Document:

Prepared by MerrillDirect

Exhibit
10.4

 

 

 

 

REAL ESTATE PURCHASE AND SALE AGREEMENT

by and between

Pope Resources

and

HCV Pacific Partners LLC

(Port Ludlow and Peacock Hill)

 

 

 

 

 

TABLE OF CONTENTS

	
  ARTICLE I.
  PROPERTY 
  
	 
  	
  1.1
  	
  Land
  and Improvements
  
	 
  	
  1.2
  	
  Appurtenances
  
	 
  	
  1.3
  	
  Tenant Leases
  
	 
  	
  1.4
  	
  Equipment
  and Inventory
  
	 
  	
  1.5
  	
  Contracts
  
	 
  	
  1.6
  	
  Intellectual
  Property Rights
  
	 
  	
  1.7
  	
  DNR Lease
  
	 
  	
  1.8
  	
  Additional
  Defined Terms
  
	
  ARTICLE
  II. PURCHASE PRICE
  
	 
  	
  2.1
  	
  Purchase Price
  
	 
  	
  2.2
  	
  Adjustments to Purchase Price
  
	 
  	
  2.3
  	
  Escrow Officer
  
	 
  	
  2.4
  	
  Earnest Money
  
	
  ARTICLE III. CONDITION AND CONVEYANCE OF TITLE
  
	 
  	
  3.1
  	
  Preliminary
  Commitment
  
	 
  	
  3.2
  	
  Survey
  
	 
  	
  3.3
  	
  Permitted
  Exceptions
  
	 
  	
  3.4
  	
  Title
  Policy
  
	 
  	
  3.5
  	
  Conveyance
  of Real Property
  
	 
  	
  3.6
  	
  Assignment
  of DNR Lease
  
	 
  	
  3.7
  	
  Assignment
  of Tenant Leases
  
	 
  	
  3.8
  	
  Assignment
  of Contracts
  
	 
  	
  3.9
  	
  Bill of Sale
  
	 
  	
  3.10
  	
  Assignment of Intellectual Property
  
	
  ARTICLE IV.
  INSPECTION OF DOCUMENTS AND REAL PROPERTY 
  
	 
  	
  4.1
  	
  Inspection
  Period
  
	 
  	
  4.2
  	
  Seller’s
  Documents
  
	 
  	
  4.3
  	
  Inspection
  of Real Property
  
	 
  	
  4.4
  	
  Approval
  of Property Condition
  
	 
  	
  4.5
  	
  Certification
  
	
  ARTICLE V. CONDITIONS PRECEDENT TO CLOSING
  
	 
  	
  5.1
  	
  Performance
  by Seller
  
	 
  	
  5.2
  	
  Approval
  of Property Condition
  
	 
  	
  5.3
  	
  Title Policy
  
	 
  	
  5.4
  	
  Representations and Warranties True
  

 

	 
  	
  5.5
  	
  No
  Damage or Destruction
  
	 
  	
  5.6
  	
  Tenant
  Estoppels
  
	 
  	
  5.7
  	
  OWSI
  Stock Purchase Closing
  
	 
  	
  5.8
  	
  Heron Beach
  Inn
  
	 
  	
  5.9
  	
  Consents
  and Notices
  
	 
  	
  5.10
  	
  Liquor License
  
	 
  	
  5.11
  	
  Payment
  Certification
  
	 
  	
  5.12
  	
  Performance
  by Buyer
  
	 
  	
  5.13
  	
  Representations and Warranties True
  
	 
  	
  5.14
  	
  OWSI
  Stock Purchase Closing
  
	 
  	
  5.15
  	
  Consents
  and Notices
  
	 
  	
  5.16
  	
  Board Approval
  
	
  ARTICLE VI. OPERATIONS PENDING CLOSING
  
	 
  	
  6.1
  	
  Operations
  Pending Closing
  
	 
  	
  6.2
  	
  Conditions of Title to Real Property
  
	 
  	
  6.3
  	
  Special Conditions Applicable to Heron Beach Inn, Marina and Golf
  Course
  
	 
  	
  6.4
  	
  Updating
  of Schedules
  
	 
  	
  6.5
  	
  Liquor Licenses
  
	
  ARTICLE VII. CLOSING AND ESCROW 
  
	 
  	
  7.1
  	
  Closing
  
	 
  	
  7.2
  	
  Seller’s
  Deliveries
  
	 
  	
  7.3
  	
  Buyer’s
  Deliveries
  
	 
  	
  7.4
  	
  Title
  Policy; Other Instruments
  
	 
  	
  7.5
  	
  Prorations.
  
	 
  	
  7.6
  	
  Closing
  Costs and Expenses
  
	 
  	
  7.7
  	
  Closing
  Statements
  
	 
  	
  7.8
  	
  Delivery
  Outside of Escrow
  
	 
  	
  7.9
  	
  Guest Property
  
	
  ARTICLE VIII. REPRESENTATIONS AND WARRANTIES 
  
	 
  	
  8.1
  	
  Seller’s
  Representations
  
	 
  	
  8.2
  	
  Buyer’s
  Representations
  
	
  ARTICLE IX.
  EMPLOYEES 
  
	
  ARTICLE X. CASUALTY AND CONDEMNATION 
  
	
  ARTICLE XI. DISCLOSURE, INDEMNITY, AND RELEASE RELATING TO CONDITION
  OF PROPERTY
  
	 
  	
  11.1
  	
  Disclosures
  
	 
  	
  11.2
  	
  Seller’s Indemnification Liabilities
  
	 
  	
  11.3
  	
  Limitations on
  Seller’s Indemnification Liabilities
  
	 
  	
  11.4
  	
  Buyer’s Indemnification Liabilities and Release
  

 

	 
  	
  11.5
  	
  Survival
  
	
  ARTICLE XII. POSSESSION 
  
	
  ARTICLE XIII. DOCUMENT RETENTION 
  
	
  ARTICLE XIV. OBLIGATIONS TO PORT
  LUDLOW COMMUNITY
  
	
  ARTICLE XV.
  DEFAULT; REMEDIES
  
	 
  	
  15.1
  	
  Default by
  Buyer
  
	 
  	
  15.2
  	
  Default by
  Seller
  
	 
  	
  15.3
  	
  Attorneys’
  Fees
  
	
  ARTICLE
  XVI. MISCELLANEOUS 
  
	 
  	
  16.1
  	
  Brokers
  and Finders
  
	 
  	
  16.2
  	
  Notices
  
	 
  	
  16.3
  	
  Amendment,
  Waiver
  
	 
  	
  16.4
  	
  Survival
  
	 
  	
  16.5
  	
  Captions
  
	 
  	
  16.6
  	
  Merger
  of Prior Agreements
  
	 
  	
  16.7
  	
  No Joint
  Venture
  
	 
  	
  16.8
  	
  Governing
  Law; Time
  
	 
  	
  16.9
  	
  Schedules
  
	 
  	
  16.10
  	
  Severability
  
	 
  	
  16.11
  	
  Counterparts
  
	 
  	
  16.12
  	
  Assignment
  
	 
  	
  16.13
  	
  Tax
  Deferred Exchange
  
	 
  	
  16.14
  	
  Confidentiality
  
	 
  	
  16.15
  	
  Continuing Forest Land Obligations
  
	 
  	
  16.16
  	
  Cooperation
  

 

 

REAL ESTATE PURCHASE AND SALE AGREEMENT

(Pope Resources and HCV Pacific
Partners LLC)

(Port Ludlow and Peacock Hill)

          THIS REAL ESTATE PURCHASE AND SALE AGREEMENT
(this “Agreement”) is made and entered into as of January 12, 2001, by and
between HCV PACIFIC PARTNERS LLC, a California limited liability company (or
its assigns as permitted herein) (“Buyer”), and Pope Resources, a Delaware
limited partnership, its wholly owned subsidiary Olympic Property Group LLC, a
Washington limited liability company, and its wholly owned subsidiaries Olympic
Real Estate Development LLC, a Washington limited liability company, Olympic
Real Estate Management, Inc., a Washington corporation, and Olympic Resorts
LLC, a Washington limited liability company (collectively, “Seller”).  It is understood that Pope & Talbot,
Inc. is not a Seller under this Agreement nor an affiliate of Seller, and that
any reference in this Agreement to Seller’s “affiliates” does not include Pope
& Talbot, Inc. or any other predecessor-in-title of any portion of the
Property (as defined below), other than a party named as Seller herein.

          Seller is the owner of certain real property
(a) known herein as the MPR Properties and located within the unincorporated
master planned resort area commonly known as Port Ludlow, Jefferson County, Washington,
and (b) known herein as the Peacock Hill Property and located within the City
of Gig Harbor, Pierce County, Washington. 
Buyer desires to purchase from Seller and Seller desires to sell to
Buyer such property and related assets on the terms and conditions set forth
below.

          In consideration of the mutual covenants and
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:

ARTICLE I.  PROPERTY

          Seller hereby agrees to sell, assign, and
convey to Buyer, and Buyer hereby agrees to purchase, assume, and acquire from
Seller, the following property subject to the terms and conditions set forth
herein:

          2001 Land
and Improvements.  The following lots and parcels of real
property (the “Land”), together with the buildings, structures, fixtures, and
improvements owned by Seller and located thereon (the “Improvements”):

1.1.1  The
real property located within the unincorporated master planned resort area
commonly known as Port Ludlow, Jefferson County, Washington, comprising the
following properties (collectively, the “MPR Properties”):

        (a)      MPR Operating Properties, defined as the
aggregate of the following:

      (i)       Heron Beach Inn as described on Schedule1.1.1(a)(i);

      (ii)      Marina as described on Schedule1.1.1(a)(ii);

      (iii)     Golf Course as described on Schedule1.1.1(a)(iii);

      (iv)     Village Center as described on Schedule1.1.1(a)(iv);

      (v)      RV Park as described on Schedule1.1.1(a)(v);

      (vi)     Harbormaster Restaurant as described on Schedule1.1.1(a)(vi);

      (vii)    Conference Center as described on Schedule1.1.1(a)(vii);

      (viii)    Miscellaneous MPR Operating Properties as
described on Schedule1.1.1(a)(viii); and

      (ix)     Sales Office as described on Schedule1.1.1(a)(ix).

        (b)      MPR Land Properties, defined as the
aggregate of the following:

      (i)       MPR Platted Lots as described on Schedule
1.1.1(b)(i);

      (ii)      MPR Unplatted Parcels as described on Schedule
1.1.1(b)(ii); and

      (iii)     MPR Outparcels as described on Schedule
1.1.1(b)(iii).

          Certain of the MPR Platted Lots are subject
to presently existing executory purchase and sale agreements and to potential
new purchase and sale agreements that may be entered into by Seller prior to
Closing as provided in Section 6.2. 
Schedule 1.1.1(b)(i) shall be revised if closing under any such
agreement occurs prior to the Closing Date under this Agreement.

1.1.2  The
real property located within the City of Gig Harbor, Pierce County, Washington,
legally described on Schedule 1.1.2 (the “Peacock Hill Property”).

          2002 Appurtenances.  All rights, obligations, privileges, and
easements owned by Seller, including without limitation all minerals, oil, and
gas on and under the Land, all development rights, air rights, water rights,
and all easements, rights-of-way, permits, licenses, entitlements of any
nature, plat, and permit applications, all rights under any warranties or
guaranties relating to the Improvements, and other rights and obligations
appurtenant to or used in connection with the Land and Improvements subject to
matters of record and matters specifically excepted under this Agreement (the
“Appurtenances”), including without limitation those rights, obligations,
privileges, and easements described on Schedule 1.2.

          Seller
shall also grant to Buyer at Closing, by an instrument
in the form of Schedule 7.2(h), non-exclusive easements over Seller’s lands
within one-half (1/2) mile of the MPR Properties for water, electricity, sewer
and other utilities, for drilling and maintenance of wells and related
pipelines, and for trails (all of which easements shall be floating but shall
be located and used so as not to interfere unreasonably with use, occupancy or
development of Seller’s lands); and by an instrument in the form of Schedule
7.2(i), the right to continue (for a period of ten (10) years after the Closing
Date, as defined below) to dispose of sludge from the Olympic Water and Sewer,
Inc., system on Seller’s lands in a location reasonably designated by Seller.

          2003 Tenant
Leases. 
The interest of Seller as landlord under the leases relating to the
Marina, Village Center, RV Park, Harbormaster Restaurant, and Conference
Center, which are described on Schedule 1.3 (the “Tenant Leases”), and
the security deposits, if any, collected and held by Seller thereunder.

          2004
Equipment and Inventory. 
The equipment and inventory, including without limitation cars, trucks,
other motor vehicles, construction equipment and small tools, office equipment,
construction materials, spare parts and materials, computer hardware and
software, security systems, files, and records, owned by Seller and located on
and used in connection with the Land and Improvements (the “Equipment and
Inventory”), including without limitation the equipment and inventory described
on Schedule 1.4.

          2005 Contracts.  The contractual obligations and rights of
Seller that are described in the development agreements, land use entitlement
agreements, management agreements, service contracts, supply contracts, vendor
agreements, equipment leases, maintenance agreements, executory purchase and
sale agreements for MPR Platted Lots, construction contracts, brokerage
agreements, and other agreements and contracts of record and as described on Schedule
1.5 (the “Contracts”).  Upon Buyer’s
satisfaction or written waiver of all of Buyer’s conditions precedent to
Closing, Seller shall also terminate at Closing any Contracts that Seller has
the right to terminate without material penalty that are specified by Buyer
within ten (10) days prior to Closing (except that as to any Contracts that can
only be terminated with not more than thirty (30) days prior written notice,
Seller’s obligation shall be to give notice of termination at or before
Closing).

          2006
Intellectual Property Rights. 
All copyrights, trademarks, trade names, marketing materials, web sites
(including rights to domain names), and other intellectual property rights
owned by Seller and relating exclusively to the Property (the “Intellectual
Property”), including without limitation those rights described on Schedule
1.6.

          2007 DNR Lease.  The interest of Seller under the aquatic
lands lease between the Washington State Department of Natural Resources
(“DNR”) as landlord and Seller as tenant as described on Schedule 1.7
(the “DNR Lease”).

          2008 Additional
Defined Terms.  The Land, Improvements, Appurtenances, the
Tenant Leases and DNR Lease are referred to collectively herein as the “Real
Property.”  The Equipment and Inventory,
Contracts, and Intellectual Property are referred to collectively herein as the
“Personal Property.”  The Real Property
and Personal Property, comprising all of the items described in Sections 1.1
through 1.7 above, are herein collectively referred to as the
“Property.”

ARTICLE II.  PURCHASE PRICE

          2009 Purchase
Price [Omitted
Confidential Information has been filed separately with the Securities and
Exchange Commission].

          2010
Adjustments to Purchase Price  [Omitted Confidential Information has
been filed separately with the Securities and Exchange Commission].

          2011 Escrow
Officer. 
Transnation Title Insurance Company, Seattle Washington (“Escrow
Officer” in its capacity as escrow officer and “Title Company”  in its capacity as title insurer), has been
designated as Escrow Officer hereunder by mutual agreement of Seller and
Buyer.  Upon mutual execution and
delivery of this Agreement, Escrow Officer shall open a closing escrow in
accordance with the terms of this Agreement.

          2012  Earnest Money [Omitted
Confidential Information has been filed separately with the Securities and
Exchange Commission].

