<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-7852
POPE & TALBOT, INC.
Delaware 94-0777139
- --------------------------------------- ----------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number
1500 S.W. 1st Ave., Portland, Oregon 97201
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 228-9161
NONE
-----------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Common stock, $1 par value - 13,362,729 shares as of November 2, 1994
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
ITEM 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1994 and December 31, 1993 2
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three and Nine Months Ended September 30, 1994 and 1993 4
Notes to Consolidated Condensed Financial Statements 5-6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 6. Exhibits and Reports on Form 8-K 11-13
</TABLE>
<PAGE> 3
PART I.
POPE & TALBOT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,448 $ 3,768
Accounts receivable 63,983 56,040
Inventories:
Raw materials 67,656 62,474
Finished goods 43,014 32,782
--------- ---------
110,670 95,256
Deposits on timber purchase contracts 5,978 5,937
Prepaid expenses 10,571 8,896
--------- ---------
Total current assets 195,650 169,897
Properties:
Plant and equipment 546,701 503,416
Accumulated depreciation (269,632) (245,104)
--------- ---------
277,069 258,312
Land and timber cutting rights 11,118 10,888
--------- ---------
Total properties 288,187 269,200
Other assets:
Deferred charges 14,941 12,362
Goodwill, net of amortization 4,237 4,362
--------- ---------
Total other assets 19,178 16,724
--------- ---------
$ 503,015 $ 455,821
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 20,000 $ 11,000
Current portion of long-term debt 901 901
Accounts payable and accrued liabilities 71,138 71,439
Income taxes 5,123 17,822
--------- ---------
Total current liabilities 97,162 101,162
Noncurrent liabilities:
Reforestation 15,557 14,999
Postretirement benefits 13,580 12,804
Long-term debt, net of current portion 144,301 134,599
Deferred income taxes 1,766 7,936
--------- ---------
Total noncurrent liabilities 175,204 170,338
Stockholders' equity:
Common stock 13,972 12,429
Additional paid-in capital 40,858 3,370
Retained earnings 190,757 185,762
Cumulative translation adjustments (3,814) (4,578)
Less treasury shares at cost (11,124) (12,662)
--------- ---------
Total stockholders' equity 230,649 184,321
--------- ---------
$ 503,015 $ 455,821
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
2
<PAGE> 4
POPE & TALBOT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1994 1993 1994 1993
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Wood products $ 73,033 $ 71,158 $228,771 $224,272
Pulp and paper products 98,221 79,752 269,144 245,467
-------- -------- -------- --------
Total 171,254 150,910 497,915 469,739
Costs and expenses:
Cost of sales:
Wood products 62,008 60,157 178,114 174,570
Pulp and paper products 95,976 78,191 268,505 239,430
Selling, general and administrative 8,209 7,233 22,756 21,080
Interest 2,867 2,231 7,675 5,814
-------- -------- -------- --------
Total 169,060 147,812 477,050 440,894
Income before income taxes and
cumulative effect of accounting changes 2,194 3,098 20,865 28,845
Income tax provision 1,273 1,785 8,555 11,826
-------- -------- -------- --------
Net income before cumulative effect
of accounting changes 921 1,313 12,310 17,019
Cumulative effect of accounting changes -
net of tax - - - (562)
-------- -------- -------- --------
Net income $ 921 $ 1,313 $ 12,310 $ 16,457
======== ======== ======== ========
Net income per common share:
Primary:
Income before cumulative effect
of accounting changes $ .07 $ .11 $ .95 $ 1.46
Cumulative effect of accounting changes - - - (.05)
------ ------ ----- ------
Primary earnings per share $ .07 $ .11 $ .95 $ 1.41
====== ====== ===== ======
Fully diluted:
Income before cumulative effect
of accounting changes $ .07 $ .11 $ .93 $ 1.35
Cumulative effect of accounting changes - - - (.04)
------ ------ ----- ------
Fully diluted earnings per share $ .07 $ .11 $ .93 $ 1.31
====== ====== ===== ======
Cash dividends per common share $ .19 $ .19 $ .57 $ .57
====== ====== ===== ======
Weighted average number of
common shares outstanding:
Primary 13,362,729 11,702,478 13,024,349 11,677,228
========== ========== ========== ==========
Fully diluted 13,362,729 13,381,290 13,500,946 13,348,599
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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POPE & TALBOT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net income $ 921 $ 1,313 $ 12,310 $ 16,457
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 10,050 7,401 28,472 22,164
Cumulative effect of accounting changes - - - 562
Increase (decrease) in:
Accounts payable and accrued liabilities 13,255 12,444 (301) 7,206
Income taxes 2,260 1,372 (12,699) 3,548
Reforestation 47 736 772 1,951
Postretirement benefits 265 206 776 680
Deferred income taxes (6,175) - (6,175) -
Decrease (increase) in:
Accounts receivable (2,168) (2,903) (7,943) (7,018)
Inventories (9,935) (13,610) (15,414) (7,863)
Deposits on timber purchase contracts (2,103) (1,287) (2,739) (2,565)
Prepaid expenses (568) (583) (1,675) (1,925)
Deferred charges and other 2,367 (5,330) (144) (6,835)
-------- -------- -------- -------
Net cash provided by (used for)
operating activities 8,216 (241) (4,760) 26,362
Cash flow from investing activities:
Capital expenditures (12,459) (24,901) (48,073) (60,142)
Proceeds from sale of other properties 193 3,359 199 4,953
-------- -------- -------- --------
Net cash used for investing activities (12,266) (21,542) (47,874) (55,189)
Cash flow from financing activities:
Net increase (decrease) in short-term borrowings (1,000) 11,000 9,000 5,517
Proceeds from issuance of long-term debt 10,000 - 50,000 30,000
Reduction of long-term debt (101) - (298) -
Cash dividends (2,538) (2,223) (7,315) (6,647)
Net proceeds from issuance of treasury stock - 13 1,927 1,591
-------- -------- -------- --------
Net cash provided by financing activities 6,361 8,790 53,314 30,461
-------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 2,311 (12,993) 680 1,634
Cash and cash equivalents at
beginning of period 2,137 18,971 3,768 4,344
-------- -------- -------- --------
Cash and cash equivalents at
end of period $ 4,448 $ 5,978 $ 4,448 $ 5,978
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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POPE & TALBOT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1994 and 1993
(Unaudited)
1. General
The consolidated condensed interim financial statements have been
prepared by the Company without audit and are subject to normal
recurring year-end adjustments. Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles has been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company,
the accompanying unaudited consolidated condensed financial statements
contain all adjustments (all of which are of a normal recurring
nature) necessary to present fairly the financial position of the
Company as of September 30, 1994 and December 31, 1993, and the
results of operations and changes in cash flows for the three and nine
months ended September 30, 1994 and 1993. It is suggested that these
interim statements be read in conjunction with the financial
statements and notes thereto contained in the Company's 1993 report on
Form 10-K. The results of operations for the three and nine months
ended September 30, 1994 and 1993 are not necessarily indicative of
the results to be expected for the full year.
2. Income Taxes
The income tax provision is estimated on an interim basis using the
best available information for projected results for the entire year.
3. Earnings per Share
Per share information is based on the weighted average number of
common shares outstanding during each year.
The computation for fully diluted earnings per share assumes
conversion of the $40 million of 6 percent convertible subordinated
debentures issued in March 1987. (See Note 4.) The computation also
includes the assumed issuance of common shares under the Stock Option
and Appreciation Plan, net of an assumed buyback of treasury shares at
the average market price.
Refer to Exhibit 11 of this filing for the computation of average
common shares outstanding and earnings per share.
4. Conversion of Debentures
On February 17, 1994, the Company initiated an underwritten call for
the redemption on March 4, 1994, of the $40 million outstanding
aggregate principal balance of its 6 percent convertible subordinated
debentures due March 1, 2012. As a result of this underwritten call,
the Company issued 1.5 million shares of previously unissued common
stock to satisfy the $40 million debt obligation. This issuance of
common shares resulted in an increase in Stockholders' equity of $38.6
million ($40 million less transaction fees and unamortized debt
issuance costs). This non-cash transaction has been excluded from the
accompanying Consolidated Condensed Statements of Cash Flows.
5
<PAGE> 7
5. Debt
Early in the second quarter of 1994, the Company successfully
negotiated an additional $25 million short-term line of credit with
terms and conditions similar to the Company's existing $20 million
short-term line of credit. The Company now has $120 million in lines
of credit available, of which $70 million was outstanding at September
30, 1994, compared to $11 million outstanding at December 31, 1993.
The increase in lines of credit outstanding since the 1993 year-end
primarily financed the Company's capital improvement projects and
working capital requirements.
6. Inventories
Inventories are carried at the lower of cost or market value. For
portions of lumber inventories, cost has been determined on the
last-in, first-out (LIFO) method. Primarily in the third quarter of
1994, certain lumber inventory quantities were reduced, resulting in
liquidations of LIFO inventory quantities carried at lower costs
prevailing in prior years. The effect of these lumber inventory
quantity reductions was to increase year-to-date 1994 pretax income by
approximately $3.0 million.
6
<PAGE> 8
POPE & TALBOT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1994 AND 1993
(unaudited)
RESULTS OF OPERATIONS
Third quarter 1994 income was $921,000, or $.07 per share, a decline from both
the third quarter 1993 income of $1,313,000, or $.11 per share, and the second
quarter 1994 income of $2,801,000, or $.21 per share. Third quarter 1994
revenues were up 13 percent over the third quarter 1993. Third quarter 1994
results of operations were positively impacted by a partial tariff refund and
inventory valuations discussed below.
The Wood Products segment, which comprised 46 percent of 1994 year-to-date
revenues, generated earnings for the third quarter 1994 of $9,733,000,
essentially unchanged from the third quarter 1993 earnings of $9,786,000,
however, down from the second quarter 1994 earnings of $12,810,000. Lumber
sales prices were approximately 7 percent higher in the third quarter 1994 than
third quarter 1993 prices, although essentially unchanged from the second
quarter 1994. Year-to-date 1994 sales prices have averaged approximately 8
percent higher than 1993 year-to-date sales averages. Wood costs have
continued to escalate and in both the third quarter 1994 and in the nine months
1994 higher wood costs have essentially offset the benefit from higher lumber
prices. In addition to the generally higher log costs, the Provincial
Government of British Columbia adjusted upward the price charged by the
government to the Company for a substantial portion of the wood used by the
Company's three Canadian sawmills effective May 1, 1994. The Company's
Canadian sawmills represent approximately 60 percent of the Company's lumber
capacity. The new timber pricing formula is based on a relationship to
end-product prices, and based on the end-product prices in effect at the end of
the third quarter, the Company currently estimates that the new pricing
structure would increase Canadian timber costs by approximately $4 million in
1994 and approximately $10 million per year thereafter. Approximately two
thirds of the Canadian timber in the third quarter 1994 was processed under
this pricing structure with the full impact of the new pricing structure not
being realized until the fourth quarter 1994.
The Company values its United States lumber inventories on the last-in
first-out method. Quantities of certain lumber inventories valued at LIFO were
reduced primarily in the third quarter 1994, generating pretax income of
approximately $3 million during the third quarter.
The Company will reduce its Grand Forks, British Columbia sawmill to a
one-shift basis in early 1995, reducing the Company's lumber production by
approximately 50 million board feet annually, or approximately 6 percent of the
Company's lumber capacity. The curtailment will be caused by reduced timber
harvest levels allowed by the British Columbia government. During the third
quarter, the company committed to and finalized the shift reduction plan and
recorded a $1.8 million charge as the cost of the reduction.
7
<PAGE> 9
During the third quarter of 1994, the United States Department of Commerce
eliminated a 6.51 percent tariff in effect since 1992 on Canadian lumber sold
in the United States. The tariff elimination was based on the conclusions
reached by an extraordinary bi-national disputes panel which affirmed previous
decisions of a joint trade dispute resolution panel that there was no basis for
the tariff. The Company paid approximately $20 million under the tariff since
its inception in 1992, and during the third quarter the Company received, and
included in income, $3.7 million as the refund of the tariff paid in 1994
subsequent to the decision of the joint trade disputes resolution panel. The
Department of Commerce is currently deliberating on whether to refund to the
Company the remaining amount outstanding, plus interest. Additionally, legal
challenges have been filed by a group of United States lumber producers
challenging the constitutionality of the North American Free Trade Act (NAFTA)
and attempting to block additional refunds and to reinstate the tariff. At
this time it is unclear if some, or all, of the remaining tariff, plus interest
at a yet unspecified rate, will be refunded.
Wood Products sawmills operated at approximately 80 percent of capacity in the
third quarter of 1994. Operating inefficiencies in the Canadian sawmills
caused by poor log quality were partially responsible for the below-capacity
operations. Additionally, the Port Gamble sawmill was shut down for a portion
of the third quarter due to poor lumber pricing in relation to wood costs.
