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, 1998 Number 1-5313
POTLATCH
Potlatch Corporation
A Delaware Corporation (IRS Employer Identification
Number 82-0156045)
601 West Riverside Ave., Suite 1100
Spokane, Washington 99201
Telephone (509) 835-1500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, New York Stock Exchange
($1 par value) Pacific Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 1999, was approximately $913 million.
The number of shares of common stock outstanding as of January 31, 1999:
28,918,687 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1999 annual meeting of stock-
holders are incorporated by reference in Part III hereof.
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Index to 1998 Form 10-K
Page
Number
PART I
ITEM 1. Business 2 - 5
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
Executive Officers of the Registrant 8
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters 9
ITEM 6. Selected Financial Data 9
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 8. Financial Statements and Supplementary Data 9
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III
ITEM 10. Directors and Executive Officers of the Registrant 10
ITEM 11. Executive Compensation 10
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 10
ITEM 13. Certain Relationships and Related Transactions 10
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10
SIGNATURES 11
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES 12
EXHIBIT INDEX 41 - 44
1
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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 pulp and paper 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 and
identifiable assets attributable to each of the company's industry segments for
1996-1998 is included in Note 13 to the financial statements on pages 35-37 of
this report.
This report contains, in addition to historical information, certain forward-
looking statements, including without limitation, statements regarding Year 2000
issues. These forward-looking statements are based on management's best
estimates and assumptions regarding future events, and are therefore subject to
known and unknown risks and uncertainties and are not guarantees of future
performance. The company's actual results of operations could differ materially
from those expressed or implied by forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
changes in the United States and international economies; changes in worldwide
demand for the company's products; changes in worldwide production and
production capacity in the forest products industry; competitive pricing
pressures for the company's products; unanticipated manufacturing disruptions;
impact of Year 2000 issues; and changes in raw material, energy and other costs.
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: 500,000
acres in Arkansas, 671,000 acres in Idaho and 339,000 acres in Minnesota.
The company also owns and is developing 22,000 acres in Oregon as a hybrid
poplar plantation.
The amount of timber harvested in any one year from company-owned lands varies
according to the requirements of sound forest management and 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 69 percent of its sawlogs and
plywood logs in 1998 and an average of 69 percent over the past five years.
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Additional logs are obtained primarily from private landowners and from state
and local governments.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. For much of
the past decade the timber supply from federal lands has been increasingly
curtailed, largely due to environmental pressures that are expected to continue
for 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
wood fiber costs. The long-term effect of this trend on company earnings cannot
be predicted. The company is implementing plans to develop additional fiber
supplies, primarily hybrid poplar.
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. 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 customers. Although the company is not one of the larger
manufacturers of printing papers, it is one of the nation's leading producers of
premium coated papers. The company's principal methods of competing are product
quality, service and price.
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Pulp and Paper
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, toiletries and other
consumable goods as well as paper cups and paper plates. The company is a
leading North American producer of private label household tissue products.
Household tissue products (facial and bathroom tissues, towels and napkins) are
packaged to order for grocery and drug chains and cooperative buying
organizations. These products are sold to consumers under customer brand names
and compete with nationally advertised and other private label brands. The
company does not consider itself among the larger national manufacturers of
market pulp or of any of its other paper products.
Methods of sale and distribution of the company's pulp and paper products vary
for its several products. 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 directly and through
brokers. The majority of pulp sales also are generally made through brokers.
The company's principal methods of competing are product quality, service and
price.
Environment
Information regarding environmental matters is included under Item 3 - Legal
Proceedings on page 7 and under Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 16 of this report.
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Employees
As of December 31, 1998, the company had approximately 6,800 employees. Labor
contracts expiring in 1999 are as follows:
Approximate
Contract Number of
Expiration Hourly
Date Location Union Employees
April 30 Wood Products International Association 150
Southern Division of Machinists &
Prescott, Arkansas Aerospace Workers
July 1 Duluth & Northeastern United Transportation Union & 10
Railroad National Conference of Firemen
Duluth, Minnesota and Oilers Service Employees
International Union
August 31 Fire Department Paper, Allied-Industrial, 20
Lewiston, Idaho Chemical and Energy Workers
International Union (PACE)
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ITEM 2. Properties
The principal manufacturing facilities of the company, together with their
respective year end 1998 capacities and 1998 production are as follows:
Wood Products Capacity Production
Oriented Strand Board Plants: (A)
Bemidji, Minnesota 510,000 m.sq.ft. 508,000 m.sq.ft.
Cook, Minnesota 245,000 m.sq.ft. 230,000 m.sq.ft.
Grand Rapids, Minnesota 355,000 m.sq.ft. 339,000 m.sq.ft.
Sawmills:
Prescott, Arkansas 135,000 m.bd.ft. 120,000 m.bd.ft.
Warren, Arkansas (B) 170,000 m.bd.ft. 143,000 m.bd.ft.
Lewiston, Idaho 160,000 m.bd.ft. 148,000 m.bd.ft.
St. Maries, Idaho 90,000 m.bd.ft. 90,000 m.bd.ft.
Bemidji, Minnesota 85,000 m.bd.ft. 76,000 m.bd.ft.
Plywood Plants: (A)
Jaype, Idaho 130,000 m.sq.ft. 91,000 m.sq.ft.
St. Maries, Idaho 130,000 m.sq.ft. 100,000 m.sq.ft.
Particleboard Plant: (C)
Post Falls, Idaho 70,000 m.sq.ft. 69,000 m.sq.ft.
Printing Papers
Pulp Mill:
Cloquet, Minnesota 210,000 tons 206,000 tons
Printing Paper Mills:
Brainerd, Minnesota 155,000 tons 139,000 tons
Cloquet, Minnesota 230,000 tons 220,000 tons
Pulp and Paper
Pulp Mills:
Cypress, Bend, Arkansas 250,000 tons 248,000 tons
Lewiston, Idaho 500,000 tons 499,000 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas 270,000 tons 265,000 tons
Lewiston, Idaho 355,000 tons 355,000 tons
Tissue Mill:
Lewiston, Idaho 155,000 tons 154,000 tons
Tissue Converting Facilities:
Lewiston, Idaho 105,000 tons 104,000 tons
Las Vegas, Nevada 35,000 tons 33,000 tons
(A) 3/8" Basis
(B) There are two sawmills in Warren.
(C) 3/4" Basis
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ITEM 3. Legal Proceedings
In February and November 1997, the company received Notices of Violation
("NOVs") from Region 10 of the U.S. Environmental Protection Agency ("EPA").
Both NOVs allege 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
specific relief has been requested by the EPA, the NOVs set forth EPA's
authority to seek, among other things, penalties of up to $25,000 per day for
each violation. The matter has been referred to the United States Department
of Justice ("DOJ") to commence an enforcement action against the company. The
company believes it has defenses to the alleged violations and has held
conferences with the EPA and the DOJ for the purpose of presenting information
bearing on the alleged violations. As of March 5, 1999, no such action had been
filed against the company.
In December 1995, the company filed a complaint against Beloit Corporation in
the District Court of the State of Idaho, Nez Perce County. The complaint
alleged that a pulp washer system supplied by Beloit Corporation and installed
at the company's pulp mill in Lewiston, Idaho, experienced massive defects and
deficiencies and failed to meet contract performance requirements and criteria.
In June 1997, a jury awarded damages of $95 million to the company. Beloit
appealed the case to the Idaho Supreme Court, which heard oral arguments on
September 10, 1998. As of March 5, 1999, no opinion had been rendered by the
court.
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, 1998.
7
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Executive Officers of the Registrant
Information as of March 1, 1999, and for the past five years concerning the
executive officers of the company is as follows:
John M. Richards (age 61), first elected an officer in 1972, has served as
Chairman of the Board and Chief Executive Officer since May 1994. Mr. Richards
will retire as Chairman of the Board and Chief Executive Officer effective May
1999. He will continue as a member of the Board of Directors, until he retires
as an employee on June 30, 1999. 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 56), first elected an officer in 1983, has served as
President and Chief Operating Officer since May 1994. At the March 5, 1999,
Board of Directors meeting, Mr. Siegel was elected to replace Mr. Richards as
Chairman of the Board and Chief Executive Officer effective in May 1999. Prior
to May 1994, he was Executive Vice President, Pulp-Based Operations. He was
elected a director of the company effective November 1997.
Richard L. Paulson (age 57), first elected an officer in 1992, has served as
Vice President, Minnesota Pulp and Paper Division since May 1996. At the
March 5, 1999, Board of Directors meeting, Mr. Paulson was elected to replace
Mr. Siegel as President and Chief Operating Officer effective May 1999. Prior
to May 1996, he was Vice President, Consumer Products Division.
Charles R. Pottenger (age 59), first elected an officer in 1991, is Group Vice
President, Pulp and Paper.
Sandra T. Powell (age 55), first elected an officer in 1981, has served as
Senior Vice President, Finance and Chief Financial Officer since May 1998. From
January 1993 through April 1998, she was Vice President, Financial Services.
She also served as Secretary from January 1993 through May 1995.
Thomas J. Smrekar (age 56), first elected an officer in 1992, is Group Vice
President, Wood Products.
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:
1998 1997
Quarter High Low High Low
1st $46.56 $39.38 $45.33 $41.13
2nd 48.38 40.81 46.50 39.00
3rd 42.81 31.00 51.94 44.75
4th 38.75 33.56 52.75 40.75
Year 48.38 31.00 52.75 39.00
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 3,400 common stockholders of record
at December 31, 1998.
Quarterly dividend payments per common share for the past two years were:
Quarter 1998 1997
1st $.435 $.425
2nd .435 .425
3rd .435 .425
4th .435 .435
----- -----
$1.74 $1.71
===== =====
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 13
ITEM 7 Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 14 - 20
ITEM 8 Financial Statements and
Supplementary Data 21 - 40
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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 "Election of Directors" on pages 3-4 of the company's definitive proxy
statement, dated March 29, 1999, for the 1999 annual meeting of stockholders
(the "1999 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 8-12 of the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of management set forth under the
heading "Stock Ownership" on pages 6-7 of the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
Information set forth under the heading "Certain Transactions" on page 12 of
the 1999 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 12 of this Form 10-K.
(b) No reports on Form 8-K were filed for the quarter ended December 31, 1998.
(c) Exhibits are listed in the Exhibit Index on pages 41-44 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 8, 1999 By /S/ 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 8, 1999, by the following persons on
behalf of the company in the capacities indicated.
By /S/ 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) GEORGE F. JEWETT, JR.*
Director
By /S/ L. Pendleton Siegel RICHARD B. MADDEN*
L. Pendleton Siegel Director
Director, President and VIVIAN W. PIASECKI*
Chief Operating Officer Director
(Principal Operating Officer) TONI REMBE*
Director
By /S/ Sandra T. Powell REUBEN F. RICHARDS*
Sandra T. Powell Director
Senior Vice President, RICHARD M. ROSENBERG*
Finance and Chief Director
Financial Officer ROBERT G. SCHWARTZ*
(Principal Financial Officer) Director
CHARLES R. WEAVER*
By /S/ Terry L. Carter Director
Terry L. Carter FREDERICK T. WEYERHAEUSER*
Controller Director
(Principal Accounting Officer) DR. WILLIAM T. WEYERHAEUSER*
Director
*By /S/ 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 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 20
Statements of Earnings for the years ended December 31,
1998, 1997 and 1996 21
Balance Sheets at December 31, 1998 and 1997 22
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 23
Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 24
Summary of Principal Accounting Policies 25 - 26
Notes to Consolidated Financial Statements 27 - 39
Independent Auditors' Report 39
Schedules:
II. Valuation and Qualifying Accounts 40
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>
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,565,878 $1,568,870 $1,554,449 $1,605,206 $1,471,258
Net earnings:
Before extraordinary item 37,232 36,059 61,534 108,546 48,995
After extraordinary item 37,232 36,059 58,089 108,546 48,995
Net cash provided by
operations, excluding
working capital changes 201,162 193,446 228,364 273,418 197,879
Working capital 97,556 106,221 117,966 128,066 142,728
Current ratio 1.3 to 1 1.4 to 1 1.5 to 1 1.4 to 1 1.6 to 1
Long-term debt
(noncurrent portion) $ 712,113 $ 722,080 $ 672,048 $ 616,132 $ 633,473
Stockholders' equity 930,906 951,592 954,195 943,904 901,619
Debt to stockholders'
equity ratio .76 to 1 .76 to 1 .70 to 1 .65 to 1 .70 to 1
Capital expenditures $ 147,027 $ 158,485 $ 239,908 $ 170,654 $ 104,389
Total assets 2,377,306 2,365,136 2,265,679 2,265,311 2,081,229
Basic net earnings
per common share:
Before extraordinary item $1.28 $1.25 $2.13 $3.72 $1.68
After extraordinary item 1.28 1.25 2.01 3.72 1.68
Average common shares
outstanding (in thousands) 29,000 28,930 28,888 29,157 29,217
Diluted net earnings
per common share:
Before extraordinary item $1.28 $1.24 $2.13 $3.72 $1.68
After extraordinary item 1.28 1.24 2.01 3.72 1.68
Average common shares
outstanding, assuming
dilution (in thousands) 29,020 28,986 28,912 29,187 29,242
Cash dividends
per common share $1.74 $1.71 $1.67 $1.615 $1.57
======================================================================================
</TABLE>
13
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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 1998, the company's net cash provided by operations, excluding working
capital changes, as presented in the Statements of Cash Flows on page 23,
totaled $201.2 million, compared with $193.4 million in 1997 and $228.4 million
in 1996.
The company maintains credit lines with several banks for general corporate
purposes totaling $250.0 million, of which $100.0 million may be used for long-
term debt and the balance may be used for short-term debt. At December 31,
1998, the company had outstanding indebtedness of $30.0 million under the short-
term lines. The remainder of the credit lines was available to back the
company's commercial paper program. Commercial paper outstanding at
December 31, 1998, totaled $145.4 million, of which $100.0 million was
classified as long-term debt.
The ratio of long-term debt to stockholders' equity was .76 to 1 at December
31, 1998, compared with .76 to 1 at December 31, 1997, and .70 to 1 at December
31, 1996. Although there was no change in the December 31, 1998, ratio compared
to 1997, the components were affected by a decline in long-term debt, due to the
reclassification to current of $10.0 million of medium-term notes maturing in
1999, and a reduction in stockholders' equity of $20.7 million. Stockholders'
equity declined largely due to payment of dividends in excess of earnings, the
purchase of treasury stock and the issuance of put options during the year.
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. The company's senior long-term debt is rated BBB+ by Standard & Poors
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, 1998, working capital was $97.6 million, compared with $106.2
million at December 31, 1997, and $118.0 million at December 31, 1996. Working
capital decreased a net $8.6 million for 1998. An increase in current assets of
$4.1 million was more than offset by an increase in current liabilities of $12.7
million. The increase in current liabilities was primarily due to a $10.0
million increase in current installments on long-term debt and a $23.3 million
14
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increase in accounts payable and accrued liabilities. These amounts were
partially offset by a decrease in notes payable of $20.6 million.
Capital Resources and Funding
Capital expenditures totaled $147.0 million in 1998, compared with $158.5
million in 1997 and $239.9 million in 1996.
During 1998, the company spent $28.4 million on capital projects in the wood
products segment. Work continued on the $62 million modernization and expansion
of the Cook, Minnesota, OSB mill. Completion at the end of 2000 will increase
the plant's capacity by about 80 percent and make it cost-competitive. Most of
the remaining expenditures related to reforestation, logging facilities,
pollution control equipment and smaller projects designed to improve efficiency
and product quality at the company's mills in Arkansas, Idaho and Minnesota.
Capital spending in the printing papers segment totaled $87.1 million in 1998.
The majority of the expenditures related to the modernization and expansion of
the Cloquet, Minnesota, pulp mill. During the year the recovery boiler phase of
the project was completed and put into service. Construction on the bleach
plant, recausticizing area and pulp dryer began. The Cloquet expansion is being
constructed in phases over several years. This allows for commitments to be
made in a financially prudent manner. As of December 31, 1998, the company had
spent approximately $360 million on the Cloquet project, which includes $22.9
million of capitalized interest. As various phases are completed they are
placed into service and depreciated over the estimated useful lives of the
assets, even though in some cases the full benefits of the improvements will not
be realized until the entire project has been completed. Depreciation on the
phases already placed in service totaled $27.3 million as of December 31, 1998.
Of this amount, $10.9 million was charged against income in 1998. The company
plans to complete the pulp mill project in two years, with a total cost of
approximately $525 million, excluding capitalized interest.
Capital spending in the pulp and paper segment totaled $30.7 million. A
significant portion of that amount was spent at the Lewiston, Idaho, pulp mill,
where the washer replacement project has essentially been completed. The new
washer equipment has permitted pulp production to achieve original design
levels. Development of the hybrid poplar plantation in Boardman, Oregon,
continued during the year and also accounted for a substantial share of segment
expenditures. The company expects to begin harvesting these trees in 2001.
Beginning in 1999, the hybrid poplar plantation will become a part of the wood
products segment.
Authorized but unexpended appropriations totaled $316.7 million at December
31, 1998. Of that amount, $278.4 million is budgeted to be expended in 1999.
Major expenditures will include: the continuing modernization and expansion of
the Cloquet pulp mill; the modernization and expansion of the oriented strand
board plant at Cook; and the continued development of the hybrid poplar
plantation in Boardman. The 1999 capital program will be funded primarily from
internally generated sources and by accessing capital markets if necessary.
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Historically, the company has spent less on capital expenditures than the
annual amount budgeted. In 1998, the company spent $53.4 million less than the
$200.4 million budgeted. Spending on projects may be delayed due to acquisition
of environmental permits, acquisition of equipment, engineering, weather and
other factors.
The company has in place a stock repurchase program through which it is
authorized 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 1998, the company acquired a total of
100,000 shares under the program through put option exercises. The company has
repurchased 498,800 shares to date under the program.
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 $5
million during 1998 and are budgeted to be approximately $11 million in 1999.
In addition, the company made expenditures for pollution control facilities as
part of major mill modernizations and expansions currently under way.
In early 1998 the Environmental Protection Agency published the "Cluster Rule"
regulations applicable specifically to the pulp and paper industry. These
extensive regulations govern both air and water emissions. The regulations will
require modifications to process equipment and operating procedures. Based on
an analysis of these regulations and the condition of the company's three pulp
mills, the company estimates that compliance will require additional capital
expenditures in the range of $20 million to $30 million, the majority of which
will be expended over the next 2 to 3 years. The company does not expect that
such compliance costs will have a material adverse effect on its competitive
position.
Results of Operations
Comparison of 1998 with 1997
Potlatch 1998 consolidated net sales of $1.57 billion equaled net sales for
1997. Net earnings for 1998 were $37.2 million, slightly higher than the $36.1
million earned in 1997. Diluted net earnings per common share were $1.28,
versus $1.24 for 1997.
Competitive market conditions for most of the company's paper and lumber
products, due in part to the economic conditions in Asia, continued to adversely
affect results. A rebound in oriented strand board (OSB) markets from the
depressed market conditions in 1997 helped to partially offset the decline in
earnings for most of the company's other products.
16
<PAGE>
The wood products segment reported 1998 operating income of $73.8 million, an
improvement over the $47.7 million earned in 1997. Significantly higher net
sales realizations and higher product shipments for OSB were primarily
responsible for the results. Demand for OSB, as well as for other panel
products, was driven by a robust housing market during the year. Lumber product
shipments were also higher than in 1997, however, the benefits were more than
offset by lower net sales realizations. While the strong housing market
encouraged domestic consumption of lumber products, the decreased demand in Asia
created downward pressure on lumber prices.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. For much of
the past decade the timber supply from federal lands has been increasingly
curtailed, largely due to environmental pressures that are expected to continue
for 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
wood fiber costs. The long-term effect of this trend on company earnings cannot
be predicted. The company is implementing plans to develop additional fiber
supplies, primarily hybrid poplar.
The company's printing papers segment had operating income of $14.2 million in
1998, substantially below 1997's earnings of $33.4 million. Net sales
realizations were lower in 1998, due in part to a less favorable product mix as
well as pricing pressures on all paper grades. Shipments also declined during
the year, reflecting competitive markets due to worldwide capacity increases.
Production was lower at the company's two mills compared to the prior year
largely because product mix factors did not allow the facilities to run at
optimal levels, resulting in increased production costs.
The pulp and paper segment reported slightly higher operating income of $53.4
million, compared to $51.0 million in 1997. Consumer tissue markets were steady
during the year, and the company increased its product shipments while
maintaining net sales realizations comparable to those of 1997. Additional
industry tissue-making capacity came on line in the second half of the year,
which could create more competitive market conditions in 1999. Results in the
consumer tissue area were tempered by very competitive conditions in the pulp
and paperboard markets. Demand in Asia weakened in 1998 and the company
experienced a decline in paperboard shipments and reduced net sales realizations
for both pulp and paperboard. Production improvements at the Lewiston, Idaho,
pulp mill as a result of the washer replacement project helped reduce costs and
partially offset the effects of the unfavorable markets.
In the second quarter of 1997, the company was awarded a $95 million judgment
for damages in its lawsuit regarding a defective pulp washer system that was
installed at the Lewiston pulp mill. The award is being appealed and,
therefore, has not been included in the financial statements for 1998 or 1997.
Upon a resolution of the lawsuit favorable to the company, it is anticipated
that a portion of any recovery will be utilized to reimburse the company for
costs expended for asset restoration and the balance will be recorded as income.
17
<PAGE>
Comparison of 1997 with 1996
Potlatch consolidated 1997 net sales of $1.57 billion were slightly higher
than 1996 net sales of $1.55 billion. Net earnings for 1997 were $36.1 million,
compared to $58.1 million for 1996. The net earnings amount for 1996 included a
$3.4 million extraordinary charge for early extinguishment of debt. Net
earnings per diluted common share were $1.24 for 1997, versus $2.01 in 1996
including the extraordinary charge.
Over-capacity for OSB within the industry continued to negatively affect panel
markets throughout 1997 and, combined with less favorable market conditions for
coated papers, resulted in lower earnings for 1997. During the fourth quarter
of 1997, the company experienced transportation problems, particularly as a
result of railcar shortages and scheduling difficulties throughout the Western
U.S., which also adversely affected results.
The wood products segment reported operating income of $47.7 million for
1997, substantially less than the $68.1 million earned in 1996. Decreased
shipments and significantly lower net sales realizations for OSB were primarily
responsible for the decline in earnings. Average net sales realizations for OSB
were down 27 percent compared to 1996's levels. The difficult panel markets
overshadowed improved results for the company's lumber products, where both
shipments and realizations were higher than in 1996.
Operating income for the printing papers segment was $33.4 million in 1997,
compared to $48.6 million in 1996. Although shipments of coated papers were
slightly higher than in 1996, net sales realizations were approximately 4
percent lower due to a less favorable mix of products shipped. Also affecting
results in 1997 were costs associated with the startup of the new pulp mill
fiber line in the first quarter and a slower than expected startup following a
maintenance shutdown in the fourth quarter.
The company's pulp and paper segment reported operating income of $51.0
million, versus income of $40.9 million for 1996. Higher shipments for
paperboard more than offset lower net sales realizations. Production
improvements at the company's Lewiston, Idaho, pulp mill as a result of an
ongoing pulp washer replacement project were largely responsible for the ability
to increase production and shipments. Consumer tissue products benefited from
lower pulp costs in 1997 compared to 1996.
Income Taxes
The company's effective tax rates for 1998, 1997 and 1996 (excluding an
extraordinary item) were 36.0 percent, 34.0 percent and 28.7 percent,
respectively.
Year 2000
The company is continuing its comprehensive review of all its computer
programs and systems to identify potential Year 2000 problems. A Year 2000
steering team has been in place since June 1998 to coordinate the review of
programs and systems, evaluate the findings, and implement the changes necessary
to become substantially Year 2000 compliant. The company has retained outside
consultants to assist in this effort and believes it has allocated adequate
18
<PAGE>
resources to the issue. It expects to complete the review and any necessary
changes on a timely basis.
The review has been divided into two categories: business systems and
manufacturing systems. The business systems have been undergoing modifications
to address the Year 2000 issue over the last few years. Routine changes,
modifications and new software purchases have all been made with Year 2000
compliance in mind. As a result, the company believes that its business systems
were substantially Year 2000 compliant at December 31, 1998.
The company has completed an inventory of its manufacturing systems (including
both embedded technology and information technology), which it is using to
identify systems that are not Year 2000 compliant. Assessment and remediation
of critical manufacturing systems are underway. Remediation of all critical
manufacturing systems is currently expected to be completed by June 30, 1999,
with testing to be completed by the end of the third quarter of 1999.
The costs incurred to date to conduct the manufacturing systems inventory and
other Year 2000 conversion work have not been material to the company's results
of operations for any reporting period in which expenditures have been made.
These costs, including hardware, software, internal personnel and external
consultants are expensed as incurred, except for expenditures relating to system
replacements or upgrades occurring in the normal course of business that are
capitalized under company guidelines. Prior to 1998, the company did not
separately identify internal costs related to Year 2000 conversion work. The
total costs incurred in 1998 for Year 2000 issues were less than $2 million.
The company is unable to determine the exact amount of future expenditures to
become Year 2000 compliant, but currently anticipates total future costs for
the project to be less than $4 million, exclusive of normal replacements and
upgrades.
The company is in the process of making inquiries of its major customers and
significant suppliers, including its energy and other utility service providers
and transportation vendors, to evaluate their Year 2000 readiness. While the
company has no control over the readiness of its suppliers, failure by them or
the company to be substantially Year 2000 compliant could have a material
adverse effect on the company's operations and financial results. Although
management believes it is unlikely to occur, a plausible worst case scenario
would involve the failure of a critical system of the company or of a supplier,
causing a temporary halt or slowdown at one or more of the company's
manufacturing operations.
The company is developing a contingency plan that addresses both internal and
external potential failures, as well as any unresolved issues. Outside
consultants are assisting in preparation of the contingency plan. The company
expects to have the contingency plan in place by early in the fourth quarter of
1999.
Market Risks of Financial Instruments
The company's exposure to market risks on its financial instruments is limited
to interest rate changes on its variable rate debt and to put option contracts
associated with its common stock repurchase program. Any changes to market
interest rates has had an immaterial impact on the company's total interest
19
<PAGE>
expense because the company's debt obligations are predominately fixed-rate.
Also, the exposure to put option contracts on the company's common stock is
immaterial due to the limited number of such contracts outstanding.
Other Matters
In February 1998, the company announced that it had agreed to contribute all
of its timberlands in Arkansas to a newly formed real estate investment trust
(REIT), which would acquire Anderson-Tully Company using the proceeds of a
planned initial public offering. These transactions have not been completed due
to poor market conditions. The company's agreement with Anderson-Tully is
currently terminable by either party; however, a new agreement in principle has
been reached regarding a restructuring of the proposed transaction and the
resolution of certain issues with the SEC. Although there can be no assurance
whether, or on what terms, a new definitive agreement will be reached, it is
anticipated that any new agreement would provide that the company would (i)
contribute its Arkansas timberlands in return for an equity interest in a
limited partnership controlled by a publicly traded REIT and (ii) enter into a
long-term agreement to purchase all of the timber harvested from the company's
former Arkansas lands at prices designed to approximate fair market value.
20
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Earnings
(Dollars in thousands - except per-share amounts)
<CAPTION>
For the years ended December 31 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,565,878 $1,568,870 $1,554,449
- ------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested 150,278 149,785 141,521
Materials, labor and other operating
expenses 1,195,449 1,219,665 1,186,127
Selling, general and administrative
expenses 120,944 106,450 104,114
- ------------------------------------------------------------------------------
1,466,671 1,475,900 1,431,762
- ------------------------------------------------------------------------------
Earnings from operations 99,207 92,970 122,687
Interest expense, net of capitalized
interest of $5,070 ($6,068 in 1997 and
$10,280 in 1996) (49,744) (46,124) (43,869)
Other income, net (Note 14) 8,712 7,789 7,508
- ------------------------------------------------------------------------------
Earnings before taxes on income and
extraordinary item 58,175 54,635 86,326
Provision for taxes on income (Note 5) 20,943 18,576 24,792
- ------------------------------------------------------------------------------
Net earnings before extraordinary item 37,232 36,059 61,534
Extraordinary item - loss from
early extinguishment of debt,
net of tax - - (3,445)
- ------------------------------------------------------------------------------
Net earnings $ 37,232 $ 36,059 $ 58,089
==============================================================================
Basic net earnings per common share:
Before extraordinary item $1.28 $1.25 $2.13
After extraordinary item 1.28 1.25 2.01
Diluted net earnings per common share:
Before extraordinary item 1.28 1.24 2.13
After extraordinary item 1.28 1.24 2.01
==============================================================================
<FN>
The accompanying notes and summary of principal accounting policies are an
integral part of these financial statements.
</TABLE>
21
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Balance Sheets
(Dollars in thousands - except per-share amounts)
<CAPTION>
At December 31 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 10) $ 11,650 $ 9,026
Short-term investments (Note 10) 6,422 6,516
Receivables, net of allowance for doubtful
accounts of $1,731 ($2,022 in 1997) 162,268 179,159
Inventories (Note 1) 200,257 182,303
Prepaid expenses (Note 5) 27,258 26,773
- -------------------------------------------------------------------------------
Total current assets 407,855 403,777
Land, other than timberlands 9,073 9,093
Plant and equipment, at cost less
accumulated depreciation of $1,402,624
($1,293,239 in 1997) (Note 2) 1,504,522 1,493,417
Timber, timberlands and related logging
facilities, net (Note 3) 338,617 342,503
Other assets (Note 4) 117,239 116,346
- -------------------------------------------------------------------------------
$2,377,306 $2,365,136
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 6 and 10) $ 74,939 $ 95,550
Current installments on long-term debt (Notes 6 and 10) 10,021 22
Accounts payable and accrued liabilities (Note 7) 225,339 201,984
- -------------------------------------------------------------------------------
Total current liabilities 310,299 297,556
- -------------------------------------------------------------------------------
Long-term debt (Notes 6 and 10) 712,113 722,080
- -------------------------------------------------------------------------------
Other long-term obligations (Note 8) 163,453 155,336
- -------------------------------------------------------------------------------
Deferred taxes (Note 5) 253,691 236,934
- -------------------------------------------------------------------------------
Put options (Notes 9 and 10) 6,844 1,638
- -------------------------------------------------------------------------------
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 128,025 127,554
Retained earnings 866,024 879,264
Common shares in treasury 3,803,293 (3,727,118 in 1997) (95,865) (87,948)
- -------------------------------------------------------------------------------
Total stockholders' equity 930,906 951,592
- -------------------------------------------------------------------------------
$2,377,306 $2,365,136
===============================================================================
<FN>
The accompanying notes and summary of principal accounting policies are an
integral part of these financial statements.