ARTICLE III. 
CONDITION AND CONVEYANCE OF TITLE

          2013 Preliminary
Commitment.  Within ten (10) days after mutual execution
and delivery of this Agreement, Seller shall provide Buyer with a preliminary
commitment to issue an ALTA Extended Owner’s Policy of title insurance insuring
Buyer’s interest in the Real Property (the “Preliminary Commitment”), together
with complete and legible copies of all exceptions and encumbrances noted
thereon. The Preliminary Commitment shall be issued by Transnation Title
Insurance Company or its local affiliates in Jefferson County, Washington, and
Pierce County, Washington (“Title Company”). 
The Preliminary Commitment may be to issue an ALTA Standard Owner’s
Policy of title insurance as to those portions of the Real Property for which
Title Company will not issue an ALTA Extended Owner’s Policy for lack of an
ALTA survey prior to Closing, subject to Buyer’s approval during the Title and
Survey Review Period defined below. 
Buyer shall have until expiration of the Inspection Period described in Section
4.1 or ten (10) days after receipt of the ESM Survey described at Section
3.2, whichever is later (the “Title and Survey Review Period”), to advise
Seller in writing of any encumbrances, restrictions, easements, or other
matters shown in the Preliminary Commitment or ESM Survey (collectively,
“Exceptions”) to which Buyer objects. 
Except as otherwise provided below, all Exceptions to which Buyer does
not object in writing prior to expiration of the Title and Survey Review Period
shall be deemed accepted by Buyer, provided, however, that if Buyer does not
deliver any written notice to Seller regarding its objection to Exceptions
prior to expiration of the Title and Survey Review Period, then Buyer shall be
deemed to have and disapproved the condition of title to the Real Property, in
which event this Agreement shall terminate and the Earnest Money shall be
returned to Buyer.  If Buyer does not
receive complete and legible copies of all exceptions and encumbrances noted in
the Preliminary Commitment within ten (10) days after mutual execution and
delivery of this Agreement, then Seller shall cooperate with Buyer and assist
Buyer in obtaining such copies from the Title Company as soon as possible.

          If Buyer timely objects to any Exceptions,
then Seller shall advise Buyer in writing within ten (10) days after receipt of
Buyer’s written objections:  (a) which
Exceptions Seller will remove at Closing, (b) which Exceptions the Title
Company has agreed to remove from the title policy to be issued at Closing, and
(c) which Exceptions will not be removed by Seller or Title Company.  If Seller does not otherwise give an
adequate, complete, timely, and written notice to Buyer regarding any Exception
to which Seller has timely objected, then Seller shall be deemed to have given
notice Buyer that such Exception will not be removed by Seller or Title Company
prior to Closing

          Within twenty (20) days after Seller’s
receipt of Buyer’s written objections, if Seller has not agreed to remove all
Exceptions to which Buyer objects, Buyer shall notify Seller in writing of
Buyer’s election to either:  (a)
terminate this Agreement, in which event the Earnest Money shall be returned to
Buyer, or (b) waive its objections to the Exceptions that Seller will not
remove or cause Title Company to insure around, in which event such Exceptions
shall be deemed accepted by Buyer.  If
Buyer does not terminate this Agreement in writing within the twenty (20) day
period, then Buyer shall be deemed to have waived its objections to the
Exceptions that Seller will not remove or cause Title Company to insure around.

          Notwithstanding the foregoing, Seller shall
cause, at Seller’s sole expense, all mortgages, deeds of trust, and other
monetary liens except non-delinquent assessment liens (e.g., liens for local
improvement district assessments), including liens for delinquent taxes,
mechanics, materialman’s or service provider liens, and judgment liens, to be
fully satisfied, released, and discharged of record on or prior to the Closing
Date without necessity of Buyer’s objection. 
All such mortgages, deeds of trust and other monetary liens shall
automatically be deemed unacceptable to Buyer (without any need for Buyer to
object to them expressly) and shall be removed by Seller as provided above.

          2014 Survey.  Within five (5) days after mutual execution
and delivery of this Agreement, Seller shall engage ESM Consulting Engineers,
L.L.C. (“ESM”), to prepare a survey of portions of the Land by letter proposal dated
January _____, 2001 (the “ESM Survey”). 
The parties shall cooperate to cause the ESM Survey to be completed and
delivered to Buyer as soon as practicable, and acknowledge that they desire to
have the completed ESM Survey delivered no later than March 7, 2001, if
feasible.  The parties acknowledge that
Seller is solely responsible for the cost of the ESM Survey if this transaction
fails to close but that if this transaction does close, then at Closing Buyer
shall pay all ESM Survey costs.

          2015
Permitted Exceptions.  The term “Permitted Exceptions” means:  (a) the Exceptions accepted or deemed
accepted by Buyer as provided above; (b) the lien of non-delinquent real estate
taxes for the current calendar year, subject to pro-ration as provided herein;
(c) the Tenant Leases; (d) non-delinquent assessment liens, subject to
pro-ration as provided herein; and (e) matters that would be disclosed by an
accurate ALTA survey of the Real Property.

          2016 Title
Policy.  At Closing, Seller shall cause Title Company
to deliver to Buyer an ALTA Extended Owner’s Policy of title insurance (or, at
Buyer’s option, a binder therefor) issued by Title Company in the amount of the
Purchase Price, dated the Closing Date, insuring Buyer’s title subject to no
exceptions other than the general exceptions and the Permitted Exceptions (the
“Title Policy”).  The Title Policy may
be for an ALTA Standard Owner’s Policy of title insurance as to those portions
of the Real Property for which Title Company will not issue an ALTA Extended
Owner’s Policy for lack of an ALTA survey prior to Closing, subject to Buyer’s
approval during the Title and Survey Review Period.  The Title Policy shall be consistent with the Preliminary
Commitment and otherwise in form and substance reasonably satisfactory to Buyer
and shall contain such coverages and endorsements issued by Title Company as
Buyer may specify, provided that Buyer shall pay the cost of all endorsements.

          2017 Conveyance
of Real Property.  At Closing, Seller shall convey to Buyer fee
simple title to the Real Property by execution and delivery of statutory
warranty deeds in the form of Schedule 3.4(a) hereto as to the MPR
Property (the “MPR Deed”) and in the form of Schedule 3.4(b) hereto as
to the Peacock Hill Property (the “Peacock Hill Deed”), subject only to the
Permitted Exceptions.   Seller shall
also execute and deliver at Closing instruments granting the additional
easement and rights described in the last sentence of Section 1.2 above
in the forms of Schedules 7.2(h) and 7.2(i).

 

          2018
Assignment of DNR Lease.  At Closing, subject to the prior written
approval of the DNR, Seller shall assign to Buyer the interest of Seller in and
to the DNR Lease by execution and delivery of an Assignment and Assumption of
DNR Lease in the form of Schedule 3.5 hereto (the “Assignment of DNR
Lease”).

          2019 Assignment
of Tenant Leases.  At Closing, Seller shall assign to Buyer the
interest of Seller in and to the Tenant Leases by execution and delivery of an
Assignment and Assumption of Leases in the form of Schedule 3.6 hereto
(the “Assignment of Tenant Leases”).

          2020 Assignment
of Contracts. 
At Closing, Seller shall assign to Buyer the interest of Seller in and
to the Contracts that Buyer has elected not to cancel and terminate prior to
Closing in accordance with Section 1.5 by execution and delivery of an
Assignment and Assumption of Contracts in the form of Schedule 3.7
hereto (the “Assignment of Contracts”).

          2021 Bill of Sale.  At Closing, Seller shall convey to Buyer the
interest of Seller in and to the Equipment and Inventory by execution and
delivery of a Bill of Sale in the form of Schedule 3.8 hereto (the “Bill
of Sale”).

          2022 Assignment of Intellectual Property.  At Closing,
Seller shall convey to Buyer the
interest of Seller in and to the Intellectual Property by execution and
delivery of an Assignment of Intellectual Property in the form of Schedule
3.9 hereto (the “Assignment of Intellectual Property”).

ARTICLE IV.  INSPECTION OF DOCUMENTS AND
REAL PROPERTY

          2023 Inspection
Period. 
The period beginning on the day this Agreement has been executed and
delivered by all parties and ending on [Omitted Confidential Information has
been filed separately with the Securities and Exchange Commission], shall be
the “Inspection Period.”  The Inspection
Period shall be extended one (1) day for each day after [Omitted Confidential
Information has been filed separately with the Securities and Exchange
Commission], that all schedules hereto are not approved by the parties in the
amendment to this Agreement described at Section 16.9, provided, however, that
if all schedules hereto are not approved by the parties in an amendment to this
Agreement mutually executed and delivered on or before [Omitted Confidential
Information has been filed separately with the Securities and Exchange
Commission], then this Agreement shall terminate, the Earnest Money shall be
returned to Buyer, and the parties shall have no further obligations hereunder
except under those provisions intended to survive the termination of this Agreement.[Omitted
Confidential Information has been filed separately with the Securities and
Exchange Commission]

          2024 Seller’s Documents.  During the Inspection Period, Buyer and its
agents and consultants, subject to their strict compliance with the confidentiality
requirements of this Agreement, shall have the right to review and photocopy at
Buyer’s expense all documents in the possession of Seller relating to the
Property (“Seller’s Documents”) except Seller’s internal financial analysis
and, subject to the terms and conditions set forth below, [Omitted Confidential
Information has been filed separately with the Securities and Exchange
Commission].  The review and
photocopying of Seller’s Documents shall be conducted at a location in Kitsap
County, Washington, to be designated by Seller.  “In the possession of Seller” shall include documents relating to
the Property in the possession of Seller’s consultants and prepared at Seller’s
expense, provided that Buyer shall make arrangements with such consultants for
the review and photocopying of such documents at Buyer’s expense (and provided
further, that Seller shall cooperate with Buyer’s efforts to obtain access to
all such Seller’s Documents in the possession of Seller’s consultants).  Except as otherwise expressly provided
herein, Seller makes no representations or warranties, express or implied, as
to the accuracy or completeness of Seller’s Documents except those prepared by
Seller for Buyer (such as financial information and also including, without
limitation, all schedules and exhibits attached to this Agreement).  Seller expressly disclaims any and all
liability for representations or warranties, expressed or implied, contained in
or for omissions from Seller’s Documents, except those prepared by Seller for
Buyer and except as otherwise expressly provided in this Agreement.  Buyer agrees not to distribute Seller’s
Documents to others (other than its consultants, affiliates, investors,
advisors and their respective employees) in whole or in part at any time
without the prior written consent of Seller, and to keep confidential all
information contained therein or made available in connection with any further
discussions relating to the Property. 
Seller’s Documents are being delivered for the limited purpose of
assisting Buyer in deciding whether or not to proceed with its purchase of the
Property and upon the express understanding that they will be used only for
such purpose.  Buyer agrees to make use
of Seller’s Documents only for the purpose of evaluating the purchase of the
Property and agrees not to disclose to any person, except its consultants,
affiliates, investors, advisors and their respective employees who have a need
to know, the contents of Seller’s Documents, that discussions are taking place,
or that information is being exchanged between parties.  Upon the termination of this Agreement,
Buyer shall return its copies of Seller’s Documents to Seller without retaining
any copies thereof.  Buyer shall not
distribute Seller’s Documents to more than ten (10) investors at a time and
shall require all such investors to keep confidential all information contained
therein.

          The
above notwithstanding, Buyer and its agents and consultants shall have the
right (i) to use all Seller’s Documents in connection with its due
diligence review; (ii) to discuss the Property, and information contained
in or learned from the Seller’s Documents, with govern­mental authorities in
connection with its due diligence review; (iii) to disclose information
contained in the Seller’s Documents to the extent required by any law or
regulation or in connection with enforcement of this Agreement; and (iv) to
keep and retain all Seller’s Documents and all records relating to the Property
upon Closing.  Buyer shall have no
confidentiality obligation after Closing.

          [Omitted
Confidential Information has been filed separately with the Securities and
Exchange Commission]

          2025 Inspection of Real Property.  During the
Inspection Period, Buyer at its sole expense may inspect the physical condition
of the Real Property, verify to its satisfaction the financial information
provided to it and conduct any environmental or other inspections as it deems
appropriate; provided, however, Buyer shall have the right to enter upon the
Real Property only in accordance with the following terms and conditions:

                    (a)      This Agreement has not
been terminated;

                    (b)      Any entry upon the Real
Property shall be only for the purpose of inspections, studies, and surveys
upon prior written notice to Seller; and

                    (c)      Buyer shall indemnify,
defend and hold Seller harmless from any claims, demands and causes of action
for personal injury, property damage, mechanics liens, violation of laws or
breach of contract or lease that arise out of or are related to Buyer’s activities
on the Real Property prior to Closing, including without limitation Seller’s
costs, expenses and attorney’s fees, except to the extent such claims, demands
or causes of action arise out of Seller’s negligence, misconduct, breach of
lease or contract or violation of law. 
Without expanding Buyer’s obligations set forth above, it is understood
that Buyer shall not liable for or in connection with the discovery and
reporting as required by law of any hazardous or environmental condition on the
Property.  Notwithstanding anything to
the contrary herein, this indemnity shall survive termination of this
Agreement.

                    (d)      Buyer’s entry shall be at
reasonable times and in compliance with all laws, leases, and other agreements
of Seller, so as to minimize any disruption of Seller’s tenants and the
operations of Seller, its affiliates and subsidiaries.  Buyer, its agents and consultants, to the
extent reasonably possible, will be sensitive to the impacts of their due
diligence efforts on the employees of Seller, will minimize their intrusions,
and will not disclose the purpose of their work to any person or entity without
Seller’s prior written consent.  Unless
Seller has given its prior written consent, which shall not unreasonably be
withheld or delayed, (i) no improvements shall be constructed upon the Real
Property, no materials, vehicles or equipment shall be placed or stored on the
Real Property except for the purposes of testing, and no construction activity
shall be conducted upon the Real Property, and (ii) no grading, filling,
excavation, or other disturbance of the soils shall be permitted.  Buyer’s activities shall not violate any
law, regulation, ordinance or permit.

          Buyer may communicate with and retain
Seller’s consultants regarding the condition of the Real Property.  All consultants retained by Buyer shall be
compensated solely by Buyer for their work. 
If this Agreement is terminated for any reason prior to Closing, then
Buyer shall provide to Seller and shall cause its consultants to provide to
Seller complete copies of any work product Buyer and its consultants have
produced on behalf of Buyer, provided that Seller shall compensate Buyer and
its consultants for their reproduction costs. 
Buyer shall cause all of its consultants to keep the transaction described
in this Agreement completely confidential.

          2026 Approval of Property Condition.  If Buyer is satisfied in its sole discretion
with the results of its inspection of Seller’s Documents and the Real Property,
then at any time prior to expiration of the Inspection Period Buyer shall give
written notice to Seller of Buyer’s approval of the condition of the
Property.  If Buyer shall fail to give
timely written notice to Seller of Buyer’ s approval of the condition of the
Property, then Buyer shall be deemed to have disapproved the condition of the
Property, whereupon this Agreement shall terminate, the Earnest Money shall be
returned to Buyer, and the parties shall have no further obligations hereunder
except under those provisions intended to survive the termination of this
Agreement.

