Document:

a5748994ex10_34.htm

    Exhibit
10.34

    

    
 

    

    MASTER
LOAN AGREEMENT

    

    DATED
AS OF JULY 31, 2008

    

    

    

    AMONG

    

    POPE
RESOURCES, A DELAWARE LIMITED PARTNERSHIP

    

    AS
BORROWER

    

    

    AND

    

    

    NORTHWEST
FARM CREDIT SERVICES, PCA

    

    AS
LENDER

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    MASTER
LOAN AGREEMENT

    TABLE
OF CONTENTS

     

    
      
        	TERMS	
                SECTION

              
	
                Definitions

              	
                1

              
	
                Loans

              	
                2

              
	
                 

              	Loans	
                2.01

              
	
                 

              	Fees	
                2.02

              
	
                 

              	Evidence
      of Debt	
                2.03

              
	
                 

              	Payments
      Generally	
                2.04

              
	
                 

              	Accounting
      Terms	
                2.05

              
	
                 

              	Unused
      Commitment Fee	
                2.06

              
	
                Stock/Participation
      Certificates

              	
                3

              
	
                 

              	Ownership	
                3.01

              
	
                 

              	Voting
      Rights	
                3.02

              
	
                 

              	Stock
      Conversion	
                3.03

              
	
                 

              	Patronage	
                3.04

              
	
                FPF
      Account

              	
                4

              
	
                General
      Authorization

              	
                5

              
	
                Conditions
      Precedent

              	
                6

              
	
                 

              	Documents
      Required for Closing	
                6.01

              
	
                 

              	Conditions
      precedent to Advances Under All Loans	
                6.02

              
	
                Representations
      and Warranties

              	
                7

              
	
                 

              	Representations
      and Warranties of Borrower	
                7.01

              
	
                 

              	Representations
      and Warranties of Lender	
                7.02

              
	
                 

              	Survival	
                7.03

              
	
                Covenants

              	
                8

              
	
                 

              	Affirmative
      Covenants	
                8.01

              
	
                 

              	Financial
      Covenants	
                8.02

              
	
                 

              	Negative
      Covenants	
                8.03

              
	
                Default

              	
                9

              
	
                 

              	Events
      of Default	
                9.01

              
	
                 

              	Notice
      and Opportunity to Cure	
                9.02

              

      

    

     

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      MASTER
LOAN AGREEMENT

      TABLE
OF CONTENTS (continued)

    

     

    
      
        	TERMS	SECTION
	
                Prepayment
      and Breakage Fees

              	
                10

              
	
                 

              	Prepayment
      Fee	
                10.01

              
	
                 

              	Breakage
      Fee	
                10.02

              
	
                 

              	Participation	
                10.03

              
	
                Enforcement
      and Waiver; Indemnity

              	
                11

              
	
                 

              	Enforcement
      and Waiver by Lender	
                11.01

              
	
                 

              	Indemnity;
      Waiver of Damages by Borrower	
                11.02

              
	
                Communications

              	
                12

              
	
                 

              	Notices
      and Other Communications	
                12.01

              
	
                 

              	Facsimile
      Documents and Signatures	
                12.02

              
	
                 

              	Use
      of E-mail	
                12.03

              
	
                Participation

              	
                13

              
	
                Governing
      Law; Jurisdiction; Etc.

              	
                14

              
	
                 

              	Governing
      Law	
                14.01

              
	
                 

              	Submission
      to Jurisdiction	
                14.02

              
	
                 

              	Waiver
      of Venue	
                14.03

              
	
                 

              	Service
      of Process	
                14.04

              
	
                 

              	Waiver
      of Jury Trial	
                14.05

              
	
                 

              	Consultation
      with Counsel	
                14.06

              
	
                Miscellaneous

              	
                15

              
	
                 

              	Construction	
                15.01

              
	
                 

              	Binding
      Effect, Assignment and Entire Agreement	
                15.02

              
	
                 

              	Severability	
                15.03

              
	
                 

              	No
      Personal Liability of General Partners	
                15.04

              
	
                Exhibit
      A:  Form of Compliance Certificate

              	 
      
	
                Exhibit
      B:  Covenant Compliance Worksheet

              	 
      
	
                Exhibit
      C:  Prepayment Fee and Breakage Fee

              	 
      

      

    

     

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    Pope
Resources, a Delaware Limited Partnership

    Customer
No. 56548

    

    

    MASTER
LOAN AGREEMENT

    (INCLUDING
MEMBERSHIP AGREEMENT)

    

    THIS MASTER LOAN AGREEMENT
(this “Loan Agreement”) is made and entered into effective July 31, 2008, by and
between Lender, as defined below, and Borrower, as defined below.

    

    RECITALS

    

    WHEREAS, Borrower has
requested that Lender make a $40,000,000.00 loan for operating and capital
purposes to Borrower; and

    

    WHEREAS, Lender has agreed to
make the requested Loan available to Borrower on the terms and conditions
hereinafter set forth, which shall apply to Loan No. 56548-141 and to any future Loans made subject to this Loan
Agreement.

    

    NOW THEREFORE, IN
CONSIDERATION of the mutual covenants and agreements herein contained,
the parties hereto covenant and agree as follows:

    

    1.
           Definitions.  Capitalized
terms not otherwise defined herein shall have the meanings given in the Note(s)
or other Loan Documents.  As used herein:

    

    “Affiliate” means,
with respect to any Person, another Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.

    

    “Asset Disposition”
means any sale, lease, transfer or other disposition (including any such
transaction effected by way of merger, amalgamation or consolidation)
by  Borrower, subsequent to the Closing Date of any asset (including
stock or other equity interests in Borrower), including without limitation, any
sale leaseback transaction (whether or not involving a Capital Lease), but
excluding (a) the sale of inventory in the ordinary course of business for fair
consideration, (b) the sale or disposition of obsolete machinery and equipment
no longer used or useful in the conduct of such Person's business (except for
assets which are security for Lender's Loans), and (c) the sale of or
realization on delinquent receivables.

    

    “Bankruptcy Code”
means the Bankruptcy Code in Title 11 of the United States Code, as amended,
modified, succeeded or replaced from time to time.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    “Bankruptcy Event”
means, with respect to any Person, the occurrence of any of the following with
respect to such Person:  (a) a court or governmental agency having
jurisdiction in the premises shall enter a decree or order for relief in respect
of such Person in an involuntary case under any applicable bankruptcy,
insolvency or other similar Law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person, or for any substantial part of its Property, or
ordering the winding up or liquidation of its affairs; or (b) there shall be
commenced against such Person an involuntary case under any applicable
bankruptcy, insolvency or other similar Law now or hereafter in effect, or any
case, proceeding or other action for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such Person,
or for any substantial part of its Property, or for the winding up or
liquidation of its affairs, and such involuntary case or other case, proceeding
or other action shall remain undismissed, undischarged or unbonded for a period
of 60 consecutive days; or (c) such Person shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar Law now or hereafter in
effect, or consent to the entry of an order for relief in an involuntary case
under any such Law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person, or for any substantial part of its Property, or make
any general assignment for the benefit of creditors; or (d) such Person shall be
unable to, or shall admit in writing its inability to, pay its debts generally
as they become due.

     

    “Base Rate” shall have
the meaning indicated in the particular Note for a Loan.

    

    “Borrower” means Pope
Resources, A Delaware Limited Partnership, a Delaware limited
partnership.  

    

    “Borrower’s
Obligations” means, without duplication, all of the obligations of
Borrower to Lender whenever arising, under this Loan Agreement, the Notes or any
of the other Loan Documents, including without limitation, all principal,
interest, monies advanced on behalf of Borrower under the terms of the Loan
Documents, and taxes, insurance premiums, costs and expenses, and fees and any
amounts that would have accrued but for the automatic stay under the Bankruptcy
Code, and any obligations under any Swap Contract between Borrower and any Swap
Issuer, whenever arising.

    

    “Breakage Fee” shall
have the meaning given in Exhibit C attached hereto.

    

    “Business Day” means
any day Lender is open for business in Spokane, Washington, except it shall not
include Saturday, Sunday or a day that commercial banks in Spokane, Washington
are closed.  Provided however, for purposes of defining any date upon
which an interest rate shall be determined by Lender using an Index other than
published by Lender, Business Day means any day Lender and the Index Source are
open for business except it shall not include Saturday, Sunday or a day that
commercial banks in Spokane, Washington are closed.

    

    “Capital Lease” means,
as applied to any Person, any lease of any Property by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.

    

    “Capital Stock” means
(i) in the case of a corporation, capital stock, (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of capital stock, (iii) in the
case of a partnership, partnership interests (whether general or limited), (iv)
in the case of a limited liability company, membership interests, and (v) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distribution of assets of, the issuing
Person.

     

    
      
        
        

      

      
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    “Closing Date” for any
particular Loan, means the Business Day the associated Loan Documents are fully
executed and delivered to Lender, following satisfaction of all conditions
precedent or waiver thereof by Lender.

    

    “Company” and “Companies” means
Borrower, as well as any present or future Subsidiaries whose financial
statements and accounting procedures should, in accordance with GAAP, be
consolidated with Borrower.

    

    “Compliance
Certificate” shall have the meaning given in Section 8.01.b.iii. and
shall be in substantially the form of Exhibit A hereto.

    

    “Consolidated Capital
Expenditures” means, for any period, all internally financed operating
capital expenditures (excluding timberland acquisitions and the portion
associated with the minority interest in Timber Funds) of Companies, on a
consolidated basis for such period, as determined in accordance with
GAAP.

    

    “Consolidated EBITDDA”
means, for any period, the sum of:  (a) Consolidated Net Income;
(b) Consolidated Interest Expense; (c) consolidated depreciation expense;
(d) consolidated amortization expense; (e) consolidated depletion expense
(excluding the portion associated with the minority interest in Timber Funds);
and (f) the cost of land sold of Companies, plus or minus, as the case may be,
Consolidated Taxes to the extent recognized in the computation of Consolidated
Net Income, all as determined in accordance with GAAP.

    

    “Consolidated Interest
Coverage Ratio” means, as of any date of determination for the prior four
(4) Fiscal Quarters ending on such date, the ratio of (a) Consolidated EBITDDA
minus Consolidated Capital Expenditures to (b) Consolidated Interest Expense of
Companies for such period.

    

    “Consolidated Interest
Expense” means, for any period, all interest expense (including
capitalized interest cost and the interest component under Capital Leases) of
Companies on a consolidated basis for such period, all as determined in
accordance with GAAP.

    

    “Consolidated Net
Income” means, for any period, the net income or net loss after
Consolidated Taxes for such period of Companies on a consolidated basis, as
determined in accordance with GAAP.

    

    “Consolidated Taxes”
means, as of any date of determination, the provision for federal, state and
other income taxes of Companies on a consolidated basis, as determined in
accordance with GAAP.

    

    “Contractual
Obligation” means, as to any Person, any provision of any security issued
by such Person or of any agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its Property is
bound.

     

    
      
        
        

      

      
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    “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise.  “Controlling” and
“Controlled” have meanings correlative thereto.

    

    “Covenant Compliance
Worksheet” shall have the meaning given in Section 8.01.b.iii. hereof and
shall have the form substantially of Exhibit B hereto.

    

    “Event of Default”
shall have the meaning provided in Section 9 hereof.

    

    “FPF Account” means
the Future Payment Fund Account that is an interest-bearing conditional advance
payment account with Lender and all money paid into that account and all
interest earned thereon.

    

    “Fiscal Quarter” means
the three month periods ending March 31, June 30, September 30 and December
31.

    

    “Fiscal Quarter-End”
means March 31, June 30, September 30 and December 31.

    

    “Fiscal Year” means
the calendar year.

    

    “Fiscal Year-End”
means December 31.

    

    “Fiscal Year-to-Date”
means the period from the first day of Borrower’s Fiscal Year being reported
upon through the last day of the Fiscal Quarter being reported
upon.

    

    “Fixed Rate Maturity
Date” shall have the meaning indicated in the particular Note for a
Loan.

    

    “Fixed Rate Option”
shall have the meaning indicated in the particular Note for a Loan.

    

    “GAAP” means generally
accepted accounting principles in the United States set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or such other principles as may be approved
by a significant segment of the public accounting profession in the United
States, that are applicable to the circumstances as of the date of
determination, consistently applied.

    

    “Governmental
Authority” means the United States, any foreign state or nation, or any
state, commonwealth, district, territory, agency, department, subdivision,
court, tribunal or other instrumentality thereof.

    

    “Incipient Default”
means an event that with the giving of notice or passage of time, or both, would
become an Event of Default.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    “Indebtedness” of any
Person means: (a) all obligations of such Person for borrowed money;
(b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily made; (c)
all obligations of such Person under conditional sale or other title retention
agreements relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers entered into
in the ordinary course of business); (d) all obligations, including without
limitation, intercompany items, of such Person issued or assumed as the deferred
purchase price of Property or services purchased by such Person (other than
trade debt incurred in the ordinary course of business and due within six months
of the incurrence thereof) which would appear as liabilities on a balance sheet
of such Person; (e) all obligations of such Person under take-or-pay or similar
arrangements or under commodities agreements; (f) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed; (g) all guaranty
obligations of such Person; (h) the principal portion of all obligations of such
Person under Capital Leases; (i) the maximum amount of all standby letters of
credit issued or bankers' acceptances facilities created for the account of such
Person and, without duplication, all drafts drawn thereunder (to the extent
unreimbursed); and (j) all obligations of such Person in respect to any Swap
Termination Value of any Swap Contract between Borrower and any Swap
Issuer.  The Indebtedness of any Person shall include the Indebtedness
of any partnership or joint venture in which such Person is a general partner or
a joint venturer. 

