SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
December 31, 1993 Number 1-5313
POTLATCH
Potlatch Corporation
A Delaware Corporation (IRS Employer Identification
Number 82-0156045)
One Maritime Plaza
San Francisco, California 94111
Telephone (415) 576-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, New York Stock Exchange
($1 par value) Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 1994, was approximately $1,222 million.
The number of shares of common stock outstanding as of January 31, 1994:
29,207,946 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1994 annual meeting of
stockholders are incorporated by reference in Part III hereof.
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to 1993 Form 10-K
Page
Number
PART I
ITEM 1. Business 2 - 4
ITEM 2. Properties 5
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 6 - 7
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 8. Financial Statements and Supplementary Data 8
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 9
ITEM 11. Executive Compensation 9
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 9
ITEM 13. Certain Relationships and Related Transactions 9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
SIGNATURES 10
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES 11
EXHIBIT INDEX 38 - 40
-1-
<PAGE>
PART I
ITEM 1. Business
General
Potlatch Corporation (the "company"), incorporated in 1903, is an
integrated forest products company with substantial timber resources. It is
engaged principally in the growing and harvesting of timber and the manufacture
and sale of wood products, printing papers and other pulp-based products. Its
timberlands and all of its manufacturing facilities are located within the
continental United States.
Information relating to the amounts of revenue, operating profit or loss
and identifiable assets attributable to each of the company's industry segments
for 1991-1993 is included in Note 12 to the financial statements on pages 31-32
of this report.
Fiber Resources
The principal source of raw material used in the company's operations is
timber, obtained from its own timberlands and purchased on the open market. The
company owns in fee approximately 1.5 million acres of timberland: 504,000 acres
in Arkansas, 678,000 acres in Idaho and 318,000 acres in Minnesota. In addition,
the company is developing 10,000 acres in Oregon as a hybrid poplar tree farm
for pulp fiber.
The amount of timber harvested in any one year from company-owned lands
varies according to the requirements of sound forest management, as well as the
supply of timber available for purchase on the open market. By use of forestry
and silviculture techniques and other forest management practices, the company
seeks to increase the volume of wood fiber available from its timberlands and to
provide for a continuous supply of wood fiber in the future. In most cases, the
cost of timber from company land is substantially less than that of timber
obtained on the open market.
The company's fee lands provided approximately 57 percent of its sawlogs
and plywood logs in 1993 and an average of 64 percent over the past five years.
Including the raw materials used for pulp and oriented strand board, the
percentages decline to 36 percent for 1993 and 39 percent for the past five
years. Additional logs were obtained principally under cutting contracts from
lands owned by federal, state and local governments and, to a lesser extent,
from private purchases. Such cutting contracts cover areas of varying size and
generally have terms ranging from a few months to several years. The company
enters into many such contracts each year. At December 31, 1993, the market
value of uncut timber remaining under timber cutting contracts approximated
$95.4 million. The company is not unconditionally obligated for that amount on
such contracts and uncut timber values are subject to change depending on the
on the market value at time of harvest.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. In recent
years the timber supply from federal lands has been increasingly curtailed
largely due to environmental pressures. Although this trend has had a favorable
effect on earnings for the company as a whole, it has had an adverse effect on
wood costs for the Lewiston, Idaho, pulp mill. The company has implemented
plans to develop additional fiber supplies, primarily hybrid poplar, for this
mill. The long-term effect of this trend on company earnings cannot be
predicted.
The company assumes substantially all risk of loss from fire and other
hazards on the standing timber it owns, as do most owners of timber tracts in
the United States.
-2-
<PAGE>
Wood Products
The company manufactures and markets oriented strand board, plywood,
particleboard, lumber and other wood products. These products are sold
through the company's sales offices primarily to wholesalers for nationwide
distribution.
To produce these solid wood products, the company owns and operates
several manufacturing facilities in Arkansas, Idaho and Minnesota. A
description of these facilities is included under Item 2 of this report.
The forest products industry is highly competitive, and the company
competes with substantially larger forest products companies and companies which
manufacture substitutes for wood and wood fiber products. For both lumber and
plywood products, the company's share of the market is not significant to the
total U. S. market for these products. However, the company does have a
significant market share of oriented strand board, which is a product that
competes with plywood. The company's principal methods of competing are product
quality, service and price.
Printing Papers
The company produces coated free sheet printing papers at facilities in
Minnesota. A description of these facilities is included under Item 2 of this
report.
Pulp for the paper mills is supplied primarily by the company's bleached
kraft pulp mill in Minnesota and secondarily by purchases of market pulp,
including recycled pulp. Coated papers are used for annual reports, showroom
catalogs, art reproductions and high quality advertising.
Printing papers are sold through various company sales offices located in
the United States, principally to paper merchants for distribution. Although
the company does not consider itself among the larger manufacturers of printing
papers, it is one of the nation's leading producers of high-value-added coated
papers. The principal methods of competing are product quality, service and
price.
Other Pulp-Based Products
The company produces and sells bleached kraft pulp and paperboard, tissue,
toweling and napkins. A description of the facilities used to produce these
products is included under Item 2 of this report.
The company is a major producer of bleached kraft paperboard in the United
States. Bleached kraft paperboard is used for the packaging of milk and other
foods, pharmaceuticals and toiletries, and for paper cups and file folder stock.
The company does not consider itself among the larger national manufacturers of
any of its other pulp-based products. However, the company is the leading west
coast producer of private label household tissue products. The company's
principal methods of competing are product quality, service and price.
The company produces household tissues which are packaged to order for
grocery and drug chains, and club stores as well as for cooperative buying
organizations. Facial and bathroom tissues and paper towels and napkins are
sold to consumers under customer brand names and, to a minor extent, as generic
products and under a Potlatch brand name. These products compete with other
private label and generic tissue products as well as advertised brands.
-3-
<PAGE>
ITEM 1. Business (cont.)
Other Pulp-Based Products (cont.)
Methods of sale and distribution of the company's other pulp-based
products vary for its several products. The majority of pulp sales are
generally through brokers. Late in 1993, the company temporarily discontinued
the sale of market pulp and will not reenter the market until significant
pricing improvements are possible. The company, in general, maintains domestic
sales offices through which it sells paperboard to packaging converters. The
majority of international paperboard sales are made through sales representative
offices in Japan and Australia. The balance of such sales are made through
brokers. Tissue products are sold through food brokers or directly to major
retail outlets.
Environment
The company is subject to federal and state environmental control
regulations at its operating facilities. The company endeavors to comply with
all environmental regulations and monitors its activities on a regular basis
for such compliance. Compliance with environmental regulations requires capital
expenditures as well as additional operating costs. Capital expenditures
specifically designated for environmental compliance totaled approximately $17.0
million during 1993. In addition, the company made expenditures for pollution
control facilities as part of major mill modernizations and expansions currently
underway.
In late 1993, the Environmental Protection Agency published proposed
regulations applicable to the pulp and paper industry. This extensive set of
regulations is designed to address both air and water emissions. As proposed,
the regulations would require modifications to process equipment and procedures.
It is not possible to estimate the aggregate amount of capital expenditures or
operating costs which might be required in the future to comply with environ-
mental regulations. However, the company does not expect that such compliance
costs would have a material adverse effect on its competitive position.
Employees
As of December 31, 1993, the company had approximately 7,000 employees.
Late in 1993, following completion of a $400.0 million modernization project at
the Lewiston, Idaho, pulp and paperboard mill, the company announced the
potential elimination of up to 200 jobs. Management is in the process of
formulating a plan, which is expected to be implemented in the first half of
1994. Labor contracts expiring in 1994 are as follows:
<TABLE>
<CAPTION>
Contract Approximate
Expiration Date Location Union Hourly Employees
<S> <C> <C> <C>
May 8 Wood Products International 380
Southern Division Woodworkers of
Warren, Arkansas America
June 15 Northwest Paper United Paperworkers 1,420
Cloquet & Brainerd, International Union
Minnesota & International
Brotherhood of
Firemen and Oilers
September 1 Fire Department United Paperworkers 10
Lewiston, Idaho International Union<PAGE>
</TABLE>
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<PAGE>
ITEM 2. Properties
The principal manufacturing facilities of the company, together with their
respective 1993 capacities and production are as follows:
<TABLE>
<CAPTION>
Capacity Production
<S> <C> <C>
Wood Products
Oriented Strand Board Plants: (A)
Bemidji, Minnesota 494,600 m.sq.ft. 490,237 m.sq.ft.
Cook, Minnesota 243,000 m.sq.ft. 240,259 m.sq.ft.
Grand Rapids, Minnesota 350,000 m.sq.ft. 347,647 m.sq.ft.
Sawmills:
Prescott, Arkansas 63,400 m.bd.ft. 63,901 m.bd.ft.
Warren, Arkansas (B) 69,300 m.bd.ft. 77,481 m.bd.ft.
Lewiston, Idaho 115,100 m.bd.ft. 117,966 m.bd.ft.
St. Maries, Idaho 77,200 m.bd.ft. 77,255 m.bd.ft.
Bemidji, Minnesota 77,900 m.bd.ft. 77,264 m.bd.ft.
Plywood Plants: (A)
Jaype, Idaho 154,600 m.sq.ft. 150,291 m.sq.ft.
St. Maries, Idaho 163,500 m.sq.ft. 161,852 m.sq.ft.
Particleboard Plant: (C)
Post Falls, Idaho 64,600 m.sq.ft. 64,290 m.sq.ft.
Split-Cedar Mill:
Santa, Idaho 6,000 m.bd.ft. 4,446 m.bd.ft.
Hardwood Flooring Plant:
Stuttgart, Arkansas 2,600 m.bd.ft. 1,279 m.bd.ft.
Printing Papers
Pulp Mill:
Cloquet, Minnesota 189,700 tons 190,808 tons
Printing Paper Mills:
Brainerd, Minnesota 127,900 tons 129,980 tons
Cloquet, Minnesota 191,900 tons 191,844 tons
Other Pulp-Based Products
Pulp Mills:
Cypress Bend, Arkansas 237,800 tons 224,656 tons
Lewiston, Idaho 482,900 tons 395,158 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas 258,600 tons 244,060 tons
Lewiston, Idaho 340,600 tons 300,601 tons
Tissue Mill:
Lewiston, Idaho 140,500 tons 130,647 tons
Tissue Converting Facilities:
Lewiston, Idaho 102,800 tons 96,140 tons
North Las Vegas, Nevada (D) 23,600 tons 8,290 tons
<FN>
(A) 3/8" Basis
(B) With the completion of the new sawmill and the simultaneous shutdown of the
old pine sawmill in early 1994, there will be two facilities with a capacity
of approximately 115,900 m.bd.ft.
(C) 3/4" Basis
(D) The North Las Vegas facility began operation in May 1993. Annual operating
capacity is presented.
</TABLE>
-5-
<PAGE>
ITEM 3. Legal Proceedings
Since November 1992, the company has been discussing with representatives
of the United States Department of Justice and the Environmental Protection
Agency ("EPA") alleged violations of the Clean Air Act in connection with an
asbestos removal and demolition project at the company's facility in Lewiston,
Idaho. The project, which was completed in early 1990, was performed by an
independent contractor and its subcontractor, both of which specialized in
asbestos abatement. In late 1993, the two agencies and the company exchanged
drafts of a proposed Consent Decree which includes injunctive relief and a civil
penalty. The company expects to conclude the discussions and enter into the
Consent Decree during 1994. The company believes that the independent
contractor retained for the project is responsible for any monetary penalties
which may be paid by the company.
In June 1993, the United States EPA, Region 10, requested certain
information under section 114 of the Clean Air Act relating to air quality and
emission compliance issues at the company's Lewiston, Idaho complex. As a
result of the information furnished in late 1993, both the EPA and the Idaho
Department of Health and Welfare ("IDHW") informed the company of potential
violations of federal and state environmental laws and that any enforcement
follow up would be undertaken by the IDHW. The company believes it has legal
and equitable defenses to any federal violations. The company has not received
sufficient information from the IDHW to be able to determine the specific state
violations that may be alleged or the likelihood of their success.
In August 1993, the company received a Notice of Violation ("NOV") from
the United States EPA, Region 5, which alleged that the emissions from the
dryers at the company's Grand Rapids, Minnesota, oriented strand board plant
exceed the applicable emission limits for particulate matter. The allegations
contained in the NOV issued by the EPA arise from the same facts and are the
same allegations set forth in a NOV previously issued by the Minnesota Pollution
Control Agency ("MPCA"). In early January 1994, the company entered into an
agreement with the MPCA, requiring the company to: (a) install two electrostatic
precipitators at its Grand Rapids plant, to be in operation no later than
September 1, 1994; and (b) pay a civil penalty of $300,000.
The company believes that the results of any actions taken in any or all
of the above matters will not, in the aggregate, have a material adverse effect
on the business or financial condition of the company.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1993.
Executive Officers of the Registrant
Information as of March 1, 1994, and for the past five years concerning
the executive officers of the company is as follows:
Richard B. Madden (age 64), elected Chief Executive Officer upon his
joining the company in 1971, is Chairman of the Board and Chief Executive
Officer. Mr. Madden will retire as Chairman and Chief Executive Officer
effective in May 1994, when he reaches the company's mandatory retirement age.
He will continue as a member of the Board of Directors. From May 1987 through
April 1989, he also served as President. He is a member of the Nominating
Committee of the Board of Directors.
-6-
<PAGE>
John M. Richards (age 56), first elected an officer in 1972, has served
as President and Chief Operating Officer since May 1989. At the February 24,
1994, Board of Directors meeting, Mr. Richards was elected to replace Mr. Madden
as Chairman of the Board and Chief Executive Officer effective upon Mr. Madden's
retirement in May 1994. Prior to May 1989, he was Executive Vice President,
Finance and Administration. He was elected a director of the company effective
January 1, 1991. He is a member of the Finance Committee of the Board of
Directors.
L. Pendleton Siegel (age 51), first elected an officer in 1983, has served
as Executive Vice President, Pulp-Based Operations and Planning since August 1,
1993. At the February 24, 1994, Board of Directors meeting, Mr. Siegel was
elected to replace Mr. Richards as President and Chief Operating Officer
effective in May 1994. From March 1992 through July 1993, he was Group Vice
President, Pulp and Paperboard. In addition, since October 1990, he has also
been responsible for planning and business development. From October 1989
through February 1992, he was Group Vice President, Wood Products. From May
1989 through September 1989, he was Senior Vice President, Finance and
Administration. Prior to that he was Senior Vice President, Finance and
Treasurer.
Robert V. Hershey (age 61), was elected an officer in 1993, becoming Vice
President, Northwest Paper Division on August 1, 1993. From June 1991 through
July 1993, he was an appointed officer serving as Vice President, Manufacturing,
Northwest Paper Division. Prior to that he served as Vice President,
Manufacturing, for the Northwest Paper Division's Cloquet plant.
Richard L. Paulson (age 52), first elected an officer in 1992, has served
as Vice President, Consumer Products since January 1, 1993. From April 1989
through December 1992, he was an appointed officer serving as Vice President,
Manufacturing, for the Northwest Paper Division's Brainerd plant. Prior to that
he was production manager for the Brainerd plant.
George E. Pfautsch (age 58), first elected an officer in 1971, has served
as Senior Vice President, Finance and Treasurer since January 1, 1993. From
October 1989 through December 1992, he was Senior Vice President, Finance.
Prior to that he was Controller.
Charles R. Pottenger (age 54), first elected an officer in 1991, has
served as Group Vice President, Pulp and Paperboard since August 1, 1993. From
February 1991 through July 1993, he was Vice President, Northwest Paper
Division. Prior to February 1991, he was an appointed officer serving in the
following capacities: from September 1989 through January 1991, he was Northwest
Paper Division Vice President, Manufacturing; from July 1989 through August
1989, he was Pulp and Paperboard Vice President, Manufacturing; and prior to
to that he was Idaho Pulp and Paperboard Division Vice President.
Thomas J. Smrekar (age 51), first elected an officer in 1992, has served
as Group Vice President, Wood Products since March 1992. Prior to March 1992,
he was an appointed officer serving as Minnesota Wood Products Division Vice
President.
NOTE: The aforementioned officers of the company are elected to hold office
until the next annual meeting of the Board of Directors. Each officer holds
office until the officer's successor has been duly elected and has qualified or
until the earlier of the officer's death, resignation, retirement or removal by
the board.
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<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The company's common stock is traded on the New York, Chicago and Pacific
Stock Exchanges. Quarterly and yearly price ranges were:
<TABLE>
<CAPTION>
1993 1992
Quarter High Low High Low
<S> <C> <C> <C> <C>
1st $51.88 $44.25 $48.38 $36.75
2nd 50.50 40.75 50.00 41.88
3rd 44.63 38.25 46.00 41.00
4th 47.75 40.00 47.50 42.75
Year 51.88 38.25 50.00 36.75
</TABLE>
In general, all holders of Potlatch common stock who own shares 48
consecutive calendar months or longer ("long-term holders") are entitled to
exercise four votes per share of stock so held, while stockholders who are not
long-term holders are entitled to one vote per share. All stockholders are
entitled to only one vote per share on matters arising under certain provisions
of the company's charter. There were approximately 3,600 common stockholders of
record at December 31, 1993.
Quarterly dividend payments per common share for the past two years were:
<TABLE>
<CAPTION>
Quarter 1993 1992
<S> <C> <C>
1st $ .375 $ .35
2nd .375 .35
3rd .375 .35
4th .39 .375
------ ------
$1.515 $1.425
====== ======
</TABLE>
ITEMS 6, 7 and 8.
The information called for by Items 6, 7 and 8, inclusive, of Part II of
this form, is contained in the following sections of this Report at the pages
indicated below:
Page
Number
ITEM 6 Selected Financial Data 12
ITEM 7 Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 12-16
ITEM 8 Financial Statements and
Supplementary Data 17-37
-8-
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no circumstances requiring the company to report a change
in accountants in connection with a disagreement on accounting or financial
disclosure matters.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the company is set forth under the
heading "Information with Respect to Nominees for Election and Directors
Continuing in Office" on pages 3-5 of the company's definitive proxy statement,
dated March 24, 1994, for the 1994 annual meeting of stockholders (the "1994
Proxy Statement"), which information is incorporated herein by reference.
Information concerning Executive Officers is included in Part I of this report
following Item 4.
ITEM 11. Executive Compensation
Information set forth under the heading "Compensation of Directors and the
Named Executive Officers" on pages 9-18 of the 1994 Proxy Statement, is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of management, included under the
heading "Stock Ownership of Directors and Executive Officers" on pages 7-8 of
the 1994 Proxy Statement, is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information set forth under the headings "Executive Compensation and
Personnel Policies Committee Interlocks and Insider Participation" and "Certain
Transactions" on pages 17-18 of the 1994 Proxy Statement, is incorporated herein
by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Exhibits are listed in the Exhibit Index on pages 38-40 of this Form 10-K.
2. Financial statement schedules are listed in the Index to Consolidated
Financial Statements and Schedules on page 11 of this Form 10-K.
3. No reports on Form 8-K were filed for the quarter ended December 31, 1993.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POTLATCH CORPORATION
(Registrant)
Date: March 23, 1994 By Richard B. Madden
-----------------
Richard B. Madden
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 23, 1994, by the following persons on
behalf of the company in the capacities indicated.
By Richard B. Madden
------------------------------
Richard B. Madden RICHARD A. CLARKE*
Director and Chairman of Director
the Board and Chief KENNETH T. DERR*
Executive Officer Director
(Principal Executive Officer) ALLEN F. JACOBSON*
Director
By John M. Richards GEORGE F. JEWETT, JR.*
------------------------------ Director
John M. Richards RICHARD M. MORROW*
Director, President and Director
Chief Operating Officer VIVIAN W. PIASECKI*
(Principal Operating Officer) Director
TONI REMBE*
By George E. Pfautsch Director
------------------------------ REUBEN F. RICHARDS*
George E. Pfautsch Director
Senior Vice President, RICHARD M. ROSENBERG*
Finance and Treasurer Director
(Principal Financial Officer) ROBERT G. SCHWARTZ*
Director
By Terry L. Carter CHARLES R. WEAVER*
------------------------------ Director
Terry L. Carter FREDERICK T. WEYERHAEUSER*
Controller Director
(Principal Accounting Officer) DR. WILLIAM T. WEYERHAEUSER*
Director
*By Sandra T. Powell
------------------
Sandra T. Powell
(Attorney-in-fact)<PAGE>
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<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Page
Number
The following documents are filed as part of this Report:
Consolidated Financial Statements:
Selected Financial Data 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 16
Statements of Earnings for the years ended December 31,
1993, 1992 and 1991 17
Balance Sheets at December 31, 1993 and 1992 18
Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991 19
Statements of Stockholders' Equity for the years ended
December 31, 1993, 1992 and 1991 20
Summary of Principal Accounting Policies 21 - 22
Notes to Financial Statements 23 - 33
Independent Auditors' Report 34
Schedules:
V. Property, Plant and Equipment 35
VI. Accumulated Depreciation of Property, Plant and
Equipment 36
VIII. Valuation and Qualifying Accounts 37
All other schedules are omitted because they are
not required, not applicable or the required
information is given in the consolidated
financial statements.
-11-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Selected Financial Data
(Dollars in thousands - except per-share amounts)
<CAPTION>
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,368,854 $1,326,612 $1,236,988 $1,252,906 $1,227,622
Net earnings:
Before accounting changes 38,339 78,914 55,802 98,612 136,715
After accounting changes 6,635 78,914 55,802 98,612 136,715
Working capital* 129,138 153,537 125,190 86,187 321,308
Current ratio* 1.7 to 1 2.0 to 1 1.7 to 1 1.5 to 1 2.8 to 1
Long-term debt
(noncurrent portion) $ 707,131 $ 634,209 $ 563,014 $ 391,892 $ 458,511
Stockholders' equity 919,664 955,581 914,750 896,122 829,460
Debt to stockholders'
equity ratio .77 to 1 .66 to 1 .62 to 1 .44 to 1 .55 to 1
Capital expenditures $ 201,655 $ 179,539 $ 267,038 $ 317,650 $ 142,744
Total assets 2,066,759 1,998,808 1,891,781 1,707,849 1,685,978
Net earnings per common share:
Before accounting changes $ 1.31 $ 2.71 $1.92 $3.41 $4.79
After accounting changes .22 2.71 1.92 3.41 4.79
Cash dividends
per common share 1.515 1.425 1.34 1.23 1.08
===================================================================================================================
<FN>
*1989-1992 amounts have been restated to conform to the 1993 balance sheet presentation.
</TABLE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity
Liquidity of a company can be measured by several factors. Of major
importance are:
Capability of generating earnings and cash flow
Maintenance of a sound financial structure
Access to capital markets
Maintenance of adequate working capital
In 1993, the company's net cash provided by operations, excluding working
capital changes, as presented in the Statements of Cash Flows on page 19,
totaled $170.7 million, compared with $166.2 million in 1992 and $155.3 million
in 1991.
The ratio of long-term debt to stockholders' equity was .77 to 1 at
December 31, 1993, compared with .66 to 1 at December 31, 1992, and .62 to 1 at
December 31, 1991. The 1993 increase was largely due to a decrease in
stockholders'equity as a result of the net effect of accounting changes and the
issuance in 1993 of $75.0 million of commercial paper, which was outstanding at
December 31, 1993, the proceeds of which are being used for general corporate
purposes.
-12-
<PAGE>
At December 31, 1993, the company had credit lines totaling $150.0 million
for general corporate purposes. Of that amount, $50.0 million was in short-term
lines and $100.0 million was in a revolving credit agreement. At December 31,
1993, none of the short-term lines were being utilized, while a portion of the
revolving credit was being used to back outstanding commercial paper. Because
of the availability of long-term financing and the likelihood of the commercial
paper being outstanding for more than a year, these borrowings have been
classified as long-term debt.
One of the company's stated objectives is to maintain a sound financial
structure. The company's long-term debt to equity ratio of .77 to 1 at
December 31, 1993, is above the range of its targeted financial structure. The
company plans to make sufficient reductions in capital spending to return to its
targeted range within the next two years. The company also believes that debt
ratings within investment grade categories are important for long-term access
to capital markets. With such access and its ability to generate cash flow, the
company believes it is capable of funding capital expenditures, working capital
and other liquidity needs for the foreseeable future. At the end of 1993, the
company's senior long-term debt was rated A- by Standard & Poors and Duff and
Phelps, and Baa1 by Moody's.
At December 31, 1993, working capital was $129.1 million, compared with
$153.5 million at December 31, 1992, and $125.2 million at December 31, 1991.
The 1993 decrease was attributable to an increase of $14.6 million in accounts
payable and accrued liabilities combined with decreases of $11.8 million in cash
and $9.1 million in prepaid expenses, which were partially offset by an increase
of $6.8 million in short-term investments.
Capital Resources and Funding
Capital expenditures totaled $201.7 million in 1993, compared with $179.5
million in 1992 and $267.0 million in 1991.
Of the 1993 program, $97.6 million was spent in the wood products segment.
