<PAGE>
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
Potlatch Corporation
For the Fiscal Year Ended Commission File
December 31, 1999 Number 1-5313
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 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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at January 31, 2000, was approximately $1.07 billion.
The number of shares of common stock outstanding as of January 31, 2000:
28,909,232 shares of Common Stock, par value of $1 per share.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 2000 annual meeting of
stockholders are incorporated by reference in Part III hereof.
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO 1999 FORM 10-K
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I
ITEM 1. Business.................................................... 2-4
ITEM 2. Properties.................................................. 5
ITEM 3. Legal Proceedings........................................... 5-6
ITEM 4. Submission of Matters to a Vote of Security Holders......... 6
Executive Officers of the Registrant.................................. 6-7
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 8
ITEM 6. Selected Financial Data..................................... 8
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
ITEM 8. Financial Statements and Supplementary Data................. 8
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 8
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 9
ITEM 11. Executive Compensation...................................... 9
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 9
ITEM 13. Certain Relationships and Related Transactions.............. 9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 10
SIGNATURES............................................................ 11-12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................ 13
EXHIBIT INDEX......................................................... 37-38
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
General
Potlatch Corporation (the "company"), incorporated in 1903, is an integrated
forest products company with substantial timber resources. It is engaged
principally in the growing and harvesting of timber and the manufacture and
sale of wood products, printing papers and 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 1997-1999 is included in Note 13 to the financial statements on pages 33-
35 of this report.
This report contains, in addition to historical information, certain
forward-looking statements, including without limitation, statements regarding
future revenues, costs, manufacturing output, capital expenditures, timber
supply and 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.
Resource
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 338,000 acres in Minnesota. The
company also owns and is developing 22,000 acres in Oregon as a hybrid poplar
plantation.
In July 1999, the company separated the operations of its timberlands from
its wood products manufacturing facilities, creating the Resource Management
Group. The primary functions of the group are managing company-owned
timberlands and supplying the fiber requirements of the company's
manufacturing facilities.
The group generates a majority of its revenues through sales of sawlogs and
pulpwood at market prices to the company's manufacturing facilities. A portion
of annual revenues is also derived from log sales to third parties, sales of
nonstrategic land parcels and receipts from hunting leases. The majority of
revenue is derived from trees grown on the company's timberlands.
The amount of timber harvested in any 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. The company intends to
manage long-term harvest levels on its timberlands in a manner that ensures
sustainable yields, thus providing for a continuous supply of wood fiber in
the future. By continually improving forestry and silviculture techniques and
other forest management practices, the company has been able to increase the
volume of wood fiber produced per acre from its timberlands. In most cases,
the cost of timber from company land is substantially below the cost of timber
obtained on the open market.
2
<PAGE>
The company's fee lands provided approximately 64 percent of its sawlogs and
plywood logs in 1999 and an average of 70 percent over the past five years.
Including the raw materials used for pulp, oriented strand board and
particleboard, these percentages were 35 percent for 1999 and an average of 43
percent for the past five years. Additional logs are obtained primarily from
private landowners and from state and local governments.
At the present time, timber from the company's lands, together with outside
purchases, is adequate to support manufacturing operations. For more than a
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 had an adverse effect on wood fiber costs.
The long-term effect of this trend on company earnings cannot be predicted.
The company has been developing additional fiber supplies.
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 ("OSB"), lumber,
plywood and particleboard. 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. The company believes
it is one of the larger manufacturers of OSB. However, its sales of OSB are
less than ten percent of the total market for this product. The company's
share of the market for lumber, plywood and particleboard is not significant
to the total U.S. market for these products. 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 has been supplied primarily by the company's
bleached kraft pulp mill in Minnesota and secondarily by purchases of market
pulp, including recycled pulp. In late 1999, the company completed a major
modernization and expansion of the pulp mill in Cloquet, Minnesota, which will
enable it to supply all of the pulp needs of the two coated paper mills,
except for recycled pulp. The anticipated increase in production will also
allow for the sale of market pulp.
Printing papers are used primarily for annual reports, showroom catalogs,
art reproductions and high-quality advertising and 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.
3
<PAGE>
Pulp and Paper
The company produces and markets bleached paperboard, tissue products and
bleached pulp. 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 paperboard in the United States.
Bleached paperboard manufactured by the company is used primarily for the
packaging of liquids and other food products, pharmaceuticals, toiletries and
other consumable goods as well as paper cups and paper plates. The company is
also a leading North American producer of private label household tissue
products, although the company's share of the total household tissue market is
less than ten percent. The company's 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.
The company utilizes various methods of sale and distribution for its pulp
and paper products. In general, it 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 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 pages 5-6 and under Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 16 of this
report.
Employees
As of December 31, 1999, the company had approximately 7,000 employees.
Labor contracts expiring in 2000 are as follows:
<TABLE>
<CAPTION>
Approximate
Contract Number of
Expiration Hourly
Date Location Union Employees
---------- -------- ----- -----------
<S> <C> <C> <C>
June 1 Wood Products International Association 570
Western Division of Machinists &
Idaho Operations Aerospace Workers
June 1 Idaho Pulp & International Association 60
Paperboard Division of Machinists &
No. 4 Power Boiler Aerospace Workers
Lewiston, Idaho
June 30 Nursery Operations Paper, Allied-Industrial, 20
Lewiston, Idaho Chemical and Energy Workers
International Union
</TABLE>
4
<PAGE>
ITEM 2. PROPERTIES
The principal manufacturing facilities of the company, together with their
respective 1999 capacities and production, are as follows:
<TABLE>
<CAPTION>
Capacity Production
---------------- ----------------
<S> <C> <C>
Wood Products
Oriented Strand Board Plants: (A)
Bemidji, Minnesota.......................... 515,000 m.sq.ft. 512,000 m.sq.ft.
Cook, Minnesota............................. 250,000 m.sq.ft. 250,000 m.sq.ft.
Grand Rapids, Minnesota..................... 355,000 m.sq.ft. 339,000 m.sq.ft.
Sawmills:
Prescott, Arkansas.......................... 135,000 m.bd.ft. 132,000 m.bd.ft.
Warren, Arkansas (B)........................ 170,000 m.bd.ft. 161,000 m.bd.ft.
Lewiston, Idaho............................. 160,000 m.bd.ft. 152,000 m.bd.ft.
St. Maries, Idaho........................... 90,000 m.bd.ft. 87,000 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. 113,000 m.sq.ft.
St. Maries, Idaho........................... 130,000 m.sq.ft. 109,000 m.sq.ft.
Particleboard Plant: (C)
Post Falls, Idaho........................... 70,000 m.sq.ft. 70,000 m.sq.ft.
Printing Papers
Pulp Mill:
Cloquet, Minnesota (D)...................... 215,000 tons 186,000 tons
Printing Paper Mills:
Brainerd, Minnesota......................... 155,000 tons 151,000 tons
Cloquet, Minnesota.......................... 230,000 tons 224,000 tons
Pulp and Paper
Pulp Mills:
Cypress Bend, Arkansas...................... 255,000 tons 250,000 tons
Lewiston, Idaho............................. 500,000 tons 489,000 tons
Bleached Paperboard Mills:
Cypress Bend, Arkansas...................... 275,000 tons 268,000 tons
Lewiston, Idaho............................. 355,000 tons 328,000 tons
Tissue Mill:
Lewiston, Idaho............................. 165,000 tons 162,000 tons
Tissue Converting Facilities:
Lewiston, Idaho............................. 110,000 tons 107,000 tons
Las Vegas, Nevada........................... 35,000 tons 35,000 tons
</TABLE>
- --------
(A) 3/8" Basis
(B) There are two sawmills in Warren.
(C) 3/4" Basis
(D) The capacity in 2000 is 468,000 tons.
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 sulfur dioxide emissions
to exceed permitted amounts
5
<PAGE>
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. No such action has been
filed 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.
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 (the "Court"). On April 2,
1999, the Court vacated the judgment and remanded the case to the trial court
for a new trial. In its ruling, the Court did not decide the merits of the
company's case. On April 23, 1999, the company filed a Petition for Rehearing
with the Court, which was denied on June 18, 1999. On June 7, 1999, Beloit
Corporation and its parent, Harnischfeger Industries, Inc., filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware. As a result,
further action on the company's claim against Beloit has been stayed. Subject
to the requirements of the Bankruptcy Code, the company intends to continue to
pursue its claims against Beloit.
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, 1999.
Executive Officers of the Registrant
Information as of March 1, 2000, and for the past five years concerning the
executive officers of the company is as follows:
L. Pendleton Siegel (age 57), first elected an officer in 1983, has served
as Chairman of the Board and Chief Executive Officer since May 1999. Prior to
May 1999, he was President and Chief Operating Officer. Mr. Siegel was elected
a director of the company effective November 1997. He is a member of the
Finance Committee of the Board of Directors.
Richard L. Paulson (age 58), first elected an officer in 1992, has served as
President and Chief Operating Officer since May 1999. From May 1996 through
April 1999, he was Vice President, Minnesota Pulp and Paper Division. Prior to
May 1996, he was Vice President, Consumer Products Division.
Phillip M. Baker (age 40), first elected an officer in 1999, has served as
Vice President, Minnesota Pulp and Paper Division since May 1999. Prior to May
1999, he was an appointed officer and served in the following positions: from
December 1997 through April 1999 he was Vice President, Sales and Marketing
for the Minnesota Pulp and Paper Division; from October 1997 through November
1997 he was Vice President, Marketing for the Minnesota Pulp and Paper
Division. From May 1996 through September 1997 he was Director of Purchasing
Services. Prior to May 1996, he was the environmental manager for Pulp-Based
Operations.
Michael W. DeGenring (age 47), first elected an officer in 1999, has served
as Executive Vice President, Finance and Administration since joining the
company in September 1999. In January 2000 he was also elected Chief Financial
Officer. Prior to joining the company he was employed by Atlantic Richfield
Company (ARCO) as follows: from November 1997 to April 1999 he was Chief
Financial
6
<PAGE>
Officer of ARCO Coal Company (a division of ARCO); from August 1996 to October
1997 he served as interim President of ARCO Coal Company; and from August 1995
to August 1996 he was President of ARCO Coal America (a division of ARCO Coal
Company). Prior to August 1995, he was Vice President, Finance and
Administration for ARCO Coal Company.
Richard K. Kelly (age 52), first elected an officer in 1999, has served as
Group Vice President, Wood Products since July 1999. In May 1999 he was
elected Vice President, Western Wood Products Division. Prior to May 1999, he
was an appointed officer serving as Vice President, Western Wood Products
Division.
John R. Olson (age 51), first elected an officer in 1999, has served as
Group Vice President, Resource Management since July 1999. In May 1999 he was
elected Vice President, Resource Management. From August 1998 through May 1999
he was an appointed officer serving as Vice President, Resource Management.
Prior to August 1998, he was Poplar Project Manager.
Charles R. Pottenger (age 60), first elected an officer in 1991, is Group
Vice President, Pulp and Paper.