    

    “Indebtedness to Total
Capitalization Ratio” means, as of any date of determination, Companies’
Indebtedness, excluding the portion thereof associated with the minority
interest in Timber Funds, divided by the sum of (a) Companies’ Indebtedness
excluding the portion thereof associated with the minority interest in Timber
Funds, plus (b) the greater of (i) the book value of Borrower’s partners’
capital according to GAAP, or (ii) Borrower’s closing unit price at each Fiscal
Quarter-End, multiplied by the number of units outstanding.

    

    “Intercompany
Indebtedness” means any Indebtedness of Borrower that is owing to a
Subsidiary or Related Party.

    

    “Laws” means all
ordinances, codes, statutes, rules, regulations, licenses, permits, orders,
injunctions, writs or decrees of any Governmental Authority, and without
limiting the generality of the foregoing, the following are Laws:  the
Internal Revenue Code of 1986 (“IRC”), the Employee Retirement Income Security
Act of 1974 (“ERISA”), the Fair Labor Standards Act (“FLSA”), and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”).

    

    “Lender” means
Northwest Farm Credit Services, PCA, an association organized under the laws of
the United States, together with its successors and assigns.

    

    “Lien” means any
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, encumbrance, lien (statutory or otherwise), preference, priority or
charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing or similar
statement or notice filed under the Uniform Commercial Code as adopted and in
effect in the relevant jurisdiction or other similar recording or notice
statute, and any lease in the nature thereof).

     

    
      
        
        

      

      
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    “Loan” means any loan
that Lender has made to Borrower under Customer No. 56548, and such other
additional loans as Lender may make to Borrower pursuant to this Loan Agreement
or make in the future and that are governed by this Loan Agreement as
specifically set forth and referenced in such Loans.

    

    “Loan Documents” means
all of the Contractual Obligations associated with the Loan(s), including but
not limited to this Loan Agreement, the Note(s), Swap Contract(s), intercreditor
agreement(s) and other documents or instruments as required by Lender, executed
in connection with the Loan(s), and any extensions, renewals, amendments,
substitutions or replacements thereof. 

    

    “Loans” means two or
more Loans.

    

    “Loan Maturity Date”
shall have the meaning indicated in the particular Note for a Loan.

    

    “Loan Segment” shall
have the meaning indicated in the particular Note for a Loan.

    

    “Material” means that
which, in reasonable and objective contemplation, will or realistically might
affect the business or property of a Person, or the Person's creditworthiness as
to such business or property, in a significant manner.

    

    “Material Adverse
Effect” means a material adverse effect on (a) the condition (financial
or otherwise), operations, business, assets, liabilities or prospects of
Borrower, (b) the ability of Borrower or its Related Parties to perform any
Material obligation under the Loan Documents to which it is a party, or (c) the
Material rights and remedies of Lender under the Loan Documents.

    

    “Note” means the note
evidencing a Loan and which contains a promise to pay a sum
certain.

    

    “Notes” means one or
more Notes.

    

    “Organization” means a
corporation, limited liability company, joint venture, firm business trust,
estate, trust, partnership or association, two or more Persons having a joint or
common interest, or any other legal or commercial entity.

    

    “Organization
Documents” means (a) with respect to any corporation, the certificate or
articles of incorporation and the bylaws; (b) with respect to any limited
liability company, the certificate or articles of formation or organization and
operating agreement; and (c) with respect to any partnership, joint venture,
trust or other form of business entity, the partnership, joint venture or other
applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or
organization with the applicable Governmental Authority in the jurisdiction of
its formation or organization and, if applicable, any certificate or articles of
formation or organization of such entity.

     

    
      
        
        

      

      
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    “Participation
Certificate” means Stock which does not confer voting rights upon the
owner.

    

    “Permitted Liens”
means:

    

    a.           Liens
(other than Liens created or imposed under ERISA) for taxes, assessments or
governmental charges or levies not yet due or Liens for taxes being contested in
good faith by appropriate proceedings for which adequate reserves, determined in
accordance with GAAP, have been established (and as to which the Property
subject to any such Lien is not yet subject to foreclosure, sale or loss on
account thereof);

    

    b.           Statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen
and suppliers and other Liens imposed by law or pursuant to customary
reservations or retentions of title arising in the ordinary course of business,
provided that such Liens secure only amounts not yet due and payable or, if due
and payable, are unfilled and no other action has been taken to enforce the same
or are being contested in good faith by appropriate proceedings for which
adequate reserves, determined in accordance with GAAP, have been established
(and as to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);

    

    c.           Liens
(other than Liens created or imposed under ERISA) incurred or deposits made by
Borrower in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, bids, leases,
government contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);

    

    d.           Liens
in connection with attachments or judgments (including judgment or appeal bonds)
provided that the judgments secured shall, within 90 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall have been discharged within 45 days after the expiration of any such
stay;

    

    e.           Easements,
rights-of-way, restrictions (including zoning restrictions), minor defects or
irregularities in title and other similar charges or encumbrances not, in any
material respect, impairing the use of the encumbered Property for its intended
purposes;

    

    f.           Liens
on Property securing purchase money Indebtedness (including Capital Leases and
obligations under letters of credit) to the extent permitted hereunder, provided
that any such Lien attaches to such Property concurrently with or within 90 days
after the acquisition thereof;

    

    g.           Any
interest of title of a lessor under, and Liens arising from UCC financing
statements relating to, leases permitted by this Loan Agreement and the other
Loan Documents;

    

    h.           Normal
and customary rights of setoff upon deposits of cash in favor of banks or other
depository institutions;

     

    
      
        
        

      

      
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    i.           Liens
existing as of the Closing Date and set forth in a schedule
presented to Lender; provided that no such Lien shall at any time be extended to
or cover any Property other than the Property subject thereto on the Closing
Date;

    

    j.           Liens
on the FPF Account pursuant to Section 4 hereof; and

    

    k.           Liens
on Property securing Indebtedness to the extent the Indebtedness is permitted
under Sections 8.03 f.(vi), (vii) or (viii) hereof.

    

    “Person” means an
individual, an Organization or a Governmental Authority.

    

    “Prepayment Fee” shall
have the meaning given in Exhibit C attached hereto.

    

    “Property” or “Properties” means any
interest in any kind of property or asset, whether real, personal or mixed,
tangible or intangible.

    

    “Records” means
correspondence, memoranda, tapes, discs, computer data, papers, certificates,
books, cruise maps and other documents, or transcribed information of any type,
whether expressed in ordinary or machine readable language.

    

    “Regulation U or X”
means Regulation U (12 CFR Part 221, Credit by banks and persons other than
brokers and dealers for the purpose of purchasing or carrying margin stock) or
Regulation X (12 CFR Part 224, Borrowers of securities credit) respectively, to
the Board of Governors of the Federal Reserve System as from time to time in
effect and any successor to all or a portion thereof.

    

    “Related Party or
Parties” means, with respect to any Person, such Person’s Affiliates and
the general partners, directors and officers of such Person and of such Person’s
Affiliates.

    

    “Responsible Officer”
means the chief executive officer, president, chief financial officer, treasurer
or assistant treasurer of Borrower or the effective equivalent thereof or any
other duly authorized officer.  Any document delivered hereunder that
is signed by a Responsible Officer shall be conclusively presumed to have been
authorized by Borrower and such Responsible Officer shall be conclusively
presumed to have acted on behalf of Borrower.

    

    “Stock” means
uncertificated shares of stock evidencing proprietary interests in Northwest
Farm Credit Services, ACA (“ACA”), an Affiliate of Lender, and all patronage,
distributions and other rights and entitlements related thereto.

    

    “Subsidiary” means, as
to any Person, (a) any corporation more than 50 percent of whose stock of any
class or classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether or not at
the time, any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time owned
by such Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries has more than 50 percent equity
interest at any time.  Unless otherwise specified, all references
herein to a “Subsidiary” or “Subsidiaries” shall refer to a Subsidiary or
Subsidiaries of Borrower.  For purposes of Section 8
hereof, Subsidiary or Subsidiaries shall include Timber Funds; provided however,
Section 8.03.c. shall exclude Timber Funds from such
definition.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    “Swap Contract” means
(a) any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options,
forward commodity contracts, equity or equity index swaps or options, bond or
bond price or bond index swaps or options or forward bond or forward bond price
or forward bond index transactions, interest rate options, forward foreign
exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, spot contracts, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of
the foregoing), whether or not any such transaction is governed by or subject to
any master agreement, and (b) any and all transactions of any kind, and the
related confirmations, which are subject to the terms and conditions of, or
governed by, any form of master agreement published by the International Swap
Dealers Association, Inc., any International Foreign Exchange Master Agreement,
or any other master agreement, including any such obligations or liabilities
under any such master agreement.

    

    “Swap Issuer” means a
financial institution chosen by Borrower and reasonably acceptable to Lender,
with whom Borrower enters into a Swap Contract.

    

    “Swap Termination
Value” means, in respect of any one or more Swap Contracts, after taking
into account the effect of any legally enforceable netting agreement relating to
such Swap Contracts, (a) for any date on or after the date such Swap Contracts
have been closed out and termination value(s) determined in accordance
therewith, such termination value(s) and (b) for any date prior to the date
referenced in clause (a), the amount(s) determined as the mark-to-market
value(s) for such Swap Contracts, as determined based upon one or more
mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include Lender or participant of
Lender).

    

    “Timber Funds” means,
ORM Timber Fund I, LP, ORM Timber Fund II, Inc. and any future similar
timberland investment entity.

    

    “Unused Commitment
Fee” shall have the meaning given in Section 2.06 hereof.

    

    2.
           Loans.

    

    2.01          Loans.  Subject to the
terms and conditions set forth herein, Lender agrees to make Loan No. 56548-141
to Borrower.  Borrower agrees to repay the Loan(s) and all of
Borrower’s Obligations under the Loan Documents, according to their
terms.

    

    2.02          Fees.  Borrower shall
pay Lender’s fees as set forth in the Note or a separate fee
letter.

    

    2.03          Evidence
of Debt.  The Loan(s) shall
be evidenced by one or more accounts or records maintained by Lender in the
ordinary course of business.  The accounts or records maintained by
Lender shall be conclusive absent manifest error of the amount of the Loans made
by Lender to Borrower and the interest and payments thereon.  Any
failure to so record or any error in doing so shall not, however, limit or
otherwise affect the obligation of Borrower to pay any amount owing with respect
to Borrower’s Obligations.

     

    
      
        
        

      

      
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    2.04          Payments
Generally.  All payments to
be made by Borrower shall be made without condition or deduction for any
counterclaim, defense, recoupment or setoff.  Except as otherwise
expressly provided herein, all payments by Borrower hereunder shall be made to
Lender in U.S. Dollars and in immediately available funds as further described
in the Note(s) and according to the terms of the Note(s).

    

    2.05          Accounting
Terms means, except as otherwise provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters to be delivered to Lender hereunder shall be
prepared in accordance with GAAP, applied on a consistent basis.

    

    2.06          Unused
Commitment Fee.  Borrower shall
pay Lender an Unused Commitment Fee, as may be indicated in the Note for the
applicable Loan.

    

    3.           
Stock/Participation Certificates.

    

    3.01          Ownership.  Borrower agrees
to acquire and maintain Stock or Participation Certificates in an amount
required by ACA’s Board of Directors, pursuant to its
bylaws.  Borrower hereby grants Lender a first lien security interest
in all Stock or Participation Certificates presently owned or to be acquired by
Borrower.  All right, title and interest in the Stock or Participation
Certificates shall hereby vest in Borrower.

    

    3.02          Voting
Rights.  For so long as
Borrower owns voting Stock, Borrower is entitled to one vote at ACA stockholder
meetings and to participate in the affairs of ACA.  Such vote may be
cast by any stockholder who meets the definition of “farmers, ranchers or
aquatic producers or harvesters” in the Farm Credit Administration
regulations.  Borrower authorizes David L. Nunes to act as Borrower’s
attorney-in-fact for all joint owners of the voting Stock and to cast the vote
or appoint proxies on behalf of Borrower.  In the event that the
attorney-in-fact designated above is unavailable or otherwise unable or
unwilling to act, then Borrower authorizes Thomas M. Ringo to act upon
Borrower’s behalf as attorney-in-fact or such other person as Borrower may
indicate in a written authorization provided to Lender.

    

    3.03          Stock
Conversion.  Borrower
authorizes conversion of any Stock or Participation Certificates into any other
class of Stock or Participation Certificates of ACA as provided by law, and
authorizes ACA’s appropriate officer(s) to record such conversion on ACA’s
books, with full power of substitution.  In an Event of Default, ACA
may retire any Stock/Participation Certificates acquired by Borrower at book
value (not to exceed par value or face amount) and apply the proceeds to the
outstanding balance of any Loan.  When the policies of ACA permit
retirement of excess Stock/Participation Certificates, ACA, at its sole
discretion, may elect to retire and apply excess Stock/Participation
Certificates to Borrower’s Obligations, or if permitted by ACA’s policies,
excess Stock or Participation Certificates may be applied upon request by
Borrower.

     

    
      
        
        

      

      
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    3.04          Patronage.  Only the portion
of a Loan held by Lender for its own account and not subject to participation
shall be eligible for patronage or equity distributions of any kind in
accordance with the bylaws, practices and procedures of ACA.  To the
extent a participation in any portion of a Loan is sold at any time, such
portion so participated may not be eligible for patronage distributions of ACA
or its successors or assigns.

    

    4.
           FPF
Account.  If requested by
Borrower, Lender may open and maintain an FPF Account for Borrower on any
Loan.  An FPF Account or accounts will be held, applied or withdrawn
in accordance with the following terms and conditions.  Payments will
be accepted into an FPF Account and held for application on Loans with, or
serviced by, Lender.  Interest will accrue on FPF Account balances at
such minimum balances to be determined by Lender, from the date payments were
made into an FPF Account.  A variable interest rate, subject to
adjustment in the sole discretion of Lender, will be paid on FPF
Account(s).  The rate paid on funds held in any FPF Account will not
exceed the rate paid by Borrower on the related Loan.