          2027 Certification.  Within ten (10) days after the date this
Agreement has been executed by all parties, Seller shall certify and deliver to
Buyer complete copies of all Tenant Leases, Contracts, the DNR Lease, and all reports,
assessments, and studies listed on Schedule 8.1.1(i).  With respect to any materials previously
delivered to Buyer, Seller’s certification shall be sufficient as to those
materials if it identifies how and when such materials were delivered and certifies
that the copies so delivered were complete.

ARTICLE V. 
CONDITIONS PRECEDENT TO CLOSING

          Buyer’s obligations under this Agreement are
expressly conditioned on, and subject to satisfaction of, the following
conditions precedent:

          2028 Performance
by Seller. 
Seller shall have timely performed all material obligations required by
this Agreement to be performed by it.

          2029 Approval of Property Condition. 
Buyer shall have given written notice to Seller prior to expiration of
the Inspection Period that Buyer approves the condition of the Property based
on Seller’ s inspection of Seller’s Documents and the Real Property.  It is understood that Buyer may disapprove
the Real Property prior to expiration of the Inspection Period for any reason
(and thereby terminate this Agreement and receive back the Earnest Money) if it
is dissatisfied with any aspect of the Real Property, including (without
limitation) its condition, value or development potential.

          2030 Title Policy.  Title Company shall be ready, willing and
able to issue the Title Policy.

          2031 Representations and Warranties True. 
The representations and warranties of Seller contained herein shall be
true and correct on and as of the Closing Date in all material respects, and
Seller shall so certify to Buyer in an instrument reasonably specified by
Buyer.

          2032 No
Damage or Destruction.  There shall be no material damage to or
destruction of any portion of the Property.

          2033 Tenant
Estoppels.  Seller shall have delivered to Buyer, not
less than five (5) days prior to expiration of the Inspection Period, from
tenants under the Tenant Leases comprising at least 80% of the rentable area of
the Village Center, a tenant estoppel letter in the form of Schedule 5.6-1
without any material exception or claim thereon and dated not less than thirty
(30) days after the date this Agreement is executed and delivered by all
parties.  Seller shall also have
delivered, not less than five (5) days prior to expiration of the Inspection
Period, a certificate of Seller with respect to the Leases for the Harbormaster
Restaurant and the Conference Center containing substantially the same
information contained in Schedule 5.6-1 without any material exception
or claim thereon (except that Seller may describe such tenant’s existing
default as alleged by Seller) and dated not less than thirty (30) days after
the date this Agreement is executed and delivered by all parties. Seller shall
also have used best efforts to obtain from the State of Washington an estoppel
letter as to the DNR Lease in the form of Schedule 5.6-2.

          2034 OWSI
Stock Purchase Closing.  Buyer as buyer and Olympic Property Group
LLC as seller shall have simultaneously closed that certain Stock Purchase
Agreement of even date herewith relating to the stock of Olympic Water and
Sewer, Inc., a Washington corporation.

          2035 Heron
Beach Inn.  Seller shall have terminated or made
arrangements satisfactory to Buyer for the termination of the management
agreement relating to the Heron Beach Inn.

          2036 Consents and Notices.  Buyer and Seller shall have timely given all
notices required by all applicable laws, ordinances, regulations, and
agreements relating to the conveyance of the Property and other matters
relating thereto and shall have timely obtained all consents required by all
applicable laws, ordinances, regulations, and agreements relating to the
same.  Without limiting the generality
of the foregoing, the DNR shall have approved the transfer of the DNR Lease
without requiring any material and adverse change to the terms of such lease
and at a rental rate not exceeding the rate DNR currently alleges is payable
thereunder (which rate Seller is contesting). 
If such consent by the DNR has not been obtained by the date scheduled
for Closing, at Buyer’s option the Closing Date shall be extended for up to
forty-five (45) days to allow the parties to satisfy this condition (and the
parties shall cooperate for such purpose).

          2037 Liquor
License.  The Washington State Department of Licensing
shall have issued new temporary retail liquor licenses under applicable
statutes permitting the sale of liquor at the Heron Beach Inn, Port Ludlow
Marina, and Port Ludlow Golf Course after closing in the same manner and to the
same extent as presently allowed.

          2038 Payment
Certification.  Buyer shall have received from Seller a
written warranty and certification in the form of Schedule 5.11 that Seller has
paid all contractors, material providers and any other persons or parties
performing work or supplying construction materials for work on any part of the
Real Property for all work performed and materials supplied through the date of
Closing.  Seller also agrees to
indemnify, defend and hold harmless Buyer and the Real Property from any claim
or allegation which, if true, would make such warranty and certification
inaccurate (and including, without limitation, from any mechanics lien or
similar lien filed by any person or party).

          The conditions set forth in Sections 5.1
through 5.11 above are intended solely for the benefit of Buyer.  If any of the foregoing conditions is not
satisfied or waived by Buyer in writing as of the Closing Date, then Buyer
shall have the right at its sole election either to waive such condition and
proceed with Closing or, in the alternative, to terminate this Agreement,
whereupon this Agreement shall terminate, the Earnest Money shall be returned
to Buyer, and the parties shall have no further obligations hereunder except
under those provisions intended to survive the termination of this Agreement
(provided, that if any such condition is not satisfied due to Seller’s default
hereunder, then Buyer shall have all remedies for such default provided under
this Agreement or under law).

          Seller’s obligations under this Agreement are
expressly conditioned on, and subject to satisfaction of, the following
conditions precedent:

          2039 Performance
by Buyer.  Buyer shall have timely performed all
material obligations required by this Agreement to be performed by it.

          2040 Representations and Warranties True.  The
representations and warranties of Buyer
contained herein shall be true and correct on and as of the Closing Date in all
material respects, and Buyer shall so certify to Seller in an instrument
reasonably specified by Buyer.

          2041 OWSI Stock Purchase Closing.  Buyer as buyer and Olympic Property Group
LLC as seller shall have simultaneously closed the OWSI Stock Purchase
Agreement.

          2042 Consents
and Notices. 
Buyer and Seller shall have timely given all notices required by all
applicable laws, ordinances, regulations, and agreements relating to the
conveyance of the Property and other matters relating thereto and shall have
timely obtained all consents required by all applicable laws, ordinances,
regulations, and agreements relating to the same.  It is understood that if the DNR has not consented to transfer of
the DNR Lease by the date scheduled for Closing, such date may be extended at
Buyer’s option in the manner described in Section 5.9 above.

          2043 Board
Approval.  Within ten (10) calendar days after mutual
execution and delivery of this Agreement, the Board of Directors of Pope MGP,
Inc., the managing general partner of Pope Resources, shall have approved the
execution and delivery of this Agreement and the OWSI Stock Purchase Agreement
and the performance by Pope Resources of the transactions contemplated herein
and therein.

          The conditions set forth in Sections 5.12
through 5.16 above are intended solely for the benefit of Seller.  If any of the foregoing conditions are not
satisfied or waived by Seller in writing as of the Closing Date, Seller shall
have the right at its sole election either to waive the condition in question
and proceed with the sale or, in the alternative, to terminate this
Agreement.  No such termination, however,
shall be deemed a waiver of Seller’s right to retain the Earnest Money if Buyer
is then in default under this Agreement.

ARTICLE VI.  OPERATIONS PENDING CLOSING

          2044
Operations Pending Closing.  At all times
prior to the Closing or the sooner termination of this Agreement, Seller agrees:  (a) to maintain, manage and operate the
Property in the ordinary course of business free from waste and neglect, in
accordance with applicable laws, regulations and permits, and consistent with
its past management practices; (b) to maintain the Property in its current
condition and state of repair (normal wear and tear and casualty loss
excepted); (c) to maintain its existing casualty and liability insurance on the
Property; (d) to perform all of its material obligations under the Tenant
Leases, DNR Lease, and the Contracts and not to amend, modify or terminate or
permit the termination of any of the Tenant Leases, DNR Lease, or the Contracts
without the prior written consent of Buyer, which shall not unreasonably be
withheld; (e) not to lease or rent any portion of the Property without the
prior written consent of Buyer, except for leases in the ordinary course of
business of the Marina and accommodations and rental agreements at the Golf
Course, RV Park, and Heron Beach Inn; and (f) not to make any capital
improvements costing in excess of Fifty Thousand Dollars (US$50,000.00) to all
or any portion of the Real Property (except MPR Platted Lots in the ordinary
course of business) without Buyer’s prior written consent.

          2045 Conditions of Title to Real Property. 
Without
Buyer’s prior written consent, at all times prior to the Closing or sooner
termination of this Agreement, Seller agrees with respect to the Real
Property:  (a) not to mortgage the
Property; (b) not to enter into any new agreements that would be binding on
Buyer after Closing without the prior written consent of Buyer except for
leases in the ordinary course of business of the Marina, future reservations in
the Golf Course, RV Park, and the Heron Beach Inn, construction agreements for
homes on the MPR Platted Lots in the ordinary course of business, Golf Course
membership agreements in the ordinary course of business, construction
agreements for capital improvements approved by Buyer, sales of MPR Platted
Lots as described at subsection (c) hereof; and (c) not to enter into any new
agreements to transfer all or any portion of the Property except for sales of
MPR Platted Lots for sale prices equal to or in excess of the minimum sale
prices set forth on Schedule 6.2, conveyances of open space tracts to
homeowner associations in the ordinary course of business.

          2046 Special Conditions Applicable
to Heron Beach Inn, Marina and Golf Course.  Seller shall continue to operate the Golf
Course and the Marina, and shall use best efforts to cause the Heron Beach Inn
to continue to be operated, in accordance with existing practices, policies,
and procedures and will not conduct any transaction outside the ordinary course
of business except with Buyer’s prior written consent.  Among other things, Seller will cause
Equipment and Inventory to be maintained at normal and customary levels and
repairs and maintenance to be performed as reasonably required.  As to the Heron Beach Inn, Seller shall
cause guest and room service levels and marketing efforts to be maintained in
accordance with existing practice and existing management personnel to remain
fully involved in the operation of the Heron Beach Inn until the day of
Closing.  Seller shall use best efforts
and due diligence to cause the termination prior to Closing of the Hotel
Management Agreement dated April 3, 1991, between Pope Resources and CRG
Hospitality, Inc., as amended (the “CRG Agreement”).

.         2047
Updating of Schedules.  The schedules attached hereto may be revised
prior to Closing to reflect changes in the ordinary course of business or as
otherwise approved by Buyer.  Seller
shall also give Buyer prompt written notice if Seller, after the date this
Agreement is executed by Seller, discovers or learns of any fact or occurrence
that would make any of Seller’s warranties and representations materially
inaccurate if such warranty or representation were made on or after the date
Seller discovered or learned of such fact or occurrence.

          2048 Liquor
Licenses. 
Seller will cooperate fully with Buyer in Buyer’s efforts to obtain from
the Washington State Department of Licensing (“DOL”) new temporary retail
liquor licenses under applicable statutes to permit the sale of liquor at the
Heron Beach Inn, Port Ludlow Marina, and Port Ludlow Golf Course after closing
in the same manner and to the same extent as presently allowed.  Buyer and Seller acknowledge that the DOL
probably will not issue non-temporary retail liquor licenses to Buyer until
some time after closing and that the issuance of such licenses will not be a
condition precedent to Buyer’s obligation to close this transaction.  Seller also will cooperate fully with Buyer
in Buyer’s efforts to secure any non-temporary liquor licenses desired by Buyer
for the sale of liquor at the Heron Beach Inn, Port Ludlow Marina, and Port
Ludlow Golf Course after closing.

ARTICLE VII.  CLOSING AND ESCROW

          2049 Closing.  The Closing hereunder (the “Closing” or the
“Closing Date”) shall be held at the offices of the Title Company in Seattle,
Washington, forty-five (45) days following Buyer’s approval of the condition of
the Property under Article IV.

          2050 Seller’s
Deliveries. 
On or prior to the Closing Date, Seller shall deposit with Escrow
Officer the following:

          (a)      The duly executed and acknowledged (where
applicable) MPR Deed, Peacock Hill Deed, Assignment of DNR Lease, Assignment of
Tenant Leases, Assignment of Contracts, Bill of Sale, and Assignment of
Intellectual Property;

          (b)      The duly executed Washington State Real
Estate Excise Tax Affidavits relating to the MPR Deed and Peacock Hill Deed,
consistent with the allocations set forth on Schedule 2.1;

          (c)      An affidavit duly executed by Seller in
the form of Schedule 7.2(c) hereto (the “FIRPTA Affidavit”);

          (d)      A duly executed management agreement to be
negotiated in good faith prior to Closing (the “Management Agreement”), under
which Buyer will manage certain post-closing obligations of Seller described
therein and relating to the Property in exchange for reasonable consideration
to be described therein;

          (e)      The Tenant Estoppel Letters;

          (f)       The Contracts, DNR Lease, and Tenant
Leases;

          (g)      A certificate executed by Seller stating
that Seller’s representations and warranties in Article VIII are true and
correct as of the Closing Date;

          (h)      The duly executed Easements Over Adjoining
Lands in the form of Schedule 7.2(i);

          (i)       The duly executed Bio-solids Disposal
Agreement in the form of Schedule 7.2(i); and

          (j)       The duly executed Seller’s Payment
Certificate in the form of Schedule 5.11.

.         2051
Buyer’s Deliveries. 
On or prior to the Closing Date, Buyer shall deposit with Escrow Officer
the following:

          (k)      The Purchase Price;

          (l)       The duly executed and acknowledged (where
applicable) Assignment of DNR Lease, Assignment of Tenant Leases, Assignment of
Contracts, and Assignment of Intellectual Property;

          (m)     The duly executed Washington State Real
Estate Excise Tax Affidavits relating to the MPR Deed and Peacock Hill Deed,
consistent with the allocations set forth on Schedule 2.1;

          (n)      The duly executed Management Agreement;

          (o)      A certificate executed by Buyer stating
that Buyer’s representations and warranties in Article VIII are true and
correct as of the Closing Date; and

          (p)      The duly executed Bio-solids Disposal
Agreement in the form of Schedule 7.2(i).

          2052 Title Policy; Other Instruments. 
Seller shall cause Title Company to issue the Title Policy to Buyer at
Closing or as soon thereafter as practicable (provided, however, that it shall
be a condition to Buyer’s obligation to close that title Company shall be
committed to issue the Title Policy effective on and as of the Closing
Date).  Seller and Buyer shall each
deposit such other instruments as are reasonably required by Escrow Officer or
otherwise required to close the escrow and consummate the purchase of the Property
in accordance with the terms hereof.

          2053 Prorations.

7.1.2  General.  Except as otherwise provided in Sections
7.5.2 and 7.5.3, all revenues and all expenses of the Property,
including but not limited to, real property taxes, hotel occupancy taxes, assessments,
rents under the Tenant Leases, water, sewer and utility charges, amounts
payable under the Contracts, and other expenses normal to the operation and
maintenance of the Property, but excluding insurance premiums and payments
pursuant to any of the Contracts that Buyer has elected not to assume, shall be
prorated as of 12:01a.m. on the Closing Date (the “Cutoff Time”).  Real Property tax prorations will be on the
basis of taxes paid or payable in the year of Closing.  Prepaid rents, security deposits, earnest
money deposits, prepaid rentals or other deposits under any Tenant Leases or by
customers under the Contracts, including without limitation gift certificates,
prepaid fees and Member Book Balances for the Golf Course or any other
facilities comprising part of the Property, shall be credited to Buyer.  Prepaid rents and security deposits under
the DNR Lease shall be credited to Seller. 
Utility deposits or prepaid amounts under any of the Contracts assigned
to Buyer shall be credited to Seller.  Any rents under Tenant Leases or other receivables past due as of
the Closing Date shall not be prorated at Closing but upon receipt by Buyer
shall be applied first to amounts due after Closing and the balance, if any,
remitted to Seller for amounts due prior to Closing.

