
convey at the time of its execution of this Deed of Trust and such as it may
have acquired thereafter. Trustee's deed shall recite the facts showing that the
sale was conducted in compliance with all the requirements of the law and of
this Deed of Trust, which recital shall be prima facie evidence of such
compliance and conclusive evidence thereof in favor of bona fide purchasers and
encumbrances for value. The power of sale conferred by this Deed of Trust and by
the Deed of Trust Act of the state of Washington is not an exclusive remedy, and
when not exercised Beneficiary may foreclose this Deed of Trust as a mortgage.

              Trustee is not obligated to notify any party hereto of pending
sale under any other deed of trust or of any action or proceeding in which
Grantor, Trustee or Beneficiary shall be a party, unless such action or
proceeding is brought by Trustee.

              Beneficiary may proceed as to the Collateral which constitutes
personal property in accordance with Beneficiary's rights and remedies in
respect to the Property or sell the Personal Property Collateral separately and
without regard to the remainder of the Property in accordance with Beneficiary's
rights and remedies provided by the Washington Uniform Commercial Code as well
as other rights and remedies available at law or in equity. Beneficiary's
exercise of any of its rights and remedies shall not constitute a waiver or cure
of a default. Beneficiary's failure to enforce any default shall not constitute
a waiver of the default or any subsequent default. In the event of foreclosure,
the cost of the title premium for the trustee sale guarantee (or equivalent
policy) shall be paid for by Grantor. In the event the Loan Documents are
referred to an

                                       20
<PAGE>

attorney for enforcement or preservation of Beneficiary's rights or remedies,
whether or not suit is filed or any proceedings are commenced, Grantor shall pay
all Beneficiary's costs and expenses including Trustee's and attorneys' fees
(including attorneys' fees for any appeal, bankruptcy proceeding or any other
proceeding), accountants' fees, appraisal and inspection fees and cost of a
title report.

       30. Cumulative Remedies. To the extent allowed by law, all Beneficiary's
and Trustee's rights and remedies specified in the Loan Documents are
cumulative, not mutually exclusive and not in substitution for any rights or
remedies available in law or equity. In order to obtain performance of Grantor's
obligations under the Loan Documents, without waiving its rights in the
Collateral, Beneficiary may proceed against Grantor or any Borrower or may
proceed against any other security or guaranty for the Secured Obligations, in
such order and manner as Beneficiary may elect. The commencement of proceedings
to enforce a particular remedy shall not preclude the discontinuance of the
proceedings and the commencement of proceedings to enforce a different remedy.

       31. Entry. Beneficiary, in person, by agent or by court appointed
receiver, may enter, take possession of, manage and operate all or any part of
the Property, and may also do any and all other things in connection with those
actions that Beneficiary may in its sole discretion consider necessary and
appropriate to protect the security of this Deed of Trust. Such other things may
include: taking and possessing all of Grantor's or the then owner's books and
records; entering into, enforcing, modifying, or canceling Leases on such terms
and conditions as Beneficiary may consider proper; obtaining and evicting
tenants; fixing or modifying Rents; collecting and receiving any payment of
money owing to Grantor; completing any unfinished construction; and/or
contracting for and making repairs and alterations. Grantor hereby irrevocably
constitutes and appoints Beneficiary as its attorney-in-fact to perform such
acts and execute such documents as Beneficiary in its sole discretion may
consider to be appropriate in connection with taking these measures.

       32. Appointment of Receiver. In the event of a default, Grantor consents
to and Beneficiary shall be entitled, without notice, without bond, and without
regard to the adequacy of the Collateral, to the appointment of a receiver for
the Collateral. The receiver shall have, in addition to all the rights and
powers customarily given to and exercised by a receiver, all the rights and
powers granted to Beneficiary by the Loan Documents. The receiver shall be
entitled to receive a reasonable fee for management of the Property. If Grantor
is an occupant of the Property, Beneficiary has the right to require Grantor to
pay rent at fair market rates and the right to remove Grantor from Property if
Grantor fails to pay rent.

       33. Sale of Property After Default. The Collateral may be sold separately
or as a whole, at the option of Beneficiary following a default. In the event of
a Trustee's sale of all the Collateral, Beneficiary hereby assigns its security
interest in the personal property Collateral to the Trustee. Beneficiary may
also realize on the personal property Collateral in accordance with the remedies
available under the Uniform Commercial Code or at law. In the event of a
Trustee's sale, Grantor, and the holder of any

                                       21
<PAGE>

subordinate liens or security interest with actual or constructive notice
hereof, waive any equitable, statutory or other right they may have to require
marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein, or to direct the order in which
any of the Collateral will be sold in the event of any sale under this Deed of
Trust or foreclosure in the inverse order of alienation.

