Document:

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                                AGENCY AGREEMENT

                                 FUNNOODLE INC.,
                            FUNNOODLE (H.K.) LIMITED

                                       AND

                       TAI NAM INDUSTRIAL COMPANY LIMITED

This Agency Agreement dated 1st April, 2000 entered into between Tai Nam
Industrial Company Limited (hereinafter referred to as "the Agent") of Units
A&B, 3rd Floor, CDW Building, 388 Castle Peak Road, Tsuen Wan, N.T., Hong Kong
and Funnoodle Inc. and Funnoodle (H.K.) Limited (hereinafter collectively
referred to as "the Company") whose registered address is at 125 East Bethpage
Road, Plainview, New York 11803, U.S.A. and Units A&B, 3rd Floor, CDW Building,
388 Castle Peak Road, Tsuen Wan, N.T., Hong Kong, respectively.

Both parties agree to the following terms and conditions of the Agreement: -

WHEREAS, the Company and the Agent entered into this Agency Agreement pursuant
to which the Agent, among other things, agreed to (i) handle all of the

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Company's purchase orders for its products within the Far East; (ii) handle all
of the Company's shipping documents; (iii) clear all of the Company's letters of
credit, bills and payments; (iv) serve as a liaison between the Company and its
manufacturers and vendors; and (v) ensure the quality of goods purchased for the
Company.

NOW, THEREFORE, in consideration of the following and other goods and valuable
consideration received to date, the Parties hereby agree as follows:

1.    The Agent shall employ and maintain sufficient staff and purchasing
      personnel who will devote an adequate portion of their time to the
      purchase of the Company's products within the Territory and to the
      performance of all the Agent's duties and obligations to be performed
      hereunder. In this connection, the Agent shall appoint a dedicated Account
      Executive to handle all matters for the Company, on a daily basis. The
      "Territory" shall be limited to the Far East and such other territories
      the Company requests that the Agent purchase the Company's products.

2.    The Agent shall use commercially reasonable efforts to conduct its duties
      pursuant to the terms of this Agreement. In furtherance thereof, the Agent
      agrees to use its best efforts to obtain the best available pricing for
      all purchase orders and insure that the products maintain the quality
      control standards that are substantially equivalent to those standards
      approved by the Company.

3.    The Agent shall furnish the Company from time to time, as the Company may
      reasonably request, with such statements, reports or other documents
      pertaining to its activities hereunder.

4.    The Agent shall provide manpower for the co-ordination work of the
      business including the handling of purchase orders planned for merchandise
      by the Company.

5.    The Agent shall provide manpower for the handling of all shipping
      documents.

6.    The Agent shall provide manpower for the handling and clearance of letter
      of credits, bills and payments, where applicable.

7.    The Agent shall provide the manpower for the liaison work with
      manufacturers and vendors.

8.    The Agent shall control the quality of the goods by engaging Q.C. staff to
      carry out quality control inspections in the production line and on the
      finished goods to ensure quality is in accordance with the agreed
      specifications and that the product is complying with the required
      specifications. The Agent shall be reimbursed by the Company for all
      reasonable travel expenses (as evidenced by paid receipts) incurred by
      Agent on behalf of the Company for travel outside the Guangdong Province.

9.    In consideration of the aforementioned agency service, the Agent shall
      receive, for products purchased on behalf of the Company, a fee equal to
      7% of the gross invoiced value of products purchased by the Company (the
      "Agency Fee"). The

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      Agency Fee shall be computed on the basis of the following formula:

      Factory purchase price of the merchandise x (1/0.93) =  Price quote to the
      Company with Agency fee inclusive

      For all existing items manufactured by Kam Toy & Novelty Manufacturing
      Limited, no agency fee will be charged by the Agent in the performance of
      the order management role in these manufacturing entrustments unless the
      Agent is able to source a better price on the existing item rendering a
      reduction and savings from the existing price paid by the Company. As and
      when a saving is realized, an agency fee, equal to the amount of the
      savings but no more than 7% as computed on the basis of the aforementioned
      paragraph, will be remunerated to the Agent. Any savings in excess of the
      7% would be completely passed on to the Company such that the Company
      would under no circumstances be paying a higher cost as a result of the
      agency arrangement with the Agent.