The third quarter 1994 pulp and paper segment loss of $2,172,000 was smaller
than the losses in both the third quarter 1993 and second quarter 1994.
Consistent with prior quarters, pulp and tissue reflected losses while diapers
generated income. Pulp losses continue to decline, with the third quarter 1994
losses lower than either of the first two quarters of 1994, or any of the 1993
quarters. Pulp and paper segment revenues were up 23 percent in the third
quarter 1994 over third quarter 1993 primarily as the result of higher pulp
sales volumes.
The Company's market pulp business, which comprises approximately 14 percent of
1994 year-to-date revenues, has seen market prices for pulp strengthen
significantly during the first nine months of 1994 with the standard grade of
bleached softwood pulp selling at the end of the third quarter for more than 70
percent above its price in late December 1993. Although prices for the
Company's pulp have increased, they have lagged behind industry levels.
Currently, approximately 50 percent of the mill's capacity is being sold to a
new customer in 1994, the Grays Harbor Paper Company, with pricing tied to a
formula based on white paper prices. These prices are currently below current
industry pricing for market pulp. The Grays Harbor paper mill sells all of its
output to one customer and in the event that the paper mill's sales to its
customer are adversely impacted for any reason, sales of the Company's pulp may
also be adversely impacted. For the majority of 1994, a significant portion of
the Company's pulp not sold to Grays Harbor has been sold under pricing
arrangements which were below industry pricing. Late in the third quarter of
1994, the pricing provisions of the non-Grays Harbor contracts expired and
prices have returned to a normal relationship to market. The pulp mill operated
essentially at capacity during the third quarter 1994. In the third quarter of
1993, a depressed pulp market combined with a lack of adequate drying capacity,
resulted in the mill operating at 40 percent of capacity.
8
<PAGE> 10
During the first quarter of 1994, the Company completed and successfully
started up a conventional pulp dryer at Halsey with the ability to dry the full
output of the mill. Previously, the mill had been limited in its ability to
dry the full output of the mill. Combined with other mill modifications, the
pulp dryer provides the Company with the flexibility to sell the full output of
the mill in the domestic or world pulp markets.
The tissue business, which comprised 16 percent of 1994 year-to-date revenues,
generated losses in the third quarter 1994 which were essentially unchanged
from the second quarter 1994 losses, but greater than the third quarter 1993
loss. Prices for the Company's tissue products began to stabilize in 1993
after approximately four years of price declines, during which prices declined
approximately 13 percent from 1989 levels. The tissue business remains
extremely competitive and general industry pricing has not improved. Sales
prices for the Company's tissue products in the third quarter 1994 have
improved approximately 6 percent from the third quarter 1993 and 2 percent from
the second quarter of 1994 primarily through improvements in customer mix and
product mix. Year-to-date tissue pricing is approximately 3 percent above the
first nine months of 1993. However, tissue shipments in the third quarter were
down approximately 8 percent from the third quarter 1993 and the second quarter
of 1994 as sales volumes to certain customers was less than expectations
because of customer mix. Tissue shipments represented approximately 83 percent
of tissue capacity. The higher pulp prices which will help the Company's pulp
business began to be reflected in the third quarter in the tissue business as
higher costs for recycled fiber, the primary raw material for the Company's
tissue products. Recycled fiber prices generally follow the same pricing
trends as market pulp, and with the recent strength in the pulp markets
expected to continue, recycled fiber costs will most likely continue to
increase. As a result of the current losses in the Company's tissue business
and the increasing fiber costs, a return to profitability for the Company's
tissue business will be dependent on improved industry pricing.
In April 1994, the company approved a project to improve the quality of the
pulp produced at the Company's Eau Claire, Wisconsin tissue facility. The
primary objective of this project is to improve the quality of the pulp
produced at the facility to quality levels attained by branded producers of
tissue products, allowing the Company to compete more effectively in the tissue
business. The project is anticipated to cost approximately $20 million and is
scheduled for completion in mid 1995.
Diapers, which comprised 24 percent of 1994 year-to-date revenues, reflected
earnings which improved slightly in the third quarter 1994 over the second
quarter 1994, but were still below any quarter in 1993. Sales volumes have
improved to approximately 95 percent of capacity, up from approximately 90
percent of capacity in the second quarter of 1994. Despite competitive pricing
pressure from both branded producers and other private label diaper producers,
sales prices were essentially unchanged from both the third quarter 1993 and
the second quarter 1994. Costs for fluff pulp, a primary component of
disposable diapers, began to increase in the third quarter 1994 with the
strengthening pulp markets.
9
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
For the first three quarters of 1994, net income before non-cash charges for
depreciation and amortization contributed cash of $40.8 million. Inventories
increased $15.4 million due mainly to higher tissue, diaper and log
inventories. Tissue and diaper inventories were up due to sluggish product
demand which may be countered by taking selective downtime as necessary in the
fourth quarter. The increased log inventories related mainly to higher
stumpage costs in Canada. Accounts receivables increased $7.9 million
primarily as a result of pulp sales to Grays Harbor and delays in payments of
those receivables. After September month-end, Grays Harbor receivables were
brought current. Income taxes payable and deferred income taxes combined to
decrease $18.9 million due primarily to timing differences in the recognition
of tax obligations and their related payment. Overall, cash of $4.8 million
was used for operating activities.
The Company invested $48.1 million in capital projects during the first nine
months of the year and estimates an additional $19.0 million will be spent over
the remainder of 1994. The estimated $67 million of capital spending in 1994
will be used to complete the pulp dryer at the Halsey mill, for the pulp
improvement in Eau Claire discussed previously, for cost reducing and product
improvement projects in the Company's diaper business and for cost reducing
projects at the Company's sawmills. Spending on capital projects will be
funded by internally generated cash and borrowing on the Company's lines of
credit, where required.
Year to date 1994, the Company has returned $7.3 million to shareholders in the
form of dividends.
Early in the second quarter 1994, the Company negotiated an additional $25
million short-term line of credit with terms and conditions similar to the
Company's existing $20 million short-term line of credit. The Company now has
$120 million in lines of credit available, of which $70 million was outstanding
at September 30, 1994.
During the first quarter, the Company called for redemption of all the
Company's $40 million 6 percent convertible subordinated debentures due 2012.
The effect of this transaction was to reduce long-term debt by $40 million and
increase stockholders' equity by $38.6 million ($40 million less fees and
expenses) and to increase common shares outstanding by 1.5 million shares.
10
<PAGE> 12
PART II.
ITEM 1. Legal Proceedings
In September 1992, Kimberly-Clark sued the Company in the U.S.
District Court for the Western District of Washington, alleging
that diapers manufactured by the Company infringe a U.S. patent
that has been assigned to Kimberly-Clark. During 1994, the action
was settled by the parties on confidential terms with the Company
retaining the right to continue to sell the accused products. As a
part of the settlement, the parties will arbitrate one of the issues
and the Company does not expect that the ultimate resolution of this
matter will have a material adverse impact on the financial position
or results of operations of the Company.
Kimberly-Clark had also threatened additional litigation with
respect to a related patent which may be issued to Kimberly-Clark
from the U.S. Patent and Trademark office. This issue has also been
settled with no material adverse impact on the financial position or
results of operations of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
--------
(4) (a) Line of Credit Agreement with Wachovia Bank of Georgia,
National Association, dated April 29, 1994. (Incorporated
herein by reference to Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1994.)
(b) Indenture dated June 2, 1993 between the Company and
Chemical Trust Company of California as Trustee with
respect to the Company's 8-3/8% Debentures due 2013.
(Incorporated herein by reference to Exhibit 4.1 to the
Company's registration statement on Form S-3 filed April
6, 1993.)
(c) Revolving Credit Agreement with United States National
Bank of Oregon dated July 18, 1990. (Incorporated herein
by reference to Exhibit 4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1990.)
(d) Revolving Credit Agreement dated May 6, 1992 with United
States National Bank of Oregon; CIBC, Inc.; ABN AMRO Bank
N.V.; Continental Bank N.A.; and Wachovia Bank of Georgia,
National Association. (Incorporated herein by reference
to Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992.)
(e) Rights Agreement between Pope & Talbot, Inc. and The Bank
of California, as rights agent, dated as of April 13,
1988. (Incorporated herein by reference to Exhibit 4(e)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.)
(10) Executive Compensation Plans and Arrangements
---------------------------------------------
(a) Stock Option and Appreciation Plan. (Incorporated herein
by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.)
(b) Executive Incentive Plan. (Incorporated herein by
reference to Exhibit 10(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
(c) Restricted Stock Bonus Plan. (Incorporated herein by
reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.)
(d) Deferral Election Plan. (Incorporated herein by reference
to Exhibit 10(d) to the company's Annual Report on Form
10-K for the year ended December 31, 1992.)
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<PAGE> 13
(e) Supplemental Executive Retirement Income Plan.
(Incorporated herein by reference to Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.)
(f) Form of Severance Pay Agreement between the Corporation
and certain of its executive officers. (Incorporated
herein by reference to Exhibit 10(f) to the company's
Annual Report on Form 10-K for the year ended December 31,
1990.)
. . . . . . . . . . . . . . . . . . . . . . . .
(g) Lease agreement with Pope Resources dated December 20,
1985 for Port Gamble, Washington sawmill site.
(Incorporated herein by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.)
(h) Lease agreement with Shenandoah Development Group, Ltd.
dated March 14, 1988 for Atlanta diaper mill site as
amended September 1, 1988 and August 30, 1989.
(Incorporated herein by reference to Exhibit 10(h) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.)
(i) Lease agreement with Shenandoah Development Group, Ltd.
dated July 31, 1989 for additional facilities at Atlanta
diaper mill as amended August 30, 1989 and February 1990.
(Incorporated herein by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.)
(j) Grays Harbor Paper L.P. Amended and Restated Pulp Sales
Supply Contract dated September 28, 1994.
(11) Statement re computation of per share earnings.
(22) Listing of parents and subsidiaries. (Incorporated herein by
reference to Exhibit 22 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.)
(27) Financial Data Schedule.
The undersigned registrant hereby undertakes to file with the
Commission a copy of any agreement not filed under exhibit item (4)
above on the basis of the exemption set forth in the Commission's
rules and regulations.
Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the three months ended
September 30, 1994.
12
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POPE & TALBOT, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POPE & TALBOT, INC.
-------------------------
Registrant
Date: November 14, 1994 /s/ C. Lamadrid
-------------------------
C. Lamadrid
Senior Vice President and
Chief Financial Officer
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AMENDED AND RESTATED
PULP SALES SUPPLY CONTRACT
Between
GRAYS HARBOR PAPER, L.P.,
a Washington limited partnership,
successor by assignment to
Grays Harbor Industrial, Inc.,
a Washington corporation,
"Buyer"
and
POPE & TALBOT, INC.
a Delaware corporation
"Seller"
Dated: September 28, 1994
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TABLE OF CONTENTS
<TABLE>
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Page
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1. Purchase and Sale; Quantity and Quality........................................................ 2
2. Term........................................................................................... 3
3. Price.......................................................................................... 4
4. Payment Terms.................................................................................. 9
4A. Pulp Payable Subordination..................................................................... 11
4B. Option to Purchase............................................................................. 13
4C. Credit......................................................................................... 13
5. Security....................................................................................... 13
6. Storage, Bailment, Delivery.................................................................... 14
7. Specifications................................................................................. 16
8. Warranty and Liability......................................................................... 17
9. Relationship of Parties........................................................................ 19
10. Costs and Attorney Fees........................................................................ 19
10.1 No Suit or Action Filed................................................................... 19
10.2 Arbitration or Mediation; Trial and Appeal................................................ 20
10.3 Definitions............................................................................... 20
11. Assignment..................................................................................... 21
12. Standards of Performance....................................................................... 21
13. Additional Terms and Conditions................................................................ 21
14. Entire Agreement............................................................................... 21
15. Notice......................................................................................... 21
16. Time of Essence................................................................................ 22
17. Conditions Precedent to Seller's Obligations................................................... 22
EXHIBIT A - BENCHMARK NET PRICES
EXHIBIT B - SPECIFICATIONS
EXHIBIT B-1 - MARKETING AGREEMENT [INTENTIONALLY NOT FILED]
EXHIBIT C - (Confidential Treatment Requested) NOTE - SPECIMEN FORM
EXHIBIT D - PULP PAYABLE SUBORDINATION LETTER - SPECIMEN FORM
EXHIBIT E - OPTION TO ACQUIRE PARTNERSHIP INTEREST
EXHIBIT F - ADDITIONAL TERMS AND CONDITIONS
</TABLE>
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AMENDED AND RESTATED
PULP SALES SUPPLY CONTRACT
DATE: As of September 28, 1994
PARTIES: GRAYS HARBOR PAPER, L.P.,
a Washington limited partnership,
successor by assignment to
Grays Harbor Industrial, Inc.,
a Washington corporation
3105 Murphy
Hoquiam, WA 98550 ("Buyer")
Fax No. 206-532-1278
POPE & TALBOT, INC.
a Delaware corporation
1500 S.W. First Avenue ("Seller")
Portland, OR 97201
Fax No. 503-220-2729
PREAMBLES:
A. On or about August 31, 1993, Buyer acquired the Grays Harbor
Paper Company uncoated free sheet paper mill (the "Hoquiam paper miller")
located in Hoquiam, Washington and it currently operates the mill to produce
uncoated free sheet paper ("UCFS").