       34. Foreclosure of Lessee's Rights--Subordination. Beneficiary shall have
the right, of its option, to foreclose this Deed of Trust subject to the rights
of any lessees of the Property. Beneficiary's failure to foreclose against any
lessee shall not be asserted as a claim against Beneficiary or as a defense
against any claim by Beneficiary in any action or proceeding. Beneficiary at any
time may subordinate this Deed of Trust to any or all of the Leases except that
Beneficiary shall retain its priority claim to any condemnation or insurance
proceeds.

       35. Repairs During Redemption. In the event of a judicial foreclosure the
purchaser during any redemption period may make such repairs and alterations to
the Property as may be reasonably necessary for the proper operation, care,
preservation, protection and insuring of the Property. Any sums so paid,
together with interest from the date of the expenditure at the rate provided in
the judgment, shall be added to the amount required to be paid for redemption of
the Property.

       36. Reconveyance After Payment. Upon written request of Beneficiary
stating that all obligations secured by this Deed of Trust have been paid,
Trustee shall reconvey, without warranty, the Property then subject to the lien
of this Deed of Trust. The recitals in any reconveyance of any matters of fact
shall be conclusive proof of the truthfulness thereof. The grantee in the
reconveyance may be described as "the person or persons legally entitled
thereto." Grantor shall pay any costs, Trustee's fees and recording fees
incurred in so reconveying the Property.

       37. Nonwaiver of Terms and Conditions. Time is of the essence with
respect to performance of the obligations due under the Loan Documents.
Beneficiary's failure to require prompt enforcement of any required obligation
shall not constitute a waiver of the obligation due or any subsequent required
performance of the obligation. No term or condition of the Loan Documents may be
waived, modified or amended except by a written agreement signed by Grantor and
Beneficiary. Any waiver of any term or condition of the Loan Documents shall
apply only to the time and occasion specified in the waiver and shall not
constitute a waiver of the term or condition at any subsequent time or occasion.

       38. Waivers by Grantor. Without affecting any of Grantor's obligations
under the Loan Documents, Grantor waives the following:

              (a) Any right to require Beneficiary to proceed against any
specific party liable for sums due under the Loan Documents or to proceed
against or exhaust any specific security for sums due under the Loan Documents.

                                       22
<PAGE>

              (b) Diligence, demand for performance, notice of nonperformance,
presentment, protest and notice of dishonor and notice of new or additional
indebtedness of any Grantor, any Borrower or any other party liable for sums due
under the Loan Documents to Beneficiary.

              (c) Any defense arising out of Beneficiary entering into
additional financing or other arrangements with any Grantor, any Borrower or any
party liable for sums due under the Loan Documents not relating to the Property
and any action taken by Beneficiary in connection with any such financing or
other arrangements or any pending financing or other arrangements not related to
the Property.

              (d) Any defense arising out of the absence, impairment, or loss of
any or all rights of recourse, reimbursement, contribution or subrogation or any
other rights or remedies of Beneficiary against any Grantor, any Borrower or any
other party liable for sums due under the Loan Documents or any Collateral.

              (e) Any obligation of Beneficiary to see to the proper use and
application of any proceeds advanced pursuant to the Loan Documents.

       39. Right of Subrogation. Beneficiary is subrogated to the rights,
whether legal or equitable, of all beneficiaries, mortgagees, lienholders and
owners directly or indirectly paid off or satisfied in whole or in part by any
proceeds advanced by Beneficiary under the Loan Documents, regardless of whether
these parties assigned or released of record their rights or liens upon payment.

       40. Joint and Several Liability. If there is more than one Grantor of
this Deed of Trust, their obligations shall be joint and several.

       41. Statement of Amount Owing. Grantor upon request by Beneficiary will
furnish a written statement duly acknowledged of the amount due under the Loan
Documents and whether any offsets or defenses exist against the amount due.