7.1.3  Heron Beach Inn Adjustments and Prorations.  Except as otherwise provided herein,
adjustments and prorations for the Heron Beach Inn shall be determined in
accordance with the current edition of the Uniform Systems of Accounts for Hotels,
as published by the Hotel Association of New York City, and shall all be
prorated as of the Cutoff Time.  The
following matters and items shall be prorated or credited as of the Cutoff
Time.  Net credits in favor of Buyer
shall be deducted from the balance of the Purchase Price at Closing, and net
credits in favor of Seller shall be paid in cash at Closing.

          (a)      Revenues and Expenses.  Except as otherwise provided in this
section, Seller shall be entitled to all revenue and shall be responsible for all
expenses for the period of time up to but not including the date of Closing,
and Buyer shall be entitled to all revenue and shall be responsible for all
expenses for the period of time from, after and including the date of Closing.

          (b)      Guest Ledger Receivables.  Guest Ledger Receivables shall mean all
amounts, including, without limitation, room charges and housekeeping costs,
accrued to the accounts of guests occupying rooms in Heron Beach Inn as of the
Cutoff Time.  Seller shall receive a
credit for all Guest Ledger Receivables for all room nights up to but not
including the room night during which the Cutoff Time occurs, and Buyer shall
be entitled to the amounts of Guest Ledger Receivables for the room nights
after the Cutoff time.  Seller and Buyer
shall each receive a credit equal to one-half of the amount of Guest Ledger
Receivables for the full room night during which the Cutoff Time occurs.  All restaurant and bar facilities will be
closed as of the Cutoff Time and Seller shall receive the income from the same
until the Cutoff time.

          (c)      Advance Bookings.  Buyer shall receive a credit for advance
payments and security deposits, if any, under advance room and event bookings
to the extent they relate to a period after the Cutoff Time.

          (d)      Petty Cash Funds and House Banks.  Buyer shall purchase all petty cash funds
and cash in house banks at 100% of face value at the Cutoff Time.

          (e)      Accounts Receivable.  Seller shall retain the receivables of the
Heron Beach Inn as of the Cutoff Time, other than Guest Ledger
Receivables.  Buyer agrees that it will
promptly remit to Seller any funds received by Buyer in payment of such
accounts receivable.  With regard to any
collection made from a person or entity who has accounts receivable arising
both prior and subsequent to the Cutoff Time, such collection shall be applied
first to current accounts receivable, then to prior accounts receivable.

          (f)       Operating Supplies and Inventory.  Operating supplies and inventory for the
Heron Beach Inn are included in the Personal Property for the Heron Beach Inn,
and no proration or credits shall be made at Closing.

          (g)      Calculation of Heron Beach Inn
Prorations.  Seller shall cause its
accounting staff to make such inventories, examinations, and audits of the
Heron Beach Inn, and of the books and records of the Heron Beach Inn, as they
may deem necessary to make the adjustments and prorations required under this
section and other provisions of this Agreement.  Buyer or its designated representatives may be present at such inventories,
examinations and audits.  Based upon
such audits and inventories, Seller will prepare and deliver to the parties no
later than two (2) days prior to Closing a closing statement containing
Seller’s best estimate of the prorations and adjustments in this Agreement.

7.1.4  Compensating
Tax.  Seller has disclosed to Buyer
that portions of the Real Property are currently classified or designated as
current use or forest land for tax purposes under RCW Ch. 84.33 or RCW Ch.
84.34, which portions to Seller’s current actual knowledge are identified
either in the Preliminary Commitment or in Schedule 7.5.3 or both.  Conversion of the Real Property to another
use will require the payment of compensating tax.  At Closing, Buyer either shall continue the current
classification or designation or pay the compensating tax, and in any event
Buyer shall bear sole responsibility for, and shall indemnify and hold Seller
harmless against, all such compensating tax. 
The provisions of this section shall survive Closing.  In any suit, action, or appeal therefrom to
enforce this section, the prevailing party shall be entitled to its costs
incurred therein, including reasonable attorneys’ fees and costs of litigation.

7.1.5  Golf
Club Memberships.  All complimentary
Golf Club memberships, or special memberships based upon a promise of or right
to a material discount of annual fees or charges from standard rates in effect
from time to time, shall be terminated by Seller at or prior to Closing, except
that Seller shall not be required to terminate (and Buyer shall accept) the
special memberships of George Folquet, R.D. Bruce, and Joan Bruce as described
in the recorded amended and restated lifetime membership easement, whose rights
Seller has no ability or right to terminate.

          2054
Closing Costs and Expenses.  Buyer and Seller shall each pay their own
attorneys fees and expenses and the following:

        (a)      Seller shall pay:

      (i)       The owner’s standard coverage portion of
the premium for the Title Policy;

      (ii)      All real estate excise or transfer taxes;
and

      (iii)     One-half (1/2) of the fees for the Escrow
Officer.

        (b)      Buyer shall pay:

      (i)       One-half (1/2) of the fees for the Escrow
Officer;

      (ii)      All costs and expenses of Buyer’s
consultants and investigations during the Inspection Period;

      (iii)     The premium differential between owner’s
standard coverage and owner’s extended coverage for the Title Policy plus the
cost of all endorsements requested by Buyer;

      (iv)     All survey costs;

      (v)      All costs of recording the MPR Deed and
Peacock Hill Deed; and

      (vi)     Any sales or use tax relating to the
conveyance of the Personal Property.

          2055 Closing
Statements.  The prorations shall be made on the basis of
a written closing statement submitted by Escrow Officer to Buyer and Seller
prior to the Closing Date and approved by Buyer and Seller, which approval
shall not be unreasonably withheld.  In
the event any prorations or apportionments made hereunder shall prove to be
incorrect for any reason, then any party shall be entitled to an adjustment to
correct the same.  Any item that cannot
be prorated because of the unavailability of information shall be tentatively
prorated on the basis of the best data then available and re-prorated between
Buyer and Seller when the information is available.  Notwithstanding the foregoing, any adjustments or re-prorations
shall be made, if at all, within one hundred eighty (180) days after the
Closing Date.

          2056
Delivery Outside of Escrow.  Seller shall deliver to Buyer at Closing
outside of the Closing escrow the originals of Seller’s Documents (including
but not limited to the originals of the Tenant Leases, DNR Lease, and
Contracts), keys and/or codes to all doors and security equipment, copies of
all books and records of Seller used in the operation, maintenance, repair and
protection of the Property, and such other presently existing records and items
as reasonably requested by Buyer.

          2057 Guest
Property. 
All baggage or other property of guests
of the Heron Beach Inn checked or left in the care of Seller shall be listed in
an inventory to be prepared in duplicate and signed by Seller and Buyer on the
Closing date.  Buyer shall be
responsible from and after the Closing date and will indemnify and hold Seller
harmless from and against all claims for all baggage and property listed in
such inventory.  Seller shall indemnify
and hold harmless Buyer from and against claims for baggage and property not
listed in such inventory but shown to have been left in Seller’s custody prior
to the Closing Date.

ARTICLE VIII.  REPRESENTATIONS AND WARRANTIES

          Seller and Buyer make the following
representations and warranties:

          2058 Seller’s
Representations. 
Seller represents and warrants to Buyer as of the Date of this
Agreement:

8.1.1        General
Representations and Warranties Applicable to the Property.

                    (a)      Tenant
Leases.  There are no leases,
licenses, or other agreements granting any person or party the right to use or
occupy the Real Property or any portion thereof except the Tenant Leases,
matters set forth in the Title Commitment, matters that would be disclosed by
an accurate ALTA survey of the Real Property, the use by guests, members, or
patrons of the Heron Beach Inn and the Golf Course in the ordinary course of
business between the date hereof and the Closing Date, and the Heron Beach Inn
Reservations.  The Tenant Leases have
not been modified, amended, or terminated except as identified on Schedule
1.3.  Schedule 1.3 sets forth
all Tenant Leases and all security deposits and prepaid amounts due or owing to
any tenant thereunder.  To Seller’s
current actual knowledge, neither Seller nor any tenant is in default under or
has asserted any uncured default under the Tenant Leases and no event has
occurred that with the giving of notice or passage of time, or both, would
constitute a default under any of the Tenant Leases.  Seller has completed all tenant build-out items or other
improvements required to be completed by Seller under the Tenant Leases.  All brokerage commissions with respect to
the Tenant Leases and any renewals, extensions, or expansions have been paid in
full except with respect to those commission agreements disclosed on Schedule
1.5.

                    (b)      Litigation.  There is no claim, litigation, or proceeding
pending against Seller, or to Seller’s current actual knowledge threatened
against Seller, which relate to the Property or the transactions contemplated
by this Agreement except as set forth on Schedule 8.1.1(b).  Seller also covenants and agrees to provide
Buyer, within ten (10) days after the date this Agreement is mutually executed
and delivered, a list of all material claims and actions known to Seller that
were asserted or commenced against Seller relating to the Property since
January 1, 1990 (other than the matters listed on Schedules 8.1.1(b)),
including all such matters that have been resolved, dismissed, or settled.  Such list shall include without limitation
all arbitration and litigation proceedings known to Seller and commenced since
January 1, 1990 (other than the matters listed on Schedules 8.1.1(b)).

                    (c)      Compliance.  To Seller's current actual knowledge and
except as set forth on Schedule 8.1.1(e), (i) all permits, licenses, and
other governmental authorizations and approvals required to construct the
Improvements upon and to own and operate the MPR Operating Properties have been
obtained, are in full force and effect, Seller is not in violation of any such
permits, licenses, or other governmental authorizations and approvals, and
Seller has received no notice of violation or claim of violation relating
thereto; (ii) all governmental authorizations and approvals (including
subdivision maps) required for the platting and subdivision of the MPR Platted
Lots have been obtained, are in full force and effect, Seller is not in
violation of any such permits, licenses, or other governmental authorizations
and approvals, and Seller has received no notice of violation or claim of
violation relating thereto; (ii) all governmental authorizations and approvals
(including subdivision maps) required for the platting and subdivision of the
MPR Platted Lots have been obtained, are in full force and effect, Seller is
not in violation of any such authorizations and approvals, and Seller has
received no notice of violation or claim of violation relating thereto; and
(iii) the Real Property and the use thereof complies in all material respects
with applicable laws and regulations and all applicable agreements affecting
the Real Property (including without limitation laws and regulations relating
to zoning, land use and subdivision of land), and Seller has not received any
notice alleging zoning non-compliance with respect to the Real Property.  To Seller’s current actual knowledge and
except as set forth on Schedule 8.1.1(c), there are no unsatisfied
requests or demands for repairs, restorations, or improvements from any person,
entity, or authority, including but not limited to any tenant, insurance
carrier, or governmental authority with respect to the Real Property.  All permits, licenses, governmental
authorizations and approvals relating to operation, development or subdivision
of the Real Property or operation of the other Property either run with title
to the Real Property or can be assigned to Buyer without the consent of any
third party, other than liquor licenses and any others specifically listed in Schedule
8.1.1(c).  Notwithstanding the
foregoing, Seller makes no representation or warranty regarding government
authorizations and approvals relating to the provision water and sewer utility
services to those portions of the Real Property to which water and sewer
utility services are not currently provided.

                    (d)      No
Prior Options, Sales, or Assignments. 
Seller has not granted any options nor obligated itself in any manner
whatsoever to sell the Property or any portion thereof to any party other than
Buyer except for sales of MPR Platted Lots for sale prices equal to or in
excess of the minimum sale prices set forth on Schedule 6.2, conveyances
of open space tracts to homeowner associations in the ordinary course of
business, and creation of covenants and easements in connection with the
subdivision and development of lands in the ordinary course of business.  Seller shall indemnify and defend Buyer and
hold Buyer harmless from and against any claim which, if true, would constitute
a breach of the warranty and representation set forth in the foregoing
sentence.

                    (e)      Condition of Property.  To Seller’s current actual knowledge and
except as set forth on Schedule 8.1.1(e)-1, the Property is free from
material defects that would materially impair the use or value of the Property,
ordinary wear and tear excepted.  As
used within this section, “material defects” means a defect resulting in a
liability or loss to Buyer of more than One Hundred Thousand Dollars
(US$100,000.00) in each instance and One Million Dollars (US$1,000,000.00) in
the aggregate.  The inclusion of a
defect on Schedule 8.1.1(e)-1 does not mean that the defect is material.

Schedule 8.1.1(e)-2 describes
those improvements and repairs that Seller is presently undertaking within the
Property or had scheduled for completion in calendar year 2000, and Seller
covenants to complete such improvements and repairs at its own expense prior to
Closing; provided, that if the improvements and repairs listed in Schedule
8.1.1(e)-2 are not completed by Closing, then at Buyer’s option Seller
shall grant a reasonable credit to Buyer at Closing to cover the cost of
completing such improvements and repairs.

                    (f)       Special Assessments.  Except as set forth on Schedule 8.1.1(f),
Seller has not been notified of any contemplated improvements to the area
surrounding the Real Property that would result in the assessment of a special
improvement or similar lien against the Real Property that is not shown in the
Preliminary Commitments.

                    (g)      Existing Agreements.  There are no contracts, agreements, or
understandings (whether written or oral) relating to the Property that will be
binding on Buyer after Closing, except for the Permitted Exceptions, the
Appurtenances, the Tenant Leases, the DNR Lease, the Contracts, and other
matters disclosed in this Agreement. 
The Contracts have not been modified, amended or terminated except as
identified in Schedule 1.5 and, to Seller’s current actual knowledge,
neither Seller nor any other party is in default under any of the
Contracts.  All development agreements,
land use entitlement agreements, management agreements, service contracts,
supply contracts, vendor agreements, equipment leases, maintenance agreements,
executory purchase and sale agreements for MPR Platted Lots, construction
contracts, brokerage agreements, and other agreements and contracts (other than
Tenant Leases and Exceptions) applicable to or binding on the Property are
listed on Schedule 1.5.  Except
as described on Schedule 8.1.1(g), all Contracts and leases related to
the Real Property (except the DNR Lease) can be assigned to Buyer without the
consent of any third party.

                    (h)      Taxes.  All business and occupation, sales, rooms,
use, and other taxes imposed with respect to the Property, or the operation
thereof, that are due and payable by Seller have been paid in full and Seller
has not received any written notice that any such tax is overdue, has not been
paid, or is subject to audit.