10.   The Company is to buy at FOB HK prices submitted by the vendors or
      factories. Shipment processing charges will be responsible by the vendors
      or factories for LCL handling including CFS charges (container freight
      station charges in respect of inland & HK Transportation), and THC
      (terminal handling charges) and document charges. Shipment consolidation
      will be done in HK and is the responsibility of the vendors or factories.

11.   In general, all other expenses on the development, testing, purchasing and
      selling and all other expenses in the maintenance of matters in
      association with this arrangement shall be responsible and paid for by the
      Company.

12.   The Company shall be responsible for the charges in making of molds on new
      products and all related charges to complete the molds for manufacturing.
      The molds shall be the assets of the Company. The Agent agrees to act in a
      commercially reasonable and prudent manner in its handling and maintenance
      of the molds (normal wear and tear excepted) so as to minimize any loss or
      damage thereto. The Agent shall use best efforts to obtain appropriate
      indemnifications from entities using the molds, so as to adequately
      protect the Company from losses, damages, costs, expenses or liabilities
      (including reasonable attorneys fees and costs) incurred by the Company
      due to any act or omission, negligent or otherwise of the entity using a
      mold (normal wear and tear excepted). Additionally, Agent shall use best
      efforts to obtain on behalf of the Company from each entity, which uses a
      Company mold, a Trust Receipt in substantially the form attached hereto as
      Exhibit "A."

13.   The Agency Fee to the Agent shall be due and payable when the invoice is
      due as and when the goods are being shipped when shipment. Calculation
      will be done on individual invoice basis and be included as part of the
      cost of goods purchased by the Company.

14.   The Company shall be responsible to ensure compliance with all legal and
      statutory requirements imposed on the business being conducted.

15.   No party shall have the right to assign this Agreement or any of its
      rights and

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      privileges hereunder to any other person, firm or corporation without the
      prior written consent of the other party, and any assignment without such
      consent shall be null and void.

16.   The Agent acknowledges and agrees that during the term of this Agreement
      it will receive information developed by or on behalf of the Company
      relating to the Company's products and the Company's business. The Agent
      acknowledges and agrees that such information, together with all
      information developed by or on behalf of the Company either separately or
      in cooperation or consultation with the Agent hereunder, including without
      limitation, customer lists and related materials, and all of the foregoing
      shall be and remain the sole and exclusive property of the Company and is
      to be protected as confidential information (all such information being
      hereafter referred to collectively as the "Confidential Information");
      except that Confidential Information shall not include information:

      (a)   which is known to the recipient prior to disclosure (except for
            non-public information concerning existing Company products or
            products under development by or for the Company) or is generally
            available to the public;

      (b)   which was not acquired, directly or indirectly and/or in any manner,
            from the disclosing party and which the recipient lawfully had in
            its possession prior to the date of this Agreement;

      (c)   which, hereafter, through no act or omission on the part of the
            recipient, becomes information generally available to the public;

      (d)   which corresponds in substance to information furnished to the
            recipient on a non-confidential basis by any third party having a
            legal right to do so ; or

      (e)   which is required in response to legal process, or to the extent a
            party is advised that such action is required to comply with
            foreign, federal or state laws or regulations.

      The provisions of this Section shall not apply to any disclosure by David
      Ki Kwan Chu in his capacity as Chairman or as a member of the Board of
      Directors of Toymax International, Inc. or any of its subsidiaries if such
      disclosure is not in violation of his fiduciary duties to Toymax
      International, Inc. or any of its subsidiaries. During the term of this
      Agreement and for a period of two years thereafter, the Agent agrees to
      keep confidential and disclose or permit to be disclosed to any third
      party any such Confidential Information except to the extent previously
      agreed in writing by the Company or as is required to be disclosed
      pursuant to applicable law. The Agent acknowledges and agrees that the
      Company would suffer great loss and irreparable damage if the Agent were
      to disclose Confidential Information other than as contemplated herein,
      and the Agent therefore acknowledges and agrees that the Company, in
      addition to any right or remedy it may have at law or in equity hereunder,
      shall be entitled to an injunction, without the posting of any bond or
      other security, enjoining or restraining the Agent, its officers,
      employees or representatives from any violation or threatened violation of
      this.

17.   The Agent agrees not to sell, assign or transfer any products or property
      of the Company without the prior written consent of the Company.

