-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KN2pytIsvNHJo38CNlKVEcrNF+3RasimNnVUBA0i6/VA5MiL/8JvbIcEcowfgxTk q3cNkaeLkGJtqumZsowq/Q== 0000891020-98-000812.txt : 19980515 0000891020-98-000812.hdr.sgml : 19980515 ACCESSION NUMBER: 0000891020-98-000812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPE & TALBOT INC /DE/ CENTRAL INDEX KEY: 0000311871 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 940777139 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07852 FILM NUMBER: 98619916 BUSINESS ADDRESS: STREET 1: 1500 SW FIRST AVE CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5032289161 MAIL ADDRESS: STREET 1: 1500 S W FIRST AVE CITY: PORTLAND STATE: OR ZIP: 97201 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 3/31/98 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 March 31, 1998 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 - 13,481,441 shares as of May 7, 1998 2 PART I. FINANCIAL INFORMATION
Page No. -------- ITEM 1. Financial Statements: Consolidated Condensed Balance Sheets - March 31, 1998 and December 31, 1997 2 Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997 3 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 4 Notes to Consolidated Condensed Financial Statements 5-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders 14 ITEM 6. Exhibits and Reports on Form 8-K 14-16
3 PART I. POPE & TALBOT, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (Dollars in Thousands)
March 31, December 31, 1998 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 47,223 $ 31,911 Short-term investments 26,131 -- Accounts receivable 66,743 34,134 Inventories: Raw materials 56,471 46,704 Finished goods 31,735 19,283 --------- --------- 88,206 65,987 Prepaid expenses and other 12,251 11,057 Discontinued tissue operations net assets held for sale -- 67,861 --------- --------- Total current assets 240,554 210,950 Properties: Plant and equipment 428,051 279,298 Accumulated depreciation (184,980) (178,459) --------- --------- 243,071 100,839 Land and timber cutting rights 11,889 7,326 --------- --------- Total properties 254,960 108,165 Other assets: Investment in equity securities -- 13,760 Deferred income tax assets, net -- 24,843 Other 13,482 18,049 --------- --------- Total other assets 13,482 56,652 --------- --------- $ 508,996 $ 375,767 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ -- $ 41,800 Current portion of long-term debt 521 521 Accounts payable and accrued liabilities 72,141 40,488 Income taxes 5,778 2,026 --------- --------- Total current liabilities 78,440 84,835 Noncurrent liabilities: Reforestation 17,245 16,427 Postretirement benefits 12,308 6,338 Deferred income tax liabilities, net 5,427 -- Long-term debt, net of current portion 142,472 88,705 --------- --------- Total noncurrent liabilities 177,452 111,470 Minority interest 53,083 -- Commitments and contingent liabilities -- -- Stockholders' equity: Common stock 13,972 13,972 Additional paid-in capital 34,395 34,395 Retained earnings 168,306 150,386 Cumulative translation adjustments (7,208) (9,847) Less treasury shares at cost (9,444) (9,444) --------- --------- Total stockholders' equity 200,021 179,462 --------- --------- $ 508,996 $ 375,767 ========= =========
The accompanying notes are an integral part of these consolidated condensed balance sheets. 2 4 POPE & TALBOT, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in Thousands Except Per Share Amounts)
Three months ended March 31, 1998 1997 ------------ ------------ Revenues: Wood products $ 57,168 $ 64,314 Pulp products 46,325 19,778 ------------ ------------ Total 103,493 84,092 Costs and expenses: Cost of sales: Wood products 55,396 56,440 Pulp products 50,778 21,573 Selling, general and administrative 6,429 3,991 Interest, net 2,299 1,574 ------------ ------------ Total 114,902 83,578 ------------ ------------ Income (loss) before income taxes, minority interest and discontinued tissue operations (11,409) 514 Income tax provision (benefit) (3,482) 271 ------------ ------------ Income (loss) before minority interest and discontinued tissue operations (7,927) 243 Minority interest in net loss of subsidiary, net of income tax (1,334) -- ------------ ------------ Income (loss) from continuing operations (6,593) 243 ------------ ------------ Discontinued operations: Income from discontinued tissue operations (net of tax provision of $164 and $726 for three months ended March 31, 1998 and 1997, respectively) 256 1,135 Gain on disposal of discontinued operations (net of applicable income taxes of $24,630) 26,818 -- ------------ ------------ Income from discontinued operations 27,074 1,135 ------------ ------------ Net income $ 20,481 $ 1,378 ============ ============ Basic income (loss) per common share: Income (loss) from continuing operations $ (.49) $ .02 Income from discontinued operations 2.01 .08 ------------ ------------ Net income $ 1.52 $ .10 ============ ============ Diluted income (loss) per common share: Income (loss) from continuing operations $ (.49) $ .02 Income from discontinued operations 2.00 .08 ------------ ------------ Net income $ 1.51 $ .10 ============ ============ Cash dividends per common share $ .19 $ .19 ============ ============ Weighted average number of common shares outstanding 13,481,441 13,363,779 ============ ============
The accompanying notes are an integral part of these consolidated condensed financial statements. 3 5 POPE & TALBOT, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands)
Three months ended March 31, 1998 1997 --------- --------- Cash flow from operating activities: Net income $ 20,481 $ 1,378 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,204 7,537 Gain on disposal of discontinued operations (51,448) -- Minority interest in subsidiary loss, net of income tax (1,334) -- Increase (decrease) in: Accounts payable and accrued liabilities 1,099 (1,295) Income taxes 3,752 767 Reforestation 691 1,076 Postretirement benefits 261 174 Deferred income taxes, net 15,269 (1,315) Decrease (increase) in: Accounts receivable (4,548) (5,496) Inventories 6,457 3,205 Deposits on timber purchase contracts 118 40 Prepaid expenses 1,531 (409) Other assets 4,977 (782) --------- --------- Net cash provided by operating activities 4,510 4,880 Cash flow from investing activities: Purchase of short-term investments (26,131) -- Capital expenditures (4,349) (1,650) Investment in subsidiary, net of cash acquired (35,846) -- Proceeds from disposal of discontinued operations 121,218 -- Proceeds from sale of other properties 398 2 --------- --------- Net cash provided by (used for) investing activities 55,290 (1,648) Cash flow from financing activities: Net increase (decrease) in short-term borrowings (41,800) 1,100 Reduction in long-term debt (127) (119) Cash dividends (2,561) (2,539) --------- --------- Net cash used for financing activities (44,488) (1,558) --------- --------- Increase in cash and cash equivalents 15,312 1,674 Cash and cash equivalents at beginning of period 31,911 32,208 --------- --------- Cash and cash equivalents at end of period $ 47,223 $ 33,882 ========= =========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 6 POPE & TALBOT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 1998 and 1997 (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 have 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 March 31, 1998 and December 31, 1997, the results of operations for the three months ended March 31, 1998 and 1997, and changes in cash flows for the three months ended March 31, 1998 and 1997. It is suggested that these interim statements be read in conjunction with the financial statements and notes thereto contained in the Company's 1997 report on Form 10-K. The results of operations for the three months ended March 31, 1998 and 1997 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 The Company has adopted the provision of Statement of Financial Accounting Standards (SFAS No. 128), "Earnings per Share," to calculate its per share amounts. Per share information is based on the weighted average number of common shares outstanding during each period. Certain Company stock options were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices. Such stock options totaled 826,454 shares and 853,236 shares for the three months ended March 31, 1998 and 1997, respectively. Refer to Exhibit 11.1 of this filing for the computation of average common shares outstanding and earnings per share. 