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, 1996 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 require-
ments 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, 1997, was approximately $1,116 million.
The number of shares of common stock outstanding as of January 31, 1997:
28,878,131 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1997 annual meeting of stock-
holders are incorporated by reference in Part III hereof.
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POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to 1996 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 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 39 - 41
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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 1994-1996 is included in Note 13 to the financial statements on
pages 34-35 of this report.
Fiber Resources
The principal source of raw material used in the company's operations is
wood fiber obtained from its own timberlands and purchased on the open market.
The company owns in fee approximately 1.5 million acres of timberland: 499,000
acres in Arkansas, 675,000 acres in Idaho and 342,000 acres in Minnesota. In
addition, the company owns and is developing 22,000 acres in Oregon as a
hybrid poplar plantation 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
continually improving forestry and silviculture techniques and other forest
management practices, the company has been able 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 79 percent of its sawlogs
and plywood logs in 1996 and an average of 66 percent over the past five
years. Including the raw materials used for pulp, oriented strand board and
particleboard the percentages were 48 percent for 1996 and 39 percent for the
past five years.
Additional logs were purchased under cutting contracts from federal, state
and local governments and from private landowners. 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, 1996, the company estimated its total commitment under such
contracts was $55.6 million, which was not significantly different from market
value.
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 that are expected to continue into the
foreseeable future. Although this trend has had a favorable effect on
earnings for the company as a whole, it has at times had an adverse effect on
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wood fiber costs. The long-term effect of this trend on company earnings
cannot be predicted. However, the company has implemented plans to develop
additional chip fiber supplies, primarily hybrid poplar, for the Lewiston,
Idaho, pulp mill and by the year 2000 expects to provide approximately 70
percent of chip fiber requirements for this mill from resources it owns,
compared with approximately 34 percent for 1996.
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.
Wood Products
The company manufactures and markets oriented strand board, plywood,
particleboard and lumber. 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
that manufacture substitutes for wood and wood fiber products. For lumber,
plywood and particleboard, the company's share of the market is not
significant to the total U. S. market for these products. The company
believes it is one of the larger manufacturers of oriented strand board
("OSB"). However, its sales of OSB are less than ten percent of the total
market for this product, which competes with plywood. The company's principal
methods of competing are product quality, service and price.
Printing Papers
The company produces coated printing papers at two facilities in Minnesota.
A description of these facilities is included under Item 2 of this report.
Pulp for these 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 primarily for annual reports,
showroom catalogs, art reproductions and high-quality advertising.
Printing papers are sold principally to paper merchants for distribution.
Various company sales offices located throughout the United States are
utilized to service our customers. Although the company does not consider
itself among the larger manufacturers of printing papers, it is one of the
nation's leading producers of premium coated papers. The principal methods
of competing are product quality, service and price.
Other Pulp-Based Products
The company produces and markets bleached kraft pulp and paperboard, and
tissue products. 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 manufactured by the company is used
primarily for the packaging of milk and other foods, pharmaceuticals and
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toiletries, and for paper cups and paper plates. 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.
Household tissue products - facial and bathroom tissues, towels and
napkins - are packaged to order for grocery and drug chains, club stores and
cooperative buying organizations. These products are sold to consumers under
customer brand names and compete with nationally advertised and other private
label brands.
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 made
through brokers. 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
and agents. Tissue products are sold to major retail outlets.
Environment
Information regarding environmental matters is included under Item 3 -
Legal Proceedings on page 6 and Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 15 of this report.
Employees
As of December 31, 1996, the company had approximately 6,700 employees.
There are no labor contracts expiring in 1997.
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ITEM 2. Properties
The principal manufacturing facilities of the company, together with
their respective 1996 capacities and production are as follows:
Wood Products Capacity Production
Oriented Strand Board Plants: (A)
Bemidji, Minnesota 500,000 m.sq.ft. 468,667 m.sq.ft.
Cook, Minnesota 240,000 m.sq.ft. 216,502 m.sq.ft.
Grand Rapids, Minnesota 350,000 m.sq.ft. 331,865 m.sq.ft.
Sawmills:
Prescott, Arkansas (B) 67,000 m.bd.ft. 65,081 m.bd.ft.
Warren, Arkansas (C) 127,000 m.bd.ft. 124,474 m.bd.ft.
Lewiston, Idaho 137,000 m.bd.ft. 136,790 m.bd.ft.
St. Maries, Idaho 88,000 m.bd.ft. 84,388 m.bd.ft.
Bemidji, Minnesota 80,000 m.bd.ft. 80,596 m.bd.ft.
Plywood Plants: (A)
Jaype, Idaho 151,000 m.sq.ft. 111,385 m.sq.ft.
St. Maries, Idaho 154,000 m.sq.ft. 129,016 m.sq.ft.
Particleboard Plant: (D)
Post Falls, Idaho 67,000 m.sq.ft. 63,462 m.sq.ft.
Printing Papers
Pulp Mill:
Cloquet, Minnesota 197,000 tons 196,328 tons
Printing Paper Mills:
Brainerd, Minnesota 147,000 tons 141,670 tons
Cloquet, Minnesota 210,000 tons 212,811 tons
Other Pulp-Based Products
Pulp Mills:
Cypress Bend, Arkansas 250,000 tons 246,877 tons
Lewiston, Idaho 470,000 tons 435,147 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas 270,000 tons 265,791 tons
Lewiston, Idaho 340,000 tons 309,111 tons
Tissue Mill:
Lewiston, Idaho 149,000 tons 143,226 tons
Tissue Converting Facilities:
Lewiston, Idaho 108,000 tons 95,503 tons
Las Vegas, Nevada 28,000 tons 27,663 tons
(A) 3/8" Basis
(B) In late 1996, the Prescott sawmill began operating two shifts. The 1997
capacity for this facility will be 133,000 m.bd.ft.
(C) There are two sawmills in Warren.
(D) 3/4" Basis
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ITEM 3. Legal Proceedings
In August 1993, the company received a Notice of Violation ("NOV") from the
U. S. Environmental Protection Agency ("EPA"). The NOV alleged that
construction of the company's three oriented strand board plants in Minnesota
commenced prior to obtaining proper permits and that particulate emissions
from the dryers at one plant exceeded applicable limits. The Minnesota
Pollution Control Agency ("MPCA") had previously issued NOVs to the company
which set forth the same allegations. In early January 1994, the company
entered into an agreement with the MPCA which resolved the alleged violations
under its NOVs by agreeing to install additional pollution control equipment
at all three plants and pay a civil penalty of $300,000. The agreement did
not resolve the EPA allegations. In January 1995, the EPA informed the
company that it referred the matter to the United States Department of Justice
to commence a civil enforcement action against the company. As of December
31, 1996, no such action had been filed against the company. The company
believes that it has legal and equitable defenses to the alleged violations.
In February 1997, the company received an NOV from Region 10 of the EPA.
The NOV alleges that the company violated the Prevention of Significant
Deterioration permit requirements and permit requirements of the Idaho State
Implementation Plan by burning tire derived fuel in the company's No. 4 power
boiler in Lewiston, Idaho, in quantities which caused SO2 emissions to exceed
permitted amounts over a five-year period beginning in 1992. Although no
relief has been specified by the EPA, the NOV sets forth EPA's authority to
seek, among other things, penalties of up to $25,000 per day for each violation.
The company believes it has defenses to the alleged violations and has scheduled
a conference with the EPA for the purpose of presenting information bearing on
the alleged violations.
In December 1995, the company filed a complaint against Beloit Corporation
in the District Court of the State of Idaho, Nez Perce County: Second
District. The complaint alleges that a pulp washer system supplied by Beloit
Corporation and installed at the company's pulp mill in Lewiston, Idaho, has
experienced massive defects and deficiencies and has failed to meet contract
performance requirements and criteria. In this action, the company is seeking
damages of approximately $80 million for reimbursement of costs incurred to
repair, maintain and replace the washers, and for losses resulting from
performance deficiencies. In addition, the company is seeking recovery of
lost revenue in an amount to be determined at trial, currently scheduled to
begin in April, 1997.
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, 1996.
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Executive Officers of the Registrant
Information as of March 1, 1997, and for the past five years concerning the
executive officers of the company is as follows:
John M. Richards (age 59), first elected an officer in 1972, has served as
Chairman of the Board and Chief Executive Officer since May 1994. Prior to
May 1994 he was President and Chief Operating Officer. He was elected a
director of the company effective January 1991. He is a member of the Finance
Committee of the Board of Directors.
L. Pendleton Siegel (age 54), first elected an officer in 1983, has served
as President and Chief Operating Officer since May 1994. From August 1993 to
May 1994, he was Executive Vice President, Pulp-Based Operations and Planning.
From March 1992 through July 1993, he was Group Vice President, Pulp and
Paperboard. Prior to March 1992, he was Group Vice President, Wood Products.
In addition, from October 1990 through May 1994, he was also responsible for
planning and business development.
Craig H. Nelson (age 40), first elected an officer in 1996, has served as
Vice President, Consumer Products Division since May 1996. From April 1993
through April 1996, he was an appointed officer serving as Vice President,
Manufacturing, for the Consumer Products Division's Lewiston mill. Prior to
April 1993, he was project manager for the No. 3L tissue machine in the
Consumer Products Division.
Richard L. Paulson (age 55), first elected an officer in 1992, has served
as Vice President, Minnesota Pulp and Paper Division since May 1996. From
January 1993 through April 1996, he was Vice President, Consumer Products
Division. Prior to January 1993, he was an appointed officer serving as Vice
President, Manufacturing, for the Minnesota Pulp and Paper Division's Brainerd
plant.
George E. Pfautsch (age 61), first elected an officer in 1971, is Senior
Vice President, Finance and Chief Financial Officer. From January 1993
through May 1994, he also served as Treasurer.
Charles R. Pottenger (age 57), first elected an officer in 1991, has served
as Group Vice President, Pulp and Paperboard since August 1993. Prior to
August 1993, he was Vice President, Minnesota Pulp and Paper Division.
Thomas J. Smrekar (age 54), 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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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:
1996 1995
Quarter High Low High Low
1st $43.88 $38.25 $44.00 $37.13
2nd 43.88 38.50 44.00 41.25
3rd 39.75 35.13 44.13 39.50
4th 44.88 38.38 42.25 38.63
Year 44.88 35.13 44.13 37.13
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 3,700 common
stockholders of record at December 31, 1996.
Quarterly dividend payments per common share for the past two years were:
Quarter 1996 1995
1st $ .415 $ .40
2nd .415 .40
3rd .415 .40
4th .425 .415
------ ------
$1.670 $1.615
====== ======
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 - 17
ITEM 8 Financial Statements and
Supplementary Data 18 - 38
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ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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 26, 1997, for the 1997 annual meeting of stockholders
(the "1997 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 9-19 of the 1997 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 1997 Proxy Statement is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information set forth under the heading "Certain Transactions" on page 19
of the 1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statement schedules are listed in the Index to Consolidated
Financial Statements and Schedules on page 11 of this Form 10-K.
(b) No reports on Form 8-K were filed for the quarter ended December 31, 1996.
(c) Exhibits are listed in the Exhibit Index on pages 39-41 of this
Form 10-K.
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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 27, 1997 By John M. Richards
John M. Richards
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 27, 1997, by the following persons on
behalf of the company in the capacities indicated.
By John M. Richards
John M. Richards 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 L. Pendleton Siegel GEORGE F. JEWETT, JR.*
L. Pendleton Siegel Director
President and Chief RICHARD B. MADDEN*
Operating Officer Director
(Principal Operating Officer) RICHARD M. MORROW*
Director
By George E. Pfautsch VIVIAN W. PIASECKI*
George E. Pfautsch Director
Senior Vice President, TONI REMBE*
Finance and Chief Director
Financial Officer REUBEN F. RICHARDS*
(Principal Financial Officer) Director
RICHARD M. ROSENBERG*
By Terry L. Carter Director
Terry L. Carter ROBERT G. SCHWARTZ*
Controller Director
(Principal Accounting Officer) CHARLES R. WEAVER*
Director
FREDERICK T. WEYERHAEUSER*
Director
DR. WILLIAM T. WEYERHAEUSER*
Director
*By Betty R. Fleshman
Betty R. Fleshman
(Attorney-in-fact)
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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 - 17
Statements of Earnings for the years ended December 31,
1996, 1995 and 1994 18
Balance Sheets at December 31, 1996 and 1995 19
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 20
Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 21
Summary of Principal Accounting Policies 22 - 23
Notes to Financial Statements 24 - 36
Independent Auditors' Report 37
Schedules:
II. Valuation and Qualifying Accounts 38
All other schedules are omitted because they are
not required, not applicable or the required
information is given in the consolidated
financial statements.
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<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Selected Financial Data
(Dollars in thousands - except per-share amounts)
<CAPTION>
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,554,449 $1,605,206 $1,471,258 $1,368,854 $1,326,612
Net earnings (loss):
Before accounting changes
and extraordinary item 61,534 108,546 48,995 38,339 78,914
After accounting changes
and extraordinary item 58,089 108,546 48,995 (11,953) 78,914
Net cash provided by
operations, excluding
working capital changes 228,364 273,418 197,879 170,698 166,214
Working capital 117,966 128,066 142,728 129,138 153,537
Current ratio 1.5 to 1 1.4 to 1 1.6 to 1 1.7 to 1 1.9 to 1
Long-term debt
(noncurrent portion) $ 672,048 $ 616,132 $ 633,473 $ 707,131 $ 634,209
Stockholders' equity 954,195 943,904 901,619 901,076 955,581
Debt to stockholders'
equity ratio .70 to 1 .65 to 1 .70 to 1 .78 to 1 .66 to 1
Capital expenditures $ 239,908 $ 170,654 $ 104,389 $ 201,655 $ 179,539
Total assets 2,265,679 2,265,311 2,081,229 2,085,652 2,015,747
Net earnings (loss)
per common share:
Before accounting changes
and extraordinary item $2.13 $ 3.72 $1.68 $ 1.31 $ 2.71
After accounting changes
and extraordinary item 2.01 3.72 1.68 (.41) 2.71
Cash dividends
per common share 1.67 1.615 1.57 1.515 1.425
Average common shares
outstanding,
(in thousands) 28,888 29,157 29,217 29,184 29,110
======================================================================================
</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 1996, the company's net cash provided by operations, excluding working
capital changes, as presented in the Statements of Cash Flows on page 20,
totaled $228.4 million, compared with $273.4 million in 1995 and $197.9
million in 1994.
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The ratio of long-term debt to stockholders' equity was .70 to 1 at
December 31, 1996, compared with .65 to 1 at December 31, 1995, and .70 to 1
at December 31, 1994. Several transactions during the year affected the
ratio. In April, the company issued $40.0 million of revenue bonds, the
proceeds of which are being used to fund qualifying capital projects in
Minnesota. In addition, the company had $50.0 million of commercial paper
classified as long-term debt at December 31, 1996. Total commercial paper
outstanding at December 31, 1996, was $64.3 million. The ratio was also
affected by the reclassification of $30.0 million from long-term to current:
$15.0 million of the company's medium-term notes, due to the notes maturing
in 1997; and, the remaining $15.0 million of 9.625 percent sinking fund
debentures, which the company intends to redeem in 1997.
In October, the company refinanced several revenue bond issues totaling
$108.3 million, by issuing similar revenue bonds and using the proceeds to
retire the original debt. While the transactions did not affect the debt-to-
equity ratio, the refinancing lowered the weighted average effective interest
rate associated with the bonds to approximately 6.0 percent from approximately
6.8 percent. The new bonds will mature in approximately 29 years, versus an
average remaining life of approximately 10 years for the old bonds.
At December 31, 1996, 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, 1996, there were no borrowings by the company under any credit
lines. The company uses the credit lines to back its issuance of commercial
paper.
One of the company's stated objectives is to maintain a sound financial
structure. In that regard, the company believes that debt ratings within
investment grade categories are important for long-term access to capital
markets. At the end of 1996, the company's senior long-term debt was rated
A- by Standard & Poors and Duff and Phelps, and Baa1 by Moody's. With the
company's ability to generate cash flow and its access to capital markets, the
company believes it is capable of funding capital expenditures, working
capital and other liquidity needs for the foreseeable future.
At December 31, 1996, working capital was $118.0 million, compared with
$128.1 million at December 31, 1995, and $142.7 million at December 31, 1994.
The decrease in 1996 was a result of a reduction in short-term investments of
$98.0 million and inventories of $14.2 million combined with an increase in
notes payable of $14.3 million. Partially offsetting these amounts was an
increase in receivables of $10.7 million and decreases in current installments
on long-term debt and accounts payable and accrued liabilities of $90.6
million and $12.7 million, respectively.
Capital Resources and Funding
Capital expenditures totaled $239.9 million in 1996, compared with $170.7
million in 1995 and $104.4 million in 1994.
During 1996, the company spent $44.0 million in the wood products segment.
Major projects included upgrading the dry end of the Prescott, Arkansas,
sawmill and modernization of the company's two plywood plants in Idaho. The
Prescott sawmill upgrade, which was nearing completion at year end, should
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provide significant gains in productivity and efficiency. The Idaho plywood
plants, located in St. Maries and Jaype, are now producing primarily higher-
value industrial plywood instead of commodity sheathing plywood as a result
of completion of the projects at those mills late in the year.
Capital spending in the printing papers segment totaled $103.6 million.
The majority of the expenditures related to the modernization and expansion
of the Cloquet, Minnesota, pulp mill. Activity focused on the fiber line
portion of the project, which was completed and began operating in December,
and initial construction of the recovery boiler and turbine generator.
Spending in the other pulp-based products segment totaled $92.1 million.
A significant portion of this amount related to the replacement of washers at
the Lewiston, Idaho, pulp mill. This project is already having a positive
effect on production results. The ongoing development of the company's hybrid
poplar farm in Boardman, Oregon, also accounted for a large share of the
expenditures for the segment. After harvest of these trees begins in 1999,
it is anticipated that the Lewiston pulp mill will receive approximately 20
percent of its annual chip fiber needs from this source.