       42. Books and Records Financial Statements. Grantor will keep and
maintain at Grantor's address stated above, or such other place as Beneficiary
may approve in writing, books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, contracts, leases and other instruments shall be subject to
examination, inspection and copying at any reasonable time by Beneficiary.
Grantor shall provide to Beneficiary within ninety (90) days after the end of
each of Grantor's fiscal years (or within twenty (20) days of Beneficiary's
written request therefor if Grantor is in default), for each Grantor, each
Borrower and for each guarantor of the Secured Obligations, a complete and
current financial statement and copy of its most recent federal income tax
return, together with a statement of income and expenses of the Property and a
statement of changes in financial position with respect to the Property for the
prior year, each in reasonable detail and certified by Grantor, each Borrower or
guarantor, as the case may be, and if Beneficiary shall require, by an
independent certified public accountant. At the same time, Grantor shall also
furnish a

                                       23
<PAGE>

current rent roll for the Property, certified by Grantor, showing the name of
each tenant, the space occupied, the lease expiration date, the monthly rent, a
schedule of gross receipts for each tenant obligated to pay rent based on a
percentage of receipts, the date to which rent has been paid and any deposit
Grantor is holding. Grantor's compliance with these provisions shall not limit
or affect Grantor's obligations to comply with financial, tax and operation
covenants and reporting requirements under any other agreement between Grantor
and Beneficiary whether or not such other agreement is related to the Secured
Obligations.

       43. Appraisals. In the event of a default Beneficiary may obtain a
current appraisal of the Property which is to be paid for by Grantor. Appraisals
may be commissioned by Beneficiary when required by laws and regulations which
govern Beneficiary's lending practices. The cost of all such appraisals will be
home by Grantor.

       44. Maximum Interest Rate. If any payment of interest, fees and/or
charges under the Loan Documents shall exceed the maximum amounts permitted by
any applicable law of the State of Washington, then the payment made or to be
made shall be reduced so that in no event shall any obligor pay or Beneficiary
receive an amount in excess of the maximum amount permitted by any applicable
law. If Beneficiary receives an excess amount, it shall be treated as a
prepayment of principal or shall be returned to the payor, at Beneficiary's
option.

       45. Evasion of Prepayment Fee. If Grantor is in default, whether
Beneficiary has accelerated the maturity of the indebtedness or not, any tender
of payment sufficient to satisfy all sums due under the Loan Documents trade at
any time prior to foreclosure sale shall constitute an evasion of the prepayment
terms of the Note Purchase Agreement, if any, and shall be deemed a voluntary
prepayment. Any such payment, to the extent permitted by law, shall include the
additional payment required under the prepayment fee provision in the Note
Purchase Agreement, if any.

       46. Payment of New Taxes. If any federal, state or local law is passed
subsequent to the date of this Deed of Trust which requires Beneficiary to pay
any tax because of this Deed of Trust or the sums due under the Loan Documents
(excluding income taxes), then Grantor shall pay to Beneficiary on demand any
such taxes if it is lawful for Grantor to pay them, or, in the alternative
Grantor may repay all sums due under the Loan Documents plus any prepayment fee
within thirty (30) days of such demand. If it is not lawful for Grantor to pay
such taxes, then at its option Beneficiary may declare a default under the Loan
Documents.

       47. Insolvency Proceedings. Grantor or any party liable on the Secured
Obligations (including guarantors) shall not make any assignment for the benefit
of creditors and shall not permit the institution of any proceedings under any
federal or state statutes pertaining to bankruptcy, insolvency, arrangement,
dissolution, liquidation or receivership whether or not an order for relief is
entered.

                                       24
<PAGE>

       48. Substitution of Trustee. Beneficiary may at any time discharge the
Trustee and appoint a successor Trustee who shall have all of the powers of the
original Trustee.

       49. In-House Counsel Fees. Whenever Grantor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.

       50. Notices. Any notice given by Grantor, Trustee or Beneficiary shall be
in writing and shall be effective (a) on personal delivery to the party
receiving the notice, or (b) on the third day after deposit in the United States
mail, postage prepaid with return receipt requested, addressed to the party at
the address set forth above, or with respect to the Grantor, to the address at
which Beneficiary customarily or last communicated with Grantor.

       51. Time. Time is of the essence in connection with all obligations of
Grantor herein.

       52. Successors and Assigns. This Deed of Trust applies to, inures to the
benefit of, and binds all parties hereto and their successors and assigns. The
terms "Grantor," "Trustee" and "Beneficiary" include their successors and
assigns.

       53. Controlling Document; Definitions. In the event of a conflict or
inconsistency between the terms and conditions of this Deed of Trust and the
terms and conditions of any other of the Loan Documents (except for any separate
assignment of rents and/or leases and any Note Purchase Agreement which shall
prevail over this Deed of Trust), the terms and conditions of this Deed of Trust
shall prevail. All capitalized terms not otherwise defined herein shall have the
same meaning as in the Note Purchase Agreement.