4. Discontinued Operations On January 22, 1998, the Company entered into a definitive agreement to sell assets of its tissue business (the "business") to PLAINWELL, INC. (Plainwell) for a total cash consideration of $121.2 million and the assumption by Plainwell of essentially all of the tissue business liabilities. This sale closed on March 6, 1998. The liabilities assumed by Plainwell included the $18.8 million City of Eau Claire note payable and the business's $7.1 million postretirement benefit obligation. The final amount of cash received is subject to post-closing adjustments based on the final working capital position of the business. 5 7 The pre-tax gain on disposition of the business of $51.4 million was accounted for as discontinued operations and includes closing costs associated with the transaction and a provision of $0.4 million for losses (including the allocation of interest expense) during the phase-out period. The Consolidated Statement of Income for the three months ended March 31, 1997, has been reclassified to reflect the discontinuation of the tissue business. 5. Acquisitions On February 2, 1998, the Company acquired 6.8 million shares of Harmac Pacific Inc. (Harmac) common stock for $77.8 million Canadian dollars (approximately $53.4 million U.S. dollars). This February 1998 acquisition, combined with the Company's previous Harmac stock purchases, resulted in the Company holding a 53 percent controlling ownership interest in Harmac. Total consideration paid for Harmac, including acquisition costs of $2.5 million Canadian dollars, was $101.8 million Canadian dollars (approximately $69.9 million U.S. dollars). The acquisition was accounted for as a purchase and the results of operations of Harmac have been included in the consolidated financial statements from the date of acquisition. The fair value of assets acquired and liabilities assumed are as follows: Current assets, other than cash $ 60,495 Property, plant and equipment 145,776 Other assets 728 Current liabilities (29,297) Convertible subordinated debentures (52,556) Other liabilities (20,429) Minority interest (54,417) --------- Purchase price, net of cash received $ 50,300 =========
The following unaudited proforma information for the periods set forth below give effect to the transaction as if it had occurred at the beginning of each period after giving effect to certain adjustments, including material differences between Canadian and U.S. GAAP. The proforma information does not necessarily reflect the results of operations that actually would have been achieved had the acquisition been consummated at that time.
Three months ended March 31, 1998 1997 ----------- ----------- Revenues $ 112,556 $ 122,575 Loss from continuing operations (7,375) (1,608) Income from discontinued tissue operations 27,074 1,135 Net income (loss) 19,699 (473) Basic income (loss) per share Loss from continuing operations (.55) (.12) Income from discontinued tissue operations 2.01 .08 Net income (loss) 1.46 (.04) Diluted income (loss) per share Loss from continuing operations (.55) (.12) Income from discontinued tissue operations 2.00 .08 Net income (loss) 1.45 (.04)
6 8 6. Legal Matters and Contingencies The Company is a party to legal proceedings, environmental matters and other contingencies generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the Company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the Company's current financial position or liquidity; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations. In 1992, the Company was contacted by the local governmental owner of a vacant industrial site in Oregon on which the Company previously conducted business. The owner informed the Company that the site has been identified as one containing creosote and coal tar, and that it plans to undertake a voluntary cleanup effort of the site. The owner has requested that the Company participate in the cost of the cleanup. The Company is currently participating in the investigation stage of this site with remediation and monitoring to occur over several years, likely beginning in late 1999 or 2000. Based on preliminary findings, the Company has estimated the likely cost of remediation and monitoring to be in the range of $5 to $12 million and that no amount within the range is more likely an outcome than another. The ultimate cost to the Company for site remediation and monitoring cannot be predicted with certainty due to the unknown magnitude of the contamination, the varying costs of alternative cleanup methods, the cleanup time frame possibilities, the evolving nature of remediation technologies and governmental regulations and the inability to determine the Company's share of multi-party obligations or the extent to which contributions will be available from other parties. The Company has established reserves for environmental remediation and monitoring related to this site in an amount it believes is probable and reasonably estimable. The Company has not assumed it will bear the entire cost of remediation to the exclusion of other known potentially responsible parties (PRPs) who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account based generally on the parties' financial condition and probable contribution. Certain recoveries from insurance carriers have been recorded as their receipt is deemed probable and amounts are reasonably estimable. On December 31, 1997, the Company filed a claim in the United States District Court for the Western District of Washington in Seattle against the Procter & Gamble Company (P&G) alleging anti-trust violations and seeking a declaration of non-infringement and invalidity of certain P&G disposable baby diaper patents. This claim was filed in response to assertions made by P&G to the Company that certain disposable diaper products produced by the Company's discontinued disposable diaper operations infringed two of P&G's inner-leg gather patents. P&G has indicated it believes the Company is obligated to it with respect to the sale of diapers which allegedly used the patents. The Company has asserted in its legal action that it did not infringe any valid claims of the P&G patents and also that P&G and another diaper supplier have taken actions to prevent fair competition among sellers of disposable diapers. P&G received a favorable judgment in the State of Delaware in December 1997 in an infringement action against Paragon Trade Brands, Inc. (Paragon) based on the same diaper patents. Early in 1998, Paragon appealed the Court's decision. If 7 9 P&G proceeds against the Company with legal action related to its patent infringement assertions and is substantially successful in such legal action, the outcome could have a material adverse affect on the Company's results of operations, liquidity and financial position. The Company intends to vigorously assert its position. In 1985, the stockholders of the Company approved a Plan of Distribution pursuant to which all of the Company's timber properties and development properties and related assets and liabilities in the State of Washington were transferred to newly-formed Pope Resources, A Delaware Limited Partnership (the Partnership). The transfer resulted in $10,266,000 of taxes currently payable in 1985, which was charged to stockholders' equity. Upon audit, the Internal Revenue Service (IRS) challenged the distribution value of the assets reported by the Company for federal income tax purposes. In January 1993, the Company petitioned the United States Tax Court (Tax Court) in order to resolve the disputed value of the distribution. The issue was tried in the Tax Court during the third quarter 1995. The Company incurred costs (primarily in 1995) in connection with the Tax Court litigation. In 1995, these litigation costs, together with related tax payments and interest charges totaling $4,884,000, net of tax benefits of $1,374,000, were recognized as a reduction in additional paid-in capital with respect to the Partnership transaction. In March and October, 1997, the Tax Court rendered decisions concerning the Company's tax liability arising from the Partnership transaction. The Company is presently in the process of appealing the decision and filed notice as such with the 9th Circuit Court of Appeals during December, 1997. In the second quarter of 1997, based on the Company's best estimate of the ultimate tax liability, taking into consideration the Tax Court's March 1997 decision, the Company recognized a further reduction in additional paid-in capital of $1,846,000. This