Authorized but unexpended appropriations totaled $324.1 million at
December 31, 1996. Of that amount, $219.5 million is budgeted to be expended
in 1997. Such expenditures will include the continuing modernization and
expansion of the Cloquet pulp mill, where work on a recovery boiler and
turbine generator will continue; the continued development of the hybrid
poplar plantation in Boardman; and the continuation of the washer replacement
project at the Lewiston pulp mill. Other projects with significant budgeted
expenditures in 1997 include a caustic plant upgrade and new green liquor
clarifier at the Lewiston pulp mill and installation of pollution control
equipment at the company's oriented strand board plants in Cook and Bemidji,
Minnesota. The 1997 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 1996, the company spent $73.3 million less than
the $313.2 million budgeted. Spending on projects may be delayed due to
acquisition of environmental permits, acquisition of equipment, engineering,
weather and other factors.
In December 1994, the company announced a stock repurchase program which
authorizes the company to purchase up to 1 million shares of its common stock
over several years. Under the program, the company can purchase shares of
common stock from time to time through open market and privately negotiated
transactions at prices deemed appropriate by management. In 1995, the company
acquired a total of 271,600 shares under the program through a combination of
put option exercises and open market purchases. In 1996, the company acquired
an additional 127,200 shares, bringing the total number of shares repurchased
to 398,800.
-14-
<PAGE>
Environment
The company is subject to extensive 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 $13.0 million during 1996 and are budgeted to be approximately
$9.0 million in 1997. In addition, the company made expenditures for
pollution control facilities as part of major mill modernizations and
expansions currently under way.
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. Based on an examination of the capital costs of the proposals,
the company estimates that compliance would require capital expenditures in
the broad range of $200.0 million. Of this amount, approximately $100.0
million is already included in the planned expansion and modernization project
under way at the Cloquet, Minnesota, pulp mill, which is expected to cost in
excess of $500.0 million. The company does not expect that such compliance
costs would have a material adverse effect on its competitive position.
Results of Operations
Comparison of 1996 with 1995
Potlatch consolidated net sales of $1.55 billion were slightly below 1995's
$1.61 billion. For 1996, net earnings were $61.5 million, before a $3.4
million extraordinary charge for early extinguishment of debt. Including the
charge, net earnings were $58.1 million. By comparison, 1995 net earnings
were $108.5 million. Net earnings per common share for 1996 were $2.13 before
the extraordinary charge, or $2.01 including the charge, compared to $3.72 per
common share for 1995.
Weaker market conditions in 1996 for the company's paperboard and panel
products, plus weather-related problems during the first quarter, contributed
to lower earnings for the year.
Operating income for the wood products segment was $68.1 million, down from
the $122.2 million earned in 1995. Lower net sales realizations and shipments
for the company's panel products were the primary reason for the decline.
Oriented strand board was especially affected due to a significant increase
in production capacity within the industry. Downtime taken to shift the Idaho
plywood plants to industrial-grade products and operating problems caused by
flooding in Idaho early in the year also negatively affected earnings. The
segment did experience improved shipments and net sales realizations for
lumber over 1995.
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 that are expected to continue into the
foreseeable future. Although this trend has had a favorable effect on
-15-
earnings for the company as a whole, it has at times had an adverse effect on
wood fiber costs. The long-term effect of this trend on company earnings
cannot be predicted. However, the company has implemented plans to develop
additional chip fiber supplies for the Lewiston, Idaho, pulp mill and by the
year 2000 expects to provide approximately 70 percent of chip fiber
requirements for this mill from resources it owns, compared with approximately
34 percent for 1996.
The printing papers segment reported operating income of $48.6 million,
compared with $50.6 million in 1995. Lower net sales realizations, partially
due to a less favorable product mix, offset higher shipments during 1996. The
company's two coated paper facilities operated well during the year, lowering
production costs and having a positive effect on the year's results.
Operating income for the other pulp-based products segment, which includes
the Pulp and Paperboard Group and the Consumer Products Division, was $40.9
million in 1996, versus $70.8 million reported in 1995. A decrease in
paperboard net sales realizations plus weather-related operating problems
during the first quarter of 1996 were largely responsible for the lower
results. An unplanned shutdown at the company's Lewiston, Idaho, pulp mill
late in the year to repair a recovery boiler also negatively affected
earnings. The Consumer Products Division benefited from increased shipments
of 8 percent, higher net sales realizations and lower pulp costs to record
significantly improved results over 1995, partially offsetting the weaker
results for paperboard. The 1996 segment operating income includes a one-time
$3.0 million actuarial gain on postretirement benefit programs, which is
included in Other income (expense), net, in the Statements of Earnings.
Comparison of 1995 with 1994
Potlatch consolidated net sales of $1.61 billion in 1995 increased 9
percent from 1994's $1.47 billion. Net earnings were $108.5 million, compared
with $49.0 million earned in 1994. Net earnings per common share for 1995
were $3.72, versus $1.68 for 1994. The 1994 amount included a $.21 per share
first quarter charge for early retirement programs.
Market improvements throughout the company's pulp-based businesses in 1995
resulted in increased earnings for this portion of Potlatch's operations,
which more than offset lower results for solid wood products. At the end of
1995, most markets for pulp-based products had begun to soften.
In 1995, the wood products segment reported operating income of $122.2
million, down from $160.3 million earned in 1994. Lower net sales
realizations for most of the company's lumber and panel products were the
primary factor for the decline. Realizations were lower due to decreased
demand from the high levels in 1994 and also due to increased imports from
Canada. Results for 1995 include a $2.0 million charge related to early
retirement programs in Arkansas.
Operating income for the printing papers segment was $50.6 million in 1995,
a 26 percent increase over 1994's $40.2 million. Higher net sales
realizations were largely responsible for the increase. Higher pulp costs and
slightly lower shipments partially offset the improved results.
The other pulp-based products segment, which includes the Pulp and
-16-
<PAGE>
Paperboard Group and the Consumer Products Division, reported operating income
of $70.8 million in 1995 versus a loss of $53.5 million for 1994. The 1994
results included a first quarter charge for early retirement programs of $10.0
million. Substantially higher net sales realizations for pulp, paperboard and
tissue combined with higher shipments were the primary reasons for the
favorable comparison. The Consumer Products Division operated well during
1995. Also, during the first half of 1995, both of the company's pulp and
paperboard mills in Lewiston, Idaho, and McGehee, Arkansas, operated at
improved levels over 1994. The Arkansas mill continued to operate well during
the second half of 1995. However, during the annual maintenance shutdown at
the Lewiston mill in September, additional structural problems with the pulp
mill washers were discovered. Temporary repairs were made during the fourth
quarter of 1995. These problems had an adverse effect on segment earnings.
Income Taxes
The company's effective tax rates, excluding an extraordinary item, for
1996, 1995 and 1994 were 28.7 percent, 36.5 percent and 35.5 percent,
respectively.
-17-
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
(Dollars in thousands - except per-share amounts)
<CAPTION>
For the years ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,554,449 $1,605,206 $1,471,258
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 141,521 137,031 138,251
Materials, labor and other operating
expenses 1,186,127 1,158,002 1,121,491
Selling, general and administrative
expenses 104,114 90,569 82,799
- --------------------------------------------------------------------------------
1,431,762 1,385,602 1,342,541
- --------------------------------------------------------------------------------
Earnings from operations 122,687 219,604 128,717
Interest expense, net of capitalized
interest of $10,280 ($4,083 in 1995 and
$2,799 in 1994) (43,869) (47,976) (51,137)
Interest and dividend income 2,457 2,019 348
Other income (expense), net (Note 14) 5,051 (2,708) (1,967)
- --------------------------------------------------------------------------------
Earnings before taxes on income and
extraordinary item 86,326 170,939 75,961
Provision for taxes on income (Note 4) 24,792 62,393 26,966
- --------------------------------------------------------------------------------
Net earnings before extraordinary item 61,534 108,546 48,995
Extraordinary item - loss from
early extinguishment of debt,
net of tax (Note 5) (3,445) - -
- --------------------------------------------------------------------------------
Net earnings $ 58,089 $ 108,546 $ 48,995
================================================================================
Net earnings per common share:
Before extraordinary item* $2.13 $3.72 $1.68
After extraordinary item* 2.01 3.72 1.68
================================================================================
<FN>
* Net earnings per common share for 1994 include a charge of $.21 for early retirement programs.
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
Balance Sheets
(Dollars in thousands - except per-share amounts)
<CAPTION>
At December 31 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 9) $ 7,740 $ 7,571
Short-term investments (Note 9) 4,576 102,583
Receivables, net of allowance for doubtful
accounts of $2,275 ($2,365 in 1995) 163,075 152,407
Inventories (Note 1) 176,899 191,102
Prepaid expenses (Note 4) 25,821 23,586
- --------------------------------------------------------------------------------------
Total current assets 378,111 477,249
Land, other than timberlands 9,088 9,089
Plant and equipment, at cost less
accumulated depreciation of $1,180,023
($1,096,984 in 1995) (Note 2) 1,465,682 1,356,020
Timber, timberlands and related logging
facilities, net (Note 3) 349,466 352,321
Other assets 63,332 70,632
- --------------------------------------------------------------------------------------
$2,265,679 $2,265,311
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 5 and 9) $ 14,281 $ -
Current installments on long-term debt (Notes 5 and 9) 31,379 122,018
Accounts payable and accrued liabilities (Note 6) 214,485 227,165
- --------------------------------------------------------------------------------------
Total current liabilities 260,145 349,183
- --------------------------------------------------------------------------------------
Long-term debt (Notes 5 and 9) 672,048 616,132
- --------------------------------------------------------------------------------------
Other long-term obligations (Note 7) 148,092 145,022
- --------------------------------------------------------------------------------------
Deferred taxes (Note 4) 223,441 198,823
- --------------------------------------------------------------------------------------
Put options (Notes 8 and 9) 7,758 12,247
- --------------------------------------------------------------------------------------
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 125,937 125,650
Retained earnings 892,667 882,832
Common shares in treasury 3,855,999 (3,760,124 in 1995) (97,131) (97,300)
- --------------------------------------------------------------------------------------
Total stockholders' equity 954,195 943,904
- --------------------------------------------------------------------------------------
$2,265,679 $2,265,311
======================================================================================
<FN>
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 Cash Flows
(Dollars in thousands)
<CAPTION>
For the years ended December 31 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net earnings $ 58,089 $ 108,546 $ 48,995
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost of
fee timber harvested 141,521 137,031 138,251
Deferred taxes 24,618 29,153 12,764
Other, net 4,136 (1,312) (2,131)
- -------------------------------------------------------------------------------
Cash provided by operations excluding
working capital changes 228,364 273,418 197,879
- -------------------------------------------------------------------------------
Increase in receivables (10,668) (14,989) (18,817)
Decrease (increase) in inventories 14,203 (38,866) 3,324
Decrease (increase) in prepaid expenses (2,235) 2,271 (99)
Increase (decrease) in accounts payable
and accrued liabilities (4,888) 25,721 618
- -------------------------------------------------------------------------------
Cash used for working capital changes (3,588) (25,863) (14,974)
- -------------------------------------------------------------------------------
Net cash provided by operations 224,776 247,555 182,905
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Change in book overdrafts (7,792) 4,566 5,302
Increase (decrease) in notes payable 14,281 (12,881) 12,881
Proceeds from long-term debt 197,543 124,785 -
Repayment of long-term debt (232,266) (38,939) (61,884)
Issuance of treasury stock 722 193 542
Purchase of treasury stock (5,042) (11,285) -
Premium on early retirement of debt (4,088) - -
Dividends on common stock (48,254) (47,096) (45,870)
- -------------------------------------------------------------------------------
Net cash provided by (used for) financing (84,896) 19,343 (89,029)
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Decrease (increase) in short-term investments 97,411 (100,411) 19,816
Additions to investments (48,008) (46,418) (15,244)
Reductions in investments 69,573 66,717 4,012
Funding of qualified pension plans (19,734) (8,918) (8,303)
Additions to plant and equipment, and to
land other than timberlands (231,392) (160,222) (95,254)
Additions to timber, timberlands and
related logging facilities (8,516) (10,432) (9,135)
Disposition of plant and properties 5,146 3,293 4,561
Other, net (4,191) (11,954) 7,876
- -------------------------------------------------------------------------------
Net cash used for investing (139,711) (268,345) (91,671)
- -------------------------------------------------------------------------------
Increase (decrease) in cash 169 (1,447) 2,205
Balance at beginning of year 7,571 9,018 6,813
- -------------------------------------------------------------------------------
Balance at end of year $ 7,740 $ 7,571 $ 9,018
===============================================================================
<FN>
Certain balances for 1995 and 1994 have been restated to conform to the 1996 presentation.
Net interest paid (net of amounts capitalized) in 1996, 1995 and 1994 was $47.1 million, $47.7 million and $51.2 million,
respectively. Net income taxes paid in 1996, 1995 and 1994 were $18.0 million, $36.0 million and $12.4 million,
respectively.
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
</TABLE>
-20-
<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 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $125,650 $125,564 $125,346
Exercise of stock options 287 86 218
- ------------------------------------------------------------------------------
Balance at end of year $125,937 $125,650 $125,564
==============================================================================
RETAINED EARNINGS
Balance at beginning of year,
as previously reported $836,845
Effect of an adjustment related to SFAS No. 109 (18,588)
--------
Balance at beginning of year, as restated $882,832 $818,040 818,257
Net earnings 58,089 108,546 48,995
Common dividends, $1.67 per share ($1.615 per
share in 1995 and $1.57 per share in 1994) (48,254) (47,096) (45,870)
Minimum pension liability adjustment - 3,342 (3,342)
- ------------------------------------------------------------------------------
Balance at end of year $892,667 $882,832 $818,040
==============================================================================
COMMON SHARES IN TREASURY
Balance at beginning of year 3,760,124 shares
(3,497,499 in 1995 and 3,522,834 in 1994) $ 97,300 $ 74,707 $ 75,249
Shares purchased at cost 127,200 shares
(271,600 in 1995) 5,239 11,285 -
Exercise of stock options 31,325 shares
(8,975 in 1995 and 25,335 in 1994) (722) (193) (542)
Put options (4,489) 12,247 -
Premium on issuance of put options (197) (746) -
- ------------------------------------------------------------------------------
Balance at end of year 3,855,999 shares
(3,760,124 in 1995 and 3,497,499 in 1994) $ 97,131 $ 97,300 $ 74,707
==============================================================================
<FN>
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
</TABLE>
-21-
<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.
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 continental United States.
The primary market for the company's products is the United States, although
it sells a significant amount of paperboard to countries in the Pacific Rim.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
Inventories
Inventories are stated at the lower of cost or market. The last-in,
first-out method is used to determine cost of logs, lumber, plywood,
particleboard and chips. 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 1996, 1995 and 1994 were
28,887,962; 29,156,681; and 29,217,261, 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
-22-
<PAGE>
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.
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
The provision for taxes on income is based on earnings reported in the
financial statements. Deferred income taxes are recorded for the temporary
differences between reported earnings and taxable income using current tax
laws and rates.
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.
Environment
As part of its corporate policy, the company has an ongoing process to
monitor, report and comply on environmental matters. Based on this ongoing
process, reserves for environmental liabilities are established in accordance
with Statement of Financial Accounting Standards No. 5.
-23-
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Financial Statements
Note 1. Inventories
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Logs, pulpwood, chips and sawdust $ 23,271 $ 27,710
Lumber and other manufactured wood products 9,459 7,324
Pulp, paper and converted paper products 82,783 95,580
Materials and supplies 61,386 60,488
- ------------------------------------------------------------------------------
$176,899 $191,102
==============================================================================
Valued at lower of cost or market:
Last-in, first-out basis $ 29,467 $ 32,322
Average cost basis 147,432 158,780
- ------------------------------------------------------------------------------
$176,899 $191,102
==============================================================================
</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 $25.5 million
higher at December 31, 1996, and $30.7 million higher at December 31, 1995.
Note 2. Plant and Equipment
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Land improvements $ 56,062 $ 56,170
Buildings and structures 373,000 369,800
Machinery and equipment 1,955,581 1,763,660
Other 93,920 81,701
Construction in progress 167,142 181,673
- ------------------------------------------------------------------------------
$2,645,705 $2,453,004
==============================================================================
</TABLE>
Depreciation charged against income amounted to $118.7 million in 1996
($116.9 million in 1995 and $119.6 million in 1994).
Authorized but unexpended appropriations for capital projects totaled
$324.1 million at December 31, 1996. Of that amount, $219.5 million is
budgeted to be expended in 1997.
Effective January 1, 1996, the company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The statement
establishes accounting standards for the impairment of long-lived assets,
certain intangible assets and goodwill, as well as for long-lived assets and
certain intangible assets to be disposed of. The effect of implementing the
new standard was immaterial.
-24-
<PAGE>
Note 3. Timber, Timberlands and Related Logging Facilities
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Timber and timberlands $314,032 $321,439
Related logging facilities 35,434 30,882
- ------------------------------------------------------------------------------
$349,466 $352,321
==============================================================================
</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 $18.9 million in 1996 ($16.2 million in 1995 and $15.1 million in
1994). Amortization of logging roads and related facilities amounted to $1.3
million in 1996 ($1.3 million in 1995 and $1.1 million in 1994).
The company purchases logs under cutting contracts from federal, state and
local governments and from private landowners. 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, 1996, the company estimated its total commitment under such
contracts was $55.6 million, which was not significantly different from market
value.
