Exhibit 10.38

THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
 
This Third Amendment to Note Purchase Agreement (the “Amendment”) is entered
into by and among Pope Resources, a Delaware limited partnership (“Borrower”),
John Hancock Life Insurance Company, a Massachusetts corporation, and John
Hancock Variable Life Insurance Company, a Massachusetts corporation (John
Hancock Life Insurance Company and John Hancock Variable Life Insurance Company
are individually and collectively referred to herein as “Note Holders”).
 
RECITALS
 
Borrower and Note Holders entered into that certain Note Purchase Agreement
dated March 29, 2001, as amended by First Amendment to Note Purchase Agreement
dated October 24, 2001, Second Amendment to Note Purchase Agreement dated August
8, 2003, and various other letter agreements (such Note Purchase Agreement, as
previously amended and as amended herein is referred to as the "Agreement"), in
connection with the sale and purchase of certain Class A Fixed Rate Senior
Secured Notes all dated March 29, 2001, in the aggregate principal amount of
$30,000,000. Borrower and Note Holders wish to further amend the Agreement in
certain respects. This Third Amendment supercedes and replaces all prior
amendments to the Agreement. Unless otherwise indicated all capitalized terms in
this Amendment shall have the meanings attributed to them in the Agreement.
 
NOW, THEREFORE, the parties agree as follows:
 
1.  Section 4.7 of the Agreement is hereby amended to read as follows: “4.7
Payments from Collateral Account. With respect to monies deposited in the
Collateral Account pursuant to Section 5.5, Section 5.6, Section 9.3 and Section
9.4 hereof, such monies, including any interest or earnings thereon, on deposit
in the Collateral Account shall be disbursed from the Collateral Account on each
Quarterly Payment Date as a separate incremental principal prepayment to reduce
the outstanding principal balance of the Notes, and shall, in Administrative
Agent’s sole discretion, be subject to the applicable Prepayment Premium, and
shall not be deemed part of or applied toward any required annual principal
payment or monthly interest payment due under Section 4.3 hereof. All interest
and earnings on such monies held in the Collateral Account shall belong to
Borrower and shall be applied as against the Notes as set forth above unless
notice is given to the contrary by Borrower; provided, if an event of Default
exists, all such earnings and interest shall be disbursed and applied in the
same manner as the monies otherwise deposited into the Collateral Account.”
 
2.  Section 5.2 (a) of the Agreement is hereby amended to read as follows:
“Cutting Privileges. Subject to Section 5.3 hereof, Borrower shall have the
privilege to cut and remove during calendar year 2001 and during each calendar
year thereafter (each such calendar year being referred to herein as a “Cutting
Year”) a maximum volume of Merchantable Timber as provided herein (the “Annual
Allowable Cut”); provided, Borrower may cut and remove 125% of the Annual
Allowable Cut in any one Cutting Year so long as Borrower does not cut and
remove more than the applicable Total Five-Year Allowable Cut. For purposes of
this Section 5.2(a), the term Total Five-Year Allowable Cut means the aggregate
Annual Allowable Cuts for the Cutting Years 2001 through 2005, 2006 through
2010, 2011 through 2015, 2016 through 2020, 2021 through 2025, and 2026 through
2031, as the case may be. Subject to Section 5.3, the Annual Allowable Cut for
Cutting Year 2001 shall be 27MMBF, Scribner; and the Annual Allowable Cut for
the calendar years 2002, 2003, 2004, and 2005 shall be 32.8MMBF, Scribner.
Notwithstanding the foregoing, for the fraction of calendar year 2001 after the
date of this Agreement and for the fraction of the calendar year in which the
final payment of principal on the Notes is due, the permitted volume of cutting
in any Category shall be proportionate to the number of days in such fractional
calendar year (the permitted volume of cutting for such fractional calendar year
shall be multiplied by a fraction, the numerator of which is the number of days
in the fractional calendar year and the denominator of which is 365). For
purposes of this Section 5.2 all Merchantable Timber otherwise cut, sold and
conveyed by Borrower during any Cutting Year shall be deemed to have been cut
and removed by Borrower hereunder. The Annual Allowable Cut shall be reduced by
the excess volume of Timber cut or removed during the preceding Cutting Years
pursuant to Section 5.5 hereof, unless and until Borrower deposits into the
Collateral Account the amounts required under subsection 5.5(a) below with
respect to such overcutting.”
 