charge to equity, which represents the minimum in the estimated range of exposure to the Company, reflected tax and interest amounts totaling $2,492,000, net of tax benefits of $646,000. Taking into consideration the potential outcomes of the Company's appeal of the Tax Court decision, the Company estimates the potential for additional equity reductions will range from zero (if the Company is wholly successful in its appeal of the Tax Court decision) up to $4 million (if the Tax Court decision becomes final or is sustained on appeal). Any further tax, interest and litigation costs related to the Partnership transaction will be recognized as a reduction in equity with respect to the Partnership transaction. In December 1996, the IRS proposed certain adjustments pertaining to transactions between the Company and its wholly-owned Canadian subsidiary, resulting in the assertion that additional taxes were due for tax years 1993 and 1994. Although the final outcome of this matter cannot be predicted, the Company presently believes that the results of the IRS proposed adjustments will not have a material effect on the Company's financial position or liquidity. However, in any given reporting period, IRS adjustments pertaining to such transactions could have a material effect on results of operations. 8 10 7. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, (SFAS No. 130) "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The statement is effective for fiscal years beginning after December 15, 1997. Comprehensive income is as follows:
Three months ended March 31, 1998 1997 ------- ------- Net income $20,481 $ 1,378 Cumulative translation adjustments 2,639 (1,080) ------- ------- Comprehensive income $23,120 $ 298 ======= =======
9 11 POPE & TALBOT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 31, 1998 AND 1997 (unaudited) RESULTS OF OPERATIONS Pope & Talbot, Inc.'s (the Company's) first quarter 1998 results include the consolidation of Harmac Pacific Inc. (Harmac), since the February 2, 1998 acquisition of 53 percent of Harmac's outstanding common shares. First quarter net income of $20.5 million, or $1.51 per diluted share, included a loss from continuing operations of $6.6 million, or $.49 per diluted share, and income from discontinued operations of $27.1 million or $2.00 per diluted share. Income from discontinued operations included a gain on the disposal of the Company's discontinued tissue operations of $26.8 million. The 1998 first quarter net income compared to first quarter 1997 net income of $1.4 million, or $.10 per share, which included income from the discontinued tissue operations of $1.1 million, or $.08 per share. Revenues of $103.5 million in the 1998 first quarter were 23 percent higher than those in the comparable 1997 period reflecting inclusion of Harmac revenues of $26.8 million, which more than offset lower lumber sales of $7.3 million. WOOD PRODUCTS Wood products segment earnings of $.7 million in the first quarter of 1998 compared to income of $6.8 million in the first quarter of 1997. This segment represented 55 percent of first quarter 1998 revenues. Wood products revenues of $57.2 million in the 1998 first quarter compared to revenues of $64.3 million during the corresponding 1997 period. The 1998 revenue decrease reflects lower lumber prices which more than offset higher lumber volumes. Average first quarter 1998 lumber prices were 7, 15 and 20 percent below fourth, third and second quarter of 1997 levels, respectively. This trend of falling average quarterly lumber prices followed a trend of continued quarterly average price increases, which began in mid-1995. Lumber prices hit their cyclical peak in the second quarter 1997 and prices continued to fall throughout the 1997 fourth quarter and into the early first quarter of 1998. Prices appear to have stabilized at the early first quarter of 1998 amounts. Lumber prices in the 1998 first quarter were about 18 percent lower than for the corresponding period of 1997. The sawmills' residual chip markets in the Pacific Northwest and British Columbia remain poor, reflecting the weakness in world pulp markets during the period. Chip prices remained essentially flat at their relatively low levels beginning in the third quarter of 1996 through the first three quarters of 1997. First quarter 1998 chip prices were 19 percent higher than the levels of the corresponding 1997 period, but only 2 percent higher than the fourth quarter of 1997. The Company uses residual chips in its pulp business, which mitigates somewhat the impact of these low chip prices in the lumber business. However, the Company produces more residual chips in its lumber business than it consumes in its pulp business, so on balance, weak chip prices have a detrimental impact on the Company's overall operating results. Lumber sales volume of 145 million board feet in the first quarter of 1998 compared to shipments of 139 million board feet during the corresponding 1997 quarter. The volume increase reflected increased production at the Company's Canadian sawmills. The Company's sawmills operated at capacity during the first quarter of 1998. 10 12 During 1996, U.S. and Canadian trade negotiators reached an agreement establishing volume quotas on Canadian softwood lumber shipments to the U.S. Based on this agreement, Canadian lumber producers are assigned volume quotas specifying on a company by company basis the lumber volumes which may be shipped to the U.S. tariff-free and those volumes subject to a $52 per thousand board foot tariff. Shipments in excess of these specified volume quotas are subject to a $104 per thousand board foot tariff. March 31, 1998, represented the end of the fiscal year lumber quota period related to this agreement. During the 1998 first quarter, shipments from the Company's Canadian sawmills into the U.S. resulted in no additional accruals, compared to charges of $.9 million in the first quarter of 1997. The Company expects to be informed of its fiscal year 1998/1999 quota volumes, which will apply retroactively to April 1, in the second quarter of 1998. Approximately 75 percent of the Company's 1998 lumber capacity is located in British Columbia. PULP PRODUCTS The Company's pulp segment consists of its Halsey, Oregon pulp mill and its newly acquired share of the Harmac pulp mill. The pulp segment incurred an operating loss of $6.3 million in the first quarter of 1998, which compared to a loss of $2.5 million in the 1997 first quarter. The first quarter of 1998 results included an operating loss of $3.2 million, as a result of the consolidation of the Harmac operations since the February 2, 1998 acquisition. Segment revenues of $46.3 million, or 45 percent of Company sales, were up from first quarter 1997 revenues of $19.8 million. The increase in revenues is due to the inclusion of Harmac sales of $26.8 million for the two-month period since the date of acquisition. HALSEY In the 1998 first quarter, losses for the Company's Halsey pulp mill were up slightly compared to the corresponding 1997 period reflecting higher production and raw material costs. Pulp pricing peaked in the fourth quarter of 1995 followed by a rapid decline at the end of 1995, which continued through the first quarter of 1996. Pulp prices remained relatively poor throughout the second half of 1996 and appeared to have bottomed in early 1997. Although prices improved in second, third and fourth quarters of 1997, pulp prices have fallen in the first quarter of 1998. Average first quarter of 1998 pulp prices are flat when compared to the corresponding 1997 period but are down 18 percent from the fourth quarter of 1997 and over 40 percent from the fourth quarter of 1995 peak. The Company sold approximately 40 percent of its first quarter 1998 pulp volume to the Grays Harbor Paper Company (Grays Harbor) while during the corresponding 1997 period the Company sold about half of its volume to Grays Harbor. In late 1997, the Company and Grays Harbor modified their pulp sales supply contract. The modified contract, which became effective January 1, 1998, changed the pulp pricing formula so that pulp prices are indexed to Southern mixed (U.S.) bleached hardwood kraft prices rather than white paper prices. The impact of the revised agreement on the 1998 first quarter was lower Grays Harbor pulp prices, however the Company expects that over the long-term, pulp pricing under the new formula will be comparable to that under the previous pricing formula. As discussed for the Company's wood products segment, residual wood chip prices had remained low during the first three quarters of 1997 with an upturn in prices in the fourth quarter of 1997 which have lasted through the first quarter of 1998. Sawdust costs, however, have remained flat at low levels for all of 1997 and through the first quarter of 1998. The low sawdust costs are significant since sawdust pulp represented over 60 percent of first quarter of 1998 pulp production. Total wood cost is 26 percent higher than the corresponding 1997 quarter. 