    

    The
maximum account balance for each FPF Account shall be subject to the limitations
set forth below.

    

    a.           The
sum which may be held in an FPF Account associated with an operating or
revolving line of credit Loan shall not exceed the lesser of the Note amount or
the actual maximum outstanding balance on that Loan during the previous 12
months.  Lender reserves the right to further limit the maximum FPF
Account balance in the event a Borrower’s historical Note usage is significantly
less than the lesser of their maximum outstanding balance or the Note commitment
amount;

    

    b.           For
all other Loans, the maximum amount that may be held in the FPF Account shall
not exceed the outstanding principal balance on the associated Loan or some
other amount as may be determined by Lender.

    

    c.           Provided
however, amounts held in an FPF Account for a given Loan may, at Lender’s
option, be limited to a pro rata amount equal to Lender’s ratable share if the
Loan is participated with other lenders.

    

    Funds will
be applied to Borrower’s Obligations on any Loan covered by this Loan Agreement
at Borrower’s direction or when any payment under any Loan covered by this Loan
Agreement becomes due and payable.  Application of funds to a Loan
does not relieve Borrower from the obligation to make all payments as provided
for in the Loan Documents.  Funds may be returned to Borrower for
purposes for which Lender would make or increase Loans to Borrower, upon written
request or upon request pursuant to Lender’s electronic funds transfer
procedures.

    

    Funds
held in any FPF Account are uninsured.  Funds are protected only by
the financial condition of Lender.  In the event Lender were to become
insolvent and liquidated, the funds in Borrower’s FPF Account would be applied
against any outstanding Loan of Borrower.  Any funds in excess of the
total outstanding Loan balances would be at risk and subject to the claims of
creditors of Lender.

     

    
      
        
        

      

      
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    Borrower
hereby grants to Lender a first lien security interest in any FPF Account
established or to be established by or on behalf of Borrower related to any
Loan.  To the extent allowed by law, Borrower authorizes the filing of
and appoints Lender as its attorney-in-fact, coupled with an interest, for the
purpose of executing and filing financing statements and similar documents that
may, in Lender’s reasonable judgment, be necessary or advisable for perfecting,
continuing and reperfecting its security interest.  Borrower further
acknowledges and agrees that in the Event of Default under any Loan covered by
this Loan Agreement, Lender has a right of set-off against all funds in
Borrower’s FPF Accounts.  All conditions applicable to FPF Accounts
are subject to change and the program is subject to termination at Lender’s sole
discretion.

    

    5.           
General
Authorization.  Borrower hereby authorizes any one of the
following named individuals to request funds be deposited or disbursed from any
Loan Borrower may have with Lender, to request on behalf of Borrower, advances
under the Loans, to execute any notice in order to effect prepayment, repricing
or payment of any Loan Segment (as that term may be defined in a given Note)
under the Note(s), to request retirement of Stock under any Stock retirement
program Lender may have in effect, and other Loan servicing requests, including
deposits to and withdrawals from any FPF Account.  Individuals
authorized hereunder:  a Responsible Officer or any other
individual(s) as authorized by Borrower in a written authorization provided to
Lender.  Any such request shall be conclusively presumed to have been
made to or for the benefit of Borrower.

    

    6.
           Conditions
Precedent.  The obligation of Lender to close a Loan is subject
to satisfaction of the following conditions precedent by Borrower, on or before
the Closing Date or to waiver thereof by Lender.

    

    6.01          Documents
Required for Closing.

    

    a.           Borrower,
and all other parties required pursuant to Borrower’s Organization Documents,
shall have executed where appropriate and delivered to Lender, on or prior to a
Closing Date, the applicable Loan Documents, each in form and substance
satisfactory to Lender;

    

    b.           A
certified (as of the applicable Closing Date) copy of resolutions, or
equivalent, of the governing body of each Organization signing a Loan Document,
authorizing the execution, delivery and performance of each of the Loan
Documents to which it is a party and providing Lender an incumbency certificate
for any Person authorized to execute the Loan Documents;

    

    c.           A
certified (as of the applicable Closing Date) copy of the Organization Documents
of each such Person, as identified above, together with a certificate (dated as
of the Closing Date) of each such Person to the effect that such Organization
Documents have not been amended since the date of the aforesaid
certification;

     

    
      
        
        

      

      
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    d.           A
certificate (as of the most recent date practicable) of the relevant Secretary
of State as to the current existence of each such Person, as identified above, a
certificate (as of the most recent date practicable) of the Secretary of State
of each state in which the business activities or Property of such Person
requires qualification as a foreign corporation or entity, as the case may be,
and that such Person is duly qualified to transact business in that state as a
foreign corporation or entity, as the case may be;

    

    e.           The
written opinion of the outside counsel for Borrower, dated as of the applicable
Closing Date and addressed to Lender and any participating lenders as Lender may
request, in form satisfactory to Lender, to the effect that:

    

    i.           Borrower
is validly formed, has been duly organized, and to the knowledge of such
counsel, is now existing and is qualified to transact business in those states
where the nature of business conducted or Property owned by Borrower requires
qualification and, to the knowledge of such counsel, is not required to be
qualified as a foreign corporation, or entity, as the case may be, in any other
jurisdiction;

    

    ii.           Borrower
has the power to execute, deliver and perform its obligations under each of the
Loan Documents to which it is a party;

    

    iii.           All
official action by Borrower and all consents and approvals of any Persons
necessary to the validity of Loan Documents have been duly obtained, and the
Loan Documents do not conflict with any provision of the Organization Documents
of Borrower, or of any applicable laws or of any Contractual Obligation binding
upon Borrower or its Property, of which such counsel has knowledge;

    

    iv.           The
Loan Documents have been duly executed and delivered by, and each is the valid
and binding contract of Borrower and such Loan Documents are enforceable in
accordance with their terms;

    

    f.           Evidence,
as requested by Lender, that no condition shall exist which would constitute a
Material Adverse Effect, in the reasonable opinion of Lender, in the business,
operation or financial conditions of Borrower since the date of the applicable
Loan commitment;

    

    g.           A
UCC lien search satisfactory to Lender; and

    

    h.           Copies
of the most recent timberland appraisals covering all fee timber and timberlands
currently owned by Borrower.

    

    6.02          Conditions
Precedent to Funding Any Loan.  The obligation of
Lender to fund any Loan is subject to the following additional conditions
precedent:

    

    a.           Evidence
as requested by Lender that no condition shall exist which would constitute a
Material Adverse Effect, in the opinion of Lender, in the business, operation or
financial conditions of Borrower at the time of the advance;

     

    
      
        
        

      

      
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    b.           Borrower
shall have complied with all conditions precedent contained herein and in
Lender's escrow instructions and commitment letters for any Loan, if
any;

    

    c.           Payment
by Borrower to Lender of the following amounts:

    

    i.           Any
unpaid balance of any Loan fees; and

    

    ii.           All
unpaid costs and expenses to Lender; and

    

    d.           All
representations and warranties made in the Loan Documents are true and
correct.

    

    7.           
Representations and Warranties.

    

    7.01          Representations
and Warranties of Borrower.  To induce Lender
to enter into this Loan Agreement, Borrower represents and warrants to Lender as
follows:

    

    a.           Borrower
is a validly formed limited partnership that has been duly organized and exists
and is in good standing under the laws of the State of Delaware, the
jurisdiction in which it was organized, has the lawful power to own its
properties and to engage in the business it conducts, and is duly qualified to
do business in all other states where the nature of the business transacted by
it or Property owned by it makes such qualification necessary, except to the
extent that the failure to qualify would not create a Material Adverse
Effect;

    

    b.           Borrower
is not in default with respect to any Contractual Obligation so as to have a
Material Adverse Effect on the consolidated financial condition of
Borrower;

    

    c.           The
execution, delivery and performance of the Loan Documents will not immediately
or with the passage of time, or the giving of notice, or both:

    

    i.           Violate
the Organizational Documents governing Borrower, or violate any Laws or result
in a default under the terms of any Contractual Obligation to which Borrower is
a party or by which Borrower or its respective Properties is bound;
or

    

    ii.           Result
in the creation or imposition of any Lien upon any of the Property of Borrower,
except the Liens in favor of Lender;

    

    d.           Borrower
has the power and authority to enter into and perform the Loan Documents to
which it is a party or is bound, and to incur obligations, and has taken all
action necessary to authorize the execution, delivery and performance of the
Loan Documents to which it is a party or is bound;

    

    e.           The
Loan Documents, when delivered, will be legally valid and binding Contractual
Obligations, enforceable in accordance with their respective terms;

     

    
      
        
        

      

      
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    f.           Borrower
has good and marketable title to all of its Property and such Property is not
subject to any Lien, except for Permitted Liens;

    

    g.           Borrower’s
financial statements have been and will be prepared and presented and hereafter
will present fully and fairly the financial condition of Borrower on the dates
thereto and the results of operations for the periods covered thereby, and there
has been no condition so as to create a Material Adverse Effect in the financial
condition or business of Borrower from January 1, 2008 to the Closing Date for
Loan No. 56548-141;

    

    h.           Except
as otherwise permitted herein, Borrower has filed all federal, state and local
tax returns and other reports that it was required by Law to file prior to the
date hereof and that are Material to the conduct of its business; has paid or
caused to be paid all taxes, assessments and other similar governmental charges
that were due and payable prior to the date hereof; have made adequate provision
for the payment of taxes which are accruing but not yet payable; and have no
knowledge of any deficiency or additional assessment in a Material amount in
connection with any taxes which has not been provided for on their
books;

    

    i.           To
the best of its knowledge, after due diligence in investigating relevant
matters, except as otherwise disclosed or to the extent that the failure to
comply would not be Material to the conduct of the business of Borrower, it has
complied with all applicable laws with respect to:

    

    i.           The
products that it produces or sells or to the services it performs;

    

    ii.           The
conduct of its businesses; and

    

    iii.           The
use, maintenance and operation of the Properties owned or leased by
it;

    

    j.           No
representation or warranty by Borrower, as to its best knowledge, after due
diligence in investigating relevant matters, contained herein or in any
certificate or other document furnished pursuant hereto, or in the Loan
Documents, contains any untrue statement of Material fact or omits to state a
Material fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made; and

    

    k.           To
the best knowledge of Borrower, after due diligence in investigating relevant
matters, each consent, approval or authorization of, or filing, registration or
qualification with, any Person required to be obtained or effected by Borrower
in connection with the execution and delivery of the Loan Documents, or the
undertaking or performance of any obligation thereunder, has been duly obtained
or effected.

    

    l.           No
part of the proceeds of the Loan(s) will be used, directly or indirectly, for
the purpose of purchasing or carrying or trading in any securities in violation
of Regulation U.  If requested by Lender, Borrower shall furnish to
Lender a statement to the foregoing effect in conformity with the requirements
of FR Form U-1 referred to in Regulation U.  No indebtedness being
reduced or retired out of the proceeds of the Loans was or will be incurred for
the purpose of purchasing or carrying any margin stock within the meaning of
Regulation U.  “Margin stock” within the meanings of Regulation U does
not constitute more than 25 percent of the value of the consolidated assets of
Borrower.  None of the transactions contemplated by this Loan
Agreement (including without limitation, the direct or indirect use of the
proceeds of the Loans) will violate or result in a violation of the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or
regulations issued pursuant thereto, or Regulation U or X.

     

    
      
        
        

      

      
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    m.           Borrower
is not subject to regulation under the Public Utility Holding Company Act of
2005 or the Federal Power Act or the Investment Company Act of 1940, each as
amended.  In addition, Borrower is not (i) an “investment company”
registered or required to be registered under the Investment Company Act of
1940, as amended, and is not controlled by such a company, or (ii) a “holding
company,” or a “subsidiary company” of a “holding company,” or an “affiliate” of
a “holding company” or of a “subsidiary” of a “holding company,” within the
meaning of the Public Utility Holding Company Act of 2005, as
amended.

    

    n.           Borrower
has obtained all Material licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its Property and to the conduct of
its businesses.

    

    o.           Borrower
is not in violation of any Law, which violation could reasonably be expected to
have a Material Adverse Effect.

    

    p.           Borrower
is current with all Material reports and documents, if any, required to be filed
with any state or federal securities commission or similar agency and is in full
compliance in all Material respects with all applicable rules and regulations of
such commissions.

    

    7.02          Representations
and Warranties of Lender.  Lender represents
and warrants to Borrower as follows:

    

    a.           Lender
is a legal entity duly organized, validly existing and is in good standing under
the Farm Credit Act of 1971, as amended, has the necessary power and authority
to conduct the business in which it is currently engaged, is duly qualified to
conduct its business and is in compliance with all Material requirements of law,
except to the extent that failure to comply therewith would not, in the
aggregate, be reasonably expected to have a Material Adverse Effect on the
operations of Lender.

    

    b.           Lender
and each person executing this Loan Agreement on behalf of Lender has the
necessary power and authority, and the legal right, to make and deliver this
Loan Agreement, and has taken all necessary action to authorize the conditions
of this Loan Agreement and to authorize the execution, delivery and performance
thereof.  No consent or authorization of, filing with, notice to or
other similar act by or in respect of any Governmental Authority or any other
Person is required to be obtained or made by or on behalf of Lender in
connection with the execution, delivery, performance, validity or enforceability
of this Loan Agreement.  This Loan Agreement has been duly executed
and delivered on behalf of Lender.  This Loan Agreement onstitutes a
legal, valid and binding Loan Agreement enforceable against Lender in accordance
with its terms.

