AMENDMENT NO. 1 TO OPTION AGREEMENT

                THIS AMENDMENT NO. 1 TO OPTION AGREEMENT (this “Amendment”)
dated for reference purposes only as of May 24, 2004, amends and modifies that
certain Option Agreement dated August 14, 2003 (the “Agreement”), by and between
POPE RESOURCES, a Delaware limited partnership, and OPG PROPERTIES LLC, a
Washington limited liability company, formerly known as OLYMPIC PROPERTY GROUP
LLC, a Washington limited liability company (collectively, “Optionor”), and
KITSAP COUNTY, a political subdivision of the State of Washington (“Optionee”).

                NOW, THEREFORE, in consideration of the mutual covenants,
conditions, and agreements of the parties, it is agreed by and between the
parties as follows:

AGREEMENT

                I.                EFFECT OF AMENDMENT.  Capitalized terms not
otherwise defined herein shall have the meanings given them under the Agreement.
This Amendment amends and modifies the Agreement and shall be effective as of
the date of mutual execution and delivery hereof. In the event of any conflict
between the Agreement and this Amendment, this Amendment shall control. Except
as contained within the Agreement and this Amendment, there are no other
agreements or understandings between Optionor and Optionee relating to the
Subject Property.

                II.              RATIFICATION.  The Agreement is hereby
reinstated, revived, and ratified as of the effective date of this Amendment.
Except as expressly amended by this Amendment, the Agreement shall be in full
force and effect.

                III.             EXTENSION OF PHASE 1 OPTION TERM.  The Option
Term for Phase 1 shall be extended to June 30, 2004. If Optionee either does not
complete the purchase of Phase 1 under the Agreement on or before June 30, 2004,
or does not complete the purchase of Phase 2 and Phase 3 under the Agreement on
or before July 1, 2008, then the Agreement shall terminate automatically and
neither party shall have any further rights or obligations under the Agreement
except those obligations intended to survive the expiration or termination of
the Agreement.

                IV.            EXERCISE OF PHASE 1 OPTION.  Optionee desires to
exercise the Phase 1 Option. A complete and accurate copy of the Phase 1
Appraisal has been delivered to Optionor. Optionee and Optionor hereby waive the
requirement of Section 4 of the Agreement, as to the Phase 1 Option only, that
the Phase 1 Option Notice include a survey of Phase 1 prepared by or for
Optionee. Therefore, this Amendment, which among other things establishes the
legal description and purchase price of Phase 1, shall constitute an Option
Notice that Optionee hereby exercises the Option as to Phase 1.

                V.              PHASE 1 LEGAL DESCRIPTION.  The legal
description of Phase 1 is set forth on Exhibit A attached hereto. The parties
estimate that Phase 1 comprises 426.11 acres of land (the “Estimated Phase 1
Acreage”) but acknowledge that the actual Phase 1 acreage will not be determined
until completion of the Phase 1 survey, as described in Section 4 of the
Agreement.

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                VI.            PHASE 1 SURVEY.  The Phase 1 survey, as described
in Section 4 of the Agreement, is not yet complete. Optionee covenants to cause
the Phase 1 survey to be completed as soon as possible. Optionee estimates but
does not covenant that the Phase 1 survey will be completed and delivered to
Optionee and Optionor on or before July 31, 2004.

                VII.           PHASE 1 APPRAISAL.  Optionee has obtained the
Phase 1 Appraisal, which comprises both the initial appraisal and review
appraisal, in accordance with Section 5 of the Agreement. The initial appraisal
is dated April 30, 2004, and was prepared by Stephen Shapiro and Anthony
Gibbons, of Bainbridge Island, Washington. The review appraisal is dated May 13,
2004, and was prepared by James Nowadnick, of Bainbridge Island, Washington.
Optionee and Optionor have reviewed and approved the Phase 1 Appraisal.

                VIII.          PHASE 1 PURCHASE PRICE.  The purchase price of
Phase 1, which is based on the estimated Phase 1 acreage, the Phase 1 Appraisal,
and a unit price per acre of Four Thousand Three Hundred Ninety Dollars
(US$4,390.00), shall be One Million Eight Hundred Seventy Thousand Six Hundred
Twenty-three Dollars (US$1,870,623), payable in cash at closing.

                IX.            PHASE 1 CLOSING DATE.  The closing of the
purchase and sale of Phase 1 shall occur on or before June 30, 2004.

                X.              PHASE 1 POST-CLOSING ADJUSTMENTS.  

                                A.  Actual Acreage Less than Estimate. If the
Phase 1 survey prepared by or for Optionee, as described in Section 4 of the
Agreement, discloses that Phase 1 comprises fewer acres than the Estimated Phase
1 Acreage, and if Optionor does not show proof by a preponderance of the
evidence that the Phase 1 survey is clearly erroneous, then within sixty (60)
days after mutual receipt of the Phase 1 survey Optionor shall refund to
Optionee that portion of Purchase Price equal to the unit price per acre set
forth in Section VIII hereof multiplied by the number of deficit acres.

                                B.  Actual Acreage More than Estimate.  If the
Phase 1 survey prepared by or for Optionee, as described in Section 4 of the
Agreement, discloses that Phase 1 comprises more acres than the Estimated Phase
1 Acreage, and if Optionee does not show proof by a preponderance of the
evidence that the Phase 1 survey prepared by or for Optionee is clearly
erroneous, then within sixty (60) days after mutual receipt of the Phase 1
survey Optionee shall at its option either (1) pay to Optionor an amount equal
to the unit price per acre set forth in Section VIII hereof multiplied by the
number of surplus acres, or (2) if possible, make agreement with Optionor on the
form of a Correction Deed, for execution, acknowledgment, and recording by the
parties in the real property records of Kitsap County, Washington, which shall
be in the form of the Deed except for the removal of such portion of Phase 1 as
the parties may mutually approve, the effect of which shall be to reduce the
actual acreage of Phase 1 to the Estimated Phase 1 Acreage, provided, however,
that if the parties do not make agreement on the form of the Correction Deed
within (60) days after Closing, then Optionee shall have no option except to pay
to Optionor an amount equal to the unit price per acre set forth in Section VIII
hereof multiplied by the number of surplus acres.