11 13 Pulp sales volume of 46,000 metric tons in the first quarter of 1998 compared to shipments of 47,000 metric tons during the corresponding 1997 quarter. The Company's Halsey pulp mill operated at capacity during the first quarter of 1998. HARMAC Proforma revenues for the first three months of 1998 for the Harmac pulp mill of $35.9 million compare to proforma revenues for the corresponding 1997 period of $38.5 million. Pulp pricing for the first quarter of 1998 was 2 percent and 11 percent below the 1997 first and fourth quarters' prices, respectively. Sales volume for the first quarter of 1998 was 6 percent below the corresponding 1997 period, but was 7 percent above the fourth quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES During the first three months of 1998, operations generated cash of $4.5 million. Income from continuing operations before non-cash charges for depreciation and amortization generated $.6 million of cash during the first three months of 1998. Increases in income taxes payable and deferred income taxes during the first three months of $3.8 million and $15.2 million, respectively, related primarily to the gain on the sale of the discontinued tissue business. Reductions of inventories, related primarily to seasonal decreases in log inventories from their relatively large year-end 1997 levels, generated cash of $6.5 million. Increases in accounts receivable related mainly to higher lumber and pulp shipments used cash of $4.5 million. Decreases of other assets, totaling $5.1 million, included the receipt of payment for $3.5 million on a long-term note receivable. Upon the sale of the tissue business to Plainwell, the Company received $121.2 million in cash and Plainwell assumed essentially all of the tissue business liabilities. The Company used the cash received mainly to pay short-term debt obligations and to purchase short-term investments. In December 1997, the Company announced its tender offer to acquire a controlling interest in Harmac's outstanding common shares for cash. During the first quarter of 1998, the investment in Harmac, net of cash acquired of $19.6 million, was $35.8 million, and included common stock purchases and acquisition costs. On February 2, 1998, the Company acquired 6.8 million shares of Harmac common stock for $77.8 million Canadian dollars (approximately $53.4 million U.S. dollars). This February 1998 acquisition, combined with the Company's previous Harmac stock purchases in 1997 and January 1998, resulted in the Company holding a 53 percent controlling ownership interest in Harmac. The payment for the Harmac shares in the first quarter of 1998 was made from existing cash and cash equivalent balances, supplemented with borrowings of approximately $20 million under the Company's revolving-credit agreement. The Company invested $4.3 million in capital projects during the first three months of 1998 and estimates that total 1998 capital spending will approximate $26 million. This 1998 capital spending includes various cost reducing, business sustaining and profit improvement projects, the largest being a $9 million project at the Castlegar sawmill to install an energy system, and a nearly $9 million project at the Harmac pulp mill to install a barge unloading facility which will be completed during 1998. The Company anticipates that approximately $32 million will be required in the remainder of 1998 and during 1999 to complete previously approved projects. It is anticipated that capital spending for the remainder of the year will be financed from internally generated cash, existing balances of cash and cash equivalents and, if necessary, from the Company's lines of credit. 12 14 Through the first three months of 1998, the Company paid $2.6 million of dividends. The Company currently has a $75 million revolving-credit agreement with no outstanding balance as of March 31, 1998. FACTORS THAT MAY AFFECT FUTURE RESULTS Statements in this report or in other Company communications, such as press releases, may relate to future events or the Company's future performance and such statements are forward-looking statements. Such forward-looking statements are based on present information the Company has related to its existing business circumstances. Investors are cautioned that such forward-looking statements are subject to an inherent risk that actual results may differ materially from such forward-looking statements. Factors that may result in such variances include, but are not limited to, changes in commodity prices, interest rates and other economic conditions, actions by competitors, changing weather conditions and natural phenomena, actions by government authorities, uncertainties associated with legal proceedings (as described in Notes to Consolidated Condensed Financial Statements, Note 6.), technological developments, future decisions by management in response to changing conditions and misjudgments in the course of preparing forward-looking statements. Such factors are discussed in this report on Form 10-Q as well as in the Company's Annual Report on Form 10-K. 13 15 PART II. ITEM 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on April 30, 1998. The following members were elected to the Company's Board of Directors to hold office for three-year terms expiring in 2001.
Nominee In Favor Withheld ------- -------- -------- Hamilton W. Budge 10,536,785(93.20%) 768,125(6.80%) Charles Crocker 10,591,926(93.69%) 712,984(6.31%) Michael Flannery 10,597,324(93.74%) 707,586(6.26%)
Additionally, the following directors were elected in previous years to three-year terms on the Company's Board of Directors and will continue their terms of office: Gordon P. Andrews, Warren E. McCain, Robert Stevens Miller, Jr., Peter T. Pope, Hugo G.L. Powell and Brooks Walker, Jr. The results of the voting on the approval to amend the Stock Option and Appreciation Plan was as follows:
In Favor Opposed Abstained -------- ------- --------- 7,421,480(65.65%) 3,803,256(33.64%) 80,174(0.71%)
The results of the voting on the ratification of selection of Arthur Andersen LLP as independent public accountants was as follows:
In Favor Opposed Abstained -------- ------- --------- 11,219,393(99.24%) 38,167(0.34%) 47,350(0.42%)
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits -------- 2.2 Offer to Purchase and Circular, dated December 20, 1997. (Incorporated herein by reference to Exhibit 1 to Schedule 14-D-1F filed with the Securities and Exchange Commission on December 22, 1997 by Pope & Talbot Pulp Ltd.) 3.1 Certificate of Incorporation, as amended. (Incorporated herein by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) 3.2 Bylaws. (Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996.)
14 16 4.1 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.) 4.2 Rights Agreement, dated April 4, 1988, between the Company and The Bank of California, as rights agent. (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.) 4.3 Revolving Credit Agreement, dated December 15, 1997, between the Company and U.S. Bank National Association. (Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed March 20, 1998.) 10.1 Executive Compensation Plans and Arrangements 10.1.1 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.) 10.1.2 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.) 10.1.3 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.) 10.1.4 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.) 10.1.5 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.) 10.1.6 Form of Severance Pay Agreement among the Company and certain of its executive officers. 10.1.7 1996 Non-Employee Director Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.) 10.1.8 Director Deferred Compensation Plan. 10.2 Lease agreement between the Company and 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.) 10.3 Lease agreement between the Company and 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.)