     

    
      
        
        

      

      
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    7.03          Survival.  All of the
representations and warranties set forth in Subparagraph 7.01 shall survive
until all Borrower’s Obligations are paid and satisfied in full and all offsets,
defenses or counterclaims that Borrower has or may claim to have, have been
released or discharged.

    

    8.
           Covenants.

    

    8.01          Affirmative
Covenants.  Borrower hereby
covenants and agrees that so long as this Loan Agreement is in effect or any of
Borrower’s Obligations shall remain outstanding, and until all of the
commitments hereunder or in the Notes and other Loan Documents have been
terminated, Borrower shall maintain the following covenants:

    

    a.           Loan
Purpose.  Borrower shall use the proceeds of a Loan only for
the purposes set forth in the Note evidencing such Loan, and will furnish Lender
such evidence as it may reasonably require with respect to such
use.

    

    b.           Financial
Reporting/Notices.  Borrower shall furnish Lender, in form and
detail satisfactory to Lender, during the term of the Loan(s):

    

    i.        As
soon as available, but in any event within 90 days after each Fiscal Year-End: a
consolidated balance sheet, the related consolidated statement of shareholders’
(or equivalent) equity and cash flows and the related consolidated statement of
income or operations for such Fiscal Year of Borrower and its Subsidiaries as of
the end of such Fiscal Year, setting forth in each case, in comparative form,
the figures for the previous Fiscal Year, all in reasonable detail and prepared
in accordance with GAAP.  Such consolidated statements shall be
audited and accompanied by a report and opinions of an independent certified
public accountant, reasonably acceptable to Lender, which report
and opinion shall be prepared in accordance with generally accepted auditing
standards and shall not be subject to any “going concern” or like qualification
or exception or any qualification or exception as to the scope of such
audit;

    

    ii.        As
soon as available, but in any event within 45 days after each Fiscal
Quarter-End, a consolidated balance sheet, the related consolidated statement of
cash flows and the related consolidated statement of income or operations for
such Fiscal Quarter-End of Borrower and its Subsidiaries, and for the portion of
Borrower’s Fiscal Year then ended, setting forth in each case, in comparative
form, the figures for the corresponding Fiscal Quarter-End of the previous
Fiscal Year and the corresponding portion of the previous Fiscal Year, all in
reasonable detail;

    

    iii.        Concurrently
with the delivery of the financial statements referred to in Sections 8.01b.i.
and ii., a duly completed Compliance Certificate, signed by a Responsible
Officer, certifying that such financial statements are fairly presenting the
financial condition, results of operations, shareholders’ (or equivalent) equity
and cash flows of Borrower and its Subsidiaries in accordance with GAAP (subject
only to normal year-end audit adjustments and the absence of footnotes with
respect to financial statements provided under Section 8.01b.ii..  A
sample of the Compliance Certificate is attached hereto as Exhibit A and such
Compliance Certificate shall be accompanied by a Covenant Compliance Worksheet,
a sample of which is attached hereto as Exhibit B, signed by a Responsible
Officer.;

     

    
      
        
        

      

      
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    iv.           Promptly
upon receipt thereof, copies of management letters submitted to Borrower by its
independent certified public accountants in connection with an audit or review
of Borrower and the responses of management to such letters;

    

    v.           Promptly
upon the request of Lender, (1) copies of any filings and registrations with,
and reports to or from, the Securities Exchange Commission, or any successor
agency, and copies of all financial statements, proxy statements, notices and
reports as Borrower shall send to its shareholders, and (2) all reports and
written information to and from the United States Environmental Protection
Agency, or any state or local agency responsible for environmental matters, the
United States Occupational Health and Safety Administration, or any state or
local agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety matters that
are Material to Borrower; and

    

    vi.           Upon
Borrower’s obtaining knowledge thereof, Borrower shall give written notice to
Lender immediately of (1) the occurrence of an event or condition consisting of
an Event of Default or Incipient Default, specifying the nature and existence
thereof and what action Borrower proposes to take with respect thereto, and (2)
the occurrence of any of the following with respect to Borrower:  (a)
the pendency or commencement of any litigation, arbitral or governmental
proceeding against Borrower or a Related Party which if adversely determined is
likely to have a Material Adverse Effect, (b) the institution of any proceedings
against Borrower or a Related Party with respect to, or the receipt of notice by
such Person of potential liability or responsibility for violation, or alleged
violation, of any federal, state or local law, rule or regulation, including but
not limited to, environmental Laws, the violation of which would likely have a
Material Adverse Effect.

    

    c.           Insurance.  Borrower
shall maintain, for itself and its Subsidiaries, casualty insurance with
insurance companies reasonably acceptable to Lender in such amounts, with such
terms and covering such risks as are usually carried by companies engaged in the
same or similar business and similarly situated, and make such increases in the
type or amount of coverage as Lender may reasonably request.  At the
request of Lender, copies of such policies (or such other proof of compliance
with this subsection as may be satisfactory to Lender) shall be delivered to
Lender.

    

    d.           Taxes.  Borrower
shall pay, or cause to be paid, for itself and its Subsidiaries, before they
become delinquent and where the failure to pay or discharge such amounts will
have a Material Adverse Effect, all taxes imposed upon it or on any of their
Property or that it is required to withhold and pay, except when contested in
good faith by appropriate proceedings with adequate reserves therefore having
been set aside on their books.  Notwithstanding the foregoing right of
contest, such taxes will be paid whenever foreclosure on any Lien that has
attached appears imminent.

    

    e.           Records.  Borrower
shall keep accurate and complete Records of its operations, consistent with
sound business practices.  Borrower shall, when reasonably requested
by Lender, make available for inspection all assets and properties of Borrower
and make available for inspection and copying by duly authorized representatives
of Lender, all Records related to its assets and Properties reasonably requested
by Lender and will furnish Lender any reasonable information regarding its
business affairs and financial condition within a reasonable time after Lender's
request.

     

    
      
        
        

      

      
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    f.           Laws.  Borrower
shall comply with all Laws applicable to it and its Property if noncompliance
with any such Law would have a Material Adverse Effect.

    

    g.           Property
Maintenance.  Borrower shall maintain and preserve its Property
in good repair, working order and condition, normal wear and tear and casualty
and condemnation excepted, and will make, or cause to be made, in such
Properties and equipment from time to time, all repairs, renewals, replacements,
extensions, additions, betterments and improvements as may be needed or proper,
to the extent and in the manner customary for companies in similar
businesses.  Borrower shall perform in all material aspects, all of
its obligations under the terms of all Material agreements, indentures,
mortgages, security agreements or other debt instruments to which it is a party
or which it is bound.

    

    h.           Indebtedness.  Borrower
shall pay when due (or within applicable grace periods) all Indebtedness due
third persons, except when the amount is being contested in good faith by
appropriate proceedings and with adequate reserves being set aside on their
books.

    

    i.           Subordination.  Borrower
hereby subordinates all Intercompany Indebtedness to Borrower’s Obligations to
Lender; provided however, so long as there exists no Event of Default or
Incipient Default, Borrower may pay such Intercompany Indebtedness in the
ordinary course of its businesses.

    

    j.           Change of
Location.  Borrower shall provide Lender with reasonable notice
in advance of any change in its headquarters location.

    

    k.           Additional
Documents.  From time to time, Borrower shall execute and
deliver to Lender such additional documents and will provide such additional
information as Lender may reasonably require to carry out the terms of this Loan
Agreement and be informed of the status and affairs of Borrower.

    

    8.02          Financial
Covenants.  Borrower hereby
covenants and agrees that so long as this Loan Agreement is in effect or any of
Borrower’s Obligations shall remain outstanding, Borrower shall comply with and
maintain the following financial covenant, to be measured as of each Fiscal
Quarter-End:

    

    a.           Indebtedness
to Total Capitalization Ratio less than or equal to 0.50:1.00.

    

    8.03          Negative
Covenants.  Borrower hereby
covenants and agrees that so long as this Loan Agreement is in effect or any of
Borrower’s Obligations shall remain outstanding, and until all of the
commitments hereunder have terminated, unless the prior written consent of
Lender is obtained, which consent shall not be unreasonably withheld Borrower
shall not and shall not allow any of its Subsidiaries to:

     

    
      
        
        

      

      
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    a.           Liens.  Create, assume or suffer to exist, and
will not permit any of its Subsidiaries to create, assume or suffer to exist,
any Lien on any asset now owned or hereafter acquired by it other than Permitted
Liens.

    

    

    b.           Nature of
Business.  Substantively alter the nature, character or conduct
of its business conducted by it.

    

    c.           Consolidation, Merger, Sale
or Purchase of Assets.

    

    i.           Dissolve,
liquidate or wind up its affairs, or enter into any transaction of merger or
consolidation; provided however, that, so long as no Event of Default or
Incipient Default would be directly or indirectly caused as a result thereof, Borrower may merge or consolidate with any of its Subsidiaries,
provided that Borrower is the surviving entity;

    

    ii.           Make
an Asset Disposition that would have a Material Adverse Effect on the financial
condition of Borrower.

    

    d.           Fiscal Year; Organizational
Documents.  Change its Fiscal Year-End or amend, modify or
change its Organization Documents such that the result would have a Material
Adverse Effect.

    

    e.           Accuracy of
Reporting.  Furnish any certificate or other document to Lender
that contains any untrue statement of Material fact or that omits to state all
Material facts necessary to make it not misleading in light of the circumstances
under which it was furnished.

    

    f.           Indebtedness.  Create, assume,
incur, suffer to exist or otherwise become or remain liable in respect of any
Indebtedness other than: (i) Indebtedness evidenced by the Note(s); (ii)
existing Indebtedness, listed on a schedule provided to Lender as of the Closing
Date; (iii) purchase money Indebtedness, including capital leases, not to exceed
$1,000,000.00 annually; (iv) Indebtedness related to Permitted Liens; (v)
Indebtedness incurred or assumed after the date hereof which has been
subordinated to the obligations of Borrower to Lender hereunder and under the
Note(s) on terms and conditions satisfactory to Lender; (vi) obligations to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; (vii) Timber Fund
Indebtedness, to the extent allowed under the governing documents of such Timber
Fund; (viii) additional secured Indebtedness of a Subsidiary (other than that
provided for under Section 8.03 f.(vi) above) in aggregate over the term of the
Loan(s), not to exceed $8,000,000.00, and; (ix) additional unsecured
Indebtedness, in the aggregate over the term of the Loan(s), not to exceed
$10,000,000.00; provided, however, total additional Indebtedness allowed under
(viii) and (ix) above shall not exceed $10,000,000.00, in aggregate over the
term of the Loan(s).

     

    
      
        
        

      

      
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    9.
           Default.

    

    9.01          Events of
Default.  Time is of the essence in the performance of the Loan
Documents.  The occurrence of any one or more of the following events
shall constitute an Event of Default under the Loan Documents:

    

    a.           Borrower
fails to make any payment of principal, interest or other costs, fees or
expenses when due or perform any obligation or covenant as and when required
under the Loan Documents for the Loan(s) or any other Note(s), loan(s) Borrower,
or any of them, may have with Lender.

    

    b.           Any
financial statement, representation, warranty or certificate made or furnished
by Borrower to Lender in connection with a Loan, or as an inducement to Lender
to enter into a Loan is Materially false, incorrect or incomplete when
made.

    

    c.           Any
Bankruptcy Event shall occur with respect to Borrower, or any Bankruptcy Event
that has a Material Adverse Effect on Borrower shall occur with respect to any
of Borrower’s Subsidiaries.

    

    d.           This
Loan Agreement or any other Loan Document ceases to be valid and binding on
Borrower or is declared null and void, or the validity or enforceability thereof
is contested by Borrower, or Borrower denies that it has any or further
liability under any of the Loan Documents.

    

    9.02          Notice
and Opportunity to Cure.  Notwithstanding
any other provision of the Loan Documents, Lender shall not accelerate the
maturity of a Loan (a) because of a monetary default (defined below), unless the
monetary default is not cured within ten days of its due date, or (b) because of
a nonmonetary default (defined below), unless the nonmonetary default is not
cured within 30 days after (i) the date on which Lender transmits by facsimile,
mails or delivers written notice of the nonmonetary default to Borrower, or (ii)
the date on which Borrower notifies Lender (verbally or in writing) of the
nonmonetary default.  For purposes of this Loan Agreement, the term
“monetary default” means a failure by Borrower to make any payment required of
it pursuant to the applicable Note or any other Loan Document, and the term
“nonmonetary default” means a failure by Borrower or any other Person to perform
any obligation contained in the Loan Documents, other than the obligation to
make payments provided for in the Loan Documents.

    

    10.           
Prepayment and Breakage Fees.

    

    10.01          Prepayment
Fee.

    

    a.           Exemption to Prepayment
Fee.  Principal prepayments made while a Loan or Loan Segment
is priced under the Base Rate shall not be subject to a Prepayment
Fee.  In addition, there is no Prepayment Fee for any prepaid
principal if a prepayment is received on a Fixed Rate Maturity Date for the Loan
or Loan Segment being prepaid.  Other prepayments of principal shall
be subject to a Prepayment Fee, as described below.

     

    
      
        
        

      

      
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    b.           “Prepayment”
Defined.  For purposes of this Loan Agreement, “prepayment”
shall mean any instance wherein the indebtedness is partially or fully satisfied
in any manner prior to a payment due date, whether voluntarily or involuntarily
(excluding scheduled payments that have been paid) pursuant to the terms of the
Loan Documents.  Prepayment shall include, but not be limited
to:  (i) any payment after an Event of Default under the Loan
Documents; (ii) any payment after the Loan Maturity Date is accelerated for
any reason; (iii) payment resulting from any sale or transfer of Property
pursuant to foreclosure, sale under power, judicial order or trustee’s sale; and
(iv) payment by sale, transfer or offsetting credit in connection with or
under any bankruptcy, insolvency, reorganization, assignment for the benefit of
creditors or receivership or similar proceedings under any statute of the United
States or any state thereof involving Borrower.  In the event of any
acceleration of the Loan Maturity Date, the amount due hereunder shall include
the charge that would be due under the Prepayment Fee in the event of a
voluntary prepayment at the time of such acceleration, and the date of
acceleration of the Loan Maturity Date will be deemed to be the date of
prepayment.