B. In connection with Buyer's acquisition of said assets, Buyer
entered into an agreement dated as of June 3, 1993 with Seller ("original
supply contract") wherein Buyer agreed to purchase from Seller and Seller
agreed to sell to Buyer all Buyer's requirements for Pulp (hereinafter defined)
during the term of the original supply contract for the price and subject to
the terms and conditions set forth therein.
C. Concurrently with the execution of the original supply
contract, Buyer entered into a marketing agreement ("Marketing Agreement"), a
copy of which is attached hereto as Exhibit B-1, with the Weyerhaeuser Company
("Weyerhaeuser") pursuant to which
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Weyerhaeuser agreed to purchase the entire output of UCFS paper produced by
Buyer at its Hoquiam, Washington paper mill. Seller relied on the execution of
the Marketing Agreement as a condition precedent to execution of the original
supply contract and is relying on the Marketing Agreement being in full force
and effect as a condition to the execution of this amended and restated supply
contract. As used herein, the term "Supply Contract" means this Amended and
Restated Pulp Sales Supply Contract.
D. Disputes have arisen under the original supply contract,
including disputes regarding delays in payment for Pulp sold by Seller to
Buyer. As a condition to the resolution of those disputes and for good and
valuable consideration, Buyer and Seller hereby amend and restate the original
supply contract in its entirety and more particularly set forth herein.
AGREEMENTS:
1. Purchase and Sale; Quantity and Quality.
1.1 For the duration of this Supply Contract, Seller
agrees to sell and deliver to Buyer and Buyer agrees to purchase and take from
Seller the entire requirements of Buyer's Hoquiam paper mill for Halsey
bleached Kraft sawdust and hardwood or softwood chip baled pulp ("Pulp"), not
to exceed 115,000 air dried short tons ("ADST") per calendar year when the
Hoquiam paper mill is operating at full capacity. If Buyer requires more
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than 115,000 ADST and Seller cannot meet Buyer's needs for Pulp in excess of
115,000 ADST, then Buyer shall have the right to acquire Pulp from another
source. Nothing herein shall prohibit or limit Buyer's right to acquire and
use recycled pulp as Buyer in its sole option shall determine, provided that
Buyer gives Seller at least six months prior written notice of its intent to
use recycled pulp.
1.2 For the duration of this Supply Contract while Buyer
is operating two paper machines, Seller shall deliver Pulp at approximately 320
ADST per day. Buyer may adjust tonnage from week to week to accommodate the
mill's production changes on a day-to-day basis. The 115,000 ADST maximum
annual tonnage level provided herein is intended to reflect Buyer's entire
requirement for Kraft pulp at the Hoquiam paper mill when operating at full
capacity. Seller reserves the right to provide Pulp in satisfaction of its
obligations under this Supply Contract either through its pulp manufacturing
facilities in Halsey, Oregon or from other sources, provided such pulp meets
the specification requirements or the functional equivalent thereof of this
Supply Contract.
2. Term.
2.1 Subject to earlier termination as provided herein,
this Agreement shall commence upon execution and shall continue until ten (10)
years from the "Start Date." "Start Date" shall mean December 20, 1993, which
was the first day of the first week during which Buyer produced and delivered
commercial quantities
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of UCFS paper made with Seller's Pulp to Weyerhaeuser under the Marketing
Agreement.
2.2 Buyer will promptly notify Seller in writing of any
material modification or amendment of the Marketing Agreement and of any
election by Weyerhaeuser or by Buyer to cancel or terminate the Marketing
Agreement. Notwithstanding any other provisions to the contrary herein, (a) in
the event of any material modification or amendment of the Marketing Agreement
which Seller in good faith determines will adversely affect Seller, Seller may
terminate this Supply Contract upon twelve (12) months written notice of
termination to Buyer; and (b) in the event of any cancellation or termination
of the Marketing Agreement during the term of this Supply Contract, Seller may
terminate this Supply Contract as of the termination of the Marketing Agreement
by giving Buyer written notice of termination no later than sixty (60) days
after Seller's receipt of written notice from Buyer that Buyer or Weyerhaeuser
has elected to terminate the Marketing Agreement.
3. Price.
3.1 The price of the Pulp purchased and sold under this
Supply Contract shall be a delivered price for Pulp delivered at Buyer's
Hoquiam paper mill. The price shall be a base price of (Confidential Treatment
Requested) per ADST, adjusted in accordance with subparagraphs 3.1.1 through
3.1.6 below, subject to modification as provided in paragraph 3.2 below.
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3.1.1 In the event Buyer elects to increase or decrease the
percentage of sawdust in the mixture, the following shall apply:
(Confidential Treatment Requested)
3.1.2 The base price for Pulp also will be adjusted upward in
an amount equal (Confidential Treatment Requested) of any increase in
the actual net sales price per item realized by Buyer for UCFS paper
produced from the Pulp over the Benchmark Net Prices as reflected in
Exhibit A. It is agreed that within fourteen (14) days after the end
of each complete four-week period, Buyer will calculate the amount
realized by Buyer from Weyerhaeuser based on actual sales for the
prior four-week period to determine what additional amounts, if any,
are owed to Seller under this paragraph, or what amounts are owed
from Seller to Buyer. (Confidential Treatment Requested)
3.1.3 For purposes of this Supply Contract, the phrases
"actual net sales price per item realized by Buyer for UCFS paper
produced from the Pulp" means (Confidential Treatment Requested)
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(Confidential Treatment Requested) i.e., shall have the same meaning
as the term "Purchase Price" as used in the Marketing Agreement,
except for warehousing costs and sales allowances (returns and
allowances). For purposes of this subparagraph 3.1.3, the "Western
States Price" means the weighted average of the actual net sales
prices per item realized by Buyer for UCFS paper produced from the
Pulp which paper was delivered within the states of Washington,
Oregon, California, Idaho, Montana, Colorado, Wyoming, Arizona, Utah,
Nevada and New Mexico (the "eleven western states") during the period
for which such price is calculated. For purposes of this
subparagraph 3.1.3, any resale of an item of UCFS paper for delivery
outside the eleven western states which produces an actual net sales
price for such item which is lower than the Western States Price for
the period during which the resale occurred will be deemed to have
been made at the Western States Price.
3.1.4 For purposes of this Supply Contract, the "Benchmark
Net Price" means the base net sales price for each item of UCFS paper
produced from the Pulp calculated in accordance with Exhibit A. If the
mix of items of UCFS paper changes during the term of this Supply
Contract, to include new items of UCFS paper not previously listed in
Exhibit A, the Benchmark Net Prices will be expanded to
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include the new item at a mutually agreed upon Benchmark Net Price.
3.1.5 (Confidential Treatment Requested)
3.1.6 (Confidential Treatment Requested)
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(Confidential Treatment Requested)
3.2 Commencing no later than (a) ninety (90) days before the
second anniversary of the Start Date, and (b) ninety (90) days before each
succeeding anniversary of the Start Date during the term of this Supply
Contract, except as otherwise herein provided, the parties shall review every
element of the pricing mechanism of this Supply Contract to determine whether
it is operating fairly in light of current market conditions. It is the intent
of the parties that if there have been fundamental
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changes in the price of market pulp, the price of market paper or the ratio of
the price of market pulp to price of market paper so that the pricing mechanism
under this Supply Contract is not operating fairly in current market
conditions, the parties will negotiate in good faith such modifications as they
consider appropriate. If the parties reach agreement as to such modifications
at least thirty (30) days before the second or succeeding anniversary, as the
case may be, of the Start Date, the modifications will become effective as of
the first day of the year following such second or succeeding anniversary of
this Supply Contract. If such agreement is not reached at least thirty (30)
days before the second or succeeding anniversary, as the case may be, of the
Start Date, either Buyer or Seller may give notice to the other that this
Supply Contract will terminate two years after the second or succeeding
anniversary, as the case may be, of the Start Date. The parties will have no
obligation to conduct the pricing mechanism review and negotiation in any year
after a termination notice has been given under this paragraph 3.2.
4. Payment Terms.
4.1 As used herein the term "invoice month" means the
four week period for which Seller has invoiced Buyer for Pulp sold and
delivered during such period. Seller will invoice Buyer weekly for Pulp
delivered during the week. Pulp will be invoiced at the base price adjusted
for any increase in the actual net sales price per item realized by Buyer
pursuant to the Marketing Agreement for UCFS paper produced from the Pulp
during the
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four-week period preceding the invoice month over the Benchmark Net Prices for
such UCFS paper. Payment will be due when payment for UCFS paper is due to
Buyer under the Marketing Agreement, or within forty-five (45) days from date
of invoice whichever is earlier.) Any amount not paid within forty-five (45)
days from date of invoice will bear interest at the rate per annum (360-day
year) equal to one percentage point above the Prime Rate from time to time
published by the Wall Street Journal or if the Wall Street Journal is not then
being published, or if a quotation of the Prime Rate is for any reason not
available therein, then the Prime Rate as published in another national
financial reporting publication, as selected by Seller. Interest will accrue
from the forty-fifth day after the date of invoice until paid, and will be
payable upon demand of the Seller.
4.2 Within fifteen (15) days after the end of each invoice
month, Buyer will notify Seller in writing of any increase or decrease in
the actual net sales price per item realized by Buyer for UCFS paper produced
from the Pulp during the invoice month from that in effect during the four-week
period preceding the invoice month. If there have been increases in actual
net sales price per item realized by Buyer for UCFS paper produced from the
Pulp during the invoice month, Buyer will pay to Seller the additional
purchase price attributable to such increases with Buyer's written notification
to Seller of such increases. If there have been decreases, Buyer will be
entitled (a) to a credit to be applied against the purchases in the next
invoice month in an amount equal to the portion of the previously
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invoiced purchase price attributable to such decrease or (b) a payment of such
amount at Buyer's direction.
4.3 Buyer shall cause Weyerhaeuser to pay directly to
Seller fifty percent (50%) of the "Purchase Price" (as defined in the Marketing
Agreement) receivable by Buyer from Weyerhaeuser pursuant to the Marketing
Agreement. If Seller fails to receive full payment when due under this Supply
Contract, Seller shall immediately notify Buyer in writing and Buyer shall
have five (5) business days to make payment. If payment is not made by Buyer
to Seller within said five (5) day period, then Seller, at its option, may
cease delivery of Pulp to Buyer.
4.4 (Confidential Treatment Requested)
4A. Pulp Payable Subordination.
4A.1. As used in this Supply Contract, the following terms
have the meanings set opposite them:
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(i) "Finished Goods Inventory" means all present and
after-acquired finished goods of Buyer (including UCFS paper produced from the
Pulp);
(ii) "Paper Receivables" means accounts receivable of Buyer
for sales of paper produced and sold by Buyer;
(iii) "Pulp Payables" means accounts payable by Buyer to
Seller and accounts receivable of Seller from Buyer for sales of Pulp under the
original supply contract and this Supply Contract;
(iv) "Line of Credit" means the revolving line of credit to
be extended to Buyer concurrently with the execution of this Supply Contract by
U.S. Bank of Washington, a national association ("U.S. Bank"), substantially in
accord with U.S. Bank's August 1, 1994 commitment;
(v) "Term Loan" means the $7,000,000 term loan to be extended
to Buyer concurrently with the execution of this Supply Contract by U.S. Bank
substantially in accord with U.S. Bank's August 1, 1994 commitment.
4A.2. Seller will subordinate its right to payment of Pulp
Payables to the right of U.S. Bank to payment of the Term Loan and the Line of
Credit to the extent and upon the terms and conditions set forth in (a) the
Intercreditor and Subordination Agreement of even date herewith among U.S.
Bank, Buyer and Seller, as it may be amended from time to time; and (b) the
Pulp Payable Subordination Letter, form of which is attached hereto as Exhibit
D. Buyer will pay Seller the Subordination Fee in the
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amounts, at the times, in accordance with and subject to the terms and
provisions of the Pulp Payable Subordination Letter.
4B. Option to Purchase.
Concurrently with the execution of this Supply Contract, Buyer
will execute and deliver to Seller and will cause Buyer's Partners to execute
and deliver to Seller the Option to Acquire Partnership Interest the form of
which is attached hereto as Exhibit E.
4C. Credit.
If at any time Buyer's financial responsibility becomes
impaired or unsatisfactory to Seller, Seller may demand satisfactory proof of
Buyer's financial responsibility or satisfactory additional security for
performance given by Buyer. Failing this, payment shall be made in cash on
delivery, otherwise Seller shall have the right to decline to make further
shipments or deliveries. Nothing in this clause shall affect the obligation of
the Buyer to pay for the Pulp contracted for.