Note 4. Taxes on Income
Provision for taxes on income, excluding an extraordinary item, is
comprised of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 9,063 $ 32,772 $ 18,771
Deferred 15,729 29,621 8,195
- ------------------------------------------------------------------------------
Provision for taxes on income $24,792 $ 62,393 $ 26,966
==============================================================================
</TABLE>
The provision for taxes on income differs from the amount computed by
applying the statutory federal income tax rate of 35 percent to earnings
before taxes on income due to the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $30,214 $59,829 $26,586
State and local taxes, net of federal
income tax benefits 2,936 6,101 2,755
Tax credits and other benefits (8,059) (2,121) (1,388)
All other items (299) (1,416) (987)
- ------------------------------------------------------------------------------
Provision for taxes on income $24,792 $62,393 $26,966
Effective tax rate 28.7% 36.5% 35.5%
==============================================================================
</TABLE>
-25-
<PAGE>
Principal current and noncurrent deferred tax assets and liabilities at
December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Employee benefits $ 19,589 $ 17,441
Inventories 1,529 1,927
Net operating loss - 1,694
Other 284 (994)
- ------------------------------------------------------------------------------
Total current asset(1) 21,402 20,068
- ------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Postretirement benefits 47,414 45,256
Alternative minimum tax 36,398 35,889
Plant and equipment (279,807) (256,436)
Timber, timberlands and related logging facilities (20,984) (19,862)
Pensions (13,009) (11,513)
Other, net 6,547 7,843
- ------------------------------------------------------------------------------
Total net noncurrent liability (223,441) (198,823)
- ------------------------------------------------------------------------------
Net deferred tax liability $(202,039) $(178,755)
==============================================================================
<FN>
(1) Included in Prepaid expenses in the Balance Sheets.
</TABLE>
The company's federal income tax returns have been examined and settlements
have been reached for all years through 1988, except for 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. The company
believes that adequate provision has been made for possible assessments of
additional taxes.
Note 5. Debt
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Revenue bonds fixed rate 5.8% to 9% due 1997
through 2026 $138,223 $140,952
Revenue bonds variable rate due 2007 through 2030 99,826 59,813
Debentures 6.95% due 2015 99,797 99,786
Credit sensitive debentures 9.125% due 2009 100,000 100,000
Sinking fund debentures 9.625% due 2016 15,000 100,000
Medium-term notes fixed rate 7.55% to 9.46%
due 1996 through 2022 200,000 235,000
Commercial paper 5.65% to 5.95% 50,000 -
Other notes 581 2,599
- ------------------------------------------------------------------------------
703,427 738,150
Less current installments on long-term debt 31,379 122,018
- ------------------------------------------------------------------------------
Long-term debt $672,048 $616,132
==============================================================================
</TABLE>
In October 1996, the company refinanced several fixed rate revenue bond
issues totaling $108.3 million by issuing similar revenue bonds and using the
proceeds to retire the original debt. The refinancing lowered the weighted
average effective interest rate associated with the bonds to approximately 6.0
percent from approximately 6.8 percent. The new bonds will mature in
approximately 29 years, versus an average remaining life of approximately 10
years for the old bonds. The refinancing resulted in an extraordinary charge
of $.5 million, net of taxes.
The interest rate payable on the 9.125 percent credit sensitive debentures
-26-
<PAGE>
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.
The company redeemed $85.0 million of its 9.625 percent sinking fund
debentures in April 1996, resulting in an extraordinary charge of $2.9
million, net of taxes. The company intends to redeem the remaining $15.0
million of 9.625 percent sinking fund debentures outstanding at December 31,
1996, early in 1997. Because of this intention, the debt was classified as
current at December 31, 1996.
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 this capability and the
likelihood that $50.0 million of the commercial paper will be outstanding for
more than a year, that amount has been classified as long-term debt. The
balance of commercial paper outstanding at December 31, 1996, is classified
as current notes payable in the Balance Sheets. The weighted average interest
rate payable is 5.782 percent.
Certain credit agreements have restrictive covenants. At December 31,
1996, the company was in compliance with such covenants. The company does not
currently have any covenants in any of its loan agreements which limit the
payment of dividends. The company also has no significant assets which have
been pledged, mortgaged or otherwise subjected to liens.
Payments due on long-term debt during each of the five years subsequent to
December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------
<S> <C>
1997 $31,379
- ------------------------------------------------------------------------------
1998 22
- ------------------------------------------------------------------------------
1999 10,021
- ------------------------------------------------------------------------------
2000 10,323
- ------------------------------------------------------------------------------
2001 325
- ------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 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, permit the company to borrow at any time
through May 31, 1997, and may be renewed at that time. The revolving credit
agreement, dated August 27, 1996, terminates on August 30, 2001. At December
31, 1996, there were no borrowings by the company under any credit lines.
-27-
<PAGE>
Note 6. Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 63,714 $ 73,650
Accrued wages, salaries and employee benefits 63,293 58,208
Accrued taxes other than taxes on income 17,372 17,734
Accrued interest 10,673 14,946
Accrued taxes on income 11,765 8,124
Book overdrafts 20,969 28,761
Other 26,699 25,742
- ------------------------------------------------------------------------------
$214,485 $227,165
==============================================================================
</TABLE>
Note 7. Other Long-Term Obligations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $121,574 $116,041
Pension and related liabilities 16,683 18,950
Other 9,835 10,031
- ------------------------------------------------------------------------------
$148,092 $145,022
==============================================================================
</TABLE>
Note 8. Put Options
In December 1994, the company announced a stock repurchase program which
authorizes the company to purchase up to 1 million shares of its common stock
over several years. Under the program, the company can purchase shares of
common stock from time to time through open market and privately negotiated
transactions at prices deemed appropriate by management.
In conjunction with the repurchase program, the company issued put options
which gave the purchaser the right to sell shares of Potlatch stock to the
company at prices ranging from $37.20 to $41.50 per share on specific dates
in 1995, 1996 and 1997. Activity during 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
Put Options Outstanding
Number of Potential
(Dollars in thousands) Options Obligation
- ------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1994 - $ -
Sales 400,000 16,397
Repurchases (100,000) (4,150)
- ------------------------------------------------------------------------------
December 31, 1995 300,000 12,247
Sales 100,000 3,720
Repurchases (100,000) (4,150)
Expirations (100,000) (4,059)
- ------------------------------------------------------------------------------
December 31, 1996 200,000 $ 7,758
==============================================================================
</TABLE>
The company's potential obligation of $7.8 million and $12.2 million at
December 31, 1996 and 1995, respectively, is classified as Put options in the
Balance Sheets and the related offset is recorded in Common shares in treasury
under Stockholders' equity.
-28-
<PAGE>
Note 9. Disclosures about Fair Value of Financial Instruments
Estimated fair values of the company's financial instruments:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 12,316 $ 12,316 $110,154 $110,154
Current notes payable 14,281 14,281 - -
Long-term debt 703,427 738,521 738,150 792,448
Put options 7,758 7,758 12,247 12,247
==============================================================================
</TABLE>
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.
CURRENT NOTES PAYABLE
The fair value of the company's current notes payable, which consist of
commercial paper, is estimated based upon the quoted market prices for the
same or similar issues.
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.
PUT OPTIONS
The fair value of the company's put options is estimated based upon the
underlying contracts for the options.
Note 10. Retirement, Incentive and Savings Plans
Substantially all employees of the company are covered by noncontributory
defined benefit pension plans. These include both company-sponsored and
multi-employer plans. Total pension expense was $3.8 million in 1996, $6.3
million in 1995 and $4.5 million in 1994. The 1995 and 1994 pension expense
excludes $1.0 million and $4.6 million, respectively, for early retirement
programs which is included in Other income (expense), net in the Statements
of Earnings.
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 of the company were covered under a noncontributory defined
-29-
<PAGE>
benefit pension plan which was terminated at December 31, 1996. The effect
of terminating the plan was not material.
Pension cost for company-sponsored plans:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 9,773 $ 8,312 $ 8,440
Interest cost on projected benefit obligation 28,029 27,366 24,949
Actual return on assets (77,600) (94,103) 3,670
Net amortization and deferral 40,452 62,013 (35,208)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 654 $ 3,588 $ 1,851
==============================================================================
</TABLE>
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) 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 350,697 $ 328,964 $ 9,942 $ 23,920 $ 360,639 $ 352,884
Accumulated benefit obligation 371,038 342,238 9,944 25,245 380,982 367,483
Projected benefit obligation 391,903 360,433 12,262 27,532 404,165 387,965
========================================================================================================
Plan assets at fair value,
primarily publicly traded
equity and fixed income
securities $ 485,349 $ 401,406 $ - $ 12,439 $ 485,349 $ 413,845
Projected benefit obligation (391,903) (360,433) (12,262) (27,532) (404,165) (387,965)
- --------------------------------------------------------------------------------------------------------
Plan assets above (below)
projected benefit obligation 93,446 40,973 (12,262) (15,093) 81,184 25,880
Unrecognized prior service cost 16,301 11,940 3,585 4,880 19,886 16,820
Unrecognized net gain (61,020) (20,968) (4,376) (4,750) (65,396) (25,718)
Unrecognized net transition asset (1,917) (3,812) - (578) (1,917) (4,390)
Adjustment required to recognize
minimum liability - - - (395) - (395)
- --------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 46,810 $ 28,133 $(13,053) $(15,936) $ 33,757 $ 12,197
========================================================================================================
</TABLE>
The projected benefit obligation for the company's unfunded, nonqualified
plans at December 31, 1996 and 1995, was $12.3 million and $14.2 million,
respectively. These amounts are included in the total for Plans Where
Accumulated Benefits Exceed Assets.
The projected benefit obligation at December 31, 1996, 1995 and 1994, was
determined using an assumed discount rate of 7.50 percent, 7.50 percent and
8.25 percent, respectively, and an assumed long-term rate of salaried
compensation increase of 5 percent for each year. The assumed rate of return
on plan assets was 9.5 percent for 1996, 1995 and 1994. The actual annual
return on plan assets has averaged approximately 13.1 percent over the past
19 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 $3.1
-30-
<PAGE>
million for 1996, $2.7 million for 1995 and $2.6 million for 1994 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 11. Postretirement Benefits Other Than Pensions
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) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 3,034 $ 3,437 $ 3,931
Interest cost on accumulated
postretirement benefit obligation 10,632 12,370 11,054
Actual return on assets (4,793) (7,063) 330
Net amortization and deferral 2,112 5,674 (2,026)
- ------------------------------------------------------------------------------
Net periodic postretirement benefit cost $10,985 $14,418 $13,289
==============================================================================
</TABLE>
The 1996 postretirement benefit cost presented above excludes a $3.0
million actuarial gain while the 1995 and 1994 postretirement benefit costs
exclude actuarial charges of $.5 million and $1.9 million, respectively, for
early retirement programs. These amounts are included in Other income
(expense), net in the Statements of Earnings.
Funded status and related balance sheet amounts for postretirement health
care and life insurance plans at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (78,958) $ (92,720)
Fully eligible active plan participants (20,646) (22,426)
Other active plan participants (42,756) (63,572)
- ------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation (142,360) (178,718)
Plan assets at fair value, primarily publicly
traded equity and fixed income securities 34,718 34,769
- ------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (107,642) (143,949)
Unrecognized prior service cost (6,329) 7,147
Unrecognized net (gain) loss (7,603) 20,761
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost $(121,574) $(116,041)
==============================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1996, 1995 and 1994, was 7.50 percent, 7.50 percent
-31-
<PAGE>
and 8.25 percent, respectively. The expected long-term rate of return on plan
assets for 1996, 1995 and 1994 was 9.5 percent.
The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation at December 31, 1996, 1995 and
1994 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, 1996, to
$165.1 million and increased the net periodic cost for 1996 to $13.7 million
from the $11.0 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.
Note 12. Stock Compensation Plans
The company currently has three fixed stock option plans under which options
are outstanding. Under these plans, options for shares of the company's stock
have been issued to certain key personnel. Beginning in 1995, options for
shares have been issued to nonemployee directors under the 1995 Stock
Incentive Plan. Options are granted at market value and prior to 1995 may
have included 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, 1996. Options are fully exercisable after two
years and expire not later than 10 years from the date of grant. The company
was originally authorized to issue up to 1.2 million, 1.5 million and 1.7
million shares under its 1983 Stock Option Plan, 1989 Stock Incentive Plan and
1995 Stock Incentive Plan, respectively. At December 31, 1996, remaining
shares authorized for future use under the Plans totaled 1.3 million.
The company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized when options are granted under the plans. Compensation costs
of $1.3 million charged against earnings in each of 1996 and 1995, relate to
existing stock appreciation rights. Had compensation costs for the plans been
determined based on the fair value at the grant dates for option awards under
those plans as prescribed by FASB Statement No. 123, the company's net
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands - except per-share amounts)
For the years ended December 31 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Net earnings as reported $58,089 $108,546
pro forma 57,317 108,487
Earnings per share as reported $2.01 $3.72
pro forma 1.98 3.72
</TABLE>
The pro forma information presented above includes only the effects of
applying the provisions of FASB Statement No. 123 to options granted in 1995
and later years. Because options generally vest over a two year period and
-32-
additional awards are made each year, the pro forma 1996 and 1995 figures are
not representative of the effect FASB Statement No. 123 would have had on net
earnings and earnings per share had it been applied to years earlier than
1995.
A summary of the status of the company's stock option plans as of December
31, 1996 and 1995 and changes during those years is presented below:
<TABLE>
1996 1995
-------------------------------------------------
Weighted Avg. Weighted Avg.
Options Shares Exercise Price Shares Exercise Price
------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at January 1 1,446,450 $39.11 1,164,800 $38.35
Granted 370,750 44.38 323,000 * 41.25
Shares exercised (31,325) 32.20 (8,975) 31.18
SARs exercised (62,275) 32.52 (20,050) 31.52
Canceled or expired (17,700) 39.56 (12,325) 41.93
--------- ---------
Outstanding at December 31 1,705,900 40.61 1,446,450 39.11
Options exercisable 1,177,850 39.34 986,600 38.76
Options outstanding which
include a stock appreciation
right 668,025 717,600
Shares reserved for
future grants 1,288,025 1,641,075 *
Fair value of options
granted during the year $8.65 $7.20
<FN>
*Includes options for shares under a plan approved by the board of directors in 1995 and stockholders in
1996.
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 3.83 and 4.02
percent; stock volatility of .1602 and .1604; risk free rate of return of 6.13
and 5.75 percent; and expected term of 10 years for all grants.
The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Number Weighted Avg. Number
Range of Outstanding Remaining Weighted Avg. Exercisable Weighted Avg.
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$26.25 to $30.25 104,175 3.0 years $29.27 104,175 $29.27
$32.625 to $36.50 491,550 6.2 years 35.24 491,550 35.24
$41.25 to $46.375 1,110,175 8.4 years 44.06 582,125 44.61
$26.25 to $46.375 1,705,900 7.4 years $40.61 1,177,850 $39.34
</TABLE>
-33-
<PAGE>
Note 13. Segment Information
Following is a tabulation of business segment information for each of the
past three years:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to Unaffiliated Customers:(1)
Wood products:
Oriented strand board $ 150,438 $ 204,250 $ 224,586
Lumber 201,018 173,424 196,577
Plywood 57,462 73,954 73,413
Particleboard 12,087 15,564 17,058
Other 54,202 39,055 41,078
- ------------------------------------------------------------------------------
475,207 506,247 552,712
- ------------------------------------------------------------------------------
Printing papers 440,758 442,412 405,553
- ------------------------------------------------------------------------------
Other pulp-based products:
Pulp 12,346 21,797 10,812
Paperboard 404,011 438,196 335,803
Tissue 222,127 196,554 166,378
- ------------------------------------------------------------------------------
638,484 656,547 512,993
- ------------------------------------------------------------------------------
Total $1,554,449 $1,605,206 $1,471,258
==============================================================================
Intersegment Sales or Transfers:(2)
Wood products $ 57,033 $ 76,130 $ 64,111
Printing papers 279 160 10
Other pulp-based products 167 146 159
- ------------------------------------------------------------------------------
Total $ 57,479 $ 76,436 $ 64,280
==============================================================================
Operating Income (Loss):
Wood products $ 68,056 $ 122,231 $ 160,345
Printing papers 48,570 50,618 40,174
Other pulp-based products 40,867 70,776 (53,462)
- ------------------------------------------------------------------------------
157,493 243,625 147,057
Corporate Items:
Administration expense (30,752) (26,875) (21,389)
Interest expense (43,869) (47,976) (51,137)
Interest and dividend income 2,457 2,019 348
Other, net 997 146 1,082
- ------------------------------------------------------------------------------
Earnings before taxes on income and
extraordinary item $ 86,326 $ 170,939 $ 75,961
==============================================================================
Identifiable Assets:
Wood products $ 698,151 $ 696,175 $ 697,144
Printing papers 592,228 531,272 462,721
Other pulp-based products 850,612 835,378 804,267
Corporate 124,688 202,486 117,097
- ------------------------------------------------------------------------------
Total $2,265,679 $2,265,311 $2,081,229
==============================================================================
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation, Amortization and
Cost of Fee Timber Harvested:
Wood products $ 49,072 $ 47,305 $ 49,510
Printing papers 35,318 32,587 31,754
Other pulp-based products 56,092 55,870 55,962
Corporate 1,039 1,269 1,025
- ------------------------------------------------------------------------------
Total $ 141,521 $ 137,031 $ 138,251
==============================================================================
Capital Expenditures:
Wood products $ 43,992 $ 41,802 $ 37,918
Printing papers 103,574 90,610 25,247
Other pulp-based products 92,083 38,036 40,771
Corporate 259 206 453
- ------------------------------------------------------------------------------
Total $ 239,908 $ 170,654 $ 104,389
==============================================================================
<FN>
(1) Total export sales, including those made through brokers and agents,
amounted to $196.6 million, $204.1 million and $133.1 million in
1996, 1995 and 1994, respectively. Export paperboard sales for these
years (a majority of which were shipped to Japan, Australia and China)
amounted to 86 percent, 88 percent and 85 percent, respectively, of
total export sales.
(2) Intersegment sales for 1994-1996, the majority of which are based on
prevailing market prices, consisted primarily of chips, pulp logs and
other fiber sales to the pulp and papermaking facilities. The
company's timber, timberlands and related logging facilities have been
assigned to the wood products segment.