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.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The company's common stock is traded on the New York, Chicago and Pacific
Stock Exchanges. Quarterly and yearly price ranges were:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
Quarter High Low High Low
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1st............................................ $39.50 $32.50 $46.56 $39.38
2nd............................................ 44.44 33.94 48.38 40.81
3rd............................................ 44.06 38.19 42.81 31.00
4th............................................ 45.50 39.06 38.75 33.56
Year........................................... 45.50 32.50 48.38 31.00
</TABLE>
In general, all holders of Potlatch common stock who own shares 48
consecutive calendar months or longer ("long-term holders") are entitled to
exercise four votes per share of stock so held, while stockholders who are not
long-term holders are entitled to one vote per share. All stockholders are
entitled to only one vote per share on matters arising under certain
provisions of the company's charter. There were approximately 3,200 common
stockholders of record at December 31, 1999.
Quarterly dividend payments per common share for the past two years were:
<TABLE>
<CAPTION>
Quarter 1999 1998
------- ----- -----
<S> <C> <C>
1st............................................................ $.435 $.435
2nd............................................................ .435 .435
3rd............................................................ .435 .435
4th............................................................ .435 .435
----- -----
$1.74 $1.74
===== =====
</TABLE>
ITEMS 6, 7 AND 8.
The information called for by Items 6, 7 and 8, inclusive, of Part II of
this form is contained in the following sections of this Report at the pages
indicated below:
<TABLE>
<CAPTION>
Page
Number
------
<C> <S> <C>
ITEM 6. Selected Financial Data.................................. 14
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14-19
ITEM 8. Financial Statements and Supplementary Data.............. 20-36
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
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 3-5 of the company's definitive proxy
statement, dated March 29, 2000, for the 2000 annual meeting of stockholders
(the "2000 Proxy Statement"), which information is incorporated herein by
reference. Information concerning Executive Officers is included in Part I of
this report following Item 4 and under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 7 of the 2000 Proxy Statement, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the heading "Compensation of Directors and the
Named Executive Officers" on pages 8-12 of the 2000 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 2000 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 2000 Proxy Statement is incorporated herein by reference.
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements are listed in the Index to Consolidated Financial
Statements on page 13 of this Form 10-K. No financial statement schedules are
presented because they are either immaterial, not required or the required
information is given in the consolidated financial statements.
(b) No reports on Form 8-K were filed for the quarter ended December 31,
1999.
(c) Exhibits are listed in the Exhibit Index on pages 37-38 of this Form 10-
K.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Potlatch Corporation
(Registrant)
/s/ L. Pendleton Siegel
By: _________________________________
L. Pendleton Siegel
Chairman of the Board and Chief
Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 2000, by the following persons on
behalf of the company in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ L. Pendleton Siegel Director and Chairman of
By: __________________________________ the Board and Chief
L. Pendleton Siegel Executive Officer
(Principal Executive
Officer)
/s/ Richard L. Paulson President and Chief
By: __________________________________ Operating Officer
Richard L. Paulson (Principal Operating
Officer)
/s/ Michael W. DeGenring Executive Vice President,
By: __________________________________ Finance and
Michael W. DeGenring Administration and Chief
Financial Officer
(Principal Financial
Officer)
/s/ Terry L. Carter Controller (Principal
By: __________________________________ Accounting Officer)
Terry L. Carter
* Director
______________________________________
Richard A. Clarke
* Director
______________________________________
Kenneth T. Derr
* Director
______________________________________
Vivian W. Piasecki
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Director
______________________________________
Toni Rembe
* Director
______________________________________
Reuben F. Richards
* Director
______________________________________
Judith M. Runstad
* Director
______________________________________
Robert G. Schwartz
* Director
______________________________________
Charles R. Weaver
* Director
______________________________________
Frederick T. Weyerhaeuser
* Director
______________________________________
Dr. William T. Weyerhaeuser
/s/ Betty R. Fleshman
*By: _________________________________
Betty R. Fleshman
(Attorney-in-fact)
</TABLE>
12
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Consolidated Financial Statements:
Selected Financial Data............................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 14-19
Statements of Earnings for the years ended December 31, 1999, 1998 and
1997................................................................. 20
Balance Sheets at December 31, 1999 and 1998.......................... 21
Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997............................................................. 22
Statements of Stockholders' Equity for the years ended December 31,
1999, 1998 and 1997.................................................. 23
Summary of Principal Accounting Policies.............................. 24-25
Notes to Consolidated Financial Statements............................ 26-35
Independent Auditors' Report.......................................... 36
</TABLE>
13
<PAGE>
Potlatch Corporation and Consolidated Subsidiaries
Selected Financial Data
(Dollars in thousands--except per-share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $1,676,838 $1,565,878 $1,568,870 $1,554,449 $1,605,206
Net earnings:
Before extraordinary
item.................. 40,947 37,232 36,059 61,534 108,546
After extraordinary
item.................. 40,947 37,232 36,059 58,089 108,546
Net cash provided by
operations, excluding
working capital
changes................ 209,963 201,162 193,446 228,364 273,418
Working capital......... 51,756 97,556 106,221 117,966 128,066
Current ratio........... 1.1 to 1 1.3 to 1 1.4 to 1 1.5 to 1 1.4 to 1
Long-term debt
(noncurrent portion)... $ 701,798 $ 712,113 $ 722,080 $ 672,048 $ 616,132
Stockholders' equity.... 921,039 930,906 951,592 954,195 943,904
Debt to stockholders'
equity ratio........... .76 to 1 .76 to 1 .76 to 1 .70 to 1 .65 to 1
Capital expenditures.... $ 247,651 $ 147,027 $ 158,485 $ 239,908 $ 170,654
Total assets............ 2,446,500 2,377,306 2,365,136 2,265,679 2,265,311
Basic net earnings per
common share:
Before extraordinary
item.................. $ 1.41 $ 1.28 $ 1.25 $ 2.13 $ 3.72
After extraordinary
item.................. 1.41 1.28 1.25 2.01 3.72
Average common shares
outstanding (in
thousands)............ 28,947 29,000 28,930 28,888 29,157
Diluted net earnings per
common share:
Before extraordinary
item.................. $ 1.41 $ 1.28 $ 1.24 $ 2.13 $ 3.72
After extraordinary
item.................. 1.41 1.28 1.24 2.01 3.72
Average common shares
outstanding, assuming
dilution (in
thousands)............. 28,967 29,020 28,986 28,912 29,187
Cash dividends per
common share........... $ 1.74 $ 1.74 $ 1.71 $ 1.67 $ 1.615
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
Liquidity of a company can be measured by several factors. Of major
importance are:
. Capability of generating earnings and cash flow
. Maintenance of a sound financial structure
. Access to capital markets
. Maintenance of adequate working capital
In 1999, the company's net cash provided by operations, excluding working
capital changes, as presented in the Statements of Cash Flows on page 22,
totaled $210.0 million, compared with $201.2 million in 1998 and $193.4
million in 1997.
The company maintains a credit line 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, 1999, the company had
$25.0 million outstanding under the short-term portion of the credit line. The
remainder of the credit line is used to back the company's commercial paper
program. Commercial paper outstanding at December 31, 1999, totaled $96.5
million, all of which was classified as short-term debt.
The ratio of long-term debt to stockholders' equity was .76 to 1 at December
31, 1999, the same level as the ratio at December 31, 1998, and December 31,
1997. In March 1999, the company issued $100.0 million of long-term debt, due
March 15, 2002. The proceeds from the issue were used to
14
<PAGE>
repay a like amount of commercial paper that had been classified as long-term
debt. Also during the year, $10.0 million of medium-term notes were
reclassified from long-term to current due to their maturity in 2000.
Stockholders' equity declined $9.9 million, largely due to payment of
dividends in excess of earnings and the issuance of put options.
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, Baa1 by Moody's and A- by Duff and Phelps. 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, 1999, working capital was $51.8 million, compared with $97.6
million at December 31, 1998, and $106.2 million at December 31, 1997. Working
capital decreased a net $45.8 million in 1999. An increase in current
liabilities of $54.4 million was partially offset by an increase in current
assets of $8.6 million. The increase in current liabilities was primarily due
to a $46.5 million increase in notes payable and a $7.6 million increase in
accounts payable and accrued liabilities. Notes payable, which consist of
borrowings under the company's line of credit and commercial paper issuances,
rose during 1999 as the company used these funds along with internally
generated resources for capital expenditures and general corporate purposes.
Capital Resources and Funding
Capital expenditures totaled $247.7 million in 1999, compared with $147.0
million in 1998 and $158.5 million in 1997.
Capital spending in the resource segment amounted to $17.4 million in 1999.
Approximately half of this total related to development activities at the
company's hybrid poplar plantation in Boardman, Oregon. The remaining
expenditures were largely for reforestation, fertilization and logging roads
on the company's timberlands.
The company spent $26.6 million on capital projects during 1999 in the wood
products segment. Most of this amount was spent on the modernization and
expansion of the Cook, Minnesota, OSB mill. Completion of the $67 million
project 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 were
related to pollution control equipment and smaller projects designed to
improve efficiency and product quality at the company's mills in Arkansas,
Idaho and Minnesota.
The printing papers segment recorded capital expenditures totaling $181.9
million in 1999. Again this year the most significant portion of the outlays
related to the modernization and expansion of the Cloquet, Minnesota, pulp
mill. Construction during the year focused on the bleach plant, recausticizing
area, pulp dryer and wood room. With the completion of these portions by year
end, the pulp mill project is essentially finished. The Cloquet expansion was
constructed in phases over several years. This allowed commitments to be made
in a financially prudent manner. As of December 31, 1999, the company had
spent approximately $530 million on the Cloquet project, which includes $31.8
million of capitalized interest. As various phases were completed they were
placed into service and depreciated over the estimated useful lives of the
assets, even though in most cases the full benefits of the improvements would
not be realized until completion of the entire project. Depreciation on the
phases already placed in service totaled $39.5 million as of December 31,
1999. Of this amount, $12.2 million was charged against income in 1999.
Capital spending in the pulp and paper segment totaled $20.9 million. A
significant portion of this amount was spent on coater equipment at the
Lewiston, Idaho, paperboard mill. The remaining expenditures were largely for
environmental, safety and general replacement projects.
15
<PAGE>
Authorized but unexpended appropriations totaled $195.5 million at December
31, 1999. Of that amount, $182.8 million is budgeted to be expended in 2000.
Major expenditures will include the modernization and expansion of the
oriented strand board plant at Cook and the continued development of the
hybrid poplar plantation in Boardman. The 2000 capital program will be funded
primarily from internally generated sources.
Historically, the company has spent less on capital expenditures than the
annual amount budgeted. In 1999, the company spent $30.7 million less than the
$278.4 million budgeted. Spending on projects may be delayed due to
acquisition of environmental permits, acquisition of equipment, engineering,
weather and other factors.
With the completion of the modernization and expansion of the pulp mill in
Cloquet and the oriented strand board plant in Cook (scheduled for startup in
December 2000), the company's 15-year program to update its facilities will be
substantially completed. As a result, the company believes capital expenditure
requirements to maintain and update its facilities after 2000 will be
significantly less than in the last 15 years. The projected reduction in
required capital expenditures plus the added revenues from the modernized and
expanded pulp mill in Cloquet should provide a significant amount of
additional cash starting in 2000. The company expects to utilize any such cash
for reduction of debt, for high return projects at its existing facilities,
for repurchasing shares of its stock and for other capital projects.