</TABLE>
22
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
For the years ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net earnings $ 37,232 $ 36,059 $ 58,089
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation, amortization and cost
of fee timber harvested 150,278 149,785 141,521
Deferred taxes 16,757 13,493 24,618
Other, net (3,105) (5,891) 4,136
- -----------------------------------------------------------------------------------
Cash provided by operations, excluding
working capital changes 201,162 193,446 228,364
- -----------------------------------------------------------------------------------
Decrease (increase) in receivables 16,891 (16,084) (10,668)
Decrease (increase) in inventories (17,954) (5,404) 14,203
Increase in prepaid expenses (485) (952) (2,235)
Increase (decrease) in accounts payable
and accrued liabilities 17,930 (16,115) (4,888)
- -----------------------------------------------------------------------------------
Cash provided by (used for) working capital changes 16,382 (38,555) (3,588)
- -----------------------------------------------------------------------------------
Net cash provided by operations 217,544 154,891 224,776
- -----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
Change in book overdrafts 5,425 3,614 (7,792)
Increase (decrease) in notes payable (20,611) 81,269 14,281
Proceeds from long-term debt - 50,000 197,543
Repayment of long-term debt 32 (31,325) (232,266)
Issuance of treasury stock 550 2,985 722
Purchase of treasury stock (3,261) - (5,042)
Premium on early retirement of debt - - (4,088)
Dividends on common stock (50,472) (49,462) (48,254)
- -----------------------------------------------------------------------------------
Net cash provided by (used for) financing (68,337) 57,081 (84,896)
- -----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
Decrease in short-term investments - 3,175 97,411
Additions to investments (13,207) (13,612) (48,008)
Reductions in investments 13,755 10,303 69,573
Increase in note receivable - (50,000) -
Funding of qualified pension plans (1,816) (5,037) (19,734)
Additions to plant and equipment, and to
land other than timberlands (137,160) (149,332) (231,392)
Additions to timber, timberlands and
related logging facilities (9,867) (9,153) (8,516)
Disposition of plant and properties 3,115 2,862 5,146
Other, net (1,403) 108 (4,191)
- -----------------------------------------------------------------------------------
Net cash used for investing (146,583) (210,686) (139,711)
- -----------------------------------------------------------------------------------
Increase in cash 2,624 1,286 169
Balance at beginning of year 9,026 7,740 7,571
- -----------------------------------------------------------------------------------
Balance at end of year $ 11,650 $ 9,026 $ 7,740
===================================================================================
<FN>
Net interest paid (net of amounts capitalized) in 1998, 1997 and 1996 was $49.7 million,
$45.7 million and $47.1 million, respectively. Net income taxes paid in 1998, 1997 and
1996 were $4.2 million, $2.8 million and $18.0 million, respectively.
The accompanying notes and summary of principal accounting policies are an integral
part of these financial statements.
</TABLE>
23
<PAGE>
<TABLE>
Potlatch Corporation and Consolidated Subsidiaries
Statements of Stockholders' Equity
(Dollars in thousands - except per-share amounts)
<CAPTION>
Additional Total
Common Stock Issued Paid-In Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 32,721,980 $32,722 $125,650 $882,832 3,760,124 $97,300 $943,904
Exercise of stock options - - 287 - (31,325) (722) 1,009
Shares purchased at cost - - - - 127,200 5,239 (5,239)
Put options - - - - - (4,489) 4,489
Premium on issuance
of put options - - - - - (197) 197
Net earnings - - - 58,089 - - 58,089
Common dividends,
$1.67 per share - - - (48,254) - - (48,254)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 32,721,980 $32,722 $125,937 $892,667 3,855,999 $97,131 $954,195
Exercise of stock options - - 1,617 - (128,881) (2,985) 4,602
Put options - - - - - (6,120) 6,120
Premium on issuance
of put options - - - - - (78) 78
Net earnings - - - 36,059 - - 36,059
Common dividends,
$1.71 per share - - - (49,462) - - (49,462)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 32,721,980 $32,722 $127,554 $879,264 3,727,118 $87,948 $951,592
Exercise of stock options - - 471 - (23,825) (550) 1,021
Shares purchased at cost - - - - 100,000 4,000 (4,000)
Put options - - - - - 5,206 (5,206)
Premium on issuance
of put options - - - - - (739) 739
Net earnings - - - 37,232 - - 37,232
Common dividends,
$1.74 per share - - - (50,472) - - (50,472)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 32,721,980 $32,722 $128,025 $866,024 3,803,293 $95,865 $930,906
==========================================================================================================
<FN>
The accompanying notes and summary of principal accounting policies are an integral part of these financial statements.
</TABLE>
24
<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 pulp
and paper 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 by dividing net earnings by the
weighted average number of common shares outstanding in accordance with
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share."
The following table reconciles the number of common shares used in the basic and
diluted earnings per share calculations:
1998 1997 1996
- ------------------------------------------------------------------------------
Basic average common shares outstanding 29,000,250 28,929,734 28,887,962
Incremental shares due to
common stock options 19,294 55,768 23,633
- ------------------------------------------------------------------------------
Diluted average common shares outstanding 29,019,544 28,985,502 28,911,595
==============================================================================
Options to purchase shares of common stock of 1,230,475, 293,563 and 472,421
for 1998, 1997 and 1996, respectively, were not included in the computation of
diluted earnings per share because the exercise prices of these stock options
were greater than the average market price of the common stock.
25
<PAGE>
Properties
Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, most equipment and other depreciable
assets is determined by using the straight-line method. In 1998, the company
placed certain equipment in service at one of its pulp manufacturing facilities,
utilizing the units of production method of depreciation. Estimated useful
lives range from 30 to 40 years for buildings and structures and 2 to 25 years
for equipment.
Timber, timberlands and related logging facilities are valued at cost net of
the cost of fee timber harvested and depreciation or amortization. Logging
roads and related facilities are amortized over their useful lives or as related
timber is removed. Cost of fee timber harvested is determined annually based on
the estimated volumes of recoverable timber and related cost.
Major improvements and replacements of property are capitalized. Maintenance,
repairs, and minor improvements and replacements are expensed. 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. Beginning in 1999, all
preoperating and startup costs will be expensed as incurred in compliance with
the Accounting Standards Executive Committee Statement of Position 98-5
"Reporting on the Costs of Startup Activities." The effect of implementing the
Statement is not expected to be material.
Environment
As part of its corporate policy, the company has an ongoing process to
monitor, report on and comply with environmental requirements. Based on this
ongoing process, reserves for environmental liabilities are established in
accordance with Statement of Financial Accounting Standards No. 5.
26
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Inventories
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Logs, pulpwood, chips and sawdust $ 21,266 $ 24,958
Lumber and other manufactured wood products 11,138 9,828
Pulp, paper and converted paper products 111,030 90,854
Materials and supplies 56,823 56,663
- -----------------------------------------------------------------------------
$200,257 $182,303
=============================================================================
Valued at lower of cost or market:
Last-in, first-out basis $ 29,882 $ 31,766
Average cost basis 170,375 150,537
- -----------------------------------------------------------------------------
$200,257 $182,303
=============================================================================
</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 $26.2 million
higher at December 31, 1998, and $25.3 million higher at December 31, 1997.
Note 2. Plant and Equipment
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Land improvements $ 58,252 $ 57,796
Buildings and structures 413,718 406,133
Machinery and equipment 2,114,567 1,993,776
Other 101,677 94,174
Construction in progress 218,932 234,777
- -----------------------------------------------------------------------------
$2,907,146 $2,786,656
=============================================================================
</TABLE>
Depreciation charged against income amounted to $126.3 million in 1998 ($125.5
million in 1997 and $118.7 million in 1996).
Authorized but unexpended appropriations for capital projects totaled $316.7
million at December 31, 1998. Of that amount, $278.4 million is budgeted to be
expended in 1999.
Note 3. Timber, Timberlands and Related Logging Facilities
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Timber and timberlands $296,687 $304,566
Related logging facilities 41,930 37,937
- -----------------------------------------------------------------------------
$338,617 $342,503
=============================================================================
</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 $21.4 million in 1998 ($19.8 million in 1997 and $18.9 million in
1996). Amortization of logging roads and related facilities amounted to $1.7
million in 1998 ($.7 million in 1997 and $1.3 million in 1996).
27
<PAGE>
Note 4. Other Assets
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Pension assets $ 54,773 $ 51,810
Note receivable 50,000 50,000
Other 12,466 14,536
- -----------------------------------------------------------------------------
$117,239 $116,346
=============================================================================
</TABLE>
Note 5. Taxes on Income
Provision for taxes on income, excluding an extraordinary item, is comprised
of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 4,453 $ 5,357 $ 9,063
Deferred 16,490 13,219 15,729
- -----------------------------------------------------------------------------
Provision for taxes on income $20,943 $18,576 $24,792
=============================================================================
</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) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $20,361 $19,122 $30,214
State and local taxes, net of federal
income tax benefits 2,022 2,131 2,936
Tax credits and other benefits (1,570) (2,005) (8,059)
Foreign sales corporation (1,221) (1,141) (1,187)
All other items 1,351 469 888
- -----------------------------------------------------------------------------
Provision for taxes on income $20,943 $18,576 $24,792
Effective tax rate 36.0% 34.0% 28.7%
=============================================================================
</TABLE>
Principal current and noncurrent deferred tax assets and liabilities at
December 31 were:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Employee benefits $ 17,826 $ 18,702
Inventories 2,146 1,521
Other 1,971 1,454
- -----------------------------------------------------------------------------
Total current asset 1 21,943 21,677
- -----------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Postretirement benefits 52,519 49,977
Alternative minimum tax 58,562 50,254
Plant and equipment (331,783) (305,910)
Timber, timberlands and related logging facilities (24,814) (22,459)
Pensions (13,409) (13,720)
Other, net 5,234 4,924
- -----------------------------------------------------------------------------
Total net noncurrent liability (253,691) (236,934)
- -----------------------------------------------------------------------------
Net deferred tax liability $(231,748) $(215,257)
=============================================================================
<FN>
1 Included in Prepaid expenses in the Balance Sheets.
</TABLE>
28
<PAGE>
The company's federal income tax returns have been examined and settlements
have been reached for all years through 1988. The company believes that
adequate provision has been made for possible assessments of additional taxes.
Note 6. Debt
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Revenue bonds fixed rate 5.9% to 7.5% due 2007
through 2026 $137,283 $137,253
Revenue bonds variable rate due 2007 through 2030 99,852 99,839
Debentures 6.95% due 2015 99,818 99,808
Credit sensitive debentures 9.125% due 2009 100,000 100,000
Medium-term notes fixed rate 7.55% to 9.46%
due 1999 through 2022 185,000 185,000
Commercial paper 5.4% to 6.3% 100,000 100,000
Other notes 181 202
- -----------------------------------------------------------------------------
722,134 722,102
Less current installments on long-term debt 10,021 22
- -----------------------------------------------------------------------------
Long-term debt $712,113 $722,080
=============================================================================
</TABLE>
The interest rate payable on the 9.125 percent credit sensitive debentures is
subject to adjustment if certain changes in the debt rating of the debentures
occur. No such change in the interest rate payable has occurred.
The commercial paper is backed by the company's credit agreements, which
enable it to classify up to $100.0 million of these short-term borrowings to a
long-term basis should the company choose to do so. Because of this capability
and the likelihood that $100.0 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, 1998, is
classified as a portion of current notes payable in the Balance Sheets. At
December 31, 1998, the weighted average interest rate payable on all commercial
paper was 6.1 percent.
Certain credit agreements have restrictive covenants. At December 31, 1998,
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. No significant assets of the company 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, 1998, are as follows:
(Dollars in thousands)
- -----------------------------------------------------------------------------
1999 $10,021
- -----------------------------------------------------------------------------
2000 10,323
- -----------------------------------------------------------------------------
2001 325
- -----------------------------------------------------------------------------
2002 30,606
- -----------------------------------------------------------------------------
2003 15,707
- -----------------------------------------------------------------------------
At December 31, 1998, the company had credit lines totaling $250.0 million for
general corporate purposes. Of that amount, $150.0 million was in short-term
credit agreements and $100.0 million was in a revolving credit agreement. The
short-term credit agreements are effective for approximately one year and are
subject to renewal annually. The long-term credit agreement will expire on
August 30, 2001. At December 31, 1998, the company had outstanding indebtedness
under the short-term credit lines of $30.0 million, which is classified as a
29
<PAGE>
portion of current notes payable in the Balance Sheets. At December 31, 1998,
the weighted average interest rate payable for these short-term lines was 5.7
percent.
Note 7. Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 62,268 $ 51,339
Accrued wages, salaries and employee benefits 61,861 55,196
Accrued taxes other than taxes on income 16,718 17,046
Accrued interest 8,182 9,865
Accrued taxes on income 14,556 14,351
Book overdrafts 30,008 24,583
Other 31,746 29,604
- -----------------------------------------------------------------------------
$225,339 $201,984
=============================================================================
</TABLE>
Note 8. Other Long-Term Obligations
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits $134,663 $128,147
Pension and related liabilities 16,976 15,042
Other 11,814 12,147
- -----------------------------------------------------------------------------
$163,453 $155,336
=============================================================================
</TABLE>
Note 9. Put Options
The company has in place a stock repurchase program through which it is
authorized 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 has issued put options
which give the purchaser the right to sell shares of Potlatch stock to the
company at prices ranging from $31.50 to $41.987 per share on specific dates in
1997, 1998 and 1999. Activity during 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Put Options Outstanding
Number of Potential
(Dollars in thousands) Options Obligation
- -----------------------------------------------------------------------------
<S> <C> <C>
December 31, 1996 200,000 $ 7,758
Sales 39,000 1,638
Expirations (200,000) (7,758)
- -----------------------------------------------------------------------------
December 31, 1997 39,000 1,638
Sales 300,000 10,844
Repurchases (100,000) (4,000)
Expirations (39,000) (1,638)
- -----------------------------------------------------------------------------
December 31, 1998 200,000 $ 6,844
=============================================================================
</TABLE>
30
<PAGE>
The company's potential obligations of $6.8 million and $1.6 million at
December 31, 1998 and 1997, respectively, are classified as "Put options" in the
Balance Sheets and the related offset is recorded in "Common shares in treasury"
under Stockholders' equity.
Note 10. Disclosures about Fair Value of Financial Instruments
Estimated fair values of the company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 18,072 $ 18,072 $ 15,542 $ 15,542
Current notes payable 74,939 74,939 95,550 95,550
Long-term debt 722,134 779,704 722,102 788,360
Put options 6,844 6,844 1,638 1,638
=============================================================================
</TABLE>
For short-term investments, current notes payable and put options, the
carrying amount approximates fair value. 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.
Note 11. Retirement, Savings and Other Postretirement Benefit Plans
Substantially all employees of the company are eligible to participate in
401(k) savings plans and are covered by noncontributory defined benefit pension
plans. These include both company-sponsored and multi-employer plans. In 1998,
1997 and 1996 the company made matching 401(k) contributions on behalf of
employees of $8.1 million, $7.9 million and $7.5 million, respectively. The
company also provides benefits under company-sponsored defined benefit retiree
health care and life insurance plans, which cover most salaried and certain
hourly employees. Most of the retiree health care plans require retiree
contributions and contain other cost sharing features. The retiree life
insurance plans are primarily noncontributory.
31
<PAGE>
The change in benefit obligation, change in plan assets, funded status and
related balance sheet amounts for company-sponsored benefit plans are as
follows:
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefit Plans Benefit Plans
(Dollars in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year $ 435,761 $ 404,165 $ 153,640 $ 142,360
Service cost 12,340 10,315 2,815 2,394
Interest cost 30,552 29,316 10,757 10,490
Plan amendments 872 34 - 102
Actuarial losses 29,605 19,774 9,906 6,145
Benefits paid (27,793) (27,843) (8,777) (7,851)
- -------------------------------------------------------------------------------------
Benefit obligation at end of year 481,337 435,761 168,341 153,640
- -------------------------------------------------------------------------------------
Fair value of plan assets at
beginning of year 601,737 485,349 38,150 34,718
Actual return on plan assets 61,319 138,431 9,768 8,181
Employer contribution 2,610 5,800 - -
Benefits paid (27,793) (27,843) (4,839) (4,749)
- -------------------------------------------------------------------------------------
Fair value of plan assets
at end of year 637,873 601,737 43,079 38,150
- -------------------------------------------------------------------------------------
Funded status 156,536 165,976 (125,262) (115,490)
Unrecognized prior service cost 16,784 17,885 (5,396) (5,909)
Unrecognized net gain (131,730) (144,321) (4,005) (6,748)
Unrecognized net transition asset (666) (1,292) - -
- -------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 40,924 $ 38,248 $(134,663) $(128,147)
=====================================================================================
</TABLE>
The company has one pension plan with accumulated benefit obligations in
excess of assets: its unfunded, nonqualified plan. The projected benefit
obligation and accumulated benefit obligation for this nonqualified plan were
$14.8 million and $12.8 million, respectively, at December 31, 1998, and $12.9
million and $10.9 million, respectively, at December 31, 1997.
Net periodic benefit costs were:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefit Plans Benefit Plans
(Dollars in thousands) 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 12,340 $ 10,315 $ 9,773 $ 2,815 $ 2,394 $ 3,034
Interest cost 30,552 29,316 28,029 10,757 10,490 10,632
Expected return on
plan assets (44,118) (39,258) (36,119) (3,172) (2,880) (2,926)
Amortization of prior
service cost 1,973 2,034 1,720 (411) (420) 245
Recognized actuarial gain (187) (524) (277) - - -
Recognized net initial asset (626) (574) (2,472) - - -
Other - - - 66 - -
- -------------------------------------------------------------------------------------------
Net periodic benefit cost $ (66) $ 1,309 $ 654 $10,055 $ 9,584 $10,985
===========================================================================================
</TABLE>
The 1996 postretirement benefit cost presented above excluded a $3.0 million
actuarial gain. That amount is included in "Other income, net" in the
Statements of Earnings.
32
<PAGE>
Weighted average assumptions as of December 31 were:
Other
Pension Postretirement
Benefit Plans Benefit Plans
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on plan assets 9.50 9.50 9.50 9.00 9.00 9.00
Rate of salaried
compensation increase 5.00 5.00 5.00 - - -
The health care cost trend rate assumption used in determining the accumulated
postretirement benefit obligation is 6.58 percent for 1999. The rate is assumed
to decrease incrementally to 5.25 percent in 2001 and remain at that level
thereafter. This assumption has a significant effect on the amounts reported.
A one percentage point change in the health care cost trend rates would have the
following effects:
(Dollars in thousands) 1% Increase 1% Decrease
- -----------------------------------------------------------------------------
Effect on total of service and interest
cost components $ 2,714 $ (2,262)
Effect on postretirement benefit obligation 26,935 (23,219)
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. The company also makes contributions to a trust fund
established to provide retiree medical benefits for these employees, which is
managed by the United Paperworkers International Union. Company contributions
to these plans in 1998, 1997 and 1996 amounted to $4.7 million, $4.8 million and
$3.1 million, respectively.
Note 12. Stock Compensation Plans
The company currently has three fixed stock option plans under which options
are issued and outstanding. 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, 1998. 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, 1998, remaining shares
authorized for future use under the plans totaled .6 million.
The company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized when options are granted under the plans.
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 Financial
Accounting Standards Board Statement No. 123, the company's net earnings and
earnings per share would
33
<PAGE>
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 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings as reported $37,232 $36,059 $58,089
pro forma 35,287 34,387 57,317
Basic earnings per share as reported $1.28 $1.25 $2.01
pro forma 1.22 1.19 1.98
</TABLE>
The pro forma information presented above includes only the effects of
applying the provisions of Financial Accounting Standards Board Statement
No. 123 to options granted in 1995 and later years. Because options generally
vest over a two-year period and additional awards are made each year, the pro
forma 1996 figures are not representative of the effect the Statement 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,
1998, 1997 and 1996 and changes during those years is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,758,725 $42.81 1,705,900 $40.61 1,446,450 $39.11
Granted 430,300 37.75 337,950 48.25 370,750 44.38
Shares exercised (23,825) 34.60 (116,550) 34.95 (31,325) 32.20
SARs exercised (27,350) 32.25 (135,600) 34.86 (62,275) 32.52
Canceled or expired (41,250) 44.71 (32,975) 45.46 (17,700) 39.56
--------- --------- ---------
Outstanding at December 31 2,096,600 41.96 1,758,725 42.81 1,705,900 40.61
Options exercisable 1,504,900 42.50 1,239,000 41.10 1,177,850 39.34
Options outstanding which include
a stock appreciation right 204,375 240,450 668,025
Shares reserved for future grants 593,525 983,050 1,288,025
Fair value of options granted
during the year $5.86 $9.72 $8.65
</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 1998, 1997 and 1996, respectively: dividend yield of 4.61, 3.61 and
3.83 percent; stock volatility of .1945, .1597 and .1602; risk free rate of
return of 5.03, 6.00 and 6.13 percent; and expected term of 10 years for all
grants.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Number Weighted Avg. Number
Range of Outstanding Remaining Weighted Avg. Exercisable Weighted Avg.
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
<S> <C> <C> <C> <C> <C>
$29.50 to $37.75 764,325 7.6 years $36.62 334,025 $35.17
$41.25 to $48.25 1,332,275 7.1 years 45.03 1,170,875 44.58
--------- ---------
$29.50 to $48.25 2,096,600 7.3 years 41.96 1,504,900 42.50
</TABLE>
34
<PAGE>
Note 13. Segment Information
In the fourth quarter of 1998, the company adopted the Financial Accounting
Standards Board Statement No. 131, "Disclosures About Segments of an Enterprise
and Related Information," which establishes standards for reporting information
about a company's operating segments. The company has divided its operations
into three reportable segments: wood products, printing papers and pulp and
paper, based upon similarities in product lines, manufacturing processes,
marketing and management of its businesses. The wood products segment produces
oriented strand board, lumber, plywood and particleboard. The printing papers
segment produces coated printing papers. The pulp and paper segment produces
bleached kraft pulp, paperboard and consumer tissue.
The reporting segments follow the same accounting policies used for the
company's consolidated financial statements and described in the summary of
significant accounting policies. Management evaluates a segment's performance
based upon profit or loss from operations before income taxes. Intersegment
sales or transfers are recorded based on prevailing market prices.
Following is a tabulation of business segment information for each of the past
three years. Corporate information is included to reconcile segment data to the
consolidated financial statements.
<TABLE>
<CAPTION
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Segment Sales:
Wood products:
Oriented strand board $ 171,464 $ 106,807 $ 150,545
Lumber 225,668 247,232 201,022
Plywood 54,561 64,511 57,468
Particleboard 14,494 12,875 12,087
Logs, chips, etc. 124,536 119,435 111,118
- -----------------------------------------------------------------------------
590,723 550,860 532,240
- -----------------------------------------------------------------------------
Printing papers 406,277 429,217 441,037
- -----------------------------------------------------------------------------
Pulp and paper:
Pulp 12,467 11,183 12,346
Paperboard 390,708 420,054 404,136
Tissue 235,799 218,310 222,169
- -----------------------------------------------------------------------------
638,974 649,547 638,651
- -----------------------------------------------------------------------------
1,635,974 1,629,624 1,611,928
Elimination of
intersegment sales (70,096) (60,754) (57,479)
- -----------------------------------------------------------------------------
Total consolidated net sales $1,565,878 $1,568,870 $1,554,449
=============================================================================
Intersegment Sales or Transfers: 1
Wood products $ 69,984 $ 60,649 $ 57,033
Printing papers - 35 279
Pulp and paper 112 70 167
- -----------------------------------------------------------------------------
Total $ 70,096 $ 60,754 $ 57,479
=============================================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Income:
Wood products $ 73,811 $ 47,674 $ 68,056
Printing papers 14,204 33,358 48,570
Pulp and paper 53,394 51,043 40,867
- -----------------------------------------------------------------------------
141,409 132,075 157,493
Corporate Items:
Administration expense (37,247) (31,385) (30,752)
Interest expense (49,744) (46,124) (43,869)
Other, net 3,757 69 3,454
- -----------------------------------------------------------------------------
Consolidated earnings
before taxes on income $ 58,175 $ 54,635 $ 86,326
=============================================================================
Depreciation, Amortization and
Cost of Fee Timber Harvested:
Wood products $ 54,245 $ 50,586 $ 49,072
Printing papers 41,618 39,436 35,318
Pulp and paper 53,525 58,689 56,092
- -----------------------------------------------------------------------------
149,388 148,711 140,482
Corporate 890 1,074 1,039
- -----------------------------------------------------------------------------
Total $ 150,278 $ 149,785 $ 141,521
=============================================================================
Assets:
Wood products $ 671,381 $ 690,468 $ 698,151
Printing papers 685,743 644,457 592,228
Pulp and paper 825,547 842,337 850,612
- -----------------------------------------------------------------------------
2,182,671 2,177,262 2,140,991
Corporate 194,635 187,874 124,688
- -----------------------------------------------------------------------------
Total consolidated assets $2,377,306 $2,365,136 $2,265,679
=============================================================================
Capital Expenditures:
Wood products $ 28,404 $ 31,578 $ 43,992
Printing papers 87,147 81,913 103,574
Pulp and paper 30,674 44,054 92,083
- -----------------------------------------------------------------------------
146,225 157,545 239,649
Corporate 802 940 259
- -----------------------------------------------------------------------------
Total $ 147,027 $ 158,485 $ 239,908
=============================================================================
<FN>
1 Intersegment sales for 1998-1996, the majority of which were based on
prevailing market prices, consisted primarily of chips, pulp logs and other
fiber sales to the printing papers and pulp and paper segments. The company's
timber, timberlands and related logging facilities have been assigned to the
wood products segment.
</TABLE>
36
<PAGE>
All of the company's manufacturing facilities and all other assets are located
within the continental United States. However, the company sells and ships
products to many foreign countries. Geographic information regarding the
company's net sales is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
United States $1,392,223 $1,382,674 $1,357,801
Japan 64,129 69,494 89,355
Australia 23,022 30,869 32,585
Canada 31,234 35,867 25,599
China 25,939 23,061 24,279
Italy 18,631 11,933 8,866
Other foreign countries 10,700 14,972 15,964
- -----------------------------------------------------------------------------
Total consolidated net sales $1,565,878 $1,568,870 $1,554,449
=============================================================================
</TABLE>
Note 14. Other Income, Net
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cross border lease $5,643 $ - $ -
Sale of timber and timberlands 1,839 5,727 1,151
Actuarial gain on postretirement benefits - - 2,969
Other 1,230 2,062 3,388
- -----------------------------------------------------------------------------
$8,712 $7,789 $7,508
=============================================================================
</TABLE>
37
<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
1998 1997 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $402,534 $399,445 $400,482 $394,223 $404,625 $395,447 $358,237 $379,755
- -------------------------------------------------------------------------------------------------------------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested 36,673 38,134 36,535 36,741 39,203 38,991 37,867 35,919
Materials, labor and other
operating expenses 307,884 317,970 306,986 306,245 301,987 299,184 278,592 296,266
Selling, general and
administrative expenses 30,328 25,290 29,747 26,111 31,450 27,229 29,419 27,820
- -------------------------------------------------------------------------------------------------------------
374,885 381,394 373,268 369,097 372,640 365,404 345,878 360,005
- -------------------------------------------------------------------------------------------------------------
Earnings from operations $ 27,649 $ 18,051 $ 27,214 $ 25,126 $ 31,985 $ 30,043 $ 12,359 $ 19,750
=============================================================================================================
Net earnings $ 10,736 $ 6,365 $ 10,049 $ 9,882 $ 12,547 $ 14,107 $ 3,900 $ 5,705
=============================================================================================================
Net earnings per common share:
Basic $.37 $.22 $.35 $.34 $.43 $.49 $.13 $.20
Diluted .37 .22 .35 .34 .43 .48 .13 .20
=============================================================================================================
</TABLE>
38
<PAGE>
Note 16. Other Matters
In February 1998, the company announced that it had agreed to contribute all
of its timberlands in Arkansas to a newly formed real estate investment trust
(REIT), which would acquire Anderson-Tully Company using the proceeds of a
planned initial public offering. These transactions have not been completed due
to poor market conditions. The company's agreement with Anderson-Tully is
currently terminable by either party; however, a new agreement in principle has
been reached regarding a restructuring of the proposed transaction and the
resolution of certain issues with the SEC. Although there can be no assurance
whether, or on what terms, a new definitive agreement will be reached, it is
anticipated that any new agreement would provide that the company would (i)
contribute its Arkansas timberlands in return for an equity interest in a
limited partnership controlled by a publicly traded REIT and (ii) enter into a
long-term agreement to purchase all of the timber harvested from the company's
former Arkansas lands at prices designed to approximate fair market value.
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 1998 and 1997 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998. In connection with our
audits of the financial statements, we also have audited the financial statement
schedule on page 40. 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 as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, 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 27, 1999
39
<PAGE>
<TABLE>
Schedule II
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Valuation and Qualifying Accounts
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<CAPTION>
Amounts
charged
Balance at (credited)
beginning to costs Balance at
Description of year and expenses Deductions end of year
<S> <C> <C> <C> <C>
Reserve deducted from
related assets:
Doubtful accounts -
Accounts receivable
1
Year ended December 31, 1998 $2,022 $(291) $ - $1,731
==============================================
1
Year ended December 31, 1997 $2,275 $(102) $(151) $2,022
==============================================
1
Year ended December 31, 1996 $2,365 $ 12 $(102) $2,275
==============================================
<FN>
1 - Accounts written off, net of recoveries.
