Document:

Exhibit 10.3

                               PRIORITY AGREEMENT

THIS AGREEMENT made as of the19th day of December, 2002.

 AMONG:

     WASANDA ENTERPRISES INC.(hereinafter called "Wasanda")

                                                   OF THE FIRST PART;

-and-

D.DUNSMUIR INVESTMENTS CANADA LIMITED (hereinafter called "Dunsmuir")

                                                   OF THE SECOND PART;
-and-

D'ANGELO BRANDS LTD. (hereinafter called "D'Angelo")

                                                   OF THE THIRD PART;

-and-

D'ANGELO BRANDS, INC. (hereinafter called "Brands")

                                                   OF THE FOURTH PART;

-and-

FRANK D'ANGELO (hereinafter called "Frank")

                                                   OF THE FIFTH PART;

-and-

GIUSEPPE D'ANGELO (hereinafter called "Giuseppe")

                                                   OF THE SIXTH PART;

WHEREAS D'Angelo and Brands are indebted to Dunsmuir and as security for the
repayment of such indebtedness D'Angelo and Brands have executed and delivered
to Dunsmuir a general security agreement covering their assets and undertaking
(the "Dunsmuir Security");

AND WHEREAS D'Angelo and Brands have agreed to
execute and deliver to Wasanda a fixed and floating charge debenture (the
"Wasanda Security");

AND WHEREAS the Wasanda Security and the Dunsmuir Security
are hereinafter sometimes collectively referred to as the "Security Agreements";

AND WHEREAS Dunsmuir has registered the financing statements listed in Schedule
"A" annexed hereto (the "Dunsmuir Financing Statements") and Wasanda has
registered or will register the financing statements listed or to be listed in
Schedule "A annexed hereto (the "Wasanda Financing Statements"), all for the
purpose of perfecting a security interest in or against certain assets of
D'Angelo and Brands;

AND WHEREAS the parties have agreed upon certain priorities
in respect of the Dunsmuir Security and the Wasanda Security as hereinafter
described;

AND WHEREAS D'Angelo and Brands have agreed that they will maintain
and deal with their assets in accordance with the provisions hereof;

NOW WITNESSETH THAT the parties hereto each in consideration of the execution of
this Agreement by the other and other good and valuable good and consideration
(the receipt and sufficiency of which is hereby acknowledged) covenant and agree
as follows:

1.  The parties confirm that the foregoing recitals are true in
substance and in fact and are agreed to form a part hereof for all purposes.

2.Each of Wasanda and Dunsmuir hereby consent to the creation and issue of the
Wasanda Security and of the Dunsmuir Security and each agree that the creation,
issue, registration, filing and existence of the same shall not  constitute an
event of default under the Dunsmuir Security or the Wasanda Security.

3.The Dunsmuir Security shall at all times rank in priority to the Wasanda
Security and the Wasanda Security shall be and is hereby postponed and
subordinated to and in favour of the Dunsmuir Security as it relates to
equipment of D'Angelo and/or Brands and all traceable insurance and other
proceeds therefrom and the Wasanda Security shall at all times rank in priority
to the Dunsmuir Security and the Dunsmuir Security shall be and is hereby
postponed and subordinated to an din favour of the Wasanda Security as it
relates to the book debts, accounts receivable, promissory notes or other
evidence of indebtedness to D'Angelo and/or Brands (the "Receivables") and any
security obtained by D'Angelo and/or Brands for such Receivables and as it
relates to the inventory of D'Angelo and Brands and all insurance proceeds
payable thereon, all together with all proceeds thereof, all irrespective of:

(a)     the provisions of the security Agreements;

(b)     any oral or written understanding, agreement or other document,
registered or unregistered, given by or to nay one or more of the parties to
this Agreement prior to the date hereof;

(c)     the respective dates of creation, execution, delivery, filing,
registration, attachment or perfection of, advances of funds under and
crystallization, realization or default under the Security Agreements, or any
grant, assignment, transfer, mortgage, charge, security interest or other
interest or right contained in the Security Agreements;

(d)     the respective dates on which D'Angelo and/or Brands became indebted to
Dunsmuir and Wasanda;

(e)     the respective dates on which Wasanda or Dunsmuir obtained any judgment
or filed any writ of seizure and sale against D'Angelo and /or Brands;

(f)     any rights or remedies to which, except for this Agreement, Wasanda or
Dunsmuir would be entitled at law or equity against D'Angelo and/or Brands or
any of their undertaking, property and assets in respect of any of D'Angelo's
and/or Brands' obligations and indebtedness secured  by any of the Security
Agreements;

(g)     any future increases in the credit facilities made available by Dunsmuir
and/or Wasanda to D'Angelo and/or Brands; and

(h)     any other matter.