                    (i)       Environmental
Compliance.  Seller has not caused
or permitted the Property since December 31, 1985, to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer,
produce, or process Hazardous Substances except as set forth in the reports,
assessments, and studies described in Schedule 8.1.1(i) or as allowed by
any applicable law, ordinance, or regulation. 
To Seller’s current actual knowledge, there are no Hazardous Substances
on the Property, except as set forth in the reports, assessments, and studies described
in Schedule 8.1.1(i), or as allowed by any applicable law, ordinance, or
regulation; all written reports, assessments, or studies related to Hazardous
Substances on, under, or around the Property prepared by or for Seller are
listed on Schedule 8.1.1(i); and there are no buried tanks on or under
the Property except as set forth in the reports, assessments, and studies
described in Schedule 8.1.1(i) or as otherwise disclosed to Buyer in
writing during the Inspection Period. 
To Seller’s current actual knowledge, except as specifically disclosed
in the reports, assessments and studies described in Schedule 8.1.1(i),
no Hazardous Substances have been used, generated, manufactured, refined,
transported, treated, stored, handled, disposed of, transferred, produced, or
processed on or about the Real Property, except in compliance with all
applicable laws, ordinances, regulations and permits and in a manner that has
not and will not require clean-up or remediation under any applicable law,
ordinance, regulation or permit.  For
the purposes hereof, “Hazardous Substances” shall mean asbestos, petroleum and
petroleum derivatives and products, and any substance, chemical, waste, or
other material that is listed, defined, or otherwise identified as “hazardous”
or “toxic” under any federal, state, or local ordinance or law or any
administrative agency rule or determination applicable to the Property.  Buyer acknowledges that Seller has used
cleaning solvents, paints, lubricants, fertilizers, pesticides, other golf
course and agricultural products, and chemicals and similar materials in the
ordinary course of business, but Seller warrants and represents that all such
substances have been used, handled, stored, transported and disposed of in
compliance with all applicable laws, ordinances, regulations and permits and in
a manner that has not required and will not require clean-up or remediation
under any applicable law, ordinance, regulation or permit, except as disclosed
otherwise to Buyer in writing during the Inspection Period.  Buyer acknowledges that portions of the MPR
Properties were used prior to December 31, 1985, for lumber mill and other
timber industry purposes and that Seller does not have complete information
regarding the generation, manufacture, refinement, transport, treatment,
storage, handling, disposal, transfer, production, processing, and use of
Hazardous Substances within the MPR Properties prior to December 31, 1985.

                    (j)       Authority.  Pope Resources is a limited partnership duly
organized, validly existing, and in good standing under the laws of the State
of Delaware and is qualified to do business in the State of Washington.  Olympic Property Group LLC, Olympic Real
Estate Development LLC, and Olympic Resorts LLC are limited liability companies
duly organized, validly existing, and in good standing under the laws of the
State of Washington. Olympic Real Estate Management, Inc., is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Washington.  This Agreement and
all documents to be executed by Seller at Closing have been or will be duly
authorized, executed, and delivered by Seller and are binding on and
enforceable against Seller in accordance with their terms.  Seller has obtained all authorizations or
approvals necessary in order for Seller to enter into and perform its
obligations under this Agreement.

                    (k)      Employees.  Seller has approximately eighty (80)
employees engaged at or in connection with operation, subdivision and sale of
the Property, all of whom are listed on Schedule 8.1.1(k).  Except
as described at Schedule 8.1.1(k), there are no union contracts, labor
agreements, or Employee Benefit Plans as defined in Section 3(3) of the
Employee Retirement Income and Security Act of 1974, as amended from time to
time, or written employment contracts relating to any employees of Seller
engaged in the management, development or operation of the Property.

                    (l)       Inventory Sales.  Seller has been engaged in the construction
and sale of homes, town homes, and condominium units on the MPR Property.  Buyer shall have no liability or
responsibility for warranty claims (actual or alleged), defects (actual or
alleged) or by any other claim or matter arising from the construction or sale
of such homes, town homes, or condominium units.

                    (m)     Easements.  To Seller’s actual knowledge, no person or
party has any easement rights or rights to use any portion of the Real
Property, other than rights shown of record, rights under the Tenant Leases,
rights of patrons to use the Golf Course in the ordinary course of operations,
the Heron Beach Inn Reservations, rights otherwise disclosed in the Schedules
to this Agreement, and possible prescriptive easements in the Real Property.

                    (n)      Sewer and Water
Utilities.  To Seller’s actual
knowledge, there are no physical obstacles to the connection of water and sewer
facilities to all undeveloped portions of the Real Property.  Notwithstanding the foregoing, Seller makes
no representation or warranty regarding the capacity of the existing water and
sewer facilities or the availability of ground or surface water or water rights
required to provide water and sewer utility services to those portions of the
Real Property to which water and sewer utility services are not currently
provided.

                    (o)      Completeness of
Documents.  All of Seller’s
Documents prepared by Seller specifically for Buyer (including financial
information concerning the Property and Schedules to this Agreement) are
accurate in all material respects and do not omit any material fact necessary to
make the information in such Seller’s Documents not misleading.  To the best of Seller’s actual knowledge,
all of Seller’s Documents prepared by Seller but not specifically for Buyer
were accurate in all material respects when prepared.

                    (p)      Ownership.  Subject to the Exceptions disclosed in the
Preliminary Commitment and matters that an accurate ALTA survey of the Real
Property would disclose, Seller owns all of the buildings, improvements,
structures and fixtures connected or attached to the Real Property, all
equipment and other personal property located on and used in connection with
the Land or Improvements, and all rights, licenses, entitlements, permits and
other appurtenances used in connection with the Land or Improvements, other
than those relating to tenant fixtures, pay telephones, vending machines,
office equipment, indoor telephone equipment and lines under lease, other
utility facilities owned by private and public utility companies, improvements
to easements constructed by other easement beneficiaries, and structural
encroachments from adjoining properties.

8.1.2  Additional
Warranties and Representations Applicable to Golf Course.

                    (a)      Memberships.  Schedule 1.5 includes the Golf Course
Membership Agreement Schedule, which lists all members of the Golf Course and
provides for each of such members the following information, which is true,
correct, and complete as of the date of this Agreement: (i) the member’s name,
(ii) the type of membership, (iii) the effective date of the membership, (iv)
the amount of the initiation deposit or fee that has been paid in cash (with
respect to those members that elected an installment plan, if any, for payment
of the initiation deposit, this amount includes both the initial cash down
payment plus any receivable), and (v) any terms of the membership or any
rights, privileges, or obligations of the member that are different from other
memberships (for example, pre-paid dues or complimentary memberships), subject
to applicable articles, bylaws, and rules and regulations.

                    (b)      Nature
of Memberships.  To Seller’s current
actual knowledge, no representations or statements (either orally or in
writing) have been made by Seller to any member of the Golf Course that (i)
memberships in the Club are equity memberships, (ii) members have a right to
participate in the ownership, management, or operation of the Golf Course,
(iii) members have a right to share in any profits from the refinancing or sale
of the Golf Course, (iv) memberships in the Golf Course are perpetual or
non-terminable except as set forth in the membership agreement, or (v) members
enjoy contractual rights in addition to or different from the right to use the
Golf Course in accordance with the applicable membership agreement, by-laws and
rules and regulations.  No member or
other person has made any claim or allegation which, if true, would render the
warranty and representation in the foregoing sentence inaccurate.

                    (c)      Use of Club.  To Seller’s current actual knowledge and
except for the memberships listed on Schedule 1.5 and except as may be
disclosed in Schedule 8.1.2(c), Seller has made no representations,
statements, promises, or agreements (either orally or in writing) to any person
or entity, including without limitation home builders, prospective home buyers,
or owners or occupants of the land surrounding the Golf Course, regarding any
of the following:  (i) the right to
membership in the Golf Course or the intent to operate the Golf Course as a
private or semi-private country club, (ii) the right to play golf at the Golf
Course or to otherwise use any of the Golf Course facilities, except on the
same terms and conditions as are offered to the public, (iii) the right to
participate in the operation, management, or maintenance of the Golf Course, and
(iv) the manner in which the Golf Course will be operated, managed, maintained,
or improved.  No member or other person
has made any claim or allegation which, if true, would render the warranty and
representation in the foregoing sentence inaccurate.

                    (d)      Water
Rights.  Schedule 8.1.2(d)
describes all documents, agreements, instruments, certificates, registrations,
and permits evidencing Seller’s right to withdraw surface or underground water
for the operation and maintenance of the Golf Course.

                    (e)      Reservations.  Schedule 1.5 includes all
reservations and deposits for use of the Golf Course for time periods after
December 31, 2000.

8.1.3  Additional
Warranties and Representations Applicable to Heron Beach Inn.

                    (a)      Sufficiency of
Inventories.  To Seller’s actual
current knowledge, the Heron Beach Inn Equipment and Inventory are sufficient
for the operation of the Heron Beach Inn in accordance with the standard of
operation heretofore maintained by Seller and shall not materially differ in
amount or quality as of Closing.

                    (b)      Reservations.  Schedule 1.5 includes all
reservations and deposits for use of the Heron Beach Inn for time periods after
December 31, 2000.

                    (c)      Employees.  Other than the general manager, all
employees currently employed at the Heron Beach Inn are employees of
Seller.  A complete and accurate
schedule of employees and hire dates is attached hereto as part of Schedule
8.1.1(k).

                    (d)      Franchise
and Management.  There are no
contracts or other agreements for franchises, management, marketing, or
operation of the Heron Beach Inn except as shown on Schedule 1.5
attached hereto.

8.1.4  Seller’s
Current Actual Knowledge.  The
representations and warranties herein are based upon the current actual
knowledge of (a) Gregory M. McCarry, who is Senior Vice President - Real Estate
of Pope Resources and Chief Operating Officer of Olympic Property Group LLC,
Olympic Real Estate Development LLC, and Olympic Resorts LLC, and
(b) Thomas A. Griffin, who is Vice President of Olympic Real Estate Management
LLC.  Seller warrants and represents
that Messrs. McCarry and Griffin are Seller’s officers most familiar with the
condition, use, operation and development of the Property.  Seller has no obligation under this
Agreement to undertake any investigation or take any affirmative action to
acquire any knowledge, including without limitation the review of Seller’s
Documents, other than a reasonable inquiry of Seller’s current employees likely
to possess knowledge.  It is also
understood that information contained in the Disclosures, as defined in Section
11.1 below, is not imputed to Mr. McCarry or Mr. Griffin except as and to
the extent either of them has actual knowledge of such information.

          2059 Buyer’s
Representations. 
Buyer represents and warrants to Seller as of the Closing Date as
follows:

                    (a)      Status.  Buyer is a limited liability company duly
organized, validly existing, and in good standing under the laws of the State
of California.

                    (b)      Authority.  This Agreement and all documents to be
executed by Buyer at Closing have been or will be duly authorized, executed,
and delivered by Buyer and are binding on and enforceable against Buyer in
accordance with their terms.

ARTICLE IX.  EMPLOYEES

          Schedule
8.1.1(k) sets forth a list of all employees of Seller regularly
engaged in the management, operation, and construction activities of Seller
relating to the Property (“Employees”). 
Buyer shall not assume any obligations of Seller (whether based upon
contract or implied by law or otherwise) relating to the Employees, and Buyer
shall have no obligation to hire any of the Employees upon Closing; provided,
that Buyer shall have the right, after expiration of the Inspection Period, to
solicit applications for employment from the Employees (or any of them), it being
understood that all terms and conditions of employment offered by Buyer shall
be in Buyer’s sole discretion. During the Inspection Period, Buyer will
designate the Employees with whom Buyer would like to discuss employment.  Buyer shall not communicate with any
Employees except Greg McCarry, Tom Griffin, and Jon Rose regarding their
employment with Buyer or Seller without the prior written consent of
Seller.  After expiration of the
Inspection Period, Seller shall cooperate with Buyer to further Buyer’s efforts
to enter into employment agreements with the Employees.

          Buyer
has no obligation under this Agreement to provide benefits to any or all
Employees it hires.  However, if Buyer
provides benefits to Employees, then Buyer shall take the following actions in
order to preserve Employee benefits to the extent possible after Closing, if
and to the greatest extent allowed by the various plan and benefit providers,
and only if such actions cause no additional expense to Buyer not compensated
by Seller at Closing: (a) If Buyer offers Employees it hires a group health
plan, then it will waive all pre-existing condition limitations and waiting
periods for coverage, and Buyer’s health plan will credit all payments made by
the Employees it hires towards deductible, co-payment, and out-of-pocket limits
under Seller’s health care plans for the plan year that includes the Closing
Date; and (b) If Buyer offers Employees it hires a qualified retirement plan,
then it will give each such Employee credit for his or her past service with
Seller as of the Closing Date for purposes of eligibility and vesting, but not
for benefit accrual purposes, and will allow Employees to roll over
distributions from Seller’s 401(k) plan to Buyer’s retirement plan.  Seller shall remain responsible for any
pre-Closing employee benefits, bonus plans, termination plans, and any other
employee benefit plan applicable to the Employees, and also for any benefits or
payments due to any Employee (whether under or by reason of any statute or regulation,
contractual obligation of Seller, or any plan maintained by Seller) as a result
of such Employee’s termination in conjunction with the sale of the
Property.  Seller shall be responsible
to provide any required WARN Act notices and any required COBRA coverage under
Seller’s health plans.

ARTICLE X.  CASUALTY AND CONDEMNATION

          In the event that all or any portion of the
Property is damaged or destroyed by any material casualty or is the subject of
a material condemnation action under the provisions of eminent domain law after
the making of this Agreement but prior to the Closing Date, Buyer may terminate
this Agreement and the Earnest Money shall be returned to Buyer.  If the casualty or condemnation is not
material or Buyer does not elect to terminate this Agreement, then Seller shall
have no obligation to repair or replace any damage or destruction caused by the
foregoing, but the following shall apply at the Closing: (a) in the event of a
casualty, Buyer shall receive a credit against the Purchase Price at Closing
for the reasonably estimated remaining cost to restore the Property to its
condition immediately prior to such casualty (it being understood that the
proceeds of any casualty insurance shall be and remain payable to Seller); and
(b) in the event of condemnation, Seller shall assign to Buyer its rights to
any resulting condemnation proceeds and shall not make any settlements without
Buyer’s prior written approval.  For
purposes of this section, “material” means a loss or liability in excess of Five
Hundred Thousand Dollars (US$500,000.00).

ARTICLE XI. 
DISCLOSURE, INDEMNITY, AND RELEASE RELATING TO CONDITION OF PROPERTY

          2060 Disclosures.  Buyer acknowledges that Seller has disclosed
to Buyer the condition of the Property by providing to Buyer the following
documents and information (collectively, the “Disclosures”): the schedules
hereto, the Preliminary Commitment, Seller’s Documents, the right to interview
Seller’s consultants and employees, and the right to enter upon, inspect,
study, survey, and conduct tests upon the Property, all prior to the time when
Buyer was irrevocably committed to complete the purchase of the Property under
this Agreement.  Buyer further
acknowledges that Buyer has acquired information regarding the condition of the
Property from the inspections, studies, surveys and tests upon the Property
conducted by Buyer and its agents, contractors, consultants, and employees.