1-THIRD AMENDEMENT TO NOTE PURCHASE AGREEMENT
 

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3.  Section 5.5(a) of the Agreement is hereby amended to read as follows:
“Excess Cutting or Removal. Subject to the provisions of Section 5.3 hereof,
Borrower may cut or remove volumes of Merchantable Timber in excess of the
volumes permitted under Section 5.2 hereof during any Cutting Year, provided
Borrower deposits into the Collateral Account, in the manner provided for
hereunder, an amount equal to the sum of the products obtained by multiplying
(i) the differences between the volumes for each Category of Merchantable Timber
actually cut and removed during any Cutting Year and the permitted volume for
each such Category established pursuant to Section 5.2 for such Cutting Year, by
(ii) the Administrative Unit Values of each such Category set forth in the
following subsection (b).”
 
4.  Section 5.6(a) of the Agreement is hereby amended to read as follows:
“Subject to compliance with all provisions of this Section 5.6, and provided
(i) no Event of Default exists and is continuing hereunder, and (ii) the Loan to
Value Ratio is fifty percent (50%) or less before such sale, and will continue
to be fifty percent (50%) or less after such sale, Borrower may, from time to
time, sell portions of the Land, and the Holders shall release in the manner
hereinafter provided such portions of the Land, and any Timber thereon, from the
Lien of the Financing Documents; provided, that, in each case, Borrower shall,
upon request of Administrative Agent, deposit into the Collateral Account an
amount equal to one hundred percent (100%) of the Total Administrative Value of
the Land and Timber to be conveyed and released, as determined by Borrower as of
the date of such sale and release; provided such Administrative Value shall, in
Administrative Agent’s sole discretion, be subject to independent verification
by the Forestry Consultant of the accuracy of the information set forth therein;
and provided further, however, any such deposits into the Collateral Account
shall, in Administrative Agent’s sole discretion, be subject to Section 4.3(e)
above; and provided further, that such Total Administrative Value shall be
adjusted to take into consideration the value of the Land and Timber being
released and the impact, if any, of the release upon the overall security
position of the Administrative Agent in the remaining encumbered Land and Timber
as well as the amount of the outstanding, unpaid balance due under the Notes as
of the date of such sale and release.
 
5.  Section 8.1(v) is hereby amended to read as follows: “Additional Liens.
Place, incur, assume or suffer to exist, any Lien upon any of its Property,
assets or revenues, whether now owned or hereafter acquired, except: … (v) Other
Liens securing Debt in an aggregate principal amount not exceeding $2,000,000 at
any time.” The definition of “Debt” in Annex II of the Agreement is hereby
amended to include payment obligations under local improvement districts.
 
2-THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
 

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6.  Section 8.5 of the Agreement is hereby amended to read as follows:
“Distributions to Partners. Make any distributions of cash or other Property to
any of its partners, or redeem any outstanding equity interest in Borrower,
except in accordance with the provisions of this Section 8.5, as follows: So
long as no Default or Event of Default shall exist hereunder either before or
after such distribution, Borrower shall be permitted to distribute, on a
cumulative, Calendar Year Basis, as defined below, to each of its partners, no
more frequently than once per calendar quarter, fifty percent (50%) of Net
Income, excluding distributions to pay the estimated federal and state income
tax payable by each partner (or its constituent partners or members) on such
partner's share of the taxable income of Borrower (as calculated for federal
income tax purposes); provided, however, in no event shall such quarterly,
cumulative distributions exceed seventy-five percent (75%) of Net Income on a
Calendar Year Basis; and provided further, that Borrower may not purchase,
redeem or retire any outstanding partnership units if after giving effect to any
such purchase, redemption, or retirement, Borrower would be in violation of any
of the terms or covenants of this Agreement or the other Financing Statements.
Prior to any such distribution, Borrower's chief financial officer shall prepare
and deliver to the Administrative Agent a sworn certificate of distribution and
a brief summary of the Borrower's methodology in establishing the amount of the
dividends paid.
 