4.      This agreement is intended to affect the priorities of Wasanda Security
and Dunsmuir Security only to the extent expressly stated herein.  Without
limiting the generality of the foregoing, nothing herein shall:

(a)     entitle D'Angelo and/or Brands to postpone any payment of any monies
(secured by the Security Agreements or not) owing to Wasanda or Dunsmuir;

(b)     affect any rights (including, but not limited to, the right to realize
under its security) of Wasanda or Dunsmuir, except to the extent specifically
provided herein;

(c)     entitle any person (other than Wasanda and Dunsmuir and their respective
successors and assigns) to claim or obtain priority over any of the security
referred to in the Security Agreements.

5.      D'Angelo and Brands acknowledge that they are indebted to Frank and
Giuseppe (the "existing indebtedness:).  Frank and Giuseppe together with
D'Angelo and Brands agree that the existing indebtedness is not the subject of
nor will it (or any present or future indebtedness of any nature of kind of
D'Angelo or Brands to Frank or Giuseppe) hereafter without the consent of
Wasanda and Dunsmuir be made the subject of any set-off or counter-claim by
them.  Frank and Giuseppe represent to Wasanda and Dunsmuir that they hold no
security for the existing indebtedness or any part thereof (or for any other
present or future indebtedness of any nature or kind of D'Angelo and/or Brands
to them or either of them) and as the existing indebtedness as well as all other
present and future indebtedness of D'Angelo and/or Brands to Frank and/or
Giuseppe has been hereby assigned and postponed to the Wasanda Security, Frank
and /or Giuseppe hereby agree with D'Angelo and /or Brands that no satisfaction,
consideration or security will be given to or accepted by Frank and Giuseppe for
any debt, liability or obligation, present or future, including the existing
indebtedness owing by D'Angelo and Brands to Frank and/or Giuseppe without the
written consent of Wasanda and Dunsmuir first had and obtained.

6.      This Agreement shall extend to bind and enure to the benefit of the
parties hereto and their respective successors and assigns.

7.      The invalidity of any provision of this Agreement or any covenant herein
contained on the part of any party shall not affect the validity of any other
provision or covenant hereof or herein contained.

8.      Each of the parties shall from time to time, both before and after the
date hereof, take or cause to be taken such action and execute and deliver or
cause to be executed and delivered to the other such documents and further
assurances as may, in the reasonable opinion of counsel for the other, be
necessary or advisable to give effect to this Agreement.

9.      This Agreement may be executed in several counterparts each of which so
executed shall be deemed to be an original and such counterparts together shall
constitute and the same instrument and notwithstanding their date of execution
shall be deemed to bear date as of the date first above written.

10.     In the event that any clause, paragraph or portion hereof should be
unenforceable or declared in valid for any reason whatsoever, such
enforceability or invalidity shall not affect the enforceability or validity of
the remaining clauses, paragraphs or portions hereof and such unenforceable or
invalid clause, paragraph or portion shall be severable from the remainder
hereof.

11.     This Agreement shall be governed and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein.

IN WITNESS WHEREOF the corporate parties hereto have set their hands and affixed
there corporate seal under the hands of their proper officers as of the date
first above written.

SIGNED, SEALED AND DELIVERED

   In the presence of:               )
                                     )--------------------
                                     )  FRANK D'ANGELO
                                     )
                                     )---------------------
                                     )  GIUSEPPE D'ANGELO

  WASANDA ENTERPRISES INC                       D'ANGELO BRANDS LTD.
Per:------------------                           Per: ------------------------
Name:                                            Name:
Title:                                           Title:

D.DUNSMUIR INVESTMENTS                  D'ANGELO BRANDS, INC. CANADA LIMITED

Per: ---------------                            Per:  ------------------------
Name:                                           Name:
Title:                                          Title:

SCHEDULE "A" PPSA REGISTRATIONS

FILE NUMBER                     SECURED PARTY
-----------                     --------------
883273455                       D. Dunsmuir Investments Canada Limited
883201761                       D. Dunsmuir Investments Canada LimitedExhibit 10.3

 

SETTLEMENT AND REMEDIATION AGREEMENT

 

 

This Settlement and Remediation Agreement (the “Agreement”)
is entered into, as of the Effective Date defined herein, by and between Pope
Resources, a Delaware Limited Partnership (“Pope Resources”), and
Pope & Talbot, Inc., a Delaware corporation (“Pope &
Talbot”) (collectively, the “Parties”).

 

RECITALS

 

A.            Pope
Resources if the owner of the Town of Port Gamble and adjacent upland areas
(the “Site”).  The Site consists
of the Town of Port Gamble (the “Town Site”) and adjacent upland area,
as described in Exhibit A and Exhibit C, respectively, to the
Management Agreement between the Parties, dated December 3, 1985, a copy
of which is attached hereto as Exhibit A, and the former sawmill,
pellet plant and log transfer area (collectively, the “Mill Site”), all
as described and depicted in the Mill Site and Log Dump Lease between the
Parties, dated December 3, 1985, a copy of which is attached hereto as Exhibit B.

 

B.            Pope &
Talbot is the former owner of the Site. 
The Site was transferred by Pope & Talbot to Pope Resources
pursuant to a Plan of Distribution and Transfer and Indemnity Agreement between
the Parties, dated December 20, 1985, a copy of which agreement is
attached hereto as Exhibit C.