       54. Invalidity of Terms and Conditions. If any term or condition of this
Deed of Trust is found to be invalid, the invalidity shall not affect any other
term or condition of the Deed of Trust and the Deed of Trust shall be construed
as if not containing the invalid term or condition.

       55. Legislation Affecting Beneficiary's Rights. If enactment or
expiration of applicable laws has the effect of rendering any provision of the
Note Purchase Agreement or this Deed of Trust unenforceable according to its
terms, Beneficiary, at its option, may require immediate payment in full of all
sums secured by this Deed of Trust and may invoke any remedies permitted herein.

       56. Rules of Construction. This Deed of Trust shall be construed so that,
whenever applicable, the use of the singular shall include the plural, the use
of the plural shall include the singular, and the use of any gender shall be
applicable to all genders and shall include corporations, partnerships and
limited partnerships.

                                       25
<PAGE>

       57. Section Headlines. The headings to the various sections have been
inserted for convenience of reference only and shall not be used to construe
this Deed of Trust.

       58. Applicable Law. This Deed of Trust shall be governed by and construed
in accordance with the laws of the State of Washington.

       59. Commercial Purposes. The Secured Obligations were incurred primarily
for commercial, investment or business purposes and not for personal, family or
household purposes.

       60. Partial Reconveyance. Upon Beneficiary's receipt from Grantor of
copies of all executed and acknowledged transfer documents, conveying that
portion of the Property described in Exhibit C ("Exhibit C Property") to Herman
L. Jones, Beneficiary shall execute and deliver a partial reconveyance of this
Deed of Trust with respect to that Exhibit C Property contemporaneously with the
transfer of said Exhibit C Property by Section 4.1 of the Settlement Agreement,
dated as of February 28, 2002, by and between Pacific Aerospace & Electronics,
Inc. and Herman L. Jones., provided, however, that such obligation to reconvey
said Exhibit C Property shall expire on June 1, 2002 and, thereafter,
Beneficiary shall have no obligation to deliver such partial reconveyance of
said Exhibit C Property.

       61. Counterpart Notice. This Deed of Trust encumbers real property
situated in Chelan County and Clallam County in the State of Washington. In
order to facilitate recording in each of the two counties at the same time, this
Deed of Trust has been prepared in counterparts, each of which is identical to
this counterpart, except that Exhibits A and C of this counterpart describe only
the portion of the Mortgaged Property situated in the county in which this
counterpart is recorded. Grantor and Beneficiary intend and agree that the two
counterparts constitute one and the same deed of trust, that the lien thereof
shall attach to all property encumbered thereby on execution and delivery of any
one of the counterparts, and that to the extent permitted by law, foreclosure
thereof may be accomplished in a single judicial or nonjudicial proceeding in
any county in which any of the Mortgaged Property is located.

       62. Washington State Notice. Beneficiary hereby notifies Grantor as
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

       63. Prior Mortgages. If this Deed of Trust is subordinate to any other
mortgage(s) or similar security document(s) on all or part of the Collateral,
the following modifications shall apply hereto:

              1. The following definition is added hereto:

                     "Prior Mortgage" means the mortgage(s) or similar security
              document(s) of all or part of the Collateral, to which this Deed
              of Trust is

                                       26
<PAGE>

              subordinate, set forth in the title policy insuring the lien
              hereof together with the note(s) secured thereby and all other
              documents securing said note(s).

              2. The following is added at the end of the Granting Clause:

                     (m) all sums held by or under the control of the holder of
              the Prior Mortgage which were deposited on account of real estate
              taxes, insurance premiums or otherwise.

              3. The following is added to the end of Section 9:

              Grantor further represents that neither Grantor nor any of its
              affiliates (nor any person or entity acting on behalf of any of
              them) is the holder of the Prior Mortgage or any participation or
              other interest therein or is the owner of a legal or equitable
              interest in any such holder.

              4. The following is added to the end of Section 14:

                     (h) The foregoing provisions of this Section are subject to
              any provision of the Prior Mortgage requiring the application of
              insurance proceeds to restoration or requiring the payment of such
              proceeds to the holder of the Prior Mortgage.

              5. The following is added to the end of Section 23:

              The foregoing provisions of this Section are subject to any
              provision of the Prior Mortgage requiring the application of
              condemnation proceeds to restoration or requiring the payment of
              such proceeds to the holder of the Prior Mortgage.