A significant portion of this amount related to the construction of a new
sawmill in Warren, Arkansas, replacing an outdated company sawmill located
there. The new sawmill, which began operation in early 1994, will improve
lumber quality and increase the yield from the available log supply, and at the
same time make more efficient use of manpower. In addition to other timberland
purchases totaling $2.9 million, the company purchased approximately 23,850
acres of timberland and a one-half interest in an additional 23,500 acres of
timberland located in northern Idaho for $53.6 million. While the purchase was
not originally included in the 1993 capital program, it afforded the company an
excellent opportunity to expand its land base in Idaho. Capital spending in the
printing papers segment was $42.5 million, which included expenditures related
to the first phase of the modernization and expansion of the pulp mill in
Cloquet, Minnesota. A total of $59.6 million was spent in the other pulp-based
products segment. Several of the major projects were in the Consumer Products
Division and included the completion of the new tissue converting facility in
North Las Vegas, Nevada, and the final expenditures for the new tissue machine
in Lewiston, Idaho. Both projects had successful startups during the first half
of 1993. The division also began the rebuild of an older tissue machine located
in Lewiston. Other pulp-based products segment spending also included the
initial development of acreage near Boardman, Oregon, to grow hybrid poplar
trees for pulp fiber to be used at the Lewiston pulp mill.
Authorized but unexpended appropriations totaled $212.1 million at
December 31, 1993. Of that amount, $168.2 million is budgeted to be expended in
1994. Of these 1994 expenditures, $63.2 million relates to projects under way
at the end of 1993. Such
-13-
<PAGE>
projects include the completion of the new sawmill in Warren, the continuing
modernization and expansion of the Cloquet pulp mill, the continued rebuild of
the tissue machine in Lewiston and the continued development of the hybrid
poplar tree farm in Boardman. New projects in 1994 will include the rebuild of
a paper machine at the company's printing papers manufacturing facility in
Brainerd, Minnesota. This project was originally budgeted to begin in 1993 but
has been rescheduled to commence in 1994. The 1994 capital program will be
funded primarily from internally generated sources.
Historically, the company has spent less on capital expenditures than the
annual amount budgeted. In 1993, the company spent $53.2 million less than the
$201.3 million budgeted, excluding the $53.6 million of unbudgeted expenditures
related to the timberlands purchase in Idaho. Spending on projects may be
delayed due to acquisition of environmental permits, acquisition of equipment,
engineering, weather and other factors. It is likely that the company will
again spend less than the budgeted amount in 1994.
Results of Operations
Comparison of 1993 with 1992
Potlatch consolidated net sales of $1.37 billion increased slightly over
1992's $1.33 billion. Before the effects of accounting changes, earnings were
$38.3 million, a decline from $78.9 million in 1992. Earnings per common share
before accounting changes were $1.31 compared with $2.71 for 1992. Including a
one-time, after-tax charge of $75.5 million related to new accounting require-
ments for postretirement benefits other than pensions and a $43.8 million credit
for a change in accounting for income taxes, the company earned $6.6 million
or $.22 per common share in 1993. The results for 1992 include a nonrecurring,
net after-tax gain of $14.7 million or $.51 per common share from the sale of
the company's packaging operations and a charge related to a litigation
settlement.
Despite very favorable market conditions for wood products, earnings
continued to be adversely affected by weak market conditions throughout the year
for the company's pulp-based products. Operating difficulties at the Lewiston,
Idaho, pulp and paperboard mill also negatively affected earnings. However, the
most serious of these problems, which involved the chlorine dioxide plant and
washers, are largely resolved.
Earnings for the wood products segment were $160.2 million, an increase of
61 percent over 1992's $99.8 million. Substantially higher net sales
realizations for most of the company's wood products was the primary reason for
the improved results. Also contributing to the improvement was the sale of
surplus timberland in Idaho and Arkansas, which resulted in a pre-tax gain of
$8.6 million. Timber supply constraints in the Pacific Northwest continued to
have a significant positive influence on product pricing in 1993, as they did in
1992. This trend is likely to continue into the foreseeable future.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. In recent
years the timber supply from federal lands has been increasingly curtailed
largely due to environmental pressures. Although this trend has had a favorable
effect on earnings for the company as a whole, it has had an adverse effect on
wood costs for the Lewiston pulp mill. The company has implemented plans to
develop additional fiber supplies for this mill. The long-term effect of this
trend on company earnings cannot be predicted.
-14-
<PAGE>
The printing papers segment reported earnings of $15.8 million, down from
the $27.3 million earned in 1992. The poor market conditions for printing
papers of the past few years continued in 1993. Shipments increased modestly
during the year, but realizations were lower than in 1992.
The other pulp-based products segment, which includes the Pulp and
Paperboard Group and the Consumer Products Division, reported a loss of $40.9
million for 1993, compared with earnings of $33.3 million in 1992. Lower
paperboard shipments and sales realizations as a result of very depressed market
conditions combined with higher wood costs in Idaho, as discussed previously,
were largely responsible for the decline. Operating difficulties and extended
shutdowns at both of the company's pulp and paperboard mills in Lewiston, Idaho,
and Cypress Bend, Arkansas, during the year also contributed to the
disappointing results. Late in 1993, the company temporarily discontinued the
sale of market pulp and will not reenter the market until significant pricing
improvements are possible. Also late in 1993, following the completion of a
$400.0 million modernization project at the Lewiston pulp and paperboard mill,
the company announced the potential elimination of up to 200 jobs. Management
is in the process of formulating a plan, which is expected to be implemented in
the first half of 1994. Any liability associated with the plan cannot be
estimated until details of the plan are finalized. The Consumer Products
Division also incurred a loss for the year due to very competitive markets and
higher operating costs associated with the startup of the new tissue machine in
Lewiston and the new converting facility in North Las Vegas, Nevada. However,
tissue product shipments increased 22 percent during the year largely as a
result of the successful startup and operation of these new facilities.
Comparison of 1992 with 1991
Potlatch consolidated net sales of $1.33 billion increased 7 percent over
1991's $1.24 billion. Earnings per common share were $2.71, compared with $1.92
in 1991. The earnings for 1992 include a $26.2 million pre-tax gain from the
sale of the company's packaging operations and a $3.3 million pre-tax charge
related to a litigation settlement. The after-tax effect of these nonrecurring
items was a net gain of $14.7 million or $.51 per common share.
The wood products segment reported earnings of $99.8 million,
significantly higher than the $12.6 million earned in 1991. The earnings
improvement was largely the result of higher selling prices for lumber and panel
products brought about by timber supply constraints in the Pacific Northwest and
increased demand. Operational improvements and new facilities within the
segment also contributed to the increase.
Earnings for the printing papers segment were $27.3 million, compared with
$30.2 million reported in 1991. The weak market conditions for printing papers
which characterized 1991 worsened during 1992 resulting in a 10 percent earnings
decrease for this segment.
The other pulp-based products segment reported 1992 earnings of $33.3
million, down from 1991's $89.0 million. Results for the Pulp and Paperboard
Group generally reflected lower paperboard sales realizations, higher wood costs
due to timber supply constraints in the Pacific Northwest and operational
difficulties in Idaho. The Consumer Products Division continued to experience
very competitive market conditions during 1992, with lower sales realizations
for tissue products resulting in reduced earnings for the division.
-15-
<PAGE>
Income Taxes
The company's effective tax rates for 1993, 1992 and 1991 were 41.0
percent, 36.7 percent and 34.5 percent, respectively.
Effective January 1, 1993, the company adopted the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. The
statement requires the liability method for recording differences in financial
and taxable income with an initial adjustment of deferred tax balances from
prior years to reflect the tax rates in effect at adoption. The company
recorded the cumulative effect of the above-mentioned adjustment in the first
quarter of 1993, which increased income by $43.8 million or $1.50 per share.
In the third quarter of 1993, the federal statutory tax rate was increased
from 34 percent to 35 percent retroactive to January 1, 1993. In addition to
the effect of the tax increase on 1993 earnings, the provision for taxes on
income for 1993 includes $3.2 million of expense for the effect of the tax
increase on beginning of the year deferred tax balances.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions. The statement requires accrual basis recognition of the
projected future cost of providing postretirement benefits, such as health care
and life insurance, rather than the pay-as-you-go (cash) basis which the company
had been using prior to adoption. The company elected immediate recognition of
the transition obligation, which amounted to $118.0 million ($75.5 million after
income tax benefits or $2.59 per share).
Postemployment Benefits
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The statement requires accrual basis recognition of postemployment benefits
provided to former or inactive employees after employment but before retirement.
The effect of implementing the new standard was not material.
-16-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
(Dollars in thousands - except per-share amounts)
<CAPTION>
For the years ended December 31 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,368,854 $1,326,612 $1,236,988
- --------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 123,544 107,165 96,924
Materials, labor and other operating
expenses 1,064,260 1,006,887 945,888
Selling, general and administrative
expenses 83,958 83,409 74,998
- --------------------------------------------------------------------------------------------
1,271,762 1,197,461 1,117,810
- --------------------------------------------------------------------------------------------
Earnings from operations 97,092 129,151 119,178
Interest expense, net of capitalized
interest of $6,384 ($16,581 in 1992 and
$14,375 in 1991) (46,230) (34,902) (28,882)
Interest and dividend income 1,352 3,790 5,493
Other income (expense), net 12,790 26,575 (10,594)
- --------------------------------------------------------------------------------------------
Earnings before taxes on income and cumulative
effect of accounting changes 65,004 124,614 85,195
Provision for taxes on income (Note 4) 26,665 45,700 29,393
- --------------------------------------------------------------------------------------------
Net earnings before cumulative
effect of accounting changes 38,339 78,914 55,802
Cumulative effect of
accounting changes:
Change in accounting for post-
retirement benefits other than
pensions, net of tax (Note 10) (75,494) - -
Change in accounting for
income taxes (Note 4) 43,790 - -
- --------------------------------------------------------------------------------------------
Net earnings $ 6,635 $ 78,914 $ 55,802
============================================================================================
Net earnings per common share:
Before accounting changes $1.31 $2.71 $1.92
After accounting changes .22 2.71 1.92
============================================================================================
<FN>
Other income (expense), net for 1992 includes unusual items which produced a net after-tax
gain of $14.7 million ($.51 per share).
The accompanying notes and summary of principal accounting policies are an integral part of
these financial statements.
</TABLE>
-17-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Balance Sheets
(Dollars in thousands - except per-share amounts)
<CAPTION>
At December 31 1993 1992
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 8) $ (12,080) $ (232)
Short-term investments (Note 8) 20,421 13,660
Receivables, net of allowance for doubtful
accounts of $2,057 ($1,781 in 1992) 118,601 115,018
Inventories (Note 1) 155,560 151,629
Prepaid expenses (Note 4) 25,758 34,831
- ----------------------------------------------------------------------------------------
Total current assets 308,260 314,906
Land, other than timberlands 9,105 7,780
Plant and equipment, at cost less
accumulated depreciation of $926,032
($825,284 in 1992) (Note 2) 1,340,028 1,311,946
Timber, timberlands and related logging
facilities, net (Note 3) 343,044 279,669
Other assets 66,322 84,507
- ----------------------------------------------------------------------------------------
$2,066,759 $1,998,808
========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments on long-term debt (Notes 5 and 8) $ 7,057 $ 3,942
Accounts payable and accrued liabilities (Note 6) 172,065 157,427
- ----------------------------------------------------------------------------------------
Total current liabilities 179,122 161,369
- ----------------------------------------------------------------------------------------
Long-term debt (Notes 5 and 8) 707,131 634,209
- ----------------------------------------------------------------------------------------
Other long-term obligations (Note 7) 120,388 22,299
- ----------------------------------------------------------------------------------------
Deferred taxes (Note 4) 140,454 225,350
- ----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock
Authorized 4,000,000 shares - -
Common stock, $1 par value
Authorized 40,000,000 shares, issued 32,721,980 shares 32,722 32,722
Additional paid-in capital 125,346 124,865
Retained earnings 836,845 874,424
Common shares in treasury 3,522,834 (3,578,159 in 1992) (75,249) (76,430)
- ----------------------------------------------------------------------------------------
Total stockholders' equity 919,664 955,581
- ----------------------------------------------------------------------------------------
$2,066,759 $1,998,808
========================================================================================
<FN>
December 31, 1992 amounts have been restated to conform to the 1993 presentation.
The accompanying notes and summary of principal accounting policies are an
integral part of these financial statements.
</TABLE>
-18-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
For the years ended December 31 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net earnings $ 6,635 $ 78,914 $ 55,802
Adjustments to reconcile net earnings
to cash provided by operations:
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax 75,494 - -
Cumulative effect of change in accounting
for income taxes (43,790) - -
Depreciation, amortization and cost of
fee timber harvested 123,544 107,165 96,924
Deferred taxes 18,069 7,291 3,903
Net gain on disposition of plant
and properties (9,254) (27,156) (1,315)
- -----------------------------------------------------------------------------------------
Cash provided by operations excluding
working capital changes 170,698 166,214 155,314
- -----------------------------------------------------------------------------------------
Increase in receivables (3,583) (14,336) (4,121)
Decrease (increase) in inventories (3,931) (3,907) 1,193
Decrease (increase) in prepaid expenses (5,619) (3,821) 5,147
Increase (decrease) in accounts payable
and accrued liabilities 14,638 2,608 (14,738)
- -----------------------------------------------------------------------------------------
Cash provided by (used for) working
capital changes 1,505 (19,456) (12,519)
- -----------------------------------------------------------------------------------------
Net cash provided by operations 172,203 146,758 142,795
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Increase (decrease) in notes payable - (14,981) 5,022
Proceeds from long-term debt (Note 5) 79,525 75,124 175,020
Repayment of long-term debt (3,488) (3,846) (3,903)
Issuance of treasury stock 1,181 2,366 1,316
Dividends on common stock (44,214) (41,476) (38,869)
- -----------------------------------------------------------------------------------------
Net cash provided by financing 33,004 17,187 138,586
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Decrease (increase) in short-term investments (6,761) 1,003 (1,056)
Decrease (increase) in deferred charges
included in other assets 3,575 (14,359) 5,325
Increase in investments included in other assets (12,152) (9,911) (10,542)
Additions to plant and equipment, and to
land other than timberlands (137,898) (170,857) (256,190)
Additions to timber, timberlands and
related logging facilities (63,757) (8,682) (10,848)
Disposition of plant and properties 10,349 37,158 3,155
Other, net (10,411) (5,843) 8,032
- -----------------------------------------------------------------------------------------
Net cash used for investing (217,055) (171,491) (262,124)
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash (11,848) (7,546) 19,257
Balance at beginning of year (232) 7,314 (11,943)
- -----------------------------------------------------------------------------------------
Balance at end of year $ (12,080) $ (232) $ 7,314
=========================================================================================
<FN>
Net interest paid (net of amounts capitalized) in 1993, 1992 and 1991 was $44.0 million, $34.5 million and $27.3 million,
respectively. Net income taxes paid in 1993, 1992 and 1991 were $13.0 million, $55.8 million and $33.3 million,
respectively.
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
</TABLE>
-19-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Stockholders' Equity
(Dollars in thousands - except per-share amounts)
<CAPTION>
For the years ended December 31 1993 1992 1991
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $124,865 $123,838 $123,459
Exercise of stock options 481 1,027 379
- -------------------------------------------------------------------------------------
Balance at end of year $125,346 $124,865 $123,838
=====================================================================================
RETAINED EARNINGS
Balance at beginning of year $874,424 $836,986 $820,053
Net earnings 6,635 78,914 55,802
Common dividends, $1.515 per share ($1.425 per
share in 1992 and $1.34 per share in 1991) (44,214) (41,476) (38,869)
- -------------------------------------------------------------------------------------
Balance at end of year $836,845 $874,424 $836,986
=====================================================================================
COMMON SHARES IN TREASURY
Balance at beginning of year 3,578,159 shares
(3,688,899 in 1992 and 3,750,524 in 1991) $ 76,430 $ 78,796 $ 80,112
Exercise of stock options 55,325 shares
(110,740 in 1992 and 61,625 in 1991) (1,181) (2,366) (1,316)
- -------------------------------------------------------------------------------------
Balance at end of year 3,522,834 shares
(3,578,159 in 1992 and 3,688,899 in 1991) $ 75,249 $ 76,430 $ 78,796
=====================================================================================
<FN>
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
</TABLE>
-20-
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Summary of Principal Accounting Policies
Consolidation
The financial statements include the accounts of Potlatch Corporation and
its subsidiaries after elimination of significant intercompany transactions and
accounts. There are no significant unconsolidated subsidiaries.
Inventories
Inventories are stated at the lower of cost or market. The last-in,
first-out method is used to determine cost of most solid wood products. The
average cost method is used to determine cost of all other inventories.
Earnings Per Common Share
Earnings per common share are computed on the weighted average number of
common shares outstanding each year. Outstanding stock options are common stock
equivalents but are excluded from earnings per common share computations due to
immateriality. The weighted average number of common shares used in earnings
per common share computations for 1993, 1992 and 1991 were 29,183,871,
29,110,179 and 29,012,079, respectively.
Properties
Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, equipment and other depreciable assets
is determined by using the straight-line method on estimated useful lives.
Estimated useful lives of plant and equipment range from 2 to 40 years.
Timber, timberlands and related logging facilities are valued at cost net
of the cost of fee timber harvested and depreciation or amortization. Logging
roads and related facilities are amortized over their useful lives or as related
timber is removed. Cost of fee timber harvested is determined annually based on
the estimated volumes of recoverable timber and related cost.
Major improvements and replacements of property are capitalized.
Maintenance, repairs, and minor improvements and replacements are expensed.
Amounts expensed in 1993, 1992 and 1991 were $166.6 million, $155.1 million and
$146.3 million, respectively. Upon retirement or other disposition of property,
applicable cost and accumulated depreciation or amortization are removed from
the accounts. Any gains or losses are included in earnings.
Income Taxes
Effective January 1, 1993, the company adopted the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires the liability method for recording differences in financial and taxable
income.
-21-
<PAGE>
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, which requires accrual basis recognition of postretirement
benefits rather than the pay-as-you-go (cash) basis which the company had been
using prior to adoption.
Postemployment Benefits
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The statement requires accrual basis recognition of postemployment benefits
provided to former or inactive employees after employment but before retirement.
The effect of implementing the new standard was not material.
Preoperating and Startup Costs
Preoperating costs are expensed as incurred except for charges relating to
major new facilities. Deferred preoperating costs are amortized over a 60-month
period. Startup costs are expensed as incurred.
-22-
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
<TABLE>
Note 1. Inventories
<CAPTION>
(Dollars in thousands) 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C>
Logs, pulpwood, chips and sawdust $ 18,391 $ 21,643
Lumber and other manufactured wood products 8,184 10,829
Pulp, paper and converted paper products 71,479 64,599
Materials and supplies 57,506 54,558
- ------------------------------------------------------------------------
$155,560 $151,629
========================================================================
Valued at lower of cost or market:
Last-in, first-out basis $ 15,241 $ 18,376
Average cost basis 140,319 133,253
- ------------------------------------------------------------------------
$155,560 $151,629
========================================================================
</TABLE>
If the last-in, first-out inventory had been priced at lower of current
average cost or market, the values would have been approximately $27.8 million
higher at December 31, 1993, and $24.5 million higher at December 31, 1992. In
1993 and 1992, reductions in quantities of LIFO inventories valued at lower
costs prevailing in prior years had the effect of increasing earnings, net of
income taxes, by approximately $2.4 million ($.08 per common share) and $1.1
million ($.04 per common share), respectively.
<TABLE>
Note 2. Plant and Equipment
<CAPTION>
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Land improvements $ 53,900 $ 50,063
Buildings and structures 354,678 315,495
Machinery and equipment 1,685,432 1,501,236
Other 78,564 60,658
Construction in progress 93,486 209,778
- -------------------------------------------------------------------------
$2,266,060 $2,137,230
=========================================================================
</TABLE>
Depreciation charged against income amounted to $108.4 million in 1993
($95.8 million in 1992 and $87.5 million in 1991).
Authorized but unexpended appropriations totaled $212.1 million at
December 31, 1993. Of that amount, $168.2 million is budgeted to be expended
in 1994.
<TABLE>
Note 3. Timber, Timberlands and Related Logging Facilities
<CAPTION>
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Timber and timberlands $319,305 $259,168
Related logging facilities 23,739 20,501
- -------------------------------------------------------------------------
$343,044 $279,669
=========================================================================
</TABLE>
Timber, timberlands and related logging facilities are stated at cost less
cost of fee timber harvested and amortization. Cost of fee timber harvested
amounted to $12.0 million in 1993 ($9.1 million in 1992 and $7.6 million in
1991). Amortization of logging roads and related facilities amounted to $.7
million in 1993, 1992 and 1991.
-23-
<PAGE>
Note 4. Taxes on Income
Effective January 1, 1993, the company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
The statement requires the liability method for recording differences in
financial and taxable income with an initial adjustment of deferred tax balances
from prior years to reflect the tax rates in effect at adoption. The company
recorded the cumulative effect of the above-mentioned adjustment in the first
quarter of 1993, which increased income by $43.8 million or $1.50 per share.
Prior years' financial statements were not restated.
Under the provisions of SFAS No. 109, the effect of a change in tax laws
or rates is included in income in the period the change is enacted and includes
a cumulative recalculation of deferred tax balances based on the new tax laws or
rates in effect. Such a change occurred in the third quarter of 1993 with the
enactment of the Omnibus Budget Reconciliation Act of 1993, which increased
the statutory federal tax rate from 34 percent to 35 percent retroactive to
January 1, 1993. In addition to the effect of the tax increase on 1993
earnings, the provision for taxes on income for 1993 includes $3.2 million of
expense for the effect of the tax increase on beginning of the year deferred tax
balances.
Significant components of the provision for taxes on income:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 15,311 $31,689 $23,011
State 1,646 5,874 4,593
- ----------------------------------------------------------------------------------
Total current 16,957 37,563 27,604
- ----------------------------------------------------------------------------------
Deferred:
Depreciation 26,139 12,694 10,115
Alternative minimum tax (15,222) (2,000) (4,375)
Pension costs 2,803 (1,357) (4,204)
Postretirement benefits and related funding (4,943) (1,332) (108)
Net operating loss (1,897) - -
Federal tax rate change 3,245 - -
Other (417) 132 361
- ----------------------------------------------------------------------------------
Total deferred 9,708 8,137 1,789
- ----------------------------------------------------------------------------------
Provision for taxes on income $ 26,665 $45,700 $29,393
==================================================================================
</TABLE>
The provision for taxes on income differs from the amount computed by
applying the statutory federal income tax rate (35 percent in 1993 and 34
percent in 1992 and 1991) to earnings before taxes on income and cumulative
effect of accounting changes due to the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $22,751 $42,369 $28,966
State and local taxes, net of federal
income tax benefits 2,695 5,355 3,913
Federal tax rate change 3,245 - -
All other items (2,026) (2,024) (3,486)
- ----------------------------------------------------------------------------------
Provision for taxes on income $26,665 $45,700 $29,393
Effective tax rate 41.0% 36.7% 34.5%
==================================================================================
</TABLE>
-24-
<PAGE>
Principal current and noncurrent defered tax assets and liabilities at
December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993
- -------------------------------------------------------------------------
<S> <C>
Current deferred tax assets:
Employee benefits $ 15,523
Inventories 2,289
Net operating loss 1,897
Other 1,284
- -------------------------------------------------------------------------
Total current asset(1) 20,993
- -------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Postretirement benefits 37,745
Alternative minimum tax 21,481
Depreciation (198,498)
Other, net (1,182)
- -------------------------------------------------------------------------
Total net noncurrent liability (140,454)
- -------------------------------------------------------------------------
Net deferred tax liability $(119,461)
=========================================================================
<FN>
(1) Included in Prepaid expenses in the Balance Sheets.
</TABLE>
Noncurrent deferred tax assets at December 31, 1993, are net of an $8.1
million valuation allowance. Based on the company's history of operating
earnings and its expectations for the future, management has determined that
operating income will more likely than not be sufficient to recognize fully all
other deferred tax assets.
Deferred income taxes of $225.4 million at December 31, 1992, resulted
principally from using accelerated depreciation for federal tax purposes.
Prepaid expenses include the tax effects of other timing differences in the
amount of $27.3 million at December 31, 1992.
The company's federal income tax returns have been examined and settlements
have been reached for all years through 1986, except a petition which has been
filed with the U.S. Tax Court regarding the deductibility of certain expenses on
the company's 1985 federal income tax return. Assessments made for the years
1987 through 1988 are presently being negotiated at the appellate level. The
company believes that adequate provision has been made for possible assessments
of additional taxes.
<TABLE>
Note 5. Debt
<CAPTION>
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenue bonds fixed rate 5.8% to 9% due 1994
through 2013 $144,144 $144,137
Revenue bonds variable rate due 2007 through 2014 34,921 29,791
Credit sensitive debentures 9.125% due 2009 100,000 100,000
Sinking fund debentures 9.625% due 2016 100,000 100,000
Medium-term notes fixed rate 7.55% to 9.46% due 1995
through 2022 250,000 250,000
Commercial paper 3.38% to 3.65% 74,841 -
Other notes 10,282 14,223
- ---------------------------------------------------------------------------
714,188 638,151
Less current installments on long-term debt 7,057 3,942
- ---------------------------------------------------------------------------
Long-term debt $707,131 $634,209
===========================================================================
</TABLE>
-25 -
<PAGE>
The commercial paper is backed by the company's revolving credit agreement,
which enables it to refinance these short-term borrowings to a long-term basis
should the company choose to do so. Because of the availability of long-term
financing and the likelihood of the commercial paper being outstanding for more
than a year, these borrowings have been classified as long-term debt.
