MASTER LOAN AGREEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ Fiscal Year ” means the calendar year.

“ Fiscal Year-End ” means December 31.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ Loans ” means two or more Loans.

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

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

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

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

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

“ Notes ” means one or more Notes.

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

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

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

“ Permitted Liens ” means:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.            Loans.

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

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

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

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

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

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

3.            Stock/Participation Certificates.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6.01            Documents Required for Closing .

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

b