18.   This Agreement is to be construed in accordance with the laws of the Hong
      Kong

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      Special Administrative Region without giving effect to conflict of laws
      principles.

19.   Neither this Agreement nor any provision thereof may be modified, waived,
      discharged or terminated orally, but only by a writing signed by the party
      to be charged. A waiver of any provision by any party to this Agreement
      shall be valid only in the instance for which given and shall not be
      deemed continuing, and any such waiver shall not be construed as a waiver
      of any other provision of this Agreement.

20.   Each party to this Agreement represents, agrees and warrants that it will
      perform all other acts and execute and deliver all other documents that
      may be necessary or appropriate to carry out the intent and purposes of
      this Agreement.

21.   This Agreement shall be valid for a period to 31st March 2002 from the
      date herein above referred. This Agreement shall automatically extend
      until termination. Each party shall have the right to terminate this
      Agreement by giving the other party three months' written notice in
      advance.

22.   Nothing contained in this Agreement shall be construed as requiring the
      commission of any act contrary to the law. Whenever there is any conflict
      between any provision of this Agreement and any present or future statute,
      ordinance or regulation contrary to which the parties have no legal right
      to contract, the latter shall prevail, but in such event the provision of
      this Agreement thus affected shall be curtailed and limited only to the
      extent necessary to bring it within the requirements of the law. In the
      event that any part, article, paragraph, sentence or clause of this
      Agreement shall be held to be indefinite, invalid or otherwise
      unenforceable, the entire Agreement shall not fail on account thereof and
      the balance of the Agreement shall continue in full force and effect. If
      any arbitration tribunal or court of competent jurisdiction deems any
      provision thereof (other than for the payment of money) unreasonable
      modification thereof and this Agreement shall be valid and enforceable and
      the parties hereto agree to be bound by and perform the same as thus
      modified.

23.   This Agreement may be executed in any number of counterparts, each of
      which shall be deemed to be an original and all of which together shall be
      deemed to be one and the same instrument.

                           [SIGNATURE PAGE TO FOLLOW]

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WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the
date and year first above written.

ABOVE AGREED TO AND ACCEPTED:

FUNNOODLE INC.

By:
   -------------------------------
  Name:
       ---------------------------
  Title:
        --------------------------
  Date:
       ---------------------------

FUNNOODLE (H.K.) LIMITED

By:
   -------------------------------
  Name:
       ---------------------------
  Title:
        --------------------------
  Date:
       ---------------------------

TAI NAM INDUSTRIAL COMPANY LIMITED

By:
   -------------------------------
  Name:
       ---------------------------
  Title:
        --------------------------
  Date:
       ---------------------------

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                                    EXHIBIT A

                              FORM OF TRUST RECEIPTPrepared by MERRILL CORPORATION

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.1    
  

 
 

REAL ESTATE PURCHASE AND SALE AGREEMENT    
  

by and between  

Pope Resources  

and  

HCV Pacific Partners LLC  

(Port Ludlow and Peacock Hill)  

 
 
 

TABLE OF CONTENTS    
  

	 
	 	 
	 	Page

	

ARTICLE I. PROPERTY	
 	

1
	 	

1.1	
 	

Land and Improvements	
 	

1
	 	1.2	 	Appurtenances	 	2
	 	1.3	 	Tenant Leases	 	2
	 	1.4	 	Equipment and Inventory	 	2
	 	1.5	 	Contracts	 	2
	 	1.6	 	Intellectual Property Rights	 	3
	 	1.7	 	DNR Lease	 	3
	 	1.8	 	Additional Defined Terms	 	3
	

ARTICLE II. PURCHASE PRICE	
 	

3
	 	

2.1	
 	

Purchase Price	
 	

3
	 	2.2	 	Adjustments to Purchase Price	 	3
	 	2.3	 	Escrow Officer	 	3
	 	2.4	 	Earnest Money	 	3
	

ARTICLE III. CONDITION AND CONVEYANCE OF TITLE	
 	

4
	 	

3.1	
 	

Preliminary Commitment	
 	

4
	 	3.2	 	Survey	 	5
	 	3.3	 	Permitted Exceptions	 	5
	 	3.4	 	Title Policy	 	5
	 	3.5	 	Conveyance of Real Property	 	5
	 	3.6	 	Assignment of DNR Lease	 	5
	 	3.7	 	Assignment of Tenant Leases	 	5
	 	3.8	 	Assignment of Contracts	 	5
	 	3.9	 	Bill of Sale	 	5
	 	3.10	 	Assignment of Intellectual Property	 	6
	