</TABLE>
40
<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,
1997 ("1997 Form 10-K").
*(3)(c) By-laws, as amended through January 28, 1999, filed as Exhibit
(3)(c) to the Current Report on Form 8-K dated January 28, 1999.
(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 Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 ("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, filed as Exhibit
(4)(a)(ii) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 ("1996 Form 10-K").
*(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.
*(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, 1989).
(10)(d)(i)1 Amendment, effective as of January 1, 1998, to Plan described in
Exhibit (10)(d).
*Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
41
<PAGE>
*(10)(e)1 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)(e) to the 1997 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.
*(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 through May 16, 1996, together with Appendix A thereto,
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, filed as Exhibit (10)(j)
to the 1996 Form 10-K.
*(10)(j)(i)2 Amendment No. 1 to Schedule A to Exhibit (10)(j), filed as Exhibit
(10)(j)(i) to the 1997 Form 10-K.
*(10)(k)2 Form of Indemnification Agreement with certain officers of Potlatch
Corporation as set forth on Schedule A, filed as Exhibit (10)(k) to
the 1996 Form 10-K.
*(10)(k)(i)2 Amendment No. 1 to Schedule A to Exhibit (10)(k), filed as Exhibit
(10)(k)(i) to the 1997 Form 10-K.
(10)(l)1 Potlatch Corporation 1989 Stock Incentive Plan adopted December 8,
1988, and as amended and restated February 22, 1990, together with
amendments thereto, dated December 31, 1998.
* Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
42
<PAGE>
*(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 1990-1997, filed as
Exhibit (10)(1)(ii) to the 1995 Form 10-K.
(10)(l)(iii)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 December, 1998.
(10)(m)(i)1 Form of Amendments, dated January 12, 1999, to outstanding employee
Stock Option Agreements.
(10)(m)(ii)1 Form of Amendment, dated December 29, 1998, to outstanding outside
director Stock Option Agreements.
(10)(n)1 Potlatch Corporation 1995 Stock Incentive Plan adopted December 7,
1995, as amended and restated December 3, 1998.
*(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
each December, 1996 and 1997, filed as Exhibit (10)(n)(ii) to the
1996 Form 10-K.
*(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 each December
1996 and 1997, filed as Exhibit (10)(n)(iii) to the 1996 Form
10-K.
(10)(n)(iv)1 Form of employee Stock Option Agreement for the Potlatch
Corporation 1995 Stock Incentive Plan together with the Addendum
thereto as used for options granted in December, 1998.
*Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
43
<PAGE>
(10)(n)(v)1 Form of outside director Stock Option Agreement for the Potlatch
Corporation 1995 Stock Incentive Plan together with the Addendum
thereto as used for options granted in December, 1998.
(22) Potlatch Corporation Subsidiaries.
(23) Consent of Independent Auditors.
(24) Powers of Attorney
*Incorporated by reference.
1 Management compensatory plan or arrangement.
2 Management contract.
44
POTLATCH CORPORATION
SEVERANCE PROGRAM FOR
EXECUTIVE EMPLOYEES
(As Amended and Restated Effective
as of February 24, 1989)
SECTION 1. ADOPTION AND PURPOSE OF PROGRAM.
The Potlatch Corporation Severance Program for
Executive Employees (the "Program") was adopted effective
September 30, 1978, by Potlatch Corporation, a Delaware
corporation (the "Company"), to provide a program of
severance payments to certain employees of the Company and
its designated subsidiaries. The Program was last amended
and restated effective as of February 24, 1989, to read as
set forth herein. The Program is an employee welfare
benefit plan within the meaning of section 3(1) of the
Employee Retirement Income Security Act of 1974 ("ERISA")
and section 2510.3-1 of the regulations issued thereunder.
The plan administrator of the Program for purposes of ERISA
is the Company.
SECTION 2. ELIGIBILITY AND DETERMINATION OF VESTING
SERVICE.
All Principal Officers and appointed vice
presidents of the Company and of any subsidiary of the
Company that is designated to participate in the Program by
the Executive Compensation and Personnel Policies Committee
of the Board of Directors of the Company and such other
Exhibit (10)(b)
<PAGE>
employees of the Company or any such subsidiary who are
designated by such Committee to participate in the Program
shall be eligible to participate in the Program. The
Company and such designated subsidiaries are referred to
collectively in the Program as the "Participating
Companies." For purposes of the Program, "Principal
Officers" shall include the chief executive officer,
president, secretary, treasurer and controller and any
elected vice-president of a Participating Company. Those
Principal Officers and other employees who participate in
the program are referred to herein as "Eligible Employees."
As a condition to participation in the Program, each
Eligible Employee shall agree in writing to become bound by
its terms, including, without limitation, the provisions of
Section 10.
For purposes of the Program, an Eligible
Employee's Years of Vesting Service shall be determined
under the provisions of the Potlatch Corporation Salaried
Employees' Retirement Plan as in effect from time to time
(the "Retirement Plan").
SECTION 3. SEVERANCE BENEFITS.
(a) Basic Severance Benefits. Upon the occurrence
of any of the events specified in Section 4(a), an Eligible
Employee shall receive (in lieu of any other severance
benefit payable under any other plan or program now or
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<PAGE>
hereafter maintained by a Participating Company) Basic
Severance Benefits under the Program as follows:
(i) A cash benefit equal to three (3) weeks of the
Eligible Employee's Base Compensation for each full
Year of Vesting Service completed by such Eligible
Employee;
(ii) If at the end of the number of weeks
following termination of the Eligible Employee's
employment equal to three (3) times the number of full
Years of Vesting Service completed by the Eligible
Employee he or she has not obtained a position with
another employer (despite reasonable, diligent and good
faith efforts to do so) at a salary comparable to the
Eligible Employee's Base Compensation, a cash benefit
equal to an additional week of Base Compensation for
each full Year of Vesting Service completed by the
Eligible Employee; provided, however, that such benefit
shall not be payable if the Eligible Employee is not
living on the last day of the period described herein;
(iii) In the event that a Participating Company
terminates the employment of an Eligible Employee and
does not give him or her one month's advance notice,
one month of the Eligible Employee's Base Compensation
in lieu of notice;
(iv) The Eligible Employee's unused and accrued
vacation pay, if any, determined as of the date when
the Eligible Employee's employment is terminated under
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<PAGE>
the terms of the Participating Company's basic vacation
policy as in effect when the applicable event specified
in Section 4(a) occurs (which, in the case of
termination of employment pursuant to Section 4(a)(iv),
shall be the date of the material change rather than
the date the Eligible Employee resigns);
(v) Eligibility for an Award under the Company's
Management Performance Award Plan for the Award Year in
which his or her employment terminates, determined
under all the terms and conditions of such plan;
provided, however, that if an Eligible Employee's
employment is terminated under the conditions described
in Section 4(a)(iii) or (iv) or if his or her
employment is terminated by the Company during any
twenty-four (24) month period described in Section 4(a)
(iv), the Eligible Employee's eligibility for an Award
for such Award Year shall be determined under Section
9(a)(i) of such Plan as if the Eligible Employee had
retired during the Award Year, subject to all other
applicable terms and conditions of the Management
Performance Award Plan; and
(vi) Continued coverage as an employee during a
period of weeks equal to three (3) (four (4), in the
case of an Eligible Employee eligible for the benefit
described in (ii) above) times the number of full Years
of Vesting Service completed by the Eligible Employee,
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<PAGE>
under the following employee benefit plans of the
Company:
(A) Medical coverage under "Plan 1" of the
Potlatch Corporation Custom Benefits-Health Care Plan,
or any successor to such Plan;
(B) Dental coverage in the amount, if any, that
the Eligible Employee had in effect on the day
preceding the date of his or her termination of
employment;
(C) Basic life insurance coverage in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment; and
(D) Accidental death and dismemberment coverage
(not including travel accident coverage) in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment, except that continuation of any
employee-paid coverage shall be at the Eligible
Employee's expense at standard group rates.
Notwithstanding any of the foregoing provisions of this
Section 3(a)(vi):
(I) Any such continued coverage shall terminate
when the Eligible Employee becomes covered by the life
insurance, medical, dental or accidental death and
dismemberment plan of another employer.
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<PAGE>
(II) In the event that after an Eligible
Employee's termination of employment with a
Participating Company he or she is otherwise entitled
to continued coverage under the Company's basic life
insurance, medical, dental and accidental death and
dismemberment plans pursuant to any employee benefit
plan or program of the Company (other than this
Program), the total benefits paid for by the
Participating Companies during the period described
above shall not exceed the benefits to which the
Eligible Employee is entitled under this Section
3(a)(vi).
(III) For purposes of this Section 3(a)(vi), the
Company's basic life insurance plan shall not include
any group universal life insurance or travel accident
insurance coverage provided through or by the Company
to or on behalf of its employees or any accidental
death and dismemberment insurance coverage provided by
the Company to family members of its employees.
(IV) During the period of such continued coverage,
the Eligible Employee shall not be eligible to
participate in the Company's disability income plan or
as an employee in the Retirement Plan, the Salaried
Employees' Savings Investment Plan, any qualified or
nonqualified stock option or phantom stock plan of the
Company or any employee benefit plan or program now or
hereafter maintained by the Company or a Participating
-6-
<PAGE>
Company other than those plans listed in the first
sentence of this Section 3(a)(vi).
Notwithstanding the foregoing provisions of this subsection
(a), the sum of the amounts payable under (i), (ii) and
(iii) above shall be not less than four (4) months of the
Eligible Employee's Base Compensation nor greater than one
(1) year of the Eligible Employee's Base Compensation and
the period of continued coverage described in (vi) above
shall be not less than four (4) months nor more than one (1)
year from the termination of the Eligible Employee's
employment. The Executive Compensation and Personnel
Policies Committee of the Board of Directors of the Company
may, in its discretion, increase the benefit payable to any
Eligible Employee without regard to the foregoing
limitation.
(b) Change of Control Benefits. Upon the
occurrence of any of the events specified in Section 4(b),
an Eligible Employee shall receive (in lieu of any severance
benefit payable under Section 3(a) or any other severance
benefit payable under any other plan or program now or
hereafter maintained by a Participating Company) Change of
Control Benefits under the Program as follows:
(i) A lump sum cash benefit equal to the Eligible
Employee's annual Base Compensation plus his or her
annual Base Compensation multiplied by his or her
standard bonus percentage (as determined pursuant to
the Management Performance Award Plan), determined as
-7-
<PAGE>
of the date of the Change of Control or the date the
Eligible Employee's employment terminates, whichever
produces the larger amount, multiplied by the
appropriate factor from the following table, based on
the Eligible Employee's age (to the nearest birthday)
and Years of Vesting Service on the date the Eligible
Employee's employment with the Participating Companies
terminates:
Years of Vesting Service
------------------------
Under 10 But Less 20 or
Age 10 Than 20 More
--- ----- ----------- -----
Under 40 1.5 2.0 2.5
40 but less than 50 2.0 2.25 2.5
50 or more 2.5 2.5 2.5
Notwithstanding the foregoing, if the Eligible
Employee's employment terminates on or after the date
thirty (30) months prior to the Eligible Employee's
"normal retirement date," as determined under the
Retirement Plan, and the Eligible Employee meets the
conditions of Subsections (II) and (III) of Section
4(a), the applicable factor shall be a fraction, the
numerator of which is the number of full months between
the date the Eligible Employee's employment terminates
and such "normal retirement date" and the denominator
of which is twelve (12). An Eligible Employee
described in the preceding sentence shall be entitled
to an additional benefit equal to the difference
between the benefit payable to the Eligible Employee,
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<PAGE>
if any, under the Retirement Plan and the Retirement
Plan Supplemental Benefit provisions of the Salaried
Employees' Supplemental Benefit Plan (the "Supplemental
Plan"), and such benefits that would have been payable,
if any, under such Plans if the Eligible Employee had
remained an Eligible Employee and continued to earn his
or her Base Compensation until such "normal retirement
date;" provided, however, that the present value
(calculated using the assumed discount rate applied in
projecting the Company's pension benefit obligations
for financial reporting purposes and the UP-84
mortality table) (the "Present Value") of such
additional benefit shall not exceed the difference
between the lump sum benefit determined under the
preceding sentence and the lump sum benefit determined
using the otherwise applicable factor from the table
above. Such additional benefit shall be paid at the
same time and in the same form as any benefit payable
to the Eligible Employee under the Supplemental Plan
or, if no benefit is payable to the Eligible Employee
under the Supplemental Plan, the Present Value of such
additional benefit shall be paid in a lump sum at the
same time as the Eligible Employee's Change of Control
Benefits are paid.
(ii) In the event that a Participating Company
terminates the employment of an Eligible Employee and
does not give him or her one month's advance notice,
-9-
<PAGE>
one month of the Eligible Employee's Base Compensation
(determined as of the date of the Change of Control or
the date the Eligible Employee's employment terminates,
whichever produces the larger amount) in lieu of
notice;
(iii) A lump sum cash benefit equal to the
Eligible Employee's unused and accrued vacation pay, if
any, under the terms of the Participating Company's
basic vacation policy. For this purpose, (I) an
Eligible Employee's Base Compensation and the terms of
the basic vacation policy shall be determined as of the
date when the Eligible Employee's employment is
terminated or as of the date of the Change of Control,
whichever produces the larger amount and (II) accrued
vacation pay shall be paid notwithstanding any minimum
service requirement of the Participating Company's
basic vacation policy;
(iv) Eligibility for an Award under the Company's
Management Performance Award Plan for the Award Year in
which his or her employment terminates determined under
all the terms and conditions of such Plan; provided,
however, that if an Eligible Employee's employment is
terminated under the conditions described in Section
4(a)(iii) or (iv) or if his or her employment is
terminated by the Company during any twenty-four (24)
month period described in Section 4(a)(iv), the
Eligible Employee's eligibility for an Award for such
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<PAGE>
Award Year shall be determined under Section 9(a)(i) of
such Plan as if the Eligible Employee had retired
during the Award Year, subject to all other applicable
terms and conditions of the Management Performance
Award Plan;
(v) Continued coverage as an employee during the
number of years equal to the applicable factor
determined under (b)(i) above, subject to all of the
conditions and limitations described in Section
3(a)(vi)(I) through (IV) above (determined without
regard to the last paragraph of Section 3(a)) under the
following employee benefit plans of the Company;
(A) Medical coverage under "Plan 1" of the
Potlatch Corporation Custom Benefits-Health Care Plan,
or any successor to such Plan;
(B) Dental coverage in the amount, if any, that
the Eligible Employee had in effect on the day
preceding the date of his or her termination of
employment;
(C) Basic life insurance coverage in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
employment;
(D) Accidental death and dismemberment coverage
(not including travel accident coverage) in the amount,
if any, that the Eligible Employee had in effect on the
day preceding the date of his or her termination of
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<PAGE>
employment, except that continuation of any
employee-paid coverage shall be at the Eligible
Employee's expense at standard group rates; and
(E) Temporary, long-term and permanent disability
income coverage in the amount, if any, that the
Eligible Employee had in effect on the day preceding
the date of his or her termination of employment;
(vi) In the case of an Eligible Employee who has
less than five (5) Years of Vesting Service on the
date his or her employment terminates, a lump sum cash
benefit equal to (A) the value of that portion of the
Eligible Employee's Company Stock Account in the
Salaried Employees' Savings Investment Plan
attributable to Company Contributions under such Plan
made on the Eligible Employee's behalf in a Plan Year
which ended less than 24 months prior to the date the
Eligible Employee's employment with the Participating
Companies terminates, plus (B) the unvested portion, if
any, of the Eligible Employee's SIP Supplemental
Benefit account under the Supplemental Plan. The value
of those portions of the Eligible Employee's Company
Stock Account and SIP Supplemental Benefit account
referred to in the preceding sentence shall be
determined as of the Eligible Employee's Settlement
Date under such Plan; and
(vii) A lump sum cash benefit equal to the Present
Value of the Eligible Employee's Normal Retirement
-12-
<PAGE>
Benefit and Retirement Plan Supplemental Benefit
determined under the Retirement Plan and the
Supplemental Plan, respectively, if the Eligible
Employee was not entitled to a Vested Benefit under the
Retirement Plan as of the date the Eligible Employee's
employment with the Participating Companies terminates.
(c) Limitation on Benefits Payable under the
Program. Any provision of the Program to the contrary
notwithstanding, payments to an Eligible Employee under the
Program shall be limited to the amount (the "Capped Amount")
necessary to avoid characterization of any amount payable to
the Eligible Employee (including but not limited to amounts
payable under the Program) as an "excess parachute payment"
as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), except in the event that the
total amount that the Eligible Employee would receive from
all "parachute payments" as defined in section 280G of the
Code, net of all applicable taxes, including the amount of
excise tax that would be imposed pursuant to Code section
4999, would exceed the Capped Amount, net of all applicable
taxes. The determination of whether any amount would
constitute an "excess parachute payment" as provided in the
preceding sentence shall be made by the firm of independent
certified public accountants serving as the outside auditor
of the Company as of the date of the event specified in
Section 4(a) or, if earlier, as of the date of the Change of
Control as determined pursuant to Section 4(b). In making
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<PAGE>
such determination, such firm may disregard any payments or
benefits available to the Eligible Employee under any
contract, plan or program if the Eligible Employee
irrevocably elects to relinquish or not exercise such
payments or benefits before the payment or enjoyment
thereof. It is intended that payments shall be made
pursuant to the Program whether or not the status of a
particular payment as an "excess parachute payment" has been
finally determined by the Internal Revenue Service or a
court of competent jurisdiction.
(d) Definition of "Base Compensation." For
purposes of the Program, "Base Compensation" shall mean the
Eligible Employee's base rate of pay as in effect at the
time the Eligible Employee's employment is terminated, or,
if greater, the rate in effect at the time the material
change described in Section 4(a)(iv) occurs or the time a
Change of Control described in Section 4(b) occurs, if
applicable. An Eligible Employee's base rate of pay shall
be determined without reduction for (i) any Deferred
Contributions made by the Eligible Employee pursuant to the
Potlatch Corporation Salaried Employees' Savings Investment
Plan or (ii) any contributions made by the Eligible Employee
pursuant to the Potlatch Corporation Custom Benefits Plan.
SECTION 4. CONDITIONS FOR PAYMENT OF SEVERANCE BENEFITS.
(a) Payment of Basic Severance Benefits. Subject
to the provisions of Section 4(c), an Eligible Employee will
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<PAGE>
be eligible for the benefits specified in Section 3(a) upon
the occurrence of any of the following events (except that
an Eligible Employee who has satisfied the conditions of
Section 4(b) will be eligible for the benefits specified in
Section 3(b) rather than the benefits specified in Section
3(a)):
(i) Termination of the Eligible Employee's
employment by a Participating Company or by the
Eligible Employee at the request of the Participating
Company for any reason other than misconduct. As used
herein "misconduct" means that the Eligible Employee
has engaged in unfair competition with a Participating
Company or a subsidiary thereof, induced any customer
of a Participating Company or subsidiary to breach any
contract with a Participating Company or subsidiary,
made any unauthorized disclosure of any of the secrets
or confidential information of a Participating Company
or subsidiary, committed an act of embezzlement, fraud
or theft with respect to the property of a
Participating Company or subsidiary, or engaged in
conduct which is not in good faith and which directly
results in material loss, damage or injury to the
business, reputation or employees of a Participating
Company or subsidiary; or
(ii) Termination of the Eligible Employee's
employer's status as a Participating Company due to the
sale of a designated subsidiary to a third party; or
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<PAGE>
(iii) The Participating Company requires the
Eligible Employee to relocate his or her principal
place of work and the new principal place of work is
thirty-five (35) or more miles further from the
Eligible Employee's primary residence than was his or
her former principal place of work, and the Eligible
Employee elects to resign rather than to relocate; or
(iv) The Eligible Employee resigns from employment
with a Participating Company within twenty-four (24)
months following a material change in his or her
compensation, benefits, assigned duties,
responsibilities, privileges or perquisites resulting
in a significant diminution of (A) the Eligible
Employee's assigned job, as reflected in the
Participating Company's official position description
or (B) the Eligible Employee's compensation, benefits,
duties, responsibilities, privileges or perquisites as
compared to those of all other employees similarly
situated, unless the material change is applicable to
all salaried employees or all other employees similarly
situated; provided, however, that in the event of a
Change of Control, any change in an Eligible Employee's
compensation, benefits, duties, responsibilities,
privileges or perquisites which constitutes a
significant diminution from the circumstances
applicable to the Eligible Employee on the day
preceding the date of the Change of Control shall be a
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<PAGE>
material change, even if the change is applicable to
all salaried employees or all other employees similarly
situated; provided, further, that this Section 4(a)
(iv) shall apply to the resignation of an Eligible
Employee only if the Eligible Employee or the
Participating Company has notified the other party in
writing within three (3) months following the
occurrence of any such change that the party giving
notice considers such change to be a material change
encompassed by this Section 4(a)(iv). If the party
receiving such notice does not agree that the change in
question is a material change encompassed by this
Section 4(a)(iv), it shall give written notice thereof
to the party first giving notice hereunder within
thirty (30) days after receiving notice and the matter
shall be immediately referred to the Review Panel as
provided in Section 9; provided, however, that, within
thirty (30) days after receiving written notice that
the other party does not agree that the change in
question is covered by this Section 4(a)(iv), the
Eligible Employee may request that the matter be
submitted directly to arbitration as provided in
Section 10. If necessary, the twenty four (24) month
period specified above shall be extended to a date not
later than thirty (30) days following (i) the
announcement of the decision of the Review Panel or, if
the matter is referred to arbitration within thirty
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<PAGE>
(30) days following the announcement of the Review
Panel's decision, the announcement of the award of the
arbitrator, or (ii) if the matter is referred directly
to arbitration, the announcement of the award of the
arbitrator. The Participating Company or the Eligible
Employee may each give the notice described in this
Section 4(a)(iv) only once while this Program is in
effect. If one party has given notice and the
twenty-four (24) month period specified above has
commenced running, the other party may not give notice
hereunder with respect to a change occurring during
such twenty-four (24) month period. If an Eligible
Employee gives notice pursuant to this Section 4(a)
(iv) and the Company thereafter in good faith makes an
adjustment in the Eligible Employee's compensation,
benefits, assigned job or duties, responsibilities,
privileges or perquisites, the Eligible Employee and
the Company may mutually agree in writing that the
notice shall be null and void.
Notwithstanding the foregoing, no benefits shall be
available under the Program (i) if the Eligible Employee's
employment with a Participating Company terminates because
he or she is eligible for or receiving long-term or
permanent disability benefits under the Company's disability
income plan as in effect on the date of onset of disability
or (ii) if the Eligible Employee satisfies all of the
following conditions:
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<PAGE>
(I) His or her employment with a Participating
Company terminates on or after his or her "normal
retirement date," as determined under the Retirement
Plan;
(II) For the two-year period immediately before
retirement, he or she qualified as an Eligible
Employee; and
(III) He or she is entitled to benefits under the
Retirement Plan, Salaried Employees' Savings Investment
Plan and Supplemental Plan which, when converted to a
straight life annuity (and excluding any portion of the
benefit under the Salaried Employees' Savings
Investment Plan which represents contributions by the
Eligible Employee), equals, in the aggregate, at least
$44,000.
(b) Payment of Change of Control Benefits. An
Eligible Employee will be eligible for the benefits
specified in Section 3(b) if, within three (3) years
following a Change of Control, the Eligible Employee's
employment terminates under the conditions described in
Section 4(a)(i), (ii) or (iii) or a material change
described in Section 4(a)(iv) occurs and the Eligible
Employee thereafter resigns under the conditions described
in Section 4(a)(iv); provided, that the Eligible Employee
was employed by a Participating Company on the date
preceding the Change of Control. For purposes of the
Program, "Change of Control" shall mean:
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(i) The consummation of any transaction approved
by the stockholders of the Company in which the Company
will cease to be an independent publicly owned
corporation (including, without limitation, a reverse
merger transaction in which the Company becomes the
subsidiary of another corporation) or the sale or other
disposition of all or substantially all of the assets
of the Company;
(ii) A change in the composition of the Board of
Directors of the Company that results in the situation
where more than one-third (determined by rounding down
to the next whole number) of the individual members of
the Board neither (A) were directors of the Company on
a date three (3) years earlier nor (B) are individuals
whose election or nomination for election as directors
was affirmatively voted on by at least a majority of
those directors described in (A) above who were still
in office as of the date the Board approved such
election or nomination;
(iii) The acquisition of twenty percent (20%) or
more of the outstanding shares of common stock of the
Company by any "person" (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act
of 1934) pursuant to a tender offer subject to section
14(d) of the Securities Exchange Act of 1934; or
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(iv) Any dissolution or liquidation of the Company
or any merger or consolidation in which the Company is
not the surviving corporation.
(c) Limitation on Eligibility for Benefits.
(i) If an Eligible Employee is assigned from one
to another Participating Company, his or her employment
shall not be considered to be terminated under the
provisions of the Program.
(ii) The provisions of Sections 4(a)(i) and 4(a)
(ii) to the contrary notwithstanding, no benefit will
be payable hereunder due to termination of an Eligible
Employee's employment because of the sale of a division
(or other operating assets) of a Participating Company
or to termination of the Eligible Employee's employer's
status as a Participating Company upon the sale of a
designated subsidiary to a third party, if (A)(I) the
Eligible Employee is employed by the purchaser of such
division, assets, or subsidiary or (II) such purchaser
is contractually obligated to offer the Eligible
Employee the same or a better job and (B) such
purchaser is contractually obligated to maintain a plan
which in all material respects is equivalent to the
Program, providing for continuing coverage of the
Eligible Employee for three (3) years following the
sale of such division, assets or subsidiary.
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SECTION 5. FORM OF BENEFIT.
The benefits described in Sections 3(a)(i), (ii)
and (iii) shall be paid in a lump sum or in monthly
installments over a period not to exceed twelve (12) months
from the date employment is terminated pursuant to Section
4, as determined by the Company. The benefit described in
Section 3(a)(iv) shall be paid in a lump sum. The
benefits described in Sections 3(b)(i), (ii), (iii), (vi)
and (vii) shall be paid in a lump sum.
SECTION 6. EFFECT OF DEATH OF EMPLOYEE.
Should an Eligible Employee die after employment
terminates but while participating in the Program and prior
to the payment of the entire benefit due hereunder, the
balance of the benefit payable under the Program (other than
any benefit described in Section 3(a)(ii) if the Eligible
Employee was not living on the last day of the period
described therein or the proceeds of any life insurance or
accidental death insurance, which shall be paid to the
beneficiary determined pursuant to the terms of the
applicable insurance policy) shall be paid in a lump sum to
the estate of the Eligible Employee. Continued medical and
dental coverage as provided in Section 3(a)(vi) and Section
3(b)(v), as applicable, shall be available to the Eligible
Employee's surviving spouse only if and to the extent that
such coverage would have been available to such surviving
spouse if the Eligible Employee had died as an active
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salaried employee of a Participating Company. Such coverage
shall be determined under the terms of the applicable plan
as in effect on the earlier of (i) the date the Eligible
Employee's employment terminated or (ii) the date of the
Change of Control or the material change described in
Section 4(a)(iv), if applicable.
SECTION 7. AMENDMENT AND TERMINATION.
The Company reserves the right to amend or
terminate the Program at any time and to increase or
decrease the amount of any benefit provided under the
Program; provided, however, that:
(a) No amendment which would adversely affect the
rights of any Eligible Employee to a Basic Severance
Benefit under Section 3(a) may be effective before May
1, 1992, and no such amendment or termination shall
affect the right to any unpaid Basic Severance Benefit
under Section 3(a) of any Eligible Employee (i) whose
employment has terminated on or before the date such
amendment or termination is approved or effective,
whichever is later, or (ii) with respect to whom a
material change described in Section 4(a)(iv) occurred
on or before May 1, 1992 and whose employment
terminates within the twenty-four (24) months following
the occurrence of the material change described in
Section 4(a)(iv) for any reason except cause or under
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the conditions described in the last paragraph of
Section 4; and
(b) As long as any individual who has qualified as
an Eligible Employee may become entitled to any Change
of Control Benefit under Section 3(b), the Program
cannot be terminated or amended to reduce any benefit
provided under Section 3(b) or make any condition
pertaining to qualification for the Change of Control
Benefit under Section 3(b) materially more restrictive.
Once an individual has qualified as an Eligible
Employee, the Program may not be amended to cause such
individual to cease to qualify as an Eligible Employee
for purposes of determining that individual's
eligibility for the Change of Control Benefit under
Section 3(b).
SECTION 8. CLAIMS PROCEDURE.
(a) Claims. All applications for benefits and all
inquiries concerning claims under the Program shall be
submitted to the Company addressed as follows: "Potlatch
Corporation, Plan Administrator under the Potlatch
Corporation Severance Program for Executive Employees, One
Maritime Plaza, San Francisco, California 94111."
(b) Denial of Claims. In the event that any
application for benefits under the Program is denied in
whole or in part, the Company shall notify the applicant in
writing of such denial and shall advise the applicant of the
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right to a review thereof. Such written notice shall set
forth, in a manner calculated to be understood by the
applicant, specific reasons for such denial, specific
references to the provisions of the Program on which such
denial is based, a description of any information or
material necessary for the applicant to perfect his or her
application, an explanation of why such material is
necessary and an explanation of the Program's review
procedure. Such written notice shall be given to the
applicant within ninety (90) days after the Company receives
the application, unless special circumstances require an
extension of time up to an additional ninety (90) days for
processing the application. If such an extension of time
for processing is required, written notice of the extension
shall be furnished to the applicant prior to the termination
of the initial ninety (90) day period. This notice of
extension shall indicate the special circumstances requiring
the extension of time and the date by which the Company
expects to render its decision on the application for
benefits. If written notice of the denial of the
application for benefits is not furnished within the time
specified in this Section 8(b), the application shall be
deemed denied, and the applicant shall be permitted to
appeal such denial in accordance with the review procedure
set out in Section 9 hereof.
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SECTION 9. REVIEW PROCEDURE.