</TABLE>
Note 14. Other Income (Expense), Net
The following is a summary of items included in Other income (expense),
net:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Early retirement programs $ - $(1,979) $(8,157)
Other 5,051 (729) 6,190
- ------------------------------------------------------------------------------
$5,051 $(2,708) $(1,967)
==============================================================================
</TABLE>
-35-
<PAGE>
Note 15. Financial Results by Quarter (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands - except per-share amounts) Three Months Ended
- ---------------------------------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $388,621 $394,608 $386,068 $397,243 $398,227 $411,186 $381,533 $402,169
- ---------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested 35,064 32,707 33,244 32,491 37,377 35,598 35,836 36,235
Materials, labor and other
operating expenses 308,549 288,929 290,451 292,804 299,230 293,432 287,897 282,837
Selling, general and
administrative expenses 24,631 23,194 23,624 22,207 25,857 21,826 30,002 23,342
- ---------------------------------------------------------------------------------------------------------------------
368,244 344,830 347,319 347,502 362,464 350,856 353,735 342,414
- ---------------------------------------------------------------------------------------------------------------------
Earnings from operations $ 20,377 $ 49,778 $ 38,749 $ 49,741 $ 35,763 $ 60,330 $ 27,798 $ 59,755
=====================================================================================================================
Net earnings $ 4,963 $ 23,533 $ 15,200 $ 23,904 $ 19,541 $ 31,749 $ 18,385 $ 29,360
=====================================================================================================================
Net earnings per common share:
Before extraordinary item $.17 $.81 $.63 $.81 $.68 $1.09 $.65 $1.01
After extraordinary item .17 .81 .53 .81 .68 1.09 .63 1.01
=====================================================================================================================
</TABLE>
-36-
<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, 1996 and 1995 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996. In connection with
our audits of the financial statements, we also have audited the financial
statement schedule on page 38. These financial statements and financial
statement schedule are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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, 1996 and 1995 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Portland, Oregon
January 22, 1997
-37-
<PAGE>
<TABLE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<CAPTION>
Amounts
Balance at charged 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, 1996 $2,365 $ 12 $(102)1 $2,275
=============================================
Year ended December 31, 1995 $2,625 $109 $(369)1 $2,365
=============================================
Year ended December 31, 1994 $2,057 $621 $ (53)1 $2,625
=============================================
<FN>
1 - Accounts written off - net of recoveries.
</TABLE>
-38-
<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 March 1, 1996, filed as
Exhibit (3)(c) to the Annual Report on Form 10-K for the
fiscal ended December 31, 1995 ("1995 Form 10-K").
(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 November 27, 1990, filed
as Exhibit (4)(a) to the 1995 Form 10-K.
*(4)(a)(i) Officers' Certificate, dated January 24, 1991, filed as
Exhibit (4)(a)(i) to the 1995 Form 10-K.
(4)(a)(ii) Officers' Certificate, dated December 12, 1991.
*(10)(a)1 Potlatch Corporation Management Performance Award Plan,
as amended effective March 1, 1996, filed as Exhibit
(10)(a) to the 1995 Form 10-K.
*(10)(b)1 Potlatch Corporation Severance Program for Executive
Employees, as amended and restated as of February 24,
1989, filed as Exhibit (10)(b)(iv) to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1993
("1993 Form 10-K").
*(10)(c)2 Letter agreement, dated May 21, 1979, between Potlatch
Corporation and George F. Jewett, Jr., regarding
consulting services and amendment thereto dated
February 19, 1986, filed as Exhibit (10)(c) to the 1995
Form 10-K.
*(10)(d)1 Potlatch Corporation Salaried Employees' Supplemental
Benefit Plan (As Amended and Restated Effective
January 1, 1988), filed as Exhibit (10)(d)(i) to the 1993
Form 10-K.
*(10)(d)(i)1 Amendment, effective as of December 31, 1992, to Plan
described in Exhibit (10)(d), filed as Exhibit
(10)(d)(ii) to the 1992 Form 10-K.
*Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
-39-
<PAGE>
*(10)(e)2 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)(f)1 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, filed as Exhibit (10)(r) to the 1993
Form 10-K.
*(10)(f)(i)1 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)(g)(i) to the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 ("1994 Form 10-K").
*(10)(f)(ii)1 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)(g)(ii) to the 1994 Form 10-K.
*(10)(f)(iii)1 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)(f)(iii) to
the 1995 Form 10-K.
*(10)(g)1 Potlatch Corporation Deferred Compensation Plan for
Directors, as amended and restated as of May 1991, filed
as Exhibit (10)(h) to the 1994 Form 10-K.
(10)(g)(i)1 Appendix A to the Plan set forth in Exhibit (10)(g) which
became effective December 31, 1996.
*(10)(h)1 Potlatch Corporation Directors' Retirement Plan,
effective October 1, 1989, filed as Exhibit (10)(i) to
the 1994 Form 10-K.
(10)(h)(i)1 Termination of the Plan set forth in Exhibit (10)(h)
which became effective December 31, 1996.
*(10)(i)1 Compensation of Directors, dated May 18, 1995, filed as
Exhibit (10)(i) to the 1995 Form 10-K.
(10)(j)2 Form of Indemnification Agreement with each director of
Potlatch Corporation, as set forth on Schedule A.
* Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
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<PAGE>
(10)(k)2 Form of Indemnification Agreement with certain officers
of Potlatch Corporation as set forth on Schedule A.
*(10)(l)1 Potlatch Corporation 1989 Stock Incentive Plan adopted
December 8, 1988, and as amended and restated
February 24, 1989, filed as Exhibit (10)(z) to the 1993
Form 10-K.
*(10)(l)(i)1 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)(m)(i) to the
1994 Form 10-K.
*(10)(l)(ii)1 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 1990-1996, filed as Exhibit (10)(l)(ii) to
the 1995 Form 10-K.
*(10)(m)1 Form of Amendments to Stock Options and Stock Incentive
Plans, dated March 30, 1990, filed as Exhibit (10)(m) to
the 1995 Form 10-K.
*(10)(n)1 Potlatch Corporation 1995 Stock Incentive Plan adopted
December 7, 1995, filed as Exhibit (10)(n) to the 1995
Form 10-K.
*(10)(n)(i)1 Form of Stock Option Agreement used for employees for the
Potlatch Corporation 1995 Stock Incentive Plan together
with the Addendum thereto as used for options granted in
December, 1995, filed as Exhibit (10)(n)(i) to the 1995
Form 10-K.
(10)(n)(ii)1 Form of Addendum used in connection with the Stock Option
Agreement set forth in Exhibit (10)(n)(i) for options
granted in December, 1996.
(10)(n)(iii)1 Form of Stock Option Agreement used for outside directors
for the Potlatch Corporation 1995 Stock Incentive Plan
together with the Form of Addendum used for options
granted in December 1995 and the Form of Addendum used
for options granted in December 1996.
(22) Potlatch Corporation Subsidiaries.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
*Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
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POTLATCH CORPORATION
OFFICERS CERTIFICATE
We, GEORGE E. PFAUTSCH, Senior Vice President,
Finance, and SANDRA T. POWELL, Treasurer, of Potlatch
Corporation, a Delaware corporation (the "Company"), do
hereby certify in accordance with Section 301 of the
Indenture, dated as of November 27, 1990 (the "Indenture"),
between the Company and Bankers Trust Company of California,
National Association, as trustee (the "Trustee"), that,
pursuant to resolutions adopted by the Finance Committee of
the Board of Directors of the Company on December 12, 1991,
the terms of a second series of debt securities of the
Company under the Indenture are as follows:
1. The title of the series of securities
shall be "Medium-Term Notes Due from 9 Months to
30 Years from Date of Issue" (the "Notes");
2. The limit on the aggregate principal
amount of the Notes which may be authenticated And
delivered under the Indenture shall be U.S.
$100,000,000 (except for Notes authenticated and
delivered upon registration of, transfer of, or in
exchange of, or in lieu of, other Notes pursuant
to Sections 304, 305, 306, 906, 1107 and 1305 of
the Indenture);
3. The price of the Notes will be set forth
in the applicable Pricing Supplement in the form
attached hereto as Exhibit A (the "Pricing
Supplement") and the date on which the principal
(and premium, if any) of each of the Notes is
payable shall be any Business Day (as defined in
the Indenture) from nine months to thirty years
from its date of issue, as selected by the initial
purchaser of the Notes and agreed to and estab-
lished on behalf of the Company by any of the
Chairman of the Board and Chief Executive Officer,
the President, the Senior Vice President, Finance,
or the Treasurer (the "Authorized Officers"), from
time to time, as evidenced by the settlement
instructions in the form attached hereto as
Exhibit B which shall be provided to the Trustee
in connection with a request to authenticate such
securities pursuant to a Company Order, as such
term is defined in the Indenture (the Settlement
Instructions and the Company Order being herein
referred to collectively as "Settlement
Instructions");
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Exhibit (4)(a)(ii)
<PAGE>
4. The interest on the Notes shall be
payable only at a fixed coupon rate, such rate to
be selected by the initial purchasers of the Notes
and agreed to and established on behalf of the
Corporation by an Authorized Officer, from time to
time, as evidenced by the Settlement Instructions;
provided, however, that the interest rate shall
not exceed a fixed coupon rate of eight and one-
quarter percent per annum for Notes issued with
maturities of up to ten years and shall not exceed
a fixed coupon rate of nine and one-quarter
percent per annum for Notes issued with maturities
of ten years or longer. The Interest Payment
Dates and the Regular Record Dates for the
interest payable on any Interest Payment Date
shall be set forth in the Prospectus Supplement
relating to the Notes dated December 12, 1991 (the
"Prospectus Supplement");
5. The principal of (and premium, if any)
and interest on the Notes shall be payable, Notes
may be surrendered for registration of transfer,
Notes may be surrendered for exchange, and notices
and demands to or upon the Company in respect of
the Notes and the Indenture may be served, at the
office or agency of the Company which will
initially be the office of the agent of the
Trustee at Bankers Trust Company, 4 Albany Street,
New York, New York 10015, or at such other places
as the Company may designate;
6. The obligation, if any, of the Company to
redeem or purchase the Notes pursuant to any
sinking fund or analogous provisions and the
period or periods within which, the price or
prices at which and the terms and conditions upon
which the Notes shall be redeemed or purchased, in
whole or in part, pursuant to such obligation will
be set forth in the Settlement Instructions;
7. The period or periods within which, the
price or prices at which and the terms and
conditions upon which the Notes may be repaid, in
whole or in part, at the option of the Holders
will be set forth in the Settlement Instructions;
8. The right, if any, of the Company to
execute and deliver to the Trustee, and to direct
the Trustee to authenticate and deliver in
accordance with a Company Order, a security of any
series in lieu of or in exchange for the Notes
cancelled upon redemption or repayment will be set
forth in the Settlement Instructions;
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<PAGE>
9. The Notes will be issuable only in
denominations of U.S. $100,000 and integral
multiples of U.S. $1,000 in excess thereof unless
otherwise set forth in the Settlement
Instructions;
10. The portion of the principal amount of
the Notes, if other than the principal amount
thereof, which shall be payable upon declaration
of acceleration of the Maturity thereof pursuant
to Section 502 of the Indenture will be set forth
in the Settlement Instructions;
11. The Notes are to be issuable as
Registered Securities, without coupons in
permanent global form. Beneficial owners of
interests in any such permanent Global Security
may exchange such interests for securities of such
series and of like tenor under the circumstances
set forth in the Prospectus Supplement;
12. Whether and under what circumstances the
Company will pay additional amounts on Notes held
by a person who is not a U.S. Person, as defined
in the Indenture, in respect of taxes or similar
charges withheld or deducted and, whether the
Company will have the option to redeem such Notes
rather than pay such additional amounts will be
set forth in the Settlement Instructions;
13. If the amount of payments of principal
of (and premium, if any) or interest on the Notes
may be determined with reference to an index, the
manner in which such amounts shall be determined
shall be set forth in the Settlement Instructions;
14. The Notes shall be in substantially the
form attached hereto as Exhibit C.
15. The extent to which, or the manner in
which, any interest payable on a temporary or
permanent Global Security on an Interest Payment
Date will be paid will be set forth in the
Prospectus Supplement;
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<PAGE>
16. Any other terms, conditions and rights
of the Notes will be set forth in the Settlement
Instructions.
IN WITNESS WHEREOF, we have hereunto signed our
names this 12th day of December, 1991.
George E. Pfautsch
----------------------
George E. Pfautsch
Senior Vice President,
Finance
Sandra T. Powell
----------------------
Sandra T. Powell
Treasurer
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<PAGE>
Exhibit A
Pricing Supplement No. Filing under Rule 424(b)(3)
Dated Registration File No. 33-37910
(To Prospectus dated December 11,
1990 and Prospectus Supplement
dated December 12, 1991)
$100,000,000
POTLATCH CORPORATION
Medium-Term Notes
Due from 9 Months to 30 Years from Date of Issue
Principal Amount: Floating Rate Notes:
Interest Rate (if fixed rate): Interest rate basis:
Stated Maturity: _ Commercial Paper Rate
Specified Currency: _ Prime Rate
Applicable Exchange Rate (if any): _ LIBOR
U.S.$1.00 = _ Treasury Rate
Issue price (as a percentage
of principal amount): _ CD Rate
Form: _ Federal Funds Rate
Book - Entry _ Other
Certificated _ Index Maturity:
Selling Agent's commission (%): Spread:
Purchasing Agent's discount or commission (%): Spread Multiplier:
Net proceeds to the Company (%): Maximum Rate:
Settlement date (original issue date): Minimum Rate:
Redemption Commencement Date (if any): Initial Interest Rate:
Interest Reset Date(s):
Interest Determination Date(s):
Calculation Date(s):
Interest Payment Date(s):
Regular Record Date(s):
Redemption price (if any):
The Redemption Price shall initially be % of the pricipal amount of such
Notes to be redeemed and shall decline (but not below par) on each anniversary
of the date of original issuance by % of the principal amount to be redeemed
until the Redemption Price is 100% of such principal amount.
If such Notes are denominated in other than U.S. dollars, the applicable
Foreign Currency Supplement is attached hereto.
Additional terms:
As of the date of this Pricing Supplement, the aggregate initial public
offering price (or its equivalent in other currencies) of the Debt Securities
(as defined in the Prospectus) which have been sold (including the Notes to
which this Pricing Supplement relates) is $ .
"N/A" as used herein means "Not Applicable." "A/S" as used herein means
"As stated in the Prospectus Supplement referred to above."
Goldman, Sachs & Co. Salomon Brothers Inc
<PAGE>
Exhibit B
(To be delivered to Bankers Trust Company
as Authenticating Agent for the Trustee)
POTLATCH CORPORATION
Medium-Term Notes
Due from 9 Months to 30 Years from Date of Issue
Settlement Instructions
1. Exact name in which the Note is to be registered
("registered owner"):
2. Exact address of registered owner and, if different,
the address for delivery, notices and payment of prin-
cipal and interest:
3. TIN of registered owner:
4. Principal amount of Note in authorized denominations to
be delivered to the registered owner:
5. Interest rate of Note:
A. In the case of a Fixed Rate Note, the Interest
Rate and the initial Interest Payment Date:
B. In the case of a Floating Rate Note:
1. Base Rate:
2. Initial Interest Rate (if available):
3. Interest Reset Dates:
4. Interest Payment Dates:
5. Regular Record Dates:
6. Interest Determination Dates:
7. Index Maturity:
8. Maturity:
9. Maximum Interest Rate (if any):
10. Minimum Interest Rate (if any):
11. Spread or Spread Multiplier (if any):
12. Calculation Agent:
6. Stated Maturity:
7. Redemption provisions, if any, including, as
applicable:
A. Redemption Commencement Date:
B. Initial Redemption Price (% of par):
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<PAGE>
C. Amount (% of par) that the Redemption Price shall
decline (but not below par) on each anniversary of
the Redemption Commencement Date:
D. Other:
8. If an Original Issue Discount Note, the total amount of
Original Issue Discount, the yield to Maturity and the
initial accrual period of original issue discount:
9. Settlement Date (Issue Date):
10. Specified Currency and, if the Specified Currency is
other than U.S. dollars, the applicable Exchange Rate
for such Specified Currency:
11. Indexed Currency, the Base Rate and the Exchange Rate
Determination Date, if applicable:
12. Presenting Agent's Commission (to be paid in the form
of a discount from the proceeds remitted to the Issuer
upon settlement):
13. Presenting Agent:
14. Issue Price:
15. Net Proceeds to the Company:
16. Trade Date:
17. Wire transfer information:
18. Additional terms:
Potlatch Corporation (the "Company") represents and
warrants that (i) the above-mentioned terms of the Notes
have been determined in accordance with the resolutions of
the Board of Directors of the Company dated September 21,
1990, and the resolutions of the Finance Committee of the
Company dated December 12, 1991 and the Officers' Certifi-
cate dated ____________,_________ ; and (ii) the aggregate
principal amount of all Notes heretofore authenticated
(prior to giving effect to any authentication of the Notes
herein requested to be authenticated) is $_______________.
POTLATCH CORPORATION
By____________________
Its_________________
CC: Bankers Trust Company of California,
National Association
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<PAGE>
Exhibit C
(Form of Fixed-Rate Note)
(Form of Face)
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DEPOSITARY") (55 WATER STREET, NEW YORk, NEW
YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF
THE DEPOSITARY OR A SUCCESSOR OF THE DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR."