    

    c.           Prepayment
Fee.  The “Prepayment Fee” is an amount intended to reasonably
compensate Lender for the loss of the intended benefit of Lender’s bargain in
the case of a prepayment.  Borrower and Lender intend that the
principal balance of the Loan or each Loan Segment will yield to Lender an
annual return, after the date the Loan or Loan Segment is prepaid of not less
than the annual return for the period when the interest rate is
fixed.  In the event of a prepayment, Lender will lose the intended
benefit of its bargain.  Accordingly, the Prepayment Fee shall be
payable, on demand, and shall be an amount calculated on a make-whole basis,
consistent with the procedure described in Exhibit C hereof.

    

    10.02         
Breakage
Fee.  In the event of
an occurrence under sub-Sections a. or b. below, Borrower shall immediately pay
Lender, on demand, a Breakage Fee in an amount calculated on a make-whole basis,
consistent with the procedure described in Exhibit C hereof:

    

    a.           Borrower
provides Lender Notice that Loan principal is to be priced using a Fixed Rate
Option, after which Borrower revokes such Notice; or

    

    b.           Borrower
provides Lender Notice that Loan principal priced under a Fixed Rate Option is
to be priced, repriced or prepaid on other than a Pricing Date, after which
Borrower revokes such Notice.

    

    10.03         
Participation.  Participant(s),
if any, shall calculate a Prepayment Fee or Breakage Fee using the calculation
on a make-whole basis, consistent with the procedure described in Exhibit C
hereof; provided however, a participant may use a different value than Lender
for the Initial and Final Reference Rates, as those terms are described in
Exhibit C hereof..

    

    11.
           Enforcement
and Waiver; Indemnity.

    

    11.01         
Enforcement
and Waiver by Lender.  Lender shall have
the right at all times to enforce the provisions of the Loan Documents in strict
accordance with the terms thereof, notwithstanding any conduct or custom on the
part of Lender in refraining from so doing at any time or times.  The
failure of Lender at any time or times to enforce its rights under such
provisions, strictly in accordance with the same, shall not be construed as
having created a custom in any way or manner contrary to specific provisions or
as having in any way or manner modified or waived the same.  All
rights and remedies of Lender are cumulative and concurrent, and the exercise of
one right or remedy shall not be deemed a waiver or release of any other right
or remedy.  Lender shall have, in addition to the rights and remedies
given it by the Loan Documents, all rights and remedies allowed by all
applicable Laws and in equity.

     

    
      
        
        

      

      
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    11.02         
Indemnity;
Waiver of Damages by Borrower.

    

    a.           Indemnification by
Borrower.  Borrower shall indemnify Lender and each Related
Party of Lender (each such Person being called an “Indemnitee”) against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses (including the fees, charges and disbursements
of any counsel for any Indemnitee), incurred by any Indemnitee or asserted
against any Indemnitee by any third party or by Borrower or any other party
hereto arising out of, in connection with, or as a result of (i) the execution
or delivery of this Loan Agreement, any other Loan Document or any agreement or
instrument contemplated, the performance by the parties hereto of their
respective obligations or the consummation of the transactions contemplated,
(ii) any actual or alleged presence or release of hazardous materials on or from
any Property owned or operated by Borrower, or any environmental liability
related in any way to Borrower or any of its Subsidiaries, or (iii) any actual
or prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory, whether
brought by a third party or by Borrower or any other party hereto, and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses (x) are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by Borrower or any other party hereto against an
Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or
under any other Loan Document, if Borrower or such party hereto has obtained a
final and nonappealable judgment in its favor on such claim as determined by a
court of competent jurisdiction.  Provided however, in the course of
any proceeding of any nature contemplated by this subsection between or among
Indemnitee, Borrower or any party hereto, each such party shall be responsible
for their own fees and expenses, provided further, that following a
nonappealable judgment, the prevailing party or substantially prevailing party
shall be entitled to payment of its reasonable costs and expenses from the other
party or parties.

    

    b.           Waiver by Borrower of
Consequential Damages, Etc.  To the fullest extent permitted by
applicable Law, Borrower shall not assert, and each such party hereby waives,
any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of, this Loan
Agreement, any other Loan Document or any agreement or instrument contemplated,
the transactions contemplated, any Loan or the use of the proceeds
thereof.  No Indemnitee referred to in Subsection a. above shall be
liable for any damages arising from the use by unintended recipients of any
information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Loan Agreement or the other Loan Documents or the transactions
contemplated.

     

    
      
        
        

      

      
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    c.           Payments.  All
amounts due under this Section 11.02 shall be payable not later than ten
Business Days after demand therefore.

    

    d.           Survival.  The
agreements in this Section shall survive the repayment, satisfaction or
discharge of Borrower’s Obligations.

    

    12.
           Communications.

    

    12.01
         Notice and Other
Communications.

    

    a.           General.  Unless
otherwise expressly provided herein or in the Loan Documents, all notices and
other communications provided for hereunder shall be in writing (including by
facsimile transmission).  All such written notices shall be mailed,
faxed or delivered to the applicable address, facsimile number or, subject to
Section 12.03 below, e-mail address, and all notices and other communications
expressly permitted hereunder to be given by telephone and shall be made to the
applicable telephone number, as follows:

    

    i.           If
to Borrower:

       
Attention:  Thomas M. Ringo

    19245 Tenth Ave. NE

    Poulsbo, WA 98370

    Facsimile:  (360)
697-1476

    E-mail:  tringo@orminc.com

    

    ii.           If
to Lender:

    Attention:  Kristy
Searles

    Northwest Farm Credit Services,
PCA

    650 Hawthorne Ave. SE, Suite
#210

    Salem, OR  97301

    Facsimile:  (503)
373-3006

    E-mail:  NWFCSsalemagribusiness@farm-credit.com

    

    b.           Effectiveness.  All
such notices and other communications shall be deemed to be given or made upon
the earlier to occur of (1) actual receipt by the relevant party hereto and (2)
(a) if delivered by hand or by courier, when signed for by or on behalf of the
relevant party hereto; (b) if delivered by Certified Mail, Return Receipt
Requested, upon receipt; (c) if delivered by Facsimile, when sent and receipt
has been confirmed by telephone; and (d) if delivered by e-mail (which form of
delivery is subject to the provisions of Section 12.03 below), when
delivered.  In no event shall a voicemail message be effective as a
notice, communication or confirmation hereunder.

    

    12.02         
Facsimile
Documents and Signatures.  Loan Documents
may be transmitted and or signed by facsimile.  The effectiveness of
any such documents and signatures shall, subject to applicable law, have the
same force and effect as manually signed originals and shall be binding on
Borrower and Lender, as applicable.  Lender may also require that any
such document and signature be confirmed by a manually signed original thereof;
provided however, that the failure to request or deliver the same shall not
limit the effectiveness of any facsimile document or signature.

     

    
      
        
        

      

      
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    12.03         
Use of
E-mail.  E-mail, internet
or intranet websites may be used only to distribute routine communications, such
as financial statements, billing statements and other like information and to
distribute Loan Documents for execution by the parties thereto, but may not be
used for any other purpose, unless approved by Lender.  Provided, an
original signed document that has been scanned and attached to an e-mail shall
have the same force and effect as a document sent by facsimile.

    

    13.           
Participation.  Notwithstanding
any other provision of this Loan Agreement, Borrower understands that Lender may
at any time enter into participation agreements with one or more participating
lenders, whereby Lender will allocate certain percentages of its commitment to
these lenders.  Borrower acknowledges that, for the convenience of all
parties, this Loan Agreement is being entered into with Lender only, and that
Borrower’s Obligations under this Loan Agreement are undertaken for the benefit
of, and as an inducement to, any such participating lender as well as Lender,
and Borrower hereby grants to each participating lender, all the rights and
remedies afforded Lender hereunder.

    

    14.
           Governing Law; Jurisdiction;
Etc.

    

    14.01         
Governing
Law.  THIS LOAN
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF WASHINGTON, EXCEPT WHERE FEDERAL LAWS, INCLUDING THE FARM CREDIT
ACT OF 1971, AS AMENDED, MAY BE APPLICABLE.

    

    14.02         
Submission
to Jurisdiction.  BORROWER AND EACH
PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
WASHINGTON SITTING IN SPOKANE COUNTY AND OF THE UNITED STATES DISTRICT COURT OF
THE EASTERN DISTRICT OF WASHINGTON, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH WASHINGTON STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.  NOTHING IN THIS LOAN AGREEMENT OR IN ANY OTHER LOAN
DOCUMENT SHALL AFFECT ANY RIGHT THAT LENDER MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT
AGAINST BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.

     

    
      
        
        

      

      
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    14.03         
Waiver of
Venue.  BORROWER AND EACH
OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN
SECTION 14.02 HEREOF.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT.

    

    14.04         
Service
of Process.  EACH PARTY HERETO
IRREVOCABLY WAIVES PERSONAL SERVICE OR PROCESS, WHICH MAY BE MADE IN ANY OTHER
MANNER PERMITTED BY APPLICABLE LAW.

    

    14.05         
WAIVER
OF JURY TRIAL.  BORROWER AND
LENDER HEREBY IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENTS AND ANY FUTURE MODIFICATIONS,
AMENDMENTS, EXTENSIONS, RESTATEMENTS AND SERVICING ACTIONS RELATING TO THIS LOAN
AGREEMENT AND ANY OTHER LOAN DOCUMENTS.  THE PARTIES INTEND THAT THIS
JURY WAIVER WILL BE ENFORCED TO THE MAXIMUM EXTENT ALLOWED BY LAW.

    

    14.06         
Consultation
with Counsel.  Borrower
certifies that it has carefully read this Loan Agreement and other Loan
Documents; that it understands the contents of this Loan Agreement and other
Loan Documents; that in executing this Loan Agreement and other Loan Documents,
it has not relied on the advice, opinions or statements of Lender or its
officers, directors, employees or attorneys; and that it signed this Loan
Agreement and other Loan Documents of their own free will and
accord.  Lender recommends that Borrower consult its counsel and or
other professional advisor before signing this Loan Agreement and other Loan
Documents.  To the extent Borrower has not consulted with an attorney
or other professionals in connection with this Loan Agreement and other Loan
Documents, it acknowledges that it was given the opportunity to do so and chose
of their own free will and accord not to do so.

    

    15.
           Miscellaneous.

    

    15.01          Construction.

    

    a.           The
provisions of this Loan Agreement shall be in addition to those of any other
Loan Document or other evidence of liability held by Lender, all of which shall
be construed as complementary to each other.  In the event of a
conflict between the terms of this Loan Agreement and any other Loan Document,
the terms of this Loan Agreement shall control such conflict.  Nothing
herein contained shall prevent Lender from enforcing any or all of the other
Loan Documents in accordance with their respective terms.  All
Exhibits attached to this Loan Agreement are incorporated herein and made a part
hereof.

     

    
      
        
        

      

      
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    b.           This
Loan Agreement may be executed in counterparts (and by different parties hereto
in different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.

    

    c.           In
this Loan Agreement, in the computation of a period of time from a specified
date to a later specified date, unless otherwise stated the word “from” means
“from and including” and the word “to” or “until” means “to and
including.”

    

    d.           The
definitions of terms herein shall apply equally to the singular and plural forms
of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms.  The words “include,” “includes” and “including” shall be
deemed to be followed by the phrase “without limitation.”  The word
“will” shall be construed to have the same meaning and effect as the word
“shall.”  Unless the context requires otherwise, (i) any definition of
or reference to any agreement, instrument or other document (including any
Organization Document) shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein or in any other Loan Document), (ii) any
reference herein to any Person shall be construed to include such Person’s
successors and assigns and (iii) the words “herein,” “hereof” and “hereunder,”
and words of similar import when used in any Loan Document, shall be construed
to refer to such Loan Document in its entirety and not to any particular
provision thereof.

    

    e.           A
reasonable person standard shall be applied to each and every warranty,
representation, requirement or thing to be done or performed hereunder except
when the term “in its discretion” or “in its sole discretion” is used
herein.

    

    15.02          Binding
Effect, Assignment and Entire Agreement.  The Loan
Documents will inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties
hereto.  Borrower has no right to assign any of its rights or
obligations hereunder without the prior written consent of
Lender.  The Loan Documents constitute the entire agreement between
the parties, and may be amended only by a writing signed on behalf of each party
and dated subsequent to the date herein.

    

    15.03          Severability.  If any provision
of this Loan Agreement shall be held invalid under any applicable Laws, such
invalidity shall not affect any other provision of this Loan Agreement that can
be given effect without the invalid provision, and, to this end, the provisions
hereof are severable.

    

    15.04          No
Personal Liability of General Partners.  In any action
brought to enforce the obligation of Borrower to pay Borrower’s Obligations, any
judgment or decree shall not be subject to execution on, nor be a lien on,
assets of the General Partners of Borrower.  The foregoing shall in no
way otherwise affect the personal liability of Borrower.

     

    
      
        
        

      

      
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    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.

    

    In Witness
Whereof, the parties hereto have duly executed this Loan Agreement as of the
date first above written.