(a) Appointment of Review Panel. The Company
shall appoint a Review Panel which shall consist of three
(3) or more individuals who may (but need not) be employees
of the Company. The Review Panel shall be the named
fiduciary which shall have authority to act with respect to
appeals from denials of benefits under the Program.
(b) Right to Appeal. Any person whose application
for benefits is denied (or is deemed denied) in whole or in
part (or such person's authorized representative) may appeal
from the denial by submitting to the Review Panel a written
request for review of the application within sixty (60) days
after receiving written notice from the Company of the
denial (or in the case of a deemed denial within sixty (60)
days after the date the application is deemed denied). The
Company shall give the applicant (or the applicant's
representative) an opportunity to review pertinent documents
in preparing such request for review.
(c) Form of Request for Review. The request for
review must be in writing and shall be addressed as follows:
"Review Panel under the Potlatch Corporation Severance
Program for Executive Employees, One Maritime Plaza, San
Francisco, California 94111." The request for review shall
set forth all of the grounds upon which it is based, all
facts in support thereof, and any other matters which the
applicant deems pertinent. The Review Panel may require the
applicant to submit such additional facts, documents or
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other material as the Review Panel may deem necessary or
appropriate in making its review.
(d) Time for Review Panel Action. The Review
Panel shall act upon each request for review within sixty
(60) days after receipt thereof unless special circumstances
require an extension of time of up to an additional sixty
(60) days for processing the request for review. If such an
extension of time for review is required, written notice of
the extension shall be furnished to the applicant prior to
the end of the initial sixty (60) day period.
(e) Review Panel Decision. Within the time
prescribed in Section 9(d), the Review Panel shall give
written notice of its decision to the applicant and to the
Company. In the event the Review Panel confirms the denial
of the application for benefits in whole or in part, such
notice shall set forth, in a manner calculated to be
understood by the applicant, the specific reasons for such
denial and specific references to the provisions of the
Program on which the decision was based. In the event that
the Review Panel determines that the application for
benefits should not have been denied in whole or in part,
the Company shall take appropriate remedial action as soon
as reasonably practicable after receiving notice of the
Review Panel's decision. If written notice of the Review
Panel's decision is not given to the applicant within the
time prescribed in Section 9(d), the application will be
deemed denied on review.
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(f) Section 4(a)(iv) Dispute. In the event that a
dispute involving the application or interpretation of
Section 4(a)(iv) is referred to the Review Panel as provided
therein, the Review Panel shall treat such dispute as an
appeal from the denial of a claim for benefits under this
Program that is subject to all of the terms and conditions
of this Section 9.
(g) Rules and Procedures. The Review Panel shall
establish such rules and procedures, consistent with the
Program and with ERISA, as it may deem necessary or
appropriate in carrying out its responsibilities under this
Section 9. The Review Panel may require an applicant who
wishes to submit additional information in connection with
an appeal from the denial of benefits in whole or in part to
do so at the applicant's own expense.
SECTION 10. RESOLUTION OF DISPUTES INVOLVING SECTION 4.
(a) Arbitration of Section 4 Dispute. Any
dispute, controversy or question arising under Section 4
which is not resolved by the decision of the Review Panel
(or which the Eligible Employee requests be submitted
directly to arbitration as provided herein) shall be
referred for decision by an arbitrator selected by the
parties. The proceeding shall be governed by the Rules of
the American Arbitration Association then in effect or such
rules last in effect (in the event such Association is no
longer in existence). If the parties are unable to agree
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upon such an Arbitrator within thirty (30) days after either
party has given the other party written notice of its desire
to submit the dispute, controversy or question for decision
as aforesaid, then either party may apply to the American
Arbitration Association for the appointment of an arbitrator
or, if such Association is not then in existence or does not
desire to act in the matter, either party may apply to the
Presiding Judge of the Superior Court of the City and County
of San Francisco, State of California, for the appointment
of an arbitrator to hear the parties and settle the dispute,
controversy or question, and such Judge is authorized to
make such appointment pursuant to the Program. The
arbitration shall take place at the location mutually agreed
to by the parties or, if the parties are unable to agree
upon the location, at the location designated by the
Arbitrator. The compensation and expenses of the Arbitrator
shall be borne by the Company, unless the Arbitrator
determines that an Eligible Employee acted willfully and
maliciously in connection with his or her claim for benefits
under the Program, in which case the Arbitrator shall direct
the Eligible Employee to pay all or a portion of the
compensation and expenses of the Arbitrator.
(b) Arbitration Exclusive Remedy. Arbitration
shall be the exclusive remedy for the settlement of disputes
involving the application or interpretation of Section 4.
The decision of the Arbitrator shall be final, conclusive
and binding on all interested Persons and no action at law
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or in equity involving the application or interpretation of
Section 4 shall be instituted other than to enforce the
award of the Arbitrator.
SECTION 11. BASIS OF PAYMENTS TO AND FROM PROGRAM.
All benefits under the Program shall be paid by
the Company. The Program shall be unfunded and benefits
hereunder shall be paid only from the general assets of the
Company. Nothing contained in the Program shall be deemed
to create a trust of any kind for the benefit of Eligible
Employees, or create any fiduciary relationship between the
Company and the Eligible Employees with respect to any
assets of the Company. The Company is under no obligation
to fund the benefits provided herein prior to payment,
although it may do so if it chooses. Any assets which the
Company chooses to use for advance funding shall not cause
the Program to be a funded plan within the meaning of ERISA.
SECTION 12. NO EMPLOYMENT RIGHTS.
Nothing in the Program shall be deemed to give any
individual the right to remain in the employ of a
Participating Company or a subsidiary or to limit in any way
the right of a Participating Company or a subsidiary to
terminate an individual's employment, which right is hereby
reserved.
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<PAGE>
SECTION 13. NON-ALIENATION OF BENEFITS.
No benefit payable under the Program shall be
subject to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt
to do so shall be void.
SECTION 14. NOTICES.
All notices pertaining to the Program shall be in
writing and shall be deemed given if delivered by hand or
mailed with postage prepaid and addressed, in the case of
the Company to the address set forth in Section 8(a),
attention of its Secretary, and in the case of the Eligible
Employee to his or her last known address as reflected in
the records of the Company.
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CERTIFICATE
AMENDMENT AND RESTATEMENT OF THE
POTLATCH CORPORATION SUPPLEMENTAL BENEFIT PLAN
Whereas this Corporation, by resolution adopted by its
Board of Directors effective May 5, 1989, authorized the
Chairman of the Board of this Corporation to adopt changes to
benefit plans established and maintained by this Corporation if
those changes do not have a material financial impact on such
plans or the Corporation; and
Whereas it is deemed necessary and desirable to amend the
Potlatch Corporation Supplemental Benefit Plan (the "Plan") to
incorporate prior amendments, to make certain other nonsubstan-
tive changes and to coordinate with a change in the Potlatch
Corporation Salaried Employees' Savings Plan that recognizes
short-term incentive compensation in the definition of
"Earnings":
Now, Therefore, be it
RESOLVED that effective as of January 1, 1989, the
Potlatch Corporation Salaried Employees' Supplemental Benefit
Plan shall be amended and restated in the form of the document
attached hereto and incorporated herein by reference.
POTLATCH CORPORATION
By John M. Richards
Date Chairman of the Board
Exhibit (10)(d)
<PAGE>
POTLATCH CORPORATION SALARIED EMPLOYEES'
SUPPLEMENTAL BENEFIT PLAN
(As Amended and Restated Effective January 1, 1989)
SECTION 1. INTRODUCTION.
The Potlatch Corporation Salaried Employees'
Supplemental Benefit Plan (the "Plan") was established
effective September 30, 1978. The Plan was amended from
time to time thereafter and was last amended and restated to
read as set forth herein effective January 1, 1989, except
that the provisions of Sections 4(a), 4(b) and 4(c)
incorporate amendments effective December 31, 1992. The
purposes of the Plan are (i) to supplement benefits provided
under the Potlatch Corporation Salaried Employees'
Retirement Plan (the "Retirement Plan") to the extent such
benefits are reduced due to the limits of section 401(a)(17)
or 415 of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) to provide retirement benefits that take into
account deferred awards made under the Potlatch Corporation
Management Performance Award Plan (the "MPAP") after
January 1, 1988, (iii) to provide retirement benefits to
certain executives calculated as if they received a target
award under the MPAP with respect to award years 1992 and
thereafter, (iv) to provide retirement benefits to
participants in the MPAP under certain formulae formerly
provided under the Retirement Plan, and (v) to supplement
benefits provided under the Potlatch Corporation Salaried
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Employees' Savings Plan (the "Savings Plan") to the extent
that a participant's allocations of Company Contributions
or Allocable Forfeitures are reduced due to the limits of
section 401(a)(17), 401(k)(3), 401(m) or 415 of the Code or
because the participant has deferred an award under the MPAP
after January 1, 1996. Capitalized terms used in the Plan
(other than those defined herein) shall have the same
meanings given to such terms in the Retirement Plan or the
Savings Plan, as the context may require.
SECTION 2. ELIGIBILITY AND PARTICIPATION.
Participation in the Plan shall be limited to:
(a) All participants in the Retirement Plan
whose benefits thereunder are reduced due to the
limits of section 401(a)(17) of the Code (limiting
the amount of compensation that may be taken into
account under the Retirement Plan) or section 415
of the Code (limiting the annual benefits payable
under the Retirement Plan);
(b) All participants in the Retirement Plan
who are credited with deferred awards under the
MPAP after January 1, 1988;
(c) All participants in the Retirement Plan
who otherwise participate in the MPAP after 1988;
and
(d) All participants in the Savings Plan
whose allocations of Company Contributions or
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Allocable Forfeitures are reduced because the
participant has deferred an award under the MPAP
after January 1, 1996 or because of the limits of
one or more of the following sections of the Code:
(i) section 401(a)(17) (limiting the amount of
compensation that may be taken into account under
the Savings Plan); (ii) section 401(k)(3) (limiting
participants' Deferred Contributions to the Savings Plan);
(iii) section 401(m) (limiting participants'
Non-deferred Contributions and matching Company
Contributions under the Savings Plan); or (iv) section 415
(limiting overall annual allocations under the
Savings Plan).
Any Employee with whom the Company has entered into a con-
tract that provides benefits equivalent to any of the bene-
fits described in this Plan shall not be eligible to partic-
ipate in or receive benefits under this Plan to the extent
of such equivalent benefits.
SECTION 3. AMOUNT OF PLAN BENEFITS.
A Participant's Plan Benefit shall consist of (to
the extent applicable to the Participant) (i) the Retirement
Plan Supplemental Benefit and (ii) the Savings Plan Supplemental
Benefit. All Plan Benefits shall accrue as of the last day
of each Plan Year or as of the date, if earlier, on which
the Participant ceases to be an Employee.
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(a) Retirement Plan Supplemental Benefit. A
Participant's Retirement Plan Supplemental Benefit shall be
the sum of the benefits determined under (i), (ii), (iii),
(iv) and (v) below, as applicable.
(i) All Participants. A Participant's
Retirement Plan Supplemental Benefit shall be the
difference between (A) the actual vested benefits
payable under the Retirement Plan to the
Participant and his or her joint annuitant (if
any) and (B) the vested benefits that would be
payable under the Retirement Plan if the limita-
tions imposed by sections 401(a)(17) and 415 of the
Code did not apply and any deferred award credited to the
Participant under the MPAP after January 1, 1988, had been
paid to the Participant in the year it was deferred. In
the case of any Participant who is required by Company
policy to retire no later than the Normal Retirement Date,
the Retirement Plan Supplemental Benefit also
shall include the difference, if any, between the
actual vested benefits payable under the
Retirement Plan and the vested benefits that would
be payable under the Retirement Plan if the
average percentage under the MPAP with respect to
award years 1992 and thereafter which was
recognized by the Retirement Plan in the
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Participant's "Average Monthly Earnings" had been
100% of the "Standard Bonus."
(ii) Eligible Employees on December 31,
1977. Any Participant who was an Eligilble
Employee on December 31, 1977, and who has
continuously been a participant in the Retirement
Plan since that date to his or her Retirement Date
or completion of 10 Years of Vesting Service shall
be entitled to an additional Retirement Plan
Supplemental Benefit determined pursuant to the
formula in Section 4(b) of the Retirement Plan or
Section (b) of Appendix B, as applicable,
recognizing such Participant's Years of Credited
Service and increases in Average Monthly Earnings
during periods in which the Participant is
eligible to participate in the MPAP from
January 1, 1989, through December 31, 1995, but
only to the extent that such benefit exceeds the
Participant's Basic Benefit determined under the
Retirement Plan and the benefit determined under
Subsection (i) above. In calculating the benefit
payable under this Subsection (ii), the limita-
tions imposed by sections 401(a)(17) and 415 of
the Code shall be ignored.
(iii) Eligible Employees on December 31,
1972. Any Participant who was an Eligible
Employee on December 31, 1972, and who has
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continuously been a Participant in the Retirement
Plan since that date to his or her Retirement
Date, shall be entitled to an additional
Retirement Plan Supplemental Benefit determined
pursuant to the formula in Section 4(c) of the
Retirement Plan or Section (c) of Appendix B, as
applicable, recognizing such Participant's Years
of Credited Service and increases in Average
Monthly Earnings during periods in which the
Participant is eligible to participate in the MPAP
from January 1, 1989, through December 31, 1995,
but only to the extent that such benefit exceeds
the Participant's Basic Benefit determined under
the Retirement Plan and the benefit determined
under Subsections (i) and (ii) above. In
calculating the benefit payable under this
Subsection (iii), the limitations imposed by
sections 401(a)(17) and 415 of the Code shall be
ignored.
(iv) Surviving Spouses of Certain Participants
Upon the death of a Participant who last became
an Eligible Employee prior to January 1, 1973,
and who qualified as an Eligible Employee
immediately prior to Retirement or whose
Retirement was deferred beyond the Normal
Retirement Date and who qualified as an Eligible
Employee on the Normal Retirement Date, the
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surviving spouse of such Participant shall be
entitled to an additional monthly survivor's
benefit under this Plan, determined pursuant to
the rules and under the conditions set forth in
Section 12 of the Retirement Plan, recognizing the
Participant's Years of Credited Service and
increases in Average Monthly Earnings during
periods in which the Participant is eligible to
participate in the MPAP from January 1, 1989,
through December 31, 1995, but only to the extent
that such benefit exceeds the survivor's benefit
determined under the Retirement Plan and any
survivor's benefit payable pursuant to (i) through
(iii) above. In calculating the benefit payable
under this Subsection (iv), the limitations
imposed by sections 401(a)(17) and 415 of the Code
shall be ignored.
(v) Participants Listed in Exhibit A. Any
Participant listed in Exhibit A who is an Eligible
Employee immediately prior to his or her Normal
Retirement Date or whose Credited Service
terminates after the attainment of age 62 and
completion of 10 or more Years of Vesting Service
shall be entitled to an additional Retirement Plan
Supplemental Benefit equal to two percent of the
Participant's Average Monthly Earnings multiplied
by the Participant's Years of Credited Service up
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to 20 such Years, minus the Participant's Social
Security Offset, but only to the extent that such
benefit exceeds the Participant's Basic Benefit
determined under the Retirement Plan and the
Retirement Plan Supplemental Benefit otherwise
determined under this Section 3(a). For purposes
of this Subsection (v), (A) Years of Credited
Service and any increase in the Participant's
Average Monthly Earnings after December 31, 1995,
shall be disregarded; (B) the limitations imposed
by sections 401(a)(17) and 415 of the Code shall
be ignored; and (C) the term "Social Security
Offset" means 50% of the monthly primary
retirement benefits, if any, to which the
Participant would be entitled commencing at age 65
under the federal Social Security Act.
(b) Savings Plan Supplemental Benefit. A Participant's
Savings Plan Supplemental Benefit shall be the
vested amount credited to a bookkeeping account established
pursuant to this Section 3(b). As of the last day of each
Plan Year commencing after December 31, 1987, each Participant
whose allocations for such Plan Year under the Savings Plan are
reduced as described in Section 2(d) above and who has made the
maximum Participating Deferred and Participating Non-deferred
Contributions permitted under the Savings Plan for such Plan Year
shall have an amount credited to such bookkeeping account.
The amount so credited shall be the difference between the
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amount of Company Contributions and Allocable Forfeitures
actually allocated to the Participant under the Savings Plan
for such Plan Year and the amount of Company Contributions and Allo-
cable Forfeitures that would have been allocated to the
Participant under the Savings Plan for such Plan Year if the
Participant had made Participating Contributions equal to six
percent of the Participant's Earnings (determined without
regard to section 401(a)(17) of the Code and without
regard to the deferral of any award otherwise payable after
January 1, 1996 under the MPAP).
Until the last day of the month preceding payment
of the Participant's entire Savings Plan Supplemental Benefit,
the amount credited to such bookkeeping account shall be
credited with interest equal to 70 percent of the higher of
the following averages, compounded annually: (i) the prime
rate charged by the major commercial banks as of the first
business day of each month (as reported in an official
publication of the Federal Reserve System) or (ii) the,
average monthly long-term rate of A rated corporate bonds
(as published in Moody's Bond Record).
The Participant shall become vested in the Partic-
ipant's Savings Plan Supplemental Benefit upon the earliest
of completion of five Years of Vesting Service, attainment of
age 65 while an Employee, death while an Employee or Total
and Permanent Disability.
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SECTION 4. DISTRIBUTIONS OF PLAN BENEFITS
Distributions of Plan Benefits shall be made in
cash after the Participant ceases to be an Employee pursuant
to the following procedures.
(a) Retirement Plan Supplemental Benefit. A
Participant's vested Retirement Plan Supplemental Benefit
shall be payable to the Participant or to any other person
who receives benefits under the Retirement Plan with respect
to the Participant in the same form and at the same times as
the Participant's Retirement Plan benefit is paid. However,
if the Participant elects to have the Retirement Plan
benefit paid in an optional form and/or before the
Participant's Normal Retirement Date, the Chairman of the
Executive Compensation and Personnel Policies Committee of
the Board of Directors of the Company (the "Chairman"),
acting on behalf of the Executive Compensation and Personnel
Policies Committee of the Board of Directors of the Company
(the "Committee"), may determine in his or her sole
discretion that the Retirement Plan Supplemental Benefit shall be
payable in the normal form and/or at the Normal Retirement
Date notwithstanding the Participant's election. A Partici-
pant's Retirement Plan Supplemental Benefit shall be subject
to the same actuarial adjustments for time and form of
payment applicable to Retirement Plan benefits.
(b) Savings Plan Supplemental Benefit. A Participant may
elect to receive distribution of the Participant's vested
Savings Plan Supplemental Benefit in 15 or fewer
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annual installments or in a lump sum beginning as soon as
practicable after January 1 of the year following the year
in which the Participant ceases to be an Employee by filing
the prescribed form with the Committee. Distribution will
be made in accordance with the Participant's election unless
the Chairman, acting on behalf of the Committee, disapproves
the election before the date distribution is to commence. The
amount of any annual installment shall be determined by
dividing the amount credited to the Participant's book-
keeping account as of the last day of the month preceding
the date of distribution of such installment by the total
number of installments elected by the Participant less the
number of installments already paid.
If the Participant fails to make an election
pursuant to this Section 4(b) or if the Chairman disap-
proves the Participant's election, the vested Savings Plan
Supplemental Benefit shall be distributed in 15 annual installments
beginning as soon as practicable after January 1 of the year
following the year in which the Participant ceases to be an
Employee, unless the Chairman in his or her sole discretion
determines that distribution shall be made in a single lump
sum.
The Chairman in his or her sole discretion may accel-
erate the distribution of installments upon the request of
the Participant.
If a Participant dies before the Participant's Savings
Plan Supplemental Benefit has been completely distributed, such
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benefit shall be distributed in a lump sum as soon as prac-
ticable thereafter to the person who is or would be the
Participant's Beneficiary under the Savings Plan.
(c) Small Benefits. Notwithstanding any contrary
provision of the Plan, if a Participant's Savings Plan
Supplemental Benefit or the present value of the
Participant's Retirement Plan Supplemental Benefit is less
than $3,500 when the Participant ceased to be an Employee,
such benefit shall be distributed in a single lump sum as
soon as practicable after January 1 of the year following
the year in which the Participant ceases to be an Employee.
If a Participant is an Employee and the value of the
Participant's Savings Plan Supplemental Benefit is less than
$3,500 on December 31, 1992, such benefit shall be paid to
the Participant in a single lump sum on or about December
31, 1992. After December 31, 1992, a minimum allocation of
$1,000 shall be required to establish a Savings Plan
Supplemental Benefit account, and amounts less than such
minimum shall be paid to the Participant in cash.
SECTION 5. MISCELLANEOUS.
(a) Forfeitures. Plan Benefits shall be
forfeited under the following circumstances:
(i) If the Participant is not vested in the
Retirement Plan Supplemental Benefit or Savings
Plan Supplemental Benefit when the Participant
ceases to be an Employee; or
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(ii) If the Participant is indebted to the
Company or any Subsidiary at the time the Partici-
pant or the Participant's joint annuitant or other
Beneficiary becomes entitled to payment of a Plan
Benefit. In such a case, to the extent that the
amount of the Plan Benefit does not exceed such
indebtedness, the amount of such Plan Benefit
shall be forfeited and the Participant's indebted-
ness shall be extinguished to the extent of such
forfeiture.
(b) Funding. The Plan shall be unfunded, and all
Plan Benefits shall be paid from the general assets of the
Company or from assets held in a grantor trust that is
subject to the claims of the Company's general or judgment
creditors.
(c) Tax Withholding. The Committee shall make
appropriate arrangements for satisfaction of any federal or
state income tax or other payroll-based withholding tax
required upon the accrual or payment of any Plan Benefits.
(d) No Employment Rights. Nothing in the Plan
shall be deemed to give any individual a right to remain in
the employ of the Company or any Subsidiary or to limit in
any way the right of the Company or a Subsidiary to termi-
nate any individual's employment with or without cause,
which right is hereby reserved.
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<PAGE>
(e) No Assignment of Rights.
(i) Except as otherwise provided in Sec-
tion 5(a)(ii) with respect to a Participant's
indebtedness to the Company or a Subsidiary or in
Section 5(e)(ii), the interest or rights of any
person in the Plan or in any distribution to be
made hereunder shall not be assigned (either at
law or in equity), alienated, anticipated or
subject to attachment, bankruptcy, garnishment,
levy, execution or other legal or equitable pro-
cess. Any act in violation of this Section
5(e)(i) shall be void.
(ii) All or any portion of a Participant's
Plan Benefit hereunder shall be subject to the
creation, assignment or recognition of a right
under a state domestic relations order that is
determined to be a "qualified domestic relations
order" (within the meaning of section 414(p) of
the Code) under the procedures established by the
Company for the determination of the qualified
status of domestic relations orders and for making
distributions under qualified domestic relations
orders.
(f) Administration. The Plan shall be
administered by the Committee. No member of the Committee
shall become a Participant in the Plan. The Committee shall
make such rules, interpretations and computations as it may
deem appropriate, and any decision of the Committee with
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respect to the Plan, including (without limitation) any
determination of eligibility to participate in the Plan and
any calculation of Plan Benefits, shall be conclusive and
binding on all persons.
(g) Amendment and Termination. The Company
expects to continue the Plan indefinitely. Future condi-
tions, however, cannot be foreseen, and the Company shall
have the authority to amend or to terminate the Plan at any
time by action of its board of directors or by action of a
committee or individual(s) acting pursuant to a valid delegation
of authority. In the event of an amendment or termination of the
Plan, a Participant's Plan Benefits shall not be less than
the Plan Benefits to which the Participant would be entitled
if the Participant's employment had terminated immediately
prior to such amendment or termination of the Plan.
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POTLATCH CORPORATION SALARIED EMPLOYEES'
SUPPLEMENTAL BENEFIT PLAN
EXHIBIT A
Aili, Robert S.
Cheek, George C.
Cooper, Harry A.
Commerford, H. Fred
Clark, Philip C.
Davis, Frances M.
Dreshfield, Arthur C.
Eddington, Charles W.
Eischen, Robert K.
Feeley, Donald R.
Krantz, Irwin W.
Lloyd, Richard M.
Neuner, Charles L.
Page, Gordon R.
VandeVoorde, Henry J.
Wharton, Logan H.
Wirsig, Eugene F.
CERTIFICATE
AMENDMENT NUMBER ONE OF THE POTLATCH CORPORATION
SUPPLEMENTAL BENEFIT PLAN (AS AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1989)
Whereas this Corporation, by resolution adopted by its Board of
Directors effective May 5, 1989, authorized the Vice President-Employee
Relations of this Corporation to adopt non-substantive changes to benefit
plans established and maintained by this Corporation if those changes do
not have a material financial impact on such plans or the Corporation; and
Whereas it is deemed necessary and desirable to amend the Potlatch
Corporation Supplemental Benefit Plan (the "Plan") to make certain non-
substantive changes.
Now, Therefore, be it
Resolved that effective as of January 1, 1998, Section 4(c) of the
Potlatch Corporation Salaried Employees' Supplemental Benefit Plan shall
be amended to delete the last sentence thereof and to replace it in its
entirety by the following:
If the vested amount credited to a Participant's Savings Plan
Supplemental Benefit account, which is established after December 31,
1996, is less than $1,000 on the third anniversary of the establishment
of such account, such benefit will be paid to the Participant in a
single lump sum as soon as practicable after the third anniversary of
the establishment of such account.
POTLATCH CORPORATION
September 15, 1998 By: Barbara M. Failing
Date Vice President-Employee Relations
Exhibit (10)(d)(i)
POTLATCH CORPORATION
1983 STOCK OPTION PLAN
(Effective September 24, 1983)
1. PURPOSE.
This 1983 Stock Option Plan of Potlatch Corporation
(the "Corporation") and its eligible subsidiaries is intended
to provide incentive to employees of the Corporation or of
its subsidiaries, to encourage employee proprietary interest
in the Corporation and to encourage employees to remain in
the employ of the Corporation or of its subsidiaries.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of
the Corporation.
(b) "Code" shall mean the Internal Revenue Code
of 1954, as amended.
(c) "Committee" shall mean the Committee appointed
by the Board in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean the $1 par value
Common Stock of the Corporation.
(e) "Corporation" shall mean Potlatch Corporation,
a Delaware corporation.
(f) "Disability" shall mean the condition of an
Employee who is unable to engage in any substantial gainful
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Exhibit (10)(f)
<PAGE>
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a con-
tinuous period of not less than twelve (12) months.
(g) "Employee" shall mean an individual (who may
be an officer or a director) employed by the Corporation or
a Subsidiary (within the meaning of Code section 3401 and
the regulations thereunder).
(h) "Exercise Price" shall mean the price per
Share of Common Stock, determined by the Committee, at which
an Option may be exercised.
(i) "Fair Market Value" of a Share as of a
specified date shall mean the closing price at which such
Shares are traded at the close of business on such date as
reported on the composite tape, or if no trading of the
Common Stock is reported for that day, on the next preceding
day on which trading was reported.
(j) "Incentive Stock Option" shall mean an
Option described in Code section 422A(b).
(k) "Nonqualified Stock Option" shall mean an
Option not described in Code sections 422(b), 422A(b),
423(b), or 424(b).
(l) "Option" shall mean a stock option granted
pursuant to the Plan.
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(m) "Optionee" shall mean an Employee who has
received an Option.
(n) "Plan" shall mean this stock option plan.
(o) "Purchase Price" shall mean the Exercise
Price times the number of whole shares with respect to which
an Option is exercised.
(p) "Rules" shall mean the regulations and rules
adopted from time to time by the Committee.
(q) "Share" shall mean one Share of Common
Stock, adjusted in accordance with Section 10 of the Plan
(if applicable).
(r) "Subsidiary" shall mean any corporation in
an unbroken chain of corporations beginning with the Corpo-
ration if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corpora-
tions in such chain.
3. EFFECTIVE DATE.
This Plan was adopted by the Board effective
September 24, 1983.
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
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<PAGE>
than three disinterested members thereof. The Board may
from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board. The Board shall
appoint one of the members of the Committee as Chairman.
The term "Disinterested Members of the Board" shall include
only members of the Board who are not active Employees of
the Corporation or of any of its Subsidiaries, who are not
eligible to receive Options under this Plan or any other
stock option plan of the Corporation and who have not been
eligible to receive such Options for at least one year
preceding appointment as a member of the Committee.
The Committee shall hold meetings at such times
and places as it may determine. Acts of a majority of the
Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The
Committee, with the advice and consultation of the Chairman
of the Board of the Corporation, shall from time to time at
its discretion make determinations with respect to Employees
who shall be granted Options, the number of Shares to be
optioned to each and the designation of such Options as
Incentive Stock Options or Nonqualified Stock Options.
The interpretation and construction by the Commit-
tee of any provisions of the Plan or of any Option granted
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<PAGE>
thereunder shall be final. No member of the Committee shall
be liable for any action or determination made in good faith
with respect to the Plan or any Option granted thereunder.
5. ELIGIBILITY.
Optionees shall be such key Employees (who may be
officers, whether or not they are directors) of the Corpora-
tion or of its Subsidiaries as the Committee shall select,
but subject to the terms and conditions set forth below.
(a) Ten Percent Shareholders.
An Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of Out-
standing Stock of the Corporation, its parent or any of its
Subsidiaries is not eligible to receive an Incentive Stock
Option pursuant to this Plan.
For purposes of this Section 5(a), in determining
stock ownership, an Employee shall be considered as owning
the Shares owned, directly or indirectly, by or for his
brothers and sisters, spouse, ancestors, and lineal descen-
dants. Shares owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust shall be consid-
ered as being owned proportionately by or for its sharehold-
ers, partners, or beneficiaries. Stock with respect to
which such Employee holds an Option shall not be counted.
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For purposes of this Section 5(a), "Outstanding
Stock" shall include all Shares actually issued and out-
standing immediately after the grant of the Option to the
Optionee. Outstanding Stock shall not include treasury
Shares or Shares authorized for issue under outstanding
Options held by the Optionee or by any other person.
(b) Number of Options.
An Optionee may hold more than one Option, but
only on the terms and subject to the restrictions herein-
after set forth.