ARTICLE IV. INSPECTION OF DOCUMENTS AND REAL PROPERTY	
 	

6
	 	

4.1	
 	

Inspection Period	
 	

6
	 	4.2	 	Seller's Documents	 	6
	 	4.3	 	Inspection of Real Property	 	7
	 	4.4	 	Approval of Property Condition	 	8
	 	4.5	 	Certification	 	8
	

ARTICLE V. CONDITIONS PRECEDENT TO CLOSING	
 	

9
	 	

5.1	
 	

Performance by Seller	
 	

9
	 	5.2	 	Approval of Property Condition	 	9
	 	5.3	 	Title Policy	 	9
	 	5.4	 	Representations and Warranties True	 	9
	 	5.5	 	No Damage or Destruction	 	9
	 	5.6	 	Tenant Estoppels	 	9
	 	5.7	 	OWSI Stock Purchase Closing	 	9
	 	5.8	 	Heron Beach Inn	 	9
	 	5.9	 	Consents and Notices	 	9
	 	5.10	 	Liquor License	 	10

i

 

	 	5.11	 	Payment Certification	 	10
	 	5.12	 	Performance by Buyer	 	10
	 	5.13	 	Representations and Warranties True	 	10
	 	5.14	 	OWSI Stock Purchase Closing	 	10
	 	5.15	 	Consents and Notices	 	10
	 	5.16	 	Board Approval	 	10
	

ARTICLE VI. OPERATIONS PENDING CLOSING	
 	

11
	 	

6.1	
 	

Operations Pending Closing	
 	

11
	 	6.2	 	Conditions of Title to Real Property	 	11
	 	6.3	 	Special Conditions Applicable to Heron Beach Inn, Marina and Golf Course	 	11
	 	6.4	 	Updating of Schedules	 	11
	 	6.5	 	Liquor Licenses	 	11
	

ARTICLE VII. CLOSING AND ESCROW	
 	

12
	 	

7.1	
 	

Closing	
 	

12
	 	7.2	 	Seller's Deliveries	 	12
	 	7.3	 	Buyer's Deliveries	 	12
	 	7.4	 	Title Policy; Other Instruments	 	13
	 	7.5	 	Prorations.	 	13
	 	7.6	 	Closing Costs and Expenses	 	14
	 	7.7	 	Closing Statements	 	15
	 	7.8	 	Delivery Outside of Escrow	 	15
	 	7.9	 	Guest Property	 	15
	

ARTICLE VIII. REPRESENTATIONS AND WARRANTIES	
 	

15
	 	

8.1	
 	

Seller's Representations	
 	

15
	 	8.2	 	Buyer's Representations	 	21
	

ARTICLE IX. EMPLOYEES	
 	

21
	

ARTICLE X. CASUALTY AND CONDEMNATION	
 	

22
	

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

22
	 	

11.1	
 	

Disclosures	
 	

22
	 	11.2	 	Seller's Indemnification Liabilities	 	23
	 	11.3	 	Limitations on Seller's Indemnification Liabilities	 	24
	 	11.4	 	Buyer's Indemnification Liabilities and Release	 	25
	 	11.5	 	Survival	 	26
	

ARTICLE XII. POSSESSION	
 	

27
	

ARTICLE XIII. DOCUMENT RETENTION	
 	

27
	

ARTICLE XIV. OBLIGATIONS TO PORT LUDLOW COMMUNITY	
 	

27
	

ARTICLE XV. DEFAULT; REMEDIES	
 	

27
	 	

15.1	
 	

Default by Buyer	
 	

27
	 	15.2	 	Default by Seller	 	27
	 	15.3	 	Attorneys' Fees	 	28

ii

 

	