    

    LENDER:

    NORTHWEST
FARM CREDIT SERVICES, PCA

    

    By:
__________________________________

    Authorized Agent

    

    

    BORROWER:

    POPE
RESOURCES, A DELAWARE LIMITED PARTNERSHIP

    

    By:
__________________________________

    David L.
Nunes, President and Chief Executive Officer

    

     

    
      
        
        

      

      
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Pope
Resources, A Delaware Limited Partnership

    Customer
No.:  56548

    

    EXHIBIT
A TO MASTER LOAN AGREEMENT

    FORM
OF COMPLIANCE CERTIFICATE

    

    Financial
Statement Date:  _______________, 20__

    

    To:           Northwest
Farm Credit Services, PCA

    

    Reference
is made to that certain Master Loan Agreement, dated as of June __, 2008, (the
“Loan Agreement“) among POPE
RESOURCES, A DELAWARE LIMITED PARTHERSHIP, a Delaware limited partnership
(“Borrower”), and NORTHWEST
FARM CREDIT SERVICES, PCA, “Lender.”

    

    The
undersigned Responsible Officer hereby certifies as of the date hereof that
he/she is the __________________________ of Borrower, and that, as such, he/she
is authorized to execute and deliver this Certificate to Lender on behalf of
Borrower, and that:

    

    [Use
following Paragraph 1 for Fiscal Year-End financial statements]

    

    1.           Attached
hereto as Schedule 1, are the Fiscal Year-End audited financial statements
required by Section 8.01.b.i of the Loan Agreement for the fiscal year of
Borrower ended as of the above date, together with the report and opinion of an
independent certified public accountant required by such section.

    

    [Use
following Paragraph 1 for [first/second/third] Fiscal Quarter-End financial
statements]

    

    1.           Attached
hereto as Schedule 1, are the financial statements required by Section
8.01.b.ii. of the Loan Agreement for the Fiscal Quarter of Borrower ended as of
the above date.  Such financial statements fairly present the
financial condition, results of operations and cash flows of Borrower and its
Subsidiaries in accordance with GAAP, as at such date and for such period,
subject only to normal year-end adjustments and the absence of
footnotes.

    

    2.           The
undersigned has reviewed and is familiar with the terms of the Loan Documents
and has made, or has caused to be made under his/her supervision, a detailed
review of the transactions and condition (financial or otherwise) of Borrower
during the accounting period covered by the attached financial
statements.

    

    3.           A
review of the activities of Borrower during such fiscal period has been made
under the supervision of the undersigned with a view to determining whether
during such fiscal period Borrower performed and observed all its obligations
under the Loan Documents, and

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    

    [select
one:]

    

    [To the best knowledge of the
undersigned during such fiscal period, Borrower performed and observed each
covenant and condition of the Loan Documents applicable to it.]

    

    --or--

    

    [The following covenants or conditions
have not been performed or observed and the following is a list of each such
Default and its nature and status:]

    

    4.           To
the best knowledge of the undersigned, the representations and warranties of
Borrower contained in the Loan Documents, and any representations and warranties
of Borrower that are contained in any document furnished at any time under or in
connection with the Loan Documents, are true and correct on and as of the date
hereof, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they are true and correct
as of such earlier date.

    

    5.           To
the best knowledge of the undersigned, the financial covenant analyses and
information set forth on Schedule 1, attached hereto, are true and accurate on
the Calculation Date and the undersigned has received no information to the
contrary as of the date of this Certificate.

    

    IN WITNESS WHEREOF, the
undersigned has executed this Certificate as of ___________________,
20__.

    

    POPE
RESOURCES, A DELAWARE LIMITED PARTNERSHIP

    

    By: ________________________________                                                      

    Name:
______________________________                                                                           

    Title:
_______________________________                                                                           

    

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
B TO MASTER LOAN AGREEMENT

    COVENANT
COMPLIANCE WORKSHEET

    

    For the
Fiscal Quarter-End / Fiscal Year-End _____________________ (“Calculation
Date”)

    

    
      	
              I.         Section
      8.02 a. – Indebtedness to Total Capitalization Ratio

            	 
      
	
              A.  
      Companies’ Indebtedness at Statement Date:

               

            	
              $____________

            
	
              B.  
      Indebtedness associated with minority interest in Timber Funds at
      Statement Date:

               

            	
              $____________

            
	
              C.
        Numerator (Line I.A. minus
      Line I.B.):

               

            	
              $____________

            
	
              D.   Total
      Capitalization at Statement Date:

               

            	 
      
	
              1.  Partners’
      capital at Statement Date:

               

            	
              $____________

            
	
              2.  Market
      capital at Statement Date:

               

            	 
      
	
              a.  Closing
      unit price at Statement Date:

               

            	
              $____________

            
	
              b.  Partnership
      units outstanding at Statement Date:

               

            	
              ____________

            
	
              c.  Market
      Capital (Line I D. 2. a. multiplied
      by Line I D. 2. b.)

               

            	
              $____________

            
	
                     E.  
      Denominator (Line I C. plus the greater of Line I.D.1. or Line I.D.2.c.):

               

            	
              $____________

            
	
                    
      C.   Ratio of Indebtedness to Total Capitalization (Line I.C.
      divided by Line
I.E.):

            	
               

              _____

            
	
              Maximum
      allowed:

            	
              0.50

            

    

     

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    
      	
              II.        Consolidated
      Interest Coverage Ratio (Pricing Only)

            	 
      
	
                     
      A.   Consolidated EBITDDA for the prior four Fiscal Quarters ending
      on the above date (the “Subject Period”):

               

            	 
      
	
              1. 
      Consolidated Net Income for the Subject Period

            	
              $____________

            
	
              2. 
      Consolidated Interest Expense for the Subject Period:

               

            	
               

              $____________

            
	
              3.  Consolidated
      depreciation expense for the Subject Period:

               

            	
              $____________

            
	
              4.  Consolidated
      amortization expense for the Subject Period:

            	
               

              $____________

            
	
              5. 
      Consolidated depletion expense for the Subject Period (excluding the
      portion associated with the minority interest in Timber
      Funds):

               

            	
              $____________

            
	
              6.  Cost
      of land sold:

            	
               

              $____________

            
	
              7. 
      Consolidated Taxes for the Subject Period (to the extent considered in
      calculating Consolidated Net Income):

               

            	
               

               

              $____________

            
	
              8. 
      Consolidated EBITDDA (the sum of Lines II.A.1 through I.A.7.
      inclusive):

               

            	
               

              $____________

            
	
              B.  
      Consolidated Interest Expense for Subject Period:

               

            	
              $____________

            
	
              C.  
      Consolidated Interest Coverage Ratio (Line I.A.8 divided by Line I.B):

            	
              ____
      to 1

            

    

    
 

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
C TO MASTER LOAN AGREEMENT

    PREPAYMENT
/ BREAKAGE FEE CALCULATION

    

    

    A.           Definitions.  For
the purposes herein, the following definitions apply:

    

    
      	
               
      

            	
              1.

            	
              “Prepayment
      Amount,” for the purpose of a Prepayment Fee, means the amount of any
      principal prepayment.

            

    

    

    
      	
               
      

            	
              2.

            	
              “Prepayment
      Amount,” for the purpose of a Breakage Fee, means the principal that
      Borrower has indicated on a Notice to be advanced or priced using a Fixed
      Rate Option.

            

    

    

    
      	
               
      

            	
              3.

            	
              “Remaining
      Fixed Pricing Period,” for any principal priced with a Fixed Rate Option,
      means the period of time beginning (a) on the date a principal prepayment
      is made or, (b) in the case of a Breakage Fee, on the date Notice is given
      and ending on the Fixed Rate Maturity
Date.

            

    

    

    
      	
               
      

            	
              4.

            	
              “Initial
      Reference Rate,” for any principal priced with a Fixed Rate Option, means
      the annualized rate used by Lender or a participant to obtain the funds
      loaned to Borrower in the case of a Prepayment Fee, or the annualized rate
      applicable on the last Pricing Date, or on the date Notice of prepayment
      is given, as the case may be, in the case of a Breakage
    Fee.

            

    

    

    
      	
               
      

            	
              5.

            	
              “Final
      Reference Rate” means the annualized rate Lender or a participant would
      use to fund a new advance in such amount for the Remaining Fixed Pricing
      Period on the date of such prepayment.  For a Breakage Fee, the
      Final Reference Rate means the annualized rate as of the date Notice is
      given.

            

    

    

    
      	
              B.

            	
              Calculation of
      Prepayment/Breakage Fee.  The Prepayment Fee and the
      Breakage Fee are calculated on a make-whole basis in five (5) steps, as
      provided below:

            

    

    

    
      	
               
      

            	
              1.

            	
              Compare
      the Initial Reference Rate and the Final Reference Rate.  If the
      Initial Reference Rate is less than or equal to the Final Reference Rate,
      the Prepayment / Breakage Fee is zero.  If the Initial Reference
      Rate is greater than the Final Reference Rate, complete the following
      steps to calculate the Prepayment/Breakage
Fee.

            

    

    

    
      	
               
      

            	
              2.

            	
              Calculate
      the interest payment that will accrue on the Prepayment Amount over the
      Remaining Fixed Pricing Period at the Initial Reference Rate (“Initial
      Interest Amounts”).

            

    

    

    
      	
               
      

            	
              3.

            	
              Calculate
      the interest payment that will accrue on the Prepayment Amount over the
      Remaining Fixed Pricing Period at the Final Reference Rate (“Final
      Interest Amounts”).

            

    

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    

    
      	
               
      

            	
              4.

            	
              Calculate
      the “Differential Interest Amount” for each interest payment due during
      the Remaining Fixed Pricing Period by subtracting the Final Interest
      Amount from the Initial Interest Amount for each such
    payment.

            

    

    

    
      	
               
      

            	
              5.

            	
              The
      Prepayment or Breakage Fee is the sum of the discounted present value of
      each Differential Interest Amount, discounted at the Final Reference Rate
      from the date such payment would be due back to the prepayment date, or in
      the case of a Breakage Fee, on the date Notice is
  given.

            

    

    

    An example
of a Prepayment/Breakage Fee calculation is attached hereafter.

     

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    

    EXAMPLE
OF PREPAYMENT/BREAKAGE FEE CALCULATION

    

    

    
      	
              Prepayment
      Amount

            	
              $1,000,000.00

            
	
              Initial
      Reference Rate

            	
              5.50%

            
	
              Final
      Reference Rate

            	
              5.00%

            
	
              Scheduled
      Interest Payments in the Remaining Fixed Pricing Period

            	
              1

            
	
              Remaining
      Fixed Pricing Period

            	
              90
      Days

            
	
              Installment
      Period

            	
              Quarterly

            

    

     

    
      
        	
                Compare Rates – Step
      1

              	 
      
	 	 
	
                Initial Reference
      Rate

              	
                5.50%

              
	
                Final Reference
      Rate

              	
                5.00%

              
	
                (The
      Final Reference Rate is the 90-day Current Discount Note Rate, as adjusted
      by Lender)

              	 
      
	
                Continue
      to the next step because the Initial Reference Rate is greater than the
      Final Reference Rate.

              	 
      

      

      

      
      

    

    
      
        	
                Scheduled Interest
      Payments at the Initial Reference Rate – Step 2

              
	
                Interest
      Payment

              	
                Initial Interest
      Amounts

              	
                Balance

              
	 
      	 
      	
                $1,000,000.00

              
	
                1

              	
                $13,750.00

              	
                $1,000,000.00

              
	
                [($1,000,000.00
      x 5.50%)/4 = $13,750.00]

              
	
                Carry
      forward the Initial Interest Amounts to Step
4

              

      

       

      
        	
                Scheduled Interest
      Payments at the Final Reference Rate – Step 3

              	 
      
	
                Interest
      Payment

              	
                Final Interest
      Amounts

              	
                Balance

              
	 
      	 
      	
                $1,000,000.00

              
	
                1

              	
                $12,500.00

              	
                $1,000,000.00

              
	
                [($1,000,000.00
      x 5.00%)/4 = $12,500.00]

              
	
                Carry
      forward the Final Interest Amounts to Step
4

              

      

       

      
        	
                Interest Difference –
      Step 4

              
	
                Interest
      Payment

              	
                Initial
      Interest

                Amounts

              	
                Final
      Interest

                Amounts

              	
                Differential
      Interest

                Amount

              
	
                1

              	
                $13,750.00

              	
                $12,500.00

              	
                $1,250.00

              
	
                Carry
      forward the Differential Interest Amount to Step
  5

              

      

       

      
        	
                Net Present Value of
      Differential Interest Amounts – Step 5

              
	
                 

                Interest
      Payment

              	
                Final
      Reference

                Rate

              	
                Present
      Value

                Factor

              	
                Differential

                Interest
      Amount

              	
                 

                Present
      Value

              
	
                1

              	
                5.00%

              	
                0.98765

              	
                $1,250.00

              	
                $1,234.57

              
	 	 	
                Prepayment/Breakage
      Fee

              	
                $1,234.57

              

      

    

     

     

    35a5748994ex10_35.htm

    Exhibit 10.35

     

    
      	Date:  July
      31, 2008	Pope Resources, A Delaware
      Limited Partnership
	 	Customer/Note No.
      56548-811

    

     

    

    REVOLVING
OPERATING NOTE

    (WITH
MULTIPLE PRICING OPTIONS)

     

    For Value Received, on the
Loan Maturity Date, Borrower, as defined below, as principal, promises to pay to
Lender, as defined below, or order, at its office in Spokane, Washington, or
such other place as the holder of this Revolving Operating Note and Loan
Agreement (this “Note”) may designate in writing, the principal sum of Forty Million and no/100’s
Dollars ($40,000,000.00) (the “Total
Commitment Amount”) or so much thereof as may be outstanding, plus interest
thereon from and after any Disbursement Date, at interest rates as provided for
hereafter.  For all intents and purposes, all Loan Segments are
treated as one obligation under this Note and the other Loan
Documents.