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                XI.            FORMS OF EASEMENTS.  Prior to Closing, the
parties mutually shall execute and deliver into escrow with Escrow Holder a
Trail Easement Agreement in the form of Exhibit B attached hereto (the “Trail
Easement Agreement”), as contemplated under Section 3 of the Agreement, and an
Access and Utilities Easement Agreement in the form of Exhibit C attached hereto
(the “Access and Utilities Easement Agreement”), as contemplated under Section 8
of the Agreement. Immediately after the recording of the Deed at Closing, the
parties shall cause Escrow Holder to record the Trail Easement Agreement and
Access and Utilities Easement Agreement in the real property records of Kitsap
County, Washington. If a determination is made within ten (10) years after
Closing by a court of competent jurisdiction that either the Trail Easement
Agreement or Access and Utilities Easement Agreement or both are legally
insufficient to accomplish their purposes as described in the Agreement, then
the parties or their successors and assigns shall cooperate with each other and
shall mutually prepare, execute, acknowledge, deliver, and record such
amendments or restatements as are reasonably necessary to remedy the defects.

                IN WITNESS WHEREOF, this Amendment has been duly executed by the
parties hereto.

 

OPTIONOR: POPE RESOURCES, a Delaware limited partnership, by POPE MGP, Inc., a
Delaware corporation, its managing general partner       By:
_______________________________________   Printed Name: David L. Nunes   Its:
President and Chief Executive Officer   Date: _________________________________
      OPG PROPERTIES LLC, a Washington limited liability company       By:
_______________________________________   Printed Name: Jon Rose   Its: 
President   Date: _________________________________

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OPTION EE: KITSAP COUNTY, a political subdivision of the State of Washington    
  By: _______________________________________   Printed Name:
_______________________________   Its: _______________________________________  
Date: _________________________________

 

EXHIBITS:

A     -       Phase 1 Legal Description
B     -       Form of Trail Easement Agreement
C     -       Form of Access and Utilities Easement Agreement

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                1.                General.  This Agreement shall be recorded in
the real property records of Kitsap County, Washington. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Washington. This Agreement may be executed and delivered in counterparts, which
together shall comprise a complete original Agreement.

 

GRANTOR: POPE RESOURCES, a Delaware limited liability company, by POPE MGP,
INC., a Delaware corporation, its managing general partner          
——————————————————————   By:    David L. Nunes   Its:    President and Chief
Executive Officer   Date: _____________________________________       OPG
PROPERTIES LLC, a Washington limited liability company       
——————————————————————   By:   Jon Rose   Its:    President   Date:
____________________________________     GRANTEE: KITSAP COUNTY, a political
subdivision of the State of Washington           ——————————————————————  
By:   ______________________________________  
Its:    ______________________________________   Date:
______________________________________    

STATE OF WASHINGTON )   )  ss. COUNTY OF KITSAP )

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                On this _____ day of June, 2005, before me, a Notary Public in
and for the State of Washington, personally appeared DAVID L. NUNES, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person who executed this instrument, on oath stated that he was authorized to
execute the instrument, and acknowledged it as the PRESIDENT and CHIEF EXECUTIVE
OFFICER of POPE MGP, INC., the managing general partner of POPE RESOURCES, to be
the free and voluntary act and deed of said corporation and partnership for the
uses and purposes mentioned in the instrument.

                IN WITNESS WHEREOF, I have hereunto set my hand and official
seal the day and year first above written.

 

  ———————————————————————   NOTARY PUBLIC in and for the State of Washington,
residing at  _________________________________   My appointment expires
____________________   Print Name _____________________________    

STATE OF WASHINGTON )   ) ss. COUNTY OF KITSAP )

 

                On this _____ day of June, 2005, before me, a Notary Public in
and for the State of Washington, personally appeared JON ROSE, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
who executed this instrument, on oath stated that he was authorized to execute
the instrument, and acknowledged it as the PRESIDENT of OPG PROPERTIES LLC to be
the free and voluntary act and deed of said limited liability company for the
uses and purposes mentioned in the instrument.

                IN WITNESS WHEREOF, I have hereunto set my hand and official
seal the day and year first above written.

 

  ———————————————————————   NOTARY PUBLIC in and for the State of Washington,
residing at  _________________________________   My appointment expires
____________________   Print Name _____________________________

 

STATE OF WASHINGTON )   )  ss. COUNTY OF KITSAP )

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                On this _____ day of June, 2005, before me, a Notary Public in
and for the State of Washington, personally appeared , personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument, on oath stated that was authorized to execute the
instrument, and acknowledged it as the of KITSAP COUNTY, a political subdivision
of the State of Washington to be the free and voluntary act and deed of said
limited liability company for the uses and purposes mentioned in the instrument.

                IN WITNESS WHEREOF, I have hereunto set my hand and official
seal the day and year first above written.

 

  ———————————————————————   NOTARY PUBLIC in and for the State of Washington,
residing at  _________________________________   My appointment expires
____________________   Print Name _____________________________

 

 

EXHIBITS:

1      -     Description of Grantor’s Property [PHASE 2 AND 3 LANDS]

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