 

C.            Pope &
Talbot and its predecessors-in-interest operated a sawmill and related
facilities on the Mill Site until 1995. 
After December 2, 1985, Pope & Talbot’s activities on the Mill
Site have occurred pursuant to the Mill Site and Log Dump Lease attached hereto
as Exhibit B.  A portion of
the Mill Site, including the former sawmill site and the log storage and
rafting facilities located adjacent to the sawmill site, and all improvements
located thereon (the “Sublet Premises”), is currently sub-leased by
Pope & Talbot to S-V Pullin, Inc., a Washington corporation (the “Sublessee”),
under a Sublease Agreement effective May 1, 1997, and expiring on
December 20, 2002 (the “Sublease”).

 

D.            Pope
& Talbot and its predecessors-in-interest owned and operated the Town Site
until December 20, 1985. Pope & Talbot continued to manage the Town Site
under authority of the Management Agreement attached hereto as Exhibit A,
until December 31, 1995, when the Management Agreement expired. Pope &
Talbot continued to use the dredge-fill cell until 1997 on a portion of the
Site covered by the Management Agreement.

 

E.             The
Washington Department of Ecology (“Ecology”) has identified five
Operable Units associated with the Site, for the purpose of addressing existing
Environmental Conditions, as that term is defined by Paragraph 6.7 herein,
under the Washington Model Toxics Control Act, Ch. 70.105D RCW (“MTCA”)
and other laws. The five Operable Units are identified on the map attached
hereto as Exhibit D and are described as follows:

 

Operable Unit No. 1:
The former sawmill, the pellet plant, and Port Gamble Bay sediments and wood
waste deposits;

 

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Operable Unit No. 2:
The two historical landfills lying along Port Gamble Bay, immediately south of
the former sawmill (the “Bayside Landfills”);

 

Operable Unit No. 3:
The Port Gamble Town Site;

 

Operable Unit No. 4:
The historical Pope & Talbot industrial landfill located in the wooded,
upland area directly to the south of the Town Site (the “Industrial Landfill”);
and

 

Operable Unit No. 5:
The regulated dredge-fill cell, former wood waste landfill and former hog-fuel
storage area (collectively, the “Regulated Area”) all located in the
wooded upland area to the south of the Town Site and Industrial Landfill.

 

F.             The
Parties have engaged environmental consultants who have conducted environmental
investigations of certain areas of the Site. The Parties desire to enter into a
comprehensive agreement to fully, finally and permanently resolve the rights and
obligations of the Parties as to any and all existing and potential disputes
over responsibility for Port Gamble Environmental Conditions and all Remedial
Claims and Other Claims, as those terms are defined in Article 6 of this
Agreement, and to provide an orderly process for further investigation and
cleanup of Port Gamble Environmental Conditions.

 

In consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, Pope Resources
and Pope & Talbot hereby agree as follows:

 

ARTICLE
1.  REMEDIAL ACTIONS

 

1.1           Port
Gamble Bay. Pope & Talbot shall be responsible at its sole expense for
implementing and funding all Remedial Actions (as that term is defined by
paragraph 6.8 herein) with respect to the areas in Port Gamble Bay (as that
term is defined by paragraph 6.9 herein) impacted by Pope & Talbot’s
historic activities and by the Sublessee’s activities prior to the Effective
Date of this Agreement, including but not limited to investigation and cleanup
of Bay sediments and wood-waste deposits; provided that Pope &
Talbot’s responsibility under this paragraph 1.1 shall not apply to removal of
pilings or dolphins (bound groups of pilings) in Port Gamble Bay, except to the
extent required by Ecology as part of a Remedial Action. Port Gamble Bay is
part of the area identified by Ecology as Operable Unit No. 1. The Remedial
Actions shall be considered complete when Pope & Talbot completes all
required actions under any of the following: a consent decree, administrative
order, no-further-action determination, or equivalent administrative closure
from Ecology under MTCA and other applicable state laws or, in the event it
asserts jurisdiction, from the U.S. Environmental Protection Agency (“EPA”)
under applicable federal laws, and subject to post-cleanup monitoring and
agency “reopeners” if any.

 

1.2           Mill
Site. Pope Resources shall be responsible at its sole expense for
implementing and funding all Remedial Actions with respect to the Mill Site
that comprises part of Ecology’s Operable Unit No. 1. The Remedial Actions
shall be considered complete when Pope Resources obtains a no-further-action
determination or equivalent administrative closure from Ecology under MTCA and
other applicable state laws or, in the event it asserts jurisdiction, 

 

2

 

from the EPA under applicable federal laws, and subject to post-cleanup
monitoring and agency “reopeners” if any.

 

1.3           Bayside
Landfills. Pope & Talbot shall be responsible at its sole expense for
implementing and funding all Remedial Actions with respect to the two Bayside
Landfills that comprise Ecology’s Operable Unit No. 2. The Remedial Actions
shall include removal of Landfill materials for recycling or to a permitted
off-Site disposal facility, and shall be considered complete when Pope &
Talbot obtains a no-further-action determination or equivalent administrative
closure from Ecology under MTCA and other applicable state laws or, in the
event it asserts jurisdiction, from the EPA under applicable federal laws, and
subject to post-cleanup monitoring and agency “reopeners” if any.