    

    1.
           Definitions.  For
purposes of this Note, the following definitions apply.  Capitalized
terms not otherwise defined herein shall have the meanings given in the Master
Loan Agreement, dated on or about the same date herewith (as amended and
modified, the “Loan Agreement”).

    

    “Applicable Margin”
means the per annum percentage set forth below, which corresponds to the
Borrower’s Pricing Level as of the most recent Calculation Date.

    

    
      	
               

              Pricing

              Level

            	
               

              Consolidated

              Interest
      Coverage

              Ratio

            	
              Applicable

              Margin

              for
      Base Rate

            	
              Applicable

              Margin
      for Fixed

               Rate
      Options

               

            	
              Unused

              Commitment

              Fee

            
	
              I

            	
              ≥
      3.00:1.00

            	
              -
      1.00%

            	
              +1.25%

               

            	
              0.10%

               

            
	
              II

            	
              ≥ 2.00:1.00

            	
              -
      0.75%

            	
              +1.40%

               

            	
              0.15%

               

            
	
              III

            	
              <
      2.00:1.00

            	
              -
      0.50%

            	
              +1.65%

               

            	
              0.20%

               

            

    

    

    The
pricing level shall be determined and adjusted on the date ten (10) Business
Days after the date Borrower provides Lender the Compliance Certificate, as
required herein, for Borrower’s most recent Calculation Date (each, an
“Adjustment Date”); provided however, that the initial pricing level shall be I
and shall remain at such pricing level until the first Adjustment Date occurring
after the first Calculation Date following the Closing Date.  On such
Adjustment Date and on each Adjustment Date thereafter, the pricing level shall
be determined by the Consolidated Interest Coverage Ratio as of the most recent
Calculation Date. If Borrower fails to timely provide Lender the Compliance
Certificate for such most recent Calculation Date, the pricing level commencing
the day after the due date thereof shall be the highest pricing level, which
shall remain in effect until subsequently adjusted ten (10) Business Days after
the delivery of the required Compliance Certificate.  Any adjustment
in the pricing level shall be applicable to all existing Loan
Segments.  Provided, however, in the Event of Default, Lender shall
have the right at any time to change to the highest pricing level and the
applicable interest rate shall also be subject to default interest, as provided
in Section 7.03 hereof.  In calculating the pricing level, Lender will
use the Consolidated Interest Coverage Ratio, notwithstanding any grace period
provided for in the Loan Documents.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    “Base
Rate” shall have the meaning given in Section 4.01 hereof.

    

    “Base Rate
Loan Segment” means the principal portion of the Loan plus accrued interest
priced using the Base Rate.

    

    “Beneficiary”
means the party designated as the recipient of a Letter of Credit issued by
Lender under this Loan.

    

    “Borrower”
means Pope Resources, A Delaware Limited Partnership, a Delaware limited
partnership.

    

    “Calculation
Date” means the first three Fiscal Quarter-Ends and the Fiscal Year-End of
Borrower.

    

    “Closing
Date” means the date the Loan Documents are fully executed and the conditions
precedent to Loan closing have been met to Lender’s satisfaction or waived by
Lender in writing.

    

    “Commitment
Period” means the Closing Date to the Loan Maturity Date.

    

    “Default
Interest” shall have the meaning given in Section 7.03 hereof.

    

    “Disbursement
Date” means any Business Day when Loan principal is advanced under this Note to
or on the account of Borrower.

    

    “Fixed
Rate Loan Segment” means each principal portion of the Loan, plus interest
accrued thereon, with all the following attributes that distinguish such Fixed
Rate Loan Segment from other Fixed Rate Loan Segments: a different Fixed Rate
Maturity Date; and or a different date to which a given Fixed Rate Option was
assigned to the Fixed Rate Loan Segment, except as otherwise provided
herein.

    

    “Fixed
Rate Maturity Date” means the last day of an Interest Period.

    

    “Fixed
Rate Option” means any of the Fixed Rate Options defined in Section 4.02
hereof.

    

    “Index
Source” means Citibank, N.A. for the Base Rate Option and the British Bankers’
Association for the Fixed Rate Options, unless an Index Source is otherwise
identified by Lender.

    

    “Interest
Period” means, as to each Fixed Rate Loan Segment, the period commencing on the
date such Fixed Rate Loan Segment is advanced, converted to or continues as a
Fixed Rate Loan Segment and ending on the date one, three or six months
thereafter, as selected by Borrower in a Notice to Lender; provided
that:

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      (i)      
any Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day, unless such Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding business Day;

    

     

    (ii)      any
Interest Period that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and

     

    (iii)     no
Interest Period shall extend beyond the Loan Maturity Date.

    

    “Lender”
means Northwest Farm Credit Services, PCA.

    

    “Letter of
Credit” means a letter of credit issued by Lender to a Beneficiary at the
request of Borrower.

    

    “LIBOR”
means the rate per annum at approximately 11:00 a.m. (London time) on the date
that is two (2) Business Days prior to the beginning of the relevant interest
period by reference to the British Bankers’ Association Interest Settlement
Rates for deposits in Dollars (as set forth by the Bloomberg Information Service
or any successor thereto, which has been nominated by the British Bankers’
Association as an authorized information vendor for the purpose of displaying
such rates) for a period equal to such interest period; provided, that, to the
extent that an interest rate is not ascertainable pursuant to the foregoing
provisions of this definition, “LIBOR” shall be the interest rate per annum
determined by Lender to be the average of the rates per annum at which deposits
in dollars are offered for such relevant interest period to major banks in the
London interbank market in London, England at approximately 11:00 a.m. (London
time) on the date that is two (2) Business Days prior to the beginning of such
interest period.

    

    “Loan” or
“Loan No. 56548-811 means all principal amounts advanced by Lender to Borrower
or on the account of Borrower or otherwise under this Note and the other Loan
Documents, and all fees or charges incurred as provided for in this Note and the
other Loan Documents, plus all interest accrued thereon.

    

    “Loan
Documents” means this Note and all other documents executed in connection with
the Loan, including without limitation the Loan Agreement, and all renewals,
extensions, amendments, modifications, substitutions and replacements
thereof.

    

    “Loan
Maturity Date” means August 1, 2011.

    

    “Loan
Purpose” means (a) to provide financing for Borrower’s operating and
capital needs (including distributions to Borrower’s unitholders in the ordinary
course of business and repurchases of partnership units from Borrower’s
unitholders as may be approved by Borrower’s Board of Directors), and
(b) to pay for Stock, Loan fees and all of Lender’s reasonable transaction
costs.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    “Loan
Segment” means the Base Rate Loan Segment, an LOC Loan Segment or a Fixed Rate
Loan Segment.

    

    “LOC Loan
Segment” means the total principal commitment of all Letters of Credit issued by
Lender under this Note.

    

    “Notice”
shall have the meaning given in Section 2.04 hereof.

    

    “Pricing
Date” means the date a given Loan Segment begins to accrue interest under a
given Rate Option or a day when there is a change in the Base Rate.

    

    “Rate
Option” means the Base Rate or one of the Fixed Rate Options.

    

    “Unused
Commitment Fee” shall have the meaning given in Section 2.01
hereof.

    

    2.
           Loan Fee,
Expenses, Stock and Notice.

    

    2.01          Loan
Fee.  Borrower shall pay Lender the Loan fees set forth in a separate Loan
fee letter on the Closing Date.  In addition, Borrower shall pay
Lender, quarterly in arrears, an Unused Commitment Fee to be calculated by
multiplying the average daily unused balance of the Loan by the annual
percentage indicated in the pricing grid in the definition of Applicable Margin
and dividing the resulting product by four.  The Unused Commitment Fee
shall be due on the first day following each Fiscal Quarter-End and shall be
payable by the tenth day following each Fiscal Quarter-End.

    

    2.02          Costs and
Expenses.  Borrower shall
pay Lender, on the Closing Date and subsequently on Lender’s demand, all costs
and expenses related to closing, whether or not the Loan is
disbursed.  Provided, however, such costs and expenses shall not
exceed $1,000.00.

    

    2.03          Stock.  Borrower shall
comply with the capitalization requirements of ACA, as provided in the Loan
Agreement.

    

    2.04          Notice.

    

    a.           Prepayment of
Principal.  Borrower shall provide Lender with Notice of the
amount of any prepayment of a Fixed Rate Loan Segment no later than 10:00 a.m.
Spokane time three Business Days prior to the Business Day the prepayment will
be made.

    

    b.           Pricing.  Borrower
shall provide Lender irrevocable Notice of pricing of a Fixed Rate Loan Segment
by 10:00 a.m. Spokane time three days prior to the Pricing Date.

    

    c.           Form of
Notice.  Borrower may provide Lender any Notice required under
this Note by use of a Notice in form substantially the same as set forth in
Exhibit A hereto or other documentation as may be prescribed by
Lender.  Alternatively, Borrower may telephone Lender at the numbers
designated on Exhibit A or as may be provided by Lender from time to
time.  If Notice is by telephone, Lender will confirm to Borrower the
elected prepayment or pricing in writing.  All such Notices are deemed
irrevocable when given and are subject to Breakage Fees.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    3.
           Advances and
Pricing Elections.

    

    3.01          Advances.  So long as there
is no Event of Default or Incipient Default under this Note or the other Loan
Documents during the Commitment Period, Lender will make advances to Borrower on
a Disbursement Date for a purpose consistent and in compliance with the Loan
Documents in amounts requested by Borrower, provided that, after giving effect
to any requested advance, the aggregate principal amount of such advances made
hereunder will not exceed the Total Commitment Amount.  The advances
constitute a revolving line of credit.  During the Commitment Period,
Borrower may borrow, repay and reborrow Loan principal on the terms and
conditions contained herein.

    

    3.02          Letters
of Credit.  Lender will made
Letters of Credit available to Borrower as one means of advancing Loan
proceeds.  Borrower may only request Letters of Credit prior to the
Loan Maturity Date within the Total Commitment Amount for an approved Loan
purpose and so long as there is no Event of Default or Incipient Default under
the Loan Documents.  Letters of Credit are subject to the terms and
conditions of this Note and the other Loan Documents, including, but not limited
to, the following terms and conditions:

    

    a.           Purpose.  Lender
and Borrower agree that the sole purpose for the advance of any Loan proceeds
under a Letter of Credit shall be by Lender to pay directly to the Beneficiary
designated therein, upon its written demand, pursuant to the terms of that
certain Letter of Credit, issued by Lender for the account of
Borrower.

    

    b.           Termination.  Lender's
duty to advance loan proceeds to the Beneficiary shall terminate on July 20,
2011, or the earlier termination of the Letter of Credit.  The
aggregate amount that Lender shall be required to advance shall be limited to
the commitment amount of such Letter of Credit.

    

    c.           Payment.  In
the event any amount is advanced under a Letter of Credit, Borrower shall repay
interest and principal associated with such advance pursuant to the terms of
this Note.

    

    d.           Letter of Credit
Fee.  Borrower shall pay Lender a fee of one and one half of
one percent (1.5%) of the Letter of Credit commitment amount, at inception and
annually during the term of such Letter of Credit, for each Letter of Credit
issued.

    

    e.           Indemnification.  Borrower
shall defend, indemnify and hold Lender harmless for any and all claims,
damages, liabilities, costs or expenses whatsoever by Borrower, or any other
party (“liabilities”) which Lender may incur or suffer by reason of or in
conjunction with Lender's performance under a Letter of Credit except only if
and to the extent that any such liability shall be caused by the willful
misconduct or gross negligence of Lender in performing its obligations under
such Letter of Credit.  Provided however, Lender may rely on the
documents presented to Lender by the Beneficiary in accordance with the Letter
of Credit as to any and all matters set forth therein, whether or not any
statement or any document presented pursuant thereto proves to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
proves to be untrue or inaccurate in any respect.  Borrower shall
reimburse Lender for any legal or other expenses incurred in connection with
investigating or defending against any of the foregoing except if the same is
due to Lender's gross negligence or willful misconduct.  The
indemnities contained herein shall survive the expiration of any Letter of
Credit.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    f.           LOC Loan
Segment.  Any LOC Loan Segment shall be treated as fully
disbursed for purposes of determining the amount that Borrower may borrow under
the Loan.

    

    3.03          Pricing
Elections.  Upon irrevocable
Notice to Lender, as to principal (i) in the amount of an advance,
(ii)  in a Base Rate Loan Segment, or (iii) in a Fixed Rate Loan Segment on
a Fixed Rate Maturity Date, Borrower may elect to designate all or any part of
an advance or the unpaid principal balance of such Loan Segment on such Pricing
Date to bear interest at any Rate Option; provided however, that (1) there
is no Event of Default or Incipient Default; (2) Borrower shall price
principal in Fixed Rate Loan Segments in initial minimum principal amounts of
$1,000,000.00; (3) no Fixed Rate Option may be selected which would have
for its Fixed Rate Maturity Date a date later than the Loan Maturity Date; and
(4) there are no more than five Fixed Rate Loan Segments at any one
time.  If Borrower does not provide Lender irrevocable Notice of
election of a Rate Option three Business Days prior to a Fixed Rate Maturity
Date for a Fixed Rate Loan Segment, the unpaid principal balance of such Loan
Segment shall be priced at the Base Rate effective on such Pricing
Date.

    

    3.04          Single
Base Rate Loan Segment.  If on a Pricing
Date, a Loan Segment is priced under the Base Rate resulting in more than one
Loan Segment priced under the Base Rate, all Loan principal priced under the
Base Rate will be treated as a single Base Rate Loan Segment by combining the
principal balances from all such Loan Segments priced under the Base Rate on
such Pricing Date.