REGISTERED REGISTERED
POTLATCH CORPORATION
MEDIUM-TERM NOTES DUE FROM 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
CUSIP:
Registered No: Principal Amount: U.S. $
Interest
Payment Dates: Regular Record Dates:
Issue Date: Interest Rate:
Stated Maturity:
Repayment Terms: Redemption Terms:
Repayment Dates: Redemption Commencement Date:
Repayment Prices: Initial Redemption Price:
Reduction Percentages: %
Other Terms:
POTLATCH CORPORATION, a Delaware corporation (the "Company"), which
term includes any successor corporation under the Indenture hereinafter
referred to, for value received, hereby promises to pay to
, or its registered assigns, the Principal Amount
specified above on the Stated Maturity date specified above (unless earlier
redeemed or repaid), and to pay interest on such Principal Amount at the
per annum Interest Rate specified above on each succeeding Interest Payment
-1-
<PAGE>
Date (as defined below) until payment of said principal sum has been made
or made available for payment; provided, however, if the Issue Date is
after the Regular Record Date (as defined below) and before the next
succeeding Interest Payment Date, then interest hereon shall be paid on the
Interest Payment Date following the next succeeding Regular Record Date.
Interest hereon shall accrue from the Issue Date or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
The term "Interest Payment Date" for any regular payment of interest shall
mean June 1, December 1 and any date fixed for redemption or repayment
pursuant to the Indenture (as defined below) and this Security (the
"Redemption Date") and the Stated Maturity. The term "Regular Record Date"
for any regular payment of interest, other than any Redemption Date or the
Stated Maturity, shall mean the May 15 or November 15 next preceding such
June 1 or December 1 (whether or not a Business Day), as the case may be.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or a predecessor security in exchange
for or transfer of which this Security was issued between the Regular
Record Date for such interest and the Interest Payment Date) is registered
at the close of business on the Regular Record Date for such interest.
Interest payable at the Stated Maturity or Redemption Date shall be paid to
the Person to whom the Principal Amount is paid. Interest shall be
calculated on the basis of a 360-day year of twelve 30-day months. Any
such interest not so punctually paid or duly provided for shall be payable
as provided in the Indenture.
Payment of the principal of, and premium, if any, and interest payable
upon Maturity or redemption of, this Security shall be made in immediately
available funds at the offices of Bankers Trust Company, in the Borough of
Manhattan, The City of New York (the "Paying Agent"), upon presentation of
this Security. Alternatively, such payments shall be made at such other
offices or agencies of the Company maintained for that purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States as at the time of payment is legal tender for payment of
public and private debts. Payment of interest, other than interest payable
upon Maturity or redemption, will be made by United States dollar check
mailed on the applicable interest payment date to the address of the Person
entitled thereto as such address shall appear in the Security Register.
The Company may also appoint additional paying agents. Notwithstanding the
foregoing, (a) a Holder of U.S. $5,000,000 or more in aggregate principal
amount of Notes of like tenor and terms may elect at any time to have
payment of interest made by wire transfer in immediately available funds,
but only if appropriate instructions have been received in writing by
Bankers Trust Company (or other paying agent) on or prior to the applicable
Regular Record Date for such payment of interest, and (b) payment of
interest on a Note registered in the name of The Depository Trust Company
or its nominee shall be made by wire transfer in immediately available
funds.
This Security is one of a duly authorized issuance of Medium-Term
Notes Due from 9 Months to 30 Years from Date of Issue of the Company (the
"Securities"), which have been issued under and are governed by the terms
of an Indenture dated as of November 27, 1990 (the "Indenture") between the
Company and Bankers Trust Company of California, National Association, as
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<PAGE>
Trustee (the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the respective rights
thereunder of the Company, the Trustee and the Holders of the Securities,
and the terms upon which the Securities are, and are to be, authenticated
and delivered.
Reference is made to the further provisions of this Security set forth
on the reverse hereof, which shall have the same effect as though duly set
forth at this place.
This Security shall not be valid or obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by
the Trustee.
IN WITNESS WHEREOF, POTLATCH CORPORATION has caused this instrument to
be signed in its name by the manual or facsimile signature of its Chairman
of the Board and Chief Executive Officer, the President, the Senior Vice
President, Finance or its Treasurer and impressed or imprinted with its
corporate seal or facsimile thereof, attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated:______________ ,_______.
POTLATCH CORPORATION
By_____________________
Sandra T. Powell
Treasurer
(Corporate Seal)
Attest:
(Assistant) Secretary
This is one of the Securities of the series designated herein,
referred to in the within-mentioned Indenture.
BANKERS TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION, as Trustee
By: Bankers Trust Company
as Authenticating Agent
By__________________________
Authorized Signature
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<PAGE>
(REVERSE SIDE OF FIXED-RATE NOTE)
POTLATCH CORPORATION
MEDIUM-TERM NOTES DUE FROM 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
This Security is one of a duly authorized issuance of
Securities of the Company designated as its Medium-Term Notes Due
from 9 Months to 30 Years from Date of Issue (the "Securities"),
limited in aggregate principal amount to $100,000,000, subject to
reduction or increase upon the determination of the Company, all
issued or to be issued under and pursuant to an Indenture dated as
of November 27, 1990 between the Company and Bankers Trust Company
of California, National Association, as Trustee (the "Trustee"), to
which Indenture and all indentures supplemental thereto (the
"Indenture") reference is hereby made for a description of the
rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the Holders of the
Securities. The Securities will be issued only in fully registered
form in denominations of $100,000 principal amount and integral
multiples of $1,000 in excess thereof.
This Security may not be redeemed before the Redemption
Commencement Date, if any, stated on the face hereof. If no
Redemption Commencement Date is indicated hereon, this Security is
not redeemable prior to the Stated Maturity hereof. On or after the
Redemption Commencement Date, this Security may be redeemed in
accordance with its terms and the Indenture. In the event of
redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, with
respect to the Securities shall have occurred and be continuing, the
principal hereof (unless otherwise indicated on the face hereof) may
be declared, and upon such declaration shall become, due and payable,
in the manner, with the effect and subject to the conditions provided
in the Indenture. In addition to the Events of Default in the Indenture
that are applicable to the Securities, the Company covenants that an
Event of Default with respect to the Securities will include the
following: a default under any bond, debenture, note or other evidence
of indebtedness for money borrowed in excess of $10,000,000 by the
Company (including a default with respect to any series of debt securities
issued under the Indenture other than the Securities of this series) or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness
for money borrowed in excess of $10,000,000 by the Company (including the
Indenture), whether such indebtedness now exists or shall hereafter
be created, which default (i) shall consist of a failure to pay such
indebtedness at final maturity and after the expiration of the
applicable grace period or (ii) shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
acceleration having been rescinded or annulled or such indebtedness having
been discharged, in all cases within a period of 10 days after there shall
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<PAGE>
have been given, by registered or certified mail, to the Company by
the Trustee, or to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Securities, a written
notice specifying such default and requiring the Company to cause
such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of
Default" under the Indenture. The Trustee shall not be deemed to
have knowledge of such default unless either (a) a Responsible
Officer of the Trustee shall have actual knowledge of such default
or (b) the Trustee shall receive written notice thereof from the
Company, from any Holder, from the holder of any such indebtedness
or from the trustee under any such mortgage, indenture or other
instrument.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the
Securities of each series to be affected under the Indenture at any
time by the Company and the Trustee with the consent of the Holders
of a majority in aggregate principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also
contains provisions permitting the Holders of a majority in
principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such
series, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange hereof or
in lieu hereof, whether or not a notation of such waiver is made
upon this Security. Any Holder may revoke the consent or waiver as
to this Security if the Trustee receives notice of revocation within
the time specified in Section 907 of the Indenture .
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness on this Security and (b) certain
restrictive covenants upon compliance by the Company with certain
conditions set forth therein, which provisions apply to this
Security.
Unless otherwise indicated on the face hereof, the transfer of
this Security is registrable by the registered owner hereof in
person or by his attorney duly authorized in writing at the office of
the Security Registrar or at the office of any transfer agent
designated by the Company for such purpose. Subject to the terms of
the Indenture, upon payment of a sum sufficient to reimburse the
Company for any tax or other governmental charge incident to
transfer to the extent required by the Indenture, and upon surrender
and cancellation of this Security upon any such registration of
transfer, a new Security or Securities of authorized denomination or
denominations, for the same aggregate principal amount, will be
issued to the transferee in exchange herefor.
Prior to due presentation of this Security for registration
of transfer, the Company, the Trustee, the Authenticating Agent,
if any, any agent of the Company or the Trustee, the paying agent
and the Security Registrar may deem and treat the Person in whose
name this Security shall
-5-
<PAGE>
be registered upon the Security Register as the absolute owner
of this Security for all purposes.
No recoup shall be had for the payment of the principal of and
premium, if any, or the interest on this Security, or for any
claim based hereon, or otherwise in respect hereof, or based on or
in respect of the Indenture or any indenture supplemental thereto,
against any incorporator, stockholder, officer, director or
Affiliate, as such, past, present or future, of the Company or of
any respective successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by
the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
The laws of the State of New York shall govern the Indenture
and this Security.
Except as provided in the Indenture, this Security will rank on
a parity with all other unsecured and unsubordinated indebtedness of the
Company.
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<PAGE>
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
_____________________________________________________________________
Please insert Social Security or other identifying number of assignee
_____________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
the within Security and all rights thereunder, hereby irrevocably
constituting and appointing _________________________________________
attorney to transfer said Security on the books of the Company, with
full power of substitution in the premises.
Dated:________________,______
Signature:____________________________
NOTICE: The signature to this
assignment must correspond
with the name as written upon
the face of the within instru-
ment in every particular,
without alteration or
enlargement or any change
whatever and must be
guaranteed by a commercial
bank or trust company having
its principal office or a
correspondent in The City of
New York or by a member firm
of the New York Stock
Exchange.
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POTLATCH CORPORATION DEFERRED
COMPENSATION PLAN FOR DIRECTORS
APPENDIX A
RETIREMENT STOCK UNITS
1. Establishment and Purpose.
This Appendix A to the Potlatch Corporation Deferred
Compensation Plan for Directors (the "Plan") is effective
December 31, 1996. Its purpose is to provide benefits to
Directors who participated in the Potlatch Corporation Directors'
Retirement Plan (the "Retirement Plan"), which is being terminated
on that date. This Appendix A is a part of and shall be
administered in accordance with the terms of the Plan except as
otherwise provided in this Appendix A. Capitalized terms that are
used but not defined in this Appendix A shall have the same
meaning as in the main text of the Plan.
2. Conversion of Retirement Plan Benefits to Stock Units.
In connection with the termination of the Retirement Plan,
the present value of each Director's Retirement Plan accrued
benefit shall be calculated as provided in Section 14(a) of the
Potlatch Corporation Salaried Employees' Retirement Plan, giving
each Eligible Director credit for the lesser of ten years or
actual years of service upon reaching mandatory retirement age.
The present value shall be converted into Stock Units by dividing
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Exhibit (10)(g)(i)
<PAGE>
the present value by the Value of the Corporation's common stock on
December 31, 1996. The resulting Stock Units ("Retirement Stock
Units") shall be credited to a special account for each Director
under this Appendix A.
3. Vesting of Retirement Stock Units.
If a Director has completed at least 10 years of service as a
Director on December 31, 1996, then the Director's Retirement
Stock Units shall be fully vested as of such date. If a Director
has completed fewer than 10 years of service as a Director on
December 31, 1996, then only the amount of the Retirement Stock
Units attributable to actual service as a Director shall be vested
as of December 31, 1996. The balance of the Director's Retirement
Stock Units shall vest in equal installments on each December 31
thereafter until the Director completes 10 years of service as a
Director or retires from the board, whichever is first. If the
Director's service terminates before the Director is fully vested in
his or her Retirement Stock Units, the nonvested Retirement Stock
Units shall be forfeited.
4. Payment Election.
On or before December 31, 1996, each Director who is credited
with Retirement Stock Units shall file an election on the prescribed
form indicating the Year in which payment of the Director's vested
Retirement Stock Units shall commence; provided, however, that
payments shall commence no earlier than the date
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<PAGE>
(a) all units are vested, or (b) board service terminates, and no
later than the Year following the Year in which the Director attains
retirement age. The election shall specify whether payment is to be
made in a single lump sum or in a series of approximately equal
installments over a period of years specified by the Director (but in
no event more than 15 years). If a Director fails to file an election
concerning payment of the Director's vested Retirement Stock Units,
payment shall be made in accordance with the Director's most recent
deferral election pursuant to the Plan, or if the Director has no
prior deferral election, payment shall be made in a single lump sum in
January of the Year following the termination of the Director's service.
Until payment, the Director's Retirement Stock Units shall be
credited with Dividend Equivalents in the same manner as other Stock
Units under the Plan. Payment of vested Retirement Stock Units shall
be made in cash in the same manner as other Stock Units under the
Plan.
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<PAGE>
DIRECTORS' DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FOR RETIREMENT PLAN STOCK UNITS
To: Secretary - Potlatch Corporation
Pursuant to the terms of Appendix A of the Potlatch
Corporation Deferred Compensation Plan for Directors, I
hereby elect to receive payment of my vested retirement plan
stock unit special account as follows:
(1) Date Payments to Commence:
__ Payment of my deferred compensation retirement
plan stock units special account shall begin
January, ______ (year).
Note: This date may be no earlier than the date
(a)all your units are vested or (b) your Board
service terminates, and no later than the year
following your 72nd birthday.
(2) Method of Payment:
Payment of my deferred compensation retirement plan
special account shall be made in cash as follows:
__ Lump sum; or
__ ______ annual installments (not exceeding 15).
____________________ __________________________
(Date) (Director's Signature)
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12/5/96
RESOLUTIONS
DIRECTORS' RETIREMENT PLAN
December 5, 1996
RESOLVED, that the Potlatch Corporation Directors' Retirement
Plan (the "Plan") is terminated effective December 31, 1996; and
be it further
RESOLVED, that notwithstanding any contrary provision of the
Plan, (1) the present value of the accrued benefits of each
Eligible Director (as defined in the Plan) shall be calculated as
of December 31, 1996, as provided in Section 14(a) of the Potlatch
Corporation Salaried Employees' Retirement Plan, giving each
Eligible Director credit for the lesser of ten years or actual
years of service upon reaching mandatory retirement age; (2) such
present value shall be converted into Stock Units by dividing such
present value by the closing price of the Corporation's common
stock on December 31, 1996 as reported in the New York Stock
Exchange, Inc., composite transactions report for such date;
(3) such Stock Units shall be credited to a special account for
each Eligible Director which shall be administered in accordance
with the terms of the Potlatch Corporation Deferred Compensation
Plan for Directors, except that if the Eligible Director has
completed fewer than 10 years of service as an Eligible Director
on December 31, 1996, then only the amount of the special account
attributable to actual service as an Eligible Director shall be
vested as of December 31, 1996, and the balance of the special
account shall vest in equal installments on each December 31
thereafter until the Eligible Director completes 10 years of
service as an Eligible Director or retires from the board,
whichever is first; and (4) other than the provision of special
Stock Units as described above, no amounts shall be payable to an
Eligible Director pursuant to the Plan; and be it further
RESOLVED, that Appendix A to the Potlatch Corporation
Deferred Compensation Plan for Directors shall be adopted
effective December 31, 1996, in the form of the document attached
to these resolutions, to provide for the special Stock Units
described in the preceding resolution.
Exhibit (10)(h)(i)
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, made and entered
into this _____ day of ________ , 198_ ("Agreement"),
by and between POTLATCH CORPORATION, a Delaware Company
("Company"), and ______________________________ (the
"Director"),
W I T N E S S E T H:
Whereas highly competent persons are becoming
more reluctant to serve publicly-owned corporations and
their subsidiaries as directors or in other capacities
unless they are provided with adequate protection through
insurance or indemnification against inordinate risks of
claims and actions against them arising out of their service
to and activities on behalf of the Company; and
Whereas the current difficulty of obtaining
significant amounts of insurance at reasonable premiums and
the uncertainties relating to statutory indemnification have
increased the difficulty of attracting and retaining such
persons; and
Whereas the Board of Directors of the Company
(the "Board") has determined that the inability to attract
and retain such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act
to assure such persons that there will be increased cer-
tainty of such protection in the future:
Whereas it is reasonable, prudent and necessary
for the Company contractually to obligate itself to indem-
nify such persons to the fullest extent permitted by appli-
cable law in order to induce them to serve or continue to
serve the Company free from undue concern that they will not
be so indemnified; and
Whereas Director is willing to serve, continue to
serve and to take on additional service for or on behalf of
the Company on the condition that he be so indemnified:
N o w, T h e r e f o r e, in consideration of
the premises and the covenants in this Agreement, and
intending to be legally bound, the Company and Director do
hereby covenant and agree as follows:
Section 1. Services by Director. Director agrees
to serve as a director so long as he is duly appointed or
elected and qualified in accordance with the applicable
Exhibit (10)(j)
<PAGE>
provisions of the Restated Certificate of Incorporation and
By-laws of the Company or any subsidiary of the Company and
until such time as he resigns or fails to stand for ele-
ction. Director may at any time and for any reason resign
from such position (subject to any other contractual
obligation or other obligation imposed by operation of law),
in which event the Company shall have no obligation under
this Agreement to continue Director in any such position.
Section 2. Amendment of Certificate of Incorpora-
tion. The Company shall use its best efforts to amend the
Restated Certificate of Incorporation of the Company to
contain in substance the following provisions:
A. A director of the corporation shall not be
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director except
for liability which, by express provision of the General
Corporation Law of Delaware as in effect from time to time
(hereinafter the "Delaware Law"), cannot be eliminated.
B. (i) The corporation shall, to the fullest
extent permitted by Delaware Law, indemnify any
person (the "Indemnitee") who is or was involved in
any manner (including, without limitation, as a
party or a witness) in any threatened, pending or
completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative
or investigative (including without limitation, any
action, suit or proceeding brought by or in the
right of the corporation to procure a judgment in
its favor) (a "Proceeding") by reason of the fact
that Indemnitee is or was a director, officer or
employee of the corporation, or is or was serving
another entity in such capacity at the request of
the corporation, against all expenses and
liabilities actually and reasonably incurred by
Indemnitee in connection with such Proceeding.