 

1.4           Town
Site. Pope Resources shall be responsible at its sole expense for
implementing and funding all Remedial Actions with respect to the Town Site that
comprises Ecology’s Operable Unit No. 3. The Remedial Actions shall be
considered complete when Pope Resources obtains a no-further-action
determination or equivalent administrative closure from Ecology under MTCA and
other applicable state laws or, in the event it asserts jurisdiction, from the
EPA under applicable federal laws, subject to post-cleanup monitoring and
agency “reopeners” if any.

 

1.5           Industrial
Landfill. Pope & Talbot shall be responsible at its sole expense for
implementing and funding all Remedial Actions with respect to the Industrial
Landfill that comprises Ecology’s Operable Unit No. 4. The Remedial Actions
shall include removal of Landfill materials for recycling or to a permitted
off-Site disposal facility, and wetland restoration in compliance with Ecology
and Bremerton-Kitsap County Health District requirements. The Remedial Actions
shall be considered complete when Pope & Talbot obtains a no-further-action
determination or equivalent administrative closure from Ecology under MTCA and
other applicable state laws or, in the event it asserts jurisdiction, from the
EPA under applicable federal laws, subject to post-cleanup monitoring and
agency “reopeners” if any.

 

1.6           Regulated
Area. Pope & Talbot shall be responsible for implementing and funding
all Remedial Actions associated with the Regulated Area, that comprises
Ecology’s Operable Unit No. 5. The Remedial Actions shall include removal of
materials for recycling or to a permitted off-Site disposal facility, and
compliance with all closure requirements imposed by the Bremerton Kitsap County
Health District and Ecology. The Remedial Actions shall be considered complete
when Pope & Talbot complies with all closure and post-closure requirements
imposed by the Health District and, if MTCA or an equivalent cleanup law is
deemed to be applicable, obtains a no-further-action determination or
equivalent administrative closure from Ecology under MTCA and other applicable
state laws or, in the event it asserts jurisdiction, from the EPA under
applicable federal laws, subject to post-cleanup monitoring and agency
“reopeners” if any.

 

1.7           Reservation
of Third Party Claims. This Agreement shall not affect or impair rights
either Party has now or in the future to assert third party claims against any
person or entity not a party to this Agreement.

 

3

 

ARTICLE 2.  USE OF
SITE FOR REMEDIAL ACTIONS

 

2.1           Easement
Agreement. The Parties shall execute an Easement Agreement, in the form
attached hereto as Exhibit E, that will provide Pope & Talbot
with reasonable use rights and access to the Site for purposes of accomplishing
or supporting Remedial Actions required by this Agreement. Pope & Talbot
shall use its best efforts to ensure that its activities under this Agreement
and the Easement Agreement do not materially interfere with Pope Resource’s use
and development of the Site, the public’s use and enjoyment of the Site, and
the Sublessee’s use and enjoyment of the Sublet Premises.

 

ARTICLE 3. 
TERMINATION OF MILL SITE LEASE

 

3.1           Termination
of Mill Site Lease. As of the Effective Date of this Agreement, the Parties
hereby terminate the Mill Site and Log Dump Lease, a copy of which is attached
hereto as Exhibit B, and Pope & Talbot shall forthwith transfer
to Pope Resources possession and control of the Premises described therein,
including but not limited to the Port Gamble water supply system, sewage
disposal plant, and all lines extending to and from such water supply system
and sewage disposal plant. In addition, as of that date, Pope Resources shall
assume sole responsibility for operation and maintenance of the water supply
system, sewage disposal plant and all lines and any other facilities associated
with the water supply system and the sewage disposal plant.

 

3.2           Transfer
of Mill Site Permits. Pope & Talbot shall transfer to Pope Resources
all permits and other governmental approvals and rights held by Pope &
Talbot, and associated with the Site, including but not limited to the
NPDES/Waste Discharge Permit for the sewage disposal plant, and the Storm Water
Discharge Permit for the Mill Site.

 

3.3           Status
of Sublessee. Termination of the Mill Site and Log Dump Lease will
automatically terminate the Sublease. No later than the Effective Date of this
Settlement Agreement, Pope Resources shall offer a new lease of the Sublet
Premises to the Sublessee on substantially the same material terms and
conditions as the Sublease.

 

3.4           Indemnification.
Pope & Talbot shall indemnify, defend and hold harmless Pope Resources, its
affiliates, officers, directors, employees, partners, unit holders and
subsidiaries from and against any action, cause of action, claim, charge, cost,
demand, expense, judgment, liability, loss, obligation, order or penalty
arising from or related to Sublessee’s compliance prior to the Effective Date
of this Agreement with State of Washington laws applicable to permitting and
regulation of storm water discharges.