ARTICLE XVI. MISCELLANEOUS	
 	

28
	 	

16.1	
 	

Brokers and Finders	
 	

28
	 	16.2	 	Notices	 	28
	 	16.3	 	Amendment, Waiver	 	29
	 	16.4	 	Survival	 	29
	 	16.5	 	Captions	 	30
	 	16.6	 	Merger of Prior Agreements	 	30
	 	16.7	 	No Joint Venture	 	30
	 	16.8	 	Governing Law; Time	 	30
	 	16.9	 	Schedules	 	30
	 	16.10	 	Severability	 	30
	 	16.11	 	Counterparts	 	30
	 	16.12	 	Assignment	 	30
	 	16.13	 	Tax Deferred Exchange	 	30
	 	16.14	 	Confidentiality	 	31
	 	16.15	 	Continuing Forest Land Obligations	 	31
	 	16.16	 	Cooperation	 	31

iii

 
 

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: 

    1.1  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 Schedule 1.1.1(a)(i); 

    (ii) Marina
as described on Schedule 1.1.1(a)(ii); 

    (iii) Golf
Course as described on Schedule 1.1.1(a)(iii); 

    (iv) Village
Center as described on Schedule 1.1.1(a)(iv); 

    (v) RV
Park as described on Schedule 1.1.1(a)(v); 

    (vi) Harbormaster
Restaurant as described on Schedule 1.1.1(a)(vi); 

   (vii) Conference
Center as described on Schedule 1.1.1(a)(vii); 

   (viii) Miscellaneous
MPR Operating Properties as described on Schedule 1.1.1(a)(viii); and 

    (ix) Sales
Office as described on Schedule 1.1.1(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"). 

    1.2  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. 

    1.3  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. 

    1.4  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.

    1.5  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). 

2

 

    1.6  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.

    1.7  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"). 

    1.8  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

    2.1  Purchase Price.  The purchase price for the Property (the "Purchase Price") shall be Twenty-three
Million Five Hundred Thousand Dollars (US$23,500,000.00) subject to adjustments as provided for under Section 2.2 below and subject to an
allocation of a portion of the Purchase Price to the stock of Olympic Water and Sewer, Inc. ("OWSI"), as agreed by Buyer and Seller in an amendment to this Agreement and in the OWSI Stock
Purchase Agreement (the "OWSI Stock Purchase Agreement") presently being negotiated by Buyer and Seller. The Purchase Price is allocated among the Real Property and between the Real Property and
Personal Property as set forth in Schedule 2.1. The Purchase Price shall be paid by Buyer in immediately available United States funds pursuant
to Seller's instructions on the Closing Date. 

    2.2  Adjustments to Purchase Price.  The Purchase Price has been determined as of September 1,
2000. Therefore, the Purchase Price shall be adjusted on the Closing Date for Seller's capital expenditures relating to the Property, closed sales of MPR Platted Lots between September 1, 2000,
and the Closing Date, and Inventory increases and reductions between September 1, 2000, and the Closing Date, in accordance with United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the periods involved. The sum of Eight Million Seven Hundred Twenty-four Dollars (US$8,724,000.00) shall be the
value allocated to Seller "s work in progress as of September 1, 2000. Notwithstanding the foregoing, the Purchase Price shall not be adjusted under this section by more than Three Hundred
Thousand Dollars (US$300,000.00) without the prior written consent of Buyer and Seller. 

    2.3  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. 

    2.4  Earnest Money.  Within one (1) business day following mutual execution and delivery of this
Agreement, Buyer shall deposit with Escrow Officer the sum of One Hundred Thousand Dollars (US$100,000) in cash as the earnest money deposit (such sum, together with interest earned thereon, the
"Earnest Money"). In addition, within one (1) business day after the condition set forth in Section 5.2 has been satisfied or waived and
the condition of title and survey matters (including Exceptions, as defined in Section 3.1) has been approved or deemed approved by Buyer
pursuant to Section 3.1 (whichever is later), Buyer shall deposit with Escrow Officer the additional sum of Nine Hundred Thousand Dollars
($900,000), which sum shall be deemed part of the Earnest Money. Upon closing of this transaction, the Earnest Money shall be credited against the Purchase Price. In the event this transaction fails
to close as a result of Seller's default, the failure of any condition precedent to 

3

 

Buyer's obligations, or any reason other than Buyer's default, the Earnest Money shall be returned to Buyer. In the event Buyer fails, without legal excuse, to complete the purchase of the Property,
the Earnest Money shall be forfeited by Escrow Officer to Seller as the sole and exclusive remedy available to Seller for such failure. Escrow Agent shall deposit the Earnest Money in an interest
bearing account at a financial institution designated by Seller, subject to Buyer's approval, which shall not unreasonably be withheld. 