The interest rate payable on the 9.125 percent credit sensitive debentures
is subject to adjustment if certain changes in the debt rating of the debentures
occur. No such change in the interest rate payable has occurred.
Certain credit agreements require the company to comply with certain
restrictive covenants. At December 31, 1993, the company was in compliance with
such covenants.
Payments due on long-term debt during each of the five years subsequent to
December 31, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -------------------------------------------------------------------------
<S> <C>
1994 $ 7,100
- -------------------------------------------------------------------------
1995 18,800
- -------------------------------------------------------------------------
1996 37,000
- -------------------------------------------------------------------------
1997 21,400
- -------------------------------------------------------------------------
1998 5,000
- -------------------------------------------------------------------------
</TABLE>
The above installments do not include any payments on commercial paper
outstanding.
At December 31, 1993, the company had credit lines totaling $150.0 million
for general corporate purposes. Of that amount, $50.0 million was in short-term
lines and $100.0 million was in a revolving credit agreement. The short-term
credit lines are LIBOR based and permit the company to borrow anytime through
May 31, 1994. The revolving credit agreement permits the company to borrow any
time through October 1, 1996, and may be extended on an annual basis. At
December 31, 1993, none of the short-term lines were being utilized, while a
portion of the revolving credit was being used to back outstanding commercial
paper.
<TABLE>
Note 6. Accounts Payable and Accrued Liabilities
<CAPTION>
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 54,726 $ 50,783
Accrued wages, salaries and employee benefits 57,878 57,972
Accrued taxes other than taxes on income 15,517 13,423
Accrued interest 11,623 9,418
Accrued taxes on income 8,464 2,508
Other 23,857 23,323
- -------------------------------------------------------------------------
$172,065 $157,427
=========================================================================
</TABLE>
<TABLE>
Note 7. Other Long-Term Obligations
<CAPTION>
(Dollars in thousands) 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $ 98,366 $ -
Pension and related liabilities 11,345 13,335
Other 10,677 8,964
- -------------------------------------------------------------------------
$120,388 $22,299
=========================================================================
</TABLE>
-26-
<PAGE>
Note 8. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND SHORT-TERM INVESTMENTS
For short-term investments, the carrying amount approximates fair value.
Short-term investments include bank certificates of deposit, repurchase
agreements, money market preferreds and various other investment grade
securities which can be readily purchased or sold using established markets.
LONG-TERM DEBT
The fair value of the company's long-term debt is estimated based upon the
quoted market prices for the same or similar debt issues. The amount of long-
term debt for which there is no quoted market price is immaterial and the
carrying amount approximates fair value.
Estimated fair values of the company's financial instruments:
<TABLE>
<CAPTION>
1993 1992
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 8,341 $ 8,341 $ 13,428 $ 13,428
Long-term debt 714,188 770,014 638,151 669,615
================================================================================
</TABLE>
Note 9. Retirement, Incentive and Savings Plans
Substantially all employees and directors of the company are covered by
noncontributory defined benefit pension plans. These include both company-
sponsored and multi-employer plans. Total pension expense was $6.3 million in
1993, $7.3 million in 1992 and $5.9 million in 1991. The 1991 pension expense
presented above excludes $8.0 million for early retirement programs which is
included in Other income and expense in the Statements of Earnings.
Company-sponsored retirement plans cover all employees and directors. The
salaried plan provides benefits based on the participants' final average pay and
years of service. Plans covering hourly employees generally provide benefits of
stated amounts for each year of service. The directors' plan provides a benefit
equal to the retainer in effect at the time the participant ceases to be a
director and is paid for the lesser of 10 years or years of service as a
director.
Pension cost for company-sponsored plans:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 7,512 $ 6,861 $ 7,005
Interest cost on projected benefit obligation 24,641 23,807 21,643
Actual return on assets (48,160) (33,153) (57,554)
Net amortization and deferral 19,649 7,201 32,211
- --------------------------------------------------------------------------------
Net periodic pension cost $ 3,642 $ 4,716 $ 3,305
================================================================================
</TABLE>
-27-
<PAGE>
Funded status and related balance sheet amounts for company-sponsored pension
plans at December 31:
<TABLE>
<CAPTION>
Plans Where Plans Where
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets Total
(Dollars in thousands) 1993 1992 1993 1992 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 285,369 $ 198,522 $ 12,926 $ 70,090 $ 298,295 $ 268,612
Accumulated benefit obligation 298,903 203,885 13,973 77,051 312,876 280,936
Projected benefit obligation 313,150 221,926 20,131 78,635 333,281 300,561
============================================================================================================================
Plan assets at fair value,
primarily publicly traded
equity and fixed income
securities $ 349,697 $ 250,709 $ 4,829 $ 66,026 $ 354,526 $ 316,735
Projected benefit obligation (313,150) (221,926) (20,131) (78,635) (333,281) (300,561)
- ----------------------------------------------------------------------------------------------------------------------------
Plan assets above (below)
projected benefit obligation 36,547 28,783 (15,302) (12,609) 21,245 16,174
Unrecognized prior service cost 1,114 530 6,516 8,180 7,630 8,710
Unrecognized net gain (15,124) (14,839) (233) (2,390) (15,357) (17,229)
Unrecognized net transition asset (9,048) (10,958) (283) (798) (9,331) (11,756)
Adjustment required to recognize
minimum liability - - (742) (3,492) (742) (3,492)
- ----------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 13,489 $ 3,516 $(10,044) $(11,109) $ 3,445 $ (7,593)
============================================================================================================================
</TABLE>
The projected benefit obligation for the company's unfunded, nonqualified
plans at December 31, 1993 and 1992 was $15.2 million and $10.0 million,
respectively. These amounts are included in the total for Plans Where
Accumulated Benefits Exceed Assets.
The projected benefit obligation at December 31, 1993, 1992 and 1991, was
determined using an assumed discount rate of 7.75 percent, 8.5 percent and 9
percent, respectively and an assumed long-term rate of salaried compensation
increase of 5 percent, 6 percent and 6.5 percent, respectively. The assumed
rate of return on plan assets was 9.5 percent for 1993 and 9 percent for 1992
and 1991. The actual return on plan assets has averaged more than 12 percent
over the past 16 years.
Funding of company-sponsored plans is based on accepted actuarial methods
in accordance with applicable governmental regulations and is determined
separately from the net periodic cost presented above.
Hourly employees at two of the company's manufacturing facilities
participate in a multi-employer defined benefit pension plan, the Paper Industry
Union-Management Pension Fund. Company contributions were $2.7 million for
1993, $2.6 million for 1992 and $2.6 million for 1991 and equaled the amounts
charged to pension expense.
Key management employees participate in a management performance award
plan under which awards are based on certain minimum and standard performance
criteria established each year. All company employees are eligible to
participate in 401(k) savings plans.
Note 10. Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. The statement requires accrual basis recognition
of the projected future cost of providing postretirement benefits rather than
the pay-as-you-go (cash) basis which the company used prior to adoption. The
company elected immediate recognition of the transition obligation, which
amounted to $118.0 million ($75.5 million after income tax
-28-
<PAGE>
benefits or $2.59 per share). The obligation, which is presented in Other long-
term obligations in the Balance Sheets, was partially offset by $31.2 million of
plan assets. Prior to adoption of SFAS No. 106, these assets were included in
Other assets in the Balance Sheets.
The company provides many of its retired employees with health care and
life insurance benefits. Benefits are provided under company-sponsored defined
benefit retiree health care and life insurance plans which cover most salaried
and certain hourly employees. Employees become eligible for these benefits as
they retire from active employment. Most of the retiree health care plans
require retiree contributions and contain other cost sharing features such as
deductibles and coinsurance. The retiree life insurance plans are primarily
noncontributory. The retiree health care plans are partially funded. The
retiree life insurance plans are unfunded.
Net periodic postretirement benefit cost:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993
- --------------------------------------------------------------------------
<S> <C>
Service cost - benefits earned during year $ 3,450
Interest cost on accumulated postretirement benefit obligation 11,510
Actual return on assets (2,259)
Net amortization and deferral 449
- --------------------------------------------------------------------------
Net periodic postretirement benefit cost $13,150
==========================================================================
</TABLE>
Adopting SFAS No. 106 had the effect of increasing the 1993 postretirement
benefit cost by $7.2 million, excluding the transition amount. Postretirement
benefit cost on a pay-as-you-go basis totaled $5.7 million for 1992 and $5.5
million for 1991 and has not been restated.
Funded status and related balance sheet amounts for postretirement health
care and life insurance plans at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993
- -------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ (76,469)
Fully eligible active plan participants (24,080)
Other active plan participants (45,107)
- -------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (145,656)
Plan assets at fair value, primarily publicly traded equity
and fixed income securities 29,884
- -------------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (115,772)
Unrecognized prior service cost 9,390
Unrecognized net loss 8,016
- -------------------------------------------------------------------------
Accrued postretirement benefit cost $ (98,366)
=========================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation at December 31, 1993, was 7.75 percent. The expected long-
term rate of return on plan assets for 1993 was 9.5 percent.
-29-
<PAGE>
The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation at December 31, 1993, is based on
an initial rate of 10 percent, decreasing incrementally to 5 percent over an
8-year period and remaining at that level thereafter. This assumption has a
significant effect on the amounts reported. For example, a 1 percent increase
in the health care cost trend rates would have increased the accumulated
postretirement benefit obligation at December 31, 1993, to $169.0 million and
increased the net periodic cost for 1993 to $15.8 million from the $13.2 million
actually recorded.
Funding of postretirement health care plans is based on accepted actuarial
methods in accordance with applicable governmental regulations and is determined
separately from the net periodic cost presented above.
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The statement requires accrual basis recognition of postemployment benefits
provided to former or inactive employees after employment but before retirement.
The effect of implementing the new standard was not material.
Note 11. Stock Options
Under the company's stock option plans, options for shares of the
company's common stock have been issued to certain key personnel. Options are
granted at market value and may include a stock appreciation right. Options may
also be issued in the form of restricted stock and other share-based awards,
none of which were outstanding at December 31, 1993. Options are fully
exercisable after two years and expire not later than 10 years from the date of
grant.
Information with respect to the company's stock options:
<TABLE>
<CAPTION>
For the years ended December 31 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Option (shares) price range, $ 14.50 $ 14.50
fair market value to to
at date of grant $46.375 $46.375
- -------------------------------------------------------------------------
Options (shares) outstanding at January 1 926,112 1,055,426
Granted 241,350 234,000
Shares exercised (55,325) (110,740)
SARs(1) exercised (109,227) (230,874)
Canceled or expired (12,825) (21,700)
- -------------------------------------------------------------------------
Options (shares) outstanding at December 31 990,085 926,112
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
At December 31 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Options (shares) exercisable 633,785 565,136
Options (shares) outstanding which include
a stock appreciation right 623,075 578,052
Shares reserved for future grants 493,875 722,400
=========================================================================
<FN>
(1) Stock appreciation rights (an appropriate accrual has been made).
</TABLE>
-30-
<PAGE>
Note 12. Segment Information
Potlatch Corporation is an integrated forest products company with
substantial timber resources. It is engaged principally in the growing and
harvesting of timber and the manufacture and sale of wood products, printing
papers and other pulp-based products. Its timberlands and all of its
manufacturing facilities are located within the United States.
Following is a tabulation of business segment information for each of the
past three years:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers:(1)
Wood products:
Panel products $ 281,922 $ 250,661 $ 173,047
Lumber 196,544 159,080 113,615
Other 25,159 17,017 17,356
- ------------------------------------------------------------------------------------
503,625 426,758 304,018
- ------------------------------------------------------------------------------------
Printing papers 369,012 365,636 350,413
- ------------------------------------------------------------------------------------
Other pulp-based products:
Bleached kraft pulp and
paperboard 356,334 389,374 378,717
Tissue 139,883 118,162 117,839
Packaging(2) - 26,682 86,001
- ------------------------------------------------------------------------------------
496,217 534,218 582,557
- ------------------------------------------------------------------------------------
Total $1,368,854 $1,326,612 $1,236,988
====================================================================================
Intersegment Sales or Transfers:(3)
Wood products $ 63,618 $ 66,142 $ 64,410
Printing papers - - 313
Other pulp-based products 948 1,733 945
- ------------------------------------------------------------------------------------
Total $ 64,566 $ 67,875 $ 65,668
====================================================================================
Operating Income (Loss):
Wood products $ 160,220 $ 99,833 $ 12,609
Printing papers 15,796 27,316 30,221
Other pulp-based products (40,944) 33,298 88,971
- ------------------------------------------------------------------------------------
135,072 160,447 131,801
Corporate Items:
Administration expense (26,922) (30,022) (23,476)
Interest expense (46,230) (34,902) (28,882)
Interest and dividend income 1,352 3,790 5,493
Other, net 1,732 25,301 259
- ------------------------------------------------------------------------------------
Earnings before taxes on income and
cumulative effect of accounting changes $ 65,004 $ 124,614 $ 85,195
====================================================================================
Identifiable Assets:
Wood products $ 689,263 $ 614,806 $ 616,918
Printing papers 457,406 447,584 428,219
Other pulp-based products 824,015 807,597 717,005
Corporate 96,075 128,821 129,639
- ------------------------------------------------------------------------------------
Total $2,066,759 $1,998,808 $1,891,781
====================================================================================
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation, Amortization and
Cost of Fee Timber Harvested:
Wood products $ 39,909 $ 36,092 $ 31,853
Printing papers 30,521 28,788 25,807
Other pulp-based products 52,142 41,320 38,370
Corporate 972 965 894
- ------------------------------------------------------------------------------------
Total $ 123,544 $ 107,165 $ 96,924
====================================================================================
Capital Expenditures:
Wood products $ 97,612 $ 28,077 $ 54,393
Printing papers 42,482 32,292 57,363
Other pulp-based products 59,559 118,503 155,145
Corporate 2,002 667 137
- ------------------------------------------------------------------------------------
Total $ 201,655 $ 179,539 $ 267,038
====================================================================================
<FN>
(1) Total export sales, including those made through brokers, amounted to $106.1
million, $106.1 million and $94.2 million in 1993, 1992 and 1991, respectively.
Export paperboard sales (a majority of which were shipped to Japan) amounted to
86 percent, 80 percent and 86 percent, respectively, of total export sales.
(2) The company's packaging operations were sold in April 1992.
(3) Intersegment sales for 1991-1993, the majority of which are based on prevailing
market prices, consisted primarily of chips, pulp logs and other fiber sales to
the pulp, papermaking and converting facilities. The company's timber,
timberlands and related logging facilities generally have been assigned to the
wood products segment.
</TABLE>
-32-
<PAGE>
<TABLE>
Note 13. Financial Results by Quarter (Unaudited)
<CAPTION>
(Dollars in thousands - except per-share amounts) Three Months Ended
- ----------------------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1993 1992 1993 1992 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $361,543 $334,536 $326,624 $328,399 $338,223 $340,113 $342,464 $323,564
- ----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested 28,368 25,432 30,221 25,568 33,132 29,073 31,823 27,092
Materials, labor and other
operating expenses 266,466 257,277 262,202 245,345 273,323 255,746 262,269 248,519
Selling, general and
administrative expenses 21,482 21,734 19,634 19,093 19,615 19,870 23,227 22,712
- ----------------------------------------------------------------------------------------------------------------------------------
316,316 304,443 312,057 290,006 326,070 304,689 317,319 298,323
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings from operations $ 45,227 $ 30,093 $ 14,567 $ 38,393 $ 12,153 $ 35,424 $ 25,145 $ 25,241
==================================================================================================================================
Net earnings (loss) $ (9,542) $ 15,862 $ 2,758 $ 34,734(1) $ (2,179)(2) $ 17,778 $ 15,598 $ 10,540
==================================================================================================================================
Net earnings per common share:
Before accounting changes $ .76 $.55 $.09 $1.19(1) $(.07)(2) $.61 $.53 $.36
After accounting changes (.33) .55 .09 1.19(1) (.07)(2) .61 .53 .36
==================================================================================================================================
<FN>
(1) Includes a net after-tax gain of $14.7 million or $.51 per common share from the sale of the company's packaging
operations and a litigation settlement.
(2) Includes a retroactive 1 percent federal tax increase on earnings for the first nine months of 1993 and $3.2
million of expense for the effect of the tax increase on deferred tax balances.
</TABLE>
-33-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 1993 and 1992 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1993. In connection with our
audits of the financial statements, we also have audited the financial statement
schedules on pages 35-37. These financial statements and financial statement
schedules are the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Potlatch Corporation and
consolidated subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth herein.
As discussed in the notes to the financial statements, in 1993 the company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," and Statement of Financial
Accounting Standards No. 112, "Employers'Accounting for Postemployment
Benefits."
KPMG Peat Marwick
Portland, Oregon
January 26, 1994
-34-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES Schedule V
Property, Plant and Equipment
For the Years Ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
<CAPTION>
Balance at Reclassi- Balance at
beginning Additions Retire- fications end
of year at cost ments and Other of year
---------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
- ----------------------------
Land, other than timberlands $ 7,780 $ 1,335 $ (10) $ - $ 9,105
---------- --------- -------- ------- ----------
Plant and equipment:
Land improvements 50,063 3,839 (3) 1 53,900
Buildings and structures 315,495 39,391 (257) 49 354,678
Machinery and equipment 1,501,236 192,029 (7,647) (186) 1,685,432
Capitalized interest and other 60,658 17,596 - 310 78,564
Construction in progress 209,778 (116,292) - - 93,486
---------- --------- -------- ------- ----------
2,137,230 136,563 (7,907) 174 2,266,060
---------- --------- -------- ------- ----------
Timber, timberlands and
related logging facilities 279,669 63,757 (679) 297 A 343,044
---------- --------- -------- ------- ----------
$2,424,679 $ 201,655 $ (8,596) $ 471 $2,618,209
========== ========= ======== ======= ==========
Year ended December 31, 1992
- ----------------------------
Land, other than timberlands $ 7,875 $ 38 $ (139) $ 6 $ 7,780
---------- --------- -------- ------- ----------
Plant and equipment:
Land improvements 47,915 1,769 (512) 891 50,063
Buildings and structures 294,392 24,251 (4,058) 910 315,495
Machinery and equipment 1,326,498 217,801 (41,290) (1,773) 1,501,236
Capitalized interest and other 41,902 18,757 - (1) 60,658
Construction in progress 301,537 (91,759) - - 209,778
---------- --------- -------- ------- ----------
2,012,244 170,819 (45,860) 27 2,137,230
---------- --------- -------- ------- ----------
Timber, timberlands and
related logging facilities 271,906 8,682 (215) (704)A 279,669
---------- --------- -------- ------- ----------
$2,292,025 $ 179,539 $(46,214) $ (671) $2,424,679
========== ========= ======== ======= ==========
Year ended December 31, 1991
- ----------------------------
Land, other than timberlands $ 7,854 $ 25 $ (6) $ 2 $ 7,875
---------- --------- -------- ------- ----------
Plant and equipment:
Land improvements 46,847 1,279 (223) 12 47,915
Buildings and structures 269,855 24,696 (390) 231 294,392
Machinery and equipment 1,174,719 168,359 (15,963) (617) 1,326,498
Capitalized interest and other 37,478 4,424 - - 41,902
Construction in progress 244,130 57,407 - - 301,537
---------- --------- -------- ------- ----------
1,773,029 256,165 (16,576) (374) 2,012,244
---------- --------- -------- ------- ----------
Timber, timberlands and
related logging facilities 266,728 10,848 (184) (5,486)A 271,906
---------- --------- -------- ------- ----------
$2,047,611 $ 267,038 $(16,766) $(5,858) $2,292,025
========== ========= ======== ======= ==========
<FN>
A-Includes cost of fee timber harvested, amortization of logging roads and facilities,
expenditures for non-fee timber and changes in deposits on timber purchases. Refer
to page 21 of this report for the policy of the company in providing depreciation,
amortization and cost of fee timber harvested.
</TABLE>
-35-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES Schedule VI
Accumulated Depreciation of Property, Plant and Equipment
For the Years Ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
<CAPTION>
Additions
Balance at charged to Reclassi- Balance at
beginning costs and Retire- fications end
of year expenses ments and Other of year
---------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
- ----------------------------
Land improvements $ 24,081 $ 1,777 $ (3) $ - $ 25,855
Buildings and structures 116,937 10,780 (252) (67) 127,398
Machinery and equipment 665,913 91,996 (7,246) (70) 750,593
Capitalized interest and other 18,353 3,833 - - 22,186
-------- -------- -------- ----- --------
$825,284 $108,386 $ (7,501) $(137) $926,032
======== ======== ======== ===== ========
Year ended December 31, 1992
- ----------------------------
Land improvements $ 22,669 $ 1,691 $ (313) $ 34 $ 24,081
Buildings and structures 110,418 9,718 (3,105) (94) 116,937
Machinery and equipment 617,107 81,684 (32,794) (84) 665,913
Capitalized interest and other 15,647 2,706 - - 18,353
-------- -------- -------- ----- --------
$765,841 $ 95,799 $(36,212) $(144) $825,284
======== ======== ======== ===== ========
Year ended December 31, 1991
- ----------------------------
Land improvements $ 21,264 $ 1,624 $ (219) $ - $ 22,669
Buildings and structures 101,545 9,164 (284) (7) 110,418
Machinery and equipment 557,119 74,586 (14,431) (167) 617,107
Capitalized interest and other 13,517 2,130 - - 15,647
-------- -------- -------- ----- --------
$693,445 $ 87,504 $(14,934) $(174) $765,841
======== ======== ======== ===== ========
</TABLE>
-36-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES Schedule VIII
Valuation and Qualifying Accounts
For the Years Ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
<CAPTION>
Amounts
charged
Balance at (credited) to
beginning costs and Balance at
Description of year expenses Deductions end of year
----------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Reserve deducted from related assets:
Doubtful accounts - Accounts receivable
Year ended December 31, 1993 $1,781 $ 92 $ 184 (1) $2,057
=============================================
Year ended December 31, 1992 $2,610 $(216) $(613)(1) $1,781
=============================================
Year ended December 31, 1991 $1,914 $ 709 $ (13)(1) $2,610
=============================================
<FN>
(1) - Accounts written off - net of recoveries.
</TABLE>
-37-
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit Index
Exhibit
*(3)(a) Restated Certificate of Incorporation, restated and filed with the
state of Delaware on May 1, 1987, filed as Exhibit (3)(a) to the
Annual Report on Form 10-K for the fiscal year ended December 31,
1992 ("1992 Form 10-K").
(3)(c) By-laws, as amended through May 20, 1993.
(4) See Exhibits (3)(a) and (3)(c). Registrant also undertakes to
file with the Securities and Exchange Commission, upon request,
any instrument with respect to long-term debt.
*(4)(a) Form of Indenture, dated as of April 1, 1986, filed as Exhibit
(4)(a) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 ("1989 Form 10-K").
*(4)(b) Form of Debenture for the $100 Million Principal Amount of 9-5/8%
Sinking Fund Debentures due April 15, 2016, filed as Exhibit
(4)(b) to the 1989 Form 10-K.
*(4)(c) Form of Debenture for the $100 Million Principal Amount of 9-1/8%
Credit Sensitive Debentures due December 1, 2009, filed as Exhibit
(4)(c) to the 1989 Form 10-K.
*(4)(d) Officers' Certificate, dated December 6, 1989, filed as Exhibit
(4)(d) to the 1989 Form 10-K.
*(4)(e) Form of Indenture, dated as of November 27, 1990, filed as
Exhibit (4)(e) to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 ("1990 Form 10-K").
*(4)(f) Officers' Certificate, dated January 24, 1991, filed as Exhibit
(4)(f) to the 1990 Form 10-K.
*(4)(g) Officers' Certificate, dated December 12, 1991, filed as Exhibit
(4)(g) to the Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 ("1991 Form 10-K").
*(10)(a) Potlatch Corporation Management Performance Award Plan, as amended
effective January 1, 1986, filed as Exhibit (10)(a) to the 1990
Form 10-K.
*(10)(a)(i) Amendment, dated May 5, 1989, to the Plan described in Exhibit
(10)(a), filed as Exhibit (10)(a)(i) to the 1989 Form 10-K.
(10)(b)(iv) Potlatch Corporation Severance Program for Executive Employees, as
amended and restated as of February 24, 1989.
*Incorporated by reference.
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<PAGE>
*(10)(c) Letter agreement, dated May 21, 1979, between Potlatch Corporation
and George F. Jewett, Jr., regarding consulting services, filed as
Exhibit (10)(c) to the 1990 Form 10-K.
*(10)(c)(i) Amendment, dated February 19, 1986, to agreement described in
Exhibit (10)(c), filed as Exhibit (10)(c)(i) to the 1990
Form 10-K.
(10)(d)(i) Potlatch Corporation Salaried Employees' Supplemental Benefit Plan
(As Amended and Restated Effective January 1, 1988).
*(10)(d)(ii) Amendment, effective as of December 31, 1992, to Plan described
in Exhibit (10)(d)(i), filed as Exhibit (10)(d)(ii) to the 1992
Form 10-K.