 

ARTICLE 4. 
COOPERATION

 

4.1           Cooperation
Between Parties. The Parties shall exercise best efforts to cooperate in
the coordination and timely accomplishment of Remedial Actions required by
Article 1 herein, including but not limited to communications with governmental
agencies, use of consultants and contractors, and coordination of work
accomplished at the various Port Gamble Operable Units. The Parties shall also
exercise best efforts to cooperate and work together in resolving any issues
relating to the Sublease and Sublet Premises

 

4

 

4.2           Exchange
of Documents. The Parties shall provide each other, through their
attorneys, consultants or directly, with copies of all draft and final reports
and other final documents ultimately submitted to regulatory agencies in
connection with accomplishing the Remedial Actions required by Article 1
herein.

 

4.3           Oversight.
Each Party, through its designated technical consultant or directly, shall have
the right to review and comment on, but not control, the work performed by the
other Party and its consultants and contractors, in relation to the Remedial
Actions required of the Party performing the work. Each Party shall instruct
its consultants and contractors to cooperate with the designated technical
consultants and representatives of the other Party. Pope Resources designates
Environmental Partners, Inc. as its designated technical consultant. Pope &
Talbot designates Parametrix, Inc., as its designated technical consultant. A
Party may change its designated technical consultant upon prior written notice
to the other Party.

 

ARTICLE 5. 
REPRESENTATIONS

 

5.1           Pope
& Talbot’s Representation. Pope & Talbot hereby represents to Pope
Resources that it has reviewed the technical characterization information
prepared by its consultants, Foster Wheeler Environmental Corporation and
Parametrix, Inc., and provided to Pope Resources, and has reviewed the
technical characterization information provided by Pope Resources and its
consultant, Environmental Partners, Inc., and that, to the best knowledge of
the Pope & Talbot Representatives (as defined herein), Pope & Talbot is
not aware of Environmental Conditions (as that term is defined in Paragraph 6.7
herein) at, in or beneath the Site or Port Gamble Bay, other than those
disclosed by such information. For purposes of this paragraph, the Pope &
Talbot Representatives are defined as Michael Flannery, DeeAnn Lindsley and
Jerry Clark.

 

5.2           Pope
Resources’ Representation. Pope Resources hereby represents to Pope &
Talbot that it has reviewed the technical characterization information prepared
by its consultant, Environmental Partners, Inc. and provided to Pope &
Talbot, and has reviewed the technical characterization information provided by
Pope & Talbot and its consultants, Foster Wheeler Environmental Corporation
and Parametrix, Inc., and that, to the best knowledge of the Pope Resources
Representatives (as defined herein), Pope Resources is not aware of
Environmental Conditions (as that term is defined in Paragraph 6.4 herein) at,
in or beneath the Site or Port Gamble Bay, other than those disclosed by such
information. For purposes of this paragraph, the Pope Resources Representatives
are defined as Allen E. Symington, David Nunes, Thomas Ringo and Rod Maki.

 

ARTICLE 6.  MUTUAL
WAIVERS AND RELEASES

 

6.1           Mutual
Releases of and Covenants Not to Sue as to Remedial Claims. Each Party
hereby releases and covenants not to sue the other Party from or as to any
Remedial Claim, as that term is defined in Paragraph 6.5 herein, that the
releasing Party had, has or may have against the released Party arising from
Environmental Conditions, as that term is defined by Paragraph 6.7 herein,
at, in or beneath the Site, or that have migrated from the Site, including any
and all Operable Units identified in this Agreement. Each Party hereby releases
and covenants not to sue the other Party from or as to any Remedial Claim that
the releasing Party may have

 

5

 

against the other Party, arising from the Management Agreement
(attached hereto as Exhibit A), the Mill Site and Log Dump Lease
(attached hereto as Exhibit B), and the Transfer and Indemnity Agreement
(attached hereto as Exhibit C). The releases granted by this paragraph
shall be contingent on the released Party’s release of the other Party
remaining in effect, and the released Party complying with all material
conditions of this Agreement, including fulfilling all of its Remedial Action
obligations under Article 1 of this Agreement; provided that in the
event a release becomes ineffective due to the released Party’s non-compliance
with this Agreement, the release granted by that Party to the other Party shall
remain in effect.

 

6.2           Mutual
Waivers of Remedial Claims. Each Party hereby waives as to the other Party
any and all Remedial Claims that the waiving Party had, has or may have against
the other Party arising from Environmental Conditions at, in or beneath the
Site, or that have migrated from the Site, including any and all Operable Units
identified in this Agreement. Each Party hereby waives as to the other Party
any and all Remedial Claims that the Waiving Party may have against the other
Party, arising from the Management Agreement (attached hereto as Exhibit A),
the Mill Site and Log Dump Lease (attached hereto as Exhibit B),
and the Transfer and Indemnity Agreement (attached hereto as Exhibit C).
The waivers granted by this paragraph shall be contingent on the Party
receiving the waiver complying with all material conditions of this Agreement,
including fulfilling all of its Remedial Action obligations under
Article 1 of this Agreement.