5. Security.
5.1 Under the original supply contract and the
indemnification and security agreement executed concurrently therewith, Buyer
granted to Seller security interests in various assets. Contemporaneously with
the execution of this Supply Contract, the parties are entering into an
"Amended and Restated Security Agreement" which is an amendment and restatement
of the indemnification and security agreement. In the Amended and Restated
Security Agreement, as the same may be amended, the security interests granted
in the original supply contract and in
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the indemnification and security agreement are continued in full force and
effect and a security interest in certain additional collateral is granted by
Buyer to Seller as security for payment and performance of Buyer's obligations
hereunder as more fully specified therein. At Seller's request, Buyer will
execute such UCC-1 financing statements and other instruments as Seller and
Seller's counsel consider appropriate to perfect Seller's security interest and
to implement the provisions of this Section 5. Seller shall have and be
entitled to execute all rights and remedies available to a secured party under
the laws of the state of Washington.
5.2 At Buyer's request, Seller will enter into an
intercreditor agreement with Buyer's lender(s) by the terms of which Seller
will agree to subordinate to such lender(s) Seller's security interest as to an
undivided 50% of Buyer's work in process, finished goods (including the UCFS
paper produced from the Pulp), proceeds from the sale thereof and accounts
receivable, provided that such lender(s) acknowledge the priority of Seller's
security interest as to an undivided 50% of such collateral and consent to the
direct payment by Weyerhaeuser to Seller of 50% of the Purchase Price
receivable by Buyer from Weyerhaeuser as provided in this Section 5. The form
and content of the intercreditor agreement must be reasonably acceptable to
Seller and Seller's counsel.
6. Storage, Bailment, Delivery.
6.1 At all times during the term of this Supply Contract,
as extended, Buyer will make available to Seller, at no
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cost to Seller, a discrete covered asphalt paved area (the "Storage Site") on
Buyer's mill site in Hoquiam, Washington, suitable for storage of up to
3,000/4,000 ADST of baled Pulp. Pulp will be shipped by truck. Buyer, at its
cost, will unload baled Pulp shipped by Seller and store same at the Storage
Site. Buyer will acknowledge in writing daily to Seller all Pulp received by
Buyer for storage. During storage and until the Pulp is withdrawn from storage
by Buyer for conversion into UCFS paper, title to and risk of non-negligent
loss as to the Pulp will remain in Seller, but Buyer at all times shall
exercise a bailee's duty of due care as to the stored Pulp. During storage of
the Pulp, the relationship of Seller and Buyer with respect to the Pulp will be
that of bailor and bailee. Until Pulp is delivered to Buyer by withdrawal from
storage for conversion into UCFS paper subject to and in accordance with
paragraph 6.2 below, Buyer shall not be under any contractual obligation to
purchase the Pulp stored in the Storage Site. Prior to such delivery, Seller
at all times retains the right to withdraw Pulp from the Storage Site for
delivery to other customers or for such other uses as it deems appropriate.
During storage, Buyer as bailee will (a) not commingle the stored Pulp with
property of Buyer or others, (b) clearly identify the storage area, (c) limit
access to the Storage Area to only those persons specifically authorized by
Buyer or by Seller (including Seller's transporting the Pulp to the Storage
Site), (d) provide adequate on-site security to prevent theft and vandalism of
the Pulp; and (e) post signs in
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conspicuous locations around the Storage Site designating the Pulp as "Property
of Pope & Talbot, Inc."
6.2 While Buyer is not in default under this Supply
Contract, Buyer may withdraw Pulp from storage for the exclusive purpose of
converting same into UCFS paper under this Supply Contract. Delivery shall
occur and all risk of loss as to the Pulp shall pass to Buyer upon such
withdrawal of Pulp from storage. Buyer will notify Seller daily in writing of
all Pulp withdrawn from storage under this Supply Contract for conversion into
UCFS paper.
6.3 In the event that production is reduced at Seller's
Halsey pulp mill due to causes beyond the control of Seller, Seller will
allocate that pulp which is produced at its Halsey pulp mill ratably among all
Seller's regular contractual pulp customers, including Buyer. Notwithstanding
any other provision of this Supply Contract, if Seller completely discontinues
the operation of its Halsey pulp facility, Seller will be relieved of any
further duty or obligation under this Supply Contract as of one year following
Seller's written notice to Buyer of such discontinuance. Seller has no plans
to discontinue operations of the Halsey pulp facility.
7. Specifications.
7.1 Pulp to be purchased and sold hereunder shall conform
with the specifications attached hereto as Exhibit B and by this reference made
a part hereof. Any amendment or modification of the specifications shall only
become effective
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when Buyer and Seller agree in writing to such amendment or modification.
7.2 Seller shall furnish Buyer, on a regular basis, with
information compiled by Seller at the Halsey pulp mill (including quality
reports and tests performed in the ordinary course of Seller's production of
Pulp) to verify Seller's compliance with the specifications.
7.3 Seller and Buyer shall meet at least once every month
(more often if needed) to review compliance with specifications and quality
issues.
8. Warranty and Liability.
Seller warrants that Pulp sold hereunder conforms to the
specifications contained in this Supply Contract, that the Pulp does not
infringe any valid U.S. patent and that title is unencumbered. THERE ARE NO
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SPECIFICALLY, SELLER
MAKES NO WARRANTY THAT PULP SUPPLIED BY SELLER HEREUNDER WHICH MEETS THE
SPECIFICATIONS OF THIS SUPPLY CONTRACT WILL BE SUITABLE FOR THE PRODUCTION OF
UCFS PAPER AT BUYER'S HOQUIAM PAPER MILL. BUYER ENTERS INTO THIS SUPPLY
CONTRACT HAVING CONDUCTED OR HAVING CAUSED TO BE CONDUCTED SUCH TEST RUNS
UTILIZING SELLER'S PULP AS BUYER HAS CONSIDERED APPROPRIATE. UNDER NO
CIRCUMSTANCE SHALL SELLER HAVE ANY OBLIGATION UNDER THIS SUPPLY CONTRACT OR
OTHERWISE EXCEPT TO PROVIDE BUYER WITH PULP WHICH MEETS THE SPECIFICATIONS OF
THIS SUPPLY CONTRACT. SELLER SHALL NOT BE LIABLE FOR ANY CONSEQUENTIAL,
INCONSEQUENTIAL, INCIDENTAL OR
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SPECIAL DAMAGES OF ANY KIND WHATSOEVER. BUYER'S SOLE REMEDY AND SELLER'S SOLE
LIABILITY FOR DEFECTIVE PULP SHALL BE REPLACEMENT OR CREDIT. IN NO EVENT SHALL
SELLER'S LIABILITY EXCEED THE PURCHASE PRICE OF DEFECTIVE PULP.
BUYER SHALL HAVE NO REQUIREMENT OR LIABILITY TO TAKE OR PAY
FOR ANY CERTAIN QUANTITY OF PULP OTHER THAN WHAT IS NEEDED PURSUANT TO THE
MARKETING AGREEMENT. IN NO EVENT SHALL BUYER BE LIABLE TO SELLER FOR ANY
CONSEQUENTIAL, INCONSEQUENTIAL, INCIDENTAL, SPECIAL, DIRECT OR INDIRECT LOSS,
HARM, CLAIMS OR DEMANDS ARISING OUT OF OR RELATED TO BUYER'S FAILURE OR
INABILITY TO PURCHASE PULP, INCLUDING WITHOUT LIMITATION ANY CURTAILMENT OR
SUSPENSION OF PRODUCTION OF UCFS PAPER, WHETHER OR NOT DUE TO THE FAULT OF
BUYER OR OTHERS.
HOWEVER, IF DURING ANY 30-DAY PERIOD WHICH BEGINS AFTER THE
EARLIER OF (A) THE DATE AS OF WHICH BUYER COMMENCED OPERATION OF TWO PAPER
MACHINES AT THE HOQUIAM PAPER MILL, OR (B) MARCH 31, 1994, BUYER (EXCEPT FOR
FORCE MAJEURE AS HEREIN DEFINED) SHOULD FAIL TO TAKE OR PAY FOR SEVENTY-FIVE
PERCENT (75%) OF THE VOLUMES OF PULP SELLER IS OBLIGATED TO DELIVER UNDER THIS
SUPPLY CONTRACT, SELLER SHALL NOTIFY BUYER IN WRITING OF SUCH SHORTFALL. IF
WITHIN FIVE (5) BUSINESS DAYS OF ITS RECEIPT OF SUCH NOTICE BUYER HAS NOT
RESUMED TAKING PULP AT THE RATE OF AT LEAST SEVENTY-FIVE PERCENT (75%) OF THE
MAXIMUM VOLUMES SELLER IS OBLIGATED TO DELIVER UNDER THIS SUPPLY CONTRACT OR
HAS NOT MADE OTHER SUITABLE ARRANGEMENTS WITH SELLER FOR THE DISPOSITION OF THE
SHORTFALL, SELLER MAY TAKE SUCH ACTION AS SELLER CONSIDERS APPROPRIATE TO
DISPOSE OF THE SHORTFALL. BUYER ACKNOWLEDGES THAT
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SUCH ACTION MAY INVOLVE SELLER'S COMMITMENT ("THIRD PARTY COMMITMENT") TO SELL
TO THIRD PARTIES A PORTION OF THE VOLUME OF PULP SELLER OTHERWISE WOULD BE
OBLIGATED TO SELL TO BUYER UNDER THIS SUPPLY CONTRACT. IF IN CONNECTION WITH
THE DISPOSITION OF A SHORTFALL SELLER MAKES THIRD PARTY COMMITMENTS, AT BUYER'S
REQUEST SELLER WILL MAKE REASONABLE GOOD FAITH EFFORTS TO RESUME DELIVERIES TO
BUYER OF PULP AT PRE-SHORTFALL LEVELS UPON THE EXPIRATION OF SUCH THIRD PARTY
COMMITMENT IF BUYER IS THEN PURCHASING THE MAXIMUM TONNAGE SELLER IS THEN
OBLIGATED TO SELL UNDER THIS SUPPLY CONTRACT AND IF BUYER IS NOT OTHERWISE IN
DEFAULT HEREUNDER.
9. Relationship of Parties.
Nothing in this Supply Contract or in any related dealings
between Seller and Buyer shall be construed or interpreted to mean that the
relationship between the parties is other than the relationship of seller and
buyer, bailor and bailee or secured party and debtor, as the same may be, as
more particularly set forth in this Supply Contract. The parties specifically
disclaim any intention that their relationship under this Supply Contract be
interpreted or construed as a partnership or joint venture relationship.
10. Costs and Attorney Fees.
10.1 No Suit or Action Filed. If this Supply Contract is
placed in the hands of an attorney due to a default in the payment or
performance of any of its terms, the defaulting party shall pay, immediately
upon demand, the other party's reasonable attorney fees, collection costs, even
though no suit or action is
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filed thereon, and any other fees or expenses incurred by the nondefaulting
party.
10.2 Arbitration or Mediation; Trial and Appeal. If any
arbitration, mediation, or other proceeding is brought in lieu of litigation,
or if suit or action is instituted to enforce or interpret any of the terms of
this Supply Contract, or if suit or action is instituted in a Bankruptcy Court
for a United States District Court to enforce or interpret any of the terms of
this Supply Contract, to seek relief from an automatic stay, to obtain adequate
protection, or to otherwise assert the interest of Seller in a bankruptcy
proceeding, the party not prevailing shall pay the prevailing party's costs and
disbursements, the fees and expenses of expert witnesses in determining
reasonable attorney fees, and such sums as the court may determine to be
reasonable for the prevailing party's attorney fees connected with the trial
and any appeal and by petition for review thereof.
10.3 Definitions. For purposes of this Supply Contract,
the term attorney fees includes all charges of the prevailing party's attorneys
and their staff (including without limitation legal assistants, paralegals,
word processing, and other support personnel) and any post-petition fees in a
bankruptcy court. For purposes of this Supply Contract, the term fees and
expenses includes but is not limited to long distance telephone charges;
expenses of facsimile transmission; expenses for postage (including costs of
registered or certified mail and return receipts), express mail, or parcel
delivery; mileage and all deposition charges, including but not limited to
court
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reporter's charges, appearance fees, and all costs of transcription; costs
incurred in searching records; and the cost of title reports or surveyor's
reports.
11. Assignment.
This Supply Contract shall be binding on and shall inure to
the benefit of the respective successors of the parties, but shall not be
assigned without the prior written consent of the parties which shall not be
unreasonably withheld.
12. Standards of Performance.
Both parties agree that their performance pursuant to this
Supply Contract shall be judged by standards of good faith and commercial
reasonableness. Both parties agree to take or refrain from such action and to
execute such documents as are reasonably necessary to implement this Supply
Contract and to carry out its intent and purposes and to avoid impairing or
interfering with the reasonable expectations of the parties.