(ii) The right to indemnification conferred by
this Article shall be presumed to have been relied
upon by the Indemnitee and shall be enforceable as a
contract right. The corporation may enter into
contracts to provide individual Indemnitees with
specific rights of indemnification to the fullest
extent permitted by Delaware Law and may create
trust funds, grant security interests, obtain
letters of credit or use other means to ensure the
payment of such amounts as may be necessary to
effect the rights provided in this Article or in any
such contract.
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<PAGE>
(iii) Upon making a request for indemnification,
Indemnitee shall be presumed to be entitled to
indemnification under this Article and the
corporation shall have the burden of proof to
overcome that presumption in reaching any contrary
determination. Such indemnification shall include
the right to receive payment in advance of any
expenses incurred by the Indemnitee in connection
with any Proceeding, consistent with the
provisions of Delaware Law.
C. Any repeal or modification of the foregoing
provisions of this Article shall not adversely affect any
right or protection of any director or any Indemnitee
existing at the time of such repeal or modification.
D. The amendment or repeal of this Article shall
require the approval of the holders of shares representing at
least eighty percent (80%) of the shares of the corporation
entitled to vote in the election of directors, voting as one
class.
Section 3. Indemnification. The Company shall
indemnify Director to the fullest extent permitted by
applicable law or the Restated Certificate of Incorporation of
the Company in effect on the date hereof or as such laws or
Restated Certificate of Incorporation may from time to time be
amended (but, in the case of any such amendment, only to the
extent such amendment permits the Company to provide broader
indemnification rights than the law or Restated Certificate of
Incorporation permitted the Company to provide before such
amendment). The right to indemnification conferred in the
Restated Certificate of Incorporation shall be presumed to
have been relied upon by Director in serving or continuing to
serve the Company and shall be enforceable as a contract
right. Without in any way diminishing the scope of the
indemnification provided by this Section 3, the Company will
indemnify Director if and whenever he is or was a party or is
threatened to be made a party to any Proceeding, including
without limitation any such Proceeding brought by or in the
right of the Company, by reason of the fact that he is or was
an Agent or by reason of anything done or not done by him in
such capacity, against Expenses and Liabilities actually and
reasonably incurred by Director or on his behalf in connection
with the investigation, defense, settlement or appeal of such
Proceeding. No initial finding by the Board, its counsel,
Independent Counsel, arbitrators or the stockholders shall be
effective to deprive Director of the protection of this
indemnity, nor shall a court to which Director may apply for
enforcement of this indemnity give any weight to any such
adverse finding in deciding any issue before it, as it is
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<PAGE>
intended that Director shall be paid promptly by the Company
all amounts necessary to effectuate the foregoing indemnity in
full. In addition to, and not as a limitation of, the
foregoing, the rights of indemnification of Director provided
under this Agreement shall include those rights set forth in
Sections 4, 7 and 8 below.
Section 4. Advancement of Expenses and Costs;
Letter of Credit.
(a) Advances. All reasonable Expenses incurred by
or on behalf of Director shall be advanced by the Company to
Director within 20 days after the receipt by the Company of a
written request for an advance or advances of Expenses from
time to time, whether prior to or after final disposition of
a Proceeding (unless there has been a final determination
that Director is not entitled to be indemnified for such
Expenses), including without limitation any Proceeding
brought by or in the right of the Company. Director's
entitlement to advancement of Expenses shall include those
incurred in connection with any Proceeding by Director seeking
an adjudication or award in arbitration pursuant to this
Agreement. The requests shall reasonably evidence the
Expenses incurred by Director in connection therewith. If
required by law at the time of such advance, Director hereby
undertakes to repay the amounts advanced if it shall
ultimately be determined that Director is not entitled to be
indemnified pursuant to the terms of this Agreement.
(b) Letter of Credit. In order to secure the
obligations of the Company to indemnify Director under Section
3 hereof and to advance to Director certain amounts under
Section 4(a) hereof, the Company shall obtain upon the
occurrence of any Triggering Event, an irrevocable standby
letter of credit naming Director as the sole beneficiary, in an
appropriate amount not less than $500,000, issued by a
financial institution having assets in excess of $100 million
and containing terms and conditions reasonably acceptable to
Director (the "Letter of Credit"). The Letter of Credit shall
provide that Director may from time to time draw certain
amounts thereunder, upon the presentation to the issuer
thereof of a certificate executed by Director certifying (i)
that Director has made demand upon the Company for an amount
not less than the amount he is drawing upon under the Letter
of Credit and that the Company has refused to provide Director
with such amount and (ii) that Director believes that he is
entitled under the terms of this Agreement to the amount which
he is drawing upon under the Letter of Credit.
(c) Term of Letter of Credit. Once the Company has
obtained the Letter of Credit required by Section 4(b)
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hereof, the Company shall maintain and renew the Letter of
Credit or a substitute letter of credit meeting the criteria
of Section 4(b) hereof during the term of this Agreement in a
manner such that the Letter of Credit shall have an initial
term of five years, be renewed for successive five-year terms,
and shall always have at least one year of its term remaining.
Section 5. Procedure for Determination of
Entitlement to Indemnification.
(a) Whenever Director believes that he is entitled
to indemnification pursuant to this Agreement, Director shall
submit a written request for indemnification to the Company to
the attention of the Chairman of the Board and Chief Executive
Officer with a copy to the Secretary. This request shall
include documentation or information which is necessary
for the determination of entitlement to indemnification
and which is reasonably available to Director. Determination
of Director's entitlement to indemnification shall be made not
later than 60 days after any judgment, order, settlement,
dismissal, arbitration award, conviction, acceptance of a plea of
nolo contendere or its equivalent, or other disposition or partial
disposition of any Proceeding or any other event which could enable
the Company to determine Director's entitlement to indemnification.
The Chairman of the Board and Chief Executive Officer, or the
Secretary shall, promptly upon receipt of Director's request
for indemnification, advise the Board in writing that Director has
made such request for indemnification.
(b) The Company shall be entitled to select the
forum in which Director's entitlement to indemnification will
be heard unless a Triggering Event has occurred, in which case
Director shall be entitled to select the forum. The Company or
Director, as the case may be, shall notify the other party in
writing as to the forum selected, which selection shall be
from among the following:
(i) The stockholders of the Company;
(ii) A quorum of the Board consisting of
Disinterested Directors;
(iii) Independent Counsel selected by Director,
and reasonably approved by the Board, which counsel
shall make the determination in a written opinion; or
(iv) A panel of three arbitrators, one of whom
is selected by the Company, another of whom is
selected by Director and the last of whom is
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<PAGE>
selected by the first two arbitrators so selected;
or if for any reason three arbitrators are not
selected within thirty days after the appointment
of the first arbitrator, then selection of
additional arbitrators to complete the three
person panel shall be made by the American
Arbitration Association under its commercial
arbitration rules now in effect.
Section 6. Presumptions and Effect of Certain
Proceedings. Upon making a request for indemnification,
Director shall be presumed to be entitled to indemnification
under this Agreement and the Company shall have the burden
of proof to overcome that presumption in reaching any
contrary determination. If the person or persons so empow-
ered to make the determination shall have failed to make the
requested indemnification within 60 days after any judgment,
order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent,
or other disposition or partial disposition of any Proceed-
ing or any other event which could enable the Company to
determine Director's entitlement to indemnification, the
requisite determination of entitlement to indemnification
shall be deemed to have been made and Director shall be abso-
lutely entitled to indemnification under this Agreement,
absent (i) misrepresentation by Director of a material fact
in the request for indemnification or (ii) a specific
finding that all or any part of such indemnification is
expressly prohibited by law. The termination of any Pro-
ceeding by judgment, order, settlement, arbitration award or
conviction, or upon a plea of nolo contendere or its equi-
valent, shall not of itself (a) adversely affect the rights
of Director to indemnification except as may be provided
herein, (b) create a presumption that Director did not act in
good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company,
or (c) with respect to any criminal action or proceeding,
create a presumption that Director had reasonable cause to
believe that his conduct was unlawful.
Section 7. Remedies of Director in Cases of
Determination not to Indemnify or to Advance Expenses.
(a) In the event that (i) an initial determina-
tion is made that Director is not entitled to indemnifica-
tion, (ii) advances are not made pursuant to this Agreement,
(iii) payment has not been timely made following a deter-
mination of entitlement to indemnification pursuant to this
Agreement or (iv) Director otherwise seeks enforcement of
this Agreement, Director shall be entitled to a final adjudi-
cation in an appropriate court of the State of Delaware of
his entitlement to such indemnification or advance.
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<PAGE>
Alternatively, Director at his option may seek an award in arbi-
tration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration
Association now in effect, which award is to be made within
ninety (90) days following the filing of the demand for
arbitration. The Company shall not oppose Director's right
to seek any such adjudication or arbitration award. In any
such proceeding or arbitration Director shall be presumed to
be entitled to indemnification under this Agreement and the
Company shall have the burden of proof to overcome that
presumption.
(b) In the event an initial determination has been
made, in whole or in part, that Director is not entitled to
indemnification, the decision in the judicial proceeding or
arbitration provided in paragraph (a) of this Section 7 shall
be made de novo and Director shall not be prejudiced by reason
of a determination that he is not entitled to indemnification.
(c) If an initial determination is made or deemed
to have been made pursuant to the terms of this Agreement that
Director is entitled to indemnification, the Company shall be
bound by such determination in the absence of (i) a
misrepresentation of a material fact by Director or (ii) a
specific finding (which has become final) that all or any part
of such indemnification is expressly prohibited by law.
(d) The Company shall be precluded from asserting
that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Company shall stipulate in
any such court or before any such arbitrator that the Company
is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
(e) Expenses incurred by Director in connection with
his request for indemnification under, seeking enforcement of
or to recover damages for breach of this Agreement shall be
borne by the Company.
Section 8. Other Rights to Indemnification.
Director's rights of indemnification and advancement of
expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Director may now or in
the future be entitled under applicable law, the Restated
Certificate of Incorporation, By-laws, agreement, vote of
stockholders, resolution of directors, or otherwise.
Section 9. Limitations on Indemnity. The Company
shall not be liable under this Agreement to make any payment
to Officer to the extent that Officer has already been
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<PAGE>
reimbursed pursuant to such D & O Insurance as the Company may
maintain for Director's benefit. Notwithstanding the
availability of such insurance, Director may also claim
indemnification from the Company pursuant to this Agreement by
assigning to the Company any claims under such insurance to
the extent Director is paid by the Company.
Section 10. Duration and Scope of Agreement; Binding
Effect. This Agreement shall continue so long as Director
shall be subject to any possible Proceeding by reason of the
fact that he is or was an Agent and shall be applicable to
Proceedings commenced or continued after execution of this
Agreement, whether arising from acts or omissions occurring
before or after such execution. This Agreement shall be
binding upon the Company and its successors and assigns and
shall inure to the benefit of Director and his spouse,
assigns, heirs, devisees, executors, administrators and other
legal representatives.
Section 11. Severability. If any provision or
provisions of this Agreement (or any portion thereof) shall
be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this Agreement
shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this
Agreement shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or
unenforceable.
Section 12. Identical Counterparts. This Agreement
may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original but all of
which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the
existence of this Agreement.
Section 13. Interpretation of Agreement. It is
understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to
Director to the fullest extent now or hereafter permitted by
law.
Section 14. Headings. The headings of the Sections
and paragraphs of this Agreement are inserted for convenience
only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
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<PAGE>
Section 15. Definitions. For purposes of this
Agreement:
(a) "Agent" shall mean any person who (i) is or was
a director, officer or employee of the Company or a subsidiary
of the Company whether serving in such capacity or as a
director, officer, employee, agent, fiduciary or other
official of another entity at the request of, for the
convenience of, or to represent the interests of the Company
or a subsidiary of the Company or (ii) was a director,
officer or employee of a corporation which was a predecessor
corporation of the Company or a subsidiary of the Company
whether serving in such capacity or as a director, officer,
employee, agent, fiduciary or other official of another entity
at the request of, for the convenience of, or to represent the
interests of such predecessor corporation.
(b) "Disinterested Director" shall mean a director
of the Company who is not or was not a party to the
Proceeding in respect of which indemnification is being
sought by Director.
(c) "Expenses" shall include all direct and indirect
costs (including, without limitation, attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, all
other disbursements or out-of-pocket expenses and reasonable
compensation for time spent by Director for which he is
otherwise not compensated by the Company or any third party)
actually and reasonably incurred in connection with either the
investigation, defense, settlement or appeal of a Proceeding
or establishing or enforcing a right to indemnification under
this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any judgments,
fines or ERISA excise taxes or penalties.
(d) "Independent Counsel" shall mean a law firm or a
member of a law firm that neither is presently nor in the past
five years has been retained to represent: (i) the Company or
Director in any matter material to either party, or (ii) any
other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the
term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or Director in an action to determine
Director's right to indemnification under this Agreement.
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<PAGE>
(e) "Liabilities" shall mean liabilities of any
type whatsoever, including, but not limited to, judgments,
fines, ERISA excise taxes and penalties, and amounts paid in
settlement.
(f) "Proceeding" shall mean any action, suit,
arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding
whether civil, criminal, administrative or investigative.
(g) "Triggering Event" shall mean the acquisition
by any person (other than the Company) of 30% or more of the
outstanding shares of common stock of the Company unless a
majority of the entire Board, which shall include the
affirmative vote of at least one director from each class of
the Board, shall have earlier approved such acquisition.
Section 16. Pronouns. Use of the masculine
pronoun shall be deemed to include usage of the feminine
pronoun where appropriate.
Section 17. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties to this
Agreement. No waiver of any provision of this Agreement shall
be deemed to constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 18. Notice by Director and Defense of Claims.
Director agrees promptly to notify the Company in writing upon
being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any
matter which may be subject to indemnification hereunder,
whether civil, criminal, administrative or investigative; but
the omission so to notify the Company will not relieve it from
any liability which it may have to Director if such omission
does not prejudice the Company's rights and if such omission
does prejudice the Company's rights, it will relieve the
Company from liability only to the extent of such prejudice;
nor will such omission relieve the Company from any liability
which it may have to Director otherwise than under this
Agreement. With respect to any Proceeding as to which Director
notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate
therein at its own expense; and
(b) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other
indemnifying party similarly notified will be entitled to
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<PAGE>
assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from the Company to
Director of its election so to assume the defense thereof, the
Company will not be liable to Director under this Agreement
for any Expenses subsequently incurred by Director in
connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below.
Director shall have the right to employ his counsel in such
Proceeding but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of
the defense thereof shall be at the expense of Director unless
(i) the employment of counsel by Director has been authorized
by the Company, (ii) Director shall have reasonably concluded
that there may be a conflict of interest between the Company
and Director in the conduct of the defense of such action or
that counsel may not be adequately representing Director, (iii)
a Triggering Event shall have occurred or (iv) the Company
shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company. The Company
shall not be entitled to assume the defense of any Proceeding
as to which Director shall have made the conclusion provided
for in (ii) above or if an event specified in (iii) above
shall have occurred.
(c) The Company shall not be liable to indemnify
Director under this Agreement for any amounts paid in
settlement of any action or claim effected without its written
consent. The Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on
Director without Director's written consent. Neither the Company
nor Director will unreasonably withhold their consent to any
proposed settlement.
Section 19. Notices. All notices, requests, demands
and other communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or
other communication shall have been directed or (ii) mailed by
certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
(a) If to Director, to:
____________________
____________________
____________________
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<PAGE>
(b) If to the Company, to:
Potlatch Corporation
P.O. Box 3591
San Francisco, CA 94119
Attn: Chairman of the Board and
Chief Executive Officer
With a copy to:
Secretary
or to such other address as may have been furnished to
Director by the Company or to the Company by Director, as the
case may be.
Section 20. Governing Law. The parties agree that
this Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of
Delaware, as applied to contracts between Delaware residents
entered into and to be performed entirely within Delaware.
Section 21. Consent to Jurisdiction. The Company and
Director each hereby irrevocably consent to the jurisdiction
of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the
state courts of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the day and year first above
written.
ATTEST:
POTLATCH CORPORATION
By ______________________ By _________________________
Director
____________________________
Address: ____________________________
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<PAGE>
Schedule A to Exhibit (10)(j)
February 1, 1997
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.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, made and entered
into this _____ day of ________ , 198_ ("Agreement"),
by and between POTLATCH CORPORATION, a Delaware Company
("Company"), and ______________________________ (the
"Officer"),
W I T N E S S E T H:
Whereas it has been the practice of this Company
to provide officers with adequate protection through insur-
ance or indemnification against inordinate risks of claims
and actions against them arising out of their service to and
activities on behalf of the Company; and
Whereas the current difficulty of obtaining
significant amounts of insurance at reasonable premiums and
the uncertainties relating to statutory indemnification have
increased the difficulty of adequately protecting such
persons; and
Whereas the Board of Directors of the Company
(the "Board") has determined that the inability to so
protect such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act
to assure such persons that there will be increased cer-
tainty of such protection in the future:
N o w, T h e r e f o r e, in consideration of
the premises and the covenants in this Agreement, and
intending to be legally bound, the Company and Officer do
hereby covenant and agree as follows:
Section 1. Services by Officer. Officer agrees
to serve as an officer so long as he is duly elected by the
Board or appointed by the Chairman of the Board and until
such time as he resigns or is relieved of his
responsibilities. Officer may at any time and for any
reason resign from such position or be relieved of his
responsibilities (subject to any other contractual
obligation or other obligation imposed by operation of law),
in which event the Company shall have no obligation under
this Agreement to continue Officer in any such position.
Exhibit (10)(k)
<PAGE>
Section 2. Amendment of Certificate of Incorpora-
tion. The Company shall use its best efforts to amend the
Restated Certificate of Incorporation of the Company to
contain in substance the following provisions:
A. A director of the corporation shall not be
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director except
for liability which, by express provision of the General
Corporation Law of Delaware as in effect from time to time
(hereinafter the "Delaware Law"), cannot be eliminated.