In December 1994, the company began a stock repurchase program to purchase
up to 1 million shares of its common stock over several years. Through
November 1999, the company had acquired a total of 498,800 shares. In December
1999, the company replaced this program with an expanded program to repurchase
up to 2 million shares of stock. Purchases of common stock will be made from
time to time through open market and privately negotiated transactions at
prices deemed appropriate by management, and through the company's put option
program.
Environment
The company is subject to extensive federal and state environmental
regulations at its operating facilities. The company endeavors to comply with
all environmental regulations and regularly monitors its activities 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 $14
million during 1999 and are budgeted to be approximately $22 million in 2000.
In addition, the company made expenditures for pollution control facilities as
part of major mill modernization 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 company
is currently in the process of making modifications to process equipment and
operating procedures in order to comply with the regulations. Based on an
analysis of the regulations and the condition of the company's three pulp
mills, the company estimates that compliance will require capital expenditures
of approximately $15 million in 2000. The company does not expect that such
compliance costs will have a material adverse effect on its competitive
position.
Results of Operations
Comparison of 1999 with 1998
The company's 1999 consolidated net sales of $1.68 billion were slightly
higher than 1998 net sales of $1.57 billion. Net earnings for 1999 were $40.9
million, modestly higher than the $37.2 million earned in 1998. Diluted net
earnings per common share for the year were $1.41, compared to $1.28 in 1998.
16
<PAGE>
Strong market conditions during the year for the company's wood products,
especially panel products, helped to offset continued weakness in its pulp-
based businesses and led to the modestly improved results. The 1999 results
include a nonrecurring after tax charge of $4.6 million for expenses related
to the termination of efforts to form a timber real estate investment trust.
The resource segment was created in July 1999 when the operations and
management of the company's timberlands were separated from the wood products
segment. The segment derives its income mainly from the sale of sawlogs and
pulpwood at market prices to company manufacturing facilities, and to a lesser
extent sales to third parties, hunting lease revenues and land sales. Prior
year amounts have been restated to reflect the change. Resource segment
operating income of $69.4 million was slightly lower than the $71.3 million
earned in 1998. Although sales for the segment increased slightly in 1999
compared to 1998, lower fee harvest in Arkansas and lower market prices for
logs in Minnesota were responsible for the earnings decline.
At the present time, timber from the company's own lands, together with
outside purchases, is adequate to support manufacturing operations. For more
than a 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 had an adverse effect on
wood fiber costs. The long-term effect of this trend on company earnings
cannot be predicted. The company has been developing additional fiber
supplies.
The wood products segment reported 1999 operating income of $82.9 million, a
substantial improvement over the $2.5 million earned in 1998. Significantly
higher net sales realizations and increased product shipments for oriented
strand board, plywood and particleboard were primarily responsible for the
results. Demand for panel products continued to be driven by the strong
housing market during the year, and prices reached historic highs before
declining by the year's end. Net sales realizations for lumber were also
higher in 1999 and, combined with increased product shipments, helped
contribute to the favorable results.
The company's printing papers segment incurred an operating loss of $13.8
million in 1999, compared to earnings of $14.2 million in 1998. Weak market
conditions existed throughout the year for coated printing papers. Although
segment sales were higher than in 1998, net sales realizations were lower in
1999 due to the product mix and continued pricing pressures on all paper
grades. Also, segment results were adversely affected by costs associated with
the new pulp mill in Cloquet, Minnesota. The mill started up late in the
fourth quarter of 1999. The company expects costs to significantly decline
once the startup has been completed.
Operating income for the pulp and paper segment was $14.8 million,
significantly lower than the $53.4 million earned in 1998. The unfavorable
comparison was largely due to lower net sales realizations for paperboard, as
prices reached the bottom of the current cycle around midyear, and an
unfavorable product mix compared to 1998. The unfavorable product mix was
attributable to weak markets for liquid packaging during the first half of
1999. Also, operating problems at the Lewiston, Idaho, paperboard mill during
the year resulted in a production decline and higher costs. Paperboard markets
began to improve in the second half of 1999. Consumer tissue markets remained
steady for the second straight year, with a modest increase in tissue product
shipments being offset by a small decline in net sales realizations.
Comparison of 1998 with 1997
The company's 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.
17
<PAGE>
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 in 1998. A rebound in 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.
Operating income for the resource segment was $71.3 million in 1998, versus
$88.1 million in 1997. The decline in 1998 was largely due to a decline in
market prices for logs in Idaho. Income for 1997 was also positively affected
by land sales in Idaho and Minnesota.
The wood products segment reported 1998 operating income of $2.5 million, an
improvement over the $40.5 million loss in 1997. Significantly higher net
sales realizations and higher product shipments for OSB were primarily
responsible for the 1998 results. Demand for OSB, as well as for other panel
products, was driven by a robust housing market during 1998. Lumber product
shipments were also higher than in 1997, although 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.
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 1998, and the company increased its product shipments while
maintaining net sales realizations comparable to those of 1997. 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.
Income Taxes
The company's effective tax rates for 1999, 1998 and 1997 were 38.0 percent,
36.0 percent and 34.0 percent, respectively.
Year 2000
The company has completed its comprehensive project to identify and resolve
potential Year 2000 problems. The review was divided into two categories:
business systems and manufacturing systems. The company's business systems
were substantially Year 2000 compliant at December 31, 1998. With respect to
the company's manufacturing systems (including both embedded technology and
information technology), assessment, remediation and testing continued
throughout 1999 to ensure that the systems would function properly on January
1, 2000, and thereafter. To date, no Year 2000 problems have arisen on any of
the company's critical manufacturing systems.
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 were
made. These costs, including hardware, software, internal personnel and
external consultants, were expensed as incurred, except for expenditures
relating to
18
<PAGE>
system replacements or upgrades occurring in the normal course of business
that were 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 from January 1998 through the conclusion of the Year
2000 project were approximately $4 million, exclusive of normal replacements
and upgrades.
To date, the company has not experienced any disruptions in its operations
as a result of its suppliers or vendors encountering Year 2000 compliance
problems. The company has contingency plans in place for each of its
facilities to address both internal and external potential failures, as well
as any potential unresolved issues. The contingency plans will remain in place
until the risk of any Year 2000 compliance problems has passed.
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. Changes to
market interest rates have had an immaterial impact on the company's total
interest 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.
19
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF EARNINGS
(Dollars in thousands--except per-share amounts)
<TABLE>
<CAPTION>
For the years ended December 31
-----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $1,676,838 $1,565,878 $1,568,870
---------- ---------- ----------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested.................... 150,253 150,278 149,785
Materials, labor and other operating
expenses................................ 1,284,432 1,195,449 1,219,665
Selling, general and administrative
expenses................................ 130,160 120,944 106,450
---------- ---------- ----------
1,564,845 1,466,671 1,475,900
---------- ---------- ----------
Earnings from operations.................. 111,993 99,207 92,970
Interest expense, net of capitalized
interest of $10,320 ($5,070 in 1998 and
$6,068 in 1997).......................... (45,442) (49,744) (46,124)
Other income (expense), net (Note 14)..... (507)* 8,712 7,789
---------- ---------- ----------
Earnings before taxes on income........... 66,044 58,175 54,635
Provision for taxes on income (Note 5).... 25,097 20,943 18,576
---------- ---------- ----------
Net earnings.............................. $ 40,947 $ 37,232 $ 36,059
========== ========== ==========
Net earnings per common share:
Basic.................................... $ 1.41 $ 1.28 $ 1.25
Diluted.................................. 1.41 1.28 1.24
========== ========== ==========
</TABLE>
- --------
* Includes a nonrecurring charge of $7.5 million ($4.6 million after tax) for
expenses related to the termination of efforts to form a timber real estate
investment trust.
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
20
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
(Dollars in thousands--except per-share amounts)
<TABLE>
<CAPTION>
At December 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 10)....................................... $ 11,531 $ 11,650
Short-term investments (Note 10)..................... 159 6,422
Receivables, net of allowance for doubtful accounts
of $1,786
($1,731 in 1998).................................... 184,312 162,268
Inventories (Note 1)................................. 196,733 200,257
Prepaid expenses (Note 5)............................ 23,767 27,258
---------- ----------
Total current assets.................................. 416,502 407,855
Land, other than timberlands.......................... 9,073 9,073
Plant and equipment, at cost less accumulated
depreciation of $1,487,310 ($1,402,624 in 1998) (Note
2)................................................... 1,616,055 1,504,522
Timber, timberlands and related logging facilities,
net (Note 3)......................................... 335,194 338,617
Other assets (Note 4)................................. 69,676 117,239
---------- ----------
$2,446,500 $2,377,306
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 6 and 10)....................... $ 121,464 $ 74,939
Current installments on long-term debt (Notes 6 and
10)................................................. 10,323 10,021
Accounts payable and accrued liabilities (Note 7).... 232,959 225,339
---------- ----------
Total current liabilities............................. 364,746 310,299
---------- ----------
Long-term debt (Notes 6 and 10)....................... 701,798 712,113
---------- ----------
Other long-term obligations (Note 8).................. 172,986 163,453
---------- ----------
Deferred taxes (Note 5)............................... 275,644 253,691
---------- ----------
Put options (Notes 9 and 10).......................... 10,287 6,844
---------- ----------
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........................... 128,678 128,025
Retained earnings.................................... 856,609 866,024
Common shares in treasury 3,749,748 (3,803,293 in
1998)............................................... (96,970) (95,865)
---------- ----------
Total stockholders' equity............................ 921,039 930,906
---------- ----------
$2,446,500 $2,377,306
========== ==========
</TABLE>
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
21
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net earnings................................. $ 40,947 $ 37,232 $ 36,059
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation, amortization and cost of fee
timber harvested........................... 150,253 150,278 149,785
Deferred taxes.............................. 21,953 16,757 13,493
Other, net.................................. (3,190) (3,105) (5,891)
--------- --------- ---------
Cash provided by operations, excluding
working capital changes..................... 209,963 201,162 193,446
--------- --------- ---------
Decrease (increase) in receivables........... (22,044) 16,891 (16,084)
Decrease (increase) in inventories........... 3,524 (17,954) (5,404)
Decrease (increase) in prepaid expenses...... 3,491 (485) (952)
Increase (decrease) in accounts payable and
accrued liabilities......................... 9,695 17,930 (16,115)
--------- --------- ---------
Cash provided by (used for) working capital
changes..................................... (5,334) 16,382 (38,555)
--------- --------- ---------
Net cash provided by operations............. 204,629 217,544 154,891
--------- --------- ---------
CASH FLOWS FROM INVESTING:
Decrease in short-term investments........... -- -- 3,175
Additions to investments..................... (51,720) (13,207) (13,612)
Reductions in investments.................... 57,492 13,755 10,303
Decrease (increase) in note receivable....... 50,000 -- (50,000)
Funding of qualified pension plans........... (10) (1,816) (5,037)
Additions to plant and equipment, and to land
other than timberlands...................... (237,671) (137,160) (149,332)
Additions to timber, timberlands and related
logging facilities.......................... (9,980) (9,867) (9,153)
Disposition of plant and properties.......... 3,046 3,115 2,862
--------- --------- ---------
Net cash used for investing................. (188,843) (145,180) (210,794)
--------- --------- ---------
CASH FLOWS FROM FINANCING:
Change in book overdrafts.................... (2,075) 5,425 3,614
Increase (decrease) in notes payable......... 46,525 (20,611) 81,269
Proceeds from long-term debt................. 99,935 -- 50,000
Repayment of long-term debt.................. (109,948) 32 (31,325)
Issuance of treasury stock................... 1,250 550 2,985
Purchase of treasury stock................... -- (3,261) --
Dividends on common stock.................... (50,362) (50,472) (49,462)
Other, net................................... (1,230) (1,403) 108
--------- --------- ---------
Net cash provided by (used for) financing... (15,905) (69,740) 57,189
--------- --------- ---------
Increase (decrease) in cash.................. (119) 2,624 1,286
Balance at beginning of year................. 11,650 9,026 7,740
--------- --------- ---------
Balance at end of year....................... $ 11,531 $ 11,650 $ 9,026
========= ========= =========
</TABLE>
Net interest paid (net of amounts capitalized) in 1999, 1998 and 1997 was
$43.9 million, $49.7 million and $45.7 million, respectively. Net income taxes
paid in 1999, 1998 and 1997 were $4.5 million, $4.2 million and $2.8 million,
respectively.