13. Additional Terms and Conditions.
Exhibit F attached hereto listing Additional Terms and
Conditions is incorporated and made a part of this Agreement.
14. Entire Agreement.
This Supply Contract together with the attached exhibits
constitutes the entire understanding and agreement of the parties hereto, and
may only be modified or amended by an agreement in writing signed by the
parties.
15. Notice.
Any notice required or permitted to be given or made by the
terms of this Supply Contract shall be deemed to have been
21 - AMENDED AND RESTATED PULP SALES SUPPLY CONTRACT
<PAGE> 24
duly given or made (a) if personally delivered to Buyer or Seller, as the case
may be, at its address first above written, or (b) as of and when transmitted
by facsimile transmission to Buyer or Seller, as the case may be, at its
address first above written, or (c) as of and when deposited in the United
States mail in a sealed envelope, postage prepaid, by registered or certified
mail, return receipt requested, addressed to Buyer or Seller, as the case may
be, at its address first above written. Any party may change the address to
which notice shall be delivered or sent by notice to the other parties
transmitted as herein provided.
16. Time of Essence.
Time is of the essence hereof.
17. Conditions Precedent to Seller's Obligations.
All of Seller's duties and obligations hereunder are subject
to the satisfaction, concurrently with the execution and delivery of this
Supply Contract, of the following conditions: (a) U.S. Bank fully releases
Seller from any and all liability under that certain guaranty dated August 31,
1993 ("Guaranty"); (b) Buyer executes and delivers to Seller its acceptance of
the Pulp Payable Subordination Letter; (c) Seller, Buyer and U.S. Bank execute
and deliver the Intercreditor and Subordination Agreement in form and substance
reasonably acceptable to Seller; (d) Partners holding not less than 100% of the
entire partnership interests in Buyer have executed and delivered to Seller the
Option described in Section 4A of this Supply Contract; (e) Buyer receives a
cash infusion of not less than $1,000,000 from
22 - AMENDED AND RESTATED PULP SALES SUPPLY CONTRACT
<PAGE> 25
Partners holding partnership interests in Buyer which cash infusion shall be in
the form of loans, the terms and provisions of which shall be subject to
Seller's prior reasonable approval, provided that in all events repayment of
such loans shall be subject and subordinate to Buyer's obligations of all and
every kind whatsoever to Seller; (f) there are no Pulp Payables owing by Buyer
to Seller which under the terms of this Supply Contract would be overdue; and
(g) Seller and Buyer execute and deliver the Amended and Restated Security
Agreement, and Seller shall have received satisfactory evidence that all
filings, registrations and recordings have been made in the appropriate
governmental offices, and all other action has been taken, which shall be
necessary to create, in favor of Seller, a perfected lien on and security
interest in the "Collateral" referred to therein and with the priority
contemplated thereby, including evidence of filing of completed UCC-1 financing
statements with
/////
/////
/////
/////
/////
/////
/////
/////
/////
/////
/////
23 - AMENDED AND RESTATED PULP SALES SUPPLY CONTRACT
<PAGE> 26
the Secretary of State of Oregon and the Secretary of State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
GRAYS HARBOR PAPER, L.P.,
a Washington limited partnership
By: Grays Harbor Industrial, Inc.,
a Washington corporation,
its general partner
By: /s/ William D. Quigg
-----------------------------------
Title: President
--------------------------------
POPE & TALBOT, INC.
By: /s/ C. Lamadrid
------------------------------------------
SR VP & CFO
------------------------------------------
24 - AMENDED AND RESTATED PULP SALES SUPPLY CONTRACT
<PAGE> 27
EXHIBIT A
BENCHMARK NET PRICES
<PAGE> 28
EXHIBIT A
POPE & TALBOT/GRAYS HARBOR INDUSTRIAL, INC.
PRICING MODEL FOR CALCULATION OF
BENCHMARK NET PRICE OF UCFS PAPER
AS BASIS FOR ADJUSTMENT TO BASE PRICE OF PULP
<TABLE>
<CAPTION>
Paper Basis
Grade Wt.
- ----- -----
<S> <C>
Opaque Skids 40 (Confidential Treatment Requested)
Opaque Skids 50
Opaque Skids 60
Opaque Rolls 40
Opaque Cartons 40
Opaque Cartons 50
Opaque Cartons 60
Offset Rolls 45
Offset Rolls 50
Offset Rolls 60
Offset Rolls 70
Offset Cartons 45
Offset Cartons 50
Offset Cartons 60
Offset Cartons 70
Offset Skids 45
Offset Skids 50
Offset Skids 60
Offset Skids 70
Business Papers 20
Total Short Tons
</TABLE>
Exhibit A
1 of 1
<PAGE> 29
EXHIBIT B
SPECIFICATIONS
<PAGE> 30
WHITE GOLD SHEETED PULP GRADE 912
BLEACHED HARDWOOD KRAFT
TEMPORARY
MAY 1993
SPECIES RED ALDER
This bleached hardwood kraft pulp performs well in applications for
printing papers. This pulp contributes to the sheet opacity, smoothness and
printability. Refining develops the tensile strength without much less in tear
strength.
White Gold 912 is press dried, allowing quick and complete repulping.
Future supply will include dried sheeted pulp which will require some
additional refining to develop the strength characteristics.
<TABLE>
<CAPTION>
PRODUCT CHARACTERISTICS
TYPICAL MINIMUM MAXIMUM
-------- ------- --------
<S> <C> <C> <C>
Bale Weight, Pounds 3,400 3,300 3,450
Bale Size 80x38x40 N/A N/A
ISO Brightness 88 84.5 N/A
TAPPI Total Dirt and
Shive Count, PPM 5 0 10
</TABLE>
<TABLE>
<CAPTION>
TYPICAL PULP PHYSICAL PROPERTIES
Freeness CSF 600 550 400
- ------------ ----- ----- -----
<S> <C> <C> <C>
TAPPI Burst Factor
gf/cm2 / g/m2 25 35 50
TAPPI Tear Factor
100gf.m2/g 70 80 75
Breaking Length km 3.5 5.0 6.0
Tensile gf/ln 6,000 7,500 9,500
</TABLE>
Exhibit B
1 of 3
<PAGE> 31
WHITE GOLD SHEETED PULP GRADE 312
BLEACHED SAWDUST SOFTWOOD KRAFT
TEMPORARY
MAY 1993
SPECIES DOUGLAS FIR
This bleached softwood sawdust kraft performs well in applications for
printing papers. Its sawdust content produces a much shorter fiber than
conventional softwood kraft, making it ideal for use in paper furnishes to
improve formation, sheet density, and printing surfaces; refining improves the
pulp's tensile strength without much loss in tear strength.
White Gold 312 is press dried allowing quick and complete repulping.
Future supply will include dried sheeted pulp which will require some
additional refining to develop the strength characteristics.
<TABLE>
<CAPTION>
PRODUCT CHARACTERISTICS
TYPICAL MINIMUM MAXIMUM
-------- -------- -------
<S> <C> <C> <C>
Bale Weight, Pounds 3,400 3,300 3,450
Bale Size 80x38x40 N/A N/A
Air Dry, Percent 50 N/A N/A
ISO Brightness 88 84.5 N/A
TAPPI Total Dirt and
Shive Count, PPM 5 0 10
</TABLE>
<TABLE>
<CAPTION>
TYPICAL PULP PHYSICAL PROPERTIES
Freeness CSF 640 550 400
- ------------ ----- ----- -----
<S> <C> <C> <C>
TAPPI Burst Factor
gf/cm2 / g/m2 25 33 38
TAPPI Tear Factor
100gf.m2/g 80 75 70
Breaking Length km 4.0 5.0 6.0
Tensile gf/ln 6,000 8,000 9,500
</TABLE>
Exhibit B
2 of 3
<PAGE> 32
WHITE GOLD GRADE 112
BLEACHED SOFTWOOD KRAFT
MAY 1993
SPECIES DOUGLAS FIR
This Douglas Fir kraft pulp has excellent initial tear strength and
develops good tensile strength with refining.
White Gold 112 is press dried, allowing quick and complete repulping.
Future supply will include dried sheeted pulp which will require some
additional refining to develop peak strength characteristics.
<TABLE>
<CAPTION>
PRODUCT CHARACTERISTICS
TYPICAL MINIMUM MAXIMUM
---------- ------- -------
<S> <C> <C> <C>
Bale Weight, Pounds 3,400 3,300 3,450
Bale Size 80x37.5x38 N/A N/A
Air Dry, Percent 50 N/A N/A
ISO Brightness 86 84.5 N/A
TAPPI Total Dirt and
Shive Count, PPM 3 0 5
</TABLE>
<TABLE>
<CAPTION>
TYPICAL PULP PHYSICAL PROPERTIES
Freeness CSF 740 550 400
- ------------ ----- ----- -----
<S> <C> <C> <C>
TAPPI Burst Factor
gf/cm2 / g/m2 27 55 60
TAPPI Tear Factor
100gf.m2/g 200 120 100
Breaking Length km 3.5 7.0 8.0
Tensile gf/ln 5,500 11,000 12,000
</TABLE>
POPE AND TALBOT -- HALSEY, OREGON U.S.A.
Exhibit B
3 of 3
<PAGE> 33
EXHIBIT C
(Confidential Treatment Requested) NOTE
SPECIMEN FORM
<PAGE> 34
BPH Draft September 19, 1994
[EXHIBIT C]
PROMISSORY NOTE
---------------
U.S. $__________ Dated: __________, 199__
FOR VALUE RECEIVED, the undersigned, GRAYS HARBOR PAPER L.P.,
a Washington limited partnership, formerly known as Hoquiam Paper Company, A
Washington Limited Partnership (the "Borrower"), HEREBY UNCONDITIONALLY
PROMISES TO PAY to the order of POPE & TALBOT, INC., a Delaware corporation
(the "Lender"), the principal sum of_______________ UNITED STATES DOLLARS
(U.S. $_____________) (Confidential Treatment Requested) on February 15, 2000.
The Borrower further promises to pay interest on the
outstanding principal amount of this Promissory Note (this "Note") from the
date hereof until maturity, monthly in arrears, on the first day of each month,
and on the maturity date hereof, commencing on _____________, 199___, [insert
first day of month immediately following issuance date] at a rate per annum
equal at all times to the Prime Rate plus 1% per annum. As used herein, the
"Prime Rate" means, for any day, the "prime rate" from time to time published
in The Wall Street Journal or, if The Wall Street Journal is not then being
published or if a quotation of the prime rate is for any reason not available
therein, then the "prime rate" as published in another national financial
reporting publication, as selected by the Lender. The interest rate hereon
shall change as of each effective date of a change in the Prime Rate. In the
event that any amount of principal or interest, or any other amount payable
hereunder, is not paid in full when due (whether at stated maturity, by
acceleration or otherwise), the Borrower shall pay interest on such unpaid
principal, interest or other amount, from the date such amount becomes due until
the date such amount is paid in full, payable on demand, at a rate per annum
equal at all times to the Prime Rate plus 5% per annum. All computations of
interest shall be made on the basis of a year of 360 days for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest is payable.
All payments hereunder shall be made in lawful money of the
United States of America and in same day or immediately available funds, to the
Lender, at U.S. Bank of Oregon, acct. no. 1790012296, routing no. 123000220,
Portland, Oregon, or to such other place and account of the Lender as it from
time to time shall designate in a written notice to the Borrower.
Whenever any payment hereunder shall be stated to be due, or
whenever any interest payment date or any other date specified hereunder would
otherwise occur, on a day other than a Business Day (as defined below), then,
except as otherwise provided
<PAGE> 35
herein, such payment shall be made, and such interest payment date or other
date shall occur, on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
hereunder. As used herein, "Business Day" means a day (i) other than Saturday
or Sunday, and (ii) on which commercial banks are open for business in Seattle,
Washington, and Portland, Oregon.
All payments shall be made hereunder unconditionally in full
without deduction, setoff, counterclaim or other defense, including, without
limitation, any deduction or setoff arising out of or in connection with the
Amended and Restated Pulp Supply Sales Contract dated as of September 28, 1994
(as amended, modified, renewed or extended from time to time, the "Supply
Contract"); provided however, that no payment hereunder shall be deemed to be a
waiver of any right or claim that the Borrower may have under the Supply
Contract. The Borrower represents and warrants to the Lender that, to the best
of Borrower's knowledge, there is no claim, defense, counterclaim or set-off
which could be asserted by or is available to the Borrower against the Lender.
Anything herein to the contrary notwithstanding, if during any
period for which interest is computed hereunder, the amount of interest
computed on the basis provided for in this Note, together with all fees,
charges and other payments which are treated as interest under applicable law,
as provided for herein or in any other document executed in connection
herewith, would exceed the amount of such interest computed on the basis of the
Highest Lawful Rate, the Borrower shall not be obligated to pay, and the Lender
shall not be entitled to charge, collect, receive, reserve or take, interest in
excess of the Highest Lawful Rate, and during any such period the interest
payable hereunder shall be computed on the basis of the Highest Lawful Rate.