6. STOCK.
The stock subject to Options granted under the
Plan shall be Shares of the Corporation's authorized but
unissued or reacquired Common Stock. The aggregate number
of Shares which may be issued under Options exercised under
this Plan shall not exceed six hundred thousand (600,000).
The number of Shares subject to Options outstanding under
the Plan at any time may not exceed the number of Shares
remaining available for issuance under the Plan. In the
event that any outstanding Option under the Plan for any
reason expires or is terminated, the Shares allocable to the
unexercised portion of such Option may again be subjected to
an Option under the Plan.
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<PAGE>
The limitations established by this Section 6
shall be subject to adjustment upon the occurrence of the
events specified and in the manner provided in Section 10
hereof.
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be
evidenced by written agreements in such form as the Committee
shall from time to time determine, which agreements shall
comply with and be subject to the following terms and
conditions:
(a) Optionee's Agreement.
Each Optionee shall agree to remain in the employ
of and to render to the Corporation or to a Subsidiary his
or her services for a period of one (1) year from the date
of the granting of the Option, but such agreement shall not
impose upon the Corporation or its Subsidiaries any obliga-
tion to retain the Optionee in their employ for any period.
(b) Number of Shares.
Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 10
hereof.
(c) Exercise Price.
Each Option shall state the Exercise Price, which
price shall not be less than: (i) In the case of an Incentive
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Stock Option, the Fair Market Value of a Share on the date
of grant; or (ii) In the case of a Nonqualified Stock
Option, eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant.
(d) Medium and Time of Payment.
The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option;
provided, however, that, with the consent of the Committee
and in accordance with its Rules, the Purchase Price may be
paid by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair
Market Value on the date of exercise equal to the Purchase
Price or in any combination of cash and Shares, so long as
the total of the cash so paid and the Fair Market Value of
the Shares surrendered equals the Purchase Price. No Share
shall be issued until full payment therefor has been made.
(e) Term and Exercise of Options;
Nontransferability of Options.
Each Option shall state the time or times when it
becomes exercisable and the time or times any stock appre-
ciation right granted pursuant to Section 7(k) may be
called, which shall be determined by the Committee. No
Option shall be exercisable after the expiration of ten (l0)
years from the date it is granted. During the lifetime of
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<PAGE>
the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In
the event of the Optionee's death, no Option shall be
transferable by the Optionee otherwise than by will or the
laws of descent and distribution.
Subject to the foregoing and to the limitations on
exercisability specified in Section 7(j) hereof, if a period
of six (6) months from the date of grant of the Option shall
have elapsed the Optionee shall have the right to exercise
the Option in whole or in part:
(i) Within thirty (30) days following the
consummation of any transaction approved by the
stockholders of the Corporation in which the Corp-
oration will cease to be an independent publicly
owned corporation (including, without limitation,
a reverse merger transaction in which the Corpora-
tion becomes the subsidiary of another corporation)
or the sale or other disposition of all or suhstan-
tially all of the assets of the Corporation;
(ii) Within thirty (30) days following the
date on which fewer than two-thirds (determined by
rounding up to the next whole number) of the
individual members of the Board either (a) were
directors of the Corporation on a date three years
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<PAGE>
earlier or (b) are individuals whose election or
nomination for election as directors was affirma-
tively voted on by at least a majority of those
directors described in (a) above who were still in
office as of the date the Board approved such
election or nomination;
(iii) Within thirty (30) days after any
"person" (as such term is used in Sections 13(d)
and 14(d) of the 1934 Act) acquires twenty percent
(20%) or more of the outstanding Shares pursuant
to a tender offer subject to Section 14(d) of the
1934 Act; and
(iv) Wthin thirty (30) days prior to any dis-
solution or liquidation of the Corporation or any
merger or consolidation in which the Corporation
is not the surviving corporation, but not earlier
than the date on which any required stockholder
approval is obtained.
If an option is not exercised during the thirty (30) day
periods described in (i) or (iv) above, the option shall
terminate at the close of business on the last day of the
thirty (30) day period. In the case of a stock appreciation
right called during either of the thirty (30) day periods
described in (i) or (iv) above, "Fair Market Value" shall
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<PAGE>
be the greater of (A) the value of the consideration per
share that the Optionee would have received in connection
with such transaction as a stockholder of the Corporation if
he or she had exercised the Option prior to the consummation
of the transaction described in (i) or (iv) above, or (B) the
value determined in good faith by the Committee (as composed
on the day preceding the date of consummation of the trans-
action described in (i) or (iv) above), taking into consider-
ation all relevant facts and circumstances.
(f) Termination of Employment Except Death.
Except as provided in (l) below, in the event that
an Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than his or her death,
such Optionee shall have the right, subject to the restric-
tions of Subsection (e) hereof, to exercise the Option at
any time within three (3) months after such termination of
employment (twelve (12) months in the case of termination by
reason of Disability), to the extent that, at the date of
termination of employment, the Optionee's right to exercise
such Option had accrued pursuant to the terms of the option
agreement with respect to which such Option was granted and
had not previously been exercised; provided, however, that
if the employment of an Optionee is terminated by the
Corporation or a Subsidiary by reason of misconduct, such
option shall cease to be exercisable on the date of the
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<PAGE>
Optionee's termination of employment. As used herein
"misconduct" means that the Optionee has engaged in unfair
competition with the Corporation or a Subsidiary, induced
any customer of the Corporation or a Subsidiary to breach
any contract with the Corporation or a Subsidiary, made any
unauthorized disclosure of any of the secrets or confidential
information of the Corporation or a Subsidiary, committed an
act of embezzlement, fraud or theft with respect to the
property of the Corporation or a Subsidiary, or deliberately
disregarded the rules of the Corporation or a Subsidiary in
such a manner as to cause material loss, damage or injury to
or otherwise endanger the property, reputation or employees
of the Corporation or a Subsidiary. The Committee shall
determine whether an Optionee's employment is terminated by
reason of misconduct. In making such determination the
Committee shall act fairly and shall give the Optionee an
opportunity to be heard and present evidence on his or her
behalf.
For this purpose, the employment relationship will
be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations constru-
ing Code section 422A(a)(2)). Notwithstanding the foregoing,
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<PAGE>
in the case of an Incentive Stock Option, employment shall
not be deemed to continue beyond the ninetieth (90th) day
after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or
by contract.
(g) Death of Optionee.
If the Optionee shall die while in the employ of
the Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection (e)
hereof) to the extent that, at the date of the Optionee's
death, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the option agreement and
had not previously been exercised, at any time within twelve
(12) months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
(h) Rights as a Stockholder.
An Optionee or a transferee of an Optionee shall
have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance
of a stock certificate for such Shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in
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<PAGE>
cash, securities or other property) or distributions or
other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in
Section 10.
(i) Modification, Extension and Renewal
of Options.
Subject to the terms and conditions and within the
limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted under the Plan, or accept
the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options in
substitution therefor. Notwithstanding the foregoing,
however, no modification of an Option shall, without the
consent of the Optionee, alter or impair any rights or
obligations under any Option theretofore granted under the
Plan.
(j) Sequential Exercise.
An Option (the "New Option") which is designated
by the Committee as an Incentive Stock Option shall not be
exercisable with respect to all or any part of the Shares
subject thereto while there is outstanding any other Incentive
Stock Option, granted to the Optionee prior to the grant of
the New Option, to purchase stock in the Corporation, in a
parent or Subsidiary of the Corporation or in a predecessor
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<PAGE>
thereof. For purposes of the preceding sentence, an Incentive
Stock Option shall be treated as "outstanding" until such
Option is exercised in full or expires by reason of the
lapse of time.
(k) Stock Appreciation Rights.
In connection with the grant of any Option pur-
suant to the Plan, the Committee, in accordance with its
Rules, may also grant a stock appreciation right pursuant to
which the Optionee shall have the right to surrender all or
part of such Option and to exercise the stock appreciation
right (the "call") and thereby to obtain payment of an
amount equal to the difference obtained by subtracting the
aggregate Exercise Price of the Shares subject to the Option
(or the portion thereof) so surrendered from the Fair Market
Value of such Shares on the date of such surrender. The
call of such stock appreciation right shall be subject to
such limitations (including, but not limited to, limitations
as to time and amount) as the Committee shall deem appropri-
ate. The payment may be made in shares of Common Stock
(determined with reference to its Fair Market Value on the
date of call), or in cash, or partly in cash, at the dis-
cretion of the Committee, provided that the Committee
determines that such settlement is consistent with the
purpose set forth in Section 1 hereof. For all purposes
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<PAGE>
under the Plan (including Section 6, unless the context
requires otherwise), the terms "exercise" or "exercisable"
shall be deemed to include the terms "call" or "callable" as
such terms may apply to a stock appreciation right granted
in conjunction with an Option and in the event of the call
of a stock appreciation right the underlying Option will be
deemed to have been exercised for all purposes under the
Plan.
Each Option granted under the Plan which does not
include a stock appreciation right pursuant to the foregoing
paragraph shall nevertheless automatically include a stock
appreciation right which may be called only during the
periods described in Section 7(e)(i) through (iv) and subject
to the requirements and provisions of Section 7(e).
(1) Effect of Termination of Employment on Stock
Appreciation Right.
In the event that an Optionee shall cease to be
employed by the Corporation or its Subsidiaries for any
reason, any stock appreciation right which may have been
granted in conjunction with the grant of an Option shall
expire on the date provided in the Option agreement or in
rules and regulations adopted by the Committee.
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(m) Other Provisions.
The option agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation, re-
strictions upon the exercise of the Option, as the Committee
shall deem advisable.
8. LIMITATION ON ANNUAL AWARDS.
(a) General Rule.
The aggregate Fair Market Value (determined as of
the date an Option is granted) of the stock for which any
Optionee may be granted Incentive Stock Options in any
calendar year commencing after December 31, 1980 under this
Plan and all other plans maintained by the Corporation, its
parent or its Subsidiaries shall not exceed the sum of
(i) $100,000 plus (ii) any unused limit carryover(s) to such
year.
(b) Carryovers.
For purposes of Subsection (a) an "unused limit
carryover" shall arise only in a calendar year commencing
after December 31, 1980, and shall be equal to one half of
the excess of (i) $100,000 over (ii) the aggregate Fair
Market Value (determined as of the date an Option is granted)
of the Shares for which the Optionee is granted Incentive
Stock Options in such year under the Plan or under any other
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plan maintained by the Corporation, its parent or any
Subsidiary. The unused limit carryover arising in any
calendar year may be carried over to any of the three con-
secutive calendar years next following such year, but only
to the extent not used in an earlier calendar year. The
value of the Shares for which Options are granted in any
calendar year shall be applied first against the basic
$100,000 limit for such year and then against any unused
limit carryovers which may be carried over to such year in
the order of the calendar years in which such carryovers
arose.
9. TERM OF PLAN.
Options may be granted pursuant to the Plan until
the termination of the Plan on September 23, 1993.
10. RECAPITALIZATION.
Subject to any required action by the stockholders,
the number of Shares covered by this Plan as provided in
Section 6, the number of Shares covered by each outstanding
Option, and the Exercise Price thereof shall be proportion-
ately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation
of Shares or the payment of a stock dividend (but only of
Common Stock) or any other increase or decrease in the
number of such Shares effected without receipt of consider-
ation by the Corporation.
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Subject to any required action by the stockholders,
if the Corporation shall be the surviving corporation in any
merger, consolidation or other reorganization each outstand-
ing Option shall pertain and apply to the securities to
which a holder of the number of Shares subject to the Option
would have been entitled. A dissolution or liquidation of
the Corporation or a merger, consolidation or other reorgani-
zation in which the Corporation is not the surviving corpo-
ration shall cause each outstanding Option to terminate,
unless the agreement of merger, consolidation or reorganiza-
tion shall otherwise provide. In the event that the corpora-
tion undergoes a reverse merger transaction, the optionee
shall be entitled to receive the same consideration in such
transaction (including, without limitation, cash) as other
shareholders are entitled to receive.
In the event of a change in the Common Stock as
presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number
of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such
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adjustments shall be made by the Committee, whose determi-
nation in that respect shall be final, binding and conclu-
sive, provided that each Incentive Stock Option granted
pursuant to this Plan shall not be adjusted in a manner that
causes the Option to fail to continue to qualify as an
incentive stock option within the meaning of section 422A of
the Internal Revenue Code.
Except as hereinbefore expressly provided in this
Section 10, the Optionee shall have no rights by reason of
any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger,
or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of
stock of any class or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all
or any part of its business or assets.
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<PAGE>
11. SECURITIES LAW REQUIREMENTS.
No Shares shall be issued upon the exercise of any
Option unless and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the Shares under the Securities Act of 1933 or
perfect an exemption from the registration requirements
thereof; (ii) any applicable listing requirement of any
stock exchange on which the Common Stock is listed has been
satisfied; and (iii) any other applicable provision of state
or Federal law has been satisfied.
12. AMENDMENT OF THE PLAN.
The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not
subject to Options, suspend or discontinue the Plan or
revise or amend it in any respect whatsoever except that,
without approval of the holders of Common Stock of the Cor-
poration, no such revision or amendment shall:
(a) Increase the number of Shares subject to
the Plan;
(b) Change the designation in Section 5 of
the Plan of the class of Employees eligible to
receive options;
(c) Decrease the price at which Incentive
Stock Options may be granted;
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<PAGE>
(d) Remove the administration of the Plan
from the Committee;
(e) Render any member of the Committee eligible
to receive an Option under the Plan while serving
thereon; or
(f) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option
will be used for general corporate purposes.
14. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obliga-
tion upon the Optionee to exercise such Option.
15. APPROVAL OF STOCKHOLDERS.
This Plan and any amendments described in Section 12
hereof shall be subject to approval by affirmative vote of
the holders of a majority of the outstanding Shares present
and entitled to vote at the first annual meeting of stockholders
of the Corporation following the adoption of the Plan or of
any such amendments.
16. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification
as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the
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<PAGE>
Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connec-
tion with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any
Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Cor-
poration) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of the member's
duties; provided that within sixty (60) days after institu-
tion of any such action, suit or proceeding a Committee
member shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
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<PAGE>
RESOLUTIONS
AMEND STOCK OPTION PLANS
December 14, 1984
WHEREAS, certain provisions of this corporation's
1976 and 1983 Stock Option Plans may have the effect of
causing compensation recognized in connection with the
exercise of an option or stock appreciation right
thereunder to be characterized as an "excess parachute
payment" for purposes of section 280G of the Internal
Revenue Code, as amended by the Tax Reform Act of 1984;
and
WHEREAS, it is deemed desirable to amend the 1976
and 1983 Stock Option Plans to avoid adverse tax
results for this corporation and recipients of options
granted under such Plan;
Now, Therefore, be it
RESOLVED, that the Potlatch Corporation 1976 Stock
Option Plan is hereby amended, with respect to options
granted after June 14, 1984 by deleting: (i) that
portion of Section 7(e) which follows the first para-
graph thereof; and (ii) the final paragraph of Section
7(k); and be it further
RESOLVED, that the Potlatch Corporation 1983 Stock
Option Plan is hereby amended, with respect to options
granted after June 14, 1984, by deleting: (i) that
portion of Section 7(e) which follows the first para-
graph thereof; and (ii) the final paragraph of Section
7(k); and be it further
RESOLVED, that the Secretary of this corporation
is hereby authorized to amend the form of agreement
under the 1976 and 1983 Stock Option Plans and the
appropriate officers of this corporation are authorized
and directed to take all such actions as they deem
necessary or desirable to give effect to the foregoing
resolutions.
<PAGE>
RESOLUTIONS
AMEND 1983 STOCK OPTION PLAN
February 24, 1989
RESOLVED, that effective herewith, Section 7(e) of
the Potlatch Corporation 1983 Stock Option Plan (the "Plan")
is amended by adding the following at the end thereof:
Subject to the foregoing and to the
limitations of exercisability specified in Section 7(j)
hereof, if a period of six (6) months from the date of
grant of the option shall have elapsed the Optionee
shall have the right to exercise the Option (or in lieu
thereof to call the related stock appreciation right)
in whole or in part:
(i) Within thirty (30) days following
the consummation of any transaction approved by
the stockholders of the corporation in which the
corporation will cease to be an independent
publicly owned corporation (including, without
limitation, a reverse merger transaction in which
the Corporation becomes the subsidiary of another
corporation) or the sale or other disposition of
all or substantially all of the assets of the
Corporation;
(ii) Within three hundred sixty-five
(365) days following the date on which more than
one-third (determined by rounding down to the next
whole number) of the individual members of the
Board neither (A) were directors of the
Corporation on a date three years earlier nor (B)
are individuals whose election or nomination for
election as directors was affirmatively voted on
by at least a majority of those directors
described in (A) above who were still in office as
of the date the Board approved such election or
nomination;
(iii) Within three hundred sixty-five
(365) days following the date on which any
"person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")) that has acquired.
Shares pursuant to a tender offer subject to
Section 14(d) of the 1934 Act becomes entitled to
vote twenty percent (20%) or more of the aggregate
voting power of the capital stock of the
corporation issued and outstanding; and
(iv) Withing thirty (30) days prior to
any dissolution or liquidation of the Corporation
or any merger or consolidation in which the
Corporation is not the surviving corporation, but
<PAGE>
not earlier than the date on which any required
stockholder approval is obtained.
If an option is not exercised during any thirty (30)
day period described in (i) or (iv) above, the option
shall terminate on the close of business on the last
day of the thirty (30) day period; provided, however,
that if periods described in (i) and (iv) above are
contiguous or overlap, unexercised options shall
terminate at the close of business on the last day of
the second thirty (30) day period. In the case of a
stock appreciation right called during either of the
thirty (30) day periods described in (i) or (iv) above,
"Fair Market Value" shall be the greater of (A) the
value of the consideration per share that the Optionee
would have received in connection with such transaction
as a stockholder of the Corporation if he or she had
exercised the Option prior to the consummation of the
transaction described in (i) or (iv) above, or (B) the
value determined in good faith by the Committee (as
composed on the day preceding the date of consummation
of the transaction described in (i) or (iv) above),
taking into consideration all relevant facts and
circumstances.
and be it further
RESOLVED, that effective herewith, Section 7(k) of
the Plan is amended by adding the following at the end
thereof:
Each Option granted under the Plan which does
not include a stock appreciation right pursuant to the
foregoing paragraph shall nevertheless automatically
include a stock appreciation right which may be called
only during the periods described in Section 7(e)(i)
through (iv) and subject to the requirements and
provisions of Section 7(e).
and be it further
RESOLVED, that effective herewith, the second
sentence of the second paragraph of Section 10 is amended to
read in its entirety as follows:
Subject to the provisions of Section 7(e), a
dissolution or liquidation of the Corporation or a
merger, consolidation or other reorganization in which
the Corporation is not the surviving corporation shall
cause each outstanding Option to terminate, unless the
agreement of merger, consolidation or reorganization
shall otherwise provide.
-2-
<PAGE>
and be it further
RESOLVED, that effective herewith, Section 16 of
the Plan is redesigned as Section 17 and a new Section 16
is added to the Plan to read in its entirety as follows:
16. LIMITATION ON PLAN PAYMENTS
Any provision of the Plan to the contrary
notwithstanding, payments or transfers to an Optionee
under the Plan shall be limited to the amount (the
"Capped Amount") necessary to avoid characterization of
any amount payable to the Optionee (including, but not
limited to, amounts payable under the Plan) as an
"excess parachute payment" as defined in Code section
280G, except in the event that the total amount that
the Optionee would receive from all "parachute
payments" as defined in Code section 280G, net of all
applicable taxes, including the excise tax that would
be imposed pursuant to Code section 4999, would exceed
the Capped Amount, net of all applicable taxes.
The determination of whether any amount would
constitute and "excess parachute payment" shall be made
by the firm of independent certified public accountants
serving as outside auditor of the corporation as of
the date of the event specified in Section 7(e)
(i)-(iv). In making such determination, such firm may
disregard any payments or benefits available to the
Optionee under any contract, plan or program if the
Optionee irrevocably elects to relinquish or not
exercise such payments or benefits before the payment
or enjoyment thereof. It is intended that payments
shall be made under the Plan whether or not the status
of a particular payment as an "excess parachute
payment" has been finally determined by the Internal
Revenue Service or a court of competent jurisdiction.
and be it further
RESOLVED, that the Secretary of this Corporation
is authorized and directed to conform and restate the Plan
in accordance with the foregoing amendments; and be it
further
RESOLVED, that the Secretary of this Corporation
is authorized and directed to provide for amendment of the
outstanding options granted pursuant to the Plan, to amend
the applicable form of option agreement, and to take all
other action deemed necessary or appropriate to give effect
to the foregoing amendments.
-3-
<PAGE>
RESOLUTIONS
AMEND THE 1976 AND 1983 STOCK OPTION PLANS
AND
THE 1989 STOCK INCENTIVE PLAN
February 22, 1990
RESOLVED that, effective as of the date of this
action of the Board, the first sentence of Section 7(f) of the
1976 Stock Option Plan is amended to read as follows:
"Except as provided in (1) below, in the event that an
Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than the Optionee's
death, such Optionee shall have the right, subject to the
restrictions of Subsection (e) hereof, to exercise the
Option at any time within three (3) months after such
termination of employment (thirty-six (36) months in the
case of Early, Normal or Late Retirement under the Salaried
Employees' Retirement Plan or Disability), to the extent
that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the option agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such option shall cease to be
exercisable at the time of the Optionee's termination of
employment."
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1976 Stock Option Plan is
amended to read as follows:
"If the Optionee shall die while in the employ of the
Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection
(e) hereof) to the extent that, at the date of the
Optionee's death , the Optionee's right to exercise such
Option had accrued pursuant to the terms of the option
agreement and had not previously been exercised, at any time
within thirty-six (36) months after the Optionee's death, by
the executors or administrators of the Optionee's estate or
by any person or persons who shall have acquired the Option
directly from the Optionee by bequest or inheritance."
<PAGE>
and be it further
RESOLVED that, effective as of the date of this action
of the Board, the first sentence Section 7(f) of the 1983 Stock
Option Plan is amended to read as follows:
"Except as provided in (1) below, in the event that an
Optionee shall cease to be employed by the Corporation or
its Subsidiaries for any reason other than his or her death,
such Optionee shall have the right, subject to the
restrictions of Subsection (e) hereof, to exercise the
Option at any time within three (3) months after such
termination of employment (thirty-six (36) months in the
case of Early, Normal or Late Retirement under the Salaried
Employee's Retirement Plan or Disability), to the extent
that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the option agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if employment of an
reason of misconduct, such option shall cease to be
exercisable at the time of the Optionee's termination of
employment."
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1983 Stock Option Plan is
amended to read as follows:
"If the Optionee shall die while in the employ of the
Corporation or a Subsidiary and shall not have fully
exercised the Option, an Option may be exercised (subject to
the limitations on exercisability set forth in Subsection
(e) hereof) to the extent that, at the date of the
Optionee's death, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the option
agreement and had not previously been exercised, at any time
within thirty-six (36) months after the Optionee's death, by
the executors or administrators of the Optionee's estate or
by any person who shall have acquired the Option
directly from the Optionee by bequest or inheritance."
and be it further
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<PAGE>
RESOLVED that, effective as of the date of this action
of the Board, the first sentence of Section 7(f) of the 1989
Stock Incentive Plan is amended to read as follows:
"Except as provided in Subsection (k) below, in the event
that an Optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than
his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (e) hereof, to
exercise the Option at any time within three (3) months
after such termination of employment (thirty-six (36) months
in the case of Early, Normal or Late Retirement under the
Salaried Employee's Retirement Plan or Disability), to the
extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such Option shall cease to be
exercisable at the time of the Optionee's termination of
employment."
and be it further
RESOLVED that, effective as of the date of this action
of the Board, Section 7(g) of the 1989 Stock Incentive Plan is
amended to read as follows:
"Except as provided in Subsection (k) below, if the Optionee
shall die while in the employ of the Corporation or a
Subsidiary and shall not have fully exercised the Option, an
Option may be exercised (subject to the limitations on
exercisability set forth in Subsection (e) hereof) to the
extent that, at the date of the Optionee's death, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement and had not
previously been exercised, at any time within thirty-six
(36) months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest of inheritance."
and be if further
RESOLVED that the appropriate officers of this
Corporation be and each of them hereby is authorized and
directed, for and in the name and on behalf of this Corporation,
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<PAGE>
to prepare and execute personally or by attorney-in-fact
amendments to the registration statements on Form S-8 relating to
the foregoing plans or to prepare supplements to the prospectuses
thereunder to reflect the foregoing plan amendments, and to cause
such amendments or supplements to be filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended;
and be it further
RESOLVED that the appropriate officers of this
Corporation be and each of them hereby is authorized and
directed, for and in the name and on behalf of this Corporation,
to execute and deliver any and all certificates, agreements and
other documents, take any and all steps and do any and all things
which they may deem necessary or advisable to effectuate the
purposes of each and all of the foregoing resolutions, all such
action having heretofore been taken being hereby ratified,
confirmed and approved.
-4-
POTLATCH CORPORATION DEFERRED
COMPENSATION PLAN FOR DIRECTORS
1. Establishment and Purpose.
The Potlatch Corporation Deferred Compensation
Plan for Directors was adopted on December 31, 1980, by the
Board of Directors of Potlatch Corporation to provide
Directors of Potlatch Corporation an opportunity to defer
payment of their Director's Fees. The Plan is also intended
to establish a method of paying Director's Fees which will
assist the Company in attracting and retaining persons of
outstanding achievement and ability as members of the Board
of Directors of the Company. The Plan was amended and
restated to read as set forth herein effective as of May 1,
1991.
2. Definitions.
(a) "Beneficiary" means the person or persons
designated by the Director to receive payment of the
Director's Deferred Compensation Account in the event of the
death of the Director.
(b) "Board" and "Board of Directors" means the
board of directors of the Company.
(c) "Committee" shall mean the Nominating
Committee of the Board.
(d) "Company" means Potlatch Corporation, a
Delaware corporation.
-1-
Exhibit (10)(g)
<PAGE>
(e) "Deferred Compensation Account" means the
bookkeeping account established pursuant to Section 6 on
behalf of each Director who elects to participate in the
Plan.
(f) "Director" means a member of the Board of
Directors who is not an employee of the Company or any sub-
sidiary thereof.
(g) "Director's Fees" means the amount of compen-
sation paid by the Company to a Director for his or her
services as a Director, including an annual retainer and any
amount payable for attendance at a meeting of the Board of
Directors or any committee thereof. "Director's Fees" shall
not include (i) any reimbursement by the Company of expenses
incurred by a Director incidental to attendance at a meeting
of the Board of Directors or of a committee thereof or of
any other expense incurred on behalf of the Company or
(ii) any amount payable with respect to services rendered
prior to January 1, 1981.
(h) "Dividend Equivalent" means an amount equal
to the cash dividend paid on an outstanding share of the
Company's common stock. Dividend Equivalents shall be
credited to Stock Units as if each Stock Unit were an out-
standing share of the Company's common stock, except that
Dividend Equivalents shall also be credited to fractional
Stock Units.
-2-
<PAGE>
(i) "Plan" shall mean the Potlatch Corporation
Deferred Compensation Plan for Directors.
(j) "Stock Units" means the deferred portion of
Director's Fees which is converted into a unit.
(k) "Value" means the closing price of the
Company's common stock as reported in the New York Stock
Exchange, Inc. composite transactions reports for the
Valuation Date.
(l) "Valuation Date" means, for the purposes of
Section 6 or 7, the last trading day of the month preceding
the month in which Director's Fees or Dividend Equivalents
are converted into Stock Units pursuant to Section 6 or 7
and, for purposes of Section 8, the last trading day of the
month preceding the month in which Stock Units are converted
into cash for purposes of Section 8.
(m) "Year" shall mean the calendar year.
3. Eligibility.
Each Director who receives Director's Fees for
service on the Board of Directors shall be eligible to
participate in the Plan.
4. Participation.
In order to participate in the Plan for a par-
ticular Year, a Director must file a deferral election with
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<PAGE>
the Secretary of the Company prior to January 1 of such
Year; provided, however, that in the case of a newly elected
Director an election to participate shall be effective for
the Year in which the Director is first elected if it is
filed before the date the Director first receives Director's
Fees (but in no event later than one month following the
date of election).
5. Deferral Election.
A Director who elects to participate in the Plan
shall file a deferral election on a form which shall
indicate:
(a) The amount or percentage of Director's
Fees which such Director elects to defer pursuant
to the terms of the Plan. This election shall
apply to amounts deferred under the Plan until
modified by the Director. The Director shall
notify the Secretary of the Company in writing of
any such modification, which shall apply solely to
amounts deferred with respect to Years following
the Year in which the modification is made;
(b) The Year in which payment of the
Director's Deferred Compensation Account and/or
Stock Units shall commence; provided however, that
payments shall commence no later than the Year
following the Year in which the Director attains
age 72 and, in the case of Stock Unit payments, no
-4-
<PAGE>
earlier than six months after the last date on
which Director's Fees have been converted into
Stock Units on behalf of the Director (except in
the case of payments made following the Director's
death, total and permanent disability or the date
the Director ceases to qualify as a Director).
(c) Whether the payment of such Director's
Deferred Compensation Account 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 fifteen years);
(d) Whether the deferral election shall be
effective only with respect to Director's Fees
paid for the Year in which the Director's partici-
pation in the Plan is to commence as determined
pursuant to Section 4 above or shall apply with
respect to Director's Fees paid for that Year and
all subsequent Years until revoked or modified by
the Director. The Director shall notify the
Secretary of the Company in writing of any such
revocation or modification, which shall apply
solely to amounts deferred with respect to years
following the Year in which the revocation or
modification is made; and
(e) The percentage of the Director's Fees
deferred pursuant to the election which is to be
converted into Stock Units. This election shall
-5-
<PAGE>
apply to the Year in which the Director's partici-
pation in the Plan commences and to all subsequent
Years until modified by the Director. The
Director shall notify the Secretary of the Company
in writing of any such modification, which shall
apply solely to amounts deferred with respect to
years following the Year in which the modification
is made.
Irrespective of the period designated pursuant to (d) above
in connection with a Director's initial deferral election
under the Plan, the Director's initial designation as to
time and form of distribution under (b) and (c) above shall
apply to all amounts deferred under the Plan and may not be
revoked or modified by the Director.