*(10)(f)(iii) Supplemental Retirement Benefit and Life Insurance Agreement,
dated February 19, 1988, together with Amendment to Agreement
thereto, dated as of January 1, 1992, between Potlatch Corporation
and Richard B. Madden, filed as Exhibit (10)(f)(iii) to the 1992
Form 10-K.
(10)(r) Potlatch Corporation 1983 Stock Option Plan (effective September
24, 1983), together with amendments thereto dated December 14,
1984, February 24, 1989 and February 22, 1990.
*(10)(s)(iii) Form of Stock Option Agreement for the Potlatch Corporation 1983
Stock Option Plan together with the Addendum thereto as used for
options granted on December 14, 1989, filed as Exhibit
(10)(s)(iii) to the 1989 Form 10-K.
*(10)(s)(iv) Form of Amendment to Stock Option Agreement together with the
Addendum thereto to add stock appreciation rights to stock option
agreements issued under the Potlatch Corporation 1983 Stock Option
Plan, filed as Exhibit (10)(s)(iv) to the 1989 Form 10-K.
*(10)(s)(v) Form of Stock Option Agreement for the Potlatch Corporation 1983
Stock Option Plan together with the Addendum thereto as used for
options granted in each December of 1990-1992, filed as Exhibit
(10)(s)(v) to the 1990 Form 10-K.
*(10)(t) Potlatch Corporation Deferred Compensation Plan for Directors,
dated February 20, 1981, as amended December 3, 1982, filed as
Exhibit (10)(t) to the 1992 Form 10-K.
*(10)(t)(i) Potlatch Corporation Directors' Retirement Plan, effective
October 1, 1989, filed as Exhibit (10)(t)(i) to the 1989
Form 10-K.
*Incorporated by reference.
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<PAGE>
Exhibit Index (cont.)
*(10)(t)(ii) Amendment dated May 24, 1991, to Exhibit (10)(t), filed as Exhibit
(10)(t)(ii) to the 1991 Form 10-K.
(10)(w)(vi) Compensation of Directors, dated May 20, 1993.
*(10)(x) Form of Indemnification Agreement with each director of Potlatch
Corporation, dated as of the dates set forth on Schedule A and
Amendments 1, 2, 3 and 4 to Schedule A, filed as Exhibit (10)(x)
to the 1991 Form 10-K.
*(10)(x)(i) Amendment No. 5 to Schedule A to Exhibit (10)(x), filed as Exhibit
(10)(x)(i) to the 1992 Form 10-K.
(10)(x)(ii) Amendment No. 6 to Schedule A to Exhibit (10)(x).
*(10)(y) Form of Indemnification Agreement with certain officers of
Potlatch Corporation identified on Schedule A and Amendments 1, 2,
and 3 to Schedule A, filed as Exhibit (10)(y) to the 1991
Form 10-K.
*(10)(y)(i) Amendment No. 4 to Schedule A to Exhibit (10)(y), filed as Exhibit
(10)(y) to the 1992 Form 10-K.
(10)(y)(ii) Amendment No. 5 to Schedule A to Exhibit (10)(y).
(10)(z) Potlatch Corporation 1989 Stock Incentive Plan adopted December 8,
1988 and as amended and restated February 24, 1989.
*(10)(z)(i) Form of Stock Option Agreement for the Potlatch Corporation 1989
Stock Incentive Plan together with the Addendum thereto as used
for options granted on December 14, 1989, filed as Exhibit
(10)(z)(i) to the 1989 Form 10-K.
*(10)(z)(ii) Form of Stock Option Agreement for the Potlatch Corporation 1989
Stock Incentive Plan together with the Addendum thereto as used
for options granted in each December of 1990-1993, filed as
Exhibit (10)(z)(ii) to the 1990 Form 10-K.
*(10)(aa) Form of Amendments to Stock Options and Stock Incentive Plans,
dated March 30, 1990, filed as Exhibit (10)(aa) to the 1990 Form
10-K.
(22) Potlatch Corporation Subsidiaries.
(24) Consent of Independent Auditors.
(25) Powers of Attorney.
*Incorporated by reference.
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POTLATCH CORPORATION
BY-LAWS
AS AMENDED THROUGH May 20, 1993
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Offices. . . . . . . . . . . . . . . . . . . 1
Section 1 . . . . . . . . . . . . . . . . . . . . . 1
Section 2 . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. Corporate Seal . . . . . . . . . . . . . . . 1
ARTICLE III. Meetings of Stockholders . . . . . . . . . 2
Section 1 . . . . . . . . . . . . . . . . . . . . . 2
Section 2 . . . . . . . . . . . . . . . . . . . . . 2
Section 3 . . . . . . . . . . . . . . . . . . . . . 2
Section 4 . . . . . . . . . . . . . . . . . . . . . 3
Section 5 . . . . . . . . . . . . . . . . . . . . . 4
Section 6 . . . . . . . . . . . . . . . . . . . . . 4
Section 7 . . . . . . . . . . . . . . . . . . . . . 5
Section 8 . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. Directors . . . . . . . . . . . . . . . . . 6
Section 1 . . . . . . . . . . . . . . . . . . . . . 6
Section 2 . . . . . . . . . . . . . . . . . . . . . 6
Section 3 . . . . . . . . . . . . . . . . . . . . . 7
Section 4 . . . . . . . . . . . . . . . . . . . . . 7
Section 5 . . . . . . . . . . . . . . . . . . . . . 7
Section 6 . . . . . . . . . . . . . . . . . . . . . 8
Section 7 . . . . . . . . . . . . . . . . . . . . . 9
Section 8 . . . . . . . . . . . . . . . . . . . . . 10
Section 9 . . . . . . . . . . . . . . . . . . . . . 10
Section 10 . . . . . . . . . . . . . . . . . . . . . 10
Section 11 . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V. Committees . . . . . . . . . . . . . . . . 12
ARTICLE VI. Officers . . . . . . . . . . . . . . . . . 12
Section 1 . . . . . . . . . . . . . . . . . . . . . 12
Section 2 . . . . . . . . . . . . . . . . . . . . . 12
Section 3 . . . . . . . . . . . . . . . . . . . . . 12
Section 4 . . . . . . . . . . . . . . . . . . . . . 13
Section 5 . . . . . . . . . . . . . . . . . . . . . 13
Section 6 . . . . . . . . . . . . . . . . . . . . . 13
Section 7 . . . . . . . . . . . . . . . . . . . . . 14
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<PAGE>
ARTICLE VII. Certificates of Stock . . . . . . . . . . 15
Section 1 . . . . . . . . . . . . . . . . . . . . . 15
Section 2 . . . . . . . . . . . . . . . . . . . . . 15
Section 3 . . . . . . . . . . . . . . . . . . . . . 16
Section 4 . . . . . . . . . . . . . . . . . . . . . 16
Section 5 . . . . . . . . . . . . . . . . . . . . . 17
Section 6 . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII. Dividends . . . . . . . . . . . . . . . . 18
ARTICLE IX. General Provisions . . . . . . . . . . . 18
Section 1 . . . . . . . . . . . . . . . . . . . . . 18
Section 2 . . . . . . . . . . . . . . . . . . . . . 18
Section 3 . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X. Amendments . . . . . . . . . . . . . . . . 19
-ii-
<PAGE>
B Y - L A W S
of
POTLATCH CORPORATION
ARTICLE I
Offices
Section 1. The registered office of the
corporation shall be in the City of Wilmington, County of
New Castle, State of Delaware.
Section 2. The corporation shall have an office at
1 Maritime Plaza in the City and County of San Francisco,
State of California, and may also have offices at such other
places as the chairman of the board or the board of direc-
tors may from time to time determine, or as the business of
the corporation may require.
ARTICLE II
Corporate Seal
The corporate seal of the corporation shall contain
thereon the name of the corporation, the year of its
organization and the words "Corporate Seal" and "Delaware."
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<PAGE>
ARTICLE III
Meetings of Stockholders
Section 1. All meetings of the stockholders shall
be held in the City and County of San Francisco, State of
California, at such place as may be designated from time to
time by the board of directors, or at such other place either
within or without the State of Delaware as shall be
designated from time to time by the board of directors and
stated in the notice of the meeting.
Section 2. Annual meetings of stockholders shall be
held on the third Thursday of May each year at 11:00 A.M., if
not a legal holiday, or at such other date and time as shall
be designated from time to time by the board of directors and
stated in the notice of the meeting. At such annual meeting,
the stockholders of the corporation shall elect by majority
vote a board of directors or, if the board of directors shall
then be divided into classes, the members of that class of
directors whose term of office expires at such meeting and
transact such other business as may properly be brought
before the meeting.
Section 3. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called
by the chairman of the board and shall be called by
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<PAGE>
the chairman of the board or secretary at the request in
writing of a majority of the board of directors, or at the
request in writing of stockholders owning shares which have
a majority of the voting power of the capital stock issued
and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 4. At an annual meeting of the stock-
holders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly
brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting
by or at the direction of the board of directors, or
(c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an
annual meeting by a stockholder, the secretary must have
received written notice from the stockholder not less than
thirty (30) days nor more than sixty (60) days prior to the
meeting. Such written notice to the secretary shall set
forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting,
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<PAGE>
(b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder
and (d) any material interest of the stockholder in such
business. Notwithstanding any other provision in the
by-laws to the contrary, no business shall be conducted at
an annual meeting except in accordance with the procedures
set forth in this Section 4.
Section 5. Written notice stating the place, date
and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty
(60) days before the date of the meeting.
Section 6. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares regis-
tered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting,
-4-
<PAGE>
either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is
present.
Section 7. The holders of shares which constitute
a majority of the voting power of the capital stock issued
and outstanding and entitled to vote, present in person or
represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of
business, provided, that one-third of the total number of
shares of capital stock entitled to vote at such meeting are
present or represented. If, however, such quorum shall not
be present or represented at any meeting of the
stockholders, the stockholders entitled to vote at the
meeting, present or represented, shall have power to adjourn
the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be
transacted which might have been transacted at the meeting
as originally noticed.
-5-
<PAGE>
Section 8. When a quorum is present at any
meeting, the vote of the holders who control a majority of
the voting power of the capital stock issued and outstanding
and entitled to vote, present in person or represented by
proxy, shall decide any question brought before such
meeting, unless the question is one upon which by express
provision of statute or of the certificate of incorporation
a different vote is required, in which case such express
provision shall govern the decision of such questions.
ARTICLE IV
Directors
Section 1. The business of the corporation shall
be managed by its board of directors which may exercise all
such powers of the corporation and do all such lawful acts
and things as are not by statute, by the certificate of
incorporation, or by these by-laws directed or required to
be exercised or done by the stockholders.
Section 2. Each director elected pursuant to the
applicable provisions of the certificate of incorporation
shall hold office until his successor is elected and has
qualified or until his earlier resignation or removal.
Directors need not be stockholders. No person shall
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<PAGE>
continue to serve as a director after the expiration of the
calendar year in which the age of 70 is attained.
Section 3. The board of directors of the
corporation may hold meetings, both regular and special,
either within or without the State of Delaware.
Section 4. The annual meeting of the board of
directors shall be held immediately following each annual
meeting of the stockholders of the corporation at the place
where such meeting of stockholders is held or at such other
date, time and place as shall be designated from time to
time by the board of directors and stated in the notice of
the meeting.
Section 5. The directors at each annual meeting
shall elect a chairman of the board and chief executive
officer and also shall elect a vice chairman of the board to
hold such offices until their successors are elected and
have qualified or until their earlier resignation or
removal. In the absence or disability of the chairman of
the board, the directors designated by the board of direc-
tors shall perform the duties and exercise the powers of the
chairman of the board.
-7-
<PAGE>
Section 6. Special meetings of the board of
directors may be called by the chairman of the board, the
vice chairman of the board, or by any officer who is a
director. Each director shall be given not less than five
days' notice of such special meetings of the board, and such
notice shall be deemed given once it has been conveyed to a
director in person or by telephone or has been sent by mail
or telegram to a director's last known address as shown in
the secretary's records; provided, however, that if a spe-
cial meeting is called by the chairman of the board, the
vice chairman of the board, or by any officer who is a
director because an attempt to acquire the corporation or
more than five percent of its shares has been threatened, or
because in the best judgment of the person calling the
meeting some other emergency exists, then each director
shall be given not less than three hours' notice of any such
meeting to be held in person or by means of conference tele-
phone as provided in Section 9 of this Article, and such
notice shall be deemed given once it has been conveyed to a
director in person or by telephone or an attempt has been
made to give such notice by telephoning a director at his
home telephone number and his business office telephone
number as such numbers are shown in the secretary's records.
-8-
<PAGE>
Special meetings of the board of directors shall be
called by the chairman of the board or the secretary on the
written request of one third of the entire board of
directors (determined by rounding up to the next whole
number in the event the board of directors is not then
divisible by three) plus one director. Each director shall be
given not less than five days' notice of such special meetings
of the board, and such notice shall be deemed given once it
has been conveyed to a director in person or by telephone or
has been sent by mail or telegram to a director's last known
address as shown in the secretary's records.
Notice may be waived in writing by any director
entitled thereto, and attendance at a meeting shall consti-
tute a waiver of notice of such meeting.
Section 7. At all meetings of the board a
majority of the directors then in office shall constitute a
quorum for the transaction of business. If a quorum is not
present at any meeting of the board of directors, the direc-
tors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until
a quorum is present. At such adjourned meeting at which a
quorum shall be present, any business may be transacted
which might have been transacted at the meeting as origi-
nally noticed.
-9-
<PAGE>
Section 8. Any action required or permitted to be
taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all
members of the board or committee, as the case may be, con-
sent thereto in writing, and the consents are filed with the
minutes of proceedings of the board or committee.
Section 9. Members of the board of directors or
any committee thereof may participate in a meeting of such
board or committee, as the case may be, by means of confer-
ence telephone or similar communications equipment by means
of which all persons participating in the meeting can hear
each other, and participating in a meeting in such manner
shall constitute presence at such meeting.
Section 10. The board of directors shall have the
authority to fix the compensation of directors.
Section 11. Nominations for the election of
directors may be made by the board of directors or by any
stockholder entitled to vote for the election of directors.
Such nominations, other than those made by or on behalf of
the existing management of the corporation, shall be made by
notice in writing, delivered or mailed by first-class United
States mail, postage prepaid, to the secretary of the corpo-
ration not less than thirty (30) days nor more than sixty
(60) days prior to any meeting of the stockholders called
-10-
<PAGE>
for the election of directors; provided, however, that if
less than thirty-five (35) days' notice of the meeting is
given to stockholders, such written notice shall be deliv-
ered or mailed, as prescribed, to the secretary of the cor-
poration not later than the close of the seventh (7th) day
following the day on which notice of the meeting was mailed
to stockholders.
Each notice shall set forth (i) the name, age,
business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupa-
tion or employment of each such nominee, (iii) the number of
shares of stock of the corporation which are beneficially
owned by each such nominee and by the nominating stock-
holder, and (iv) any other information concerning the nom-
inee that must be disclosed of nominees in proxy solicita-
tions pursuant to Rule 14(a) of the Securities Exchange Act
of 1934.
The chairman of the meeting may, if the facts war-
rant, determine and declare to the meeting that a nomination
was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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<PAGE>
ARTICLE V
Committees
The board of directors may designate such
committees with such powers and duties as it may prescribe
by resolution.
ARTICLE VI
Officers
Section 1. The board of directors of the corpora-
tion shall elect as officers of the corporation: a chief
executive officer who shall be the chairman of the board; a
president; one or more vice presidents; a secretary; a trea-
surer; a controller; and such additional officers, including
one or more assistant secretaries and assistant treasurers,
as the board of directors may from time to time determine.
Section 2. The term of office of the officers of
the corporation shall expire at the annual meeting of the
board of directors, and each officer shall hold office until
his successor shall have been duly elected and qualified or
until his earlier death, resignation, retirement or removal
by the board of directors.
Section 3. The chairman of the board and chief
executive officer of the corporation shall if present pre-
side at all meetings of the stockholders and the board of
directors, shall have general and active management of the
business of the corporation and shall ensure that all orders
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<PAGE>
and resolutions of the board of directors are carried into
effect and shall have such other powers and duties as may be
from time to time assigned to him by the board of directors
or prescribed by the by-laws.
The chairman of the board and chief executive
officer shall have the power to employ and discharge subor-
dinates, agents and employees of the corporation and to fix
their compensation and to delegate all or part of such
power, subject to supervision by the board of directors.
Section 4. In the absence or disability of the
chairman of the board and chief executive officer, the offi-
cers designated by the board of directors shall perform the
duties and exercise the powers of the chief executive officer.
The president and the vice presidents shall perform such other
duties as may be prescribed by these by-laws, the board of
directors or the chairman of the board and chief executive
officer.
Section 5. The controller shall be the principal
accounting officer in charge of the general accounting
books, accounting and cost records and forms. He shall have
such other powers and duties as he may from time to time be
assigned or directed to perform by the board of directors
or the chairman of the board and chief executive officer.
Section 6. The secretary shall have the care and
custody of the records of the corporation and shall attend
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<PAGE>
all meetings of the stockholders and the directors and shall
record all votes and minutes of said meetings in a book or
books kept for that purpose. He shall sign such instruments
on behalf of the corporation as he may be authorized to sign
by the board of directors or by law and shall countersign,
attest and affix the corporate seal to all certificates and
instruments where such countersigning or such sealing and
attesting are necessary to their true and proper execution.
He shall see that proper notice is given to all meetings of
the stockholders where notice is required and shall have such
other powers and duties as he may from time to time be
assigned or directed to perform by the board of directors
or the chairman of the board and chief executive officer.
An assistant secretary shall have all of the
powers and shall perform all of the duties of the secretary
in case of the absence of the secretary or his inability to
act, and shall have such other powers and duties as he may
from time to time be assigned or directed to perform.
Section 7. The treasurer shall attend to the
collection, receipt and disbursement of all moneys belonging
to the corporation. He shall have authority to endorse, on
behalf of the corporation, all checks, notes, drafts, war-
rants and orders, and shall have custody over all securities
of the corporation. He shall have such additional powers
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<PAGE>
and such other duties as he may from time to time be
assigned or directed to perform by the board of directors
or the chairman of the board and chief executive officer.
An assistant treasurer shall have all of the
powers and shall perform the duties of the treasurer in case
of the absence of the treasurer or his inability to act, and
shall have such other powers and duties as he may from time
to time be assigned and directed to perform.
ARTICLE VII
Certificates of Stock
Section 1. Every holder of stock in the corpora-
tion shall be entitled to have a certificate signed by or in
the name of the corporation by the chairman of the board,
the president or a vice president and the treasurer or an
assistant treasurer, or the secretary or an assistant secre-
tary of the corporation, certifying the number of shares
owned by him in the corporation.
Section 2. Any signature on the certificate may be
a facsimile. In case any officer, transfer agent or reg-
istrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such an
officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or regis-
trar at the date of issue.
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<PAGE>
Section 3. The board of directors may direct a
new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corpo-
ration alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate
or certificates, the board of directors may, in its discre-
tion and as a condition precedent to the issuance, require
the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the
same in such manner as it shall require and to give the cor-
poration a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost,
stolen or destroyed. To eliminate the necessity of action
in each particular case, the board of directors may autho-
rize the issuance of new certificates in lieu of lost,
stolen or destroyed certificates on the direction of such
officers of the corporation as the board of directors may
designate upon the filing with such officers of an affidavit
or affirmation and an indemnity bond or agreement satisfac-
tory to such officers.
Section 4. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for
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<PAGE>
shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to
the person entitled, cancel the old certificate and record
the transaction upon its books.
Section 5. In order that the corporation may
determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other dis-
tribution or allotment of any rights, or entitled to exer-
cise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment
of the meeting, but the board of directors may fix a new
record date for the adjourned meeting.
Section 6. The corporation may recognize the
exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such
owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall
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<PAGE>
not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other
person, whether or not it shall have express or other
notice, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
Dividends
Dividends upon the capital stock of the corpora-
tion, subject to applicable provisions, if any, of the cer-
tificate of incorporation, may be declared by the board of
directors at any regular or special meeting. Dividends may
be paid in cash, in property, or in shares of the capital
stock, subject to any such provisions of the certificate of
incorporation.
ARTICLE IX
General Provisions
Section 1. The fiscal year of the corporation
shall be from the first day of January each year until the
last day of the succeeding December, both inclusive.
Section 2. Whenever notice is required under these
by-laws or by statute and such notice is given by mail, the
time of giving such notice shall be deemed to be the time when
the same is placed in the United States mail, postage prepaid,
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<PAGE>
and addressed to the party to be notified at his address as it
appears on the records of the corporation.
Section 3. All references in these by-laws to the
masculine gender shall also be construed as references to
the feminine gender.
ARTICLE X
Amendments
These by-laws may be altered, amended or repealed
or new by-laws may be adopted by the stockholders or by the
board of directors pursuant to the applicable provisions of
the certificate of incorporation at any regular meeting of
the stockholders or of the board of directors or at any spe-
cial meeting of the stockholders or of the board of direc-
tors if notice of such alteration, amendment, repeal or
adoption of new by-laws be contained in the notice of such
special meeting.
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POTLATCH CORPORATION
SEVERANCE PROGRAM FOR
EXECUTIVE EMPLOYEES
(As Amended and Restated Effective
as of February 24, 1989)
SECTION 1. ADOPTION AND PURPOSE OF PROGRAM.
The Potlatch Corporation Severance Program for
Executive Employees (the "Program") was adopted effective
September 30, 1978, by Potlatch Corporation, a Delaware
corporation (the "Company"), to provide a program of
severance payments to certain employees of the Company and
its designated subsidiaries. The Program was last amended
and restated effective as of February 24, 1989, to read as
set forth herein. The Program is an employee welfare
benefit plan within the meaning of section 3(1) of the
Employee Retirement Income Security Act of 1974 ("ERISA")
and section 2510.3-1 of the regulations issued thereunder.
The plan administrator of the Program for purposes of ERISA
is the Company.
SECTION 2. ELIGIBILITY AND DETERMINATION OF VESTING
SERVICE.
All Principal Officers and appointed vice
presidents of the Company and of any subsidiary of the
Company that is designated to participate in the Program by
the Executive Compensation and Personnel Policies Committee
of the Board of Directors of the Company and such other
<PAGE>
employees of the Company or any such subsidiary who are
designated by such Committee to participate in the Program
shall be eligible to participate in the Program. The
Company and such designated subsidiaries are referred to
collectively in the Program as the "Participating
Companies." For purposes of the Program, "Principal
Officers" shall include the chief executive officer,
president, secretary, treasurer and controller and any
elected vice-president of a Participating Company. Those
Principal Officers and other employees who participate in
the program are referred to herein as "Eligible Employees."
As a condition to participation in the Program, each
Eligible Employee shall agree in writing to become bound by
its terms, including, without limitation, the provisions of
Section 10.
For purposes of the Program, an Eligible
Employee's Years of Vesting Service shall be determined
under the provisions of the Potlatch Corporation Salaried
Employees' Retirement Plan as in effect from time to time
(the "Retirement Plan").
SECTION 3. SEVERANCE BENEFITS.
(a) Basic Severance Benefits. Upon the occurrence
of any of the events specified in Section 4(a), an Eligible
Employee shall receive (in lieu of any other severance
benefit payable under any other plan or program now or
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<PAGE>
hereafter maintained by a Participating Company) Basic
Severance Benefits under the Program as follows:
(i) A cash benefit equal to three (3) weeks of the
Eligible Employee's Base Compensation for each full
Year of Vesting Service completed by such Eligible
Employee;
(ii) If at the end of the number of weeks
following termination of the Eligible Employee's
employment equal to three (3) times the number of full
Years of Vesting Service completed by the Eligible
Employee he or she has not obtained a position with
another employer (despite reasonable, diligent and good
faith efforts to do so) at a salary comparable to the
Eligible Employee's Base Compensation, a cash benefit
equal to an additional week of Base Compensation for
each full Year of Vesting Service completed by the
Eligible Employee; provided, however, that such benefit
shall not be payable if the Eligible Employee is not
living on the last day of the period described herein;
(iii) In the event that a Participating Company
terminates the employment of an Eligible Employee and
does not give him or her one month's advance notice,
one month of the Eligible Employee's Base Compensation
in lieu of notice;
(iv) The Eligible Employee's unused and accrued
vacation pay, if any, determined as of the date when
the Eligible Employee's employment is terminated under
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<PAGE>
the terms of the Participating Company's basic vacation
policy as in effect when the applicable event specified
in Section 4(a) occurs (which, in the case of
termination of employment pursuant to Section 4(a)(iv),
shall be the date of the material change rather than
the date the Eligible Employee resigns);
(v) Eligibility for an Award under the Company's
Management Performance Award Plan for the Award Year in
which his or her employment terminates, determined
under all the terms and conditions of such plan;
provided, however, that if an Eligible Employee's
employment is terminated under the conditions described
in Section 4(a)(iii) or (iv) or if his or her
employment is terminated by the Company during any
twenty-four (24) month period described in Section 4(a)
(iv), the Eligible Employee's eligibility for an Award
for such Award Year shall be determined under Section
9(a)(i) of such Plan as if the Eligible Employee had
retired during the Award Year, subject to all other
applicable terms and conditions of the Management
Performance Award Plan; and
(vi) Continued coverage as an employee during a
period of weeks equal to three (3) (four (4), in the
case of an Eligible Employee eligible for the benefit
described in (ii) above) times the number of full Years
of Vesting Service completed by the Eligible Employee,
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<PAGE>
under the following employee benefit plans of the
Company:
(A) Medical coverage under "Plan 1" of the
Potlatch Corporation Custom Benefits-Health Care Plan,
or any successor to such Plan;
(B) Dental coverage in the amount, if any, that
the Eligible Employee had in effect on the day
preceding the date of his or her termination of
employment;
(C) Basic life insurance coverage in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment; and
(D) Accidental death and dismemberment coverage
(not including travel accident coverage) in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment, except that continuation of any
employee-paid coverage shall be at the Eligible
Employee's expense at standard group rates.