For purposes of this Section 8.5, for the calendar year 2002, the foregoing
distributions test in the preceding paragraph will be calculated 2 ways: First,
the applicable distributions will be those actually made during calendar year
2002. Second, the applicable distributions will be those made during the second,
third and fourth quarters of 2002, and the first quarter of 2003. For calendar
year 2003 and subsequent calendar years, the applicable distributions shall be
those made during the second, third and fourth quarters of the calendar year in
question, and the first quarter of the subsequent calendar year.
 
7.  Section 8.12 of the Agreement is hereby amended to read as follows:
“Subsidiaries; Collateral Ownership. (a) Except for an Affiliate or Subsidiary
that does not own any Timber Property, create, acquire or otherwise invest in
any Affiliate or Subsidiary or (b) otherwise move, transfer or change the
ownership of any of the Timber Property into an Affiliate or Subsidiary, unless
such Affiliate or Subsidiary is a domestic entity, remains wholly owned by
Borrower, becomes an obligor on the Notes and agrees to be jointly and severally
liable for the obligations thereunder prior to such action, and becomes a party
to the Agreement and agrees to be bound by the obligations thereunder prior to
such action. If all or any portion of the Timber Property is transferred to an
Affiliate or Subsidiary, as provided above, the lien of the applicable Mortgages
shall continue to be a lien on the transferred Timber Property, and all timber
management, harvest and other provisions of the Agreement shall remain in
effect.”
 
8.  Section 8.14 of the Agreement is hereby amended to read as follows:
“8.14 Debt to Total Capitalization. Debt to Total Capitalization shall not
exceed fifty percent (50%).” The definition of “Total Capitalization” in Annex
II of the Agreement is hereby amended to read: “Total Capitalization - means
Debt, plus the greater of: a) book value of partners’ capital, or b) Borrower’s
closing Unit Price at the end of each quarter in question, multtiplied by the
number of units outstanding, so long as Borrower is publicly traded; provided,
if Borrower is required to consolidate the debt of ORM Timber Fund I, L.P. (the
“Timber Fund”), then Borrower may include the total capitalization of the Timber
Fund in the calculation of Total Capitalization.”
 
3-THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
 

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9.  Annex II of the Agreement is hereby amended to read as follows: “Borrower -
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP, a Delaware limited partnership,
its permitted successors and assigns, and its Affiliates and Subsidiaries owning
any portion of the Timber Property.
 
10.  Annex II of the Agreement is hereby amended to read as follows: “Cash Flow
Coverage Ratio - means, as of any date of determination, the ratio of (a) EBITDA
for the period of calculation minus operating capital expenditures made by
Borrower and its subsidiaries during such period, to (b) the sum of (i) Interest
Charges during such period plus (ii) all scheduled payments of principal with
respect to Required Debt Service required to be made by Borrower and its
subsidiaries during such period.”
 
11.  Annex IV is hereby amended to read as follows: “Commercial General
Liability Insurance with Borrower as the named insured and the Holders as
additional insureds in commercially reasonable amounts and terms and issued by
an insurer or insurers reasonably satisfactory to the Holders. A portion of such
insurance coverage may be maintained in the form of an excess liability
(umbrella) policy. Certificates of insurance and, if the Holders so request,
certified copies of the insurance policies, shall be delivered to the Holders no
less than 5 days prior to the expiration of the then current policies.”
 
12.  As amended herein, the Agreement is hereby confirmed and reaffirmed by
Borrower and Note Holders and shall remain in full force and effect.
 
IN WITNESS WHEREOF, Borrower and Note Holders have executed this Amendment as of
the date(s) written below.
 
POPE RESOURCES, A DELAWARE LIMITED PARTNERSHIP, a Delaware limited partnership,
 
By: Pope MGP, Inc., a Delaware corporation, its managing partner
 
By:_________________________________________ 
Name:_______________________________________ 
Title:________________________________________ 
 
Date:________________________, 2004
 
JOHN HANCOCK LIFE INSURANCE COMPANY, a corporation incorporated under the laws
of the Commonwealth of Massachusetts
 
By:_______________________________________ 
Name: C. Whitney Hill
Title: Director 
 
Date:___________________________, 2004
 
 
 
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY, a corporation incorporated under
the laws of the Commonwealth of Massachusetts
 
By:________________________________________ 
Name: C. Whitney Hill
Title: Authorized Signatory
 
Date:_________________________, 2004

 
4-THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT
 

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