The accompanying notes and summary of principal accounting policies are
an integral part of these financial statements.
22
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands--except per-share amounts)
<TABLE>
<CAPTION>
Common Stock
Issued Additional Treasury Stock Total
------------------ Paid-In Retained ------------------ Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
---------- ------- ---------- -------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Exercise of stock
options and stock
awards............... -- -- 653 -- (53,545) (1,250) 1,903
Put options........... -- -- -- -- -- 3,443 (3,443)
Premium on issuance of
put options.......... -- -- -- -- -- (1,088) 1,088
Net earnings.......... -- -- -- 40,947 -- -- 40,947
Common dividends,
$1.74 per share...... -- -- -- (50,362) -- -- (50,362)
---------- ------- -------- -------- --------- ------- --------
Balance, December 31,
1999................... 32,721,980 $32,722 $128,678 $856,609 3,749,748 $96,970 $921,039
========== ======= ======== ======== ========= ======= ========
</TABLE>
The accompanying notes and summary of principal accounting policies are an
integral part of these financial statements.
23
<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:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic average common
shares outstanding....... 28,946,900 29,000,250 28,929,734
Incremental shares due to:
Common stock options.... 18,971 19,294 55,768
Put options............. 1,291 -- --
---------- ---------- ----------
Diluted average common
shares outstanding....... 28,967,162 29,019,544 28,985,502
========== ========== ==========
</TABLE>
Stock options to purchase 1,949,725, 1,230,475 and 293,563 shares of common
stock for 1999, 1998 and 1997, respectively, were not included in the
computation of diluted earnings per share because the exercise prices of the
stock options were greater than the average market price of the common shares.
Properties
Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, equipment and other depreciable
assets is determined using the straight-line and units of
24
<PAGE>
production methods 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 and startup costs are expensed as incurred in compliance with
the Accounting Standards Executive Committee Statement of Position 98-5,
"Reporting on the Costs of Startup Activities."
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, accruals for environmental liabilities are established in
accordance with Statement of Financial Accounting Standards No. 5.
25
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Inventories
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Logs, pulpwood, chips and sawdust......................... $ 23,339 $ 21,266
Lumber and other manufactured wood products............... 10,945 11,138
Pulp, paper and converted paper products.................. 102,815 111,030
Materials and supplies.................................... 59,634 56,823
-------- --------
$196,733 $200,257
======== ========
Valued at lower of cost or market:
Last-in, first-out basis................................ $ 31,860 $ 29,882
Average cost basis...................................... 164,873 170,375
-------- --------
$196,733 $200,257
======== ========
</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 $28.5 million
higher at December 31, 1999, and $26.2 million higher at December 31, 1998.
Note 2. Plant and Equipment
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Land improvements..................................... $ 59,012 $ 58,252
Buildings and structures.............................. 419,155 413,718
Machinery and equipment............................... 2,374,570 2,114,567
Other................................................. 106,875 101,677
Construction in progress.............................. 143,753 218,932
---------- ----------
$3,103,365 $2,907,146
========== ==========
</TABLE>
Depreciation charged against income amounted to $126.7 million in 1999
($126.3 million in 1998 and $125.5 million in 1997).
Authorized but unexpended appropriations for capital projects totaled $195.5
million at December 31, 1999. Of that amount, $182.8 million is budgeted to be
expended in 2000. Historically, the company has spent less on capital
expenditures than the annual amount budgeted and expects that trend to
continue in 2000. Spending on projects may be delayed due to acquisition of
environmental permits, acquisition of equipment, engineering, weather and
other factors.
Note 3. Timber, Timberlands and Related Logging Facilities
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Timber and timberlands.................................... $290,917 $296,687
Related logging facilities................................ 44,277 41,930
-------- --------
$335,194 $338,617
======== ========
</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 $21.3 million in 1999 ($21.4 million in 1998 and $19.8 million in
1997). Amortization of logging roads and related facilities amounted to $1.7
million in 1999 ($1.7 million in 1998 and $.7 million in 1997).
26
<PAGE>
Note 4. Other Assets
<TABLE>
<CAPTION>
1999 1998
------- --------
(Dollars in
thousands)
<S> <C> <C>
Pension assets.............................................. $59,377 $ 54,773
Note receivable............................................. -- 50,000
Other....................................................... 10,299 12,466
------- --------
$69,676 $117,239
======= ========
</TABLE>
Note 5. Taxes on Income
Provision for taxes on income is comprised of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Current............................................. $ 3,763 $ 4,453 $ 5,357
Deferred............................................ 21,334 16,490 13,219
------- ------- -------
Provision for taxes on income....................... $25,097 $20,943 $18,576
======= ======= =======
</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>
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Computed "expected" tax expense................. $23,115 $20,361 $19,122
State and local taxes, net of federal income tax
benefits....................................... 2,492 2,022 2,131
Tax credits and other benefits.................. (150) (1,570) (2,005)
Foreign sales corporation....................... (685) (1,221) (1,141)
All other items................................. 325 1,351 469
------- ------- -------
Provision for taxes on income................... $25,097 $20,943 $18,576
Effective tax rate.............................. 38.0% 36.0% 34.0%
======= ======= =======
</TABLE>
Principal current and noncurrent deferred tax assets and liabilities at
December 31 were:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(Dollars in
thousands)
<S> <C> <C>
Current deferred tax assets:
Employee benefits.................................. $ 18,511 $ 17,826
Inventories........................................ 1,976 2,146
Other.............................................. 2,076 1,971
--------- ---------
Total current asset (1).............................. 22,563 21,943
--------- ---------
Noncurrent deferred tax assets (liabilities):
Postretirement benefits............................ 55,214 52,519
Alternative minimum tax............................ 57,871 58,562
Plant and equipment................................ (352,770) (331,783)
Timber, timberlands and related logging
facilities........................................ (25,783) (24,814)
Pensions........................................... (14,003) (13,409)
Other, net......................................... 3,827 5,234
--------- ---------
Total net noncurrent liability....................... (275,644) (253,691)
--------- ---------
Net deferred tax liability........................... $(253,081) $(231,748)
========= =========
</TABLE>
- --------
(1) Included in Prepaid expenses in the Balance Sheets.
27
<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 likely assessments of additional taxes.
Note 6. Debt
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Revenue bonds fixed rate 5.9% to 7.5% due 2007 through
2026....................................................... $137,314 $137,283
Revenue bonds variable rate due 2007 through 2030........... 99,866 99,852
Debentures 6.25% due 2002................................... 99,953 --
Debentures 6.95% due 2015................................... 99,829 99,818
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....................................................... 175,000 185,000
Commercial paper 5.4% to 6.2%............................... -- 100,000
Other notes................................................. 159 181
-------- --------
712,121 722,134
Less current installments on long-term debt................. 10,323 10,021
-------- --------
Long-term debt.............................................. $701,798 $712,113
======== ========
</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 arrangements,
enabling it to classify up to $100.0 million of short-term borrowings as long-
term debt, which the company chose to do at December 31, 1998. In March 1999,
the company issued $100.0 million of long-term debt and used the proceeds to
repay a like amount of commercial paper. The balance of commercial paper
outstanding at December 31, 1998, totaling $44.9 million, as well as all
commercial paper outstanding at December 31, 1999, totaling $96.5 million, was
classified as a portion of current notes payable in the Balance Sheets. At
December 31, 1999, the weighted average annual interest rate payable on
commercial paper was 6.9 percent.
Certain credit agreements have restrictive covenants. At December 31, 1999,
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, 1999 are as follows:
<TABLE>
<CAPTION>
(Dollars
in
thousands)
<S> <C>
2000.......................................................... $10,323
2001.......................................................... 325
2002.......................................................... 130,606
2003.......................................................... 15,707
2004.......................................................... 707
-------
</TABLE>
At December 31, 1999, the company maintained a credit line of $250.0 million
for general corporate purposes. Of that amount, a $150.0 million portion is
subject to renewal annually and is available for short-term borrowings. The
$100.0 million long-term portion will expire on November 17, 2004. At December
31, 1999, the company had $25.0 million of outstanding indebtedness under the
short-term credit line, which is classified as a portion of current notes
payable in the Balance Sheets. At December 31, 1999, the weighted average
annual interest rate payable for such indebtedness was 6.92 percent.
28
<PAGE>
Note 7. Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Trade accounts payable.................................... $ 69,723 $ 62,268
Accrued wages, salaries and employee benefits............. 57,822 61,861
Accrued taxes other than taxes on income.................. 17,360 16,718
Accrued interest.......................................... 8,012 8,182
Accrued taxes on income................................... 13,827 14,556
Book overdrafts........................................... 27,933 30,008
Other..................................................... 38,282 31,746
-------- --------
$232,959 $225,339
======== ========
</TABLE>
Note 8. Other Long-Term Obligations
<TABLE>
<CAPTION>
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Postretirement benefits................................... $141,574 $134,663
Pension and related liabilities........................... 19,932 16,976
Other..................................................... 11,480 11,814
-------- --------
$172,986 $163,453
======== ========
</TABLE>
Note 9. Put Options
In December 1994 the company began a stock repurchase program to purchase up
to 1 million shares of its common stock over several years. Through November
1999, the company had acquired a total of 498,800 shares. In December 1999,
the company replaced this program with an expanded program to repurchase up to
2 million shares of stock. Purchases of common stock will be made from time to
time through open market and privately negotiated transactions at prices
deemed appropriate by management, and through the company's put option
program.