Notwithstanding any of the foregoing provisions of this
Section 3(a)(vi):
(I) Any such continued coverage shall terminate
when the Eligible Employee becomes covered by the life
insurance, medical, dental or accidental death and
dismemberment plan of another employer.
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<PAGE>
(II) In the event that after an Eligible
Employee's termination of employment with a
Participating Company he or she is otherwise entitled
to continued coverage under the Company's basic life
insurance, medical, dental and accidental death and
dismemberment plans pursuant to any employee benefit
plan or program of the Company (other than this
Program), the total benefits paid for by the
Participating Companies during the period described
above shall not exceed the benefits to which the
Eligible Employee is entitled under this Section
3(a)(vi).
(III) For purposes of this Section 3(a)(vi), the
Company's basic life insurance plan shall not include
any group universal life insurance or travel accident
insurance coverage provided through or by the Company
to or on behalf of its employees or any accidental
death and dismemberment insurance coverage provided by
the Company to family members of its employees.
(IV) During the period of such continued coverage,
the Eligible Employee shall not be eligible to
participate in the Company's disability income plan or
as an employee in the Retirement Plan, the Salaried
Employees' Savings Investment Plan, any qualified or
nonqualified stock option or phantom stock plan of the
Company or any employee benefit plan or program now or
hereafter maintained by the Company or a Participating
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<PAGE>
Company other than those plans listed in the first
sentence of this Section 3(a)(vi).
Notwithstanding the foregoing provisions of this subsection
(a), the sum of the amounts payable under (i), (ii) and
(iii) above shall be not less than four (4) months of the
Eligible Employee's Base Compensation nor greater than one
(1) year of the Eligible Employee's Base Compensation and
the period of continued coverage described in (vi) above
shall be not less than four (4) months nor more than one (1)
year from the termination of the Eligible Employee's
employment. The Executive Compensation and Personnel
Policies Committee of the Board of Directors of the Company
may, in its discretion, increase the benefit payable to any
Eligible Employee without regard to the foregoing
limitation.
(b) Change of Control Benefits. Upon the
occurrence of any of the events specified in Section 4(b),
an Eligible Employee shall receive (in lieu of any severance
benefit payable under Section 3(a) or any other severance
benefit payable under any other plan or program now or
hereafter maintained by a Participating Company) Change of
Control Benefits under the Program as follows:
(i) A lump sum cash benefit equal to the Eligible
Employee's annual Base Compensation plus his or her
annual Base Compensation multiplied by his or her
standard bonus percentage (as determined pursuant to
the Management Performance Award Plan), determined as
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<PAGE>
of the date of the Change of Control or the date the
Eligible Employee's employment terminates, whichever
produces the larger amount, multiplied by the
appropriate factor from the following table, based on
the Eligible Employee's age (to the nearest birthday)
and Years of Vesting Service on the date the Eligible
Employee's employment with the Participating Companies
terminates:
Years of Vesting Service
------------------------
Under 10 But Less 20 or
Age 10 Than 20 More
--- ----- ----------- -----
Under 40 1.5 2.0 2.5
40 but less than 50 2.0 2.25 2.5
50 or more 2.5 2.5 2.5
Notwithstanding the foregoing, if the Eligible
Employee's employment terminates on or after the date
thirty (30) months prior to the Eligible Employee's
"normal retirement date," as determined under the
Retirement Plan, and the Eligible Employee meets the
conditions of Subsections (II) and (III) of Section
4(a), the applicable factor shall be a fraction, the
numerator of which is the number of full months between
the date the Eligible Employee's employment terminates
and such "normal retirement date" and the denominator
of which is twelve (12). An Eligible Employee
described in the preceding sentence shall be entitled
to an additional benefit equal to the difference
between the benefit payable to the Eligible Employee,
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<PAGE>
if any, under the Retirement Plan and the Retirement
Plan Supplemental Benefit provisions of the Salaried
Employees' Supplemental Benefit Plan (the "Supplemental
Plan"), and such benefits that would have been payable,
if any, under such Plans if the Eligible Employee had
remained an Eligible Employee and continued to earn his
or her Base Compensation until such "normal retirement
date;" provided, however, that the present value
(calculated using the assumed discount rate applied in
projecting the Company's pension benefit obligations
for financial reporting purposes and the UP-84
mortality table) (the "Present Value") of such
additional benefit shall not exceed the difference
between the lump sum benefit determined under the
preceding sentence and the lump sum benefit determined
using the otherwise applicable factor from the table
above. Such additional benefit shall be paid at the
same time and in the same form as any benefit payable
to the Eligible Employee under the Supplemental Plan
or, if no benefit is payable to the Eligible Employee
under the Supplemental Plan, the Present Value of such
additional benefit shall be paid in a lump sum at the
same time as the Eligible Employee's Change of Control
Benefits are paid.
(ii) In the event that a Participating Company
terminates the employment of an Eligible Employee and
does not give him or her one month's advance notice,
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<PAGE>
one month of the Eligible Employee's Base Compensation
(determined as of the date of the Change of Control or
the date the Eligible Employee's employment terminates,
whichever produces the larger amount) in lieu of
notice;
(iii) A lump sum cash benefit equal to the
Eligible Employee's unused and accrued vacation pay, if
any, under the terms of the Participating Company's
basic vacation policy. For this purpose, (I) an
Eligible Employee's Base Compensation and the terms of
the basic vacation policy shall be determined as of the
date when the Eligible Employee's employment is
terminated or as of the date of the Change of Control,
whichever produces the larger amount and (II) accrued
vacation pay shall be paid notwithstanding any minimum
service requirement of the Participating Company's
basic vacation policy;
(iv) Eligibility for an Award under the Company's
Management Performance Award Plan for the Award Year in
which his or her employment terminates determined under
all the terms and conditions of such Plan; provided,
however, that if an Eligible Employee's employment is
terminated under the conditions described in Section
4(a)(iii) or (iv) or if his or her employment is
terminated by the Company during any twenty-four (24)
month period described in Section 4(a)(iv), the
Eligible Employee's eligibility for an Award for such
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<PAGE>
Award Year shall be determined under Section 9(a)(i) of
such Plan as if the Eligible Employee had retired
during the Award Year, subject to all other applicable
terms and conditions of the Management Performance
Award Plan;
(v) Continued coverage as an employee during the
number of years equal to the applicable factor
determined under (b)(i) above, subject to all of the
conditions and limitations described in Section
3(a)(vi)(I) through (IV) above (determined without
regard to the last paragraph of Section 3(a)) under the
following employee benefit plans of the Company;
(A) Medical coverage under "Plan 1" of the
Potlatch Corporation Custom Benefits-Health Care Plan,
or any successor to such Plan;
(B) Dental coverage in the amount, if any, that
the Eligible Employee had in effect on the day
preceding the date of his or her termination of
employment;
(C) Basic life insurance coverage in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment;
(D) Accidental death and dismemberment coverage
(not including travel accident coverage) in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
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<PAGE>
employment, except that continuation of any
employee-paid coverage shall be at the Eligible
Employee's expense at standard group rates; and
(E) Temporary, long-term and permanent disability
income coverage in the amount, if any, that the
Eligible Employee had in effect on the day preceding
the date of his or her termination of employment;
(vi) In the case of an Eligible Employee who has
less than five (5) Years of Vesting Service on the
date his or her employment terminates, a lump sum cash
benefit equal to (A) the value of that portion of the
Eligible Employee's Company Stock Account in the
Salaried Employees' Savings Investment Plan
attributable to Company Contributions under such Plan
made on the Eligible Employee's behalf in a Plan Year
which ended less than 24 months prior to the date the
Eligible Employee's employment with the Participating
Companies terminates, plus (B) the unvested portion, if
any, of the Eligible Employee's SIP Supplemental
Benefit account under the Supplemental Plan. The value
of those portions of the Eligible Employee's Company
Stock Account and SIP Supplemental Benefit account
referred to in the preceding sentence shall be
determined as of the Eligible Employee's Settlement
Date under such Plan; and
(vii) A lump sum cash benefit equal to the Present
Value of the Eligible Employee's Normal Retirement
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<PAGE>
Benefit and Retirement Plan Supplemental Benefit
determined under the Retirement Plan and the
Supplemental Plan, respectively, if the Eligible
Employee was not entitled to a Vested Benefit under the
Retirement Plan as of the date the Eligible Employee's
employment with the Participating Companies terminates.
(c) Limitation on Benefits Payable under the
Program. Any provision of the Program to the contrary
notwithstanding, payments to an Eligible Employee under the
Program shall be limited to the amount (the "Capped Amount")
necessary to avoid characterization of any amount payable to
the Eligible Employee (including but not limited to amounts
payable under the Program) as an "excess parachute payment"
as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), except in the event that the
total amount that the Eligible Employee would receive from
all "parachute payments" as defined in section 280G of the
Code, net of all applicable taxes, including the amount of
excise tax that would be imposed pursuant to Code section
4999, would exceed the Capped Amount, net of all applicable
taxes. The determination of whether any amount would
constitute an "excess parachute payment" as provided in the
preceding sentence shall be made by the firm of independent
certified public accountants serving as the outside auditor
of the Company as of the date of the event specified in
Section 4(a) or, if earlier, as of the date of the Change of
Control as determined pursuant to Section 4(b). In making
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<PAGE>
such determination, such firm may disregard any payments or
benefits available to the Eligible Employee under any
contract, plan or program if the Eligible Employee
irrevocably elects to relinquish or not exercise such
payments or benefits before the payment or enjoyment
thereof. It is intended that payments shall be made
pursuant to the Program whether or not the status of a
particular payment as an "excess parachute payment" has been
finally determined by the Internal Revenue Service or a
court of competent jurisdiction.
(d) Definition of "Base Compensation." For
purposes of the Program, "Base Compensation" shall mean the
Eligible Employee's base rate of pay as in effect at the
time the Eligible Employee's employment is terminated, or,
if greater, the rate in effect at the time the material
change described in Section 4(a)(iv) occurs or the time a
Change of Control described in Section 4(b) occurs, if
applicable. An Eligible Employee's base rate of pay shall
be determined without reduction for (i) any Deferred
Contributions made by the Eligible Employee pursuant to the
Potlatch Corporation Salaried Employees' Savings Investment
Plan or (ii) any contributions made by the Eligible Employee
pursuant to the Potlatch Corporation Custom Benefits Plan.
SECTION 4. CONDITIONS FOR PAYMENT OF SEVERANCE BENEFITS.
(a) Payment of Basic Severance Benefits. Subject
to the provisions of Section 4(c), an Eligible Employee will
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<PAGE>
be eligible for the benefits specified in Section 3(a) upon
the occurrence of any of the following events (except that
an Eligible Employee who has satisfied the conditions of
Section 4(b) will be eligible for the benefits specified in
Section 3(b) rather than the benefits specified in Section
3(a)):
(i) Termination of the Eligible Employee's
employment by a Participating Company or by the
Eligible Employee at the request of the Participating
Company for any reason other than misconduct. As used
herein "misconduct" means that the Eligible Employee
has engaged in unfair competition with a Participating
Company or a subsidiary thereof, induced any customer
of a Participating Company or subsidiary to breach any
contract with a Participating Company or subsidiary,
made any unauthorized disclosure of any of the secrets
or confidential information of a Participating Company
or subsidiary, committed an act of embezzlement, fraud
or theft with respect to the property of a
Participating Company or subsidiary, or engaged in
conduct which is not in good faith and which directly
results in material loss, damage or injury to the
business, reputation or employees of a Participating
Company or subsidiary; or
(ii) Termination of the Eligible Employee's
employer's status as a Participating Company due to the
sale of a designated subsidiary to a third party; or
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<PAGE>
(iii) The Participating Company requires the
Eligible Employee to relocate his or her principal
place of work and the new principal place of work is
thirty-five (35) or more miles further from the
Eligible Employee's primary residence than was his or
her former principal place of work, and the Eligible
Employee elects to resign rather than to relocate; or
(iv) The Eligible Employee resigns from employment
with a Participating Company within twenty-four (24)
months following a material change in his or her
compensation, benefits, assigned duties,
responsibilities, privileges or perquisites resulting
in a significant diminution of (A) the Eligible
Employee's assigned job, as reflected in the
Participating Company's official position description
or (B) the Eligible Employee's compensation, benefits,
duties, responsibilities, privileges or perquisites as
compared to those of all other employees similarly
situated, unless the material change is applicable to
all salaried employees or all other employees similarly
situated; provided, however, that in the event of a
Change of Control, any change in an Eligible Employee's
compensation, benefits, duties, responsibilities,
privileges or perquisites which constitutes a
significant diminution from the circumstances
applicable to the Eligible Employee on the day
preceding the date of the Change of Control shall be a
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<PAGE>
material change, even if the change is applicable to
all salaried employees or all other employees similarly
situated; provided, further, that this Section 4(a)
(iv) shall apply to the resignation of an Eligible
Employee only if the Eligible Employee or the
Participating Company has notified the other party in
writing within three (3) months following the
occurrence of any such change that the party giving
notice considers such change to be a material change
encompassed by this Section 4(a)(iv). If the party
receiving such notice does not agree that the change in
question is a material change encompassed by this
Section 4(a)(iv), it shall give written notice thereof
to the party first giving notice hereunder within
thirty (30) days after receiving notice and the matter
shall be immediately referred to the Review Panel as
provided in Section 9; provided, however, that, within
thirty (30) days after receiving written notice that
the other party does not agree that the change in
question is covered by this Section 4(a)(iv), the
Eligible Employee may request that the matter be
submitted directly to arbitration as provided in
Section 10. If necessary, the twenty four (24) month
period specified above shall be extended to a date not
later than thirty (30) days following (i) the
announcement of the decision of the Review Panel or, if
the matter is referred to arbitration within thirty
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<PAGE>
(30) days following the announcement of the Review
Panel's decision, the announcement of the award of the
arbitrator, or (ii) if the matter is referred directly
to arbitration, the announcement of the award of the
arbitrator. The Participating Company or the Eligible
Employee may each give the notice described in this
Section 4(a)(iv) only once while this Program is in
effect. If one party has given notice and the
twenty-four (24) month period specified above has
commenced running, the other party may not give notice
hereunder with respect to a change occurring during
such twenty-four (24) month period. If an Eligible
Employee gives notice pursuant to this Section 4(a)
(iv) and the Company thereafter in good faith makes an
adjustment in the Eligible Employee's compensation,
benefits, assigned job or duties, responsibilities,
privileges or perquisites, the Eligible Employee and
the Company may mutually agree in writing that the
notice shall be null and void.
Notwithstanding the foregoing, no benefits shall be
available under the Program (i) if the Eligible Employee's
employment with a Participating Company terminates because
he or she is eligible for or receiving long-term or
permanent disability benefits under the Company's disability
income plan as in effect on the date of onset of disability
or (ii) if the Eligible Employee satisfies all of the
following conditions:
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<PAGE>
(I) His or her employment with a Participating
Company terminates on or after his or her "normal
retirement date," as determined under the Retirement
Plan;
(II) For the two-year period immediately before
retirement, he or she qualified as an Eligible
Employee; and
(III) He or she is entitled to benefits under the
Retirement Plan, Salaried Employees' Savings Investment
Plan and Supplemental Plan which, when converted to a
straight life annuity (and excluding any portion of the
benefit under the Salaried Employees' Savings
Investment Plan which represents contributions by the
Eligible Employee), equals, in the aggregate, at least
$44,000.
(b) Payment of Change of Control Benefits. An
Eligible Employee will be eligible for the benefits
specified in Section 3(b) if, within three (3) years
following a Change of Control, the Eligible Employee's
employment terminates under the conditions described in
Section 4(a)(i), (ii) or (iii) or a material change
described in Section 4(a)(iv) occurs and the Eligible
Employee thereafter resigns under the conditions described
in Section 4(a)(iv); provided, that the Eligible Employee
was employed by a Participating Company on the date
preceding the Change of Control. For purposes of the
Program, "Change of Control" shall mean:
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<PAGE>
(i) The consummation of any transaction approved
by the stockholders of the Company in which the Company
will cease to be an independent publicly owned
corporation (including, without limitation, a reverse
merger transaction in which the Company becomes the
subsidiary of another corporation) or the sale or other
disposition of all or substantially all of the assets
of the Company;
(ii) A change in the composition of the Board of
Directors of the Company that results in the situation
where more than one-third (determined by rounding down
to the next whole number) of the individual members of
the Board neither (A) were directors of the Company on
a date three (3) years earlier nor (B) are individuals
whose election or nomination for election as directors
was affirmatively voted on by at least a majority of
those directors described in (A) above who were still
in office as of the date the Board approved such
election or nomination;
(iii) The acquisition of twenty percent (20%) or
more of the outstanding shares of common stock of the
Company by any "person" (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act
of 1934) pursuant to a tender offer subject to section
14(d) of the Securities Exchange Act of 1934; or
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<PAGE>
(iv) Any dissolution or liquidation of the Company
or any merger or consolidation in which the Company is
not the surviving corporation.
(c) Limitation on Eligibility for Benefits.
(i) If an Eligible Employee is assigned from one
to another Participating Company, his or her employment
shall not be considered to be terminated under the
provisions of the Program.
(ii) The provisions of Sections 4(a)(i) and 4(a)
(ii) to the contrary notwithstanding, no benefit will
be payable hereunder due to termination of an Eligible
Employee's employment because of the sale of a division
(or other operating assets) of a Participating Company
or to termination of the Eligible Employee's employer's
status as a Participating Company upon the sale of a
designated subsidiary to a third party, if (A)(I) the
Eligible Employee is employed by the purchaser of such
division, assets, or subsidiary or (II) such purchaser
is contractually obligated to offer the Eligible
Employee the same or a better job and (B) such
purchaser is contractually obligated to maintain a plan
which in all material respects is equivalent to the
Program, providing for continuing coverage of the
Eligible Employee for three (3) years following the
sale of such division, assets or subsidiary.
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SECTION 5. FORM OF BENEFIT.
The benefits described in Sections 3(a)(i), (ii)
and (iii) shall be paid in a lump sum or in monthly
installments over a period not to exceed twelve (12) months
from the date employment is terminated pursuant to Section
4, as determined by the Company. The benefit described in
Section 3(a)(iv) shall be paid in a lump sum. The
benefits described in Sections 3(b)(i), (ii), (iii), (vi)
and (vii) shall be paid in a lump sum.
SECTION 6. EFFECT OF DEATH OF EMPLOYEE.
Should an Eligible Employee die after employment
terminates but while participating in the Program and prior
to the payment of the entire benefit due hereunder, the
balance of the benefit payable under the Program (other than
any benefit described in Section 3(a)(ii) if the Eligible
Employee was not living on the last day of the period
described therein or the proceeds of any life insurance or
accidental death insurance, which shall be paid to the
beneficiary determined pursuant to the terms of the
applicable insurance policy) shall be paid in a lump sum to
the estate of the Eligible Employee. Continued medical and
dental coverage as provided in Section 3(a)(vi) and Section
3(b)(v), as applicable, shall be available to the Eligible
Employee's surviving spouse only if and to the extent that
such coverage would have been available to such surviving
spouse if the Eligible Employee had died as an active
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salaried employee of a Participating Company. Such coverage
shall be determined under the terms of the applicable plan
as in effect on the earlier of (i) the date the Eligible
Employee's employment terminated or (ii) the date of the
Change of Control or the material change described in
Section 4(a)(iv), if applicable.
SECTION 7. AMENDMENT AND TERMINATION.
The Company reserves the right to amend or
terminate the Program at any time and to increase or
decrease the amount of any benefit provided under the
Program; provided, however, that:
(a) No amendment which would adversely affect the
rights of any Eligible Employee to a Basic Severance
Benefit under Section 3(a) may be effective before May
1, 1992, and no such amendment or termination shall
affect the right to any unpaid Basic Severance Benefit
under Section 3(a) of any Eligible Employee (i) whose
employment has terminated on or before the date such
amendment or termination is approved or effective,
whichever is later, or (ii) with respect to whom a
material change described in Section 4(a)(iv) occurred
on or before May 1, 1992 and whose employment
terminates within the twenty-four (24) months following
the occurrence of the material change described in
Section 4(a)(iv) for any reason except cause or under
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the conditions described in the last paragraph of
Section 4; and
(b) As long as any individual who has qualified as
an Eligible Employee may become entitled to any Change
of Control Benefit under Section 3(b), the Program
cannot be terminated or amended to reduce any benefit
provided under Section 3(b) or make any condition
pertaining to qualification for the Change of Control
Benefit under Section 3(b) materially more restrictive.
Once an individual has qualified as an Eligible
Employee, the Program may not be amended to cause such
individual to cease to qualify as an Eligible Employee
for purposes of determining that individual's
eligibility for the Change of Control Benefit under
Section 3(b).
SECTION 8. CLAIMS PROCEDURE.
(a) Claims. All applications for benefits and all
inquiries concerning claims under the Program shall be
submitted to the Company addressed as follows: "Potlatch
Corporation, Plan Administrator under the Potlatch
Corporation Severance Program for Executive Employees, One
Maritime Plaza, San Francisco, California 94111."
(b) Denial of Claims. In the event that any
application for benefits under the Program is denied in
whole or in part, the Company shall notify the applicant in
writing of such denial and shall advise the applicant of the
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right to a review thereof. Such written notice shall set
forth, in a manner calculated to be understood by the
applicant, specific reasons for such denial, specific
references to the provisions of the Program on which such
denial is based, a description of any information or
material necessary for the applicant to perfect his or her
application, an explanation of why such material is
necessary and an explanation of the Program's review
procedure. Such written notice shall be given to the
applicant within ninety (90) days after the Company receives
the application, unless special circumstances require an
extension of time up to an additional ninety (90) days for
processing the application. If such an extension of time
for processing is required, written notice of the extension
shall be furnished to the applicant prior to the termination
of the initial ninety (90) day period. This notice of
extension shall indicate the special circumstances requiring
the extension of time and the date by which the Company
expects to render its decision on the application for
benefits. If written notice of the denial of the
application for benefits is not furnished within the time
specified in this Section 8(b), the application shall be
deemed denied, and the applicant shall be permitted to
appeal such denial in accordance with the review procedure
set out in Section 9 hereof.
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<PAGE>
SECTION 9. REVIEW PROCEDURE.
(a) Appointment of Review Panel. The Company
shall appoint a Review Panel which shall consist of three
(3) or more individuals who may (but need not) be employees
of the Company. The Review Panel shall be the named
fiduciary which shall have authority to act with respect to
appeals from denials of benefits under the Program.
(b) Right to Appeal. Any person whose application
for benefits is denied (or is deemed denied) in whole or in
part (or such person's authorized representative) may appeal
from the denial by submitting to the Review Panel a written
request for review of the application within sixty (60) days
after receiving written notice from the Company of the
denial (or in the case of a deemed denial within sixty (60)
days after the date the application is deemed denied). The
Company shall give the applicant (or the applicant's
representative) an opportunity to review pertinent documents
in preparing such request for review.
(c) Form of Request for Review. The request for
review must be in writing and shall be addressed as follows:
"Review Panel under the Potlatch Corporation Severance
Program for Executive Employees, One Maritime Plaza, San
Francisco, California 94111." The request for review shall
set forth all of the grounds upon which it is based, all
facts in support thereof, and any other matters which the
applicant deems pertinent. The Review Panel may require the
applicant to submit such additional facts, documents or
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<PAGE>
other material as the Review Panel may deem necessary or
appropriate in making its review.
(d) Time for Review Panel Action. The Review
Panel shall act upon each request for review within sixty
(60) days after receipt thereof unless special circumstances
require an extension of time of up to an additional sixty
(60) days for processing the request for review. If such an
extension of time for review is required, written notice of
the extension shall be furnished to the applicant prior to
the end of the initial sixty (60) day period.
(e) Review Panel Decision. Within the time
prescribed in Section 9(d), the Review Panel shall give
written notice of its decision to the applicant and to the
Company. In the event the Review Panel confirms the denial
of the application for benefits in whole or in part, such
notice shall set forth, in a manner calculated to be
understood by the applicant, the specific reasons for such
denial and specific references to the provisions of the
Program on which the decision was based. In the event that
the Review Panel determines that the application for
benefits should not have been denied in whole or in part,
the Company shall take appropriate remedial action as soon
as reasonably practicable after receiving notice of the
Review Panel's decision. If written notice of the Review
Panel's decision is not given to the applicant within the
time prescribed in Section 9(d), the application will be
deemed denied on review.