15 17 10.4 Lease agreement between the Company and 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.) 10.5 Grays Harbor Paper L.P. Amended and Restated Pulp Sales Supply Contract, dated December 17, 1997 (with certain confidential information deleted). (Incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997.) 10.6 Province of British Columbia Tree Farm License No. 8, dated March 1, 1995. (Incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.7 Province of British Columbia Tree Farm License No. 23, dated March 1, 1995. (Incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.8 Province of British Columbia Forest License A18969, dated December 1, 1993. (Incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 11.1 Statement showing computation of per share earnings. 27.1 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 A Current Report on Form 8-K was filed on January 22, 1998 reporting the signing of a definitive agreement to sell its private label tissue business to an investor group led by PLAINWELL, INC. (Plainwell) for $147 million in cash and certain assumed liabilities. On February 11, 1998 a Current Report on Form 8-K was filed reporting the acquisition of Harmac Pacific Inc. (Harmac) common shares which resulted in the Company owning 53 percent of Harmac's outstanding common shares. A Current Report on Form 8-K was filed on March 20, 1998 reporting the March 6, 1998 sale of the Company's private label tissue business to Plainwell. 16 18 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: May 14, 1998 /s/ Robert J. Day --------------------------------- Robert J. Day Senior Vice President and Chief Financial Officer EX-10.1.6 2 FORM OF SEVERANCE PAY AGREEMENT 1 EXHIBIT 10.1.6 February 10, 1998 [Name] c/o Pope & Talbot, Inc. P.O. Box 8171 Portland, Oregon 97207 Dear Name: We are pleased to inform you that the Human Resources and Nominating Committee of Pope & Talbot, Inc. (the "Company") has recently authorized and approved a special severance benefit program for you and other key executives. The purpose of this letter agreement is to set forth the terms and conditions of your benefit package and to explain the limitations which will govern the overall value of your benefits. Your severance benefits will become payable in the event your employment terminates within a specified time period following certain changes in ownership or control of the Company. To understand the full scope of your severance benefits, you should familiarize yourself with the definitional provisions of Part One of this letter agreement. The benefits comprising your severance package are detailed in Part Two, and the dollar limitations on the overall value of your benefit package are specified in Part Three. Part Four deals with ancillary matters affecting your severance arrangement. PART ONE -- DEFINITIONS For purposes of this letter agreement, the following definitions will be in effect: AVERAGE COMPENSATION means the average of your W-2 wages from the Company for the five (5) calendar years (or such fewer number of calendar years of employment with the Company) completed immediately prior to the calendar year in which the Change of Control is effected. Any W-2 wages for a partial year of employment will be annualized, in accordance with the frequency which such wages are paid during such partial year, before inclusion in your Average Compensation. If any of your compensation from the Company during such five (5)-year or shorter period was not included in your W-2 wages for U.S. income tax purposes, either because you were not a U.S. citizen or resident or because such compensation was excludable from income as foreign earned income under Code Section 911, then such compensation will nevertheless be included in your Average Compensation to the same extent as if it were part of your W-2 wages. BASE SALARY means the annual rate of base salary in effect for you immediately prior to the Change in Control or (if greater) the annual rate of base salary in effect at the time of your Involuntary Termination. 2 Name February 10, 1998 Page 2 BOARD means the Company's Board of Directors. CHANGE IN CONTROL means: (i) the successful acquisition by a person or a group of related persons, other than the Company or a person controlling, controlled by or under common control with the Company, of beneficial ownership (as determined pursuant to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities possessing more than twenty-five percent (25%) of the total combined voting power of the Company's outstanding securities pursuant to a transaction or series of related transactions which the Board does not at any time recommend the Company's shareholders to accept or approve, or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been members of the Board continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. (iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company in complete liquidation or dissolution of the Company, or (iv) any merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities are transferred to person or persons different from the persons holding those securities immediately prior to such transaction. CODE means the Internal Revenue Code of 1986, as amended. COMMON STOCK means the Company's common stock. FAIR MARKET VALUE means, with respect to any shares of Common Stock subject to any of your Options, the closing selling price per share of Common Stock on the date in question, as reported on the New York Stock Exchange. If there is no reported sale of Common Stock on such date, then the closing selling price on the New York Stock Exchange on the next preceding day for which there does exists such quotation will be determinative of Fair Market Value. 3 Name February 10, 1998 Page 3 HEALTH CARE COVERAGE means the continued health care coverage to which you and your eligible dependents may become entitled under Part Two of this letter agreement upon the Involuntary Termination of your employment. INVOLUNTARY TERMINATION means the termination of your employment with the Company: o involuntarily upon your discharge or dismissal (other than a Termination for Cause), or o voluntarily upon your resignation following (I) a change in your position with the Company which materially reduces your duties or level of responsibility or which otherwise changes the level of management to which you report, (II) a 20% or more reduction in your level of compensation (including base salary, fringe benefits and target bonus under any incentive performance plan) or (III) a change in your place of employment which is more than fifty (50) miles from your place of employment prior to the Change in Control, provided and only if such change or reduction is effected without your written concurrence. In no event shall an Involuntary Termination be deemed to occur should your employment terminate by reason of your death or disability. OPTION means any option granted to you under the Plan which is outstanding at the time of the Change in Control or upon your subsequent Involuntary Termination. Your Options will be divided into two (2) separate categories as follows: Acquisition-Accelerated Options: any outstanding Option (or installment thereof) which automatically accelerates, pursuant to the acceleration provisions of the agreement evidencing that Option, upon a change in control or ownership of the Company under certain specified circumstances. Severance-Accelerated Options: any outstanding Option (or installment thereof) which accelerates upon your Involuntary Termination pursuant to Part Two of this letter agreement. OPTION PARACHUTE PAYMENT means, with respect to any Acquisition-Accelerated Option or any Severance-Accelerated Option, the portion of that Option deemed to be a parachute payment under Code Section 280G and the Treasury Regulations issued thereunder. The portion of such Option which is categorized as an Option Parachute Payment will be calculated in accordance with the valuation provisions established under Code Section 280G and the applicable Treasury Regulations and will include an appropriate dollar adjustment to reflect the lapse of your obligation to remain in the Company's employ as a condition to the vesting of the accelerated 4 Name February 10, 1998 Page 4 installment. In no event, however, will the Option Parachute Payment attributable to any Acquisition-Accelerated Option or Severance-Accelerated Option (or accelerated installment) exceed the spread (the excess of the Fair Market Value of the accelerated option shares over the option exercise price payable for those shares) existing at the time of acceleration. OTHER PARACHUTE PAYMENT means any payment in the nature of compensation (other than the benefits to which you become entitled under Part Two of this letter