As used herein, "Highest Lawful Rate" means the maximum non-usurious rate of
interest, as in effect from time to time, which may be charged, contracted for,
reserved, received or collected by the Lender in connection with this Note
under applicable law.
The Borrower may, upon at least one Business Day's written
notice to the Lender, prepay the outstanding amount hereof in whole or in part,
without premium or penalty.
Upon the termination, for any reason, of the Supply Contract,
the Borrower shall, on the day of such termination and simultaneously
therewith, prepay the outstanding principal amount of this Note in full.
Additionally, in connection with any permitted distribution to the Borrower's
partners as provided for in the Supply Contract, the Borrower shall, on the day
of such distribution and simultaneously therewith, prepay the outstanding
principal amount of this Note in whole or in part, to the extent required by
the Supply Contract.
Together with any prepayment hereunder, the Borrower shall pay
accrued interest to the date of such prepayment on the principal amount
prepaid.
The Borrower represents and warrants to the Lender that:
2.
<PAGE> 36
(a) The Borrower is a limited partnership duly organized,
validly existing and in good standing under the law of the jurisdiction of its
organization and has all requisite power and authority to own its assets and
carry on its business and to execute, deliver and perform its obligations
under this Note.
(b) The execution, delivery and performance by the
Borrower of this Note have been duly authorized by all necessary action of the
Borrower, and do not and will not: (i) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; or (ii) violate any provision of its
partnership agreement or any law, rule, regulation, order, writ, judgment,
injunction, decree or the like binding on or affecting the Borrower.
(c) This Note constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms.
(d) No authorization, consent, approval, license,
exemption of, or filing or registration with, any governmental agency or
authority is required for the due execution, delivery or performance by the
Borrower of this Note.
So long as any amount payable by the Borrower hereunder shall
remain unpaid, the Borrower shall:
(a) furnish to the Lender:
(i) promptly after the Borrower has knowledge or
becomes aware of the occurrence of any event or circumstance which, with the
giving of notice, the lapse of time or both, would (if not cured or otherwise
remedied) constitute an Event of Default (a "Default") hereunder, a statement
of the chief financial officer of the Borrower setting forth details of such
Default and the action which the Borrower proposes to take with respect
thereto;
(ii) prompt written notice of all actions, suits and
proceedings before any arbitrator, court or governmental department,
commission, board, bureau, agency or other instrumentality, domestic or
foreign, pending, or to the best of the Borrower's knowledge, threatened
against or affecting the Borrower which may materially adversely affect the
operations, properties, business or condition (financial or otherwise) of the
Borrower;
(iii) prompt written notice of any other condition
or event which has resulted, or that could reasonably be expected to result, in
a material adverse change in the business, results of operations or condition
(financial or otherwise) of the Borrower; and
3.
<PAGE> 37
(iv) such information respecting the operations,
properties, business or condition (financial or otherwise) of the Borrower as
the Lender may from time to time reasonably request; and
(b) at any reasonable time and from time to time permit
the Lender or any of its agents or representatives to visit and inspect any of
the properties of the Borrower and to examine and make copies of and abstracts
from the records and books of account of the Borrower, and to discuss the
business affairs, finances and accounts of the Borrower with any of the
officers, employees or accountants of the Borrower; and
(c) do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence.
So long as any amount payable by the Borrower hereunder shall
remain unpaid, the Borrower shall not:
(a) Sell, lease, transfer or otherwise dispose of any of
its properties and assets, including, without limitation, any properties and
assets constituting the business of a division, branch or other unit of
operation, except in the ordinary course of business and except for sales of
obsolete, worn-out or surplus property;
(b) Make any distributions of cash or other property to
the partners of the Joint Venture, except to the extent expressly permitted by
the Supply Agreement; or
(c) Merge with or consolidate into, or acquire all or
substantially all of the assets of, any Person, or sell, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets.
Any of the following events which shall occur shall constitute
an "Event of Default":
1. The Borrower shall fail to pay when due (i) any
amount of principal payable hereunder or (ii) any amount of interest hereunder
or any other amount payable hereunder and such failure shall continue for five
Business Days.
2. Any representation or warranty by the Borrower under
or in connection with this Note shall prove to have been incorrect in any
material respect when made or deemed made.
3. The Borrower shall fail to perform or observe any
other term, covenant or agreement contained in this Note on its part to be
performed or observed.
4. One or more judgments for the payment of money in an
aggregate amount in excess of $25,000 shall be rendered against the Borrower
and the same shall remain undischarged and execution shall not be effectively
stayed, or any action shall be
4.
<PAGE> 38
legally taken by a judgment creditor to levy upon assets or properties of the
Borrower to enforce any such judgment.
5. The Borrower shall (i) fail to pay any principal or
interest, regardless of amount, due in respect of any indebtedness in a
principal amount in excess of $25,000, when and as the same shall become due
and payable, or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evidencing or
Governing any such indebtedness if the effect of any failure referred to in
this clause (ii) is to cause, or to permit the holder or holders of such
indebtedness or a trustee on its or their behalf (with or without the giving of
notice, the lapse of time or both) to cause, such indebtedness to become due
prior to its stated maturity.
5. Any default under the Supply Contract shall have
occurred.
6. The Borrower shall make an assignment for the benefit
of creditors, admit in writing its inability to pay its debts as they mature,
apply to any court for the appointment of a trustee or receiver of any
substantial part of its properties, or commence any voluntary proceedings under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other similar law of any jurisdiction.
7. Any such application or any such proceedings
described in paragraph 6 above shall be filed or commenced against the
Borrower, and the Borrower shall indicate its approval, consent or acquiescence
thereto, or an order shall be entered adjudicating the Borrower bankrupt or
insolvent and such order remains in effect for 30 days.
8. The Borrower shall (i) liquidate, wind up or dissolve
(or suffer any liquidation, wind-up or dissolution), (ii) suspend its
operations other than in the ordinary course of business, or (iii) take any
corporate action to authorize any of the actions or events set forth above in
this paragraph 8.
If any Event of Default shall occur, the Lender may (i) by
notice to the Borrower, declare the entire unpaid principal amount of this
Note, all interest accrued and unpaid hereon and all other amounts payable
hereunder to be forthwith due and payable, whereupon all unpaid principal under
this Note, all such accrued interest and all such other amounts shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower, provided that if an event described in paragraphs 6 or 7 above shall
occur, the result which would otherwise occur only upon giving of notice by the
Lender to the Borrower as specified above shall occur automatically, without
the giving of any such notice; and (ii) whether or not the actions referred to
in clause (i) have been taken, proceed to enforce all other rights and remedies
available to the Lender under applicable law.
No amendment or waiver of any provision of this Note, nor any
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall
5.
<PAGE> 39
be in writing and signed by the Lender and then such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by facsimile) and
mailed, sent or delivered to the respective parties hereto at or to the
following addresses or facsimile numbers (or at or to such other address or
facsimile number as shall be designated by any party in a written notice to the
other parties hereto):
Borrower
--------
Grays Harbor Paper L.P.
801 23rd Street
Hoquiam, Washington 98550
Attn.: William D. Quigg
Fax: (206) 532-8088
Lender
------
Pope & Talbot, Inc.
1500 S.W. First Avenue
Portland, OR 97201
Attn.: Carlos M. Lamadrid
Fax: (503) 220-2722
All such notices and communications shall be effective (i) if delivered by hand,
upon delivery; (ii) if sent by mail, upon the earlier of the date of receipt or
five Business Days after deposit in the mail, first class, postage prepaid; and
(iii) if sent by facsimile, when sent.
No failure on the part of the Lender to exercise, and no delay
in exercising, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights and
remedies under this Note are cumulative and not exclusive of any rights,
remedies, powers and privileges that may otherwise be available to the Lender.
Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Note shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or
6.
<PAGE> 40
invalidity without affecting the remaining provisions of this Note, or the
validity or effectiveness of such provision in any other jurisdiction.
The Borrower agrees to pay on demand all costs and expenses of
the Lender, and the fees and disbursements of counsel to the Lender, in
connection with (i) any amendments, modifications or waivers of the terms
hereof, (ii) any Default, (iii) the enforcement or attempted enforcement of,
and preservation of any rights under, this Note, and (iv) any out-of-court
workout or other refinancing or restructuring or in any bankruptcy case,
including, without limitation, any and all losses, costs and expenses sustained
by the Lender as a result of any failure by the Borrower to perform or observe
its obligations contained herein. In addition, the Borrower agrees to
indemnify the Lender against and hold it harmless from any and all present and
future stamp, transfer, documentary and other such taxes, levies, fees,
assessments and other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of this Note.
This Note shall be binding upon, inure to the benefit of and
be enforceable by the Borrower, the Lender and their respective successors and
assigns; provided that the Borrower shall not have the right to assign its
rights and obligations hereunder or any interest herein or therein without the
prior written consent of the Lender.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF WASHINGTON.
The Borrower hereby (i) submits to the non-exclusive
jurisdiction of the courts of the States of Oregon and Washington and the
Federal courts of the United States sitting in the States of Oregon and
Washington for the purpose of any action or proceeding arising out of or
relating to this Note and any other documents and instruments relating hereto,
(ii) agrees that all claims in respect of any such action or proceeding may be
heard and determined in such courts, (iii) irrevocably waives (to the extent
permitted by applicable law) any objection which it now or hereafter may have
to the laying of venue of any such action or proceeding brought in any of the
foregoing courts, and any objection on the ground that any such action or
proceeding in any such court has been brought in an inconvenient forum and (iv)
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner permitted by law. The Borrower also irrevocably
consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process to the Borrower at its address
specified above. Nothing herein shall affect the right of the Lender to serve
legal process in any other manner permitted by law or limit the right of the
Lender to bring any action or proceeding against the Borrower or its property
in the courts of other jurisdictions.
7.
<PAGE> 41
IN WITNESS WHEREOF, the Borrower has duly executed this Note,
as of the date first above written.
GRAYS HARBOR PAPER L.P., a
Washington limited partnership
By: Grays Harbor Industrial, Inc.,
a Washington corporation, its
general partner
By: ______________________________
Title:
8.
<PAGE> 42
EXHIBIT D
PULP PAYABLE SUBORDINATION LETTER
SPECIMEN FORM
<PAGE> 43
POPE & TALBOT, INC.
September 28, 1994
Mr. William D. Quigg
Grays Harbor Paper, L.P.
801 23rd Street
Hoquiam, WA 98550
Re: Pulp Sales Supply Contract
Dear Mr. Quigg:
Reference is made to the Amended and Restated Pulp Sales
Supply Contract dated as of September 28, 1994 (as amended, modified, renewed
or extended from time to time, the "Supply Contract") between Grays Harbor
Paper L.P., a Washington limited partnership, formerly known as Hoquiam Paper
Company, A Washington Limited Partnership (the "Buyer"), and Pope & Talbot,
Inc., a Delaware corporation (the "Seller"). This letter agreement (this
"Agreement") is intended to set forth our mutual understandings with respect to
the terms of subordination of certain accounts payable to Seller for Sales of
Pulp under the Supply Contract.
1. Seller hereby agrees that $2,000,000 in aggregate
amount at any time outstanding (the "Subordinated Amount") of accounts payable
by Buyer to Seller for sales of Pulp under the Supply Contract (the "Pulp
Payables"), together with the fee described below (the "Subordination Fee"),
shall be subordinate and subject in right of payment to the extent and in the
manner set forth in that certain Subordination and Intercreditor Agreement
dated as of September 28, 1994 (as amended, modified, renewed or extended from
time to time, the "Subordination Agreement") among the Seller, the Buyer and
U.S. Bank of Washington, National Association ("U.S. Bank"). Without limiting
the generality of the foregoing, Seller shall agree pursuant to the
Subordination Agreement that unless and to the extent permitted by the
Subordination Agreement, Seller shall not accept or receive any payment from or
on behalf of Buyer for or on account of any Pulp Payables if after giving
effect to such payment the outstanding balance of Pulp Payables would not be at
least equal to the Subordinated Amount. Except for the foregoing
subordination, the terms and provisions of the Supply Contract shall remain
unchanged and in full force and effect, and the Buyer shall continue to make
payments under the Supply Contract in accordance with its terms.
2. In consideration of the foregoing agreement of
subordination, the Buyer agrees to pay a subordination fee on the Subordinated
Amount from the date hereof until the Termination Date (as defined below),
monthly in arrears, on the first day of each month, and on the Termination
Date, commencing on November 1, 1994, at a rate per annum equal at all times to
the Prime Rate plus 1% per annum. As used
1.