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<PAGE>
(f) Section 4(a)(iv) Dispute. In the event that a
dispute involving the application or interpretation of
Section 4(a)(iv) is referred to the Review Panel as provided
therein, the Review Panel shall treat such dispute as an
appeal from the denial of a claim for benefits under this
Program that is subject to all of the terms and conditions
of this Section 9.
(g) Rules and Procedures. The Review Panel shall
establish such rules and procedures, consistent with the
Program and with ERISA, as it may deem necessary or
appropriate in carrying out its responsibilities under this
Section 9. The Review Panel may require an applicant who
wishes to submit additional information in connection with
an appeal from the denial of benefits in whole or in part to
do so at the applicant's own expense.
SECTION 10. RESOLUTION OF DISPUTES INVOLVING SECTION 4.
(a) Arbitration of Section 4 Dispute. Any
dispute, controversy or question arising under Section 4
which is not resolved by the decision of the Review Panel
(or which the Eligible Employee requests be submitted
directly to arbitration as provided herein) shall be
referred for decision by an arbitrator selected by the
parties. The proceeding shall be governed by the Rules of
the American Arbitration Association then in effect or such
rules last in effect (in the event such Association is no
longer in existence). If the parties are unable to agree
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<PAGE>
upon such an Arbitrator within thirty (30) days after either
party has given the other party written notice of its desire
to submit the dispute, controversy or question for decision
as aforesaid, then either party may apply to the American
Arbitration Association for the appointment of an arbitrator
or, if such Association is not then in existence or does not
desire to act in the matter, either party may apply to the
Presiding Judge of the Superior Court of the City and County
of San Francisco, State of California, for the appointment
of an arbitrator to hear the parties and settle the dispute,
controversy or question, and such Judge is authorized to
make such appointment pursuant to the Program. The
arbitration shall take place at the location mutually agreed
to by the parties or, if the parties are unable to agree
upon the location, at the location designated by the
Arbitrator. The compensation and expenses of the Arbitrator
shall be borne by the Company, unless the Arbitrator
determines that an Eligible Employee acted willfully and
maliciously in connection with his or her claim for benefits
under the Program, in which case the Arbitrator shall direct
the Eligible Employee to pay all or a portion of the
compensation and expenses of the Arbitrator.
(b) Arbitration Exclusive Remedy. Arbitration
shall be the exclusive remedy for the settlement of disputes
involving the application or interpretation of Section 4.
The decision of the Arbitrator shall be final, conclusive
and binding on all interested Persons and no action at law
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<PAGE>
or in equity involving the application or interpretation of
Section 4 shall be instituted other than to enforce the
award of the Arbitrator.
SECTION 11. BASIS OF PAYMENTS TO AND FROM PROGRAM.
All benefits under the Program shall be paid by
the Company. The Program shall be unfunded and benefits
hereunder shall be paid only from the general assets of the
Company. Nothing contained in the Program shall be deemed
to create a trust of any kind for the benefit of Eligible
Employees, or create any fiduciary relationship between the
Company and the Eligible Employees with respect to any
assets of the Company. The Company is under no obligation
to fund the benefits provided herein prior to payment,
although it may do so if it chooses. Any assets which the
Company chooses to use for advance funding shall not cause
the Program to be a funded plan within the meaning of ERISA.
SECTION 12. NO EMPLOYMENT RIGHTS.
Nothing in the Program shall be deemed to give any
individual the right to remain in the employ of a
Participating Company or a subsidiary or to limit in any way
the right of a Participating Company or a subsidiary to
terminate an individual's employment, which right is hereby
reserved.
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<PAGE>
SECTION 13. NON-ALIENATION OF BENEFITS.
No benefit payable under the Program shall be
subject to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt
to do so shall be void.
SECTION 14. NOTICES.
All notices pertaining to the Program shall be in
writing and shall be deemed given if delivered by hand or
mailed with postage prepaid and addressed, in the case of
the Company to the address set forth in Section 8(a),
attention of its Secretary, and in the case of the Eligible
Employee to his or her last known address as reflected in
the records of the Company.
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POTLATCH CORPORATION SALARIED EMPLOYEES'
SUPPLEMENTAL BENEFIT PLAN
(As Amended and Restated Effective January 1, 1988)
SECTION 1. INTRODUCTION.
The Potlatch Corporation Salaried Employees'
Supplemental Benefit Plan (the "Plan") was established
effective September 30, 1978, as the Supplemental Retirement
Benefit Plan for Employees of Potlatch Corporation and
Participating Companies. The Plan was amended, retitled and
restated to read as set forth herein effective January 1,
1988. The purposes of the Plan are (i) to supplement bene-
fits provided under the Potlatch Corporation Salaried
Employees' Retirement Plan (the "Retirement Plan") to the
extent such benefits are reduced due to the limits of
section 401(a)(17) or 415 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) to provide retirement
benefits that take into account deferred awards made under
the Potlatch Corporation Management Performance Award Plan
(the "MPAP"), and (iii) to supplement benefits provided
under the Potlatch Corporation Salaried Employees' Savings
Investment Plan (the "SIP") to the extent that a
participant's allocations of Company Contributions or Allo-
cable Forfeitures are reduced due to the limits of section
401(a)(17), 401(k)(3), 401(m) or 415 of the Code. Capital-
ized terms used in the Plan (other than those defined
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<PAGE>
herein) shall have the same meanings given to such terms in
the Retirement Plan or the SIP, as the context may require.
SECTION 2. ELIGIBILITY AND PARTICIPATION.
Participation in the Plan shall be limited to:
(a) All participants in the Retirement Plan
whose benefits thereunder are reduced due to the
limits of section 401(a)(17) of the Code (limiting
the amount of compensation that may be taken into
account under the Retirement Plan) or section 415
of the Code (limiting the annual benefits payable
under the Retirement Plan);
(b) All participants in the Retirement Plan
who are credited with deferred awards under the
MPAP after January 1, 1988; and
(c) All participants in the SIP whose allo-
cations of Company Contributions or Allocable
Forfeitures are reduced due to the limits of one
or more of the following sections of the Code:
(i) section 401(a)(17) (limiting the amount of
compensation that may be taken into account under
the SIP); (ii) section 401(k)(3) (limiting
participants' Deferred Contributions to the SIP);
(iii) section 401(m) (limiting participants'
Non-deferred Contributions and matching Company
Contributions under the SIP); or (iv) section 415
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<PAGE>
(limiting overall annual allocations under the
SIP).
Any Employee with whom the Company has entered into a con-
tract that provides benefits equivalent to any of the bene-
fits described in this Plan shall not be eligible to partic-
ipate in or receive benefits under this Plan to the extent
of such equivalent benefits.
SECTION 3. AMOUNT OF PLAN BENEFITS.
A Participant's Plan Benefit shall consist of (to
the extent applicable to the Participant) (i) the Retirement
Plan Supplemental Benefit and (ii) the SIP Supplemental
Benefit. All Plan Benefits shall accrue as of the last day
of each Plan Year or as of the date, if earlier, on which
the Participant ceases to be an Employee.
(a) Retirement Plan Supplemental Benefit. A
Participant's Retirement Plan Supplemental Benefit shall be
the difference between (i) the actual vested benefits
payable under the Retirement Plan to the Participant and his
or her joint annuitant (if any) and (ii) the vested benefits
that would be payable under the Retirement Plan if the
limitations imposed by sections 401(a)(17) and 415 of the
Code did not apply and any deferred award credited to the
Participant under the MPAP after January 1, 1988, had been
paid to the Participant currently.
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<PAGE>
(b) SIP Supplemental Benefit. A Participant's
SIP Supplemental Benefit shall be the vested amount credited
to a bookkeeping account established pursuant to this
Section 3(b). As of the last day of each Plan Year
commencing after December 31, 1987, each Participant whose
allocations for such Plan Year under the SIP are reduced as
described in Section 2(c) above and who has made the maximum
Participating Deferred and Participating Non-deferred
Contributions permitted under the SIP for such Plan Year
shall have an amount credited to such bookkeeping account.
The amount so credited shall be the difference between the
amount of Company Contributions and Allocable Forfeitures
actually allocated to the Participant under the SIP for such
Plan Year and the amount of Company Contributions and Allo-
cable Forfeitures that would have been allocated to the
Participant under the SIP for such Plan Year if the Partici-
pant had made Participating Contributions equal to six
percent of the Participant's Earnings (determined without
regard to section 401(a)(17) of the Code).
Until the last day of the month preceding payment
of the Participant's entire SIP Supplemental Benefit, the
amount credited to such bookkeeping account shall be
credited with interest equal to 70 percent of the higher of
the following averages, compounded annually: (i) the prime
rate charged by the major commercial banks as of the first
business day of each month (as reported in an official
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<PAGE>
publication of the Federal Reserve System) or (ii) the,
average monthly long-term rate of A rated corporate bonds
(as published in Moody's Bond Record).
The Participant shall become vested in the Partic-
ipant's SIP Supplemental Benefit upon the earliest of com-
pletion of five Years of Vesting Service, attainment of
age 65 while an Employee, death while an Employee or Total
and Permanent Disability.
SECTION 4. DISTRIBUTIONS OF PLAN BENEFITS
Distributions of Plan Benefits shall be made in
cash after the Participant ceases to be an Employee pursuant
to the following procedures.
(a) Retirement Plan Supplemental Benefit. A
Participant's vested Retirement Plan Supplemental Benefit
shall be payable to the Participant or to any other person
who receives benefits under the Retirement Plan with respect
to the Participant in the same form and at the same times as
the Participant's Retirement Plan benefit is paid. However,
if the Participant elects to have the Participant's
Retirement Plan benefit paid in an optional form and/or
before the Participant's Normal Retirement Date, the
Executive Compensation and Personnel Policies Committee of
the Board of Directors of the Company (the "Committee") may
determine in its sole discretion that the Retirement Plan
Supplemental Benefit shall be payable in the normal form
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<PAGE>
and/or at the Normal Retirement Date notwithstanding the
Participant's election. A Participant's Retirement Plan
Supplemental Benefit shall be subject to the same actuarial
adjustments for time and form of payment applicable to
Retirement Plan benefits.
(b) SIP Supplemental Benefit. A Participant may
elect to receive distribution of the Participant's vested
SIP Supplemental Benefit in 15 or fewer annual installments
beginning in January of the year following the year in which
the Participant ceases to be an Employee or in a single lump
sum payable in January of such year by filing the prescribed
form with the Committee at least 30 days before the date
distribution is to commence. If the Participant ceases to
be an Employee during December of any year, distribution
shall in no event commence earlier than the 30th day follow-
ing the date the Participant ceases to be an Employee.
Distribution will be made in accordance with the Partici-
pant's election unless the Committee disapproves the elec-
tion before the date distribution is to commence. The
amount of any annual installment shall be determined by
dividing the amount credited to the Participant's book-
keeping account as of the last day of the month preceding
the date of distribution of such installment by the total
number of installments elected by the Participant less the
number of installments already paid.
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<PAGE>
If the Participant fails to make an election
pursuant to this Section 4(b) or if the Committee disap-
proves the Participant's election, the vested SIP Supplemen-
tal Benefit shall be distributed in 15 annual installments
beginning in January of the year following the year in which
the Participant ceases to be an Employee, unless the Commit-
tee in its sole discretion determines that distribution
shall be made in a single lump sum payable in January of
such year.
The Committee in its sole discretion may accel-
erate the distribution of installments upon the request of
the Participant.
If a Participant dies before the Participant's SIP
Supplemental Benefit has been completely distributed, such
benefit shall be distributed in a lump sum as soon as prac-
ticable thereafter to the person who is or would be the
Participant's Beneficiary under the SIP.
(c) Small Benefits. Notwithstanding the fore-
going provisions of this Section 4, the Committee may adopt
procedures for the payment of small Plan Benefits similar to
the procedures for payment of small benefits under the
Retirement Plan and the SIP.
SECTION 5. MISCELLANEOUS.
(a) Forfeitures. Plan Benefits shall be
forfeited under the following circumstances:
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<PAGE>
(i) If the Participant is not vested in the
Retirement Plan Supplemental Benefit or SIP Sup-
plemental Benefit when the Participant ceases to
be an Employee; or
(ii) If the Participant is indebted to the
Company or any Subsidiary at the time the Partici-
pant or the Participant's joint annuitant or other
Beneficiary becomes entitled to payment of a Plan
Benefit. In such a case, to the extent that the
amount of the Plan Benefit does not exceed such
indebtedness, the amount of such Plan Benefit
shall be forfeited and the Participant's indebted-
ness shall be extinguished to the extent of such
forfeiture.
(b) Funding. The Plan shall be unfunded, and all
Plan Benefits shall be paid from the general assets of the
Company or from assets held in a grantor trust that is
subject to the claims of the Company's general or judgment
creditors.
(c) Tax Withholding. The Committee shall make
appropriate arrangements for satisfaction of any federal or
state income tax or other payroll-based withholding tax
required upon the accrual or payment of any Plan Benefits.
(d) No Employment Rights. Nothing in the Plan
shall be deemed to give any individual a right to remain in
the employ of the Company or any Subsidiary or to limit in
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<PAGE>
any way the right of the Company or a Subsidiary to termi-
nate any individual's employment with or without cause,
which right is hereby received.
(e) No Assignment of Rights.
(i) Except as otherwise provided in Sec-
tion 5(a)(ii) with respect to a Participant's
indebtedness to the Company or a Subsidiary or in
Section 5(e)(ii), the interest or rights of any
person in the Plan or in any distribution to be
made hereunder shall not be assigned (either at
law or in equity), alienated, anticipated or
subject to attachment, bankruptcy, garnishment,
levy, execution or other legal or equitable pro-
cess. Any act in violation of this Section
5(e)(i) shall be void.
(ii) All or any portion of a Participant's
Plan Benefit hereunder shall be subject to the
creation, assignment or recognition of a right
under a state domestic relations order that is
determined to be a "qualified domestic relations
order" (within the meaning of section 414(p) of
the Code) under the procedures established by the
Company for the determination of the qualified
status of domestic relations orders and for making
distributions under qualified domestic relations
orders.
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<PAGE>
(f) Administration. The Plan shall be
administered by the Committee. No member of the Committee
shall become a Participant in the Plan. The Committee shall
make such rules, interpretations and computations as it may
deem appropriate, and any decision of the Committee with
respect to the Plan, including (without limitation) any
determination of eligibility to participate in the Plan and
any calculation of Plan Benefits, shall be conclusive and
binding on all persons.
(g) Amendment and Termination. The Company
expects to continue the Plan indefinitely. Future condi-
tions, however, cannot be foreseen, and the Company shall
have the authority to amend or to terminate the Plan at any
time. In the event of an amendment or termination of the
Plan, a Participant's Plan Benefits shall not be less than
the Plan Benefits to which the Participant would be entitled
if the Participant's employment had terminated immediately
prior to such amendment or termination of the Plan.
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POTLATCH CORPORATION
1983 STOCK OPTION PLAN
(Effective September 24, 1983)
1. PURPOSE.
This 1983 Stock Option Plan of Potlatch Corporation
(the "Corporation") and its eligible subsidiaries is intended
to provide incentive to employees of the Corporation or of
its subsidiaries, to encourage employee proprietary interest
in the Corporation and to encourage employees to remain in
the employ of the Corporation or of its subsidiaries.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of
the Corporation.
(b) "Code" shall mean the Internal Revenue Code
of 1954, as amended.
(c) "Committee" shall mean the Committee appointed
by the Board in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean the $1 par value
Common Stock of the Corporation.
(e) "Corporation" shall mean Potlatch Corporation,
a Delaware corporation.
(f) "Disability" shall mean the condition of an
Employee who is unable to engage in any substantial gainful
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<PAGE>
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a con-
tinuous period of not less than twelve (12) months.
(g) "Employee" shall mean an individual (who may
be an officer or a director) employed by the Corporation or
a Subsidiary (within the meaning of Code section 3401 and
the regulations thereunder).
(h) "Exercise Price" shall mean the price per
Share of Common Stock, determined by the Committee, at which
an Option may be exercised.
(i) "Fair Market Value" of a Share as of a
specified date shall mean the closing price at which such
Shares are traded at the close of business on such date as
reported on the composite tape, or if no trading of the
Common Stock is reported for that day, on the next preceding
day on which trading was reported.
(j) "Incentive Stock Option" shall mean an
Option described in Code section 422A(b).
(k) "Nonqualified Stock Option" shall mean an
Option not described in Code sections 422(b), 422A(b),
423(b), or 424(b).
(l) "Option" shall mean a stock option granted
pursuant to the Plan.
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<PAGE>
(m) "Optionee" shall mean an Employee who has
received an Option.
(n) "Plan" shall mean this stock option plan.
(o) "Purchase Price" shall mean the Exercise
Price times the number of whole shares with respect to which
an Option is exercised.
(p) "Rules" shall mean the regulations and rules
adopted from time to time by the Committee.
(q) "Share" shall mean one Share of Common
Stock, adjusted in accordance with Section 10 of the Plan
(if applicable).
(r) "Subsidiary" shall mean any corporation in
an unbroken chain of corporations beginning with the Corpo-
ration if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corpora-
tions in such chain.
3. EFFECTIVE DATE.
This Plan was adopted by the Board effective
September 24, 1983.
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
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<PAGE>
than three disinterested members thereof. The Board may
from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board. The Board shall
appoint one of the members of the Committee as Chairman.
The term "Disinterested Members of the Board" shall include
only members of the Board who are not active Employees of
the Corporation or of any of its Subsidiaries, who are not
eligible to receive Options under this Plan or any other
stock option plan of the Corporation and who have not been
eligible to receive such Options for at least one year
preceding appointment as a member of the Committee.
The Committee shall hold meetings at such times
and places as it may determine. Acts of a majority of the
Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The
Committee, with the advice and consultation of the Chairman
of the Board of the Corporation, shall from time to time at
its discretion make determinations with respect to Employees
who shall be granted Options, the number of Shares to be
optioned to each and the designation of such Options as
Incentive Stock Options or Nonqualified Stock Options.
The interpretation and construction by the Commit-
tee of any provisions of the Plan or of any Option granted
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<PAGE>
thereunder shall be final. No member of the Committee shall
be liable for any action or determination made in good faith
with respect to the Plan or any Option granted thereunder.
5. ELIGIBILITY.
Optionees shall be such key Employees (who may be
officers, whether or not they are directors) of the Corpora-
tion or of its Subsidiaries as the Committee shall select,
but subject to the terms and conditions set forth below.
(a) Ten Percent Shareholders.
An Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of Out-
standing Stock of the Corporation, its parent or any of its
Subsidiaries is not eligible to receive an Incentive Stock
Option pursuant to this Plan.
For purposes of this Section 5(a), in determining
stock ownership, an Employee shall be considered as owning
the Shares owned, directly or indirectly, by or for his
brothers and sisters, spouse, ancestors, and lineal descen-
dants. Shares owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust shall be consid-
ered as being owned proportionately by or for its sharehold-
ers, partners, or beneficiaries. Stock with respect to
which such Employee holds an Option shall not be counted.
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For purposes of this Section 5(a), "Outstanding
Stock" shall include all Shares actually issued and out-
standing immediately after the grant of the Option to the
Optionee. Outstanding Stock shall not include treasury
Shares or Shares authorized for issue under outstanding
Options held by the Optionee or by any other person.
(b) Number of Options.
An Optionee may hold more than one Option, but
only on the terms and subject to the restrictions herein-
after set forth.
6. STOCK.
The stock subject to Options granted under the
Plan shall be Shares of the Corporation's authorized but
unissued or reacquired Common Stock. The aggregate number
of Shares which may be issued under Options exercised under
this Plan shall not exceed six hundred thousand (600,000).
The number of Shares subject to Options outstanding under
the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the
event that any outstanding Option under the Plan for any
reason expires or is terminated, the Shares allocable to the
unexercised portion of such Option may again be subjected to
an Option under the Plan.
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The limitations established by this Section 6
shall be subject to adjustment upon the occurrence of the
events specified and in the manner provided in Section 10
hereof.
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be
evidenced by written agreements in such form as the Committee
shall from time to time determine, which agreements shall
comply with and be subject to the following terms and
conditions:
(a) Optionee's Agreement.
Each Optionee shall agree to remain in the employ
of and to render to the Corporation or to a Subsidiary his
or her services for a period of one (1) year from the date
of the granting of the Option, but such agreement shall not
impose upon the Corporation or its Subsidiaries any obliga-
tion to retain the Optionee in their employ for any period.
(b) Number of Shares.
Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 10
hereof.
(c) Exercise Price.
Each Option shall state the Exercise Price, which
price shall not be less than: (i) In the case of an Incentive
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Stock Option, the Fair Market Value of a Share on the date
of grant; or (ii) In the case of a Nonqualified Stock
Option, eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant.
(d) Medium and Time of Payment.
The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option;
provided, however, that, with the consent of the Committee
and in accordance with its Rules, the Purchase Price may be
paid by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair
Market Value on the date of exercise equal to the Purchase
Price or in any combination of cash and Shares, so long as
the total of the cash so paid and the Fair Market Value of
the Shares surrendered equals the Purchase Price. No Share
shall be issued until full payment therefor has been made.
(e) Term and Exercise of Options;
Nontransferability of Options.
Each Option shall state the time or times when it
becomes exercisable and the time or times any stock appre-
ciation right granted pursuant to Section 7(k) may be
called, which shall be determined by the Committee. No
Option shall be exercisable after the expiration of ten (l0)
years from the date it is granted. During the lifetime of
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the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In
the event of the Optionee's death, no Option shall be
transferable by the Optionee otherwise than by will or the
laws of descent and distribution.
Subject to the foregoing and to the limitations on
exercisability specified in Section 7(j) hereof, if a period
of six (6) months from the date of grant of the Option shall
have elapsed the Optionee shall have the right to exercise
the Option in whole or in part:
(i) Within thirty (30) days following the
consummation of any transaction approved by the
stockholders of the Corporation in which the Corp-
oration will cease to be an independent publicly
owned corporation (including, without limitation,
a reverse merger transaction in which the Corpora-
tion becomes the subsidiary of another corporation)
or the sale or other disposition of all or suhstan-
tially all of the assets of the Corporation;
(ii) Within thirty (30) days following the
date on which fewer than two-thirds (determined by
rounding up to the next whole number) of the
individual members of the Board either (a) were
directors of the Corporation on a date three years
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earlier or (b) are individuals whose election or
nomination for election as directors was affirma-
tively voted on by at least a majority of those
directors described in (a) above who were still in
office as of the date the Board approved such
election or nomination;
(iii) Within thirty (30) days after any
"person" (as such term is used in Sections 13(d)
and 14(d) of the 1934 Act) acquires twenty percent
(20%) or more of the outstanding Shares pursuant
to a tender offer subject to Section 14(d) of the
1934 Act; and
(iv) Wthin thirty (30) days prior to any dis-
solution or liquidation of the Corporation or any
merger or consolidation in which the Corporation
is not the surviving corporation, but not earlier
than the date on which any required stockholder
approval is obtained.
If an option is not exercised during the thirty (30) day
periods described in (i) or (iv) above, the option shall
terminate at the close of business on the last day of the
thirty (30) day period. In the case of a stock appreciation
right called during either of the thirty (30) day periods
described in (i) or (iv) above, "Fair Market Value" shall
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<PAGE>
be the greater of (A) the value of the consideration per
share that the Optionee would have received in connection
with such transaction as a stockholder of the Corporation if
he or she had exercised the Option prior to the consummation
of the transaction described in (i) or (iv) above, or (B) the
value determined in good faith by the Committee (as composed
on the day preceding the date of consummation of the trans-
action described in (i) or (iv) above), taking into consider-
ation all relevant facts and circumstances.
(f) Termination of Employment Except Death.
Except as provided in (l) below, in the event that
an Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than his or her death,
such Optionee shall have the right, subject to the restric-
tions of Subsection (e) hereof, to exercise the Option at
any time within three (3) months after such termination of
employment (twelve (12) months in the case of termination by
reason of Disability), to the extent that, at the date of
termination of employment, the Optionee's right to exercise
such Option had accrued pursuant to the terms of the option
agreement with respect to which such Option was granted and
had not previously been exercised; provided, however, that
if the employment of an Optionee is terminated by the
Corporation or a Subsidiary by reason of misconduct, such
option shall cease to be exercisable on the date of the
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<PAGE>
Optionee's termination of employment. As used herein
"misconduct" means that the Optionee has engaged in unfair
competition with the Corporation or a Subsidiary, induced
any customer of the Corporation or a Subsidiary to breach
any contract with the Corporation or a Subsidiary, made any
unauthorized disclosure of any of the secrets or confidential
information of the Corporation or a Subsidiary, committed an
act of embezzlement, fraud or theft with respect to the
property of the Corporation or a Subsidiary, or deliberately
disregarded the rules of the Corporation or a Subsidiary in
such a manner as to cause material loss, damage or injury to
or otherwise endanger the property, reputation or employees
of the Corporation or a Subsidiary. The Committee shall
determine whether an Optionee's employment is terminated by
reason of misconduct. In making such determination the
Committee shall act fairly and shall give the Optionee an
opportunity to be heard and present evidence on his or her
behalf.