    

    4.
           Pricing
Options.

    

    4.01          Base
Rate:  Prime Based Adjustable Interest Rate.  The Base Rate is
the Prime Based Adjustable Interest Rate.  The “Prime Based Adjustable
Interest Rate” on any given date is the per annum interest rate equal to the
prime base rate (the “Index”) charged on loans at Citibank, N.A. in effect on
such date or one Business Day later, as determined by Lender in its sole
discretion, plus the Applicable Margin.  The Prime Based Adjustable
Interest Rate may change at any time.

    

    4.02          Fixed
Rate Options. A
Fixed Rate Loan Segment may be priced at a fixed rate equal to the 1-, 3- or
6-Month Fixed Rate Options, as defined herein, plus the Applicable
Margin.  With these Fixed Rate Options: (a) rates may be fixed for an
Interest Period of 1-, 3- or 6-months; and (b) rates may only be fixed on a
Pricing Date to take effect on such Pricing Date.  For purposes
hereof, the “1-, 3- and 6- Month Fixed Rate Options” means the LIBOR rates for
the corresponding Interest Period.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    4.03          Additional
Pricing Options.  In the event
Borrower should desire to price a Loan Segment using an Index, Pricing Date and
repricing margin other than as provided for herein, Borrower may request Lender
to quote a rate and lock-in fee for an identified principal amount and desired
pricing option.  Lender will provide Borrower such a quote, if
available under Lender's then existing policies and procedures, and shall
provide Borrower the option to elect such a rate upon payment of the lock-in
fee, which rate shall be effective on the date determined upon terms and
conditions and within timeframes as Lender may prescribe at the time of the
quote.

    

    5.           
Payment.

    

    5.01          Payment
of Loan Segments.  Borrower shall
make monthly interest only payments, which payments shall consist of interest
that accrued during such period on the unpaid principal balance of each Loan
Segment.  Interest only payments shall be due and payable on the tenth
day of the following month.

    

    5.02          Payment
in Full on Loan Maturity Date.  The unpaid
principal balance, unpaid interest thereon, and all other amounts due under this
Note and the other Loan Documents shall be paid on the Loan Maturity
Date.

    

    5.03          Application
of Payments.  So long as there
is no Event of Default or Incipient Default, payments received prior to the Loan
Maturity Date, in amounts other than as billed, shall be applied to Loan
Segments, as of the date of receipt, as follows:

    

    a.           First
to any fees and reimbursable expenses due under this Note or any other Loan
Documents;

    

    b.           Second
to billed and unpaid interest by Loan Segment, beginning with the Loan Segment
bearing the highest interest rate and then to Loan Segments in descending order
of their interest rates.  Provided however, if two or more Loan
Segments are subject to the same interest rate as of the date of receipt of
payment, the payment shall be applied first to the Base Rate Loan Segment, then
to the Fixed Rate Loan Segment with the earliest Fixed Rate Maturity Date and
then to the Fixed Rate Loan Segments in increasing order of their Fixed Rate
Maturity Dates;

    

    c.           Third
to the principal balance in the Base Rate Loan Segment; and

    

    d.           Thereafter
to Borrower's FPF Account, except where Borrower provides Lender Notice that
such payment amount should be applied against one of the Fixed Rate Loan
Segments subject to the Prepayment Fee as provided for
herein.  Provided however, on the Loan Maturity Date, payments shall
be applied as provided in subparagraphs a.-c. above, and then to the principal
balance in any Fixed Rate Loan Segments.

    

    5.04          Payment
from FPF Account.  Upon Borrower’s
request, Lender will apply funds, if any, held in the FPF Account with respect
to the Loan to the unpaid balance, if any, of the Loan.  Each payment
from the FPF Account will be applied to Loan Segments as provided for in
subparagraphs a.-c. of Section 5.03 above.  The FPF Account is
governed by the terms of the Loan Documents.  In the Event of Default
or Incipient Default, Lender shall have the right to apply payments made by or
for the account of Borrower, including without limitation, from the FPF Account,
to any Loan Segment as Lender may determine, in its sole discretion, at any
time.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    6.
           Prepayment and Breakage
Fees.  The Loan is subject to the Prepayment and Breakage Fees
indicated in the Loan Agreement.

    

    7. 
          Default.

    

    7.01          Events of
Default.  Time is of the
essence in the performance of this Note.  The occurrence of any one or
more of the following events shall constitute an “Event of Default” under this
Note:

    

    a.           Borrower
fails to make any payment of principal, interest or other costs, fees or
expenses when due and payable or to perform any obligation or covenant as and
when required under the Loan Documents for the Loan or any other note, loan or
contract Borrower, or any of them, may have with Lender or an affiliate of
Lender.

    

    b.           Any
financial statement, representation, warranty or certificate made or furnished
by Borrower to Lender in connection with the Loan, or as an inducement to Lender
to enter into the Loan is materially false, incorrect, or incomplete when
made.

    

    c.           Borrower
shall fail generally to pay its debts as such debts become due, or becomes
insolvent or becomes the subject of an insolvency proceeding.

    

    d.           This
Note or any other Loan Document ceases to be valid and binding on Borrower or is
declared null and void, or the validity or enforceability thereof is contested
by Borrower, or Borrower denies that it has any or further liability under this
Note or any of the other Loan Documents.

    

    7.02          Acceleration.  In the event of
any uncured Event of Default beyond any applicable cure periods provided for in
the Loan Documents, at Lender's option, without notice or demand, the unpaid
principal balance of the Loan, plus all accrued and unpaid interest thereon and
all other amounts due shall immediately become due and payable.

    

    7.03          Default
Interest.  The Default
Interest rate applicable to a delinquent payment for a Loan Segment shall remain
at the rate in effect on such Loan Segment at the time such payment was
due.  Provided however, upon acceleration and or maturity, the Default
Interest rate shall be equal to and remain at four percent (4%) per annum above
the interest rate in effect for each Loan Segment at the time of acceleration or
maturity and shall accrue on the entire unpaid balance of each Loan Segment,
until paid in full.

    

    8.           
Loan Terms, Provisions and
Covenants.  The Loan is subject to the terms, provisions and
covenants of this Note and the other Loan Documents.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    9.
           Miscellaneous.

    

    9.01          Notice of
Default.  Borrower shall
provide Lender immediate Notice of any Event of Default or Incipient Default
under this Note and the other Loan Documents.

    

    9.02          Interest
Rates.

    

    a.           Base Rate
Option.  The Base Rate interest rate is a per annum rate and is
calculated on the basis of the actual number of days elapsed during the year for
the actual number of days in the year.  If any payment date is not a
Business Day, then payment shall be due on the next succeeding Business
Day.

    

    b.           Fixed Rate
Options.  The interest rate for the Fixed Rate Options and the
Unused Commitment Fee are per annum rates and are calculated on the basis of the
actual number of days elapsed during the year for a 360 day year.  If
any payment date is not a Business Day, then payment shall be due on the next
succeeding Business Day.

    

    9.03          Exhibits.  All
Exhibits hereto are incorporated herein and made a part of this
Note.

    

    9.04          Index and
Index Source.  The Indexes used
herein do not necessarily represent the lowest rates charged by Lender on its
loans.  If any Index or Index Source provided for herein becomes
unavailable during the Loan term, Lender will choose a new Index or Index
Source, which it determines in its sole discretion is comparable, to be
effective upon notification thereof to Borrower.

    

    9.05          Payments.  Upon Lender’s
written request, payments shall be electronically submitted no later than 10:00
a.m. Spokane time on the date specified for payment.  All sums payable
to Lender hereunder shall be paid directly to Lender in immediately available
funds in U.S. dollars.  Lender shall send to Borrower periodic
statements of all amounts due hereunder at applicable interest rates, which
statements shall be considered correct and conclusively binding on Borrower in
all respects and for all purposes unless Borrower notifies Lender in writing of
any objections within 15 days of receipt of any such statement.

    

    9.06          Authorization.  Borrower
authorizes a Responsible Officer, or any other individual(s) as they or either
of them may authorize in writing, to request advances of principal under this
Note, to confirm interest rates and lock-in fees, and to provide Lender notice
of pricing, repricing or prepayment as required under this Note.

    

    9.07          Advances,
Fees and Costs.  Borrower shall
pay Lender, on demand, all attorney fees and costs incurred to protect or
enforce any of Lender's rights in bankruptcy, appellate proceedings, or
otherwise, under this Note or the other Loan Documents.  All sums
advanced by Lender to protect its interests hereunder or under the other Loan
Documents and all Prepayment and Breakage Fees shall be payable, on demand, and
shall accrue interest under the interest rate in effect for the Base Rate Loan
Segment on such date and shall be treated as an advance under the Base Rate Loan
Segment.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    9.08          Funds
Management Services.
Lender may provide funds management services to Borrower.  Upon
request, Lender shall provide Borrower a quote for identified funds management
services.  Borrower shall comply with all funds management service
agreements during the term of this Note.  All fees incurred shall be
considered a request for an advance under the Loan.  The funds
management services and fees may be adjusted upon reasonable notice by
Lender.

    

    9.09          Governing
Law.  The substantive
laws of the State of Washington shall apply to govern the construction of the
Loan Documents and the rights and remedies of the parties, except where the
location of the Collateral for the Loan may require the application of the laws
of another state or where federal laws, including the Farm Credit Act of 1971,
as amended, may be applicable.

    

    9.10          General
Provisions.  Borrower agrees
to this Note as of the date first above written.  Borrower waives
presentment for payment, demand, notice of nonpayment, protest, notice of
protest and diligence in enforcing payment of this Note.  This Note
and the other Loan Documents constitute the entire agreement between Borrower
and Lender and supersede all prior oral negotiations and promises, which are
merged into such writings.  Upon written agreement of the parties, the
interest rate, payment terms or balances due under this Note may be indexed,
adjusted, renewed or renegotiated.  Lender may at any time, without
notice, release all or any part of the security for this Note, including the
real estate and or personal property covered by the Loan Documents; grant
extensions, deferments, renewals or reamortizations of any part of the Loan over
any period of time; and release from personal liability any one or more of the
parties who are or may become liable for the Loan, without affecting the
personal liability of any other party.  Lender may exercise any and
all rights and remedies available at law, in equity and provided herein and in
the other Loan Documents.  Any delay or omission by Lender in
exercising a right or remedy shall not waive that or any other right or
remedy.  No waiver of default by Lender shall operate as a waiver of
the same or any other default on a future occasion.  Lender shall not
be obligated to renew the Loan or any part thereof or to make additional or
future loans to Borrower.

    

    9.11          WAIVER OF
JURY TRIAL.  BORROWER AND
LENDER HEREBY IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
LOAN DOCUMENT AND ANY FUTURE MODIFICATIONS, AMENDMENTS, EXTENSIONS, RESTATEMENTS
AND SERVICING ACTIONS RELATING TO THIS LOAN DOCUMENT.  THE PARTIES
INTEND THAT THIS JURY WAIVER WILL BE ENFORCED TO THE MAXIMUM EXTENT ALLOWED BY
LAW.

    

    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.

    

    (signature
page follows)

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    BORROWER:

    POPE
RESOURCES, A DELAWARE LIMITED PARTNERSHIP

    

    By:
_______________________________________                                                                

    David L.
Nunes, President and Chief Executive Officer

     

    
 

    
      
        

      

      Pay
to the Order of CoBank, ACB.

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      Pope
Resources, a Delaware Limited Partnership

    

    Customer/Note
No. 56548-811

    

    EXHIBIT
A

    NOTICE/CONFIRMATION

    
      	
              To:

            	
               

            	
               

            
	Technical
      Accounting Services	 	 
	Northwest
      Farm Credit Services, PCA	P.
      O. Box 2515	Fax:
      509-340-5508
	1700
      South Assembly Street	Spokane,
      WA 99220-2515	Tel.:
      1-800-216-4535
	Spokane,
      WA 99224-2121	 	 

    

    

    NOTICE

    This
Notice is provided pursuant to the Revolving Operating Note dated July 31, 2008,
as extended, renewed, amended or restated.

    

    o  PRICING.  If
checked, Borrower elects to price or reprice principal in a Loan Segment as
follows:

    
      	
              o

            	New
      Advance
	
              o

            	Base
      Rate Loan Segment
	
              o

            	Fixed
      Rate Loan Segment Currently Priced Under Fixed Rate Option
      __________________________________________________
	 	Principal
      Amount
      _________________________________________________________________________________________
	 	To
      New Fixed Rate Option
      __________________________________________________________________________________
	 	To
      be Effective (Date)
      _____________________________________________________________________________________

    

    

    o  PREPAYMENT OF
PRINCIPAL.  If checked, Borrower elects to prepay principal as
follows:

    
      	
              o

            	Base
      Rate Loan Segment
	
              o

            	Fixed
      Rate Loan Segment Priced
	 	Under
      Option
      ____________________________________________________________________________________________
	 	Principal
      Amount
      _________________________________________________________________________________________
	 	To
      be Effective (Date)
      _____________________________________________________________________________________

    

    

    
      
        	 
      	
                POPE
      RESOURCES, A DELAWARE LIMITED

              
	 
      	
                PARTNERSHIP

              
	 
      	 
      
	
                Date:
      ___________________________________

              	
                By:
      _________________________________________________

              
	 
      	
                Authorized
      Agent

              
	
                CONFIRMATION

              	 
      
	
                Lender
      confirms that the above actions were taken or modified as provided for
      below:

              	 
      
	 	 
	 	 
	 	 
	 	 
	 
      	 
      
	 	 
	 
      	
                NORTHWEST
      FARM CREDIT SERVICES, PCA

              
	 
      	 
      
	
                Date:
      ___________________________________

              	
                By:
      _________________________________________________

              
	 
      	
                Authorized
      Agent

              

      

    

     

     

    12

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