       64. Additional Provisions Concerning Prior Mortgages.

              (a) Grantor shall perform or observe all covenants and conditions
to be performed or observed by the Grantor or grantor under the Prior Mortgage.

              (b) Upon notice from Beneficiary, simultaneously with the making
of each payment of principal and interest on the Prior Mortgage, Grantor shall
deliver to Beneficiary a copy of the check in the amount of such payment
delivered to the holder of the Prior Mortgage. Beneficiary shall have the right,
exercisable by notice to Grantor, to require Grantor to make payment of
principal and interest on the Prior Mortgage through Beneficiary and, if
Beneficiary exercises such right, Grantor shall deliver to Beneficiary a check
in the amount of each installment of such principal and interest, payable to the
order of the holder of the Prior Mortgage, not later than three (3) days prior
to the due date thereof and Beneficiary shall promptly forward such check to
said holder.

              (c) Grantor hereby irrevocably designates Beneficiary its agent
and attorney-in-fact to perform or observe on behalf of Grantor any covenant or
condition which Grantor fails to perform or observe under the Prior Mortgage
within any applicable

                                       27
<PAGE>

grace period specified in the Prior Mortgage, and any advances made by
Beneficiary in connection with such performance or observance shall be repaid by
Grantor on demand with interest at the default interest rate set forth in the
Note Purchase Agreement and the amount so advanced, with interest, shall be
secured hereby. Beneficiary shall have the right, but not the obligation, to so
perform or so observe. The performance or observance of such covenant or
condition by Beneficiary shall not prevent Grantor's failure to so perform or
observe from constituting an Event of Default. In performing or observing any
such covenant or condition, Beneficiary shall have the right to enter upon the
Collateral. Upon receipt by Beneficiary from the holder of the Prior Mortgage of
any notice of default under the Prior Mortgage, Beneficiary may rely thereon and
take any action permitted by this Section to remedy such default notwithstanding
that the existence of such default or the nature thereof may be questioned or
denied by Grantor.

              (d) Grantor shall not enter into any modification, amendment or
supplement to the Prior Mortgage nor acquire, whether directly or indirectly,
any interest whatsoever in the Prior Mortgage.

                                       28
<PAGE>

              The undersigned Grantor requests that a copy of any notices,
including but not limited to any Notice of Sale, be mailed to it at the address
herein before set forth.

                                        PACIFIC AEROSPACE & ELECTRONICS, INC.,
                                        a Washington corporation

                                        By:     /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: President and Chief Executive
                                                  Officer

                                        CASHMERE MANUFACTURING CO., INC.,
                                        a Washington corporation

                                        By:     /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

                                        NORTHWEST TECHNICAL INDUSTRIES, INC.,
                                        a Washington corporation

                                        By:     /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

<PAGE>

STATE OF WASHINGTON       )
                          )ss.
COUNTY OF KING            )

              I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the President and
Chief Executive Officer of PACIFIC AEROSPACE & ELECTRONICS, INC. to be the free
and voluntary act of such party for the uses and purposes mentioned in the
instrument.

Dated: March 15, 2002

                              Notary Public: /s/ Susan R. Benson
                              Print Name: Susan R. Benson
                              My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)

STATE OF WASHINGTON       )
                          )ss.
COUNTY OF KING            )

              I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the Executive Vice
President of CASHMERE MANUFACTURING CO., INC. to be the free and voluntary act
of such party for the uses and purposes mentioned in the instrument.

Dated: March 15, 2002

                              Notary Public: /s/ Susan R. Benson
                              Print Name: Susan R. Benson
                              My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)
<PAGE>

STATE OF WASHINGTON       )
                          )ss.
COUNTY OF KING            )

              I certify that I know or have satisfactory evidence that
Donald A. Wright is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the Executive Vice
President of NORTHWEST TECHNICAL INDUSTRIES, INC. to be the free and voluntary
act of such party for the uses and purposes mentioned in the instrument.

Dated: March 15, 2002

                              Notary Public: /s/ Susan R. Benson
                              Print Name: Susan R. Benson
                              My commission expires: October 11, 2002

(Use this space for notarial stamp/seal)
<PAGE>

                                    EXHIBIT A

                          Legal Description of Project

PARCEL "A"

Units 1, 2, 3 and 4, Confluence Park Condominium, Chelan County, Washington,
according to the plat thereof recorded November 6, 1998 under Auditor's No.
2040202, TOGETHER WITH limited common elements and garage spaces.