agreement) which are made to you in connection with the Change in Control and which accordingly qualify as parachute payments within the meaning of Code Section 280G(b)(2) and the Treasury Regulations issued thereunder. Your Other Parachute Payment will include (without limitation) the Present Value, measured as of the Change in Control, of the aggregate Option Parachute Payment attributable to your Acquisition-Accelerated Options (if any). PLAN means (i) the Company's Stock Option and Appreciation Plan, as amended or restated from time to time, and (ii) any successor stock incentive plan subsequently implemented by the Company. PRESENT VALUE means the value, determined as of the date of the Change in Control, of any payment in the nature of compensation to which you become entitled in connection with the Change in Control or the subsequent Involuntary Termination of your employment, including (without limitation) the Option Parachute Payment attributable to your Severance-Acceleration Options, your Severance Payment under Part Two of this letter agreement and the Option Parachute Payment attributable to your Acquisition-Accelerated Options. The Present Value of each such payment shall be determined in accordance with the provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one hundred twenty percent (120%) of the applicable Federal rate in effect at the time of such determination, compounded semi-annually to the effective date of the Change in Control. SEVERANCE PAYMENT means the severance payment to which you may become entitled under Part Two in the event of your Involuntary Termination following a Change in Control, subject, however, to the dollar limitations of Part Three. TERMINATION FOR CAUSE means an Involuntary Termination of your employment occasion by reason of your having engaged in fraud or in any other intentional misconduct adversely affecting the business reputation of the Company in a material manner. 5 Name February 10, 1998 Page 5 PART TWO -- CHANGE IN CONTROL BENEFITS Upon the Involuntary Termination of your employment within eighteen (18) months following a Change in Control, you will become entitled to receive the special severance benefits provided in this Part Two. 1. SEVERANCE PAYMENT. If your Involuntary Termination occurs within the first eighteen (18) months after the Change in Control, then you will be entitled to a Severance Payment in an aggregate amount equal to (i) two (2) times your Base Salary plus (ii) your target bonus for the fiscal year of the Company in which such Involuntary Termination occurs. The Severance Payment will be made to you in a lump sum payment within ninety (90) days after your Involuntary Termination. The Severance Payment will be subject to the Company's collection of applicable federal and state income and employment withholding taxes. In the event your employment terminates by reason of your death or disability or your Termination for Cause, you will not be entitled to receive any Severance Payment or other benefits under this letter agreement. 2. OPTION ACCELERATION. Each of your outstanding Options will (to the extent not then otherwise fully exercisable) automatically accelerate so that each such Option will become fully vested and immediately exercisable for the total number of shares of Common Stock at the time subject to that Option. Each such accelerated Option, together with all your other vested Options, will remain exercisable for fully-vested shares until the earlier of (i) the expiration date of the ten (10) year option term or (ii) the end of the one (1) year period measured from the date of your Involuntary Termination. 3. ADDITIONAL BENEFITS. (a) HEALTH CARE COVERAGE. The Company will, at its expense, provide you and your eligible dependents with continued health care coverage under the Company's medical/dental plan until the earlier of (i) eighteen (18) months after the date of your Involuntary Termination or (ii) the first date that the you are covered under another employer's health benefit program which provides substantially the same level of benefits without exclusion for pre-existing medical conditions. The coverage so provided you and your eligible dependents will be 6 Name February 10, 1998 Page 6 in full and complete satisfaction of the continued health care coverage to which you or your eligible dependents would otherwise, at your own expense, be entitled under Code Section 4980B by reason of your termination of employment, and neither you nor your eligible dependents will accordingly be entitled to any additional period of health care coverage under Code Section 4980B as a result of your termination of employment. (b) UNPAID BENEFITS You will receive an immediate lump sum payment of all unpaid vacation days which you have accrued through the date of your Involuntary Termination. PART THREE -- LIMITATION ON BENEFITS 1. PARACHUTE LIMIT. Except to the limited extent (if any) provided under Paragraph 4(a) below, the aggregate Present Value (measured as of the Change in Control) of the benefits to which you become entitled under Part Two at the time of your Involuntary Termination (namely the Severance Payment, the Option Parachute Payment attributable to your Severance-Accelerated Options and your Health Care Continuation) will in no event exceed in amount the difference between (i) 2.99 times your Average Compensation and (ii) the Present Value, measured as of the Change in Control, of all Other Parachute Payments to which you are entitled. Accordingly, except as otherwise provided under Paragraph 4(a) below, your Options will not accelerate and no Severance Payment will be made to you pursuant to this letter agreement, to the extent the Present Value as of the Change in Control of (I) the aggregate Option Parachute Payment attributable to your Severance-Accelerated Options plus (II) your Severance Payment plus (III) your Health Care Continuation would, when added to the Present Value of your Other Parachute Payments, exceed 2.99 times your Average Compensation (the "Parachute Limit"). 2. RESOLUTION PROCEDURE. For purposes of the foregoing Parachute Limit, the following provisions will be in effect: (a) In the event there is any disagreement between you and the Company as to whether one or more payments to which you become entitled in connection with either the Change in Control or your subsequent Involuntary Termination constitute Option Parachute Payments or Other Parachute Payments or as to the determination of the Present Value thereof, such dispute will be resolved as follows: 7 Name February 10, 1998 Page 7 (i) In the event temporary, proposed or final Treasury Regulations in effect at the time under Code Section 280G (or applicable judicial decisions) specifically address the status of any such payment or the method of valuation therefor, the characterization afforded to such payment by the Regulations (or such decisions) will, together with the applicable valuation methodology, be controlling. (ii) In the event Treasury Regulations (or applicable judicial decisions) do not address the status of any payment in dispute, the matter will be submitted for resolution to independent counsel mutually acceptable to you and the Company ("Independent Counsel"). The resolution reached by Independent Counsel will be final and controlling; provided, however, that if in the judgment of Independent Counsel the status of the payment in dispute can be resolved through the obtainment of a private letter ruling from the Internal Revenue Service, a formal and proper request for such ruling will be prepared and submitted by Independent Counsel, and the determination made by the Internal Revenue Service in the issued ruling will be controlling. All expenses incurred in connection with the retention of Independent Counsel and (if applicable) the preparation and submission of the ruling request shall be shared equally by you and the Company. (iii) In the event Treasury Regulations (or applicable judicial decisions) do not address the appropriate valuation methodology for any payment in dispute, the Present Value thereof will, at the Independent Counsel's election, be determined through an independent third-party appraisal, and the expenses incurred in obtaining such appraisal shall be shared equally by you and the Company. 