 
 

ARTICLE III.  CONDITION AND CONVEYANCE OF TITLE

    3.1  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 

4

 

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. 

    3.2  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. 

    3.3  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. 

    3.4  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. 

    3.5  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).

    3.6  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"). 

    3.7  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"). 

    3.8  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"). 

    3.9  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"). 

5

 

    3.10  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

    4.1  Inspection Period.  The period beginning on the day this Agreement has been executed and delivered
by all parties and ending on January 31, 2001, shall be the "Inspection Period." The Inspection Period shall be extended one (1) day for each day after January 21, 2001, 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 February 9, 2001, 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.. 

    4.2  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, (i) communications with other prospective buyers of all
or any portion of the Property, and (ii) materials and communications relating to currently pending or threatened litigation, as listed on  Schedule 8.1.1(b), that are subject to
attorney-client privilege. 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 

6

 

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. 

    Seller
also covenants and agrees that (1) no materials withheld from Seller pursuant to clauses (i) or (ii) in the first sentence of this  Section 4.2 contain or will contain any information
about or allegation of (a) any material defect concerning the Property (including its
physical condition, value, usefulness or development potential) not otherwise disclosed in the privilege log prepared by Seller for Buyer regarding every item withheld pursuant to clause (ii)
in the first sentence of this Section 4.2 (the "Privilege Log"), a schedule to this Agreement, or the environmental reports, assessments, and
studies described at Schedule 8.1.1(i), (b) any fact or circumstance which, if true, would make any representation or warranty of Seller in this
Agreement materially inaccurate, or (c) a claim by any third party to have any right or interest in or materially affecting any portion of the Property except as disclosed in the Contracts, DNR
Lease, Preliminary Commitment, Privilege Log, Tenant Leases, or Schedule 8.1.1(b); and (2) Seller shall, within ten (10) days after the
date this Agreement is executed by all parties, deliver the Privilege Log to Buyer. 

    4.3  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 

7

 

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. 

    4.4  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. 

    4.5  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. 

8

  

 
 

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: 

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

    5.2  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. 

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

    5.4  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. 

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

    5.6  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.

    5.7  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. 

    5.8  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. 

    5.9  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). 

9

 

    5.10  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. 

    5.11  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: 

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

    5.13  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. 

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

    5.15  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. 

    5.16  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. 

10

 
 
 

ARTICLE VI.  OPERATIONS PENDING CLOSING

    6.1  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. 

    6.2  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. 

    6.3  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"). 

    6.4  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. 

    6.5  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 

11

 

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

    7.1  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. 

    7.2  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.

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

    (a) The
Purchase Price; 

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

    (c) 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;

    (d) The
duly executed Management Agreement; 

    (e) 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 

12

 

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

    7.4  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. 

    7.5  Prorations.  

    7.5.1  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. 

    7.5.2  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. 

13

 

    (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. 

    7.5.3  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. 

    7.5.4  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. 

    7.6  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. 

14

 

    (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. 

    7.7  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. 

    7.8  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. 

    7.9  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: 

    8.1  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

15

 

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 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 

16

 

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. 

17

  

    (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 

18

 

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. 

19

 

    (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, 

20

 

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. 

    8.2  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. 

21

 
 
 

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

    11.1  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, 

22

 

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. 

    11.2  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. 

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    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. 

    11.3  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 

24

 

(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. 

    11.4  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 

25

 

 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. 

    11.5  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. 

26

  

 
 

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

    15.1  Default by Buyer.  If Buyer fails, without legal excuse, to complete the purchase of the Property
in accordance with the terms of this Agreement, Seller's sole and exclusive remedy shall be to retain the Earnest Money as liquidated damages. Buyer expressly agrees that the delivery to and the
retention of the Earnest Money by Seller represents a reasonable estimation of the damages in the event of Buyer's default, that actual damages may be difficult to ascertain and that this provision
does not constitute a penalty. The foregoing limitation on the liability of Buyer shall not be applicable with respect to Buyer's obligations to be performed or enforced after Closing. 