In conjunction with the repurchase program, the company issued put options
which gave the purchaser the right to sell shares of Potlatch stock to the
company at prices ranging from $31.50 to $42.39 per share on specific dates in
1998, 1999, 2000 and 2001. Activity during 1999 and 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Put Options Outstanding
---------------------------
Number of Potential
Options Obligation
------------ ------------
(Dollars in thousands)
<S> <C> <C>
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
Sales......................................... 250,000 10,287
Expirations................................... (200,000) (6,844)
------------ -----------
December 31, 1999............................... 250,000 $ 10,287
============ ===========
</TABLE>
The company's potential obligations of $10.3 million and $6.8 million at
December 31, 1999 and 1998, respectively, are classified as "Put options" in
the Balance Sheets and the related offset is recorded in "Common shares in
treasury" under Stockholders' equity.
29
<PAGE>
Note 10. Disclosures about Fair Value of Financial Instruments
Estimated fair values of the company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and short-term investments........ $ 11,690 $ 11,690 $ 18,072 $ 18,072
Current notes payable.................. 121,464 121,464 74,939 74,939
Long-term debt......................... 712,121 698,377 722,134 779,704
Put options............................ 10,287 10,287 6,844 6,844
======== ======== ======== ========
</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 1999, 1998 and 1997 the company made matching 401(k) contributions on
behalf of employees of $9.1 million, $8.1 million and $7.9 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.
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 Benefit Postretirement
Plans Benefit Plans
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Benefit obligation at beginning of
year............................. $ 481,337 $ 435,761 $ 168,341 $ 153,640
Service cost...................... 13,870 12,340 3,486 2,815
Interest cost..................... 31,921 30,552 10,894 10,757
Plan amendments................... 15,381 872 (674) --
Actuarial losses (gains).......... (25,874) 29,605 (13,502) 9,906
Benefits paid..................... (28,915) (27,793) (8,874) (8,777)
--------- --------- --------- ---------
Benefit obligation at end of
year............................. 487,720 481,337 159,671 168,341
--------- --------- --------- ---------
Fair value of plan assets at
beginning of year................ 637,873 601,737 43,079 38,150
Actual return on plan assets...... 51,384 61,319 6,388 9,768
Employer contribution............. 968 2,610 -- --
Benefits paid..................... (28,915) (27,793) (5,497) (4,839)
--------- --------- --------- ---------
Fair value of plan assets at end
of year.......................... 661,310 637,873 43,970 43,079
--------- --------- --------- ---------
Funded status..................... 173,590 156,536 (115,701) (125,262)
Unrecognized prior service cost... 29,688 16,784 (5,658) (5,396)
Unrecognized net gain............. (159,649) (131,730) (20,215) (4,005)
Unrecognized net transition
asset............................ (292) (666) -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost.... $ 43,337 $ 40,924 $(141,574) $(134,663)
========= ========= ========= =========
</TABLE>
30
<PAGE>
The projected benefit obligation, accumulated benefit obligation and value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $26.3 million, $22.2 million and $7.7 million,
respectively, at December 31, 1999, and $14.8 million, $12.8 million and zero,
respectively, at December 31, 1998.
Net periodic (benefit) costs were:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefit Plans Benefit Plans
---------------------------- -------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 13,870 $ 12,340 $ 10,315 $ 3,486 $ 2,815 $ 2,394
Interest cost........... 31,921 30,552 29,316 10,894 10,757 10,490
Expected return on plan
assets................. (49,334) (44,118) (39,258) (3,621) (3,172) (2,880)
Amortization of prior
service cost........... 2,477 1,973 2,034 (412) (411) (420)
Recognized actuarial
gain................... (5) (187) (524) -- -- --
Recognized net initial
asset.................. (374) (626) (574) -- -- --
Other................... -- -- -- -- 66 --
-------- -------- -------- ------- ------- -------
Net periodic (benefit)
cost................... $ (1,445) $ (66) $ 1,309 $10,347 $10,055 $ 9,584
======== ======== ======== ======= ======= =======
</TABLE>
Weighted average assumptions as of December 31 were:
<TABLE>
<CAPTION>
Pension Other Postretirement
Benefit Plans Benefit Plans
---------------- ----------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Discount rate....................... 7.25% 6.75% 7.25% 7.25% 6.75% 7.25%
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 -- -- --
</TABLE>
The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation is 5.92 percent for 2000. 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:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Effect on total of service and interest cost
components........................................... $ 2,215 $ (1,812)
Effect on postretirement benefit obligation........... 20,438 (16,925)
</TABLE>
Hourly employees at two of the company's manufacturing facilities
participate in a multi-employer defined benefit pension plan, the Paper
Allied-Industrial, Chemical and Energy Workers International Union (PACE)
Pension Fund. The company also makes contributions to a trust fund established
to provide retiree medical benefits for these employees, which is managed by
PACE. Company contributions to these plans in 1999, 1998 and 1997 amounted to
$4.7 million, $4.7 million and $4.8 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, 1999. 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
31
<PAGE>
Plan, 1989 Stock Incentive Plan and 1995 Stock Incentive Plan, respectively.
At December 31, 1999, no shares were available for future use under the 1983
Stock Option Plan and 1989 Stock Incentive Plan, while 96,000 shares were
authorized for future use under the 1995 Stock Incentive Plan. Stock option
information presented for the year ended December 31, 1999, includes 1.4
million shares reserved for future grants under a plan approved by the board
of directors in 1999, which will be submitted to stockholders for approval at
the 2000 annual meeting.
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 have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
For the years ended
December 31
-----------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands--
except
per-share amounts)
<S> <C> <C> <C>
Net earnings
as reported...................................... $40,947 $37,232 $36,059
pro forma........................................ 38,459 35,287 34,387
Basic earnings per share
as reported...................................... $ 1.41 $ 1.28 $ 1.25
pro forma........................................ 1.33 1.22 1.19
</TABLE>
A summary of the status of the company's stock option plans as of December
31, 1999, 1998 and 1997 and changes during those years is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
------- --------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1.............. 2,096,600 $41.96 1,758,725 $42.81 1,705,900 $40.61
Granted................. 541,775 41.39 430,300 37.75 337,950 48.25
Shares exercised........ (35,650) 35.76 (23,825) 34.60 (116,550) 34.95
SARs exercised.......... (14,400) 35.72 (27,350) 32.25 (135,600) 34.86
Canceled or expired..... (58,475) 41.85 (41,250) 44.71 (32,975) 45.46
--------- --------- ---------
Outstanding at
December 31............ 2,529,850 41.97 2,096,600 41.96 1,758,725 42.81
Options exercisable..... 1,792,425 42.60 1,504,900 42.50 1,239,000 41.10
Options outstanding
which include a stock
appreciation right..... 187,875 204,375 240,450
Shares reserved for
future grants.......... 1,496,355 593,525 983,050
Fair value of options
granted during the
year................... $ 9.58 $ 5.86 $ 9.72
</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 1999, 1998 and 1997, respectively: dividend yield of 4.21, 4.61 and
3.61 percent; stock volatility of .2355, .1945 and .1597; risk free rate of
return of 6.28, 5.03 and 6.00 percent; and expected term of 10 years for all
grants.
32
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Number Weighted Avg. Weighted Avg. Number
Outstanding Remaining Exercise Exercisable Weighted Avg.
Range of Exercise Prices at 12/31/99 Contractual Life Price at 12/31/99 Exercise Price
------------------------ ----------- ---------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$29.50 to $37.75........ 688,525 7.0 years $36.67 492,075 $36.23
$41.25 to $48.25........ 1,841,325 7.2 years 43.95 1,300,350 45.01
--------- ---------
$29.50 to $48.25........ 2,529,850 7.2 years 41.97 1,792,425 42.60
</TABLE>
Note 13. Segment Information
The company has divided its operations into four reporting segments:
resource, wood products, printing papers and pulp and paper, based upon
similarities in product lines, manufacturing processes, marketing and
management of its businesses. The resource segment manages the company's
timberland base and provides wood fiber to the manufacturing segments. The
wood products segment produces oriented strand board, lumber, plywood and
particleboard. The printing papers segment produces coated printing papers and
pulp. The pulp and paper segment produces paperboard, consumer tissue and
pulp.
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. Prior year amounts have been reclassified to conform to the
1999 presentation. Corporate information is included to reconcile segment data
to the consolidated financial statements.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Segment Sales:
Resource.................................. $ 334,377 $ 325,934 $ 326,636
---------- ---------- ----------
Wood products:
Oriented strand board................... 225,150 171,587 106,873
Lumber.................................. 262,728 225,687 247,273
Plywood................................. 67,605 54,562 64,512
Particleboard........................... 17,032 14,494 12,875
Other................................... 27,416 35,474 41,815
---------- ---------- ----------
599,931 501,804 473,348
---------- ---------- ----------
Printing papers........................... 422,611 406,277 429,217
---------- ---------- ----------
Pulp and paper:
Paperboard.............................. 373,903 390,708 420,032
Tissue.................................. 233,975 235,799 218,310
Pulp.................................... 23,817 12,467 11,205
---------- ---------- ----------
631,695 638,974 649,547
---------- ---------- ----------
1,988,614 1,872,989 1,878,748
Elimination of intersegment sales........... (311,776) (307,111) (309,878)
---------- ---------- ----------
Total consolidated net sales............ $1,676,838 $1,565,878 $1,568,870
========== ========== ==========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Intersegment Sales or Transfers: (1)
Resource................................ $ 295,678 $ 282,938 $ 277,931
Wood Products........................... 16,042 24,061 31,842
Printing papers......................... -- -- 35
Pulp and paper.......................... 56 112 70
---------- ---------- ----------
Total................................. $ 311,776 $ 307,111 $ 309,878
========== ========== ==========
Operating Income (Loss):
Resource................................ $ 69,448 $ 71,296 $ 88,134
Wood Products........................... 82,923 2,515 (40,460)
Printing papers......................... (13,816) 14,204 33,358
Pulp and paper.......................... 14,786 53,394 51,043
---------- ---------- ----------
153,341 141,409 132,075
Corporate Items:
Administration expense.................. (38,228) (37,247) (31,385)
Interest expense........................ (45,442) (49,744) (46,124)
Other, net.............................. (3,627) 3,757 69
---------- ---------- ----------
Consolidated earnings before taxes on
income................................. $ 66,044 $ 58,175 $ 54,635
========== ========== ==========
Depreciation, Amortization and Cost of Fee
Timber Harvested:
Resource................................ $ 23,945 $ 24,109 $ 21,497
Wood Products........................... 28,785 30,136 29,089
Printing papers......................... 41,999 41,618 39,436
Pulp and paper.......................... 54,609 53,525 58,689
---------- ---------- ----------
149,338 149,388 148,711
Corporate............................... 915 890 1,074
---------- ---------- ----------
Total................................. $ 150,253 $ 150,278 $ 149,785
========== ========== ==========
Assets:
Resource................................ $ 420,326 $ 410,264 $ 406,970
Wood Products........................... 291,263 326,963 341,204
Printing papers......................... 828,828 685,743 644,457
Pulp and paper.......................... 731,030 759,701 784,631
---------- ---------- ----------
2,271,447 2,182,671 2,177,262
Corporate............................... 175,053 194,635 187,874
---------- ---------- ----------
Total consolidated assets............. $2,446,500 $2,377,306 $2,365,136
========== ========== ==========
Capital Expenditures:
Resource................................ $ 17,356 $ 18,832 $ 19,604
Wood Products........................... 26,557 18,303 22,172
Printing papers......................... 181,944 87,147 81,913
Pulp and paper.......................... 20,850 21,943 33,856
---------- ---------- ----------
246,707 146,225 157,545
Corporate............................... 944 802 940
---------- ---------- ----------
Total................................. $ 247,651 $ 147,027 $ 158,485
========== ========== ==========
</TABLE>
- --------
(1) Intersegment sales for 1999-1997, which were based on prevailing market
prices, consisted primarily of logs, chips, pulp logs and other fiber
sales to the wood products, printing papers and pulp and paper segments.