 

6.3           Mutual
Releases of and Covenants Not to Sue as to Other Claims. Each Party hereby
releases the other Party from and covenants not to sue as to any and all Other
Claims, as that term is defined in paragraph 6.6 of this Agreement, arising
from Environmental Conditions at, in or beneath the Site, or that have migrated
from the Site, including any and all Operable Units identified in this
Agreement; provided, that these releases shall not apply to: (1) any
Other Claim by a federal or state natural resource trustee and/or the Port
Gamble S’Klallam Tribe for injury to, destruction of, or loss of natural
resources based on Environmental Conditions existing prior to the Effective
Date of this Agreement; or (2) any Other Claim brought by former or present
employees of Pope & Talbot, contractors, or other persons, relating to work
or services requested of them by Pope & Talbot and provided by such persons
at the Site or Port Gamble Bay. Each Party further releases the other Party
from and covenants not to sue as to any and all Other Claims arising from the
Management Agreement (attached hereto as Exhibit A), the Mill site
and Log Dump Lease (attached hereto as Exhibit B), and the Transfer
and Indemnity Agreement (attached hereto as Exhibit C). Pope
Resources further releases Pope & Talbot from and covenants not to sue as
to any and all Remedial and Other Claims arising from the presence of pilings
or dolphins (bound groups of pilings) in Port Gamble Bay. The releases granted
by this paragraph shall be contingent on the released Party’s release of the
other Party remaining in effect, and the released Party complying with all
material conditions of this Agreement, including fulfilling all of its Remedial
Action obligations under Article 1 of this Agreement; provided that in
the event a release granted to a Party becomes ineffective due to that Party’s
non compliance with this Agreement, the release granted by that Party to the
other Party shall remain in effect.

 

6.4           Mutual
Waivers of Other Claims. Each Party hereby waives as to the other Party any
and all Other Claims, as that term is defined in paragraph 6.6 of this
Agreement, arising from 

 

6

 

Environmental Conditions at, in or beneath the Site, or that have
migrated from the Site, including any and all Operable Units identified in this
Agreement; provided, that these waivers shall not apply to: (1) any
Other Claim by a federal or state natural resource trustee and/or the Port
Gamble S’Klallam Tribe for injury to, destruction of, or loss of natural
resources based on Environmental Conditions existing prior to the Effective
Date of this Agreement; or (2) any Other Claim brought by former or present
employees of Pope & Talbot, contractors, or other persons, relating to work
or services requested of them by Pope & Talbot and provided by such persons
at the Site or Port Gamble Bay. Each Party waives as to the other Party any and
all Other Claims arising from the Management Agreement (attached hereto as Exhibit A),
the Mill site and Log Dump Lease (attached hereto as Exhibit B),
and the Transfer and Indemnity Agreement (attached hereto as Exhibit C).
Pope Resources further waives, as to Pope & Talbot, any Remedial or Other
Claims arising from the presence of pilings and dolphins (bound groups of
pilings) in Port Gamble Bay. The waivers granted by this paragraph shall be
contingent on the Party receiving the waiver complying with all material
conditions of this Agreement, including fulfilling all of its Remedial Action
obligations under Article 1 of this Agreement.

 

6.5           Definition
of Remedial Claim. As used in this Agreement, the term “Remedial Claim”
shall mean any action (including third-party actions), cause of action, claim,
charge, cost, damage, demand, expense, judgment, liability, loss, obligation,
order or penalty arising from or related to a Remedial Action at the Site or
any Operable Unit, including but not limited to Remedial Action costs, and
including but not limited to attorney’s fees, legal expenses, court costs, and
other costs of judicial or administrative proceedings, including appeals,
whether such Remedial Claim arises in tort, contract or otherwise, or under
statute, regulation or common law.

 

6.6           Definitions
of Other Claim. As used in this Agreement, the term “Other Claim”
shall mean any action (including third-party actions), cause of action, claim,
charge, cost, damage, demand, expense, judgment, liability, loss, obligation,
order or penalty, other than a Remedial Claim, and including but not limited to
attorney’s fees, legal expenses, court costs, and other costs of judicial or
administrative proceedings, including appeals, whether such Other Claim arises
in tort, contract or otherwise, or under statute, regulation or common law; provided
that Other Claims shall not include any claim by Pope Resources arising from
Pope Resources’ lease of art to Pope & Talbot.

 

6.7           Definition
of Environmental Condition. As used in this Agreement, the term
“Environmental Condition” shall mean any physical, chemical or biological
condition caused by or, related to a hazardous substance, hazardous waste,
hazardous material, toxic substance, pollutant, or pollution, as those terms
are defined by applicable federal and state statutes and regulations, and local
ordinances and regulations, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act; the Hazardous Materials
Transportation Act; the Emergency Planning and Community Right-to-Know Act; the
Resource Conservation and Recovery Act; the Toxic Substances Control Act; the
Federal Water Pollution Control Act (Clean Water Act); the federal Clean Air
Act; the Washington Model Toxics Control Act; the Washington Hazardous Waste
Management Act; the Washington Water Pollution Control Act; the Washington
Dangerous Waste Regulations; the Washington Sediment Management Standards; and
the Washington Model Toxics Control Act Cleanup Regulation.