    15.2  Default by Seller.  If Seller fails, without legal excuse, to complete the sale of the Property in
accordance with the terms of this Agreement or otherwise defaults hereunder, Buyer may elect to pursue any remedy provided by law or in equity, including termination of this Agreement and suit for
damages and specific enforcement in a proper case. If Seller's default consists of its failure to tender at Closing its deliveries as described at  Section 7.2, then Buyer may elect to terminate the
Agreement, in which case the Earnest Money shall be returned to Buyer, Seller shall pay to
Buyer the Contribution described below, Buyer shall have no other remedy for Seller's default, and the parties shall have no further obligations hereunder except under those provisions intended to
survive the termination of this Agreement. It is understood that nothing in the preceding sentence is intended to limit or impair Buyer's remedies for Seller's breach unless Buyer elects the remedies
described in the preceding sentence, and that if Buyer has the right to the remedies described in the preceding sentence but elects not to seek those remedies (as it may elect or not in its sole
discretion), then Buyer shall have the right to seek all remedies available at law and in equity, including specific performance in a proper case and all provable damages. 

27

 

    The Contribution is the sum of Three Hundred Fifty Thousand Dollars (US$350,000.00) and is intended (a) to reimburse Buyer for Buyer's costs and expenses payable to third
parties in connection with its due diligence relating to the Property, and (b) to compensate Buyer for Buyer's time and expenses relating to the negotiations contemplated hereunder and the time
of Buyer's executives to make the necessary arrangements to organize and finance this transaction, all of which losses would otherwise be difficult to ascertain. If Buyer elects to receive the
Contribution and Seller pays it, then Buyer within ten (10) days after receipt of the Contribution shall convey and deliver to Seller possession and all of Buyer's right, title, and interest in
and to all analyses, maps, reports, studies, surveys, and other documents owned or possessed by Buyer and relating to the Property. The parties expressly acknowledge and agree that the Contribution is
reasonable in light of Buyer's time, opportunity cost and expenditures to examine the Property, to negotiate this Agreement and to conduct due diligence both before and following execution of this
Agreement. 

    15.3  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

    16.1  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. 

    16.2  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, 

28

 

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. 

    16.3  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. 

    16.4  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. 

29

 

    16.5  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. 

    16.6  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.

    16.7  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. 

    16.8  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. 

    16.9  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. 

    16.10  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. 

    16.11  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. 

    16.12  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. 

    16.13  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 

30

 

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. 

    16.14  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. 

    16.15  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. 

    16.16  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. 

31

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

	SELLER:	 	POPE RESOURCES L.P., a Delaware limited partnership, by POPE MGP, Inc., a Delaware corporation, its managing general partner
	

 	
 	

By:	
 	

/s/ GREGORY M. MCCARRY   

	 	 	Name:	 	Gregory M. McCarry

	 	 	Its:	 	V.P. Real Estate

	

 	
 	
OLYMPIC PROPERTY GROUP LLC, a Washington limited liability company
	

 	
 	

By:	
 	

/s/ GREGORY M. MCCARRY   

	 	 	Name:	 	Gregory M. McCarry

	 	 	Its:	 	C.O.O.

	

 	
 	
OLYMPIC REAL ESTATE DEVELOPMENT LLC, a Washington limited liability company
	

 	
 	

By:	
 	

/s/ GREGORY M. MCCARRY   

	 	 	Name:	 	Gregory M. McCarry

	 	 	Its:	 	C.O.O.

	

 	
 	
OLYMPIC REAL ESTATE MANAGEMENT, INC., a Washington corporation
	

 	
 	

By:	
 	

/s/ TOM GRIFFIN   

	 	 	Name:	 	Tom Griffin

	 	 	Its:	 	Vice President

32

 

	

 	
 	
OLYMPIC RESORTS LLC, a Washington limited liability company
	

 	
 	

By:	
 	

/s/ GREGORY M. MCCARRY   

	 	 	Name:	 	Gregory M. McCarry

	 	 	Its:	 	C.O.O.