34
<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>
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
United States.............................. $1,550,154 $1,392,223 $1,382,674
Japan...................................... 50,741 64,129 69,494
Australia.................................. 14,759 23,022 30,869
Canada..................................... 16,944 31,234 35,867
China...................................... 16,130 25,939 23,061
Italy...................................... 13,087 18,631 11,933
Other foreign countries.................... 15,023 10,700 14,972
---------- ---------- ----------
Total consolidated net sales............. $1,676,838 $1,565,878 $1,568,870
========== ========== ==========
</TABLE>
Note 14. Other Income (Expense), Net
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(Dollars in
thousands)
<S> <C> <C> <C>
Cross border lease................................... $ 4,737 $5,643 $ --
Sale of timber and timberlands....................... 3,464 1,839 5,727
Terminated timber REIT expense....................... (7,500) -- --
Other................................................ (1,208) 1,230 2,062
------- ------ ------
$ (507) $8,712 $7,789
======= ====== ======
</TABLE>
Note 15. Financial Results by Quarter (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands--except per-share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $416,418 $402,534 $413,043 $400,482 $446,591 $404,625 $400,786 $358,237
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Depreciation,
amortization and cost
of fee timber
harvested............. 37,427 36,673 35,146 36,535 38,270 39,203 39,410 37,867
Materials, labor and
other operating
expenses.............. 328,831 307,884 317,542 306,986 329,972 301,987 308,087 278,592
Selling, general and
administrative
expenses.............. 29,097 30,328 32,038 29,747 31,239 31,450 37,786 29,419
-------- -------- -------- -------- -------- -------- -------- --------
395,355 374,885 384,726 373,268 399,481 372,640 385,283 345,878
-------- -------- -------- -------- -------- -------- -------- --------
Earnings from
operations........... $ 21,063 $ 27,649 $ 28,317 $ 27,214 $ 47,110 $ 31,985 $ 15,503 $ 12,359
======== ======== ======== ======== ======== ======== ======== ========
Net earnings.......... $ 625 $ 10,736 $ 9,366 $ 10,049 $ 22,589 $ 12,547 $ 8,367 $ 3,900
======== ======== ======== ======== ======== ======== ======== ========
Net earnings per common
share:
Basic.................. $ .02 $ .37 $ .33 $ .35 $ .78 $ .43 $ .29 $ .13
Diluted................ .02 .37 .33 .35 .77 .43 .29 .13
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 1999 and 1998 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements 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, 1999 and 1998 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Portland, Oregon
January 26, 2000
36
<PAGE>
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Document Desciption
-------------- -------------------
<C> <S>
(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,
filed as Exhibit (10)(b) to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 ("1998 Form 10-
K").
(10)(b)(i)/1/ Amendment, dated May 20, 1999, to the Potlatch Corporation
Severance Program for Executive Employees.
(10)(c)/1/ Potlatch Corporation 2000 Stock Incentive Plan, adopted
December 2, 1999.
(10)(d)/1/* Potlatch Corporation Salaried Employees' Supplemental Benefit
Plan (As Amended and Restated Effective January 1, 1989),
filed as Exhibit (10)(d) to the 1998 Form 10-K.
(10)(d)(i)/1/* Amendment, effective as of January 1, 1998, to Plan described
in Exhibit (10)(d), filed as Exhibit (10)(d)(i) to the 1998
Form 10-K.
(10)(f)/1/ Potlatch Corporation 1983 Stock Option Plan (effective
September 24, 1983), as amended and restated December 2,
1999.
(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 December 1991, 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,
filed as Exhibit (10)(g) to the 1998 Form 10-K.
(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)(j)(ii)/2/* Amendment No. 2 to Schedule A to Exhibit (10)(j), filed as
Exhibit (10)(j)(ii) to the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.
(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.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Document Description
-------------- --------------------
<C> <S>
(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)(k)(ii)/2/* Amendment No. 2 to Schedule A to Exhibit (10)(k), filed as
Exhibit (10)(k)(ii) to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
(10)(l)/1/ Potlatch Corporation 1989 Stock Incentive Plan adopted
December 8, 1988, and as amended and restated December 2,
1999.
(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)(l)(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, filed as
Exhibit (10)(l)(iii) to the 1998 Form 10-K.
(10)(m)(i)/1/* Form of Amendments, dated January 12, 1999, to outstanding
employee Stock Option Agreements, filed as Exhibit (10)(m)(i)
to the 1998 Form 10-K.
(10)(m)(ii)/1/* Form of Amendment, dated December 29, 1998, to outstanding
outside director Stock Option Agreements, filed as Exhibit
(10)(m)(ii) to the 1998 Form 10-K.
(10)(n)/1/ Potlatch Corporation 1995 Stock Incentive Plan adopted
December 7, 1995, as amended and restated December 2, 1999.
(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, filed as Exhibit (10)(n)(iv) to the 1998 Form 10-K.
(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, filed as Exhibit (10)(n)(v) to the 1998 Form 10-K.
(10)(n)(vi)/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
1999.
(10)(n)(vii)/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
1999.
(22) Potlatch Corporation Subsidiaries.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
</TABLE>
- --------
* Incorporated by reference.
/1/ Management compensatory plan or arrangement.
/2/ Management contract.
38
RESOLUTION
AMEND EXECUTIVE EMPLOYEES' SEVERANCE PROGRAM
May 20, 1999
RESOLVED, that Section 3(b) of the Potlatch
Corporation Severance Program for Executive
Employees shall be amended to read as follows
through the table in subsection (i) of Section
3(b):
(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) Within ten (10) business days
following the effective date an Eligible
Employee terminates, a lump sum cash benefit
equal to the Eligible Employees' 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 of the date of the Change of Control or the
effective date the Eligible Employee
terminates, whichever produces the larger
amount, multiplied by the appropriate factor
from the following table:
Eligible Pay Multiple
Employee Factor
Chief Executive Officer 3.0
Chief Operating Officer 3.0
Other Principal Officers 2.5
and be it further
Exhibit (10)(b)(i)
1
<PAGE>
RESOLVED, that Section 3(c) of the
Potlatch Corporation Severance Program for
Executive Employees be amended to read as
follows:
(c) Payment of Excise Taxes. If any
payment or benefit to or for the benefit of the
Eligible Employee in connection with a Change
of Control is deemed an "excess parachute
payment" as defined in Section 280G of the
Internal Revenue Code of 1986 (the "Code")
subject to the excise tax imposed by Section
4999 of the Code, the Company shall pay to the
Eligible Employee an additional amount such
that the total amount of all such payments and
benefits (including payments made pursuant to
this section 3(c)) to the Eligible Employee
shall equal the total amount of all such
payments and benefits to which the Eligible
Employee would have been entitled (but for this
Section 3(c)) net of all applicable federal,
state and local taxes except the excise tax.
For purposes of this Section 3(c), the Eligible
Employee shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year. The
amount of the payment to the Eligible Employee
shall be estimated 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).
Within thirty (30) business days following
the effective date an Eligible Employee
terminates, the estimated amount due the
Eligible Employee pursuant to this Section 3(c)
shall be paid to the Eligible Employee. In the
event that the amount of the estimated payment
is less than the amount actually due to the
Eligible Employee under this Section 3(c), the
amount of any such shortfall shall be paid to
the Eligible Employee within ten (10) business
days after the existence of the shortfall is
discovered.
The Eligible Employee shall not be
required to mitigate the amount of any payments
2
<PAGE>
provided under Section 3(b) and 3(c), nor shall
any payment or benefit provided for in Section
3(b) and 3(c) be offset by any compensation
earned by the Eligible Employee as the result
of employment by another employer or by
retirement benefits.
3
POTLATCH CORPORATION
2000 STOCK INCENTIVE PLAN
1. PURPOSE.
This Potlatch Corporation 2000 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 of any medically
Exhibit (10)(c)
-1-
<PAGE>
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, 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).
-2-
<PAGE>
(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 2000 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.
(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
-3-
<PAGE>
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 2, 1999, 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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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
100,000 shares.
6. STOCK.
The stock subject to Options, Restricted Stock, or Other Share-Based
Awards granted under the Plan shall be Shares of the 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 1,400,000 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.
-6-
<PAGE>
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.
(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.
-7-
<PAGE>
(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 the Option (or to call the
related stock appreciation right as described in Section 7 (i)) in whole or
in part:
(i) Upon consummation of a reorganization, merger or consolidation
involving the Corporation (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of Common Stock (the
"Outstanding Common Stock") and then outstanding voting securities of
the Corporation entitled to vote generally in the election of Directors
(the "Outstanding Voting Securities") immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the
corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation either directly or through one or more
-8-
<PAGE>
subsidiaries), (B) no Person (as defined in subparagraph (iii) below)
(excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) sponsored or maintained by
the Corporation or such other corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership is based on the
beneficial ownership, directly or indirectly, of Outstanding Common
Stock or Outstanding Voting Securities immediately prior to the
Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for
such Business Combination; provided, however, if the Corporation and
the other party to the Business Combination agree that the transaction
is to be treated as a pooling of interests for financial reporting
purposes, and if the transaction in fact is so treated, then the right
to exercise the Option (or to call the related stock appreciation right)
shall not be accelerated upon consummation of the Business Combination
to the extent that the Corporation's independent accountants and the
other party's independent accountants separately determine in good
faith that the acceleration would preclude the use of pooling of
interests accounting; or
(ii) On the date that individuals who, as of December 2, 1999
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a Director subsequent to December 2, 1999 whose
election, or nomination for election by the Corporation's stockholders,
was approved by a vote of at least a majority of the Directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
-9-
<PAGE>
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of Directors, an actual or
threatened solicitation of proxies or consents or any other actual or
threatened action by, or on behalf of any Person other than the Board;
or
(iii) Upon the acquisition after December 2, 1999 by any
individual, entity or group (within the meaning of Section 13(d) (3) or
14 (d) (2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (A) the then Outstanding Common Stock or (B) the
combined voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not be deemed to be
covered by this subsection (iii): (x) any acquisition of Outstanding
Common Stock or Outstanding Voting Securities by the Corporation, (y)
any acquisition of Outstanding Common Stock or Outstanding Voting
Securities by any employee benefit plan (or related trust) sponsored
or maintained by the Corporation or (z) any acquisition of Outstanding
Common Stock or Outstanding Voting Securities by any corporation
pursuant to a transaction which complies with clauses (A), (B) and (C)
of subsection (i) of this Section 7(d); or
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(iv) Upon the consummation of the sale of all or substantially all
of the assets of the Corporation or approval by the stockholders of the
Corporation of a complete liquidation or dissolution of the Corporation.