B. (i) The corporation shall, to the fullest
extent permitted by Delaware Law, indemnify any
person (the "Indemnitee") who is or was involved in
any manner (including, without limitation, as a
party or a witness) in any threatened, pending or
completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative
or investigative (including without limitation, any
action, suit or proceeding brought by or in the
right of the corporation to procure a judgment in
its favor) (a "Proceeding") by reason of the fact
that Indemnitee is or was a director, officer or
employee of the corporation, or is or was serving
another entity in such capacity at the request of
the corporation, against all expenses and
liabilities actually and reasonably incurred by
Indemnitee in connection with such Proceeding.
(ii) The right to indemnification conferred by
this Article shall be presumed to have been relied
upon by the Indemnitee and shall be enforceable as a
contract right. The corporation may enter into
contracts to provide individual Indemnitees with
specific rights of indemnification to the fullest
extent permitted by Delaware Law and may create
trust funds, grant security interests, obtain
letters of credit or use other means to ensure the
payment of such amounts as may be necessary to
effect the rights provided in this Article or in any
such contract.
(iii) Upon making a request for indemnification,
Indemnitee shall be presumed to be entitled to
indemnification under this Article and the
corporation shall have the burden of proof to
overcome that presumption in reaching any contrary
determination. Such indemnification shall include
the right to receive payment in advance of any
expenses incurred by the Indemnitee in connection
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<PAGE>
with any Proceeding, consistent with the
provisions of Delaware Law.
C. Any repeal or modification of the foregoing
provisions of this Article shall not adversely affect any
right or protection of any director or any Indemnitee
existing at the time of such repeal or modification.
D. The amendment or repeal of this Article shall
require the approval of the holders of shares representing at
least eighty percent (80%) of the shares of the corporation
entitled to vote in the election of directors, voting as one
class.
Section 3. Indemnification. The Company shall
indemnify Officer to the fullest extent permitted by
applicable law or the Restated Certificate of Incorporation of
the Company in effect on the date hereof or as such laws or
Restated Certificate of Incorporation may from time to time be
amended (but, in the case of any such amendment, only to the
extent such amendment permits the Company to provide broader
indemnification rights than the law or Restated Certificate of
Incorporation permitted the Company to provide before such
amendment). The right to indemnification conferred in the
Restated Certificate of Incorporation shall be presumed to
have been relied upon by Officer in serving or continuing to
serve the Company and shall be enforceable as a contract
right. Without in any way diminishing the scope of the
indemnification provided by this Section 3, the Company will
indemnify Officer if and whenever he is or was a party or is
threatened to be made a party to any Proceeding, including
without limitation any such Proceeding brought by or in the
right of the Company, by reason of the fact that he is or was
an Agent or by reason of anything done or not done by him in
such capacity, against Expenses and Liabilities actually and
reasonably incurred by Officer or on his behalf in connection
with the investigation, defense, settlement or appeal of such
Proceeding. No initial finding by the Board, its counsel,
Independent Counsel, arbitrators or the stockholders shall be
effective to deprive Officer of the protection of this
indemnity, nor shall a court to which Officer may apply for
enforcement of this indemnity give any weight to any such
adverse finding in deciding any issue before it, as it is
intended that Officer shall be paid promptly by the Company
all amounts necessary to effectuate the foregoing indemnity in
full. In addition to, and not as a limitation of, the
foregoing, the rights of indemnification of Officer provided
under this Agreement shall include those rights set forth in
Sections 4, 7 and 8 below.
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<PAGE>
Section 4. Advancement of Expenses and Costs;
Letter of Credit.
(a) Advances. All reasonable Expenses incurred by
or on behalf of Officer shall be advanced by the Company to
Officer within 20 days after the receipt by the Company of a
written request for an advance or advances of Expenses from
time to time, whether prior to or after final disposition of
a Proceeding (unless there has been a final determination
that Officer is not entitled to be indemnified for such
Expenses), including without limitation any Proceeding
brought by or in the right of the Company. Officer's
entitlement to advancement of Expenses shall include those
incurred in connection with any Proceeding by Officer seeking
an adjudication or award in arbitration pursuant to this
Agreement. The requests shall reasonably evidence the
Expenses incurred by Officer in connection therewith. If
required by law at the time of such advance, Officer hereby
undertakes to repay the amounts advanced if it shall
ultimately be determined that Officer is not entitled to be
indemnified pursuant to the terms of this Agreement.
(b) Letter of Credit. In order to secure the
obligations of the Company to indemnify Officer under Section
3 hereof and to advance to Officer certain amounts under
Section 4(a) hereof, the Company shall obtain upon the
occurrence of any Triggering Event, an irrevocable standby
letter of credit naming Officer as the sole beneficiary, in an
appropriate amount not less than $500,000, issued by a
financial institution having assets in excess of $100 million
and containing terms and conditions reasonably acceptable to
Officer (the "Letter of Credit"). The Letter of Credit shall
provide that Officer may from time to time draw certain
amounts thereunder, upon the presentation to the issuer
thereof of a certificate executed by Officer certifying (i)
that Officer has made demand upon the Company for an amount
not less than the amount he is drawing upon under the Letter
of Credit and that the Company has refused to provide Officer
with such amount and (ii) that Officer believes that he is
entitled under the terms of this Agreement to the amount which
he is drawing upon under the Letter of Credit.
(c) Term of Letter of Credit. Once the Company has
obtained the Letter of Credit required by Section 4(b) hereof,
the Company shall maintain and renew the Letter of Credit or a
substitute letter of credit meeting the criteria of Section
4(b) hereof during the term of this Agreement in a manner such
that the Letter of Credit shall have an initial term of five
years, be renewed for successive five-year terms, and shall
always have at least one year of its term remaining.
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<PAGE>
Section 5. Procedure for Determination of
Entitlement to Indemnification.
(a) Whenever Officer believes that he is entitled
to indemnification pursuant to this Agreement, Officer shall
submit a written request for indemnification to the Company to
the attention of the Chairman of the Board and Chief Executive
Officer or the Vice Chairman of the Board with a copy to the
Secretary. This request shall include documentation or
information which is necessary for the determination of
entitlement to indemnification and which is reasonably
available to Officer. Determination of Officer's entitlement
to indemnification shall be made not later than 60 days after
any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its
equivalent, or other disposition or partial disposition of any
Proceeding or any other event which could enable the Company
to determine Officer's entitlement to indemnification. The
Chairman of the Board and Chief Executive Officer, the Vice
Chairman of the Board or the Secretary shall, promptly upon
receipt of Officer's request for indemnification, advise the
Board in writing that Officer has made such request for
indemnification.
(b) The Company shall be entitled to select the
forum in which Officer's entitlement to indemnification will
be heard unless a Triggering Event has occurred, in which case
Officer shall be entitled to select the forum. The Company or
Officer, as the case may be, shall notify the other party in
writing as to the forum selected, which selection shall be
from among the following:
(i) The stockholders of the Company;
(ii) A quorum of the Board consisting of
Disinterested Directors;
(iii) Independent Counsel selected by Officer,
and reasonably approved by the Board, which counsel
shall make the determination in a written opinion; or
(iv) A panel of three arbitrators, one of whom
is selected by the Company, another of whom is
selected by Officer and the last of whom is
selected by the first two arbitrators so selected;
or if for any reason three arbitrators are not
selected within thirty days after the appointment
of the first arbitrator, then selection of
additional arbitrators to complete the three
person panel shall be made by the American
-5-
<PAGE>
Arbitration Association under its commercial
arbitration rules now in effect.
Section 6. Presumptions and Effect of Certain
Proceedings. Upon making a request for indemnification,
Officer shall be presumed to be entitled to indemnification
under this Agreement and the Company shall have the burden
of proof to overcome that presumption in reaching any
contrary determination. If the person or persons so empow-
ered to make the determination shall have failed to make the
requested indemnification within 60 days after any judgment,
order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent,
or other disposition or partial disposition of any Proceed-
ing or any other event which could enable the Company to
determine Officer's entitlement to indemnification, the
requisite determination of entitlement to indemnification
shall be deemed to have been made and Officer shall be abso-
lutely entitled to indemnification under this Agreement,
absent (i) misrepresentation by Officer of a material fact
in the request for indemnification or (ii) a specific
finding that all or any part of such indemnification is
expressly prohibited by law. The termination of any Pro-
ceeding by judgment, order, settlement, arbitration award or
conviction, or upon a plea of nolo contendere or its equi-
valent, shall not of itself (a) adversely affect the rights
of Officer to indemnification except as may be provided
herein, (b) create a presumption that Officer did not act in
good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company,
or (c) with respect to any criminal action or proceeding,
create a presumption that Officer had reasonable cause to
believe that his conduct was unlawful.
Section 7. Remedies of Officer in Cases of
Determination not to Indemnify or to Advance Expenses.
(a) In the event that (i) an initial determina-
tion is made that Officer is not entitled to indemnifica-
tion, (ii) advances are not made pursuant to this Agreement,
(iii) payment has not been timely made following a deter-
mination of entitlement to indemnification pursuant to this
Agreement or (iv) Officer otherwise seeks enforcement of
this Agreement, Officer shall be entitled to a final adjudi-
cation in an appropriate court of the State of Delaware of
his entitlement to such indemnification or advance. Alter-
natively, Officer at his option may seek an award in arbi-
tration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration
Association now in effect, which award is to be made within
ninety (90) days following the filing of the demand for
arbitration. The Company shall not oppose Officer's right
-6-
<PAGE>
to seek any such adjudication or arbitration award. In any
such proceeding or arbitration Officer shall be presumed to
be entitled to indemnification under this Agreement and the
Company shall have the burden of proof to overcome that
presumption.
(b) In the event an initial determination has been
made, in whole or in part, that Officer is not entitled to
indemnification, the decision in the judicial proceeding or
arbitration provided in paragraph (a) of this Section 7 shall
be made de novo and Officer shall not be prejudiced by reason
of a determination that he is not entitled to indemnification.
(c) If an initial determination is made or deemed
to have been made pursuant to the terms of this Agreement that
Officer is entitled to indemnification, the Company shall be
bound by such determination in the absence of (i) a
misrepresentation of a material fact by Officer or (ii) a
specific finding (which has become final) that all or any part
of such indemnification is expressly prohibited by law.
(d) The Company shall be precluded from asserting
that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Company shall stipulate in
any such court or before any such arbitrator that the Company
is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
(e) Expenses incurred by Officer in connection with
his request for indemnification under, seeking enforcement of
or to recover damages for breach of this Agreement shall be
borne by the Company.
Section 8. Other Rights to Indemnification.
Officer's rights of indemnification and advancement of
expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Officer may now or in
the future be entitled under applicable law, the Restated
Certificate of Incorporation, By-laws, agreement, vote of
stockholders, resolution of directors, or otherwise.
Section 9. Limitations on Indemnity. The Company
shall not be liable under this Agreement to make any payment
to Officer to the extent that Officer has already been
reimbursed pursuant to such D & O Insurance as the Company may
maintain for Officer's benefit. Notwithstanding the
availability of such insurance, Officer may also claim
indemnification from the Company pursuant to this Agreement by
assigning to the Company any claims under such insurance to
the extent Officer is paid by the Company.
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<PAGE>
Section 10. Duration and Scope of Agreement; Binding
Effect. This Agreement shall continue so long as Officer
shall be subject to any possible Proceeding by reason of the
fact that he is or was an Agent and shall be applicable to
Proceedings commenced or continued after execution of this
Agreement, whether arising from acts or omissions occurring
before or after such execution. This Agreement shall be
binding upon the Company and its successors and assigns and
shall inure to the benefit of Officer and his spouse,
assigns, heirs, devisees, executors, administrators and other
legal representatives.
Section 11. Severability. If any provision or
provisions of this Agreement (or any portion thereof) shall
be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this Agreement
shall not in any way be affected or impaired thereby; and (b)
to the fullest extent possible, the provisions of this
Agreement shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or
unenforceable.
Section 12. Identical Counterparts. This Agreement
may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original but all of
which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the
existence of this Agreement.
Section 13. Interpretation of Agreement. It is
understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to
Officer to the fullest extent now or hereafter permitted by
law.
Section 14. Headings. The headings of the Sections
and paragraphs of this Agreement are inserted for convenience
only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 15. Definitions. For purposes of this
Agreement:
(a) "Agent" shall mean any person who (i) is or was
a director, officer or employee of the Company or a subsidiary
of the Company whether serving in such capacity or as a
director, officer, employee, agent, fiduciary or other
official of another entity at the request of, for the
convenience of, or to represent the interests of the Company
or a subsidiary of the Company or (ii) was a director,
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<PAGE>
officer or employee of a corporation which was a predecessor
corporation of the Company or a subsidiary of the Company
whether serving in such capacity or as a director, officer,
employee, agent, fiduciary or other official of another entity
at the request of, for the convenience of, or to represent the
interests of such predecessor corporation.
(b) "Disinterested Director" shall mean a director
of the Company who is not or was not a party to the
Proceeding in respect of which indemnification is being
sought by Officer.
(c) "Expenses" shall include all direct and indirect
costs (including, without limitation, attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness
fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, all
other disbursements or out-of-pocket expenses and reasonable
compensation for time spent by Officer for which he is
otherwise not compensated by the Company or any third party)
actually and reasonably incurred in connection with either the
investigation, defense, settlement or appeal of a Proceeding
or establishing or enforcing a right to indemnification under
this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any judgments,
fines or ERISA excise taxes or penalties.
(d) "Independent Counsel" shall mean a law firm or a
member of a law firm that neither is presently nor in the past
five years has been retained to represent: (i) the Company or
Officer in any matter material to either party, or (ii) any
other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the
term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or Officer in an action to determine
Officer's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any
type whatsoever, including, but not limited to, judgments,
fines, ERISA excise taxes and penalties, and amounts paid in
settlement.
(f) "Proceeding" shall mean any action, suit,
arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding
whether civil, criminal, administrative or investigative.
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<PAGE>
(g) "Triggering Event" shall mean the acquisition
by any person (other than the Company) of 30% or more of the
outstanding shares of common stock of the Company unless a
majority of the entire Board, which shall include the
affirmative vote of at least one director from each class of
the Board, shall have earlier approved such acquisition.
Section 16. Pronouns. Use of the masculine
pronoun shall be deemed to include usage of the feminine
pronoun where appropriate.
Section 17. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties to this
Agreement. No waiver of any provision of this Agreement shall
be deemed to constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 18. Notice by Officer and Defense of Claims.
Officer agrees promptly to notify the Company in writing upon
being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any
matter which may be subject to indemnification hereunder,
whether civil, criminal, administrative or investigative; but
the omission so to notify the Company will not relieve it from
any liability which it may have to Officer if such omission
does not prejudice the Company's rights and if such omission
does prejudice the Company's rights, it will relieve the
Company from liability only to the extent of such prejudice;
nor will such omission relieve the Company from any liability
which it may have to Officer otherwise than under this
Agreement. With respect to any Proceeding as to which Officer
notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate
therein at its own expense; and
(b) Except as otherwise provided below, to the
extent that it may wish, the Company jointly with any other
indemnifying party similarly notified will be entitled to
assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from the Company to
Officer of its election so to assume the defense thereof, the
Company will not be liable to Officer under this Agreement
for any Expenses subsequently incurred by Officer in
connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below.
Officer shall have the right to employ his counsel in such
Proceeding but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of
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<PAGE>
the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized
by the Company, (ii) Officer shall have reasonably concluded
that there may be a conflict of interest between the Company
and Officer in the conduct of the defense of such action or
that counsel may not be adequately representing Officer, (iii)
a Triggering Event shall have occurred or (iv) the Company
shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company. The Company
shall not be entitled to assume the defense of any Proceeding
as to which Officer shall have made the conclusion provided
for in (ii) above or if an event specified in (iii) above
shall have occurred.
(c) The Company shall not be liable to indemnify
Officer under this Agreement for any amounts paid in
settlement of any action or claim effected without its written
consent. The Company shall not settle any action or claim in
any manner which would impose any penalty or limitation on
Officer without Officer's written consent. Neither the Company
nor Officer will unreasonably withhold their consent to any
proposed settlement.
Section 19. Notices. All notices, requests, demands
and other communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered by
hand and receipted for by the party to whom said notice or
other communication shall have been directed or (ii) mailed by
certified or registered mail with postage prepaid, on the
third business day after the date on which it is so mailed:
(a) If to Officer, to:
____________________
____________________
____________________
(b) If to the Company, to:
Potlatch Corporation
P.O. Box 3591
San Francisco, CA 94119
Attn: Chairman of the Board and
Chief Executive Officer
or Vice Chairman of the Board
With a copy to:
Secretary
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<PAGE>
or to such other address as may have been furnished to
Officer by the Company or to the Company by Officer, as the
case may be.
Section 20. Governing Law. The parties agree that
this Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of
Delaware, as applied to contracts between Delaware residents
entered into and to be performed entirely within Delaware.
Section 21. Consent to Jurisdiction. The Company and
Officer each hereby irrevocably consent to the jurisdiction
of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action
instituted under this Agreement shall be brought only in the
state courts of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the day and year first above
written.
ATTEST:
POTLATCH CORPORATION
By ______________________ By _________________________
Officer
____________________________
Address: ____________________________
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<PAGE>
Schedule A to Exhibit (10)(k)
February 1, 1997
Form of Indemnification Agreement dated as of:
(i) December 11, 1986, with the following officers:
John M. Richards, Chairman and Chief Executive
Officer
L. Pendleton Siegel, President and Chief Operating \
Officer
Sandra T. Powell, Vice President
(ii) October 1, 1989, with George E. Pfautsch, Senior
Vice President
(iii) April 1, 1990, 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) April 10, 1995, with Gerald L. Zuehlke, Treasurer
(viii) April 10, 1995, with Kenneth L. Clark, Vice
President
(ix) June 14, 1995, with John W. Bacon, Vice President
and Betty R. Fleshman, Secretary
(x) May 29, 1996, with Craig H. Nelson, Vice President
Exhibit A
ADDENDUM TO STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1995 STOCK INCENTIVE PLAN
Name of Employee: _______________________________________________
1. Date of Grant: _______________________________________________
2. Exercise Price: $________ per share, which is agreed to be one
hundred percent (100%) of the Fair Market Value of the common
stock subject to the Option on the Date of Grant.