 

7

 

6.8           Definition
of Remedial Action. As used in this Agreement, the term “Remedial Action”
shall mean all investigative, cleanup and other actions consistent with MTCA
and other applicable laws, and otherwise required by Ecology and any other
agency with jurisdiction, and shall have the same meaning as set forth in MTCA,
RCW 70.105D.020(21).

 

6.9           Definition
of Port Gamble Bay. As used in this Agreement, the term “Port Gamble Bay”
shall mean all areas of the portion of Hood Canal commonly known as Port Gamble
Bay, including all inter-tidal and sub-tidal areas seaward of the mean higher
high water line.

 

ARTICLE 7. 
INDEMNIFICATION

 

7.1           Indemnification.
Pope Resources shall, to the extent permitted by Washington law, indemnify,
reimburse, defend and hold Pope & Talbot, its affiliates, officers,
directors, shareholders, employees, partners and subsidiaries (collectively,
the “Indemnified Parties”), harmless from and against:

 

(a)           any
Remedial Claims or Other Claims that Pope Resources has released, covenanted
not to sue as to and waived with respect to Pope & Talbot, pursuant to
paragraphs 6.1, 6.2, 6.3 and 6.4 of this Agreement; and

 

(b)           any
Remedial or Other Claims, including but not limited to those arising from or
related to Pope Resources’ action(s) or failure(s) to act, with respect to the
Mill Site or Town Site after the Effective Date of this Agreement, or at the
Bayside Landfills, Industrial Landfill, Regulated Area or Port Gamble Bay after
Pope & Talbot’s completion of its Remedial Actions at each of those respective
areas;

 

Provided,
that Pope Resource’s obligation to indemnify, reimburse, defend and hold
harmless the Indemnified Parties shall not extend to: (1) Remedial or Other
Claims arising from the gross negligence, willful misconduct or breach of this
Settlement Agreement by any Indemnified Party; (2) Other Claims brought by
former or present employees of Pope & Talbot, contractors, or other
persons, relating to work or services requested of them by Pope & Talbot
and provided by such persons at the Site or Port Gamble Bay; or (3) Other
Claims asserted by federal or state natural resource trustees and/or the Port
Gamble S’Klallam Tribe against Pope & Talbot for injury to, destruction of,
or loss of natural resources based on Environmental Conditions existing prior
to the Effective Date of this Agreement.

 

ARTICLE 8.  NO
ADMISSION OF LIABILITY

 

8.1           Disclaimer
of Liability. By entering into this Agreement and agreeing to undertake
Remedial Actions, the Parties do not admit to, and hereby expressly disclaim,
any liability for Remedial or Other Claims that could be asserted by one Party,
or by third parties, against the other Party, arising from or relating to
Environmental Conditions at, in or beneath the Site or Port Gamble Bay, or that
have migrated from the Site or Port Gamble Bay, and/or arising from or relating
to the agreements attached hereto as Exhibits A, B and C. The
Parties furthermore do not admit, and hereby expressly disclaim with respect to
the Site and Port 

 

8

 

Gamble Bay, any liability as potentially liable persons or potentially
responsible parties under federal, state and local laws relating to
Environmental Conditions.

 

ARTICLE 9. 
CONFIDENTIALITY

 

9.1           Confidentiality.
Each Party shall use its best efforts to maintain the confidentiality of this
Agreement. The Parties shall provide each other with documents (“Shared
Documents”) for the purpose of promoting the cooperation required by
Article 4 herein, and facilitating or expediting the Remedial Actions required
by Article 1 herein. Shared Documents, including this Agreement, shall be
stamped “CONFIDENTIAL” and shall not be shared with third parties including but
not limited to governmental agencies, except for the Parties’ insurers,
consultants and attorneys, unless required by legal process, in which event the
disclosing Party shall give at least five days prior written notice to the
other Party; provided that this non-disclosure obligation shall not
apply to Shared Documents that are required to be submitted by the originating
Party to governmental agencies and become public documents. By way of example,
a draft report may be shared by the Parties, and it would be subject to the
non-disclosure requirement of this Article. The report may subsequently be
revised and submitted by the originating Party to an agency with jurisdiction.
The draft report would remain subject to non-disclosure, but the version
submitted to the agency would become a public document and would not be subject
to the requirements of this Article 9. Shared Documents covered by the
non-disclosure requirements of this Article shall be subject to Evidence Rule
408 as statements made in compromise negotiations.

 

ARTICLE 10.  REMEDIES

 

10.1         Remedies.
In the event that a Party materially breaches this Agreement, the remedies of
the non-breaching Party shall be limited to specific performance and damages.
One Party’s breach of this Agreement shall not excuse the other Party from
performing its duties and obligations under this Agreement.