(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
(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. If a Participant's
employment terminates for reasons other than Misconduct, but Misconduct is
discovered after the termination and is determined to have occurred by the
Committee, all outstanding Options shall cease to be exercisable upon such
determination.
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For purposes of the section, 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.
(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 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
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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). Notwitstanding the foregoing, however, no
modification of an Option shall, without the consent 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 that may be exercised only following the applicable event described in
Section 7(d)(i) through (iv). Following any such event, 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 from the Corporation
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. In the case of a stock appreciation right called after an
event described in Section 7(d) (i) or (iv) above, "Fair Market Value" for
purposes of this Subsection (i) shall be the greater of (A) the Fair Market
Value of such Shares as of the date immediately prior to the event described
in Section 7(d) (i) or (iv) above, or (B) the value of such Shares determined
as of the date of the call in good faith by the Committee (as composed on the
day preceding the date of the event described in Section 7(d) (i) or (iv)
above), taking into consideration all relevant facts and circumstances. 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
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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,
and provided further, that if the stock appreciation right is called after
an event described in Section 7(d)(i) or (iv), the payment shall be made in
cash. 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.
(j) Limitation of Incentive Stock Option Awards.
If and to the extent that the aggregate Fair Market Value (determined
as of the date the Option is granted) of the Shares 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 exceeds
$100,000, the excess (taking into account the order in which they were
granted) shall be treated as nonqualified stock options.
(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.
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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 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.
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(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.
(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.
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(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.
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
(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
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Share-Based Award, the Committee may determine that the recipient of an
Other Share-Based Award shall be entitled to receive, currently or on a
deferred basis, interest or dividends or dividend equivalents with respect
to the Shares or other securities covered by the Award, and the Committee
may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. The terms of any
Other Share-Based Award shall be set forth in an Other Share-Based Award
Agreement between the Corporation and the Employee, which Agreement shall
contain such provisions as the Committee determines to be necessary or
appropriate to carry out the intent of the Plan.
(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.
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10. OPTION AWARDS TO OUTSIDE DIRECTORS.
(a) Award Upon Election.
Each Outside Director who is elected by the Board to fill a vacancy on
the Board shall receive a Nonqualified Stock Option for 5,000 Shares on the
date of the Board's regular meeting in December following his or her election.
(b) Annual Awards.
Each Outside Director shall receive a Nonqualified Stock Option for
2,500 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(a) above.
(c) 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 vested and 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 former Director shall
have the right to exercise the Option either:
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(A) within three months after such termination,
or
(B) in the case of termination 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).
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
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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 2, 2009.
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 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 a party to any merger, consolidation or other reorganization, each
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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. 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 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.
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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 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 or for no 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.
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(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. An Other Share-Based Award shall not be deemed to create a
trust for the benefit of any individual.
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) Amend this Section 15 to defeat its purpose.
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16. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
17. 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. 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.
18. PAYMENT OF EXCISE TAX.
If any payments or transfers to or for the benefit of the Participant
are deemed an "excess parachute payment" as defined in Section 280G of the
Internal Revenue Code of 1986 (the "Code") subject to the excise tax imposed
by Section 4999 of the Code, the Corporation shall pay to the Participant an
additional amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section) to the
Participant shall equal the total amount of all such payments and benefits
to which the Participant would have been entitled (but for this Section) net
of all applicable federal, state and local taxes except the excise tax. For
purposes of this Section, the Participant shall be deemed to pay federal,
state and local taxes at the highest marginal rate of taxation for the
applicable calendar year. The amount of the payment to the Participant
shall be estimated by the firm of independent certified public accountants
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serving as the outside auditor of the Corporation, as of the date of the
applicable event as described in Section 7(d) (i) through (iv).
19. 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 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.
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20. EXECUTION.
To record the adoption the Plan effective December 2, 1999,
the Corporation has caused its authorized officer to execute the same.
POTLATCH CORPORATION
By /s/ Betty R Fleshman
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POTLATCH CORPORATION
1983 STOCK OPTION PLAN
(As Amended and Restated Effective December 2, 1999)
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 1986, 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), 423(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, and was last amended and restated
effective December 2, 1999.
4. ADMINISTRATION.
The Plan shall be administered by a committee (the
"Committee") appointed by the Board, consisting of not less
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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 a discretionary award of 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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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 one million two hundred thousand
(1,200,000). The number of Shares subject to Options
outstanding under the Plan at any time may not exceed the
number of Shares remaining available for issuance under the
Plan. In the event that any outstanding Option under the
Plan for any reason expires or is terminated, the Shares
allocable to the unexercised portion of such Option may again
be subjected to an Option under the Plan.
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The limitations established by this Section 6
shall be subject to adjustment upon the occurrence of the
events specified and in the manner provided in Section 10
hereof.
7. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan shall be
evidenced by written agreements in such form as the Committee
shall from time to time determine, which agreements shall
comply with and be subject to the following terms and
conditions:
(a) Optionee's Agreement.
Each Optionee shall agree to remain in the employ
of and to render to the Corporation or to a Subsidiary his
or her services for a period of one (1) year from the date
of the granting of the Option, but such agreement shall not
impose upon the Corporation or its Subsidiaries any obliga-
tion to retain the Optionee in their employ for any period.
(b) Number of Shares.
Each Option shall state the number of Shares to
which it pertains and shall provide for the adjustment
thereof in accordance with the provisions of Section 10
hereof.
(c) Exercise Price.
Each Option shall state the Exercise Price, which
price shall not be less than: (i) In the case of an Incentive
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Stock Option, the Fair Market Value of a Share on the date
of grant; or (ii) In the case of a Nonqualified Stock
Option, eighty-five percent (85%) of the Fair Market Value
of a Share on the date of grant.
(d) Medium and Time of Payment.
The Purchase Price shall be payable in full in
United States dollars upon the exercise of the Option;
provided, however, that, with the consent of the Committee
and in accordance with its Rules, the Purchase Price may be
paid by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair
Market Value on the date of exercise equal to the Purchase
Price or in any combination of cash and Shares, so long as
the total of the cash so paid and the Fair Market Value of
the Shares surrendered equals the Purchase Price. No Share
shall be issued until full payment therefor has been made.
(e) Term and Exercise of Options;
Nontransferability of Options.
Each Option shall state the time or times when it
becomes exercisable and the time or times any stock appre-
ciation right granted pursuant to Section 7(k) may be
called, which shall be determined by the Committee. No
Option shall be exercisable after the expiration of ten (l0)
years from the date it is granted. During the lifetime of
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the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In
the event of the Optionee's death, no Option shall be
transferable by the Optionee otherwise than by will or the
laws of descent and distribution.
Subject to the foregoing, beginning
six (6) months after the date of grant the Optionee shall
have the right to exercise the Option (or in lieu thereof to
call the related stock appreciation right as described in
Section 7(k)) in whole or in part:
(i) Upon consummation of a reorganization, merger
or consolidation involving the Corporation (a "Business
Combination"), in each case, unless, following such
Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of
Common Stock (the "Outstanding Common Stock") and then
outstanding voting securities of the Corporation entitled
to vote generally in the election of directors (the
"Outstanding Voting Securities") immediately prior to
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such Business combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors
of the corporation resulting from such Business
Combination (including, without limitation, a
corporation which as a result of such transaction owns
the Corporation either directly or through one or more
subsidiaries), (B) no Person (as defined in subparagraph
(iii) below) (excluding any corporation resulting from
such Business Combination or any employee benefit plan
(or related trust) sponsored or maintained by the
Corporation or such other corporation resulting from
such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
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voting power of the then outstanding voting securities
of such corporation except to the extent that such
ownership is based on the beneficial ownership, directly
or indirectly, of Outstanding Common Stock or
Outstanding Voting Securities immediately prior to the
Business Combination and (C) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; provided,
however, if the Corporation and the other party to
the Business Combination agree that the transaction
is to be treated as a pooling of interests, for
financial reporting purposes, and if the transaction
in fact is so treated, then the right to exercise
the Option (or to call the related stock appreciation
right) shall not be accelerated upon consummation of
the Business Combination to the extent that the
Corporation's independent accountants and the other
party's independent accountants separately determine
in good faith that the acceleration would preclude the
use of pooling of interests accounting; or
(ii) On the date that individuals who, as
of December 2, 1999 constitute the Board (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to
December 2, 1999 whose election, or nomination for
election by the Corporation's stockholders, was
approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall
be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of
directors, an actual or threatened solicitation of
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<PAGE>
proxies or consents or any other actual or threatened
action by, or on behalf of any Person other than
the Board; or
(iii) Upon the acquisition after December
2, 1999 by any individual, entity or group (within
the meaning of Section 13 (d)(3) or 14 (d)(2) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (A) the
then Outstanding Common Stock or (B) the combined
voting power of the Outstanding Voting Securitites;
provided, however, that the following acquisitions
shall not be deemed to be covered by this subsection
(iii): (x) any acquisition of Outstanding Common
Stock or Outstanding Voting Securitites by the
Corporation, (y) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any employee
benefit plan (or related trust) sponsored or maintained
by the Corporation or (z) any acquisition of
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Outstanding Common Stock or Outstanding Voting
Securities by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of
Subsection (i) of this Section 7(e); or
(iv) Upon the consummation of the sale
of all or substantially all of the assets of the
Corporation or approval by the Stockholders of the
Corporation of a complete liquidation or dissolution
of the Corporation.
(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 (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
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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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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 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.
(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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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. In the
case of a stock appreciation right called after an event
described in Section 7 (e)(i) or (iv) above, "Fair Market
Value" for purposes of this Subsection (k) shall be the
greater of (A) the Fair Market Value of such Shares as of
the date immediately prior to the event described in
Section 7 (e)(i) or (iv) above, or (B) the value of such
Shares determined as of the date of the call in good faith
by the Committe (as composed on the day preceding the date
of the event described in Section 7 (e)(i) or (iv) above),
taking into consideration all relevant facts and
circumstances. The
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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, and provided
further, that if the stock appreciation right is called
after an event described in Section 7 (e)(i) or (iv),
the payment shall be made in cash. 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.
(1) Effect of Termination of Employment on Stock
Appreciation Right.
In the event that an Optionee shall cease to be
employed by the Corporation or its Subsidiaries for any
reason, any stock appreciation right which may have been
granted in conjunction with the grant of an Option shall
expire on the date provided in the Option agreement or in
rules and regulations adopted by the Committee.
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<PAGE>
(m) Other Provisions.
The option agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation, re-
strictions upon the exercise of the Option, as the Committee
shall deem advisable.
8. LIMITATION ON ANNUAL AWARDS.
(a) General Rule.