           
Buyer acknowledges and agrees that the Disclosures disclose material
defects in the condition of the Property and that Seller makes no covenant,
representation, or warranty as to the suitability of the Property for any
purpose or as to the condition of the Property except as otherwise expressly
set forth in this Agreement.  Buyer
hereby waives all objections and complaints regarding the condition of the
Property, including without limitation objections and complaints relating to
surface and subsurface conditions, except as provided in any covenant,
agreement, representation, or warranty in this Agreement.  Buyer agrees that it is purchasing the
Property in its present condition, AS IS, subject only to the covenants,
agreements, representations, and warranties provided by Seller in this
Agreement; provided that nothing in this Agreement shall be deemed a waiver or
release of any claims or rights that Buyer may have against any third party,
including without limitation any prior owner of any portion of the
Property.  Buyer assumes the risk that
adverse conditions may not have been revealed by its own investigation or by
the Disclosures (but without limiting Seller’s covenants, agreements,
warranties and representations in this Agreement).  Except for and with respect to Seller’s obligations, warranties
and representations in this Agreement, Buyer hereby waives, releases, acquits,
and forever discharges Seller of and from any and all claims, actions, demands,
rights, damages, costs of response or remedial action, or expenses whatsoever,
direct or indirect, known or unknown, foreseen or unforeseen, including claims
of third parties, that now exist or that may arise in the future on account of
or in connection with the condition of the Property, including without
limitation any surface or subsurface contamination, but excluding claims for
statutory or contractual right of contribution under any state or federal
hazardous substance law or regulation.

          

          EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER MAKES NO
COVENANTS, REPRESENTATIONS, OR WARRANTIES WITH RESPECT TO:  (I) THE CONDITION OF THE REAL OR
PERSONAL PROPERTY OR ANY BUILDINGS, STRUCTURES, OR IMPROVEMENTS ON THE REAL
PROPERTY OR THE SUITABILITY OF THE REAL PROPERTY FOR HABITATION OR FOR BUYER’S
INTENDED USE OR FOR ANY USE WHATSOEVER; (II) ANY APPLICABLE BUILDING, ZONING,
OR FIRE LAWS OR REGULATIONS, OR WITH RESPECT TO COMPLIANCE THEREWITH, OR WITH
RESPECT TO THE EXISTENCE OF OR COMPLIANCE WITH ANY REQUIRED PERMITS, IF ANY, OF
ANY GOVERNMENTAL AGENCY; (III) THE AVAILABILITY OR EXISTENCE OF ANY WATER,
SEWER, OR OTHER UTILITIES OR UTILITY RIGHTS; (IV) THE EXISTENCE OF ANY WATER,
SEWER OR OTHER UTILITY DISTRICT; OR (V) THE PRESENCE OF ANY HAZARDOUS
SUBSTANCES; (VI) THE PRESENCE OF ANY UNDERGROUND STORAGE TANKS OR ASBESTOS; OR
(VII) COMPLIANCE OF THE PROPERTY WITH THE TERMS OF THE AMERICANS WITH
DISABILITIES ACT.

          BUYER WAIVES ALL CLAIMS AGAINST SELLER, KNOWN
OR UNKNOWN, WITH RESPECT TO THE PROPERTY (BUT EXCLUDING CLAIMS FOR CONTRIBUTION
THAT BUYER MIGHT HAVE AGAINST SELLER UNDER FEDERAL OR STATE ENVIRONMENTAL
REGULATIONS AND STATUTES), AND BUYER ASSUMES THE RISK OF ALL DEFECTS AND
CONDITIONS, INCLUDING SUCH DEFECTS AND CONDITIONS, IF ANY, THAT CANNOT BE
OBSERVED BY CASUAL INSPECTION; PROVIDING, THAT NOTHING HEREIN LIMITS OR IMPAIRS
SELLER’S COVENANTS, AGREEMENTS, REPRESENTATIONS, AND WARRANTIES HEREIN.  BUYER ACKNOWLEDGES THAT BUYER HAS HAD THE
OPPORTUNITY TO INSPECT THE PROPERTY AND, EXCEPT FOR THE COVENANTS, AGREEMENTS,
REPRESENTATIONS, AND WARRANTIES OF SELLER HEREIN, IS RELYING ENTIRELY THEREON,
ON ANY CONSULTANTS THAT BUYER RETAINS, AND ON THE DISCLOSURES.

          2061 Seller’s Indemnification
Liabilities.

          11.2.1                    Seller shall defend,
indemnify, and hold Buyer, its affiliates, directors, employees, officers,
partners, and subsidiaries, harmless from and against any and all claims,
demands, damages, losses, liens, liabilities, fines, penalties, monitoring
costs, response costs, and any other costs and expenses (including attorney's
fees and costs and fees of consultants) relating to the Property (collectively,
“Seller’s Indemnification Liabilities”) that arise from or relate to a
liability or loss arising after the Closing Date from the following matters:
(i) breach of any covenant, agreement, representation or warranty of Seller
made herein; (ii) any warranty claims (actual or alleged), defects (actual or
alleged) or by any other claim or matter arising from the construction or sale
of homes, town homes, or condominium units on or before the Closing Date; (iii)
any violation of the rights of any employee or agent of Seller that occurred or
is alleged to have occurred on or before the Closing Date or in conjunction
with the termination of employment in connection with this transaction; or (iv)
any actual or alleged breach of lease or contract or any mechanics’ lien, or
any claim, demand or action for personal injury, death or property damage
resulting from or in connection with any activity on, upon, or about any
portion of the Property that occurred or is alleged to have occurred on or
before the Closing Date, and including without limitation all matters listed on
Schedule 8.1.1(b)-1; provided, that Seller shall not be obligated to indemnify
Buyer (under clause (iv)) from and against any loss, liability, damage, cost or
expense to the extent arising from Buyer’s negligence, willful misconduct or
breach of this Agreement (including breach of any representation or warranty of
Buyer).  For purposes of this Section
11.2.1, it is understood that a warranty or representation has been “breached”
if such warranty or representation was inaccurate or untrue in any material
respect when made.  Without limiting the
generality of Seller’s Indemnification Liabilities set forth above, Seller
shall retain all liabilities and obligations relating to those matters of
pending and threatened litigation described in Schedule 8.1.1(b)-1, shall continue
to defend those matters at its own expense and using its own counsel, and Buyer
shall communicate and cooperate with Seller regarding such matters, but at no
expense to Buyer.

          11.2.2                    Seller
shall also defend, indemnify, and hold Buyer, its affiliates, directors,
employees, officers, partners, and subsidiaries, harmless from and against any
and all claims, demands, damages, losses, liens, liabilities, fines, penalties,
monitoring costs, response costs, and any other costs and expenses (including attorney's
fees and costs and fees of consultants) relating to the Property that arise
from or relate to (i) the remediation (including without limitation monitoring)
or cleanup of any Hazardous Substances Problem (as defined below) resulting
from the use, storage, handling, disposal or release of Hazardous Substances on
or about the Property that occurred or is alleged to have occurred on or before
the Closing Date (provided that such Hazardous Substance Problem was not
disclosed to Buyer in the reports and studies listed on Schedule 8.1.1(i) or
otherwise in writing prior to expiration of the Inspection Period); or (ii) any
claim, demand or action made or commenced by a third party (including without
limitation any governmental agency) against Buyer resulting from the use,
storage, handling, disposal or release of Hazardous Substances on or about the
Property that occurred or is alleged to have occurred on or before the Closing
Date.   Seller's obligations set forth
above shall be deemed part of Seller's Indemnification Liabilities for purposes
of this Agreement.

          As used in this Section 11.2.2, a
"Hazardous Substances Problem" means the presence of Hazardous
Substances on any part of the Property that were used, stored, handled,
disposed of or released in violation of any law or regulation or so as to
require remediation (including monitoring) or cleanup under any law or
regulation, whether or not any claim, demand or action has been made or
commenced against Buyer by any third party. 
For purposes of clause (i) in the above paragraph, a Hazardous
Substances Problem will have been "disclosed" to Buyer if there was
disclosed (in the reports and studies listed in Schedule 8.1.1(i) or otherwise
in writing to Buyer during the Inspection Period) reasonably specific information
about such Problem.  By way of example,
if the presence of an underground tank in a reasonably specific location had
been disclosed to Buyer, then clause (i) of the above paragraph would not
impose on Seller any liability to remove such tank; but if is discovered that
the tank were leaking, and the leak had not been disclosed, then clause (i)
would impose liability to remediate the leak (which might include removing the
tank).  By way of further example, disclosure
of the mere fact that certain industrial activities had occurred on a portion
of the Property, or that certain chemicals had been used on the Property, would
not constitute disclosure of the need for remediation or cleanup resulting from
such activity or use.

          2062 Limitations on Seller’s
Indemnification Liabilities.  Certain of Seller’s Indemnification
Liabilities shall be limited as described in this subsection.  Seller’s Indemnification Liabilities under Section
11.2.1(i) above (as to breach of any representation or warranty made herein,
and as to breach of any agreement or covenant to be performed by Seller at or
before Closing) shall apply and be enforced only to the extent that the
aggregate liability or loss to Buyer exceeds Fifty Thousand Dollars
(US$50,000.00) and is asserted against or incurred by Buyer within two (2) year
after the Closing Date.  Seller’s
Indemnification Liabilities under Sections 11.2.1(iii) and 11.2.1(iv)
above shall apply and be enforced only to the extent that the liability or loss
to Buyer is asserted against or incurred by Buyer within four (4) years after
the Closing Date.

          Seller's
Indemnification Liabilities under Section 11.2.2, as they apply to all claims
made by Buyer directly against Seller under clause (i) (in the first paragraph
of such Section 11.2.2), shall apply and be enforceable only
as to Hazardous Substances Problems that have been identified to Seller by
Buyer and as to which Buyer has commenced litigation against Seller relating to
such Problems (if Seller has not previously accepted responsibility therefor)
within eight (8) years after the Closing Date. As Seller's Indemnification
Liabilities under Section 11.2.2 apply to claims, demands or actions made or
commenced by a third party against Buyer (and are thus covered by clause (ii)
in the first paragraph of such Section 11.2.2), such Seller's Indemnification
Liabilities shall apply and be enforceable without limit as to claims, demands
or actions that are made or commenced against Buyer within eight (8) years
after the Closing Date and as to which Buyer has commenced litigation against
Seller to enforce Seller's Indemnification Liabilities hereunder (if Seller has
not previously accepted responsibility therefor) within such eight-year period
after the Closing Date; but as to claims, demands or actions first made or
commenced by a third party against Buyer more than eight (8) years after the
Closing Date, Seller's Indemnification Liabilities shall not exceed One Million
Dollars ($1,000,000) in the aggregate.

          With respect to Seller's Indemnification
Liabilities described in Section 11.2.1, it shall be a further condition to
Seller's obligation to indemnify and defend as to a particular loss or
liability that Buyer shall have commenced litigation against Seller to enforce
Seller's Indemnification Liabilities as to such loss or liability within the
applicable time period (if any) described above (if Seller has not previously
accepted responsibility therefor), except that with respect to any loss or
liability resulting from an action or proceeding commenced by a third party
against Buyer within the applicable limitation period (if any), Buyer shall not
be required to have commenced litigation against Seller within the applicable
limitation period in order to have Seller's Indemnification Liabilities apply
to such loss or liability.

          2063 Buyer’s Indemnification
Liabilities and Release.  Buyer shall
defend, indemnify, and hold Seller, its affiliates, directors, employees,
officers, partners, and subsidiaries, harmless from and against any and all
claims, demands, damages, losses, liens, liabilities, fines, penalties,
monitoring costs, response costs, and any other costs and expenses (including
attorney's fees and costs and fees of consultants) relating to the Property
(collectively, “Buyer’s Indemnification Liabilities”) that arise from or relate
to a liability or loss arising after the Closing Date from the following
matters: (i) breach of any covenant, agreement, representation or warranty of
Buyer made herein; (ii) any claim, demand or action made or commenced by a
third party (including without limitation any government agency) against Seller
resulting from the use, storage, handling, disposal or release of Hazardous
Substances on or about the Property that occurred or is alleged to have
occurred after the Closing Date; (iii) any warranty claims (actual or alleged),
defects (actual or alleged) or by any other claim or matter arising from the
construction or sale of homes, town homes, or condominium units after the
Closing Date; (iv) any violation of the rights of any employee or agent of
Buyer that occurred or is alleged to have occurred after the Closing Date; or
(v) any actual or alleged breach of lease or contract or any mechanics’ lien,
or any claim, demand or action for personal injury, death or property damage
resulting from or in connection with any activity on, upon, or about any
portion of the Property that occurred or is alleged to have occurred after the
Closing Date, provided, that Buyer shall not be obligated to indemnify Seller
under clause (v) from and against any loss, liability, damage, cost or expense
to the extent arising from Seller’s negligence, willful misconduct or breach of
this Agreement (including breach of any representation or warranty of Seller).  For purposes of this Section 11.4, it is
understood that a warranty or representation has been “breached” if such
warranty or representation was inaccurate or untrue in any material respect
when made.

          Buyer
hereby waives, releases, acquits, and forever discharges Seller, its affiliates,
directors, employees, officers, partners, and subsidiaries, of and from all
claims, demands, damages, losses, liens, liabilities, fines, penalties,
monitoring costs, response costs, and any other costs and expenses (including
attorney's fees and costs and fees of consultants) relating to the Property
that are incurred by Buyer after the Closing Date except as to (a) costs,
expenses, and liabilities of Buyer for which Seller is obligated to defend,
indemnify, and hold Buyer harmless under Seller’s Indemnification Liabilities,
including without limitation Seller’s direct liability to Buyer for breach of
any warranty or representation in this Agreement or for breach of any covenant
or agreement to be performed by Seller at or before Closing, subject to the
limitations set forth at Section 11.3, and (b) any obligation of Seller
described within this Agreement that by its express terms is to be performed
after or to extend beyond the Closing Date, including without limitation
Seller’s Post-Closing Community Obligations under Article XIV, the
obligations of Seller arising under Seller’s Closing documents described at Section
7.2, Seller’s obligation to provide the Title Policy under Section 7.4,
Seller’s obligations under Section 6.5, Seller’s obligations regarding
post-Closing adjustments of pro-rations and costs, and Seller’s obligations
under Section 16.16.  Buyer’s
release under this paragraph shall not take effect as to any matter that is the
subject of pending litigation between Buyer and Seller as of the date of
expiration of the applicable Seller’s Indemnification Liabilities until
dismissal, final judgment, or other resolution of such litigation.  For example, if as of the date two (2) years
after the Closing Date Buyer and Seller are engaged in litigation regarding a
claim by Buyer that Seller has breached a warranty under this Agreement, then
Buyer’s release of Seller for the breach of warranty alleged by Buyer in such
litigation shall not take effect until dismissal, final judgment, or other
resolution of such litigation.

          Except for Seller’s Indemnification
Liabilities, Seller’s Post-Closing Community Obligations under Article XIV,
the express obligations of Seller under Seller’s Closing documents described at
Section 7.2, Seller’s obligation to provide the Title Policy under Section
7.4, Seller’s obligations under Section 6.5, Seller’s obligations
regarding post-Closing adjustments of pro-rations and costs, Seller’s
obligations under Section 16.16, and as otherwise provided above, Seller
shall have no liabilities or obligations to Buyer after Closing under this
Agreement.

          2064 Survival.  The terms and conditions of this Article
XI shall survive the Closing or termination of this Agreement and shall
benefit and bind the successors and assigns of Buyer and Seller.

ARTICLE XII.  POSSESSION

          Possession of the Property shall be delivered
to Buyer on the Closing Date subject to the rights of tenants under the Tenant
Leases and other Permitted Exceptions.