3. STATUS OF BENEFITS. (a) No Severance Payment will be made to you under Part Two of this letter agreement until the Present Value of the Option Parachute Payment attributable to both your Severance-Accelerated Options and your Acquisition-Accelerated Options has been determined and the status of any payments in dispute under Paragraph 2 above has been resolved in accordance therewith. However, you will be permitted to exercise your Severance-Accelerated Options at any time during the one (1) year (or shorter) period immediately following your Involuntary Termination. (b) Once the requisite determinations under Paragraph 2 have been made, then to the extent the aggregate Present Value, measured as of the Change in Control, of (1) the Option Parachute Payment attributable to your Severance-Accelerated Options (or installments 8 Name February 10, 1998 Page 8 thereof) plus (2) your Severance Payment would, when added to the Present Value of all your Other Parachute Payments (including the Option Parachute Payment attributable to your Acquisition-Accelerated Options), exceed the Parachute Limit, your Severance Payment will be accordingly reduced. 4. OVERRIDING LIMITATIONS. (a) Notwithstanding any provision to the contrary set forth in the preceding provisions of this Part Three, the aggregate Present Value of your Severance Payment and the Option Parachute Payment attributable to your Severance-Accelerated Options will not be reduced below that amount (if any) which, when added to the Present Value of all the Other Parachute Payment to which you are entitled, would nevertheless qualify as reasonable compensation for past services within the standards established under Code Section 280G(b)(4)(B). (b) The limitations of this Part Three will in all events be interpreted in such manner as to avoid the imposition of excise taxes under Code Section 4999, and the disallowance of deductions under Code Section 280G(a), with respect to any of the benefits paid pursuant to Part Two of this letter agreement. PART FOUR -- MISCELLANEOUS PROVISION 1. TERMINATION FOR CAUSE. Should your Involuntary Termination constitute a Termination for Cause, then the Company will only be required to pay you (i) any unpaid compensation earned for services previously rendered through the date of such termination and (ii) any accrued but unpaid vacation benefits or sick days, and no benefits will be payable to you under Part Two of this letter agreement. 2. DEATH. Should you die before receipt of one or more Severance Payment to which you become entitled under Part Two of this letter agreement, then those payment or payments will be made to the executors or administrators of your estate. Should you die before you exercise all your outstanding Options, then such Options may be exercised, within twelve (12) months after your death, by the executors or administrators of your estate or by persons to whom the Options are transferred pursuant to your will or in accordance with the laws of inheritance. In no event, however, may any such Option be exercised after the specified expiration date of the option term. 9 Name February 10, 1998 Page 9 3. GENERAL CREDITOR STATUS. The payments and benefits to which you become entitled hereunder will be paid, when due, from the general assets of the Company, and no trust fund, escrow arrangement or other segregated account will be established as a funding vehicle for such payment. Accordingly, your right (or the right of the personal representatives or beneficiaries of your estate) to receive any payments or benefits hereunder will at all times be that of a general creditor of the Company and will have no priority over the claims of other general creditors. 4. INDEMNIFICATION. The indemnification provisions for Officers and Directors under the Company By-Laws will (to the maximum extent permitted by law) be extended to you, during the period following your Involuntary Termination, with respect to any and all matters, events or transactions occurring or effected during your employment with the Company. 5. MISCELLANEOUS. This letter agreement will be binding upon the Company, its successors and assigns (including, without limitation, the surviving entity in any Change in Control) and is to be construed and interpreted under the laws of the State of Oregon. This letter agreement supersedes all prior agreements between you and the Company relating to the subject of severance benefits payable upon a change in control or ownership of the Company, and you will not be entitled to any other severance benefits upon your termination of employment. This letter may only be amended by written instrument signed by you and an authorized officer of the Company. If any provision of this letter agreement as applied to you or the Company or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision will in no way affect (to the maximum extent permissible by law) the application of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this letter agreement, or the enforceability or invalidity of this letter agreement as a whole. Should any provision of this letter agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision will be deemed amended to the extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken and the remainder of this letter agreement will continue in full force and effect. You will not be eligible for any other benefits. 10 Name February 10, 1998 Page 10 6. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this letter agreement is intended to provide you with any right to continue in the employ of the Company (or any subsidiary) for any period of specific duration or interfere with or otherwise restrict in any way your rights or the rights of the Company (or any subsidiary), which rights are hereby expressly reserved by each, to terminate your employment at any time for any reason whatsoever, with or without cause. 7. ATTORNEY FEES. In the event legal proceeding should be initiated by you or by the Company with respect to any controversy, claim or dispute relating to the interpretation or application of the provisions of this letter agreement or any benefits payable hereunder, the prevailing party in such proceedings will be entitled to recover from the losing party reasonable attorney fees and costs incurred in connection with such proceedings or in the enforcement or collection of any judgment or award rendered in such proceedings. For purposes of this provision, the prevailing party means the party determined by the court to have most nearly prevailed in the proceedings, even if that party does not prevail in all matters, and does not necessarily mean the party in whose favor the judgment is actually rendered. Please indicate your acceptance of the foregoing provisions of this employment agreement by signing the enclosed copy of this agreement and returning it to the Company. BY: ___________________________________ TITLE:___________________________________ ACCEPTANCE I hereby agree to all the terms and provisions of the foregoing letter agreement governing the special benefits to which I may become entitled in connection with certain changes in control or ownership of ___________________. Signature: ______________________________ Dated: _______________________ , 1998 EX-10.1.8 3 DIRECTOR DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.1.8 POPE & TALBOT, INC. DIRECTORS' DEFERRED COMPENSATION PLAN EFFECTIVE SEPTEMBER 11, 1996 PURPOSE The purpose of the Directors' Deferred Compensation Plan (the "Plan") is to provide Directors of Pope & Talbot, Inc. (the "Corporation") with payment alternatives for fees payable for future services as a member of the Board of Directors (the "Director Fees") of the Corporation (hereinafter referred to as the "Board") or as a member of any committee thereof. SECTION 1 ELIGIBILITY Any Director of the Corporation who is separately compensated for services on the Board or on any committee of the Board shall be eligible to participate in the Plan. SECTION 2 ELECTIONS AND DEFERRALS 2.1 ELECTION TO DEFER DIRECTOR'S FEES Each Director may elect to receive current payment of Director Fees (on the date on which the Director Fees are payable) either in cash or may elect to defer payment of Director Fees each calendar year. The election by a Director to defer payment of Director Fees is made by filing with the Secretary of the Corporation a Notice of Election in the form prescribed by the Corporation (an "Election"). Director Fees earned at any time for which an Election is not effective will continue to be paid in cash on the date when the Director Fees are otherwise payable. An existing election may be changed or terminated as of the first day of any succeeding calendar year, provided notice of such change or termination is filed with the Secretary of the Corporation prior to the first day of that calendar year. Any Election shall automatically terminate on the date a Director ceases to be a member of the Board. 2.2 DIRECTOR DEFERRAL OF COMPENSATION On or before December 31 of any calendar year, an Eligible Director may elect to defer receipt of all or any part of any Compensation payable in respect of the calendar year following the year in which such election is made. Any person who shall become an Eligible Director during any calendar year may elect, not later than the 30th day after his or her term as a Director begins, to defer payment of all or any part of his or her Compensation payable for the portion of such calendar year following such Election. 