February 10, 1998
c/o Pope & Talbot, Inc.
P.O. Box 8171
Portland, Oregon 97207
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
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.
February 10, 1998
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
(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.
February 10, 1998
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
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
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
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
February 10, 1998
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.
February 10, 1998
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
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
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
February 10, 1998
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
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:
February 10, 1998
(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
(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
February 10, 1998
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
(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.
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
February 10, 1998
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.
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
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.
February 10, 1998
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
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 ___________________.
Dated: _______________________ , 1998