 

ARTICLE 11. 
MISCELLANEOUS

 

11.1         Entire
Agreement and Amendments. This Agreement, the Exhibits thereto, and the
Easement Agreement required by paragraph 2.1 herein, constitute the final and
complete agreement between the Parties with respect to the Site and Port Gamble
Bay, and supersede all prior and contemporaneous agreements and understandings
of the Parties, whether oral or in writing. No modification, revision or
amendment of this Agreement may be made except by written agreement duly
executed by the Parties.

 

11.2         Additional
Instruments. The Parties shall expeditiously prepare, execute and deliver
such additional instruments and documents, including but not limited to the
Easement Agreement required by paragraph 2.1 of this Agreement, that are
reasonably necessary and appropriate to effectuate the purposes, terms and
conditions of this Agreement.

 

11.3         No
Joint Venture. It is not intended by this Agreement, and nothing in this
Agreement shall, create any partnership, joint venture or other business arrangement
between the Parties. No term or provision of this Agreement is intended to be,
or shall be, for the benefit of 

 

9

 

any person, firm, corporation, or other entity not a party hereto, and
no such other person, firm, corporation, or other entity shall have any right
or Remedial or Other Claim hereunder.

 

11.4         Governing
Law and Disputes. This Agreement and the rights of the Parties shall be
governed by and construed, interpreted and enforced in accordance with the laws
of the State of Washington. In the event of a dispute that arises under this
Agreement, the Parties shall make best efforts to resolve the dispute through
negotiation and/or alternative dispute resolution. In the event such best
efforts are unsuccessful, any judicial action for enforcement of this
Agreement, or to recover amounts due under this Agreement, shall lie in the
Superior Court for the State of Washington in King County.

 

11.5         Attorneys’
Fees. In the event either Party brings an action or any other proceeding
against the other Party to enforce or interpret any of the terms and conditions
of this Agreement, the prevailing Party in such action or proceeding shall be
entitled to recover its reasonable attorney’s fees and costs from the other
Party, in such amounts as shall be set by the court.

 

11.6         Binding
Nature of Agreement. The term and provisions of this Agreement, including
all rights and obligations thereunder, shall be binding on and inure to the
benefit of the Parties and their successors and assigns.

 

11.7         Effective
Date. This Agreement shall be effective on the date it is last duly
executed by the Parties herein (the “Effective Date”).

 

11.8         Counterparts.
This Agreement and the Easement Agreement to be delivered under paragraph 2.1
herein may be executed in any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such counterparts shall
constitute but one agreement.

 

11.9         Authority
to Sign. The signatories to this Agreement represent that they have the
requisite authority to bind and act on behalf of their respective Parties for
whom they have executed this Agreement.

 

11.10       Notices.
All notices and other communications required by this Agreement to be given by
one Party to the other shall be given in writing and shall be deemed to have
been duly given if personally delivered, sent by a nationally recognized
overnight delivery service, electronically transmitted, or if mailed or
deposited in the United States mail and sent by registered or certified mail,
return receipt requested, postage prepaid to:

 

	
                  Pope
  & Talbot, Inc. at:

  	
  Michael Flannery

  
	
   

  	
  President and Chief Executive Officer

  
	
   

  	
  Pope & Talbot, Inc.

  
	
   

  	
  1500 S.W. First Avenue

  
	
   

  	
  Portland, OR 97201

  

 

10

 

	
   

  	
  Christopher R. Hermann

  
	
   

  	
  Stoel Rives LLP

  
	
   

  	
  900 S.W. Fifth Avenue, Suite 2600 

  
	
   

  	
  Portland, OR 97204-1268

  
	
   

  	
   

  
	
                  Pope
  Resources at: 

  	
  David Nunes 

  
	
   

  	
  President and Chief Operating Officer

  
	
   

  	
  Pope Resources

  
	
   

  	
  19245 10th Ave. N.E.

  
	
   

  	
  Poulsbo, WA 98370

  
	
   

  	
   

  
	
   

  	
  Richard W. Elliott 

  
	
   

  	
  Davis Wright Tremaine

  
	
   

  	
  10500 N.E. 8th St., Suite 1800

  
	
   

  	
  Bellevue, WA 98004-4300

  

 

IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the Effective Date.

 

	
   

  	
   

  
	
   

  	
  POPE RESOURCES, a
  Delaware Limited 

  Partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:  Allen E. Symington

  
	
   

  	
  Its:  Chairman & Chief Executive Officer

  
	
   

  	
  Date:  Jan. 7, 2002

  
	
   

  	
   

  
	
   

  	
  POPE & TALBOT,
  INC., a Delaware Corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Michael Flannery

  
	
   

  	
  Its: Chairman,
  President & Chief Exec. Officer

  
	
   

  	
  Date: December 28, 2001

  

 

11

 

LIST OF
EXHIBITS

 

A.            MANAGEMENT
AGREEMENT, DEC. 3, 1985

 

B.            MILL SITE AND LOG
DUMP LEASE, DEC. 3, 1985

 

C.            TRANSFER AND
INDEMNITY AGREEMENT, DEC. 20, 1985

 

D.            MAP OF OPERABLE
UNITS

 

E.             EASEMENT AGREEMENT

 

12

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