1 2 2.3 DEFERRED COMPENSATION ACCOUNT AND EARNINGS The amount of any Director Fees deferred shall be credited on the date on which such Director Fees are otherwise payable to a deferred compensation account maintained by the Corporation in the name of the Director (a "Deferred Compensation Account"). The balance from time to time outstanding in such Deferred Compensation Account shall accrue interest at the 5-year treasury rate in effect at the first day of each calendar year during the deferral period. Such interest shall be credited to Deferred Compensation Account annually in arrears. SECTION 3 ACCOUNT PAYOUT 3.1 DISTRIBUTION The balance of a Director's Deferred Compensation Account will be paid in a lump sum to the Director or, in the event of the Director's death, to the Director's designated beneficiary on the Payment Commencement Date specified in Section 3.2. However, a Director may elect at the time of filing of his/her initial Notice of Election to receive payment of the Deferred Compensation Account in annual installments rather than a lump sum, provided that the payment period for installment payments shall not exceed ten years following the Payment Commencement Date. The amount of any installment shall be determined by dividing (i) the balance in the Director's Deferred Compensation Account on the date of such installment by (ii) the number of remaining unpaid installments (including the current installment to be paid). The balance of the Deferred Compensation Account shall be appropriately reduced on the date of payment to the Director or the Director's designated beneficiary to reflect the installment payments made hereunder. Amounts held pending distribution shall continue to be credited with interest pursuant to Section 2.3. 3.2 PAYMENT COMMENCEMENT DATE All lump sum payments and the first installment of any installment payout in the Deferred Compensation Account shall be made within thirty (30) days after the earlier of (i) the Director's termination of Board service or (ii) his/her death. SECTION 4 GENERAL PROVISIONS 4.1 BENEFICIARY DESIGNATION A Director may designate, in the Beneficiary Designation form prescribed by the Corporation, any person to whom payments are to be made if the Director dies before receiving payment of all amounts due hereunder. A beneficiary designation will be effective only after the signed beneficiary designation form is filed with the Secretary of the Corporation while the Director is alive and will cancel all beneficiary designations signed and filed earlier. If the Director fails to designate a beneficiary, or if all designated beneficiaries of the Director die before the Director or before complete payment of all amounts due hereunder, any remaining unpaid amounts shall be 2 3 paid in one lump sum to the estate of the last to die of the Director or the Director's designated beneficiaries, if any. 4.2 NON-ALIENABILITY OF BENEFITS Neither the Director nor any beneficiary designated by the Director shall have the right to, directly or indirectly alienate, assign, transfer, pledge, anticipate or encumber any amount that is or may be payable hereunder. To the maximum extent permitted by law, no amount due hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Director or the Director's designated beneficiary or to the debts, contracts, liabilities, engagements, or torts of any Director or designated beneficiary, or transfer by operation of law in the event of bankruptcy or insolvency of the Director of any beneficiary, or any legal process. 4.3 UNFUNDED OBLIGATION Any Deferred Compensation Account shall be established and maintained only on the books and records of the Corporation, and no assets or funds of the Corporation shall be removed from the claims of the Corporation's general or judgment creditors or otherwise made available until such amounts are actually payable to Directors or their designated beneficiaries as provided herein. The Plan constitutes a mere promise by the Corporation to make payments in the future. The Directors and their designated beneficiaries shall have the status of, and their rights to receive a payment under the Plan shall be no greater than the rights of, general unsecured creditors of the Corporation. The Corporation shall not be obligated under any circumstances to fund its financial obligations under the Plan, and the Plan is intended to constitute an unfunded plan for tax purposes. However, the Corporation may, in its discretion, set aside funds in a trust or other vehicle, subject to the claims of its creditors, in order to assist it in meeting its obligations under the Plan, if such arrangement will not cause the Plan to be considered a funded deferred compensation plan under the Internal Revenue Code of 1986, as amended. 4.4 ADMINISTRATION OF PLAN; HARDSHIP WITHDRAWAL Full power and authority to construe, interpret, and administer the Plan shall be vested in the Board. Decisions of the Board shall be final, conclusive, and binding upon all parties. Notwithstanding the terms of an Election made by a Director hereunder, the Board may, in its sole discretion, permit the withdrawal of amounts credited to the Deferred Compensation Account with respect to Director Fees previously payable, upon the request of a Director or the Director's representative, if the Board determines that the Director or the director's beneficiary, as the case may be, is confronted with an unforeseeable emergency. For this purpose, an unforeseeable emergency is an unanticipated emergency caused by an event that is beyond the control of the Director or the Director's beneficiary and that would result in severe financial hardship to the Director or the Director's beneficiary if an early hardship withdrawal were not permitted. The Director or the Director's beneficiary shall provide to the Board such evidence as the Board, in its discretion, may require to demonstrate that such emergency exists and financial hardship would occur if the withdrawal were not permitted. The withdrawal shall be limited to the amount necessary to meet the emergency. For purposes of the Plan, a hardship shall be 3 4 considered to constitute an immediate and unforeseen financial hardship if the Director has an unexpected need for cash to pay for expenses incurred by him or a member of his immediate family (spouse and/or natural or adopted children) such as those arising from illness, casualty loss, or death. Cash needs arising from foreseeable events, such as the purchase or building of a house or education expenses, will not be considered to be the result of an unforeseeable financial emergency. Payment shall be made as soon as practicable after the Board approves the payment and determines the amount of the payment which shall be withdrawn, in a single lump sum. No Director shall participate in any decision of the Board regarding such Director's request for a withdrawal under this Section. 4.5 GOVERNING LAW The provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of Delaware. SECTION 5 EFFECTIVE DATES; AMENDMENT AND TERMINATION The Plan was adopted by the Board on September 11, 1996. Deferrals are permitted commencing January 1, 1997. The Board may amend or terminate the Plan at any time, provided that no such amendment or termination shall adversely affect rights with respect to amounts or shares then credited to any Deferred Account. 4 EX-11.1 4 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 POPE & TALBOT, INC. STATEMENT SHOWING CALCULATION OF AVERAGE COMMON SHARES OUTSTANDING AND EARNINGS PER AVERAGE COMMON SHARE
Three months ended March 31, 1998 1997 ----------- ----------- Weighted average number of common shares outstanding 13,481,441 13,363,779 Application of the "treasury stock" method to the stock option plan 60,474 993 ----------- ----------- Total common and common equivalent shares, assuming dilution 13,541,915 13,364,772 =========== =========== Net income $20,481,000 $ 1,378,000 =========== =========== Diluted net income per common share $ 1.51 $ .10 =========== ===========
The computation of basic net income per common share is not included because the computation can be clearly determined from the material contained in this report. EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE POPE & TALBOT, INC. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 MAR-31-1998 47,223 26,131 66,743 0 88,206 240,554 439,940 184,980 508,996 78,440 142,472 0 0 13,972 186,049 508,996 103,493 103,493 106,174 106,174 0 0 2,299 (11,409) (3,482) (7,927) 27,074 0 0 20,481 1.52 1.51
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