ARTICLE XIII.  DOCUMENT RETENTION

          Buyer shall
preserve and retain all documents provided by Seller to Buyer, including
without limitation all copies and originals of Seller’s Documents, at a secure
administrative office or storage facility within Jefferson County, Kitsap
County, or King County, Washington, for a period not less than ten (10) years
after the Closing Date (the “Document Retention Period”).  During the Document Retention Period, upon
the prior written request of Seller, Buyer shall allow Seller to inspect and
copy any and all of Seller’s Documents at the office or storage facility during
normal weekday business hours.  All
copies shall be made at Seller’s expense.

ARTICLE XIV.  OBLIGATIONS TO PORT LUDLOW
COMMUNITY

          Buyer acknowledges that Seller has made
certain oral and other commitments to the Port Ludlow community, some or all of
which may be legally unenforceable, but all of which are moral obligations that
Buyer and Seller desire and intend to perform after the Closing Date.  These commitments are described on Schedule
14(a) (“Seller’s Post-Closing Community Obligations”) and Schedule 14(b)
(“Buyer’s Post-Closing Community Obligations”).  Within a reasonable period of time after the Closing Date, Seller
shall perform or cause to be performed at its sole expense each of Seller’s
Post-Closing Community Obligations, and Buyer shall perform or cause to be
performed at its sole expense each of Buyer ‘s Post-Closing Community
Obligations.  The parties shall
communicate and cooperate with each other to ensure that their performance of
their respective Post-Closing Community Obligations is beneficial and causes no
presently unforeseeable inconvenience or harm to the other party hereto.

ARTICLE XV.  DEFAULT; REMEDIES

          2065 Default
by Buyer [Omitted Confidential Information has
been filed separately with the Securities and Exchange Commission]

          2066 Default
by Seller [Omitted Confidential Information has been filed separately with
the Securities and Exchange Commission]

          2067 Attorneys’
Fees. 
In the event either party brings an action or any other proceeding
against the other party to enforce or interpret any of the terms, covenants or
conditions hereof, the party prevailing in any such action or proceeding shall
be paid all costs and reasonable attorneys’ fees by the other party in such
amounts as shall be set by the court, at trial and on appeal.

ARTICLE XVI.  MISCELLANEOUS

          2068 Brokers
and Finders. 
Each party represents to the other that no broker or finder has been
involved in this transaction.  In the
event of a claim for broker’s fee, finder’ s fee, commission or other similar
compensation in connection with this Agreement, Buyer, if such claim is based
upon any agreement alleged to have been made by Buyer, hereby agrees to
indemnify Seller against any and all damages, liabilities, costs and expenses
(including, without limitation, reasonable attorneys’ fees and costs) that
Seller may sustain or incur by reason of such claim.  Seller, if such claim is based upon any agreement alleged to have
been made by Seller, hereby agrees to indemnify Buyer against any and all
damages, liabilities, costs and expenses (including, without limitation,
reasonable attorneys’ fees and costs) that Buyer may sustain or incur by reason
of such claim.  Notwithstanding anything
to the contrary herein, the provisions of this section shall survive the
termination of this Agreement or the Closing.

          2069 Notices.  All notices, demands, requests, consents and
approvals that may, or are required to, be given by any party to any other
party hereunder shall be in writing and shall be deemed to have been duly given
if delivered personally, sent by a nationally recognized overnight delivery
service, electronically transmitted or if mailed or deposited in the United
States mail and sent by registered or certified mail, return receipt requested,
postage prepaid to:

	 
  	
  Buyer at:
  	
  HCV Pacific Partners LLC
  
	 
  	 
  	
  625 Market Street, Suite 600
  
	 
  	 
  	
  San Francisco, California 94105
  
	 
  	 
  	
  Telephone No. 415-882-0900
  
	 
  	 
  	
  Facsimile No. 415-882-0901
  
	 
  	 
  	 
  
	 
  	
  with a copy to:
  	
  Kenneth J. Cohen
  
	 
  	 
  	
  Collette & Erickson LLP
  
	 
  	 
  	
  555 California Street
  
	 
  	 
  	
  Bank of America Center
  
	 
  	 
  	
  43rd Floor
  
	 
  	 
  	
  San Francisco, California 94104-1791
  
	 
  	 
  	
  Telephone No. 415-788-4646
  
	 
  	 
  	
  Facsimile No. 415-788-6929
  
	 
  	 
  	 
  
	 
  	
  Seller at:
  	
  Pope Resources
  
	 
  	 
  	
  19245 Tenth Avenue N.E.
  
	 
  	 
  	
  Poulsbo, Washington 98370-0239
  
	 
  	 
  	
  Attn: Gregory M. McCarry
  
	 
  	 
  	
  Telephone No. 360-697-6626
  
	 
  	 
  	
  Facsimile No. 360-697-6696
  
	 
  	 
  	 
  
	 
  	
  with a copy to:
  	
  Marco
  de Sa e Silva
  
	 
  	 
  	
  Davis Wright Tremaine LLP
  
	 
  	 
  	
  2600 Century Square
  
	 
  	 
  	
  1501 Fourth Avenue
  
	 
  	 
  	
  Seattle, Washington 98101-1688
  
	 
  	 
  	
  Telephone No. 206-628-7766
  
	 
  	 
  	
  Facsimile No. 206-628-7699
  

or
to such other addresses as either party hereto may from time to time designate
in writing and deliver in a like manner. 
All notices shall be deemed complete upon actual receipt or refusal to
accept delivery.

          2070 Amendment, Waiver.  No modification, termination or amendment of
this Agreement may be made except by written agreement.  No failure by Seller or Buyer to insist upon
the strict performance of any covenant, agreement, or condition of this Agreement
or to exercise any right or remedy shall constitute a wavier of any such breach
or any other covenant, agreement, term or condition.  No waiver shall affect or alter this Agreement, and each and
every covenant, agreement, term and condition of this Agreement shall continue
in full force and effect with respect to any other then existing or subsequent
breach thereof.  All the terms,
provisions, and conditions of this Agreement shall inure to the benefit of and
be enforceable by Seller’s or Buyer’s permitted successors and assigns.

          2071
Survival.  All provisions of this Agreement that
involve obligations, duties or rights to be performed after the Closing Date or
the recording of the Deed, and all representations, warranties and indemnities
made in or to be made pursuant to this Agreement shall survive the Closing Date
and the recording of the Deed.  Those
provisions of this Agreement intended to survive the termination of this
Agreement, including without limitation Article XI and Sections 4.3(c),
4.3(d), and 16.1 hereof, shall survive the termination of this
Agreement.

          2072 Captions.  The captions of this Agreement are for
convenience and reference only and in no way define, limit or describe the
scope or intent of this Agreement.

          2073 Merger
of Prior Agreements.  This Agreement and the exhibits hereto
constitute the final and complete agreement between the parties with respect to
the purchase and sale of the Property and supersede all prior and
contemporaneous agreements, letters of intent and understandings between the
parties hereto relating to the subject matter of this Agreement except the
Confidentiality Agreement described at Section 16.14.

          2074 No Joint Venture.  It is not intended by this Agreement to, and
nothing contained in this Agreement shall, create any partnership, joint
venture or other arrangement between Buyer and Seller.  No term or provision of this Agreement is
intended to be, or shall be, for the benefit of any person, firm, organization
or corporation not a party hereto, and no such other person, firm, organization
or corporation shall have any right or cause of action hereunder.

          2075 Governing
Law; Time. 
This Agreement and the rights of the parties  hereto shall be governed by and construed in accordance with the
internal laws of the State of Washington. 
“Day” as used herein means a calendar day and “business day” means any
day on which commercial banks are generally open for business.  Any period of time that would otherwise end
on a non-business day shall be extended to the next following business
day.  Time is of the essence of this
Agreement.

          2076 Schedules.  All schedules attached hereto or referenced
herein are incorporated in this Agreement. 
The parties acknowledge and agree, however, that as of the date this
Agreement has been executed, some schedules and exhibits have not been
completed and agreed upon and the parties have also not agreed upon a final
allocation of the Purchase Price among the Real Property, the Personal
Property, and the Olympic Water and Sewer, Inc. stock.  The parties agree to review and negotiate
such matters diligently and in good faith, and upon completion and mutual
approval of all such schedules, exhibits and other matters, they shall promptly
execute an amendment to this Agreement memorializing such agreements.

          2077 Severability.  In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such provisions had not been contained
herein.

          2078 Counterparts.  This Agreement and the documents to be
delivered hereunder may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.

          2079 Assignment.  Buyer’s rights under this Agreement are not
assignable, by operation of law or otherwise, and Seller shall have no
obligation to perform hereunder for any assignee or transferee of Buyer, except
that Buyer may assign its rights under this Agreement to any affiliate of
Buyer, or to any limited partnership, general partnership, co-tenancy or a limited
liability company that is controlled or managed directly or indirectly by
Buyer.  In the event of any assignment
by Buyer of its rights under this Agreement, Buyer will not be released from
any obligations under this Agreement.

          2080 Tax
Deferred Exchange. 
Buyer and Seller will cooperate with each other in connection with the
form and structure of this transaction in order to limit tax liabilities and
preserve tax benefits to themselves to the extent permitted by law.  Either Buyer or Seller may elect to close
this transaction as a part of a tax-deferred exchange under Section 1031 of the
Internal Revenue Code, in which case the other party will sign all documents
necessary for such exchange and otherwise cooperate therewith, provided only
that the other party will not be required to incur any additional expense or
liability or acquire title to any property except as provided otherwise in this
Agreement.  Each party electing to close
as part of a tax-deferred exchange will indemnify, defend, and hold the other
party harmless from any loss, liability, claim, or expense that is asserted
against or incurred by the other party in connection with their cooperation
with any tax deferred exchange.

          2081 Confidentiality.  Buyer shall keep this Agreement, the transactions
described in this Agreement, Seller’s Documents, and all information relating
to the Property disclosed by Seller to Buyer completely confidential and shall
not disclose the same to any person or entity (specifically including without
limitation all employees of Seller other than management personnel) other than
Buyer’s consultants, affiliates, investors, and their respective employees (who
shall agree to keep the information confidential and be provided only such
information as is necessary to perform their services) without Seller’s prior
written consent; provided, that Buyer may disclose information as required
under any law or regulation or as necessary to enforce this Agreement; and
provided further that Buyer shall have no obligation of confidentiality after
Closing.  Buyer shall conduct all due
diligence consistent with this section. 
The obligations of Buyer under this section supplement and do not
replace the obligations of Buyer under that certain Confidentiality Agreement
dated February 8, 2000.

          2082 Continuing Forest Land Obligations. 
Buyer acknowledges that portions of the Real Property are subject to
certain continuing forest land obligations applicable under the forest
practices rules adopted pursuant to RCW 76.09.370 (the “Continuing
Obligations”).  The Continuing
Obligations are described on Schedule 16.15 hereto.  At or before Closing, Buyer agrees to sign
and deliver to Seller an original notice that indicates the Buyer’s knowledge
of the Continuing Obligations, including any notice provided or required by the
DNR.  At Closing, Seller shall send the
executed notice to DNR in accordance with the requirements of RCW
76.09.390.  As of Closing, Buyer assumes
and agrees to perform the Continuing Obligations at Buyer’s sole cost and expense
in a timely fashion, and to indemnify, defend and hold Seller harmless from and
against the Continuing Obligations and any claim, loss, damage, cost or expense
resulting from Buyer’s failure to fulfill and perform the same.  The provisions of this indemnity shall
survive the Closing of this Agreement.

          2083 Cooperation. 
The parties acknowledge that Seller has disclosed in the schedules to
this Agreement various potential issues and disputes relating to boundary lines
affecting the Real Property.  Seller
agrees to cooperate with Buyer to resolve such issues and disputes after
Closing, and in connection with any minor boundary line adjustments between the
Real Property and Sellers’ adjoining lands reasonably requested by Buyer from
time to time (whether before or after Closing).  In addition, Buyer and Seller agree that at any time or from time
to time after the execution of this Agreement, whether before or after Closing,
they will execute and deliver such further documents and undertake such other
actions as the other party may reasonably request in order to effect fully the
purposes of this Agreement.  

          IN WITNESS WHEREOF, the parties have executed
this Agreement as of the day and year first above written.

	
  POPE RESOURCES L.P.
  
	 
  	 
  
	
  By:
  	
  /s/ POPE MGP, Inc.

  

  
	 
  	
  Managing General Partner
  
	 
  	 
  
	
  By:
  	
  /s/ Gregory M. McCarry

  

  
	 
  	
  Gregory M. McCarry
  
	 
  	
  Vice President - Real Estate
  
	 
  
	
  OLYMPIC PROPERTY GROUP LLC
  
	 
  	 
  
	
  By: 
  	
  /s/ Gregory M. McCarry

  

  
	 
  	
  Gregory M. McCarry
  
	 
  	
  Chief Operating Officer
  
	 
  	 
  
	
  OLYMPIC REAL ESTATE DEVELOPMENT LLC
  
	 
  	 
  
	
  By:
  	
  /s/Gregory M. McCarry

  

  
	 
  	
  Gregory M. McCarry
  
	 
  	
  Chief Operating Officer
  
	 
  	 
  
	
  OLYMPIC REAL ESTATE MANAGEMENT, INC.
  
	 
  	 
  
	
  By:
  	
   /s/
  Tom Griffin

  

  
	 
  	
  Tom Griffin
  
	 
  	
  Vice President
  
	 
  	 
  
	
  OLYMPIC RESORTS LLC
  
	 
  	 
  
	
  By: 
  	
  /s/ Gregory M. McCarry

  

  
	 
  	
  Gregory M. McCarry
  
	 
  	
  Chief Operating Officer
  
	 
  	 
  
	
  HCV PACIFIC PARTNERS LLC
  
	 
  	 
  
	
  By:
  	
  /s/ Randall J. Verrue

  

  
	 
  	
  Randall
  J. Verrue
  
	 

  	

President and Chief Operating OfficerPrepared by MerrillDirect

EMPLOYMENT AGREEMENT

 

          This
Employment Agreement (the “Agreement”) is dated as of August 31, 2000 by
and between Allen E. Symington (“Executive”) and Pope Resources, a
Delaware Limited Partnership (the “Company”).

          1.       Term of Agreement.  This Agreement shall commence on the date hereof and shall have a term of
three (3) years (the “Term”). 
This Agreement may be terminated by either party, with or without cause,
in accordance with Section 4 of this Agreement, on 30 days’ written notice to
the other party.

          2.       Employment.  Executive shall be employed as
Chairman and Chief Executive Officer, and will report directly to the Company’s
Board of Directors.  Executive shall
have general and active management and control of the affairs and business of
the Company, and in general shall perform all duties commonly incident to the
office of Chief Executive Officer or which are or may at any time be authorized
or required by law or determined by the Board of Directors of the Company.  In addition, Executive, as a specific
primary priority, shall devote substantial time and attention to furthering the
development of the Company’s other senior executives and enhancing their
ability to assume more substantial and expanded responsibilities, with a goal
of assuring that a successor CEO is fully prepared to commence serving in that
capacity at the end of the Term.  During
the term of Executive’s employment relationship with the Company, Executive
further agrees that he will devote substantially all of his business time and
attention to the business of the Company, except during vacation time, any
periods of illness and authorized leaves of absence.  Executive shall be permitted to engage in outside business
endeavors, provided that they are not competitive in any manner with the business
of the Company, and do not interfere with the performance of Executive’s
duties.  In accordance with the
governing documents of Pope MGP, Inc, Executive will also serve on the Board of
Directors of Pope MGP, Inc. while he serves as Chief Executive Officer of the
Company.