	

BUYER:	
 	
HCV PACIFIC PARTNERS LLC, a California limited liability company
	

 	
 	

By:	
 	

/s/ RANDALL J. VERRUE   

	 	 	Name:	 	Randall J. Verrue

	 	 	Its:	 	President & CEO

33

  

	Schedules:
 
	 	 

	1.1.1(a)(i)	 	Description of Heron Beach Inn
	1.1.1(a)(ii)	 	Description of Marina
	1.1.1(a)(iii)	 	Description of Golf Course
	1.1.1(a)(iv)	 	Description of Village Center
	1.1.1(a)(v)	 	Description of RV Park
	1.1.1(a)(vi)	 	Description of Harbormaster Restaurant
	1.1.1(a)(vii)	 	Description of Conference Center
	1.1.1(a)(viii)	 	Description of Miscellaneous MPR Operating Properties
	1.1.1(a)(ix)	 	Description of Sales Office
	1.1.1(b)(i)	 	Description of MPR Platted Lots
	1.1.1(b)(ii)	 	Description of MPR Unplatted Parcels
	1.1.1(b)(iii)	 	Description of MPR Outparcels
	1.1.2	 	Description of Peacock Hill Property
	1.2	 	Appurtenances
	1.3	 	Tenant Leases
	1.4	 	Equipment and Inventory
	1.5	 	Contracts
	1.6	 	Intellectual Property
	1.7	 	DNR Lease
	2.1	 	Allocation of Purchase Price
	3.4(a)	 	Form of MPR Deed
	3.4(b)	 	Form of Peacock Hill Deed
	3.5	 	Form of Assignment of DNR Lease
	3.6	 	Form of Assignment of Tenant Leases
	3.7	 	Form of Assignment of Contracts
	3.8	 	Form of Bill of Sale
	3.9	 	Form of Assignment of Intellectual Property
	5.6-1	 	Form of Tenant Estoppel Letter
	5.6-2	 	Form of DNR Estoppel Letter
	5.11	 	Form of Seller's Payment Certification
	6.2	 	Minimum MPR Platted Lot Sale Prices
	7.2(c)	 	Form of FIRPTA Affidavit
	7.2(h)	 	Form of Easements Over Adjoining Lands
	7.2(i)	 	Form of Bio-solids Disposal Agreement
	7.5.3	 	Current Use and Forest Land
	8.1.1(b)	 	Pending and Threatened Litigation
	8.1.1(c)	 	Compliance with Laws and Permits; Permits and Licenses Requiring Third Party Consent to Assignment
	8.1.1(e)-1	 	Material Property Defects
	8.1.1(e)-2	 	Seller's Improvements and Repairs
	8.1.1(f)	 	Potential Local Improvement Districts
	8.1.1(g)	 	Contracts and Leases Requiring Third Party Consent to Assignment
	8.1.1(i)	 	Hazardous Substances Reports
	8.1.1(k)	 	Union Contracts, Labor Agreements, and Employee Benefit Plans
	8.1.2(c)	 	Golf Course Management and Membership Rights
	8.1.2(d)	 	Golf Course Water Rights
	9	 	Employees and Hire Dates
	11.2	 	Seller's Indemnification Liabilities
	14(a)	 	Seller's Post-Closing Community Obligations
	14(b)	 	Buyer's Post-Closing Community Obligations
	16.15	 	Continuing Forest Land Obligations

34

QuickLinks

Exhibit 10.1

REAL ESTATE PURCHASE AND SALE AGREEMENT

TABLE OF CONTENTS

REAL ESTATE PURCHASE AND SALE AGREEMENT (Pope Resources and HCV Pacific Partners LLC) (Port Ludlow and Peacock Hill)

ARTICLE I. PROPERTY

ARTICLE II. PURCHASE PRICE

ARTICLE III. CONDITION AND CONVEYANCE OF TITLE

ARTICLE IV. INSPECTION OF DOCUMENTS AND REAL PROPERTY

ARTICLE V. CONDITIONS PRECEDENT TO CLOSING

ARTICLE VI. OPERATIONS PENDING CLOSING

ARTICLE VII. CLOSING AND ESCROW

ARTICLE VIII. REPRESENTATIONS AND WARRANTIES

ARTICLE IX. EMPLOYEES

ARTICLE X. CASUALTY AND CONDEMNATION

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

ARTICLE XII. POSSESSION

ARTICLE XIII. DOCUMENT RETENTION

ARTICLE XIV. OBLIGATIONS TO PORT LUDLOW COMMUNITY

ARTICLE XV. DEFAULT; REMEDIES

ARTICLE XVI. MISCELLANEOUS

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00029-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00029-of-00352.parquet"}]]