6. Treatment of Deferred Accounts.
Upon receipt of a duly filed deferral election,
the Company shall establish a Deferred Compensation Account
to which shall be credited an amount equal to that portion
of the Director's Fees which would have been payable
currently to the Director but for the terms of the deferral
election and which is not converted into Stock Units. If
the deferral election includes an election to convert a
percentage of the Director's Fees deferred pursuant to the
election into Stock Units, the number of full and fractional
Stock Units shall be determined by dividing the amount
subject to such an election by the Value of the Company's
-6-
<PAGE>
common stock on the Valuation Date.
Director's Fees shall be credited to Director's
Deferred Compensation Account or converted into Stock Units
as of the following dates:
(a) The deferred portion of one-fourth of
the annual retainer fee shall be credited to such
Account or converted into Stock Units as of the
first day of each calendar quarter; and
(b) The deferred portion of the fee for any
meeting of the Board or any committee thereof
shall be credited to such Account or converted
into Stock Units as of the first day of the month
following the date of such meeting.
7. Treatment of Deferred Compensation
Account and Stock Units During
Deferral Period.
(a) Deferred Compensation Account. Interest
shall be credited on the balance in each Director's Deferred
Compensation Account commencing with the date as of which
any amount is credited to the Deferred Compensation Account
and continuing up to the last day of the quarter preceding
the month in which payment of the amounts deferred pursuant
to the Plan is made. Such interest shall become a part of
the Deferred Compensation Account and shall be paid at the
same time or times as the balance of the Deferred Compensa-
tion Account. Such interest for each calendar quarter
-7-
<PAGE>
during the deferral period shall be computed at 70% of the
higher of the following averages: (i) the prime rate
charged by the major commercial banks as of the first
business day of each calendar month (as reported in an
official publication of the Federal Reserve System), or
(ii) the average monthly long-term rate of A rated corporate
bonds (as published in Moody's Bond Record). Such interest
shall be compounded quarterly.
(b) Stock Units. Dividend Equivalents shall be
credited to each Stock Unit on each dividend record date.
Such Dividend Equivalents shall themselves be converted into
Stock Units as of the dividend record date by dividing the
amount of the Dividend Equivalents by the Value of the
Company's Common Stock as of the applicable Valuation Date.
(c) Effect of Certain Transactions. In the event
of a change in the number of outstanding shares of the
Company's common stock by reason of a stock split, stock
dividend, or other similar changes in capitalization, an
appropriate adjustment shall be made in the number of each
Director's Stock Units determined as of the date of such
occurrence.
8. Form and Time of Payment of
Deferred Compensation Account.
Payment of a Director's Deferred Compensation
Account shall be made in cash prior to January 31 in each
-8-
<PAGE>
year in which a payment is to be made in accordance with the
Director's deferral election. Payment of a Director's Stock
Units shall also be made at such time except that, if the
applicable January 31 occurs within the six-month period
beginning on the last date on which Director's Fees have
been converted into Stock Units on behalf of the Director,
then payment of the Director's Stock Units shall be made on
the last day of the month in which such six-month period
expires. Notwithstanding the previous sentence, Stock Unit
payments may be made following the Director's death, total
and permanent disability or the date the Director ceases to
qualify as a Director, without regard to whether such six-
month period has expired. For the purpose of payment, Stock
Units shall be converted to cash based on the Value of the
Company's common stock on the applicable Valuation Date.
In the case of a Director who has both a Deferred
Compensation Account and Stock Units, if a partial
distribution of a deferred portion of Director's Fees is to
be made and if the Director's Stock Units are immediately
payable in accordance with the previous paragraph, payment
shall be made partially from the Director's Deferred
Compensation Account and partially from Stock Units, in pro-
portion to the relative size of the Deferred Compensation
Account and the Stock Units. If the Director's Stock Units
are not immediately payable in accordance with the previous
-9-
<PAGE>
paragraph, the partial payment shall be made entirely from
the Director's Deferred Compensation Account.
Notwithstanding the foregoing, the Committee
reserves the right to determine in its sole discretion that
payment shall be made at a different time or times (but no
later than fifteen years after the payment commencement date
specified by the Director in his or her deferral election).
9. Effect of Death of Participant.
Upon the death of a participating Director, all
amounts, if any, remaining in his or her Deferred Compensa-
tion Account and all Stock Units shall be distributed to the
Beneficiary designated by the Director. Such distribution
shall be made at the time or times specified in the
Director's deferral election. The Committee, however,
reserves the right to determine in its sole discretion that
payment shall be made at a different time or times (but no
later than fifteen years after the payment commencement date
specified by the Director in his or her deferral election).
If the designated Beneficiary does not survive the Director
or dies before receiving payment in full of the Director's
Deferred Compensation Account and Stock Units, payment shall
be made to the estate of the last to die of the Director or
the designated Beneficiary.
-10-
<PAGE>
10. Participant's Rights Unsecured.
The interest under the Plan of any participating
Director and such Director's right to receive a distribution
of his or her Deferred Compensation Account and Stock Units
shall be an unsecured claim against the general assets of
the Company. The Deferred Compensation Account and Stock
Units shall be bookkeeping entries only and no Director
shall have an interest in or claim against any specific
asset of the Company pursuant to the Plan.
11. Statement of Deferred Compensation
Account and Stock Units.
The Secretary of the Company shall provide an
annual statement of each participating Director's Deferred
Compensation Account and Stock Units no later than
January 31 each year.
12. Nonassignability of Interests.
The interest and property rights of any Director
under the Plan shall not be subject to option nor be assign-
able either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy,
garnishment, attachment or other creditor's process, and any
act in violation of this Section 12 shall be void.
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<PAGE>
13. Administration of the Plan.
The Plan shall be administered by the Committee.
In addition to the powers and duties otherwise set forth in
the Plan, the Committee shall have full power and authority
to administer and interpret the Plan, to establish pro-
cedures for administering the Plan and to take any and all
necessary action in connection therewith. The Committee's
interpretation and construction of the Plan shall be con-
clusive and binding on all persons.
14. Amendment or Termination of the
Plan.
The Board of Directors may amend, suspend or ter-
minate the Plan at any time. In the event of such termina-
tion, the Deferred Compensation Accounts and Stock Units of
participating Directors shall be paid at such times and in
such forms as shall be determined pursuant to Section 8,
unless the Board of Directors shall prescribe a different
time or times for payment of such Accounts and Units.
<PAGE>
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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<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
electionm, 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
POTLATCH CORPORATION
1989 STOCK INCENTIVE PLAN
(As Amended and Restated Effective February 22, 1990)
1. PURPOSE.
This 1989 Stock Incentive Plan of Potlatch Cor-
poration (the "Corporation") and its eligible subsidiaries
is intended to provide incentive to employees of the Cor-
poration or of its subsidiaries, to encourage employee
proprietary interest in the Corporation and to encourage
employees to remain in the employ of the Corporation or of
its subsidiaries.
2. DEFINITIONS.
(a) "Award" shall mean any award of an Option
(with or without a related stock appreciation right),
Restricted Stock or an Other Share-Based Award under the
Plan.
(b) "Board" shall mean the Board of Directors of
the Corporation.
(c) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(d) "Committee" shall mean the Committee appoint-
ed by the Board in accordance with Section 4 of the Plan.
(e) "Common Stock" shall mean the $1 par value
common stock of the Corporation.
Exhibit (10)(l)
<PAGE>
(f) "Corporation" shall mean Potlatch Corpora-
tion, a Delaware corporation.
(g) "Disability" shall mean the condition of an
Employee who is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a con-
tinuous period of not less than twelve (12) months.
(h) "Employee" shall mean an individual (who may
be an officer or a director) employed by the Corporation or
a Subsidiary (within the meaning of Code section 3401 and
the regulations thereunder).
(i) "Exercise Price" shall mean the price per
Share of Common Stock, determined by the Committee, at which
an Option may be exercised.
(j) "Fair Market Value" of a Share as of a
specified date shall mean the closing price at which such
Shares are traded at the close of business on such date as
reported in the New York Stock Exchange composite transac-
tions published in the Western Edition of the Wall Street
Journal, or if no trading of the Common Stock is reported
for that day, on the next preceding day on which trading was
reported.
(k) "Incentive Stock Option" shall mean an Option
described in Code section 422A(b).
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<PAGE>
(l) "Nonqualified Stock Option" shall mean an
Option not described in Code sections 422(b), 422A(b),
423(b) or 424(b).
(m) "Option" shall mean a stock option granted
pursuant to Section 7 of the Plan. "Option Agreement" shall
mean the agreement between the Corporation and the Optionee
which contains the terms and conditions pertaining to such
Option.
(n) "Optionee" shall mean an Employee who has
received an Option.
(o) "Other Share-Based Award" shall mean an Award
granted pursuant to Section 9 of the Plan. "Other Share-
Based Award Agreement" shall mean the agreement between the
Corporation and the recipient of an Other Share-Based Award
which contains the terms and conditions pertaining to such
Other Share-Based Award.
(p) "Participant" shall mean an Employee who has
received an Award.
(q) "Plan" shall mean this Potlatch Corporation
1989 Stock Incentive Plan.
(r) "Purchase Price" shall mean the Exercise
Price times the number of whole Shares with respect to which
an Option is exercised.
(s) "Restricted Stock" shall mean Shares granted
pursuant to Section 8 of the Plan. "Restricted Stock
Agreement" shall mean the agreement between the Corporation
and the recipient of Restricted Stock which contains the
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<PAGE>
terms, conditions and restrictions pertaining to such
Restricted Stock.
(t) "Rules" shall mean the regulations and rules
adopted from time to time by the Committee.
(u) "Share" shall mean one Share of Common Stock,
adjusted in accordance with Section 11 of the Plan (if
applicable).
(v) "Stock Right" shall mean a bookkeeping entry
representing a right to the equivalent of one Share.
(w) "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Corpo-
ration if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corpora-
tions in such chain.
3. EFFECTIVE DATE.
This Plan was adopted by the Board on December 8,
1988, and was last amended and restated effective
February 22, 1990.
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
than three disinterested members thereof. The Board may
from time to time remove members from, or add members to,
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<PAGE>
the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board. The Board shall
appoint one of the members of the Committee as Chairman.
The term "Disinterested Members of the Board" shall include
only members of the Board who are not active Employees of
the Corporation or of any of its Subsidiaries, who are not
eligible to receive Awards under this Plan or any other
stock incentive plan of the Corporation and who have not
been eligible to receive such Awards for at least one year
preceding appointment as a member of the Committee.
The Committee shall hold meetings at such times
and places as it may determine. Acts of a majority of the
Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The
Committee shall from time to time at its discretion make
determinations with respect to Employees who shall be
granted Awards, the number of Shares or Share equivalents to
be subject to each Award, the vesting of Awards, the desig-
nation of Options as Incentive Stock Options or Nonqualified
Stock Options and other conditions of Awards.
The interpretation and construction by the Commit-
tee of any provisions of the Plan or of any Award granted
thereunder shall be final. No member of the Committee shall
be liable for any action or determination made in good faith
with respect to the Plan or any Award granted thereunder.
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<PAGE>
5. ELIGIBILITY.
Participants shall be such key Employees (who may
be officers, whether or not they are directors) of the
Corporation or of its Subsidiaries as the Committee shall
select, but subject to the terms and conditions set forth
below.
(a) Ten Percent Shareholders.
An Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of out-
standing stock of the Corporation, its parent or any of its
Subsidiaries is not eligible to receive an Incentive Stock
Option pursuant to this Plan. For purposes of this Sec-
tion 5(a) the stock ownership of an Employee shall be
determined pursuant to section 425(d) of the Code.
(b) Number of Awards.
A Participant may receive more than one Award,
including Awards of the same type, but only on the terms and
subject to the restrictions hereinafter set forth.
6. STOCK.
The stock subject to Options, Restricted Stock, or
Other Share-Based Awards granted under the Plan shall be
Shares of the Corporation's authorized but unissued or
reacquired Common Stock. The aggregate number of Options,
Restricted Stock or Other Share-Based Awards issued under
this Plan shall not exceed one million, five hundred thousand
(1,500,000) Shares. The number of Shares subject to Awards
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<PAGE>
outstanding under the Plan at any time may not exceed the
number of Shares remaining available for issuance under the
Plan. In the event that any outstanding Option under the
Plan for any reason expires or is terminated or any
Restricted Stock or Other Share-Based Award is forfeited,
the Shares allocable to the unexercised portion of such
Option or the forfeited Restricted Stock or Other Share-Based
Award may again be subjected to Options, Restricted Stock or
Other Share-Based Awards under the Plan. However, if one
Award is granted in tandem with another, so that the exercise
of one causes the other to expire, then the number of shares
subject to the expired Award shall not be restored to the
pool available for Awards.
The limitations established by this Section 6
shall be subject to adjustment upon the occurrence of the
events specified and in the manner provided in Section 11
hereof.
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be
evidenced by written Option Agreements in such form as the
Committee shall from time to time determine, which agree-
ments shall comply with and be subject to the following
terms and conditions:
(a) Optionee's Agreement.
Each Optionee shall agree to remain in the employ
of and to render to the Corporation or to a Subsidiary his
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<PAGE>
or her services for a period of one (1) year from the date
of the granting of the Option, subject to the terms of
Section 12(b).
(b) Number of Shares.
Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 11
hereof.
(c) Exercise Price.
Each Option shall state the Exercise Price, which
in the case of an Incentive Stock Option shall not be less
than the Fair Market Value of a Share on the date of grant.
(d) Medium and Time of Payment.
The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option;
provided, however, that, with the consent of the Committee
and in accordance with its rules, the Purchase Price may be
paid by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair
Market Value on the date of exercise equal to the Purchase
Price, or in any combination of cash and Shares, so long as
the total of the cash so paid and the Fair Market Value of
the Shares surrendered equals the Purchase Price. No Share
shall be issued until full payment therefor has been made.
-8-
<PAGE>
(e) Term and Exercise of Options; Nontrans-
ferability of Options.
Each Option shall state the time or times when it
becomes exercisable and the time or times any stock appreci-
ation right granted pursuant to Section 7(j) may be called,
which shall be determined by the Committee. No Option shall
be exercisable after the expiration of ten (10) years from
the date it is granted. During the lifetime of the Optionee,
the Option shall be exercisable only by the Optionee and
shall not be assignable or transferable. In the event of
the Optionee's death, no Option shall be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution.
Subject to the foregoing, if a period of six (6)
months from the date of grant of the Option shall have
elapsed the Optionee shall have the right to exercise the
Option (or in lieu thereof to call the related stock appre-
ciation right) in whole or in part:
i) Within thirty (30) days following the
consummation of any transaction approved by the
stockholders of the Corporation in which the
Corporation will cease to be an independent
publicly owned corporation (including, without
limitation, a reverse merger transaction in which
the Corporation becomes the subsidiary of another
corporation) or the sale or other disposition of
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<PAGE>
all or substantially all of the assets of the
Corporation;
(ii) Within three hundred sixty-five (365)
days following the date on which more than one-third
(determined by rounding down to the next whole
number) of the individual members of the Board
neither (A) were directors of the Corporation on a
date three years earlier nor (B) are individuals
whose election or nomination for election as
directors was affirmatively voted on by at least a
majority of those directors described in (A) above
who were still in office as of the date the Board
approved such election or nomination;
(iii) Within three hundred sixty-five (365)
days following the date on which any "person" (as
such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended
(the "1934 Act")) that has acquired Shares pursuant
to a tender offer subject to Section 14(d) of the
1934 Act becomes entitled to vote twenty percent
(20%) or more of the aggregate voting power of the
capital stock of the Corporation issued and
outstanding; and
(iv) Within thirty (30) days prior to any
dissolution or liquidation of the Corporation or
any merger or consolidation in which the Corpora-
tion is not the surviving corporation, but not
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<PAGE>
earlier than the date on which any required
stockholder approval is obtained.
If an option is not exercised during any thirty (30) day
period described in (i) or (iv) above, the option shall
terminate at the close of business on the last day of the
thirty (30) day period; provided, however, that if periods
described in (i) and (iv) above are contiguous or overlap,
unexercised options shall terminate at the close of business
on the last day of the second thirty (30) day period. In
the case of a stock appreciation right called during either
of the thirty (30) day periods described in (i) or (iv)
above, "Fair Market Value" shall be the greater of (A) the
value of the consideration per share that the Optionee would
have received in connection with such transaction as a
stockholder of the Corporation if he or she had exercised
the Option prior to the consummation of the transaction
described in (i) or (iv) above, or (B) the value determined
in good faith by the Committee (as composed on the day
preceding the date of consummation of the transaction
described in (i) or (iv) above), taking into consideration
all relevant facts and circumstances.
(f) Termination of Employment Except Death.
Except as provided in Subsection (k) below, in the
event that an Optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than
his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (e) hereof, to
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<PAGE>
exercise the Option at any time within three (3) months
after such termination of employment (thirty-six (36) months in
the case of Early, Normal or Late Retirement under the
Salaried Employees' Retirement Plan or Disability), to the
extent that, at the date of termination of employment, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement with respect
to which such Option was granted and had not previously been
exercised; provided, however, that if the employment of an
Optionee is terminated by the Corporation or a Subsidiary by
reason of misconduct, such Option shall cease to be exercis-
able on the date of the Optionee's termination of
employment. As used herein "misconduct" means that the
Optionee has engaged in unfair competition with the
Corporation or a Subsidiary, induced any customer of the
Corporation or a Subsidiary to breach any contract with the
Corporation or a Subsidiary, made any unauthorized
disclosure of any of the secrets or confidential information
of the Corporation or a Subsidiary, committed an act of
embezzlement, fraud or theft with respect to the property of
the Corporation or a Subsidiary, or engaged in conduct which
is not in good faith and which directly results in material
loss, damage or injury to the business, reputation or
employees of the Corporation or a Subsidiary. The Committee
shall determine whether an Optionee's employment is termi-
nated by reason of misconduct. In making such determination
the Committee shall act fairly and shall give the Optionee
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<PAGE>
an opportunity to be heard and present evidence on his or
her behalf.
For this purpose, the employment relationship will
be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations constru-
ing Code section 422A(a)(2)). Notwithstanding the forego-
ing, in the case of an Incentive Stock Option, employment
shall not be deemed to continue beyond the ninetieth (90th)
day after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or
by contract.
(g) Death of Optionee.
Except as provided in Subsection (k) below, if the
Optionee shall die while in the employ of the Corporation or
a Subsidiary and shall not have fully exercised the Option,
an Option may be exercised (subject to the limitations on
exercisability set forth in Subsection (e) hereof) to the
extent that, at the date of the Optionee's death, the
Optionee's right to exercise such Option had accrued
pursuant to the terms of the Option Agreement and had not
previously been exercised, at any time within thirty-six (36)
months after the Optionee's death, by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.
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<PAGE>
(h) Rights as a Stockholder.
An Optionee or a transferee of an Optionee shall
have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance
of a stock certificate for such Shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or
other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in
Section 11.
(i) Modification, Extension and Renewal of
Options.
Subject to the terms and conditions and within the
limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted under the Plan, or accept
the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options (at
the same or a different price) in substitution therefor.
Notwithstanding the foregoing, however, no modification of
an Option shall, without the consent of the Optionee, alter
or impair any rights or obligations under any Option
theretofore granted under the Plan.
(j) Stock Appreciation Rights.
In connection with the grant of any Option pursu-
ant to the Plan, the Committee, in accordance with its
Rules, may also grant a stock appreciation right pursuant to
which the Optionee shall have the right to surrender all or
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<PAGE>
part of such Option and to exercise the stock appreciation
right (the "call") and thereby to obtain payment of an
amount equal to the difference obtained by subtracting the
aggregate Exercise Price of the Shares subject to the Option
(or the portion thereof) so surrendered from the Fair Market
Value of such Shares on the date of such surrender. The
call of such stock appreciation right shall be subject to
such limitations (including, but not limited to, limitations
as to time and amount) as the Committee shall deem
appropriate. The payment may be made in shares of Common
Stock (determined with reference to its Fair Market Value on
the date of call), or in cash, or partly in cash and in
shares of Common Stock, at the discretion of the Committee,
provided that the Committee determines that such settlement
is consistent with the purpose set forth in Section 1
hereof. For all purposes under the Plan, the terms
"exercise" or "exercisable" shall be deemed to include the
terms "call" or "callable" as such terms may apply to a
stock appreciation right granted in conjunction with an
Option, and in the event of the call of a stock appreciation
right, the underlying Option will be deemed to have been
exercised for all purposes under the Plan.
Each Option granted under the Plan which does not
include a stock appreciation right pursuant to the foregoing
paragraph shall nevertheless automatically include a stock
appreciation right which may be called only during the
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<PAGE>
periods described in Section 7(e)(i) through (iv) and
subject to the requirements and provisions of Section 7(e).
(k) Effect of Termination of Employment on Stock
Appreciation Right.
In the event that an Optionee shall cease to be
employed by the Corporation or its Subsidiaries for any
reason, any stock appreciation right which may have been
granted in conjunction with the grant of an Option shall
expire on the date provided in the Option Agreement or in
rules and regulations adopted by the Committee.
(l) Limitation of Annual Awards.
The aggregate Fair Market Value (determined as of
the date the Option is granted) of the stock with respect to
which any Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year commenc-
ing after December 31, 1986 under this Plan and all other
plans maintained by the Corporation, its parent or its
Subsidiaries shall not exceed $100,000.
(m) Other Provisions.
The Option Agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation,
restrictions upon the exercise of the Option, as the Commit-
tee shall deem advisable.
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<PAGE>
8. RESTRICTED STOCK.
(a) Grants.
Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to
determine the persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number
of shares of Restricted Stock to be awarded, the price (if
any) to be paid by the recipient of Restricted Stock, the
time or times within which such Awards may be subject to
forfeiture, and all other terms and conditions of the
Awards. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or
such other factors as the Committee may determine, in its
sole discretion.
The terms of each Restricted Stock Award shall be
set forth in a Restricted Stock Agreement between the
Corporation and the Employee, which Agreement shall contain
such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of the Plan with
respect to such Award. Each Participant receiving a
Restricted Stock Award shall be issued a stock certificate
in respect of such shares of Restricted Stock. Such certif-
icate shall be registered in the name of such Participant,
and shal] bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award. The
Committee shall require that stock certificates evidencing
such shares be held by the Company until the restrictions
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<PAGE>
thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered
to the Company a stock power, endorsed in blank, relating to
the stock covered by such Award.
(b) Restrictions and Conditions.
The shares of Restricted Stock awarded pursuant to
this Section 8 shall be subject to the following
restrictions and conditions:
(i) During a period set by the Committee
commencing with the date of such Award (the
"Restriction Period"), the Participant shall not
be permitted to sell, transfer, pledge, assign or
encumber shares of Restricted Stock awarded under
the Plan. Within these limits, the Committee, in
its sole discretion, may provide for the lapse of
such restrictions in installments and may acceler-
ate or waive such restrictions in whole or in
part, based on service, performance, a change of
control of the Corporation and/or such other
factors or criteria as the Committee may determine
in its sole discretion.
(ii) Except as provided in this para-
graph (ii) and paragraph (i) above, the Partici-
pant shall have, with respect to the shares of
Restricted Stock, all of the rights of a share-
holder of the Corporation, including the right to
vote the shares, and the right to receive any cash
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dividends. The Committee, in its sole discretion,
as determined at the time of Award, may provide
that the payment of cash dividends shall or may be
deferred and, if the Committee so determines,
reinvested in additional Shares of Restricted
Stock to the extent available under Section 6, or
otherwise reinvested. Stock dividends issued with
respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are
subject to the same restrictions and other terms
and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) The Committee shall specify the condi-
tions under which shares of Restricted Stock shall
vest or be forfeited and such conditions shall be
set forth in the Restricted Stock Agreement.
(iv) If and when the Restriction Period
applicable to shares of Restricted Stock expires
without a prior forfeiture of the Restricted
Stock, certificates for an appropriate number of
unrestricted Shares shall be delivered promptly to
the Participant, and the certificates for the
shares of Restricted Stock shall be cancelled.
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<PAGE>
9. OTHER SHARE-BASED AWARDS.
(a) Grants.
Other Awards of Shares and other Awards that are
valued in whole or in part by reference to, or are otherwise
based on, Shares ("Other Share-Based Awards"), may be
granted either alone or in addition to or in conjunction
with other Awards under this Plan. Awards under this
Section 9 may include, but are not limited to, Stock Rights,
stock appreciation rights not granted in connection with the
grant of any Option pursuant to Section 7, the grant of
Shares conditioned upon some specified event, the payment of
cash based upon the performance of the Shares or the grant
of securities convertible into Shares.
Subject to the provisions of the Plan, the Commit-
tee shall have sole and complete authority to determine the
persons to whom and the time or times at which Other Share-
Based Awards shall be made, the number of Shares or other
securities, if any, to be granted pursuant to Other Share-
Based Awards, and all other conditions of the Other Share-
Based Awards. In making an Other Share-Based Award, the
Committee may determine that the recipient of an Other
Share-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or dividend
equivalents with respect to the Shares or other securities
covered by the Award, and the Committee may provide that
such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
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<PAGE>
The terms of any Other Share-Based Award shall be set forth
in an Other Share-Based Award Agreement between the
Corporation and the Employee, which Agreement shall contain
such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of the Plan with
respect to such Award.
(b) Terms and Conditions.
In addition to the terms and conditions specified
in the Other Share-Based Award Agreement, Other Share-Based
Awards made pursuant to this Section 9 shall be subject to
the following:
(i) Any Other Share-Based Award may not be
sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares
are issued or the Award becomes payable, or, if
later, the date on which any applicable restric-
tion, performance or deferral period lapses.
(ii) The Other Share-Based Award Agreement
shall contain provisions dealing with the disposi-
tion of such Award in the event of a termination
of the Employee's employment prior to the exer-
cise, realization or payment of such Award, and
the Committee in its sole discretion, may provide
for payment of the Award in the event of the
Employee's retirement, Disability or death or the
change of control of the Corporation, with such
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<PAGE>
provisions to take account of the specific nature
and purpose of the Award.
10. TERM OF PLAN.
Awards may be granted pursuant to the Plan until
the termination of the Plan on December 31, 1998.
<PAGE>
11. RECAPITALIZATION.
Subject to any required action by the stockhold-
ers, the number of Shares covered by this Plan as provided
in Section 6, the number of Shares covered by or referenced
in each outstanding Award, and the Exercise Price of each
outstanding Option and any price required to be paid for
Restricted Stock or Other Share-Based Award shall be propor-
tionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or
consolidation of Shares, the payment of a stock dividend
(but only of Common Stock) or any other increase or decrease
in the number of such Shares effected without receipt of
consideration by the Corporation or the declaration of a
dividend payable in cash that has a material effect on the
price of issued Shares.
Subject to any required action by the stockhold-
ers, if the Corporation shall be the surviving corporation
in any merger, consolidation or other reorganization, each
outstanding Award shall pertain and apply to the securities
to which a holder of the number of Shares subject to the
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<PAGE>
Award would have been entitled. Subject to the provisions
of Section 7(e), a dissolution or liquidation of the
Corporation or a merger, consolidation or other reorganiza-
tion in which the Corporation is not the surviving corpora-
tion shall cause each outstanding Option and each unvested
Restricted Stock Award or Other Share-Based Award to
terminate, unless the agreement of merger, consolidation or
reorganization shall otherwise provide. In the event that
the Corporation undergoes a reverse merger transaction, the
Participant shall be entitled to receive the same considera-
tion in such transaction with respect to his or her Award
(including, without limitation, cash) as other shareholders
are entitled to receive.
In the event of a change in the Common Stock as
presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number
of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to
be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such
adjustments shall be made by the Committee, whose determina-
tion in that respect shall be final, binding and conclusive,
provided that each Incentive Stock Option granted pursuant
to this Plan shall not be adjusted in a manner that causes
the Option to fail to continue to qualify as an incentive
stock option within the meaning of section 422A of the Code.
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<PAGE>
Except as hereinbefore expressly provided in this
Section 11, a Participant shall have no rights by reason of
any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger
or consolidation or spin-off of assets or stock of another
corporation, and any issue by the Corporation of shares of
stock of any class or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of Shares subject to the Option.
The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or
consolidate or to dissolve, liquidate, sell or transfer all
or any part of its business or assets.
12. SECURITIES LAW REQUIREMENTS AND LIMITATION OF
RIGHTS.
(a) Securities Law. No Shares shall be issued
pursuant to the Plan unless and until the Corporation has
determined that: (i) it and the Participant have taken all
actions required to register the Shares under the Securities
Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing
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<PAGE>
requirement of any stock exchange on which the Common Stock
is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied.
(b) Employment Rights. Neither the Plan nor any
Award granted under the Plan shall be deemed to give any
individual a right to remain employed by the Corporation or
a Subsidiary. The Corporation and its Subsidiaries reserve
the right to terminate the employment of any employee at any
time, with or without cause, subject only to a written
employment contract (if any).
(c) Shareholders' Rights. A Participant shall
have no dividend rights, voting rights or other rights as a
shareholder with respect to any Shares covered by his or her
Award prior to the issuance of a stock certificate for such
Shares. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to the date
when such certificate is issued.
(d) Creditors' Rights. A holder of an Other
Share-Based Award shall have no rights other than those of a
general creditor of the Corporation. An Other Share-Based
Award shall represent an unfunded and unsecured obligation
of the Corporation, subject to the terms and conditions of
the applicable Other Share-Based Award Agreement.
13. AMENDMENT OF THE PLAN.
The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not
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<PAGE>
subject to Awards, suspend or discontinue the Plan or revise
or amend it in any respect whatsoever except that, without
approval of the holders of Common Stock of the Corporation,
no such revision or amendment shall:
(a) Increase the number of Shares subject to
the Plan;
(b) Change the designation in Section 5 of
the Plan of the class of Employees eligible to
receive Awards;
(c) Decrease the price at which Incentive
Stock Options may be granted;
(d) Remove the administration of the Plan
from the Committee;
(e) Render any member of the Committee
eligible to receive an Award under the Plan while
serving thereon; or
(f) Amend this Section 13 to defeat its
purpose.
14. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option
or the grant of Restricted Stock will be used for general
corporate purposes.
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<PAGE>
15. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obliga-
tion upon the Optionee to exercise such Option.
16. APPROVAL OF STOCKHOLDERS.
This Plan and any amendments requiring shareholder
approval pursuant to Section 13 hereof shall be subject to
approval by affirmative vote of the shareholders in accor-
dance with applicable law. Such vote shall be taken at the
first annual meeting of stockholders of the Corporation
following the adoption of the Plan or of any such
amendments, or any adjournment thereof.
17. LIMITATION ON PLAN PAYMENTS.
Any provision of the Plan to the contrary notwith-
standing, payments or transfers to a Participant under the
Plan shall be limited to the amount (the "Capped Amount")
necessary to avoid characterization of any amount payable to
the Participant (including, but not limited to, amounts
payable under the Plan) as an "excess parachute payment" as
defined in Code section 280G, except in the event that the
total amount that the Participant would receive from all
"parachute payments" as defined in Code section 280G, net of
all applicable taxes, including the excise tax that would be
imposed pursuant to Code section 4999, would exceed the
Capped Amount, net of all applicable taxes.
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<PAGE>
The determination of whether any amount would
constitute an "excess parachute payment" shall be made by
the firm of independent certified public accountants serving
as the outside auditor of the Corporation as of the date of
the event specified in Section 7(e)(i)-(iv). In making such
determination, such firm may disregard any payments or
benefits available to the Participant under any contract,
plan or program if the Participant irrevocably elects to
relinquish or not exercise such payments or benefits before
the payment or enjoyment thereof. It is intended that
payments shall be made under the Plan whether or not the
status of a particular payment as an "excess parachute
payment" has been finally determined by the Internal Revenue
Service or a court of competent jurisdiction.
18. WITHHOLDING TAXES.
(a) General. To the extent required by
applicable federal, state, local or foreign law, the
recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Corporation for
the satisfaction of any withholding tax obligations that
arise by reason of such payment or distribution. The
Corporation shall not be required to make such payment or
distribution until such obligations are satisfied.
(b) Nonqualified Options. The Committee may
permit an Optionee who exercises Nonqualified Stock Options
to satisfy all or part of his or her withholding tax obliga-
-28-
<PAGE>
tions by having the Company withhold a portion of the Shares
that otherwise would be issued to him or her under such
Nonqualified Stock Options. Such Shares shall be valued at
their Fair Market Value on the date when taxes otherwise
would be withheld in cash. The payment of withholding taxes
by surrendering Shares to the Corporation, if permitted by
the Committee, shall be subject to such restrictions as the
Committee may impose, including any restrictions required by
rules of the Securities and Exchange Commission.
19. EXECUTION.
To record the amendment and restatement of the Plan
to read as set forth herein effective as of February 22,
1990, the Corporation has caused its authorized officer to
execute the same.
POTLATCH CORPORATION
By /S/ Brian W. Davis
Secretary
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<PAGE>
RESOLULTION
AMEND 1989 STOCK INCENTIVE PLAN
December 3, 1998
RESOLVED, that the 1989 Stock Incentive Plan is
amended as follows:
1. Section 7(f) shall read as follows:
(f) Termination of Employment Except Death
Except as provided in Subsection (k) below, in the
event that an Optionee shall cease to be employed by the
Corporation or its Subsidiaries for any reason other than
his or her death, such Optionee shall have the right,
subject to the restrictions of Subsection (e) hereof, to
exercise the Option either:
(i) at any time within three (3) months after
such termination of employment; or
(ii) (in the case of Early, Normal or Late
Retirement under the Salaried Employees' Retirement
Plan, or Disability), at any time before the end of
the option period specified in the Option Agreement,
to the extent that, at the date of termination of
employment, the Optionee's right to exercise such Option
had accrued pursuant to the terms of the Option Agreement
with respect to which such Option was granted and had not
previously been exercised; provided, however, that if the
employment of an Optionee is terminated by the Corporation
or a Subsidiary by reason of misconduct, such Option shall
cease to be exercisable at the time of the Optionee's
termination of employment. As used herein "misconduct"
means that the Optionee has engaged in unfair competition
with the Corporation or a Subsidiary, induced any customer
of the Corporation or a Subsidiary to breach any contract
with the Corporation or a Subsidiary, made any unauthorized
disclosure of any of the secrets of confidential
information of the Corporation or a Subsidiary, committed
an act of embezzlement, fraud or theft with respect to the
-1-
<PAGE>
property of the Corporation or a Subsidiary, or engaged in
conduct which is not in good faith and which directly
results in material loss, damage or injury to the business,
reputation or employees of the Corporation or a Subsidiary.
The Committee shall determine whether an Optionee's
employment is terminated by reason of misconduct. In
making such determination the Committee shall act fairly
and shall give the Optionee an opportunity to be heard and
present evidence on his or her behalf.
For this purpose, the employment relationship will be
treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations
construing Code section 422(a)(2)). Notwithstanding the
foregoing, in the case of an Incentive Stock Option,
employment shall not be deemed to continue beyond the
ninetieth (90th) day after the Optionee ceased active
employment, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
2. Section 7(g) shall read as follows:
(g) Death of Optionee.
Except as provided in Subsection (k) below, if the
Optionee shall die while in the employ of the Corporation
or a Subsidiary and shall not have fully exercised the
Option, an Option may be exercised (subject to the
limitations on exercisability set forth in Subsection (e)
hereof) at any time before the end of the option period
specified in the Option Agreement by the executors or
administrators of the Optionee's estate or by any person or
persons who shall have acquired the Option directly from
the Optionee by bequest or inheritance, to the extent that,
at the date of the Optionee's death, the Optionee's right
to exercise such Option had accrued pursuant to the terms
of the Option Agreement and had not previously been
exercised.
-2-
STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1989 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 employee of the Corporation named in
the attached ("Employee"),
W I T N E S S E T H:
That to encourage stock ownership by employees of
the Corporation and for other valuable consideration, the
parties agree as follows:
1. Definitions.
(a) "Agreement" shall mean this stock option agreement.
(b) "Board" shall mean the Board of Directors of
the Corporation.
(c) "Change in Control" shall mean an event or
transaction described in Subparagraph (a), (b), (c) or (d) of
Paragraph 3 (without regard to the thirty (30) and three
hundred sixty-five (365) day periods also described in those
Subparagraphs).
(d) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(e) "Common Stock" shall mean the $1 par value
Common Stock of the Corporation.
(f) "Committee" shall mean the Committee appointed
by the Board to administer the Plan.
(g) "Corporation" shall mean Potlatch Corporation,
a Delaware corporation.
(h) "Date of Grant" shall mean the date on which
the Committee determined to grant this Option, as specified
in Section 1 of the addendum to this Agreement.
(i) "Disability" shall mean the Employee is unable to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than twelve
(12) months.
1
Exhibit (10)(l)(iii)
<PAGE>
(j) "Exercise Price" shall mean the price per
Share designated in Section 2 of the addendum to this
Agreement at which this Option may be exercised.
(k) "Fair Market Value" of a Share as of a speci-
fied date shall mean the closing price at which such Shares
are traded as of the close of business on such date as
reported on the composite tape, or if no trading of the
Common Stock is reported for that day, on the next preceding
day on which trading was reported.
(l) "Incentive Stock Option" shall mean an Option
described in Code section 422A(b).
(m) "Nonqualified Stock Option" shall mean an
Option other than an Incentive Stock Option.
(n) "Option" shall mean a stock option granted
pursuant to the Plan.
(o) "Option Period" shall mean the term of this
Option as provided in Paragraph 3 of this Agreement.
(p) "Partial Exercise" shall mean an exercise with
respect to less than all of the accrued but unexercised
Shares subject to Option held by the person exercising the
Option.
(q) "Plan" shall mean the Potlatch Corporation
1989 Stock Incentive Plan, as adopted by the Board on
December 8, 1988, and as amended by the Board on
February 24, 1989 and February 22, 1990,to be effective
on January 1, 1989, and pursuant to which the parties have
entered into this Agreement.
(r) "Purchase Price" shall mean the Exercise
Price times the number of whole shares with respect to which
this Option is exercised.
(s) "Rules" shall mean the regulations and rules
adopted from time to time by the Committee.
(t) "Securities Act" shall mean the Securities Act
of 1933, as amended.
(u) "Share" shall mean one share of Common Stock,
adjusted in accordance with Section 11 of the Plan.
(v) "Subsidiary" shall mean 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 fifty percent
(50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such
chain.
2
<PAGE>
2. The Corporation hereby grants to Employee 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 hereinafter
stated, and in consideration for which Employee hereby agrees
to continue in the employment of the Corporation or its
Subsidiaries for a period of at least one (1) year from the
date of this Agreement .
This Option has been granted pursuant to the Plan,
a copy of the text of which Employee may obtain upon request
to the Corporation.
3. Subject to the conditions stated herein,
unless a different period is specified in Section 5 of the
addendum to this Agreement, the period during which the
option may be exercised (the "Vesting Schedule") and the Call
Periods applicable to such Vesting Schedule pursuant to
Paragraph 4 shall be as follows:
Number of Shares Vesting Schedule* Call Period**
50% of the number From one year From one year
of shares from the Date of from the Date of
specified in Grant to end of Grant to end of
Section 3 of the term for Option term for Option
addendum
50% of the number From two years From two years
of shares from the Date of from the Date of
specified in Grant to end of Grant to end of
Section 3 of the term for Option term for Option
addendum
No Partial Exercise of this Option may be for less than ten
(10) Share lots or multiples thereof.
If a period of six (6) months has elapsed from the
Date of Grant, Employee shall have the right to exercise the
Option (or in lieu thereof to call the related stock
appreciation right), in whole or in part:
(a) Within thirty (30) days following the
consummation of any transaction approved by the
stockholders of the Corporation in which the
Corporation will cease to be an independent
publicly owned corporation (including, without
* See Paragraph 5 for further explanation of end of term for Option.
** This column is applicable only if the Option is granted with a stock
appreciation right as indicated in Section 6 of the addendum to this
Agreement.
3
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 three hundred sixty-five (365)
days following the date on which more than one-
third (determined by rounding down to the next
whole number) of the individual members of the
Board neither (i) were directors of the Corporation
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 three hundred sixty-five (365)
days following the date on which any "person" (as
such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended
(the "1934 Act")) that has acquired Shares pursuant
to a tender offer subject to Section 14(d) of the
1934 Act becomes entitled to vote twenty percent
(20%) or more of the aggregate voting power of the
capital stock of the Corporation issued and
outstanding; and
(d) Within thirty (30) days prior to any
dissolution or liquidation of the Corporation or
any merger or consolidation in which the Corpo-
ration is not the surviving corporation, but not
earlier than the date on which any required
stockholder approval is obtained.
If an option is not exercised during any thirty (30) day
period described in (a) or (d) above, the option shall
terminate at the close of business on the last day of the
thirty (30) day period; provided, however, that if periods
described in (a) and (d) are contiguous or overlap, unexer-
cised options shall terminate at the close of business on the
last day of the second thirty (30) day period.
4. If the Option is designated in Section 6 of
the addendum to this Agreement as being granted with a stock
appreciation right, under the conditions described herein,
Employee may surrender all or part of this Option and exer-
cise the stock appreciation right in lieu of exercising all
or any part of this Option, provided 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 appreci-
ation right shall be referred to herein as the "call"
thereof. Upon the call of a stock appreciation right
Employee 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
4
portion thereof) from the Fair Market Value of such Shares on
the date of such call. 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 granted in conjunction with the Option and in the event
of the call of the stock appreciation right the underlying
Option will be deemed to have been exercised for all
purposes under the Plan.
If the Option is not designated in Section 6 of the
addendum to this Agreement as being granted with a stock
appreciation right, the Option shall nevertheless automati-
cally include a stock appreciation right that may be called
in the event of a Change in Control, only during the periods
described in Subparagraphs (a), (b), (c) or (d) of Para-
graph 3 In the case of any stock appreciation right that
is called during either of the thirty (30) day periods
described in Paragraph 3(a) or 3(d), for purposes of
measuring the value of the stock appreciation right, "Fair
Market Value" shall be the greater of (a) the value of the
consideration per share that the Employee would have
received in connection with such transaction as a
stockholder of the Corporation if he or she had exercised
the Option prior to the consummation of the transaction
described in Paragraph 3(a) or Paragraph 3(d) 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.
Payment of a stock appreciation right shall be
made as soon as reasonably practicable following receipt by
the Corporation of the form described in Paragraph 8. Pay-
ment of the stock appreciation right shall be made in such
form as may be permitted pursuant to the Rules as in effect
on the date the stock appreciation right is called.
5. The term of this Option shall end and (any
other provision of the Plan to the contrary notwithstanding)
this Option shall not be exercisable after seven (7) years
from the Date of Grant if this Option is designated as an
Incentive Stock Option in Section 4 of the addendum to this
Agreement or ten (10) years from the Date of Grant if this
Option is designated as a Nonqualified Stock Option in
Section 4 of such addendum, or, if earlier, upon the
termination of Employee's employment with the Corporation or
its Subsidiaries, subject to the following provisions:
(a) If the termination of employment is
caused by Employee'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 or called, may be
5
<PAGE>
exercised or called at any time before the end of the
Option Period as specified in the Option Agreement by
Employee's executors or administrators or by any person or
persons who shall have acquired this Option directly from
Employee by bequest or inheritance.
(b) If the termination of Employees'
employment is caused by Disability or Early, Normal or Late
Retirement under the Potlatch Corporation Salaried Employees'
Retirement Plan, 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 or called at any time before
the end of the Option Period as specified in the Option Agreement.
(c) If the termination of Employee's
employment is for any reason other than death,
Disability, or Early, Normal or Late Retirement under the Potlatch
Corporation Salaried Employees' Retirement Plan,
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 (3) months
after the date of such termination; provided,
however, that in such case the right to call a
stock appreciation right shall terminate on the
date Employee's employment terminates unless
Employee requests and the Committee permits the
call of the stock appreciation right within three
(3) months after the date of such termination.
Notwithstanding the foregoing, if the termination
of employment is by reason of Employee's
misconduct, the option shall cease to be
exercisable or callable at the time of such
termination. As used herein "misconduct" means
that Employee has engaged in unfair competition
with the Corporation or a Subsidiary, induced any
customer of the Corporation or a Subsidiary to
breach any contract with the Corporation or a
Subsidiary, made any unauthorized disclosure of any
of the secrets or confidential information of the
Corporation or a Subsidiary, committed an act of
embezzlement, fraud or theft with respect to the
property of the Corporation or a Subsidiary, or
engaged in conduct which is not in good faith and
which directly results in material loss, damage or
injury to the business, reputation or employees of
the Corporation or a Subsidiary. The Committee
shall determine whether Employee's employment is
terminated by reason of misconduct. In making such
determination the Committee shall act fairly and
shall give Employee an opportunity to be heard and
present evidence on Employee's behalf.
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
6
<PAGE>
number of Shares so reserved and the Exercise Price thereof
shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding Shares by
reason of stock dividends, split-ups, 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 pertain and apply to the
securities to which a holder of the number of Shares subject
to this Option would have been entitled. Except insofar as
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 effective 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,
Employee (or Employee's representative) shall be entitled to
receive the same consideration in such transaction
(including, without limitation, cash) as other shareholders
are entitled to receive .
8. Employee, or Employee's representative, may
call twenty percent (20%) or more of that portion of the
Option which has become vested in accordance with Paragraph 3
of this Agreement at any time during each applicable Call
Period, except as requested by Employee or Employee's
representative and approved by the Committee. For purposes
of the Plan, the date of call shall be the date a form
provided by the Corporation for this purpose is filed by the
Employee or the Employee's representative and received by the
Vice President, Employee Relations of the Corporation.
Employee, or Employee's representative, may exercise
this Option by giving written notice to the Corporation at
Spokane, Washington, attention of the Vice President,
Employee Relations, specifying the election to exercise
the Option, the number of Shares in respect of which it is
being exercised and the method of payment for the amount of
the Purchase Price of the Shares as to 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 Corporation to
govern its stock option program, by the surrender
of Shares in good form for transfer, owned by the
person exercising this Option and having an
7
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 so paid and
the Fair Market Value of the Shares so surrendered
equals the Purchase Price of the Shares with
respect to 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 Employee, it 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 therefor has been made.
The Corporation shall thereafter cause to be issued a cer-
tificate or certificates for the Shares as to which this
Option shall have been so exercised, registered in the name
of the person or persons so 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. Payments or transfers to the Employee under
this Agreement shall be limited to the amount (the "Capped
Amount") necessary to avoid characterization of any amount
payable to the Employee (including, but not limited to,
amounts payable under this Agreement) as an "excess
parachute payment" as defined in section 280G of the Code,
except in the event that the total amount that the Employee
would receive from all "parachute payments" (as defined in
Code section 280G), net of all applicable taxes, including
the excise tax that would be imposed pursuant to Code section
4999, would exceed the Capped Amount, net of all applicable
taxes.
The firm of independent certified public accountants
serving as the Corporation's outside auditor as of the date of
a Change in Control shall determine whether any amount would
constitute an "excess parachute payment," disregarding any
payments or benefits available to the Employee under any plan,
contract or program if the Employee irrevocably elects to
relinquish or not exercise such payments or benefits before
the payment or enjoyment thereof.
10. 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, Employee will make arrangements
satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
8
<PAGE>
11. Neither Employee nor Employee'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 and delivered to Employee or
Employee's representative.
12. Unless the Shares to be acquired are regis-
tered under the Securities Act, Employee represents and
agrees that upon the exercise of the Option herein granted
Employee will purchase such Shares for the purpose of
investment and without present intention of resale. Unless
at the time Employee 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 in respect of 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
therefrom, 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 be in contravention of 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 with respect to which the exercise
of this Option has been made, 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 registered pursuant to the provisions of
that Act or if an exemption from registration is
available."
13. Except as otherwise provided herein, the
Option herein granted and the rights and privileges
conferred hereby 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 hereby,
contrary to the provisions hereof, or upon any attempted
sale under any execution, attachment or similar process upon
the rights and privileges conferred hereby, this Option and
the rights and privileges conferred hereby shall immediately
become null and void.
14. Nothing in this Agreement shall be construed
as giving Employee the right to be retained as an employee or
as impairing the rights of the Corporation to terminate his
or her employment at any time, with or without cause.
9
<PAGE>
15. This Agreement shall be interpreted and con-
strued in accordance with the laws of the State of Delaware
without regard to choice of law principles.
10
<PAGE>
ADDENDUM TO STOCK OPTION AGREEMENT
POTLATCH CORPORATION 1989 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 11 of the Plan and Paragraph 6 of this
Agreement.
4. This Option is: A Nonqualified Stock option
5. The Vesting Schedule for this Option is: The schedule
specified in Paragraph 3 of the Stock Option Agreement,
except that no exercise or call will be permitted for a
fractional Share.
6. This Option is granted without a Stock Appreciation Right,
other than as specified in Paragraph 4 of the Stock Option
Agreement describing Stock Appreciation Rights in the event
of a change in control.
The document entitled Stock Option Agreement Potlatch
Corporation 1989 Stock Incentive Plan is hereby incorporated
by 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
11
Potlatch
Intra Company Memo Potlatch Corporation
Date: January 12, 1999
To: Stock Option Program Participants
From: Barbara M. Failing
Subject: Amendments to 1989 and 1995 Stock Incentive Plans
On December 3, 1998, Potlatch's Board of Director amended the 1989 and 1995
Stock Incentive Plans to make the following changes:
1. to extend the post-termination exercise period for stock options from
36 months to the full term of the option when employment terminates due
to retirement under the Salaried Employees' Retirement Plan, disability,
or death;
2. to note the change of the corporate office from San Francisco to Spokane;
and
3. to change the applicable state law governing provision interpretation
from California to Delaware.
The Board authorizes the amendment of your outstanding nonqualified stock
options to include these changes. To have the amendments apply to your
outstanding nonqualified stock option(s), you must sign and return the
enclosed copy of this memo. If you are a holder of more than one non-
qualified stock option, this amendment will apply to all held on December 3,
1998.
Upon signing and returning the copy of this memo, Sections 5, 8 and 15 of
your outstanding option agreements will be amended as follows:
1 of 4
Exhibit (10)(m)(i)
<PAGE>
1995 Stock Incentive Plan Option Agreement
The following discussion entirely replaces Section 5(a) and (b):
"(a) If the termination of employment is caused by Employee'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 at any time before the end of the Option Period as specified in the
Option Agreement by Employee's executors or administrators or by any person
or persons who shall have acquired this Option directly from Employee by
bequest or inheritance.
(b) If the termination of Employee's employment is caused by Disability or
Early, Normal or Late Retirement under the Potlatch Corporation Salaried
Employee's Retirement Plan, 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 at any time before the end of
the Option Period as specified in the Option Agreement."
The following discussion entirely replaces paragraph one of Section 8:
"Employee, or Employee's representative, may exercise 20% or more of the
portion of this Option that has become vested under Paragraph 3 of this
Agreement by giving written notice to the Corporation at Spokane, Washington,
attention of the Vice President, Employee Relations, 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 Purchase Price of the Shares for which this Option is being
exercised."
The following discussion entirely replaces Section 15:
"This Agreement shall be interpreted and construed in accordance with
the laws of the State of Delaware without regard to choice of law principles."
2 of 4
<PAGE>
1989 Stock Incentive Plan Option Agreement
The following discussion entirely replaces Section 5(a) and (b):
"(a) If the termination of employment is caused by Employee'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 or
called, may be exercised or called at any time before the end of the Option
Period as specified in the Option Agreement by Employee's executors or
administrators or by any person or persons who shall have acquired this
Option directly from Employee by bequest or inheritance.
(b) If termination of Employee's employment is caused by Disability or
Early, Normal or Late Retirement under the Potlatch Corporation Salaried
Employees' Retirement Plan, 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, may be exercised or called at any time before the end of
the Option Period as specified in the Option Agreement."
The following discussion entirely replaces paragraph two of Section 8:
"Employee, or Employee's representative, may exercise this Option by
written notice to the Corporation at Spokane, Washington, attention of the
Vice President, Employee Relations, specifying the election to exercise the
Option, the number of Shares in respect of which it is being exercised and
the method of payment for the amount of the Purchase Price of the Shares as
to 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 Corporation to govern its stock option program, 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 so paid and the Fair Market Value of the Shares so
surrendered equals the Purchase Price of the Shares with respect to
which this Option is being exercised."
The following discussion entirely replaces Section 15:
"This Agreement shall be interpreted and construed in accordance with
the laws of the State of Delaware without regard to choice of law principles."
3 of 4
If you have any questions regarding the proposed amendment to your
nonqualified stock option(s), please call me
POTLATCH CORPORATION
By____________________
Barbara M. Failing
I agree to the foregoing amendments to my nonqualified stock option
agreement(s):
_____________________________ ____________________________
Employee Date
4 of 4
December 29, 1998
MEMBERS OF THE
BOARD OF DIRECTORS
POTLATCH CORPORATION
On December 3, 1998, the Board authorized the amendment of
all outstanding stock option agreements to reflect two
amendments to the 1995 Stock Incentive Plan as follows:
1. to extend the post-termination exercise period for stock
options from 36 months to the full term of the option
when board services terminates due to retirement (after
five years of service as a Director) or death; and
2. to update the location of the Corporation's office.
If you wish to have the new rules apply to your outstanding
nonqualified options, please sign and return the enclosed
copy of this letter. These amendments will apply to all
nonqualified options held by you on December 3, 1998.
If you agree to these amendments by signing and returning
the copy of this letter, Sections 5 and 8 of your
outstanding option agreements will be amended to read as
follows:
Section 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 is 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
at any time before the end of the Option Period
as specified in the Option Agreement by Outside
Director's executors or administrators or by any
person or persons who shall have acquired this
1 of 3
Exhibit (10)(m)(ii)
<PAGE>
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 at any time before the
end of the Option Period as specified in the Option
Agreement.
(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.
Section 8. Outside Director, or Outside Director's
representative, may exercise this Option by giving written
notice to the Corporation at Spokane, Washington, 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
2 of 3
<PAGE>
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
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.
If you have any questions regarding the proposed amendments to
your nonqualified stock options, please let me know.
Yours very truly,
Betty R. Fleshman
Corporate Secretary
I agree to the foregoing proposed amendments to my non-qualified
stock option agreements.
____________________________________ ___________________
Signature Date
3 of 3
POTLATCH CORPORATION
1995 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED DECEMBER 3, 1998
1. PURPOSE.
This Potlatch Corporation 1995 Stock Incentive Plan is
intended to provide incentive to employees and directors of
Potlatch Corporation (the "Corporation") and its eligible
subsidiaries, to encourage proprietary interest in the
Corporation and to encourage employees and directors to remain in
the service of the Corporation or its subsidiaries.
2. DEFINITIONS.
(a) "Award" means any award of an option, Restricted
Stock or an Other Share-Based Award under the Plan.
(b) "Board" means the Board of Directors of the
Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the
Board in accordance with Section 4.
(e) "Common Stock" means the $1 par value common stock of
the Corporation.
(f) "Corporation" means Potlatch Corporation, a Delaware
corporation.
(g) "Director" means a director of the Corporation.
(h) "Disability" means the condition of an Employee who
is unable to engage in any substantial gainful activity by reason
1
Exhibit (10)(n)
<PAGE>
of any medically determinable physical or mental impairment which
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of at least 12 months.
(i) "Employee" means an individual (who may be an officer
or a Director) employed by the Corporation or a Subsidiary
(within the meaning of the Code section 3401 and the regulations
thereunder).
(j) "Exercise Price" means the price per Share of Common
Stock at which an option may be exercised.
(k) "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
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.
(l) "Incentive Stock Option" means an Option described in
Code section 422(b).
(m) "Misconduct" means that a Participant has engaged in
unfair competition with the Corporation or a Subsidiary, induced
any customer of the Corporation or a Subsidiary to breach any
contract with the Corporation or a Subsidiary, made any
unauthorized disclosure of any of the secrets or confidential
information of the Corporation or a Subsidiary, committed an act
of embezzlement, fraud or theft with respect to the property of
the Corporation or a Subsidiary, or engaged in conduct which is
not in good faith and which directly results in material loss,
2
<PAGE>
damage or injury to the business, reputation or employees of the
Corporation or a Subsidiary.
(n) "Nonqualified Stock Option" means an Option not
described in Code section 422(b) or 423(b).
(o) "Option" means a stock option granted pursuant to
Section 7 or Section 10. "Option Agreement" means the
agreement between the Corporation and the Participant which
contains the terms and conditions pertaining to such Option.
(p) "Other Share-Based Award" means an Award granted
pursuant to Section 9. "Other Share-Based Award Agreement"
means the agreement between the Corporation and the recipient of
an Other Share-Based Award which contains the terms and
conditions pertaining to the Other Share-Based Award.
(q) "Outside Director" means a Director who is not an
Employee.
(r) "Participant" means an Employee who has received an
Award or an Outside Director who has received an Option.
(s) "Plan" means this Potlatch Corporation 1995 Stock
Incentive Plan.
(t) "Purchase Price" means the Exercise Price times the
number of whole Shares with respect to which an Option is
exercised.
(u) "Restricted Stock" means Shares granted pursuant to
Section 8. "Restricted Stock Agreement" means the agreement
between the Corporation and the recipient of Restricted Stock
which contains the terms, conditions and restrictions pertaining
to the Restricted Stock.
3
<PAGE>
(v) "Share" means one share of Common Stock, adjusted in
accordance with Section 13 (if applicable).
(w) "Stock Right" means a bookkeeping entry representing
a right to the equivalent of one Share.
(x) "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.
3. EFFECTIVE DATE.
This Plan was adopted by the Board on December 7, 1995, to
be effective immediately, subject to approval by the
Corporation's stockholders.
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
than two disinterested members. The term "disinterested
members" as applied to Directors shall include only Directors
who are not active Employees of the Corporation or of any of its
Subsidiaries, who are not eligible to receive discretionary
Awards under Sections 7, 8 and 9 of this Plan or under any other
stock incentive plan of the Corporation and who have not received
such discretionary Awards for at least one year preceding
appointment as a member of the Committee. The Board may from
time to time remove members from, or add members to, the
4
<PAGE>
Committee. Vacancies on the Committee shall be filled by the
Board. The Board shall appoint one of the members of the
Committee as Chairman.
If any member of the Committee does not qualify as an
"outside director" for purposes of section 162(m) of the Code,
Awards under the Plan for the chief executive officer and the
four most highly compensated officers of the Corporation (other
than the chief executive officer) shall be administered by a
subcommittee consisting of each Committee member who qualifies as
an "outside director." If fewer than two Committee members
qualify as "outside directors," the Board shall appoint one or
more other members to such subcommittee who do qualify as
"outside directors" so that it will at all times consist of at
least two members who qualify as "outside directors" for
purposes of section 162(m) of the Code.
The Committee shall hold meetings at such times and places
as it may determine. Acts of a majority of the Committee at
which a quorum is present, or acts reduced to or approved in
writing by a majority of the Committee, shall be the valid acts
of the Committee. The Committee shall from time to time at its
discretion make determinations with respect to Employees who
shall be granted Awards, the number of Shares or Share
equivalents to be subject to each Award, the vesting of Awards,
the designation of Options as Incentive Stock Options or
Nonqualified Stock Options and other conditions of Awards to
Employees.
The interpretation and construction by the Committee of any
provisions of the Plan or of any Award shall be final. No member
5
<PAGE>
of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Award.
5. ELIGIBILITY.
Participants shall be such key Employees (who may be
officers, whether or not they are Directors) of the Corporation
or of its Subsidiaries as the Committee shall select, but subject
to the terms and conditions set forth below. In addition, all
Outside Directors shall be Participants solely for purposes of
the nondiscretionary Awards described in Section 10.
(a) Ten Percent Stockholders.
An Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the
Corporation, its parent or any of its Subsidiaries is not
eligible to receive an Incentive Stock Option pursuant to this
Plan. For purposes of this Section 5(a) the stock ownership of
an Employee shall be determined pursuant to section 424(d) of the
Code.