<PAGE> 44
herein, the "Prime Rate" means, for any day, the "prime rate" from time to
time published in The Wall Street Journal or, if The Wall Street Journal is not
then being published or if a quotation of the prime rate is for any reason not
available therein, then the "prime rate" as published in another national
financial reporting publication, as selected by the Seller. The subordination
fee hereunder shall change as of each effective date of a change in the Prime
Rate. In the event that any amount of such fee, or any other amount payable
hereunder, is not paid in full when due, the Buyer shall pay interest on such
unpaid fee or other amount, from the date such amount becomes due until the
date such amount is paid in full, payable on demand, at a rate per annum equal
at all times to the Prime Rate plus 5% per annum. All computations of per
annum fee and interest shall be made on the basis of a year of 360 days for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such fee or interest is payable.
3. All payments hereunder shall be made in lawful money
of the United States of America and in same day or immediately available funds,
to the Seller, at U.S. Bank of Oregon, acct. no. 1790012296, routing no.
123000220, Portland, Oregon, or to such other place and account of the Seller
as it from time to time shall designate in a written notice to the Buyer.
4. Whenever any payment hereunder shall be stated to be
due, or whenever any fee or interest payment date or any other date specified
hereunder would otherwise occur, on a day other than a Business Day (as defined
below), then, except as otherwise provided herein, such payment shall be made,
and such fee or interest payment date or other date shall occur, on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of fee or interest hereunder. As used
herein, "Business Day" means a day (i) other than Saturday or Sunday, and (ii)
on which commercial banks are open for business in Seattle, Washington, and
Portland, Oregon.
5. All payments shall be made hereunder unconditionally
in full without deduction, setoff, counterclaim or other defense, including,
without limitation, any deduction or setoff arising out of or in connection
with the Supply Contract; provided, however, that no payment hereunder shall be
deemed to be a waiver of any right or claim that the Buyer may have under the
Supply Contract. The Buyer represents and warrants to the Seller that, to the
best of Buyer's knowledge, there is no claim, defense, counterclaim or set-off
which could be asserted by or is available to the Buyer against the Seller.
6. Anything herein to the contrary notwithstanding, if
during any period for which the subordination fee or interest is computed
hereunder, the amount of such fee (to the extent it would be treated as
interest under applicable law) or any interest computed on the basis provided
for in this Agreement, together with all other fees, charges and other payments
which are treated as interest under applicable law, as provided for herein or
in any other document executed in connection herewith, would exceed the amount
of such interest computed on the basis of the Highest Lawful Rate,
2.
<PAGE> 45
the Buyer shall not be obligated to pay, and the Seller shall not be entitled
to charge, collect, receive, reserve or take, interest in excess of the Highest
Lawful Rate, and during any such period the interest payable hereunder shall be
computed on the basis of the Highest Lawful Rate. As used herein, "Highest
Lawful Rate" means the maximum nonusurious rate of interest, as in effect from
time to time, which may be charged, contracted for, reserved, received or
collected by the Seller in connection with this Agreement under applicable law.
7. Upon the termination of the subordination obligations
of Seller with respect to the Subordinated Amount and the Subordination Fee
pursuant to Subordination Agreement referred to above, this Agreement shall
terminate, effective the date of such termination under the Subordination
Agreement (the "Termination Date"), and the payment obligations of the Buyer
with respect to the Pulp Payables shall thereupon be governed exclusively by
the Supply Contract; provided, however, that any outstanding obligations of
Buyer to pay any fee, interest or other amounts existing as of the Termination
Date shall survive such termination.
8. No amendment or waiver of any provision of this
Agreement, nor any consent to any departure by the Buyer therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Seller and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
9. No failure on the part of the Seller to exercise, and
no delay in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights and remedies under this Agreement are cumulative and not exclusive of
any rights, remedies, powers and privileges that may otherwise be available to
the Seller.
10. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such
provision in any other jurisdiction.
11. The Buyer agrees to pay on demand all costs and
expenses of the Seller, and the fees and disbursements of counsel to the
Seller, in connection with (i) any amendments, modifications or waivers of the
terms hereof, (ii) the enforcement or attempted enforcement of, and
preservation of any rights under, this Agreement, and (iii) any out-of-court
workout or other refinancing or restructuring or in any bankruptcy
3.
<PAGE> 46
case, including, without limitation, any and all losses, costs and expenses
sustained by the Seller as a result of any failure by the Buyer to perform or
observe its obligations contained herein.
12. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Buyer, the Seller and their respective
successors and assigns; provided that the Buyer shall not have the right to
assign its rights and obligations hereunder or any interest herein or therein
without the prior written consent of the Seller.
13. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF WASHINGTON.
If the foregoing is satisfactory to you, please indicate your
agreement and acceptance below and return a copy of this letter to the
undersigned. Upon your signature, this letter agreement shall become a binding
agreement of the Buyer and the Seller as of the date first written above.
POPE & TALBOT, INC.
By: ______________________________
Title:
Accepted and agreed
GRAYS HARBOR PAPER L.P.,
a Washington limited partnership
By: Grays Harbor Industrial, Inc.,
a Washington corporation,
its general partner
By: _____________________
Title:
4.
<PAGE> 47
EXHIBIT E
OPTION TO ACQUIRE PARTNERSHIP INTEREST
<PAGE> 48
OPTION TO ACQUIRE PARTNERSHIP INTEREST
OF
GRAYS HARBOR PAPER, L.P.
DATED: September 28, 1994
AMONG: Pope & Talbot, Inc., a Delaware corporation ("Holder")
Grays Harbor Paper, L.P., a Washington limited partnership, formerly
known as Hoquiam Paper Company, L.P. ("Company")
AND: Grays Harbor Industrial, Inc., a Washington corporation, the general
partner of the Company ("General Partner") and those other entities
identified on the attached Exhibit 8.1.2 which have executed this
instrument, the limited partners of the Company ("Limited Partners")
(the General Partner and the Limited Partners collectively "Partners")
1. GRANT OF OPTION. For and in consideration of the Holder
entering into an Amended and Restated Pulp Sales Supply Contract of even date
herewith ("Supply Contract") and the Intercreditor and Subordination Agreement
and the Pulp Payable Subordination Letter identified in section 2 herein with
the Company, the Company and the Partners, each on behalf of itself, hereby
grant to Holder (and/or its designee), an irrevocable option (the "Option") to
acquire all the Partners' partnership interests in the Company including but
not limited to interests in the capital and profits of the Company.
2. TIME OF EXERCISE. The Option may be exercised by Holder upon
the expiration of three (3) years from the date hereof, provided that during
such three (3) year period the subordination provisions under (a) that certain
Intercreditor and Subordination Agreement of even date among U.S. Bank of
Washington, National Association ("U.S. Bank"), the Company and Holder and (b)
that certain Pulp Payable Subordination Letter of even date between the Company
and Holder have not terminated and become of no further force or effect.
3. LIMITATIONS ON DISTRIBUTIONS. Once the Option is exercisable,
no further distributions may be made from the Company to Partners without
Holder's prior written consent, which Holder may withhold in its sole
discretion.
4. EXERCISE OF OPTION. If Holder elects to exercise the Option,
it must do so within 180 days after the expiration of three (3) years from the
date hereof. The Holder shall exercise
1 - OPTION AGREEMENT
<PAGE> 49
the Option by giving written notice to the Company and the Partners of its
exercise.
5. CLOSING. At closing
5.1 The Holder (and/or its designee) shall pay to each
respective Partner an amount equal to the net fair market value of the
Company's assets (real property and personal property, including accumulated
income and going concern value, if any) determined as of the date the Option is
exercised, reduced by the Company's liabilities (at face value) including
interest outstanding thereon, multiplied by that portion of the Partner's
percentage interest in the Company's capital and profits on such date.
5.1.1 The Partners hereby irrevocably authorize the
Company, acting by and through the General Partner, to negotiate and act on
their behalf in establishing the price payable by Holder for all the
partnership interests to be purchased by Holder upon its exercise of this
Option, and they agree to be bound by the price agreed to by the Company on
their behalf hereunder provided that such price is approved by Partners holding
a majority of limited partnership interests in Buyer. If the Holder and the
Company have not reached an agreement as to the price determined in accordance
with this formula within 15 days of the exercise of the option, market value
shall be established by an appraisal of such assets by a qualified appraiser
agreed upon by the Holder and the Company. If agreement cannot be reached upon
the selection of an appraiser within 30 days after Holder's the exercise of the
option, then the Holder and the Company each shall have the right to select one
qualified appraiser and the appraisers selected shall select an additional
appraiser similarly qualified.. The Holder and the Company shall have 5 days to
select an appraiser and to notify the other of such selection. If only one of
either Holder or company selects an appraiser and notifies the other of its
selection within the time provided in this subsection 6.1.1 the
valuation-determined by such appraiser shall be binding on all parties and may
not be appealed. If the appraisers selected by the Company and the Holder are
unable to reach an agreement as to the third appraiser within 10 days after the
latter of their appointments, the presiding judge of the Superior Court of King
County, Washington shall appoint the third appraiser.
5.1.2 In making their appraisal, each of the
appraisers shall make an independent appraisal of said assets and, in so doing,
shall first determine the fair market value of all such assets. If three
appraisals are made, the average of the two appraisals having results closest
to each other shall be the determined fair market value of the partnership
property. Any appraisal that is submitted more than 60 days after the
appointment of the respective appraiser shall be disregarded. The costs of all
appraisals shall be borne equally by the Holder and the Company. The valuation
determined in accordance with
2 - OPTION AGREEMENT
<PAGE> 50
this Section shall be binding on all parties and may not be appealed.
5.2 The respective Partners shall assign their interests
in the Company being conveyed pursuant to this Option Agreement in form and
substance acceptable to Holder.
5.3 Each of the Partners as an Optionor shall execute
and deliver to the Holder as Optionee UCC-1 Financing Statements in the form
attached as Exhibit 6.3. [INTENTIONALLY NOT FILED]
5.4 The Holder (and/or its-designee) shall be admitted as
a Substituted Partner irrespective of any limitation placed thereon in Section
16.7 of the Agreement. The Company and Partners hereby consent to the
transfers described in this Option Agreement and they hereby agree to do all
things necessary or helpful to effectuate the transfer or transfers
contemplated by the exercise or exercises of the Option.
6. OPTION TRANSFERRABLE. The Option may be assigned or
transferred by the Holder to any entity which controls, is controlled by or is
under common control with Holder.
7. REGISTRATION. Neither the Option nor the interest subject to
the Option have been registered under the Securities Act of 1933 or any state
securities law.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ITS PARTNERS.
8.1 The Company and each of its Partners represents and
warrants that as of execution of the Option and as of the closing:
8.1.1 The Company is a limited partnership duly
organized and validly existing under the laws of the State of Washington, and
is qualified to do business in each jurisdiction, if any, in which its property
or business requires such qualification.
8.1.2 The Partners identified on Exhibit 8.1.2 are
all of the persons having a interest in the capital and profits of the Company.
8.1.3 Each of the Partners identified on Exhibit
8.1.2 executing this Option Agreement has good and marketable title to its
interest in the Company, and except as disclosed on Exhibit 8.1.2, such
interest is free and clear of security interests, mortgages, liens, pledges,
charges, claims, or encumbrances of any kind or character. No person, firm or
corporation has any written or oral agreement, option, understanding or
commitment or other right or privilege that will become an agreement for the
purchase from any of the Partners or from the Company of any interest in the
Company.
3 - OPTION AGREEMENT
<PAGE> 51
8.1.4 There is no litigation, proceeding, or
investigation pending or, to the knowledge of the Company or the Partners
threatened against any of them that would adversely affect Holder's exercise of
the Option or the subsequent acquisition of the partnership interests.
9. COVENANTS. The Company and each of its Partners covenants
that:
9.1 Throughout the term of the Option neither the Company
nor the Partners shall issue or transfer a partnership interest in the Company
unless and until the transferor agrees in writing to be bound by the terms of
this Option Agreement.
9.2 During the term of the Option the Company and each of
the Partners will not sell, assign, transfer, mortgage or hypothecate their
partnership interests in the Company except transfers by will, trust or
operation of law to members of their immediate family. Any permitted
transferee of a partnership interest will be bound by and will take such
partnership interest subject to the terms and provisions of this Agreement.
9.3 During the term of the Option the Company and each of
the Partners will notify all of the parties in writing as to any change of its
address.
10. MISCELLANEOUS.
10.1 Any notice under this Option Agreement shall be in
writing and shall be deemed to have been duly given or made (a) when personally
delivered, or (b) as of and when transmitted by facsimile transmission to a
party at its address set forth in Exhibit 10.1 or to such other most recent
address as a party may specify by notice to the other parties, or (c) if
mailed, two days after being deposited as registered or certified mail directed
to a party at its address set forth in Exhibit 10.1, or to such other most
recent address as a party may specify by notice to the other parties. A party
will have no obligation to send any required or permitted notice to any address
other than that listed on Exhibit 10.1 or given pursuant to Section 10.1.