3. The number of Shares subject to this Stock Option Agreement is
_________________, subject to adjustment as provided in
Section 13 of the Plan and Paragraph 6 of this Stock Option
Agreement
4. This Option is (check one):
__ An Incentive Stock Option
__ A Nonqualified Stock Option
5. The Vesting Schedule for this Option is (check one):
__ The schedule specified in Paragraph 3 of the Stock Option
Agreement except that no exercise or call will be permitted
for a fractional Share.
__ As follows:
The document entitled Stock Option Agreement - Potlatch Corporation
1995 Stock Incentive Plan is incorporated by this reference into this
addendum.
IN WITNESS WHEREOF, the Corporation has caused this addendum to
the stock option agreement to be executed on its behalf by its duly
authorized representative and the Employee has executed the same on
the date indicated below.
POTLATCH CORPORATION
Date:____________________ By_________________________________
Vice President Employee Relations
Date:____________________ By_________________________________
Employee
effective 12/05/96
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Exhibit (10)(n)(ii)
ADDENDUM TO STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1995 STOCK INCENTIVE PLAN
Name of Outside Director:
1. Date of Grant:
2. Exercise Price: $ per share, which is agreed to be
one hundred percent (100%) of the Fair Market Value of the
common stock subject to the Option on the Date of Grant.
3. The number of Shares subject to this Option is (check one):
__ 1,000 Shares (Director Election)
__ 500 Shares (Annual Grant)
This number is subject to adjustment as provided in
Section 13 of the Plan and Paragraph 6 of this stock option
agreement.
The document entitled Stock Option Agreement - Potlatch
Corporation 1995 Stock Incentive Plan is incorporated by this
reference into this addendum.
IN WITNESS WHEREOF, the Corporation has caused this addendum
to the stock option agreement to be executed on its behalf of its
duly authorized representative and the Outside Director has
executed the same on the date indicated below.
POTLATCH CORPORATION
Date:_____________________ By____________________________
Secretary
Date:_____________________ By____________________________
Outside Director
Effective 12/05/96
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Exhibit (10)(n)(iii)
<PAGE>
ADDENDUM TO STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1995 STOCK INCENTIVE PLAN
Name of Outside Director:
1. Date of Grant:
2. Exercise Price: $ per share, which is agreed
to be one hundred percent(100%) of the Fair Market Value of
the common stock subject to the Option on the Date of Grant.
3. The number of Shares subject to this Option is (check one):
__ 1,000 Shares (Plan Approval/Director Election)
__ 500 Shares (Annual Grant)
This number is subject to adjustment as provided in
Section 13 of the Plan and Paragraph 6 of this stock option
agreement.
The document entitled Stock Option Agreement - Potlatch
Corporation 1995 Stock Incentive Plan is incorporated by this
reference into this addendum.
The options specified in Section 3 of this Addendum shall be
canceled and the Agreement with respect to the options specified
in this Addendum shall be without force and effect if the 1995
Stock Incentive Plan adopted by the Board of Directors of this
Corporation on December 7, 1995 is not approved by the
stockholders of this Corporation at the 1996 annual meeting of
stockholders or any adjournment thereof.
IN WITNESS WHEREOF, the Corporation has caused this addendum
to the stock option agreement to be executed on its behalf by its
duly authorized representative and the Outside Director has
executed the same on the date indicated below.
POTLATCH CORPORATION
Date:___________________ By_____________________________
Secretary
Date:___________________ By_____________________________
Outside Director
Effective 12/07/95
-4-
<PAGE>
STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1995 STOCK INCENTIVE PLAN
THIS AGREEMENT made and entered into the day specified in
the attached addendum to this Agreement by and between
POTLATCH CORPORATION, a Delaware corporation (the "Corporation")
and the outside director of the Corporation named in the
attached addendum ("Outside Director"),
W I T N E S S E T H:
That to encourage stock ownership by directors of the
Corporation and for other valuable consideration, the parties
agree as follows:
1. Definitions.
(a) "Agreement" means this stock option agreement.
(b) "Board" means the Board of Directors of the
Corporation.
(c) "Change in Control" means an event or transaction
described in Subparagraph (a), (b), (c) or (d) of Paragraph 3
(without regard to the 30- and 365-day periods also described in
those Subparagraphs).
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Common Stock" means the $1 par value Common Stock of
the Corporation.
(f) "Committee" means the committee appointed by the Board
to administer the Plan. If Outside Director is a member of such
Committee, Outside Director shall not participate in any actions
and determinations of the Committee with respect to this
Agreement.
(g) "Corporation" means Potlatch Corporation, a Delaware
corporation.
(h) "Date of Grant" means the date specified in Section 1
of the addendum to this Agreement.
(i) "Exercise Price" means the price per Share designated
in section 2 of the addendum to this Agreement at which this
Option may be exercised.
(j) "Fair Market Value" of a Share as of a specified date
means the closing price at which Shares are traded at the close
of business on such date as reported in the New York Stock
Outside Director Option
-5-
<PAGE>
Exchange composite transactions published in the Western Edition of
The Wall Street Journal, or if no trading of Shares is
reported for that day, on the next preceding day on which
trading was reported.
(k) "Nonqualified Stock Option" means an Option other than
an incentive stock option described in Code section 422(b).
(l) "Option" means a stock option granted pursuant to the
Plan.
(m) "Option Period" means the term of this Option as
provided in Paragraph 3 of this Agreement.
(n) "Partial Exercise" means an exercise with respect to
less than all of the vested but unexercised Shares subject to
Option held by the person exercising the Option.
(o) "Plan" means the Potlatch Corporation 1995 Stock
Incentive Plan, pursuant to which the parties have entered into
this Agreement.
(p) "Purchase Price" means the Exercise Price times the
number of whole shares with respect to which this Option is
exercised.
(q) "Securities Act" means the Securities Act of 1933, as
amended.
(r) "Share" means one share of Common Stock, adjusted in
accordance with Section 13 of the Plan.
(s) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Corporation if each of
the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
2. The Corporation grants to Outside Director the option to
purchase that number of shares of Common Stock specified in
Section 3 of the addendum to this Agreement for the Exercise
Price specified in Section 2 of the addendum to this Agreement,
on the terms and conditions stated in this Agreement.
This Option has been granted pursuant to the Plan, a copy of
the text of which Outside Director may obtain upon request to the
Corporation.
Outside Director Option
-6-
<PAGE>
3. Subject to the conditions stated in this Agreement,
the period during which the option may be exercised (the
"Vesting Schedule") shall be as follows:
Number of Shares Vesting Schedule*
50% of the number of shares From one year from the Date
specified in Section 3 of of Grant to end of term for
the addendum Option
50% of the number of shares From two years from the
specified in Section 3 of Date of Grant to end of
the addendum term for Option
No Partial Exercise of this Option may be for less than a
multiple of 10 Shares.
Beginning six months after the Date of Grant, Outside
Director shall have the right to exercise the Option (or to call
the related stock appreciation right as described in Paragraph
4), in whole or in part:
(a) Within 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;
(b) Within 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 (i) were directors of the Corpora-
tion on a date three years earlier nor (ii) are
individuals whose election or nomination for election
as directors was affirmatively voted on by at least a
majority of those directors described in (i) above who
were still in office as of the date the Board approved
such election or nomination;
(c) Within 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 20% or more of
* See Paragraph 5 for further explanation of end of term for
Option.
Outside Director Option
-7-
<PAGE>
the aggregate voting power of the capital stock of the
Corporation issued and outstanding; and
(d) Within 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 not earlier than the date
on which any required stockholder approval is
obtained.
If an option in not exercised during any 30-day period described
in (a) or (d) above, the option shall terminate at the close of
business on the last day of the 30-day period; provided that if
periods described in (a) and (d) are contiguous or overlap,
unexercised options shall terminate at the close of business on
the last day of the second 30-day period,
4. In the event of a Change in Control, this Option
shall automatically include a stock appreciation right
that may be called only during the periods described in
Subparagraphs (a), (b), (c) or (d) of Paragraph 3. During
any such period, Outside Director may surrender all or
part of this Option and exercise the stock appreciation
right in lieu of exercising all or any part of this
Option, provided that at least six months have elapsed from
the Date of Grant and that the Fair Market Value of the
Common Stock on the date of such exercise is higher than
the Exercise Price specified in Section 2 of the addendum
to this Agreement. The exercise of a stock appreciation
right is referred to in this Paragraph 4 as the "call."
Upon the call of a stock appreciation right, Outside
Director shall be entitled to receive payment of an amount
equal to the difference obtained by subtracting the
aggregate option price of the shares subject to the Option
(or the portion of such Option) from the Fair Market Value
of such Shares on the date of such call. In the case of a
stock appreciation right that is called during either of
the 30-day periods described in Paragraph 3(a) or 3(d),
for purposes of measuring the value of the stock
appreciation right, "Fair Market Valuer" shall be the
greater of (a) the value of the consideration per share
that the Outside Director would have received in
connection with the transaction described in Paragraph
3(a) or 3(d) as a stockholder of the Corporation if he or
she had exercised the Option prior to the consummation of
such transaction, 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
Paragraph 3(a) or 3(d)), taking into consideration all
relevant facts and circumstances.
For all purposes under this Agreement (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, and in the event
of the call of a stock appreciation right the underlying Option
Outside Director Option
-8-
<PAGE>
will be deemed to have been exercised for all purposes under the
Plan.
Payment of a stock appreciation right shall be made as soon
as reasonably practicable following receipt by the Corporation
of the notice described in Paragraph 8. Payment of the stock
appreciation right shall be made in such form as may be
permitted pursuant to the rules and regulations adopted from
time to time by the Committee, as in effect on the date the
stock appreciation right if called.
5. The term of this Option shall end and this
Option shall not be exercisable after 10 years from the
Date of Grant or, if earlier, upon the termination of
Outside Director's services as a director of the
Corporation, subject to the following provisions:
(a) If the termination of services if caused
by Outside Director's death, this Option, to
the extent that it was exercisable under
Paragraph 3 of this Agreement at the date of
death and had not previously been exercised, may
be exercised within 36 months after Outside
Director's death by Outside Director's executors
or administrators or by any person or persons
who shall have acquired this Option directly
from Outside Director by bequest or inheritance.
(b) If the termination of services is
caused by retirement after five years of service
as an outside director of the Corporation, this
Option, to the extent it was exercisable under
Paragraph 3 of this Agreement at the date of
such termination and had not previously been
exercised, may be exercised within 36 months
after the date of such termination.
(c) If the termination of services is for any
reason other than death or retirement, this
Option, to the extent that it was exercisable
under Paragraph 3 of this Agreement at the date
of such termination and had not previously been
exercised, may be exercised within three months
after the date of such termination; provided that
in such case the right to call a stock
appreciation right as described in Paragraph 4
shall terminate on the date Outside Director's
services terminate unless Outside Director
requests and the Committee permits the call of
the stock appreciation right within three months
after the date of such termination.
Notwithstanding the foregoing, if the termination
of services is for cause, the option shall cease
to be exercisable or callable at the time of such
termination. The Board shall determine whether
Outside Director's services are terminated for
cause in accordance with the Corporation's
Restated Certificate of Incorporation.
Outside Director Option
-9-
<PAGE>
6. The Corporation agrees that it will at all times
during the Option Period reserve and keep available
sufficient authorized but unissued or reacquired Common
Stock to satisfy the requirements of this Agreement. The
number of Shares reserved and the Exercise Price shall
be proportionately adjusted for any increase or decrease
in the number of issued and outstanding Shares by reason
of stock dividends, stock splits, consolidations,
recapitalizations, reorganizations or like events, as
determined by the Committee pursuant to the Plan.
7. Subject to any required action by the
stockholders, if the Corporation shall be the surviving
corporation in any merger, consolidation or other
reorganization, this Option shall apply to the securities
to which a holder of the number of Shares subject to this
Option would have been entitled. Except to the extent
Paragraph 3 (and Paragraph 4) permit the exercise of
Options (and stock appreciation rights) within a specified
time period before or after a Change in Control, 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
this Option to terminate on the effectlve date of such
dissolution, liquidation or reorganization, unless the
agreement of merger, consolidation or reorganization shall
otherwise provide. In the event that the Corporation
undergoes a reverse merger transaction, Outside Director
(or Outside Director's representative) shall be entitled to
receive the same consideration in such transaction
(including, without limitation, cash) as other stockholders
are entitled to receive.
8. Outside Director, or Outside Director's
representative, may exercise this Option by giving written
notice to the Corporation at San Francisco, California,
attention of the Secretary, specifying the election to
exercise the Option, the number of Shares for which it is
being exercised and the method of payment for the amount
of the Purchase Price of the Shares for which this Option
is exercised. Such payment shall be made:
(a) In United States dollars delivered at
the time of exercise;
(b) Subject to the conditions stated in
rules and regulations adopted by the Committee,
by the surrender of Shares in good form for
transfer, owned by the person exercising this
Option and having an aggregate Fair Market
Value on the date of exercise equal to the
Purchase Price; or
(c) In any combination of Subparagraphs (a) and
(b) above, if the total of the cash paid and the Fair
Market Value of the Shares surrendered equals the
Outside Director Option
-10-
<PAGE>
Purchase Price of the Shares for which this
Option is being exercised.
The notice shall be signed by the person or persons
exercising this Option, and in the event this Option is
being exercised by the representative of Outside Director,
shall be accompanied by proof satisfactory to the
Corporation of the right of the representative to exercise
the Option. No Share shall be issued until full payment
has been made. After receipt of full payment the
Corporation shall cause to be issued a certificate or
certificates for the Shares for which this Option has been
exercised, registered in the name of the person or persons
exercising the Option (or in the name of such person or
persons and another person as community property or as
joint tenants), and cause such certificate or certificates
to be delivered to or upon the order of such person or persons.
9. In the event the Corporation determines that it is
required to withhold state or federal income tax as a
result of the exercise of this Option, as a condition to
the exercise of the Option, Outside Director will make
arrangements satisfactory to the Corporation to enable it
to satisfy such withholding requirements.
10. Neither Outside Director nor Outside Director's
representative shall have any rights as a stockholder with
respect to any Shares subject to this Option until such
Shares shall have been issued to Outside Director or
Outside Director's representative.
11. Unless at the time Outside Director gives notice
of the exercise of this Option, the Shares to be issued
are registered under the Securities Act, the notice shall
include a statement to the effect that all Shares for
which this Option is being exercised are being purchased
for investment, and without present intention of resale,
and will not be sold without registration under the
Securities Act or exemption from registration, and such
other representations as the Committee may require. The
Corporation may permit the sale or other disposition of
any Shares acquired pursuant to any such representation if
it is satisfied that such sale or other disposition would
not contravene applicable state or federal securities
laws. Unless the Corporation shall determine that, in
compliance with the Securities Act or other applicable
statute or regulation, it is necessary to register any of
the Shares for which this Option has been exercised, and
unless such registration, if required, has been completed,
certificates to be issued upon the exercise of this Option
shall contain the following legend:
"The Shares represented by this certificate have
not been registered under the Securities Act of 1933
and may be offered, sold or transferred only if
Outside Director Option
-11-
<PAGE>
registered pursuant to the provisions of that Act or
if an exemption from registration is available."
12. Except as otherwise provided in this Agreement,
this Option and the rights and privileges conferred by
this Agreement shall not be transferred, assigned, pledged
or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt
to transfer, assign, pledge, hypothecate or otherwise
dispose of this Option, or of any right or privilege
conferred by this Agreement, contrary to the provisions of
this Paragraph, or upon any attempted sale under any execution,
attachment or similar process upon the rights and
privileges conferred by this Agreement, this Option and
the rights and privileges conferred by this Agreement
shall immediately become null and void.
13. Nothing in this Agreement shall be construed as
giving Outside Director the right to be retained as a
director of the Corporation.
14. This Agreement shall be interpreted and construed in
accordance with the laws of the State of California.
Outside Director Option
-12-
POTLATCH CORPORATION
Subsidiaries
The following subsidiaries are included in the company's consolidated
financial statements.
State in Which Percentage of
Voting Securities
Name Organized Owned
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.
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.
Exhibit (22)
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204
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, 333-17145, 33-30836, 33-54515 and 333-12017) on Form S-8 of
Potlatch Corporation of our report dated January 22, 1997, relating to the
balance sheets of Potlatch Corporation and consolidated subsidiaries as of
December 31, 1996 and 1995 and the related statements of earnings, stockholders'
equity, and cash flows and related financial statement schedule for each of
the years in the three-year period ended December 31, 1996 which report appears
in the December 31, 1996 annual report on the Form 10-K of Potlatch Corporation.
KPMG PEAT MARWICK LLP
March 27, 1997
Exhibit (23)
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Richard A. Clarke
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Kenneth T. Derr
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Allen F. Jacobson
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
George F. Jewett, Jr.
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Richard B. Madden
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Richard M. Morrow
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Vivian W. Piasecki
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Toni Rembe
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
John M. Richards
Chairman of the Board and
Chief Executive Officer and
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Reuben F. Richards
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Richard M. Rosenberg
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Robert G. Schwartz
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Charles R. Weaver
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorneys.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
Frederick T. Weyerhaeuser
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, John M. Richards or L. Pendleton
Siegel, or any of them, my attorney-in-fact for me and in my
name, place and stead to execute for me on 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,
1996, 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 this
Power of Attorney.
IN WITNESS WHEREOF, I have executed this Power of
Attorney as of March 7, 1997.
William T. Weyerhaeuser
(DIRECTOR)
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