For this purpose, the employment relationship will
be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations constru-
ing Code section 422A(a)(2)). Notwithstanding the foregoing,
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<PAGE>
in the case of an Incentive Stock Option, employment shall
not be deemed to continue beyond the ninetieth (90th) day
after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or
by contract.
(g) Death of Optionee.
If the Optionee shall die while in the employ of
the Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection (e)
hereof) to the extent that, at the date of the Optionee's
death, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the option agreement and
had not previously been exercised, at any time within twelve
(12) months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
(h) Rights as a Stockholder.
An Optionee or a transferee of an Optionee shall
have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance
of a stock certificate for such Shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in
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<PAGE>
cash, securities or other property) or distributions or
other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in
Section 10.
(i) Modification, Extension and Renewal
of Options.
Subject to the terms and conditions and within the
limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted under the Plan, or accept
the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options in
substitution therefor. Notwithstanding the foregoing,
however, no modification of an Option shall, without the
consent of the Optionee, alter or impair any rights or
obligations under any Option theretofore granted under the
Plan.
(j) Sequential Exercise.
An Option (the "New Option") which is designated
by the Committee as an Incentive Stock Option shall not be
exercisable with respect to all or any part of the Shares
subject thereto while there is outstanding any other Incentive
Stock Option, granted to the Optionee prior to the grant of
the New Option, to purchase stock in the Corporation, in a
parent or Subsidiary of the Corporation or in a predecessor
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<PAGE>
thereof. For purposes of the preceding sentence, an Incentive
Stock Option shall be treated as "outstanding" until such
Option is exercised in full or expires by reason of the
lapse of time.
(k) Stock Appreciation Rights.
In connection with the grant of any Option pur-
suant to the Plan, the Committee, in accordance with its
Rules, may also grant a stock appreciation right pursuant to
which the Optionee shall have the right to surrender all or
part of such Option and to exercise the stock appreciation
right (the "call") and thereby to obtain payment of an
amount equal to the difference obtained by subtracting the
aggregate Exercise Price of the Shares subject to the Option
(or the portion thereof) so surrendered from the Fair Market
Value of such Shares on the date of such surrender. The
call of such stock appreciation right shall be subject to
such limitations (including, but not limited to, limitations
as to time and amount) as the Committee shall deem appropri-
ate. The payment may be made in shares of Common Stock
(determined with reference to its Fair Market Value on the
date of call), or in cash, or partly in cash, at the dis-
cretion of the Committee, provided that the Committee
determines that such settlement is consistent with the
purpose set forth in Section 1 hereof. For all purposes
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<PAGE>
under the Plan (including Section 6, unless the context
requires otherwise), the terms "exercise" or "exercisable"
shall be deemed to include the terms "call" or "callable" as
such terms may apply to a stock appreciation right granted
in conjunction with an Option and in the event of the call
of a stock appreciation right the underlying Option will be
deemed to have been exercised for all purposes under the
Plan.
Each Option granted under the Plan which does not
include a stock appreciation right pursuant to the foregoing
paragraph shall nevertheless automatically include a stock
appreciation right which may be called only during the
periods described in Section 7(e)(i) through (iv) and subject
to the requirements and provisions of Section 7(e).
(1) Effect of Termination of Employment on Stock
Appreciation Right.
In the event that an Optionee shall cease to be
employed by the Corporation or its Subsidiaries for any
reason, any stock appreciation right which may have been
granted in conjunction with the grant of an Option shall
expire on the date provided in the Option agreement or in
rules and regulations adopted by the Committee.
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<PAGE>
(m) Other Provisions.
The option agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation, re-
strictions upon the exercise of the Option, as the Committee
shall deem advisable.
8. LIMITATION ON ANNUAL AWARDS.
(a) General Rule.
The aggregate Fair Market Value (determined as of
the date an Option is granted) of the stock for which any
Optionee may be granted Incentive Stock Options in any
calendar year commencing after December 31, 1980 under this
Plan and all other plans maintained by the Corporation, its
parent or its Subsidiaries shall not exceed the sum of
(i) $100,000 plus (ii) any unused limit carryover(s) to such
year.
(b) Carryovers.
For purposes of Subsection (a) an "unused limit
carryover" shall arise only in a calendar year commencing
after December 31, 1980, and shall be equal to one half of
the excess of (i) $100,000 over (ii) the aggregate Fair
Market Value (determined as of the date an Option is granted)
of the Shares for which the Optionee is granted Incentive
Stock Options in such year under the Plan or under any other
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<PAGE>
plan maintained by the Corporation, its parent or any
Subsidiary. The unused limit carryover arising in any
calendar year may be carried over to any of the three con-
secutive calendar years next following such year, but only
to the extent not used in an earlier calendar year. The
value of the Shares for which Options are granted in any
calendar year shall be applied first against the basic
$100,000 limit for such year and then against any unused
limit carryovers which may be carried over to such year in
the order of the calendar years in which such carryovers
arose.
9. TERM OF PLAN.
Options may be granted pursuant to the Plan until
the termination of the Plan on September 23, 1993.
10. RECAPITALIZATION.
Subject to any required action by the stockholders,
the number of Shares covered by this Plan as provided in
Section 6, the number of Shares covered by each outstanding
Option, and the Exercise Price thereof shall be proportion-
ately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation
of Shares or the payment of a stock dividend (but only of
Common Stock) or any other increase or decrease in the
number of such Shares effected without receipt of consider-
ation by the Corporation.
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<PAGE>
Subject to any required action by the stockholders,
if the Corporation shall be the surviving corporation in any
merger, consolidation or other reorganization each outstand-
ing Option shall pertain and apply to the securities to
which a holder of the number of Shares subject to the Option
would have been entitled. A dissolution or liquidation of
the Corporation or a merger, consolidation or other reorgani-
zation in which the Corporation is not the surviving corpo-
ration shall cause each outstanding Option to terminate,
unless the agreement of merger, consolidation or reorganiza-
tion shall otherwise provide. In the event that the corpora-
tion undergoes a reverse merger transaction, the optionee
shall be entitled to receive the same consideration in such
transaction (including, without limitation, cash) as other
shareholders are entitled to receive.
In the event of a change in the Common Stock as
presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number
of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such
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<PAGE>
adjustments shall be made by the Committee, whose determi-
nation in that respect shall be final, binding and conclu-
sive, provided that each Incentive Stock Option granted
pursuant to this Plan shall not be adjusted in a manner that
causes the Option to fail to continue to qualify as an
incentive stock option within the meaning of section 422A of
the Internal Revenue Code.
Except as hereinbefore expressly provided in this
Section 10, the Optionee shall have no rights by reason of
any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger,
or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of
stock of any class or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all
or any part of its business or assets.
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11. SECURITIES LAW REQUIREMENTS.
No Shares shall be issued upon the exercise of any
Option unless and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the Shares under the Securities Act of 1933 or
perfect an exemption from the registration requirements
thereof; (ii) any applicable listing requirement of any
stock exchange on which the Common Stock is listed has been
satisfied; and (iii) any other applicable provision of state
or Federal law has been satisfied.
12. AMENDMENT OF THE PLAN.
The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not
subject to Options, suspend or discontinue the Plan or
revise or amend it in any respect whatsoever except that,
without approval of the holders of Common Stock of the Cor-
poration, no such revision or amendment shall:
(a) Increase the number of Shares subject to
the Plan;
(b) Change the designation in Section 5 of
the Plan of the class of Employees eligible to
receive options;
(c) Decrease the price at which Incentive
Stock Options may be granted;
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<PAGE>
(d) Remove the administration of the Plan
from the Committee;
(e) Render any member of the Committee eligible
to receive an Option under the Plan while serving
thereon; or
(f) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option
will be used for general corporate purposes.
14. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obliga-
tion upon the Optionee to exercise such Option.
15. APPROVAL OF STOCKHOLDERS.
This Plan and any amendments described in Section 12
hereof shall be subject to approval by affirmative vote of
the holders of a majority of the outstanding Shares present
and entitled to vote at the first annual meeting of stockholders
of the Corporation following the adoption of the Plan or of
any such amendments.
16. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification
as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the
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Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connec-
tion with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any
Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Cor-
poration) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of the member's
duties; provided that within sixty (60) days after institu-
tion of any such action, suit or proceeding a Committee
member shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
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R E S O L U T I O N S
AMEND STOCK OPTION PLANS
December 14, 1984
WHEREAS, certain provisions of this corporation's
1976 and 1983 Stock Option Plans may have the effect of
causing compensation recognized in connection with the
exercise of an option or stock appreciation right
thereunder to be characterized as an "excess parachute
payment" for purposes of section 280G of the Internal
Revenue Code, as amended by the Tax Reform Act of 1984;
and
WHEREAS, it is deemed desirable to amend the 1976
and 1983 Stock Option Plans to avoid adverse tax
results for this corporation and recipients of options
granted under such Plan;
N o w, T h e r e f o r e, be it
RESOLVED, that the Potlatch Corporation 1976 Stock
Option Plan is hereby amended, with respect to options
granted after June 14, 1984 by deleting: (i) that
portion of Section 7(e) which follows the first para-
graph thereof; and (ii) the final paragraph of Section
7(k); and be it further
RESOLVED, that the Potlatch Corporation 1983 Stock
Option Plan is hereby amended, with respect to options
granted after June 14, 1984, by deleting: (i) that
portion of Section 7(e) which follows the first para-
graph thereof; and (ii) the final paragraph of Section
7(k); and be it further
RESOLVED, that the Secretary of this corporation
is hereby authorized to amend the form of agreement
under the 1976 and 1983 Stock Option Plans and the
appropriate officers of this corporation are authorized
and directed to take all such actions as they deem
necessary or desirable to give effect to the foregoing
resolutions.
<PAGE>
RESOLUTIONS
AMEND 1983 STOCK OPTION PLAN
February 24, 1989
RESOLVED, that effective herewith, Section 7(e) of
the Potlatch Corporation 1983 Stock Option Plan (the "Plan")
is amended by adding the following at the end thereof:
Subject to the foregoing and to the
limitations of exercisability specified in Section 7(j)
hereof, if a period of six (6) months from the date of
grant of the Option shall have elapsed the Optionee
shall have the right to exercise the Option (or in lieu
thereof to call the related stock appreciation right)
in whole or in part:
(i) Within thirty (30) days following
the consummation of any transaction approved by
the stockholders of the Corporation in which the
Corporation will cease to be an independent
publicly owned corporation (including, without
limitation, a reverse merger transaction in which
the Corporation becomes the subsidiary of another
corporation) or the sale or other disposition of
all or substantially all of the assets of the
Corporation;
(ii) Within three hundred sixty-five
(365) days following the date on which more than
one-third (determined by rounding down to the next
whole number) of the individual members of the
Board neither (A) were directors of the
Corporation on a date three years earlier nor (B)
are individuals whose election or nomination for
election as directors was affirmatively voted on
by at least a majority of those directors
described in (A) above who were still in office as
of the date the Board approved such election or
nomination;
(iii) Within three hundred sixty-five
(365) days following the date on which any
"person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")) that has acquired
Shares pursuant to a tender offer subject to
Section 14(d) of the 1934 Act becomes entitled to
vote twenty percent (20%) or more of the aggregate
voting power of the capital stock of the
Corporation issued and outstanding; and
(iv) Within thirty (30) days prior to
any dissolution or liquidation of the Corporation
or any merger or consolidation in which the
Corporation is not the surviving corporation, but
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<PAGE>
not earlier than the date on which any required
stockholder approval is obtained.
If an option is not exercised during any thirty (30)
day period described in (i) or (iv) above, the option
shall terminate at the close of business on the last
day of the thirty (30) day period; provided, however,
that if periods described in (i) and (iv) above are
contiguous or overlap, unexercised options shall
terminate at the close of business on the last day of
the second thirty (30) day period. In the case of a
stock appreciation right called during either of the
thirty (30) day periods described in (i) or (iv) above,
"Fair Market Value" shall be the greater of (A) the
value of the consideration per share that the Optionee
would have received in connection with such transaction
as a stockholder of the Corporation if he or she had
exercised the Option prior to the consummation of the
transaction described in (i) or (iv) above, or (B) the
value determined in good faith by the Committee (as
composed on the day preceding the date of consummation
of the transaction described in (i) or (iv) above),
taking into consideration all relevant facts and
circumstances.
and be it further
RESOLVED, that effective herewith, Section 7(k) of
the Plan is amended by adding the following at the end
thereof:
Each Option granted under the Plan which does
not include a stock appreciation right pursuant to the
foregoing paragraph shall nevertheless automatically
include a stock appreciation right which may be called
only during the periods described in Section 7(e)(i)
through (iv) and subject to the requirements and
provisions of Section 7(e).
and be it further
RESOLVED, that effective herewith, the second
sentence of the second paragraph of Section 10 is amended to
read in its entirety as follows:
Subject to the provisions of Section 7(e), a
dissolution or liquidation of the Corporation or a
merger, consolidation or other reorganization in which
the Corporation is not the surviving corporation shall
cause each outstanding Option to terminate, unless the
agreement of merger, consolidation or reorganization
shall otherwise provide.
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<PAGE>
and be it further
RESOLVED, that effective herewith, Section 16 of
the Plan is redesignated as Section 17 and a new Section 16
is added to the Plan to read in its entirety as follows:
16. LIMITATION ON PLAN PAYMENTS
Any provision of the Plan to the contrary
notwithstanding, payments or transfers to an Optionee
under the Plan shall be limited to the amount (the
"Capped Amount") necessary to avoid characterization of
any amount payable to the Optionee (including, but not
limited to, amounts payable under the Plan) as an
"excess parachute payment" as defined in Code section
280G, except in the event that the total amount that
the Optionee would receive from all "parachute
payments" as defined in Code section 280G, net of all
applicable taxes, including the excise tax that would
be imposed pursuant to Code section 4999, would exceed
the Capped Amount, net of all applicable taxes.
The determination of whether any amount would
constitute an "excess parachute payment" shall be made
by the firm of independent certified public accountants
serving as the outside auditor of the Corporation as of
the date of the event specified in Section 7(e)
(i)-(iv). In making such determination, such firm may
disregard any payments or benefits available to the
Optionee under any contract, plan or program if the
Optionee irrevocably elects to relinquish or not
exercise such payments or benefits before the payment
or enjoyment thereof. It is intended that payments
shall be made under the Plan whether or not the status
of a particular payment as an "excess parachute
payment" has been finally determined by the Internal
Revenue Service or a court of competent jurisdiction.
and be it further
RESOLVED, that the Secretary of this Corporation
is authorized and directed to conform and restate the Plan
in accordance with the foregoing amendments; and be it
further
RESOLVED, that the Secretary of this Corporation
is authorized and directed to provide for amendment of the
outstanding options granted pursuant to the Plan, to amend
the applicable form of option agreement, and to take all
other action deemed necessary or appropriate to give effect
to the foregoing amendments.
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<PAGE>
RESOLUTIONS
AMEND THE 1976 AND 1983 STOCK OPTION PLANS
AND
THE 1989 STOCK INCENTIVE PLAN
February 22, 1990
RESOLVED that, effective as of the date of this
action of the Board, the first sentence of Section 7(f) of the
1976 Stock Option Plan is amended to read as follows
"Except as provided in (1) below, in the event that an
Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than the Optionee's
death, such Optionee shall have the right, subject to the
restrictions of Subsection (e) hereof, to exercise the
Option at any time within three (3) months after such
termination of employment (thirty-six (36) months in the
case of Early, Normal or Late Retirement under the Salaried
Employees' Retirement Plan or Disability), to the extent
that, at the date of termination of employment, the
optionee's right to exercise such Option had accrued
pursuant to the terms of the option agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such option shall cease to be
exercisable at the time of the Optionee's termination of
employment "
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1976 Stock Option Plan is
amended to read as follows:
"If the Optionee shall die while in the employ of the
Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection
(e) hereof) to the extent that, at the date of the
Optionee's death, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the option
agreement and had not previously been exercised, at any time
within thirty-six (36) months after the Optionee's death, by
the executors or administrators of the Optionee's estate or
by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance."
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<PAGE>
and be it further
RESOLVED that, effective as of the date of this action
of the Board, the first sentence Section 7(f) of the 1983 Stock
Option Plan is amended to read as follows:
"Except as provided in (1) below, in the event that an
Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than his or her death,
such Optionee shall have the right, subject to the
restrictions of Subsection (e) hereof, to exercise the
Option at any time within three (3) months after such
termination of employment (thirty-six (36) months in the
case of Early, Normal or Late Retirement under the Salaried
Employees' Retirement Plan or Disability), to the extent
that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the option agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such option shall cease to be
exercisable at the time of the Optionee's termination of
employment."
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1983 Stock Option Plan is
amended to read as follows:
"If the Optionee shall die while in the employ of the
Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection
(e) hereof) to the extent that, at the date of the
Optionee's death, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the option
agreement and had not previously been exercised, at any time
within thirty-six (36) months after the Optionee's death, by
the executors or administrators of the Optionee's estate or
by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance."
and be it further
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<PAGE>
RESOLVED that, effective as of the date of this action
of the Board, the first sentence of Section 7(f) of the 1989
Stock Incentive Plan is amended to read as follows:
"Except as provided in Subsection (k) below, in the event
that an Optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than
his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (e) hereof, to
exercise the Option at any time within three (3) months
after such termination of employment (thirty-six (36) months
in the case of Early, Normal or Late Retirement under the
Salaried Employees' Retirement Plan or Disability), to the
extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such Option shall cease to be
exercisable at the time of the Optionee's termination of
employment."
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1989 Stock Incentive Plan is
amended to read as follows:
"Except as provided in Subsection (k) below, if the Optionee
shall die while in the employ of the Corporation or a
Subsidiary and shall not have fully exercised the Option, an
Option may be exercised (subject to the limitations on
exercisability set forth in Subsection (e) hereof) to the
extent that, at the date of the Optionee's death, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement and had not
previously been exercised, at any time within thirty-six
(36) months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance."
and be it further
RESOLVED that the appropriate officers of this
Corporation be and each of them hereby is authorized and
directed, for and in the name and on behalf of this Corporation,
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<PAGE>
to prepare and execute personally or by attorney-in-fact
amendments to the registration statements on Form S-8 relating to
the foregoing plans or to prepare supplements to the prospectuses
thereunder to reflect the foregoing plan amendments, and to cause
such amendments or supplements to be filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended;
and be it further
RESOLVED that the appropriate officers of this
Corporation be and each of them hereby is authorized and
directed, for and in the name and on behalf of this Corporation,
to execute and deliver any and all certificates, agreements and
other documents, take any and all steps and do any and all things
which they may deem necessary or advisable to effectuate the
purposes of each and all of the foregoing resolutions, all such
action having heretofore been taken being hereby ratified,
confirmed and approved.
-4-
COMPENSATION OF DIRECTORS
May 20, 1993
WHEREAS, Article IV, Section 10 of the corporation's By-
Laws states: "The board of directors shall have the authority to
fix the compensation of directors.";
NOW, THEREFORE, BE IT RESOLVED, that effective May 1,
1993, the compensation of the outside directors of this corporation
shall be:
1. An annual retainer fee in the sum of $24,000,
irrespective of attendance at meetings of the
board of directors; and
In addition, an annual retainer fee in the sum
of $2,000 for the chairmen of the Audit and
Executive Compensation and Personnel Policies
committees, irrespective of attendance at
committee meetings;
2. An additional fee in the sum of $1,200 for
each meeting of the board of directors
attended or held via means of a conference
telephone call;
3. An additional fee in the sum of $1,200 for
each meeting of a committee of the board of
directors attended or held via means of a
conference telephone call; and
4. Reimbursement for all expenses incidental to
attendance at a meeting of the board of
directors or a meeting of a committee of the
board of directors, and for any other expense
incurred on behalf of the corporation.
Amendment No. 6
To
Schedule A to Exhibit (10)(x)
February 1, 1994
Form of Indemnification Agreement with each Director is dated as
of December 11, 1986, except for the Agreements with:
(i) Messrs. Charles R. Weaver and Richard B.
Madden, which are dated as of February 20,
1987, and May 6, 1988, respectively;
(ii) Messrs. Allen F. Jacobson and Richard M.
Morrow and Dr. William T. Weyerhaeuser, which
are dated as of February 22, 1990;
(iii) Mr. John M. Richards, which is dated as of
January 1, 1991;
(iv) Mrs. Vivian W. Piasecki and Mr. Richard M.
Rosenberg, which are dated as of December 10,
1992; and
(v) Mr. Kenneth T. Derr, which is dated as of
January 1, 1994.
Amendment No. 5
To
Schedule A to Exhibit (10)(y)
February 1, 1994
Form of Indemnification Agreement dated as of:
(i) December 11, 1986, with the following officers:
Richard B. Madden, Chairman and Chief
Executive Officer
John M. Richards, President and Chief
Operating Officer
L. Pendleton Siegel, Executive Vice President
Sandra T. Powell, Vice President and Secretary
(ii) October 1, 1989, with George E. Pfautsch,
Senior Vice President and Treasurer
(iii) April 1, 1990, with Ralph M. Davisson, Vice
President
(iv) March 14, 1991, with Charles R. Pottenger,
Group Vice President
(v) March 1, 1992, with Thomas J. Smrekar, Group
Vice President
(vi) January 1, 1993, with Richard L. Paulson, Vice
President
(vii) August 1, 1993, with Robert V. Hershey, Vice
President
POTLATCH CORPORATION
1989 STOCK INCENTIVE PLAN
(Effective January 1, 1989)
1. PURPOSE.
This 1989 Stock Incentive Plan of Potlatch Cor-
poration (the "Corporation") and its eligible subsidiaries
is intended to provide incentive to employees of the Cor-
poration or of its subsidiaries, to encourage employee
proprietary interest in the Corporation and to encourage
employees to remain in the employ of the Corporation or of
its subsidiaries.
2. DEFINITIONS.
(a) "Award" shall mean any award of an Option
(with or without a related stock appreciation right),
Restricted Stock or an Other Share-Based Award under the
Plan.
(b) "Board" shall mean the Board of Directors of
the Corporation.
(c) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(d) "Committee" shall mean the Committee appoint-
ed by the Board in accordance with Section 4 of the Plan.
(e) "Common Stock" shall mean the $1 par value
common stock of the Corporation.
<PAGE>
(f) "Corporation" shall mean Potlatch Corpora-
tion, a Delaware corporation.
(g) "Disability" shall mean the condition of an
Employee who is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a con-
tinuous period of not less than twelve (12) months.
(h) "Employee" shall mean an individual (who may
be an officer or a director) employed by the Corporation or
a Subsidiary (within the meaning of Code section 3401 and
the regulations thereunder).
(i) "Exercise Price" shall mean the price per
Share of Common Stock, determined by the Committee, at which
an Option may be exercised.
(j) "Fair Market Value" of a Share as of a
specified date shall mean the closing price at which such
Shares are traded at the close of business on such date as
reported in the New York Stock Exchange composite transac-
tions published in the Western Edition of the Wall Street
Journal, or if no trading of the Common Stock is reported
for that day, on the next preceding day on which trading was
reported.
(k) "Incentive Stock Option" shall mean an Option
described in Code section 422A(b).
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<PAGE>
(l) "Nonqualified Stock Option" shall mean an
Option not described in Code sections 422(b), 422A(b),
423(b) or 424(b).
(m) "Option" shall mean a stock option granted
pursuant to Section 7 of the Plan. "Option Agreement" shall
mean the agreement between the Corporation and the Optionee
which contains the terms and conditions pertaining to such
Option.
(n) "Optionee" shall mean an Employee who has
received an Option.
(o) "Other Share-Based Award" shall mean an Award
granted pursuant to Section 9 of the Plan. "Other Share-
Based Award Agreement" shall mean the agreement between the
Corporation and the recipient of an Other Share-Based Award
which contains the terms and conditions pertaining to such
Other Share-Based Award.
(p) "Participant" shall mean an Employee who has
received an Award.
(q) "Plan" shall mean this Potlatch Corporation
1989 Stock Incentive Plan.
(r) "Purchase Price" shall mean the Exercise
Price times the number of whole Shares with respect to which
an Option is exercised.
(s) "Restricted Stock" shall mean Shares granted
pursuant to Section 8 of the Plan. "Restricted Stock
Agreement" shall mean the agreement between the Corporation
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<PAGE>
and the recipient of Restricted Stock which contains the
terms, conditions and restrictions pertaining to such
Restricted Stock.
(t) "Rules" shall mean the regulations and rules
adopted from time to time by the Committee.
(u) "Share" shall mean one Share of Common Stock,
adjusted in accordance with Section 11 of the Plan (if
applicable).
(v) "Stock Right" shall mean a bookkeeping entry
representing a right to the equivalent of one Share.
(w) "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Corpo-
ration if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corpora-
tions in such chain.
3. EFFECTIVE DATE.
This Plan was adopted by the Board on December 8,
1988, and amended and restated on February 24, 1989, to be
effective on January 1, 1989, subject to stockholder approval
as provided in Section 16.
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<PAGE>
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
than three disinterested members thereof. The Board may
from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board. The Board shall
appoint one of the members of the Committee as Chairman.
The term "Disinterested Members of the Board" shall include
only members of the Board who are not active Employees of
the Corporation or of any of its Subsidiaries, who are not
eligible to receive Awards under this Plan or any other
stock incentive plan of the Corporation and who have not
been eligible to receive such Awards for at least one year
preceding appointment as a member of the Committee.