10.2 A waiver by any party of a breach of a provision of
this Option Agreement or by the Holder to exercise its rights hereunder shall
not constitute a waiver of or prejudice the party's right otherwise to exercise
its rights or to demand strict compliance with that provision or any other
provision.
10.3 The failure of any Partner to execute this Option
Agreement will not affect the validity of the obligations hereunder of any
Partner which does sign this Option Agreement.
10.4 This Option Agreement constitutes the entire
agreement between the parties regarding its subject matter, supersedes and
cancels any other agreement, representation, or
4 - OPTION AGREEMENT
<PAGE> 52
communication, either written or oral, among the parties hereto relating to the
transactions contemplated herein or the subject matter hereof. This Option
Agreement may be amended only by written agreement executed by all of the
parties.
10.5 The section and subsection headings in this Option
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Option Agreement.
10.6 This Option Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Washington.
10.7 This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
10.8 This Option Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
10.9 In the event a civil action is institute to enforce
or to interpret or rescind any of the terms of this Option Agreement, the
prevailing party shall be entitled to recover from the other party such sums as
the court or arbitration tribunal may judge reasonable as attorney's fees at
arbitration, trial and on appeal or review or in any proceeding in bankruptcy
court, in addition to any and all other amounts provided by law.
IN WITNESS WHEREOF, the parties have entered into this Option
Agreement on the date first set forth above.
HOLDER: POPE & TALBOT, INC.
By: __________________________________
Title: _______________________________
COMPANY: GRAYS HARBOR PAPER, L.P., a
Washington limited partnership
By: Grays Harbor Industrial, Inc.,
a Washington corporation,
its general partner
By: _______________________________
Title: ____________________________
(Signatures continued on next page)
5 - OPTION AGREEMENT
<PAGE> 53
(Signatures continued from prior page)
GENERAL PARTNER: GRAYS HARBOR INDUSTRIAL, INC.,
a Washington corporation
By: _________________________________
Title: ______________________________
LIMITED PARTNERS: QUIGG INVESTMENTS, INC.
By: _________________________________
Title: ______________________________
DONOVAN INVESTMENT COMPANY, INC.
By: _________________________________
Title: ______________________________
ISAACSON INVESTMENT COMPANY, INC.
By: _________________________________
Title: _____________________________
GRACO INVESTMENTS, INC.
By: _________________________________
Title: ______________________________
GOLDBERG FAMILY INVESTMENT
CORPORATION
By: _________________________________
Title: ______________________________
(Limited Partner signatures continued on next page)
6 - OPTION AGREEMENT
<PAGE> 54
(Limited Partner signatures continued from prior page)
LIMITED PARTNERS
(continued):
NORTHWEST PAPER INVESTMENTS, INC.
By: __________________________________
Title: _______________________________
PEAK VENTURES, INC.
By: __________________________________
Title: _______________________________
RLP DEVELOPMENT, INC.
By: __________________________________
Title: _______________________________
PAPYRUS VERDE, INC.
By: __________________________________
Title: _______________________________
RAVEN GROUP, INC.
By: __________________________________
Title: _______________________________
CARLSWAN, INC.
By: __________________________________
Title: ___________________________
(Limited Partner signatures continued on next page)
7 - OPTION AGREEMENT
<PAGE> 55
(Limited Partner signatures continued from prior page)
LIMITED PARTNERS
(continued):
CHASWAN, INC.
By: __________________________________
Title: _______________________________
WDQ INVESTMENTS, INC.
By: __________________________________
Title: _______________________________
8 - OPTION AGREEMENT
<PAGE> 56
EXHIBIT 8.1.2
Identification of the General Partner
and all Limited Partners
Interest Pledged or
Otherwise Encumbered
--------------------
<TABLE>
<CAPTION>
YES NO
--- --
<S> <C> <C>
General Partner:
Grays Harbor Industrial, Inc., _____ _____
a Washington corporation
Limited Partners:
WDQ Investments, Inc. _____ _____
Quigg Investments, Inc. _____ _____
Donovan Investment Company, Inc. _____ _____
Isaacson Investment Company, Inc. _____ _____
Graco Investments, Inc. _____ _____
Goldberg Family Investment Corporation _____ _____
Northwest Paper Investments, Inc. _____ _____
Peak Ventures, Inc. _____ _____
RLP Development, Inc. _____ _____
Papyrus Verde, Inc. _____ _____
Raven Group, Inc. _____ _____
Carlswan, Inc. _____ _____
Chaswan, Inc. _____ _____
</TABLE>
<PAGE> 57
EXHIBIT 10.1
Addresses of the Parties
Holder: Pope & Talbot, Inc.
Crown Plaza, Second Floor
1500 S.W. First Avenue
Portland, OR 97201
Fax: 503-220-2729
Company: Grays Harbor Paper, L.P.
801 23rd Street
Hoquiam, WA 98550
Fax: 206-538-5636
General Partner: Grays Harbor Industrial, Inc.
801 23rd Street
Hoquiam, WA 98550
Fax: 206-538-5636
Limited Partners: WDQ Investments, Inc.
801 23rd Street
Hoquiam, WA 98550
Fax: 206-538-5636
Quigg Investments, Inc.
P.O. Box 1701
Aberdeen, WA 98520
Donovan Investment Company, Inc.
P.O. Box 33
Hoquiam, WA 98550
Isaacson Investment Company, Inc.
P.O. Box 127
Aberdeen, WA 98520
Graco Investments, Inc.
520 Pike Street, 20th Floor
Seattle, WA 98101
Goldberg Family Investment Corporation
P.O. Box 960
Aberdeen, WA 98520
Northwest Paper Investments, Inc.
602 Valley Avenue N.E.
Puyallup, WA 98372-2519
1
<PAGE> 58
Peak Ventures, Inc.
520 Pike Street, Suite 2230
Seattle, WA 98101
RLP Development, Inc.
701 Fifth Ave., Suite 2200
Seattle, WA 98104-7091
Papyrus Verde, Inc.
701 Fifth Ave., Suite 2200
Seattle, WA 98104-7091
Raven Group, Inc.
1601 Second Ave., Suite 701
Seattle, WA 98101
Carlswan, Inc.
c/o Doug Kay
Aiken & Kay
P.O. Box 7364
Olympia, WA 98507
Chaswan, Inc.
c/o Doug Kay
Aiken & Kay
P.O. Box 7364
Olympia, WA 98507
EXHIBIT 10.1
2
<PAGE> 59
EXHIBIT F
ADDITIONAL TERMS AND CONDITIONS
1. TESTS: Buyer shall not dispute the quality of any Pulp delivered to
Buyer hereunder, unless the results (when averaged) of tests performed
by Buyer with respect to a representative sampling of the bales of
Pulp shipped in the truckload which included such delivered Pulp show
that the Pulp tested does not meet the specifications received in this
Supply Contract.
2. CLAIMS: All claims of every nature, including but not limited to the
quality, quantity, or condition of the Pulp and the time, place or
manner of delivery, must be made in writing or by telegram to Seller
within thirty (30) days from the date of delivery at Buyer's mill.
The Buyer shall make payment when due, subject to final adjustment
according to the results of retesting or arbitration.
In no event shall any claim exceed the price for the quantity of Pulp
which is established to be inferior in quality or to be improperly
delivered. Neither party shall be liable for any indirect, special,
or consequential damages resulting from any breach hereof.
3. TAX: The amount of any federal, state, or municipal sales or excise
tax imposed and payable or accruing on or by reason of this Supply
Contract shall be added to the price and paid in full without discount
by the Buyer.
4. FORCE MAJEURE: For all purposes of this Supply Contract the expression
"Force Majeure" includes any Act of God, war,
1 - EXHIBIT F
<PAGE> 60
mobilization, strike, lockout, drought, flood, total or partial fire,
obstruction of navigation by ice, or loss, damage or detention at sea,
acts of governmental agencies, or other contingency or cause beyond
the control of the Seller which prevents the manufacture and/or
shipment of Pulp, or beyond the control of the Buyer which prevents
the manufacture or delivery of Pulp or paper. The Buyer or the
Seller, as the case may be, may suspend performance under this Supply
Contract pending Force Majeure, neither party being responsible to the
other party for any damage resulting from such suspension. Pulp lost
or damaged in transit need not be replaced by Seller nor accepted by
Buyer.
The Buyer or the Seller, as the case may be, shall give prompt notice
to the other party of any Force Majeure which may, according to
previous section of this clause, affect the performance under this
contract, and also which such Force Majeure ceases, and as soon as
practicable, notify to what extent it will necessitate a suspension.
Shipments in transit from Seller's mill must be accepted by the Buyer.
In case Seller's stock of Pulp is totally or partially destroyed,
and/or damaged by fire, the Seller is entitled to cancel such quantity
which as a consequence cannot be delivered.
During any period of Force Majeure, the party whose performance is not
excused or suspended pending Force
2 - EXHIBIT F
<PAGE> 61
Majeure may sell or buy, an the case may be, Pulp to third parties and
not be in breach of this Supply Contract. If Force Majeure should
extend for longer than 90 consecutive days, then the party whose
performance hereunder is not excused or suspended by Force Majeure may
terminate this Supply Contract and the parties' respective rights,
duties and obligations hereunder by giving written notice to the other
party of its election to terminate this Supply Contract.
5. UNEXCUSED FAILURE TO PERFORM: If Buyer refuses to accept delivery of
Pulp under this Supply Contract, except for reasons excused by this
Supply Contract, the Pulp cannot afterwards be claimed by the Buyer
but may be sold by the Seller for the Buyer's account. That is, Buyer
shall remain obligated to Seller for any deficiency in the price
realized by Seller from sales of pulp to third parties below the price
which would have been payable by Buyer for the Pulp hereunder. If
Seller refuses to make delivery of Pulp under this Supply Contract,
except for reasons excused by this Supply Contract, Buyer, after
fifteen (15) days' written notice to the Seller during which time
Seller may remedy such refusal, may purchase equivalent Pulp from
other sources for the Seller's account. That is, Seller shall be
obligated to Buyer for any increase in price paid by Buyer for Pulp
purchased from third parties over the price which would have been
payable to Seller for the pulp hereunder.
3 - EXHIBIT F
<PAGE> 62
6. WAIVER: No right of any party shall be deemed waived by any failure to
exercise a right in any prior instance. All valid waivers must be in
writing.
7. TERMINATION. Termination of this Supply Contract as provided herein,
other than for Force Majeure as permitted above, shall not release
Buyer from the obligation to accept and pay for all Pulp delivered
hereunder prior to the effective date of termination nor release the
Seller from the obligation to deliver Pulp to Buyer which had
previously been ordered and to which Buyer is entitled under this
Agreement.
8. APPLICABLE LAW. This Agreement shall be governed in all respects by
the law of the State of Washington.
9. USE: Buyer is responsible for determining the suitability of Pulp
purchased hereunder for any particular use.
4 - EXHIBIT F
<PAGE> 1
Exhibit 11
POPE & TALBOT, INC.
STATEMENT SHOWING CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING AND EARNINGS
PER AVERAGE COMMON SHARE
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding 13,362,729 11,702,478 13,024,349 11,677,228
Weighted average of common
stock equivalent shares
attributable to
convertible debentures - 1,542,020 333,257 1,542,020
Application of the "treasury
stock" method to the stock
option plan 37,903 136,792 143,340 129,351
----------- ----------- ----------- -----------
Total common and common
equivalent shares,
assuming full dilution 13,400,632 13,381,290 13,500,946 13,348,599
=========== =========== =========== ===========
Net income $ 921,000 $ 1,313,000 $12,310,000 $16,457,000
Add: interest on convertible
debentures, net of applicable
income taxes - 354,000 244,000 1,062,000
----------- ----------- ----------- -----------
Net income, assuming
full dilution $ 921,000 $ 1,667,000 $12,554,000 $17,519,000
=========== =========== =========== ===========
Net income per common share,
assuming full dilution $ .07 $ .11 $ .93 $1.31
===== ===== ===== =====
</TABLE>
The computation of primary net income per common share is not included because
the computation can be clearly determined from the material contained in this
report.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE POPE &
TALBOT, INC. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,448
<SECURITIES> 0
<RECEIVABLES> 63,983
<ALLOWANCES> 0
<INVENTORY> 110,670
<CURRENT-ASSETS> 195,650
<PP&E> 557,819
<DEPRECIATION> 269,632
<TOTAL-ASSETS> 503,015
<CURRENT-LIABILITIES> 97,162
<BONDS> 144,301
<COMMON> 13,972
0
0
<OTHER-SE> 216,677
<TOTAL-LIABILITY-AND-EQUITY> 503,015
<SALES> 497,915
<TOTAL-REVENUES> 497,915
<CGS> 446,619
<TOTAL-COSTS> 446,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,675
<INCOME-PRETAX> 20,865
<INCOME-TAX> 8,555
<INCOME-CONTINUING> 12,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,310
<EPS-PRIMARY> .95
<EPS-DILUTED> .93
</TABLE>