          3.       Compensation.  For the duties and services to be
performed by Executive hereunder, the Company shall pay Executive, and
Executive agrees to accept, the salary, stock options, bonuses and other
benefits described below in this Section 3.

                    (a)      Base
Salary.  Executive shall
receive a monthly salary of $16,667, which is equivalent to $200,000 on an
annualized basis.  Executive’s monthly
salary will be payable in equal payments pursuant to the Company’s normal
payroll practices.

                    (b)      Unit
Options and Other Incentive Programs.  As of September 28, 2000 (with pricing as of the close of
business on September 27, 2000), , Executive shall be granted special options
to purchase 45,000 units of the Company’s Units pursuant to the terms and
conditions of the Company’s Unit Option Plan, modified to permit Executive to
have his units vest over the three (3) years of employment, one third (1/3) per
year, and to have four (4) years instead of two (2) years after employment
termination to exercise vested options

The Company will provide Executive with a
copy of the Unit Option Plan and an Individual Unit Option Letter Agreement,
which will govern and more fully articulate the terms and provisions applicable
to Executive’s options.  Except as specifically
provided otherwise in this Agreement, Executive’s Individual Unit Option
Agreement will contain the terms and provisions customarily applicable to
options granted to the Company’s executive employees.  This grant of special options is in lieu of Executive’s
participation in the Company’s annual executive option grant program, and
Executive shall not receive additional options during the term of this
Agreement.

                     (c)     Bonuses.  An annual target bonus of forty-five percent (45%) of base
salary
shall be payable to Executive based on the attainment of such performance
objectives as may be agreed upon between the Executive and the Board of
Directors.  Such bonus, if earned, shall
be paid within sixty (60) days after the end of each fiscal year.  Upon execution of this Agreement and
commencement of employment, the Company shall pay to Executive a signing bonus
in the gross amount of Twenty-five Thousand Dollars ($25,000.00).

                    (d)      Additional
Benefits.  Executive will
be eligible to participate in the Company’s executive benefit plans of general
application, including without limitation, those plans covering medical,
disability and life insurance in accordance with the rules established for
individual participation in any such plan and under applicable law.  Executive will be eligible for four (4) weeks
of paid vacation annually.  Such
vacation must be used in the calendar year in which it is accrued, and may not
be carried over to subsequent calendar years without the express approval of
the Board of Directors, and, further, in no event at any time may Executive
have more than four (4) weeks of accrued but unused vacation.  Any vacation which is accrued but not used
or approved for carry-over as provided herein shall be forfeited.  Executive may take up to one additional week
of vacation annually provided that the needs of the business allow it.  Executive shall be entitled to sick leave in
accordance with the policies in effect during the term of this Agreement and
will receive such other benefits as the Company generally provides to its other
Executives of comparable position and experience, including, without
limitation, the Long-Term Incentive Plan.

                    (e)      Reimbursement
of Expenses.  Executive
shall be authorized to incur on behalf and for the benefit of, and shall be
reimbursed by, the Company for reasonable expenses, provided that such expenses
are substantiated in accordance with Company policies.  Reimbursement shall be made no later than
thirty (30) days after Executive submits the appropriate vouchers and receipts
for such expenses.

          4.       Termination of Employment and Severance
Benefits.

                    (a)      Termination
of Employment.  This
Agreement may be terminated during its Term (or any extension thereof) upon the
occurrence of any of the following events:

                              (i)       The Company’s
determination in good faith
that it is terminating Executive for Cause (as defined in Section 5 below) (“Termination
for Cause”);

                              (ii)      The Company’s
determination that it is
terminating Executive without Cause, which determination may be made by the
Company at any time at the Company’s sole discretion, for any or no reason or
the Company’s actions which Constructively Discharge Executive.  Constructive Discharge shall be deemed to
occur if the Company assigns any duties or reduces Executives duties to levels
inconsistent with the position of Chief Executive Officer, requires relocation
to another city or requires an out-of-town assignment for more than 30
days.  Upon the occurrence of any of
these events, Executive may at his option deem himself to be Constructively
Discharged and terminate his employment. 
Such termination by either party shall be considered (“Termination
Without Cause”);

                              (iii)     The effective date of a written
notice sent
to the Company from Executive stating that Executive is electing to terminate
his employment with the Company (“Voluntary Termination”); or

                               (iv)    Following
Executive’s death or Disability (as defined in Section 6 below).

                    (b)      Severance
Benefits.  Executive
shall be entitled to receive severance benefits upon termination of employment
only as set forth in this Section 4(b):

                              (i)       Voluntary
Termination.  If
Executive’s employment terminates by Voluntary Termination, then Executive
shall not be entitled to receive payment of any severance benefits.  Executive will receive payment(s) for all
salary and unpaid vacation accrued (subject to the provisions of subsection
3(d) above) as of the date of Executive’s termination of employment and
Executive’s benefits will be continued under the Company’s then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.

                              (ii)      Termination
Without Cause.  If
Executive’s employment is terminated under Section 4(a)(ii) above (such
termination, an Termination Without Cause”), Executive will be entitled
to receive payment of severance benefits equal to Executive’s regular monthly
salary for the number of months remaining in the Term (the “Severance Period”).  Such payments shall be made in a lump sum or
ratably over the Severance Period according to the Company’s standard payroll
schedule, at the Executive’s option. 
Executive will also be entitled to receive payment on the date of
termination of any bonus payable under Section 3(c).  Health insurance benefits with the same coverage provided to
Executive and his family prior to the termination (e.g. medical, dental,
optical, mental health) and in all other respects significantly comparable to those
in place immediately prior to the termination will be provided at the Company’s
cost over the Severance Period.  Any
unvested unit options held by Executive as of the date of Executive’s
termination of employment shall continue to vest through the end of the
Severance Period according to the vesting schedule set forth in any agreement
between Executive and the Company governing the issuance to Executive of such
options.  Executive will receive a
prorated  amount of Executive’s target
bonus for the fiscal year in which Termination Without Cause occurs based on
the specific corporate and individual performance targets established for such
fiscal year, and the duration of Executive’s active employment during such
fiscal year.

                              (iii)     Termination
for Cause.  If
Executive’s employment is Terminated for Cause, then Executive shall not be
entitled to receive payment of any severance benefits.  Executive will receive payment(s) for all
salary and unpaid vacation accrued as of the date of Executive’s termination of
employment and Executive’s benefits will be continued under the Company’s then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.

                              (iv)     Termination
by Reason of Death or Disability.  In the event that Executive’s employment with the Company
terminates as a result of Executive’s death or Disability (as defined in
Section 6 below), Executive or Executive’s estate or representative will
receive all salary and unpaid vacation accrued as of the date of Executive’s
death or Disability and any other benefits payable under the Company’s then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of death or Disability and in accordance with applicable law.
In addition, Executive’s estate or representative will receive the amount of
Executive’s target bonus for the fiscal year in which the death or Disability
occurs to the extent that the bonus has been earned as of the date of
Executive’s death or Disability, as determined by the Board of Directors or its
Compensation Committee based on the specific corporate and individual
performance targets established for such fiscal year.

          5.       Definition of Cause.  For purposes of this Agreement,
Executive may be terminated for “Cause” by a majority vote of the Board
of Directors as a result of the occurrence of one or more of the following:

                    (a)      Executive’s willful misconduct or gross
negligence in performance of his duties hereunder, including Executive’s
refusal to comply in any material respect with the legal directives of the
Company’s Board of Directors so long as such directives are not inconsistent
with the Executive’s position and duties, and such refusal to comply is not
remedied within 20 working days after written notice from the Board of
Directors, which written notice shall state that failure to remedy such conduct
may result in Termination for Cause;

                    (b)      Dishonest or fraudulent conduct, a
deliberate attempt to do an injury to the Company, or conduct that materially
discredits the Company, including conviction of a felony; or

                    (c)      Executive’s theft or other
misappropriation of the Company’s proprietary information.

          6.       Definition of Disability.  For purposes of this Agreement, “Disability”
shall mean that Executive has been unable to perform his duties hereunder as
the result of his incapacity due to physical or mental illness, and such
inability, which continues for at least 120 consecutive calendar days or 180
calendar days during any consecutive twelve-month period, if shorter, after its
commencement, is determined to be total and permanent by a physician selected
by the Company and its insurers and acceptable to Executive or to Executive’s
legal representative.  If the Company
and the Executive cannot agree on the selection of a medical doctor, then each
of them will select a medical doctor and the two medical doctors will select a
third medical doctor who will determine whether Executive has a disability. The
determination of the medical doctor selected under the terms of this
Section 6 will be binding on both parties.  Executive must submit to a reasonable number of examinations by
the medical doctor making the determination of Disability under this Section 6
and Executive hereby authorizes the disclosure and release to the Company of
such determination and all supporting medical records.  If Executive is not legally competent,
Executive’s legal guardian or duly authorized attorney-in-fact will act in
Executive’s stead, under this Section 6, for purposes of submitting Executive
to the examinations, and providing the authorization of disclosure, required
under this Section 6.

          7.       Confidentiality.  During the Term and thereafter, Executive shall keep secret and retain in
strictest confidence, and shall not, without the prior written consent of the
Company, furnish, make available or disclose to any third party (except in
furtherance of the Company’s business activities and for the sole benefit of
the Company or by legal compulsion) or use for the benefit of himself or any
third party, any Confidential Information. 
As used in this Agreement, “Confidential Information” shall mean
information relating to the business or affairs of the Company or its
affiliates relating to its or their business which is not generally known to
persons in businesses similar to the Company’s business, including but not
limited to information relating to financial statements, customer identities,
potential customers, employees, suppliers, manufacturing and servicing methods,
equipment, programs, strategies and information, analyses, profit margins, cost
basis, or other proprietary information used by the Company in connection with
its business; provided, however, that Confidential Information shall not
include any information which is in the public domain or becomes known in the
industry through no wrongful act on the part of Executive or is previously
known by the Executive or disclosed to the Executive by a third party.  Executive acknowledges that the Confidential
Information is confidential and proprietary to the Company.  Executive hereby agrees that during and
after the term of this Agreement, he shall
deliver possession to the Company on termination of this Agreement, or at any
time on request by the Company, all Confidential Information and all documents,
writings, and other things of every kind and description prepared or acquired
in connection with Company business or at Company expense or in the course of
Employee’s employment or that contain Company proprietary information including
all copies of the same.

          8.       Noncompetition Covenant.  Executive hereby agrees that he shall not, during the term of his
employment pursuant to this Agreement and for a period of twelve (12) months
following the date of termination of such employment, do any of the following
without the prior written consent of the Company’s Board of Directors:

                    (a)      Solicit
Business.  Solicit or
influence or attempt to influence any Customer, either directly or indirectly,
to direct their purchase of timber management or consulting services of or
similar to the type of such services which have been provided by the
Company to that Customer, to any person, firm, corporation, institution or
other entity which competes with the Company in providing such services.  "Customers" shall be Hancock,
Pioneer and those entities for whom the Company has provided such timber
management or consulting services in the immediately preceding 24 months. This
provision shall not prevent Executive from being employed as an officer, director
or executive with a competing timber company or prevent executive from
conducting management consulting or investment banking activities, including
working on or consulting on acquisitions with firms competing with the Company,
provided that his activities are not directed at providing such timber
management or consulting services to Customers.

                    (b)      Solicit Personnel.  Solicit or influence or
attempt to
influence any person employed by the Company to terminate or otherwise cease
his or her employment with the Company or become an executive of any competitor
of the Company

          9.       Conflicts.  Executive represents that his performance of all the terms of this
Agreement will not breach any other agreement to which Executive is a
party.  Executive has not, and will not
during the term of this Agreement, enter into any oral or written agreement in
conflict with any of the provisions of this Agreement.

          10.     Successors.  Any successor to the Company (whether direct or indirect and whether by
purchase, lease, merger, consolidation, liquidation or otherwise) to all or
substantially all of the Company’s business and/or assets shall assume the
obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession.  The terms of this Agreement
and all of Executive’s rights hereunder shall inure to the benefit of, and be
enforceable by, Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

          11.     Miscellaneous Provisions.

                    (a)      No
Duty to Mitigate. 
Executive shall not be required to mitigate the amount of any payment
contemplated by this Agreement (whether by seeking new employment or in any
other manner), nor, except as otherwise provided in this Agreement, shall any
such payment be reduced by any earnings that Executive may receive from any
other source.

                    (b)      Amendments
and Waivers.  Any term of
this Agreement may be amended or waived only with the written consent of the
parties.

                    (c)      Sole
Agreement.  This
Agreement and all agreements set forth in this Agreement, including any
Exhibits hereto, constitutes the sole agreement of the parties and supersedes
all oral negotiations and prior writings with respect to the subject matter
hereof.

                    (d)      Notices.  Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by a nationally-recognized delivery service (such as
Federal Express or UPS), or 48 hours after being deposited in the U.S. mail as
certified or registered mail with postage prepaid, if such notice is addressed
to the party to be notified at such party’s address as set forth below or as
subsequently modified by written notice.

                    (e)      Choice
of Law.  The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Washington, without giving effect to the
principles of conflict of laws.

                    (f)       Severability.  If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. 
In the event that the parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (i) such provision shall
be excluded from this Agreement, (ii) the balance of the Agreement shall
be interpreted as if such provision were so excluded and (iii) the balance
of the Agreement shall be enforceable in accordance with its terms.

                    (g)      Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

                    (h)      Counsel.  Executive acknowledge that he has had the
opportunity to review this Agreement with legal counsel and has done so to the
extent he deems it appropriate. 
Executive shall be reimbursed for the cost of his Attorney’s fees for
the review of this Agreement by the Company pursuant to paragraph 3 (e) of this
Agreement.  Each party represents and
warrants to the other that it has reviewed, knows and understands and agrees
with the terms and conditions of this Agreement.

                    (i)       Arbitration.  Any dispute or claim arising out of or in
connection with this Agreement will be finally settled by binding arbitration
in Seattle, Washington in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules.  The arbitrator shall apply Washington law,
without reference to rules of conflicts of law or rules of statutory
arbitration, to the resolution of any dispute. 
Judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.  Each
party shall bear their own legal fees in connection with any such
arbitration.  Notwithstanding the
foregoing, the parties may apply to any court of competent jurisdiction for
preliminary or interim equitable relief, or to compel arbitration in accordance
with this paragraph, without breach of this arbitration provision..  The
parties, their representatives, other participants and the mediator or
arbitrator shall hold the existence, content and result of any arbitration in
confidence.  This Section 11(i) shall
not be construed to prohibit either party from seeking injunctive relief for
actual or threatened violations of Sections 7 or 8 of this Agreement.

                     (j)      Survival. The rights and obligations of
the Executive and the Company under Sections 7 and 8 shall survive the
termination or expiration of this Agreement.

          The
parties have executed this Agreement the date first written above.

	 
  	
  POPE
  RESOURCES
  
	 
  	
  By:  /s/ Peter T. Pope
  
  

  

  
	 
  	
  Peter
  T. Pope
  
	 
  	
  Chairman
  of Human Resource
  
	 
  	 
  
	 
  	
  ALLEN
  E. SYMINGTON
  
	 
  	
  By:  /s/ Allen E. Symington
  
  

  

  
	 
  	
  Allen
  E. Symington

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