<PAGE>

                                    EXHIBIT C

                          Legal Description of Property

Lots 6, 7, 8, 9, 10, 11, 12, 13 and 14, Block 1, Steward's Plat of Mission (now
Cashmere), according to the plat thereof recorded in Book 1 of Plats, Page 19,
records of Chelan County, and Lots 17 and 18 and that portion of Lot 16,
hereinafter described, Block 1, J.F. Woodring's Plat of Mission (now Cashmere)
according to the plat thereof recorded in Book 1 of Plats, Page 18, records of
said county, said portion of Lot 16, described as follows:

Beginning at the Northeast corner of said Lot 16; thence Westerly along the
Northerly line thereof 29.25 feet to the Northwest corner of a building lying
Easterly and the Northeast corner of a building lying Westerly and from said
building corner the Northwest corner of said Lot 16 bears Westerly 0.75 feet;
thence Southerly along the coincident line between said buildings, the Easterly
and Westerly faces of which are the same or coincident line between said
buildings, 104.67 feet to the Southwest corner and the Southeast corner of said
buildings; thence continue along the extension of said coincident line Southerly
15.39 feet to a point of intersection with the Southerly line of said Lot 16
from which the Southwest corner of said Lot 16 bears Westerly 0.56 feet; thence
from said point of intersection Easterly along the Southerly line of said Lot
16, 29.44 feet to the Southeast corner thereof; thence Northerly 120.05 feet to
the Northeast corner thereof and the True Point of Beginning.

<PAGE>

                                    EXHIBIT D

                                     Leases

(1) Lease Agreement, Cashmere Manufacturing, Inc. 1994, dated November 4, 1994,
between Port of Chelan County and Cashmere Manufacturing Co., Inc.

(2) Lease Agreement, Pacific Coast Technologies, Inc. 1993, dated February 1,
1993, between Port of Chelan County and Pacific Coast Technologies, Inc.

(3) Lease Agreement 1999, dated December 30, 1998, between Port of Chelan County
and Pacific Aerospace & Electronics, Inc., as amended by that certain First
Addendum to 1999 Lease, dated November 21, 2001, between Port of Chelan County
and Pacific Aerospace & Electronics, Inc.

(4) Lease Agreement -- PA&E IB#9 2000, dated July 13, 2000, between Port of
Chelan County and Pacific Aerospace & Electronics, Inc.

(5) Lease Agreement, dated March 31, 1994, between Erickson Realty, Ltd. and
Electronic Specialty Corporation.

(6) Lease, dated April 3, 1998, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated June 19, 2000, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated January 25, 2002, between Sea-Land Development Corporation and
Skagit Engineering & Manufacturing, Inc., as amended by that certain Amendment
to Lease, dated January 31, 2002, Sea-Land Development Corporation and Skagit
Engineering & Manufacturing, Inc.

(7) Lease Agreement, dated June 2, 2000, between 220TH Street, LLC and Skagit
Engineering Manufacturing, Inc. (d/b/a Pacific Aerospace Electronics, Inc. -
Engineering & Fabrication Division).

(8) Lease Agreement, dated August 6, 2001, between Pacific Aerospace &
Electronics, Inc. and North Central Educational Service District, as amended by
that certain Amendment No. 1 to Lease Agreement, dated December 17, 2001,
between Pacific Aerospace & Electronics, Inc. and North Central Educational
Service District.

<PAGE>

                                    EXHIBIT E

                                  Encumbrances

1. Property described in Exhibit A, as to Certain Equipment:

       (a) Master Equipment Lease Agreement, dated as of May 27, 1999, between
KeyCorp Leasing, A Division of Key Corporate Capital Inc., as Lessor, and
Pacific Aerospace & Electronics, Inc., as Lessee, as amended by Equipment
Schedule No. 02, dated as of June 14, 1999, between KeyCorp Leasing, A Division
of Key Corporate Capital Inc. and Pacific Aerospace & Electronics, Inc., with a
total cost of $233,443.08.

2. Lease Agreement, Pacific Coast Technologies, Inc. 1993, dated February 1,
1993, between Port of Chelan County and Pacific Coast Technologies, Inc.:

       (a) Commercial Security Agreement between Pacific Aerospace &
Electronics, Inc., as Borrower, Pacific Coast Technologies, Inc., as Grantor,
and KeyBank National Association, as Lender, securing the Promissory Note
between Pacific Aerospace & Electronics, Inc. and KeyBank National Association
in principal amount of $712,085.00, and

       (b) UCC-2 fixture filing between Pacific Coast Technologies, Inc., as
Debtor, and KeyBank National Association, as Secured Party, dated March 18,
1998.

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