(b) Number of Awards.
A Participant may receive more than one Award, including
Awards of the same type, but only on the terms and subject to the
restrictions set forth in the Plan. The maximum aggregate number
of Shares or Share equivalents that may be subject to Awards to a
Participant in any calendar year is 60,000 Shares.
6. STOCK.
The stock subject to Options, Restricted Stock, or Other
Share-Based Awards granted under the Plan shall be Shares of the
6
<PAGE>
Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Options, Restricted Stock or Other Share-
Based Awards issued under this Plan shall not exceed 1,700,000
Shares. In the event that any outstanding Option under the Plan
for any reason expires or is terminated or any Restricted Stock
or Other Share-Based Award is forfeited, the Shares allocable to
the unexercised portion of such Option or the forfeited
Restricted Stock or Other Share-Based Award may again be
subjected to Options, Restricted Stock or Other Share-Based
Awards under the Plan, provided that under the terms of the Award
the Participant received no benefits of ownership during the
period the Award was outstanding. However, if one Award is
granted in tandem with another, so that the exercise of one
causes the other to expire, then the number of Shares subject to
the expired Award shall not be restored to the pool available for
Awards.
The limitations established by this Section 6 shall be
subject to adjustment as provided in Section 13.
7. TERMS AND CONDITIONS OF EMPLOYEE OPTIONS.
Options granted to Employees pursuant to the Plan shall be
evidenced by written Option Agreements in such form as the
Committee shall determine, subject to the following terms and
conditions:
(a) Number of Shares.
Each Option shall state the number of Shares to which it
pertains and shall provide for the adjustment of such number in
accordance with Section 13.
7
<PAGE>
(b) Exercise Price.
Each Option shall state the Exercise Price, determined by
the Committee, which shall not be less than the Fair Market Value
of a Share on the date of grant.
(c) Medium and Time of Payment.
The Purchase Price shall be payable in full in United States
dollars upon the exercise of the Option; provided that with the
consent of the Committee and in accordance with its rules and
regulations, the Purchase Price may be paid by the surrender of
Shares in good form for transfer, owned by the person exercising
the Option and having a Fair Market Value on the date of exercise
equal to the Purchase Price, or in any combination of cash and
Shares, so long as the total of the cash and the Fair Market
Value of the Shares surrendered equals the Purchase Price. No
Share shall be issued until full payment has been made.
(d) Term and Exercise of Options; Nontransferability of
Options.
Each Option shall state the time or times when it becomes
exercisable. No Option shall be exercisable after the expiration
of 10 years from the date it is granted. During the lifetime of
the Participant, the Option shall be exercisable only by the
Participant and shall not be assignable or transferable. In the
event of the Participant's death, no Option shall be transferable
by the Participant other than by will or the laws of descent and
distribution.
Subject to the foregoing, beginning six months after the
date of grant the Participant shall have the right to exercise
8
<PAGE>
the Option (or to call the related stock appreciation right as
described in Section 7 (i)) in whole or in part:
(i) 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;
(ii) Within 365 days following the date on which more
than one-third (determined by rounding down to the next
whole number) of the Directors neither (A) were Directors on
a date three years earlier nor (B) are individuals whose
election or nomination for election as Directors was
affirmatively voted on by at least a majority of those
Directors described in (A) above who were still in office as
of the date the Board approved such election or nomination;
(iii) Within 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 the aggregate voting power
of the capital stock of the Corporation issued and
outstanding; and
(iv) Within 30 days prior to any dissolution or
liquidation of the Corporation or any merger or
9
<PAGE>
consolidation in which the Corporation is not the surviving
corporation, but not earlier than the date on which any
required stockholder approval is obtained.
If an Option is not exercised during any 30-day period described
in (i) or (iv) 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 (i) and (iv) above are contiguous or
overlap, unexercised Options shall terminate at the close of
business on the last day of the second 30-day period. In the
case of a stock appreciation right called during either of the
30-day periods described in (i) or (iv) above, "Fair Market
Value" shall be the greater of (A) the value of the
consideration per share that the Participant would have received
in connection with such transaction as a stockholder of the
Corporation if he or she had exercised the Option prior to the
consummation of the transaction described in (i) or (iv) above,
or (B) the value determined in good faith by the Committee (as
composed on the day preceding the date of consummation of the
transaction described in (i) and (iv) above), taking into
consideration all relevant facts and circumstances.
(e) Termination of Employment Except Death.
In the event that a Participant who is an Employee ceases to
be employed by the Corporation or its Subsidiaries for any reason
other than death, such Participant shall have the right (subject
to the limitations of Section 7(d) above) to exercise the Option
either:
(i) within three months after such termination of
employment; or
10
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(ii) (in the case of Early, Normal or Late Retirement
under the Salaried Employees' Retirement Plan, or
Disability), at any time before the end of the option period
specified in the Option Agreement,
to the extent that, at the date of termination of employment, the
Option had vested pursuant to the terms of the Option Agreement
with respect to which such Option was granted and had not
previously been exercised. However, if the employment of a
Participant is terminated by the Corporation or a Subsidiary by
reason of Misconduct, such Option shall cease to be exercisable
at the time of the Participant's termination of employment. The
Committee shall determine whether a Participant's employment is
terminated by reason of Misconduct. In making such determination
the Committee shall act fairly and shall give the Participant an
opportunity to be heard and present evidence on his or her
behalf.
For this purpose, the employment relationship will be
treated as continuing while the Participant is on military leave,
sick leave or other bona fide leave of absence (to be determined
in the sole discretion of the Committee, in accordance with rules
and regulations construing Code section 422(a)(2)).
Notwithstanding the foregoing, in the case of an Incentive Stock
Option, employment shall not be deemed to continue beyond the
90th day after the Participant ceased active employment, unless
the Participant's reemployment rights are guaranteed by statute
or by contract.
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<PAGE>
(f) Death of Participant.
If a Participant who is an Employee dies while in the employ
of the Corporation or a Subsidiary, the Option may be exercised
(subject to the limitations of Section 7(d) above) at any time
before the end of the option period as specified in the Option
Agreement by the executors or administrators of the Participant's
estate or by any person or persons who acquired the Option
directly from the Participant by bequest or inheritance, to the
extent that, at the date of the Participant's death, the Option
had vested pursuant to the terms of the Option Agreement and had
not previously been exercised.
(g) Rights as a Stockholder.
A Participant or a transferee of a Participant shall have no
rights as a stockholder with respect to any Shares covered by his
or her Option until the date of issuance of a stock certificate
for such Shares. No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided
in Section 13.
(h) Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the
limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted to Employees under the Plan, or
accept the exchange of outstanding Options (to the extent not
previously exercised) for the granting of new Options (at the
same or a different price). Notwithstanding the foregoing,
however, no modification of an Option shall, without the consent
12
<PAGE>
of the Participant, alter or impair any rights or obligations
under any Option previously granted under the Plan.
(i) Stock Appreciation Rights.
Each Option granted under the Plan shall include a stock
appreciation right which may be exercised only during the periods
described in Section 7(d)(i) through (iv) and subject to the
provisions of Section 7(d). During any such period, the
Participant shall have the right to surrender all or part of the
Option and to exercise the stock appreciation right (the
"call") to obtain payment of an amount equal to the difference
obtained by subtracting the aggregate Exercise Price of the
Shares subject to the Option (or the portion of such Option)
surrendered from the Fair Market Value of such Shares on the date
of such surrender. The call of such stock appreciation right
shall be subject to such limitations (including, but not limited
to, limitations as to time and amount) as the Committee shall
deem appropriate. The payment may be made in shares of Common
Stock (determined with reference to its Fair Market Value on the
date of call), or in cash, or partly in cash and in shares of
Common Stock, at the discretion of the Committee, provided that
the Committee determines that such settlement is consistent with
the purpose set forth in Section 1. For all purposes under the
Plan, the terms "exercise" or "exercisable" shall be deemed to
include the terms "call" or "callable" as such terms may apply
to a stock appreciation right, and in the event of the call of a
stock appreciation right, the underlying Option will be deemed to
have been exercised for all purposes under the Plan.
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(j) Limitation of Incentive Stock Option Awards.
The aggregate Fair Market Value (determined as of the date
the Option is granted) of the stock with respect to which any
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year under this Plan and all
other plans maintained by the Corporation, its parent or its
Subsidiaries shall not exceed $100,000.
(k) Other Provisions.
The Option Agreement shall contain such other provisions
that are consistent with the terms of the Plan, including,
without limitation, restrictions upon the exercise of the Option,
as the Committee shall deem advisable.
8. RESTRICTED STOCK.
(a) Grants.
Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to
whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares of Restricted Stock to be
awarded, the price (if any) to be paid by the recipient of
Restricted Stock, the time or times within which such Awards may
be subject to forfeiture, and all other terms and conditions of
the Awards. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole
discretion.
The terms of each Restricted Stock Award shall be set forth
in a Restricted Stock Agreement between the Corporation and the
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<PAGE>
Employee, which Agreement shall contain such provisions as the
Committee determines to be necessary or appropriate to carry out
the intent of the Plan. Each Participant receiving a Restricted
Stock Award shall be issued a stock certificate in respect of
such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award. The Committee shall
require that stock certificates evidencing such shares be held by
the Corporation until the restrictions lapse and that, as a
condition of any Restricted Stock Award, the Participant shall
deliver to the Corporation a stock power relating to the stock
covered by such Award.
(b) Restrictions and Conditions.
The shares of Restricted Stock awarded pursuant to this
Section 8 shall be subject to the following restrictions and
conditions:
(i) During a period set by the Committee commencing
with the date of such Award (the "Restriction Period"),
the Participant shall not be permitted to sell, transfer,
pledge, assign or encumber shares of Restricted Stock
awarded under the Plan. Within these limits, the Committee,
in its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive
such restrictions in whole or in part, based on service,
performance, a change of control of the Corporation or such
other factors or criteria as the Committee may determine in
its sole discretion.
15
<PAGE>
(ii) Except as provided in this paragraph (ii) and
paragraph (i) above, the Participant shall have, with
respect to the shares of Restricted Stock, all of the rights
of a stockholder of the Corporation, including the right to
vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, as determined at the
time of Award, may provide that the payment of cash
dividends shall or may be deferred and, if the Committee so
determines, reinvested in additional Shares of Restricted
Stock to the extent available under Section 6, or otherwise
reinvested. Stock dividends issued with respect to
Restricted Stock shall be treated as additional shares of
Restricted Stock that are subject to the same restrictions
and other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) The Committee shall specify the conditions
under which shares of Restricted Stock shall vest or be
forfeited and such conditions shall be set forth in the
Restricted Stock Agreement.
(iv) If and when the Restriction Period applicable to
shares of Restricted Stock expires without a prior
forfeiture of the Restricted Stock, certificates for an
appropriate number of unrestricted Shares shall be delivered
promptly to the Participant, and the certificates for the
shares of Restricted Stock shall be canceled.
16
<PAGE>
9. OTHER SHARE-BASED AWARDS.
(a) Grants.
Other Awards of Shares and other Awards that are valued in
whole or in part by reference to, or are otherwise based on,
Shares ("Other Share-Based Awards"), may be granted either
alone or in addition to or in conjuction with other Awards under
this Plan. Awards under this Section 9 may include (without
limitation) Stock Rights, the grant of Shares conditioned upon
some specified event, the payment of cash based upon the
performance of the Shares or the grant of securities convertible
into Shares.
Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to
whom and the time or times at which Other Share-Based Awards
shall be made, the number of Shares or other securities, if any,
to be granted pursuant to Other Share-Based Awards, and all other
conditions of the Other Share-Based Awards. The Committee may
condition the grant of an Other Share-Based Award upon the
attainment of specified performance goals or such other factors
as the Committee shall determine, in its sole discretion. In
making an Other Share-Based Award, the Committee may determine
that the recipient of an Other Share-Based Award shall be
entitled to receive, currently or on a deferred basis, interest
or dividends or dividend equivalents with respect to the Shares
or other securities covered by the Award, and the Committee may
provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. The
terms of any Other Share-Based Award shall be set forth in an
17
<PAGE>
Other Share-Based Award Agreement between the Corporation and the
Employee, which Agreement shall contain such provisions as the
Committee determines to be necessary or appropriate to carry out
the intent of the Plan.
(b) Terms and Conditions.
In addition to the terms and conditions specified in the
Other Share-Based Award Agreement, Other Share-Based Awards shall
be subject to the following:
(i) Any Other Share-Based Award may not be sold,
assigned, transferred, pledged or otherwise encumbered prior
to the date on which the Shares are issued or the Award
becomes payable, or, if later, the date on which any
applicable restriction, performance or deferral period
lapses.
(ii) The Other Share-Based Award Agreement shall
contain provisions dealing with the disposition of such
Award in the event of termination of the Employee's
employment prior to the exercise, realization or payment of
such Award, and the Committee in its sole discretion may
provide for payment of the Award in the event of the
Employee's retirement, Disability or death or the change of
control of the Corporation, with such provisions to take
account of the specific nature and purpose of the Award.
10. OPTION AWARDS TO OUTSIDE DIRECTORS.
(a) Initial Award Conditioned Upon Plan Approval.
Subject to the approval of the Plan by the stockholders of
the Corporation, each individual who is an Outside Director on
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December 7, 1995, shall receive a Nonqualified Stock Option for
1,000 Shares as of such date.
(b) Award Upon Election.
Each Outside Director who is elected by the Board to fill a
vacancy on the Board after May 21, 1998, shall receive a
Nonqualified Stock Option for 2,000 Shares on the date of the
Board's regular meeting in December following his or her
election.
(c) Annual Awards.
Effective May 21, 1998, each Outside Director shall receive
a Nonqualified Stock Option for 1,000 Shares on the date of the
Board's regular meeting in December of each year he or she serves
as Outside Director, other than a year in which the Outside
Director receives an award under Section 10(b) above.
(d) Terms and Conditions of Options.
Each Nonqualified Stock Option granted pursuant to this
Section 10 shall be subject to the following terms and
conditions:
(i) The Exercise Price shall be the Fair Market Value
of a Share on the date of grant.
(ii) The Option shall become exercisable in 50%
increments on the first and second anniversaries of the date
of grant, provided the Outside Director has continuously
been an Outside Director from the date of grant until such
time.
(iii) In the event the Outside Director terminates
services as a Director for any reason other than death, the
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<PAGE>
former Director shall have the right to exercise the Option
either:
(A) within three months after such termination,
or
(B) (in the case of retirement after five years of
service as an Outside Director) at any time before the
end of the option period specified in the Option
Agreement,
to the extent that, at the date of termination the Option had
vested pursuant to (ii) above and had not previously been
exercised. However, if the services of the Outside Director are
terminated by the Board for cause in accordance with the
Corporation's Restated Certificate of Incorporation, such Option
shall cease to be exercisable at the time of the Outside
Director's termination of services.
(iv) In the event the Outside Director's services
terminate by reason of death, the Option may be exercised at
any time before the end of the option period specified in
the Option Agreement by the executors or administrators of
the Director's estate or by any person or persons who shall
have acquired the Option directly from the Director by
bequest or inheritance, to the extent that, at the date of
the Director's death, the Option had vested pursuant to (ii)
above and had not previously been exercised.
Except as specifically set forth in (i) through (iv) above, each
Nonqualified Stock Option granted pursuant to this Section 10
also shall be subject to all of the terms and conditions set
forth in Section 7, other than Section 7(h).
20
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11. OTHER PAYMENTS IN SHARES.
Shares may be issued under this Plan to satisfy the payment
of all or part of an award pursuant to the Potlatch Corporation
Management Performance Award Plan. In addition, all or part of
any Director's fees may be paid in Shares issued under this Plan.
Any Shares issued pursuant to this Section 11 shall reduce the
number of Shares authorized for Options, Restricted Stock or
Other Share-Based Awards under Section 6 but shall not be
considered an Award for purposes of the maximum grant limitation
in Section 5(b).
12. TERM OF PLAN.
Awards may be granted and Shares may be issued pursuant to
the Plan until the termination of the Plan on December 6, 2005.
13. RECAPITALIZATION.
Subject to any required action by the stockholders, the
number of Shares covered by this Plan as provided in Section 6,
the maximum grant limitation in Section 5(b), the number of
Shares covered by or referenced in each outstanding Award, the
number of Options to be granted to Outside Directors under
Sections 10(a) through 10(c) and the Exercise Price of each
outstanding Option and any price required to be paid for
Restricted Stock or Other Share-Based Award shall be
proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or
consolidation of Shares, the payment of a stock dividend (but
only of Common Stock) or any other increase or decrease in the
21
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number of such Shares effected without receipt of consideration
by the Corporation or the declaration of a dividend payable in
cash that has a material effect on the price of issued Shares.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger,
consolidation or other reorganization, each outstanding Award
shall pertain and apply to the securities to which a holder of
the number of Shares subject to the Award would have been
entitled. Subject to the provisions of Section 7(d), a
dissolution or liquidation of the Corporation or a merger,
consolidation or other reorganization in which the Corporation is
not the surviving corporation shall cause each outstanding Option
and each nonvested Restricted Stock Award or Other Share-Based
Award to terminate, unless the agreement of merger, consolidation
or reorganization shall otherwise provide. In the event that the
Corporation undergoes a reverse merger transaction, the
Participant shall be entitled to receive the same consideration
in such transaction with respect to his or her Award (including,
without limitation, cash) as other stockholders are entitled to
receive.
In the event of a change in the Common Stock as presently
constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares
with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common
Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made
22
<PAGE>
by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Incentive Stock
Option granted pursuant to this Plan shall not be adjusted in a
manner that causes the Option to fail to continue to qualify as
an incentive stock option within the meaning of section 422 of
the Code.
Except as expressly provided in this Section 13, a
Participant shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class or securities
convertible into shares of stock of any class, shall not affect
the number or price of Shares subject to the Option.
The grant of an Option pursuant to the plan shall not affect
in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its
business assets.
14. SECURITIES LAW REQUIREMENTS AND LIMITATION OF RIGHTS.
(a) Securities Law.
No Shares shall be issued pursuant to the Plan unless and
until the Corporation has determined that: (i) it and the
Participant have taken all actions required to register the
23
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Shares under the Securities Act of 1933 or perfect an exemption
from registration; (ii) any applicable listing requirement of any
stock exchange on which the Common Stock is listed has been
satisfied; and (iii) any other applicable provision of state or
federal law has been satisfied.
(b) Employment Rights.
Neither the Plan nor any Award granted under the Plan shall
be deemed to give any individual a right to remain employed by
the Corporation or a Subsidiary or to remain a Director. The
Corporation and its Subsidiaries reserve the right to terminate
the employment of any employee at any time, with or without
cause, subject only to a written employment contract (if any),
and the Board reserves the right to terminate a Director's
membership on the Board for cause in accordance with the
Corporation's Restated Certificate of Incorporation.
(c) Stockholders' Rights.
A Participant shall have no dividend rights, voting rights
or other rights as a stockholder with respect to any Shares
covered by his or her Award prior to the issuance of a stock
certificate for such Shares. No adjustment shall be made for
cash dividends or other rights for which the record date is prior
to the date when such certificate is issued.
(d) Creditors' Rights.
A holder of an Other Share-Based Award shall have no rights
other than those of a general creditor of the Corporation. An
Other Share-Based Award shall represent an unfunded and unsecured
obligation of the Corporation, subject to the terms and
conditions of the applicable Other Share-Based Award Agreement.
24
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15. AMENDMENT OF THE PLAN.
The Board may suspend or discontinue the Plan or revise or
amend it with respect to any Shares at the time not subject to
Awards except that, without approval of the stockholders of the
Corporation, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan;
(b) Change the designation in Section 5 of the class
of Employees eligible to receive Awards;
(c) Decrease the price at which Incentive Stock
Options may be granted;
(d) Remove the administration of the Plan from the
Committee;
(e) Render any disinterested member of the Committee
eligible to receive a discretionary Award under Sections 7,
8 and 9 while serving on the Committee;
(f) Change the provisions of Section 10 more than once
in any six-month period, other than to comply with changes
in the Code or the rules thereunder; or
(g) Amend this Section 15 to defeat its purpose.
16. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of
the Common Stock pursuant to the exercise of an Option or the
grant of Restricted Stock will be used for general corporate
purposes.
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17. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon
the Participant to exercise such Option.
18. APPROVAL OF STOCKHOLDERS.
This Plan and any amendments requiring stockholder approval
pursuant to Section 15 shall be subject to approval by
affirmative vote of the stockholders in accordance with
applicable law. Such vote shall be taken at the first annual
meeting of stockholders of the Corporation following the adoption
of the Plan or of any such amendments, or any adjournment of such
meeting.
19. LIMITATION ON PLAN PAYMENTS.
Any provision of the Plan to the contrary notwithstanding,
payments or transfers to a Participant under the Plan shall be
limited to the amount (the "Capped Amount") necessary to avoid
characterization of any amount payable to the Participant
(including, but not limited to, amounts payable under the Plan)
as an "excess parachute payment" as defined in Code section
280G, except in the event that the total amount that the
Participant would receive from all "parachute payments" as
defined in Code section 280G, net of all applicable taxes,
including the excise tax that would be imposed pursuant to Code
section 4999, would exceed the Capped Amount, net of all
applicable taxes.
The determination of whether any amount would constitute an
"excess parachute payment" shall be made by the firm of
independent certified public accountants serving as the outside
26
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auditor of the Corporation as of the date of the event specified
in Section 7(d)(i) through (iv). In making such determination,
such firm may disregard any payments or benefits available to the
Participant under any contract, plan or program if the
Participant irrevocably elects to relinquish or not exercise such
payments or benefits before receipt of such payments or benefits.
It is intended that payments shall be made under the Plan whether
or not the status of a particular payment as an "excess
parachute payment" has been finally determined by the Internal
Revenue Service or a court of competent jurisdiction.
20. WITHHOLDING TAXES.
(a) General.
To the extent required by applicable law, the recipient of
any payment or distribution under the Plan shall make
arrangements satisfactory to the Corporation for the satisfaction
of any withholding tax obligations that arise by reason of such
payment or distribution. The Corporation shall not be required
to make such payment or distribution until such obligations are
satisfied.
(b) Nonqualified Options.
The Committee may permit a Participant who exercises
Nonqualified Stock Options to satisfy all or part of his or her
withholding tax obligations by having the Corporation withhold a
portion of the Shares that otherwise would be issued to him or
her under such Nonqualified Stock Options. Such Shares shall be
valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash. The payment of withholding
27
<PAGE>
taxes by surrendering Shares to the Corporation, if permitted by
the Committee, shall be subject to such restrictions as the
Committee may impose, including any restrictions required by
rules of the Securities and Exchange Commission.
21. EXECUTION.
To record the amendment and restatement of the Plan
effective December 3, 1998, the Corporation has caused its
authorized officer to execute the same.
POTLATCH CORPORATION
By/s/Betty R. Fleshman
28
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 employee of the Corporation named in the attached
addendum ("Employee"),
W I T N E S S E T H:
That to encourage stock ownership by employees 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.
(g) "Corporation" means Potlatch Corporation, a Delaware
corporation.
(h) "Date of Grant" means the date on which the Committee
determined to grant this Option, as specified in Section 1 of the
addendum to this Agreement.
(i) "Disability" means the Employee is unable to engage in
any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last
for a continuous period of at least 12 months.
1
Exhibit (10)(n)(iv)
<PAGE>
(j) "Exercise Price" means the price per Share designated
in Section 2 of the addendum to this Agreement at which this
Option may be exercised.
(k) "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
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.
(1) "Incentive Stock Option" means an Option described in
Code section 422(b).
(m) "Nonqualified Stock Option" means an Option other than
an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the
Plan.
(o) "Option Period" means the term of this Option as
provided in Paragraph 3 of this Agreement.
(p) "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.
(q) "Plan" means the Potlatch Corporation 1995 Stock
Incentive Plan, pursuant to which the parties have entered into
this Agreement.
(r) "Purchase Price" means the Exercise Price times the
number of whole shares with respect to which this Option is
exercised.
(s) "Securities Act" means the Securities Act of 1933, as
amended.
(t) "Share" means one share of Common Stock, adjusted in
accordance with Section 13 of the Plan.
(u) "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
<PAGE>
2. The Corporation grants to Employee 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 Employee may obtain upon request to the
Corporation.
3. Subject to the conditions stated in this Agreement,
unless a different period is specified in Section 5 of the
addendum to 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, Employee 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 Corporation on a date three years
earlier nor (ii) are individuals whose election or
nomination for election as directors was affirmatively voted
* See Paragraph 5 for further explanation ofend of term for Option.
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<PAGE>
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 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 is 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, Employee
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, Employee 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- periods described in Paragraph
3(a) or 3(d), for purposes of measuring the value of the stock
appreciation right, "Fair Market Value" shall be the greater of
(a) the value of the consideration per share that the Employee
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
4
<PAGE>
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 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 is called.
5. The term of this Option shall end and this Option shall
not be exercisable after seven years from the Date of Grant if
this Option is designated as an Incentive Stock Option in Section
4 of the addendum to this Agreement or 10 years from the Date of
Grant if this Option is designated as a Nonqualified Stock Option
in Section 4 of such addendum or, if earlier, upon the
termination of Employee's employment with the Corporation or its
Subsidiaries, subject to the following provisions:
(a) If the termination of employment is caused by
Employee'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 at any time before the end of the Option Period as
specified in the Option Agreement by Employee's executors or
administrators or by any person or persons who shall have
acquired this Option directly from Employee by bequest or
inheritance.
(b) If the termination of employment is caused by
Disability or Early, Normal or Late Retirement under the
Potlatch Corporation Salaried Employees' Retirement Plan,
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 at any time before the end of the Option Period as
specified in the Option Agreement.
5
<PAGE>
(c) If the termination of employment is for any reason
other than death, Disability, or Early, Normal or Late
Retirement under the Potlatch Corporation Salaried
Employees' Retirement Plan, 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 Employee's
employment terminates unless Employee 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
employment is by reason of Employee's misconduct, the option
shall cease to be exercisable or callable at the time of
such termination. As used in this Paragraph, "misconduct"
means that Employee has engaged in unfair competition with
the Corporation or a Subsidiary, induced any customer of the
Corporation or a Subsidiary to breach any contract with the
Corporation or a Subsidiary, made any unauthorized
disclosure of any of the secrets or confidential information
of the Corporation or a Subsidiary, committed an act of
embezzlement, fraud or theft with respect to the property of
the Corporation or a Subsidiary, or engaged in conduct which
is not in good faith and which directly results in material
loss, damage or injury to the business, reputation or
employees of the Corporation or a Subsidiary. The Committee
shall determine whether Employee's employment is terminated
by reason of misconduct. In making such determination the
Committee shall act fairly and shall give Employee an
opportunity to be heard and present evidence on Employee's
behalf.
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
6
<PAGE>
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 effective 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, Employee (or Employee'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. Employee, or Employee's representative, may exercise
20% or more of the portion of this Option that has become vested
under Paragraph 3 of this Agreement by giving written notice to
the Corporation at Spokane, Washington, attention of the Vice
President, Employee Relations, 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 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 Employee, 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),
7
<PAGE>
and cause such certificate or certificates to be delivered to or
upon the order of such person or persons.
9. Payments or transfers to the Employee under this
Agreement shall be limited to the amount (the "Capped Amount")
necessary to avoid characterization of any amount payable to the
Employee (including, but not limited to, amounts payable under
this Agreement) as an "excess parachute payment" as defined in
section 280G of the Code, except in the event that the total
amount that the Employee would receive from all "parachute
payments" (as defined in Code section 280G), net of all
applicable taxes, including the excise tax that would be imposed
pursuant to Code section 4999, would exceed the Capped Amount,
net of all applicable taxes.
The firm of independent certified public accountants serving
as the Corporation's outside auditor as of the date of a Change
in Control shall determine whether any amount would constitute an
"excess parachute payment," disregarding any payments or benefits
available to the Employee under any plan, contract or program if
the Employee irrevocably elects to relinquish such payments or
benefits before receipt of such payments or benefits.
10. 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, Employee will make arrangements satisfactory to the
Corporation to enable it to satisfy such withholding
requirements.
11. Neither Employee nor Employee'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 Employee or Employee's representative.
12. Unless at the time Employee 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
8
<PAGE>
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 registered pursuant to
the provisions of that Act or if an exemption from
registration is available."
13. 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.
14. Nothing in this Agreement shall be construed as giving
Employee the right to be retained as an employee or as impairing
the rights of the Corporation to terminate his or her employment
at any time, with or without cause.
15. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Delaware without regard
to choice of law principles.
9
<PAGE>
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: A Nonqualified Stock Option
5. The Vesting Schedule for this Option is: The schedule
specified in Paragraph 3 of the Stock Option Agreement,
except that no exercise or call will be permitted for a
fractional Share.
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
Employee Option
10
Adopted 12/3/98
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.
1
Exhibit (10)(n)(v)
<PAGE>
(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
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).
(1) "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.
2
<PAGE>
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.
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 Corporation 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
* See Paragraph 5 for further explanation of end of term for Option.
3
<PAGE>
"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 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 is 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 Value" 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.
4
<PAGE>
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
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 is 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 is 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 at any time before the end of the Option Period as
specified in the Option Agreement 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 at any time before the end of
the Option Period as specified in the Option Agreement.
(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
5
<PAGE>
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.
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 effective 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 Spokane, Washington, 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
6
<PAGE>
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 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
7
<PAGE>
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 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 Delaware without regard
to choice of law principles.
8
<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):
____ 2,000 Shares (Plan Approval/Director Election)
____ 1,000 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 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
Outside Director Option
9
Adopted 12/3/98
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, 333-12017 and 333-28079) on
Form S-8 of Potlatch Corporation of our report dated January 27, 1999,
relating to the balance sheets of Potlatch Corporation and consolidated
subsidiaries as of December 31, 1998 and 1997 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,
1998 which report appears in the December 31, 1998 annual report on Form 10-K
of Potlatch Corporation.
KPMG PEAT MARWICK LLP
March 8, 1999
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
L. Pendleton Siegel
Director, President and
Chief Operating Officer
<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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
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,
1998, 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 5, 1998.
William T. Weyerhaeuser
(DIRECTOR)
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