The Committee shall hold meetings at such times
and places as it may determine. Acts of a majority of the
Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The
Committee shall from time to time at its discretion make
determinations with respect to Employees who shall be
granted Awards, the number of Shares or Share equivalents to
be subject to each Award, the vesting of Awards, the desig-
nation of Options as Incentive Stock Options or Nonqualified
Stock Options and other conditions of Awards.
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<PAGE>
The interpretation and construction by the Commit-
tee of any provisions of the Plan or of any Award granted
thereunder shall be final. No member of the Committee shall
be liable for any action or determination made in good faith
with respect to the Plan or any Award granted thereunder.
5. ELIGIBILITY.
Participants shall be such key Employees (who may
be officers, whether or not they are directors) of the
Corporation or of its Subsidiaries as the Committee shall
select, but subject to the terms and conditions set forth
below.
(a) Ten Percent Shareholders.
An Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of out-
standing stock of the Corporation, its parent or any of its
Subsidiaries is not eligible to receive an Incentive Stock
Option pursuant to this Plan. For purposes of this Sec-
tion 5(a) the stock ownership of an Employee shall be
determined pursuant to section 425(d) of the Code.
(b) Number of Awards.
A Participant may receive more than one Award,
including Awards of the same type, but only on the terms and
subject to the restrictions hereinafter set forth.
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<PAGE>
6. STOCK.
The stock subject to Options, Restricted Stock, or
Other Share-Based Awards granted under the Plan shall be
Shares of the Corporation's authorized but unissued or
reacquired Common Stock. The aggregate number of Options,
Restricted Stock or Other Share-Based Awards issued under
this Plan shall not exceed one million, five hundred thousand
(1,500,000) Shares. The number of Shares subject to Awards
outstanding under the Plan at any time may not exceed the
number of Shares remaining available for issuance under the
Plan. In the event that any outstanding Option under the
Plan for any reason expires or is terminated or any
Restricted Stock or Other Share-Based Award is forfeited,
the Shares allocable to the unexercised portion of such
Option or the forfeited Restricted Stock or Other Share-Based
Award may again be subjected to Options, Restricted Stock or
Other Share-Based Awards under the Plan. However, if one
Award is granted in tandem with another, so that the exercise
of one causes the other to expire, then the number of shares
subject to the expired Award shall not be restored to the
pool available for Awards.
The limitations established by this Section 6
shall be subject to adjustment upon the occurrence of the
events specified and in the manner provided in Section 11
hereof.
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<PAGE>
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be
evidenced by written Option Agreements in such form as the
Committee shall from time to time determine, which agree-
ments shall comply with and be subject to the following
terms and conditions:
(a) Optionee's Agreement.
Each Optionee shall agree to remain in the employ
of and to render to the Corporation or to a Subsidiary his
or her services for a period of one (1) year from the date
of the granting of the Option, subject to the terms of
Section 12(b).
(b) Number of Shares.
Each Option shall state the number of Shares to
which it pertains and shall provide for the adiustment
thereof in accordance with the provisions of Section 11
hereof.
(c) Exercise Price.
Each Option shall state the Exercise Price, which
in the case of an Incentive Stock Option shall not be less
than the Fair Market Value of a Share on the date of grant.
(d) Medium and Time of Payment.
The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option;
provided, however, that, with the consent of the Committee
and in accordance with its rules, the Purchase Price may be
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<PAGE>
paid by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair
Market Value on the date of exercise equal to the Purchase
Price, or in any combination of cash and Shares, so long as
the total of the cash so paid and the Fair Market Value of
the Shares surrendered equals the Purchase Price. No Share
shall be issued until full payment therefor has been made.
(e) Term and Exercise of Options; Nontrans-
ferability of Options.
Each Option shall state the time or times when it
becomes exercisable and the time or times any stock appreci-
ation right granted pursuant to Section 7(j) may be called,
which shall be determined by the Committee. No Option shall
be exercisable after the expiration of ten (10) years from
the date it is granted. During the lifetime of the Optionee,
the Option shall be exercisable only by the Optionee and
shall not be assignable or transferable. In the event of
the Optionee's death, no Option shall be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution.
Subject to the foregoing, if a period of six (6)
months from the date of grant of the Option shall have
elapsed the Optionee shall have the right to exercise the
Option (or in lieu thereof to call the related stock appre-
ciation right) in whole or in part:
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<PAGE>
i) Within thirty (30) days following the
consummation of any transaction approved by the
stockholders of the Corporation in which the
Corporation will cease to be an independent
publicly owned corporation (including, without
limitation, a reverse merger transaction in which
the Corporation becomes the subsidiary of another
corporation) or the sale or other disposition of
all or substantially all of the assets of the
Corporation;
(ii) Within three hundred sixty-five (365)
days following the date on which more than one-third
(determined by rounding down to the next whole
number) of the individual members of the Board
neither (A) were directors of the Corporation on a
date three years earlier nor (B) are individuals
whose election or nomination for election as
directors was affirmatively voted on by at least a
majority of those directors described in (A) above
who were still in office as of the date the Board
approved such election or nomination;
(iii) Within three hundred sixty-five (365)
days following the date on which any "person" (as
such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended
(the "1934 Act")) that has acquired Shares pursuant
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<PAGE>
to a tender offer subject to Section 14(d) of the
1934 Act becomes entitled to vote twenty percent
(20%) or more of the aggregate voting power of the
capital stock of the Corporation issued and
outstanding; and
(iv) Within thirty (30) days prior to any
dissolution or liquidation of the Corporation or
any merger or consolidation in which the Corpora-
tion is not the surviving corporation, but not
earlier than the date on which any required
stockholder approval is obtained.
If an option is not exercised during any thirty (30) day
period described in (i) or (iv) above, the option shall
terminate at the close of business on the last day of the
thirty (30) day period; provided, however, that if periods
described in (i) and (iv) above are contiguous or overlap,
unexercised options shall terminate at the close of business
on the last day of the second thirty (30) day period. In
the case of a stock appreciation right called during either
of the thirty (30) day periods described in (i) or (iv)
above, "Fair Market Value" shall be the greater of (A) the
value of the consideration per share that the Optionee would
have received in connection with such transaction as a
stockholder of the Corporation if he or she had exercised
the Option prior to the consummation of the transaction
described in (i) or (iv) above, or (B) the value determined
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<PAGE>
in good faith by the Committee (as composed on the day
preceding the date of consummation of the transaction
described in (i) or (iv) above), taking into consideration
all relevant facts and circumstances.
(f) Termination of Employment Except Death.
Except as provided in Subsection (k) below, in the
event that an Optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than
his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (e) hereof, to
exercise the Option at any time within three (3) months
after such termination of employment (twelve (12) months in
the case of termination by reason of Disability), to the
extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such Option shall cease to be exercis-
able on the date of the Optionee's termination of
employment. As used herein "misconduct" means that the
Optionee has engaged in unfair competition with the
Corporation or a Subsidiary, induced any customer of the
Corporation or a Subsidiary to breach any contract with the
Corporation or a Subsidiary, made any unauthorized
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<PAGE>
disclosure of any of the secrets or confidential information
of the Corporation or a Subsidiary, committed an act of
embezzlement, fraud or theft with respect to the property of
the Corporation or a Subsidiary, or engaged in conduct which
is not in good faith and which directly results in material
loss, damage or injury to the business, reputation or
employees of the Corporation or a Subsidiary. The Committee
shall determine whether an Optionee's employment is termi-
nated by reason of misconduct. In making such determination
the Committee shall act fairly and shall give the Optionee
an opportunity to be heard and present evidence on his or
her behalf.
For this purpose, the employment relationship will
be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations constru-
ing Code section 422A(a)(2)). Notwithstanding the forego-
ing, in the case of an Incentive Stock Option, employment
shall not be deemed to continue beyond the ninetieth (90th)
day after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or
by contract.
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<PAGE>
(g) Death of Optionee.
Except as provided in Subsection (k) below, if the
Optionee shall die while in the employ of the Corporation or
a Subsidiary and shall not have fully exercised the Option,
an Option may be exercised (subject to the limitations on
exercisability set forth in Subsection (e) hereof) to the
extent that, at the date of the Optionee's death, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement and had not
previously been exercised, at any time within twelve (12)
months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
(h) Rights as a Stockholder.
An Optionee or a transferee of an Optionee shall
have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance
of a stock certificate for such Shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or
other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in
Section 11.
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<PAGE>
(i) Modification, Extension and Renewal of
Options.
Subject to the terms and conditions and within the
limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted under the Plan, or accept
the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options (at
the same or a different price) in substitution therefor.
Notwithstanding the foregoing, however, no modification of
an Option shall, without the consent of the Optionee, alter
or impair any rights or obligations under any Option
theretofore granted under the Plan.
(j) Stock Appreciation Rights.
In connection with the grant of any Option pursu-
ant to the Plan, the Committee, in accordance with its
Rules, may also grant a stock appreciation right pursuant to
which the Optionee shall have the right to surrender all or
part of such Option and to exercise the stock appreciation
right (the "call") and thereby to obtain payment of an
amount equal to the difference obtained by subtracting the
aggregate Exercise Price of the Shares subject to the Option
(or the portion thereof) so surrendered from the Fair Market
Value of such Shares on the date of such surrender. The
call of such stock appreciation right shall be subject to
such limitations (including, but not limited to, limitations
as to time and amount) as the Committee shall deem
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<PAGE>
appropriate. The payment may be made in shares of Common
Stock (determined with reference to its Fair Market Value on
the date of call), or in cash, or partly in cash and in
shares of Common Stock, at the discretion of the Committee,
provided that the Committee determines that such settlement
is consistent with the purpose set forth in Section 1
hereof. For all purposes under the Plan, the terms
"exercise" or "exercisable" shall be deemed to include the
terms "call" or "callable" as such terms may apply to a
stock appreciation right granted in conjunction with an
Option, and in the event of the call of a stock appreciation
right, the underlying Option will be deemed to have been
exercised for all purposes under the Plan.
Each Option granted under the Plan which does not
include a stock appreciation right pursuant to the foregoing
paragraph shall nevertheless automatically include a stock
appreciation right which may be called only during the
periods described in Section 7(e)(i) through (iv) and
subject to the requirements and provisions of Section 7(e).
(k) Effect of Termination of Employment on Stock
Appreciation Right.
In the event that an Optionee shall cease to be
employed by the Corporation or its Subsidiaries for any
reason, any stock appreciation right which may have been
granted in conjunction with the grant of an Option shall
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<PAGE>
expire on the date provided in the Option Agreement or in
rules and regulations adopted by the Committee.
(l) Limitation of Annual Awards.
The aggregate Fair Market Value (determined as of
the date the Option is granted) of the stock with respect to
which any Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year commenc-
ing after December 31, 1986 under this Plan and all other
plans maintained by the Corporation, its parent or its
Subsidiaries shall not exceed $100,000.
(m) Other Provisions.
The Option Agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation,
restrictions upon the exercise of the Option, as the Commit-
tee shall deem advisable.
8. RESTRICTED STOCK.
(a) Grants.
Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to
determine the persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number
of shares of Restricted Stock to be awarded, the price (if
any) to be paid by the recipient of Restricted Stock, the
time or times within which such Awards may be subject to
-17-
<PAGE>
forfeiture, and all other terms and conditions of the
Awards. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or
such other factors as the Committee may determine, in its
sole discretion.
The terms of each Restricted Stock Award shall be
set forth in a Restricted Stock Agreement between the
Corporation and the Employee, which Agreement shall contain
such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of the Plan with
respect to such Award. Each Participant receiving a
Restricted Stock Award shall be issued a stock certificate
in respect of such shares of Restricted Stock. Such certif-
icate shall be registered in the name of such Participant,
and shal] bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award. The
Committee shall require that stock certificates evidencing
such shares be held by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered
to the Company a stock power, endorsed in blank, relating to
the stock covered by such Award.
(b) Restrictions and Conditions.
The shares of Restricted Stock awarded pursuant to
this Section 8 shall be subject to the following
restrictions and conditions:
-18-
<PAGE>
(i) During a period set by the Committee
commencing with the date of such Award (the
"Restriction Period"), the Participant shall not
be permitted to sell, transfer, pledge, assign or
encumber shares of Restricted Stock awarded under
the Plan. Within these limits, the Committee, in
its sole discretion, may provide for the lapse of
such restrictions in installments and may acceler-
ate or waive such restrictions in whole or in
part, based on service, performance, a change of
control of the Corporation and/or such other
factors or criteria as the Committee may determine
in its sole discretion.
(ii) Except as provided in this para-
graph (ii) and paragraph (i) above, the Partici-
pant shall have, with respect to the shares of
Restricted Stock, all of the rights of a share-
holder of the Corporation, including the right to
vote the shares, and the right to receive any cash
dividends. The Committee, in its sole discretion,
as determined at the time of Award, may provide
that the payment of cash dividends shall or may be
deferred and, if the Committee so determines,
reinvested in additional Shares of Restricted
Stock to the extent available under Section 6, or
otherwise reinvested. Stock dividends issued with
-19-
<PAGE>
respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are
subject to the same restrictions and other terms
and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) The Committee shall specify the condi-
tions under which shares of Restricted Stock shall
vest or be forfeited and such conditions shall be
set forth in the Restricted Stock Agreement.
(iv) If and when the Restriction Period
applicable to shares of Restricted Stock expires
without a prior forfeiture of the Restricted
Stock, certificates for an appropriate number of
unrestricted Shares shall be delivered promptly to
the Participant, and the certificates for the
shares of Restricted Stock shall be cancelled.
9. OTHER SHARE-BASED AWARDS.
(a) Grants.
Other Awards of Shares and other Awards that are
valued in whole or in part by reference to, or are otherwise
based on, Shares ("Other Share-Based Awards"), may be
granted either alone or in addition to or in conjunction
with other Awards under this Plan. Awards under this
Section 9 may include, but are not limited to, Stock Rights,
stock appreciation rights not granted in connection with the
-20-
<PAGE>
grant of any Option pursuant to Section 7, the grant of
Shares conditioned upon some specified event, the payment of
cash based upon the performance of the Shares or the grant
of securities convertible into Shares.
Subject to the provisions of the Plan, the Commit-
tee shall have sole and complete authority to determine the
persons to whom and the time or times at which Other Share-
Based Awards shall be made, the number of Shares or other
securities, if any, to be granted pursuant to Other Share-
Based Awards, and all other conditions of the Other Share-
Based Awards. In making an Other Share-Based Award, the
Committee may determine that the recipient of an Other
Share-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or dividend
equivalents with respect to the Shares or other securities
covered by the Award, and the Committee may provide that
such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
The terms of any Other Share-Based Award shall be set forth
in an Other Share-Based Award Agreement between the
Corporation and the Employee, which Agreement shall contain
such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of the Plan with
respect to such Award.
-21-
<PAGE>
(b) Terms and Conditions.
In addition to the terms and conditions specified
in the Other Share-Based Award Agreement, Other Share-Based
Awards made pursuant to this Section 9 shall be subject to
the following:
(i) Any Other Share-Based Award may not be
sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares
are issued or the Award becomes payable, or, if
later, the date on which any applicable restric-
tion, performance or deferral period lapses.
(ii) The Other Share-Based Award Agreement
shall contain provisions dealing with the disposi-
tion of such Award in the event of a termination
of the Employee's employment prior to the exer-
cise, realization or payment of such Award, and
the Committee in its sole discretion, may provide
for payment of the Award in the event of the
Employee's retirement, Disability or death or the
change of control of the Corporation, with such
provisions to take account of the specific nature
and purpose of the Award.
10. TERM OF PLAN.
Awards may be granted pursuant to the Plan until
the termination of the Plan on December 31, 1998.
-22-
<PAGE>
11. RECAPITALIZATION.
Subject to any required action by the stockhold-
ers, the number of Shares covered by this Plan as provided
in Section 6, the number of Shares covered by or referenced
in each outstanding Award, and the Exercise Price of each
outstanding Option and any price required to be paid for
Restricted Stock or Other Share-Based Award shall be propor-
tionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or
consolidation of Shares, the payment of a stock dividend
(but only of Common Stock) or any other increase or decrease
in the number of such Shares effected without receipt of
consideration by the Corporation or the declaration of a
dividend payable in cash that has a material effect on the
price of issued Shares.
Subject to any required action by the stockhold-
ers, if the Corporation shall be the surviving corporation
in any merger, consolidation or other reorganization, each
outstanding Award shall pertain and apply to the securities
to which a holder of the number of Shares subject to the
Award would have been entitled. Subject to the provisions
of Section 7(e), a dissolution or liquidation of the
Corporation or a merger, consolidation or other reorganiza-
tion in which the Corporation is not the surviving corpora-
tion shall cause each outstanding Option and each unvested
Restricted Stock Award or Other Share-Based Award to
-23-
<PAGE>
terminate, unless the agreement of merger, consolidation or
reorganization shall otherwise provide. In the event that
the Corporation undergoes a reverse merger transaction, the
Participant shall be entitled to receive the same considera-
tion in such transaction with respect to his or her Award
(including, without limitation, cash) as other shareholders
are entitled to receive.
In the event of a change in the Common Stock as
presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number
of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such
adjustments shall be made by the Committee, whose determina-
tion in that respect shall be final, binding and conclusive,
provided that each Incentive Stock Option granted pursuant
to this Plan shall not be adjusted in a manner that causes
the Option to fail to continue to qualify as an incentive
stock option within the meaning of section 422A of the Code.
Except as hereinbefore expressly provided in this
Section 11, a Participant shall have no rights by reason of
any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
-24-
<PAGE>
class or by reason of any dissolution, liquidation, merger
or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of
stock of any class or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all
or any part of its business or assets.
12. SECURITIES LAW REQUIREMENTS AND LIMITATION OF
RIGHTS.
(a) Securities Law. No Shares shall be issued
pursuant to the Plan unless and until the Corporation has
determined that: (i) it and the Participant have taken all
actions required to register the Shares under the Securities
Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing
requirement of any stock exchange on which the Common Stock
is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied.
-25-
<PAGE>
(b) Employment Rights. Neither the Plan nor any
Award granted under the Plan shall be deemed to give any
individual a right to remain employed by the Corporation or
a Subsidiary. The Corporation and its Subsidiaries reserve
the right to terminate the employment of any employee at any
time, with or without cause, subject only to a written
employment contract (if any).
(c) Shareholders' Rights. A Participant shall
have no dividend rights, voting rights or other rights as a
shareholder with respect to any Shares covered by his or her
Award prior to the issuance of a stock certificate for such
Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date
when such certificate is issued.
(d) Creditors' Rights. A holder of an Other
Share-Based Award shall have no rights other than those of a
general creditor of the Corporation. An Other Share-Based
Award shall represent an unfunded and unsecured obligation
of the Corporation, subject to the terms and conditions of
the applicable Other Share-Based Award Agreement.
13. AMENDMENT OF THE PLAN.
The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not
subject to Awards, suspend or discontinue the Plan or revise
or amend it in any respect whatsoever except that, without
-26-
<PAGE>
approval of the holders of Common Stock of the Corporation,
no such revision or amendment shall:
(a) Increase the number of Shares subject to
the Plan;
(b) Change the designation in Section 5 of
the Plan of the class of Employees eligible to
receive Awards;
(c) Decrease the price at which Incentive
Stock Options may be granted;
(d) Remove the administration of the Plan
from the Committee;
(e) Render any member of the Committee
eligible to receive an Award under the Plan while
serving thereon; or
(f) Amend this Section 13 to defeat its
purpose.
14. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option
or the grant of Restricted Stock will be used for general
corporate purposes.
15. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obliga-
tion upon the Optionee to exercise such Option.
-27-
<PAGE>
16. APPROVAL OF STOCKHOLDERS.
This Plan and any amendments requiring shareholder
approval pursuant to Section 13 hereof shall be subject to
approval by affirmative vote of the shareholders in accor-
dance with applicable law. Such vote shall be taken at the
first annual meeting of stockholders of the Corporation
following the adoption of the Plan or of any such
amendments, or any adjournment thereof.
17. LIMITATION ON PLAN PAYMENTS.
Any provision of the Plan to the contrary notwith-
standing, payments or transfers to a Participant under the
Plan shall be limited to the amount (the "Capped Amount")
necessary to avoid characterization of any amount payable to
the Participant (including, but not limited to, amounts
payable under the Plan) as an "excess parachute payment" as
defined in Code section 280G, except in the event that the
total amount that the Participant would receive from all
"parachute payments" as defined in Code section 280G, net of
all applicable taxes, including the excise tax that would be
imposed pursuant to Code section 4999, would exceed the
Capped Amount, net of all applicable taxes.
The determination of whether any amount would
constitute an "excess parachute payment" shall be made by
the firm of independent certified public accountants serving
as the outside auditor of the Corporation as of the date of
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<PAGE>
the event specified in Section 7(e)(i)-(iv). In making such
determination, such firm may disregard any payments or
benefits available to the Participant under any contract,
plan or program if the Participant irrevocably elects to
relinquish or not exercise such payments or benefits before
the payment or enjoyment thereof. It is intended that
payments shall be made under the Plan whether or not the
status of a particular payment as an "excess parachute
payment" has been finally determined by the Internal Revenue
Service or a court of competent jurisdiction.
18. WITHHOLDING TAXES.
(a) General. To the extent required by
applicable federal, state, local or foreign law, the
recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Corporation for
the satisfaction of any withholding tax obligations that
arise by reason of such payment or distribution. The
Corporation shall not be required to make such payment or
distribution until such obligations are satisfied.
(b) Nonqualified Options. The Committee may
permit an Optionee who exercises Nonqualified Stock Options
to satisfy all or part of his or her withholding tax obliga-
tions by having the Company withhold a portion of the Shares
that otherwise would be issued to him or her under such
Nonqualified Stock Options. Such Shares shall be valued at
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<PAGE>
their Fair Market Value on the date when taxes otherwise
would be withheld in cash. The payment of withholding taxes
by surrendering Shares to the Corporation, if permitted by
the Committee, shall be subject to such restrictions as the
Committee may impose, including any restrictions required by
rules of the Securities and Exchange Commission.
19. EXECUTION.
To record the adoption of the Plan to read as set
forth herein effective as of January 1, 1989, the
Corporation has caused its authorized officer to execute the
same this 24th day of February, 1989.
POTLATCH CORPORATION
By Richard B. Madden
---------------------
Chairman of the Board
and Chief Executive
Officer
ATTEST
Sandra T. Powell
-----------------------
Secretary
-30-
POTLATCH CORPORATION
Subsidiaries
The following subsidiaries are included in the company's consolidated
financial statements.
<TABLE>
<CAPTION>
State in Which Percentage of Voting
Name Organized Securities Owned
---- -------------- --------------------
<S> <C> <C>
Duluth & Northeastern Railroad Co. Minnesota 100
Cloquet, Minn.
Prescott & Northwestern Railroad Co. Arkansas 100
Prescott, Ark.
St. Maries River Railroad Co. Idaho 100
Lewiston, Idaho
Warren & Saline River Railroad Co. Arkansas 100
Warren, Ark.
<FN>
All unnamed subsidiaries, when considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary. No separate
financial statements are filed for any subsidiary.
</TABLE>
Consent of Independent Certified Public Accountants
The Board of Directors
Potlatch Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
33-00805, 33-28220, 2-58502, 2-87789, 33-12809, 33-25352, 33-25353, 33-31372 and
33-30836) on Form S-8 of Potlatch Corporation of our report dated January 26,
1994, relating to the balance sheets of Potlatch Corporation and consolidated
subsidiaries as of December 31, 1993 and 1992 and the related statements of
earnings, stockholders' equity, and cash flows and related financial statement
schedules for each of the years in the three-year period ended December 31, 1993
which report appears in the December 31, 1993 annual report on the Form 10-K of
Potlatch Corporation. As discussed in the notes to the financial statements,
the Company changed its method of accounting for income taxes, postretirement
benefits other than pensions and postemployment benefits in 1993.
KPMG PEAT MARWICK
March 23, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Richard A. Clarke
-----------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Kenneth T. Derr
---------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Allen F. Jacobson
-----------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
George F. Jewett, Jr.
---------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Richard M. Morrow
-----------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Vivian W. Piasecki
------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Toni Rembe
----------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Reuben F. Richards
------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Richard M. Rosenberg
--------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Robert G. Schwartz
------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Charles R. Weaver
-----------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
Frederick T. Weyerhaeuser
-------------------------
DIRECTOR
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS;
I, the undersigned, do hereby make, constitute and
appoint Sandra T. Powell or, in her absence or inability to act,
Richard B. Madden or John M. Richards, or any of them, my
attorney-in-fact for me and in my name, place and stead to
execute for me and in my behalf in each or any one of my offices
and capacities with Potlatch Corporation, as shown below, the
Annual Report on Form 10-K of Potlatch Corporation for the fiscal
year ended December 31, 1993 to be filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
and any and all amendments thereto, hereby ratifying, approving
and confirming all that any such attorney-in-fact may do by
virtue of these presents.
IN WITNESS WHEREOF, I have executed these presents this
24th day of FEBRUARY, 1994.
William T. Weyerhaeuser
-----------------------
DIRECTOR