The aggregate Fair Market Value (determined as of
the date an Option is granted) of the stock for which any
Optionee may be granted Incentive Stock Options in any
calendar year commencing after December 31, 1980 under this
Plan and all other plans maintained by the Corporation, its
parent or its Subsidiaries shall not exceed the sum of
(i) $100,000 plus (ii) any unused limit carryover(s) to such
year.
(b) Carryovers.
For purposes of Subsection (a) an "unused limit
carryover" shall arise only in a calendar year commencing
after December 31, 1980, and shall be equal to one half of
the excess of (i) $100,000 over (ii) the aggregate Fair
Market Value (determined as of the date an Option is granted)
of the Shares for which the Optionee is granted Incentive
Stock Options in such year under the Plan or under any other
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<PAGE>
plan maintained by the Corporation, its parent or any
Subsidiary. The unused limit carryover arising in any
calendar year may be carried over to any of the three con-
secutive calendar years next following such year, but only
to the extent not used in an earlier calendar year. The
value of the Shares for which Options are granted in any
calendar year shall be applied first against the basic
$100,000 limit for such year and then against any unused
limit carryovers which may be carried over to such year in
the order of the calendar years in which such carryovers
arose.
9. TERM OF PLAN.
Options may be granted pursuant to the Plan until
the termination of the Plan on September 23, 1993.
10. RECAPITALIZATION.
Subject to any required action by the stockholders,
the number of Shares covered by this Plan as provided in
Section 6, the number of Shares covered by each outstanding
Option, and the Exercise Price thereof shall be proportion-
ately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation
of Shares or the payment of a stock dividend (but only of
Common Stock) or any other increase or decrease in the
number of such Shares effected without receipt of consider-
ation by the Corporation.
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Subject to any required action by the stockholders,
if the Corporation shall be a party to 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. 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.
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<PAGE>
To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such
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 422 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. 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
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"Capped Amount") necessary to avoid characterization
of any amount payable to the Optionee (including, but
not limited to, amounts payable under the Plan) as an
"excess parachute payment" as defined in Code section
280G, except in the event that the total amount that
the Optionee would receive from all "parachute payments"
as defined in Code section 280G, net of all applicable
taxes, including the excise tax that would be imposed
pursuant to Code section 4999, would exceed the Capped
Amount, net of all applicable taxes.
The determination of whether any amount would
constitute an "excess parachute payment" shall be made
by the firm of independent certified public accountants
serving as the outside auditor of the Corporation as of
the date of the event specified in Section 7 (e)(i)-(iv).
In making such determination, such firm may disregard any
payments or benefits available to the Optionee under any
contract, plan or program if the Optionee irrevocably
elects to relinquish or not exercise such payments or
benefits before the payment or enjoyment thereof. It is
intended that payments shall be made under the Plan whether
or not the status of a particular payment as an "excess
parachute payment" has been finally determined by the
Internal Revenue Service or a court of competent
jurisdiction.
17. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification
as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the
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Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connec-
tion with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any
Option granted thereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Cor-
poration) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to
matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of the member's
duties; provided that within sixty (60) days after institu-
tion of any such action, suit or proceeding a Committee
member shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
18. EXECUTION.
To record the amendment and restatement of the
Plan to read as set forth herein effective as of December
2, 1999, the Corporation has caused its authorized officer
to execute the same.
POTLATCH CORPORATION
By /s/ Betty R Fleshman
Secretary
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POTLATCH CORPORATION
1989 STOCK INCENTIVE PLAN
(As Amended and Restated Effective December 2, 1999)
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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(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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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
December 2, 1999.
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 discretionary 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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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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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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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.
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(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, beginning six (6)
months from the date of grant of the Optionee shall have
the right to exercise the option (or in lieu thereof to
call the related stock appreciation right as described in
Section 7(j)) in whole or in part:
(i) Upon consummation of a reorganization,
merger or consolidation involving the Corporation (a
"Business Combination"), in each case, unless, following
such Business Combination, (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of Common
Stock (the "Outstanding Common Stock") and then
outstanding voting securities of the Corporation entitled
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to vote generally in the election of directors (the
"Outstanding Voting Securities") immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors
of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Corporation either
directly or through one or more subsidiaries), (B) no
Person (as defined in subparagraph (iii) below)
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or such
other corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that
such ownership is based on the beneficial ownership,
directly or indirectly, of Outstanding Common Stock or
Outstanding Voting Securities immediately prior to the
Business Combination and (C) at least a majority of the
members of the board of directors of the corporation
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resulting from such Business Combination were members
of the Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; provided, however, if the
Corporation and the other party to the Business Combination
agree that the transaction is to be treated as a pooling
of interests for financial reporting purposes, and if
the transaction in fact is so treated, then the right
to exercise the Option (or to call the related stock
appreciation right) shall not be accelerated upon
consummation of the Business Combination to the extent
that the Corporation's independent accountants and the
other party's independent accountants separately determine
in good faith that the acceleration would preclude the use
of pooling of interests accounting; or
(ii) On the date that individuals who, as of
December 2, 1999 constitue the Board (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any
individual becoming a director subsequent to December
2, 1999 whose election, or nomination for election by
the Corporation's stockholders, was approved by a vote
of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors, an
actual or threatened solicitation of proxies or
consents or any other actual or threatened action by,
or on behalf of any Person other than the Board; or
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(iii) Upon acquisition after December 2,
1999 by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (A) the then Outstanding Common
Stock or (B) the combined voting power of the Outstanding
Voting Securities; provided, however, that the following
acquisitions shall not be deemed to be covered by this
subsection (iii): (x) any acquisition of Outstanding
Common Stock or Outstanding Voting Securities by the
Corporation, (y) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any employee
benefit plan (or related trust) sponsored or maintained
by the Corporation or (z) any acquisition of Outstanding
Common Stock or Oustanding Voting Securities by any
corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (i) of
this Section 7(e); or
(iv) Upon the consummation of the sale of all
or sustantially all of the assets of the Corporation
or approval by the stockholders of the Corporation of
a complete liquidation or dissolution of the
Corporation.
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(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
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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
an opportunity to be heard and present evidence on his or
her behalf.
For this purpose, the employment relationship will
be treated as continuing intact while the Optionee is on
military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the
Committee, in accordance with rules and regulations constru-
ing Code section 422A(a)(2)). Notwithstanding the forego-
ing, in the case of an Incentive Stock Option, employment
shall not be deemed to continue beyond the ninetieth (90th)
day after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or
by contract.
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<PAGE>
(g) Death of Optionee.
Except as provided in Subsection (k) below, if the
Optionee shall die while in the employ of the Corporation or
a Subsidiary and shall not have fully exercised the Option,
an Option may be exercised 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 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.
(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
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<PAGE>
the exchange of outstanding Options (to the extent not
theretofore exercised) for the granting of new Options (at
the same or a different price) in substitution therefor.
Notwithstanding the foregoing, however, no modification of
an Option shall, without the consent of the Optionee, alter
or impair any rights or obligations under any Option
theretofore granted under the Plan.
(j) Stock Appreciation Rights.
In connection with the grant of any Option pursu-
ant to the Plan, the Committee, in accordance with its
Rules, may also grant a stock appreciation right pursuant to
which the Optionee shall have the right to surrender all or
part of such Option and to exercise the stock appreciation
right (the "call") and thereby to obtain payment of an
amount equal to the difference obtained by subtracting the
aggregate Exercise Price of the Shares subject to the Option
(or the portion thereof) so surrendered from the Fair Market
Value of such Shares on the date of such surrender. In the
case of a stock appreciation right called after an event
described in Section 7(e)(i) or (iv) above, "Fair Market
Value" for purposes of this Subsection (j) shall be the
greater of (A) the Fair Market Value of such Shares as of
the date immediately prior to the event described in Section
7(e)(i) or (iv) above, or (B) the value of such Shares
determined as of the date of the call in good faith by the
Committee (as composed on the day preceeding the date of
the event described in Section 7(e)(i) or (iv) above),
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<PAGE>
taking into consideration all relevant facts and
circumstances. 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, and provided further, that if the stock
appreciation right is called after an event described in
Section 7(e)(i) or (iv), the payment shall be made in cash.
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.
(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
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rules and regulations adopted by the Committee.
(l) Limitation of Annual Awards.
The aggregate Fair Market Value (determined as of
the date the Option is granted) of the stock with respect to
which any Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year commenc-
ing after December 31, 1986 under this Plan and all other
plans maintained by the Corporation, its parent or its
Subsidiaries shall not exceed $100,000.
(m) Other Provisions.
The Option Agreements authorized under the Plan
shall contain such other provisions not inconsistent with
the terms of the Plan, including, without limitation,
restrictions upon the exercise of the Option, as the Commit-
tee shall deem advisable.
8. RESTRICTED STOCK.
(a) Grants.
Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to
determine the persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number
of shares of Restricted Stock to be awarded, the price (if
any) to be paid by the recipient of Restricted Stock, the
time or times within which such Awards may be subject to
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
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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 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 Company until the restrictions
thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered
to the Company a stock power, endorsed in blank, relating to
the stock covered by such Award.
(b) Restrictions and Conditions.
The shares of Restricted Stock awarded pursuant to
this Section 8 shall be subject to the following
restrictions and conditions:
(i) During a period set by the Committee
commencing with the date of such Award (the
"Restriction Period"), the Participant shall not
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be permitted to sell, transfer, pledge, assign or
encumber shares of Restricted Stock awarded under
the Plan. Within these limits, the Committee, in
its sole discretion, may provide for the lapse of
such restrictions in installments and may acceler-
ate or waive such restrictions in whole or in
part, based on service, performance, a change of
control of the Corporation and/or such other
factors or criteria as the Committee may determine
in its sole discretion.
(ii) Except as provided in this para-
graph (ii) and paragraph (i) above, the Partici-
pant shall have, with respect to the shares of
Restricted Stock, all of the rights of a share-
holder of the Corporation, including the right to
vote the shares, and the right to receive any cash
dividends. The Committee, in its sole discretion,
as determined at the time of Award, may provide
that the payment of cash dividends shall or may be
deferred and, if the Committee so determines,
reinvested in additional Shares of Restricted
Stock to the extent available under Section 6, or
otherwise reinvested. Stock dividends issued with
respect to Restricted Stock shall be treated as
additional shares of Restricted Stock that are
subject to the same restrictions and other terms
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and conditions that apply to the shares with
respect to which such dividends are issued.
(iii) The Committee shall specify the condi-
tions under which shares of Restricted Stock shall
vest or be forfeited and such conditions shall be
set forth in the Restricted Stock Agreement.
(iv) If and when the Restriction Period
applicable to shares of Restricted Stock expires
without a prior forfeiture of the Restricted
Stock, certificates for an appropriate number of
unrestricted Shares shall be delivered promptly to
the Participant, and the certificates for the
shares of Restricted Stock shall be cancelled.
9. OTHER SHARE-BASED AWARDS.
(a) Grants.
Other Awards of Shares and other Awards that are
valued in whole or in part by reference to, or are otherwise
based on, Shares ("Other Share-Based Awards"), may be
granted either alone or in addition to or in conjunction
with other Awards under this Plan. Awards under this
Section 9 may include, but are not limited to, Stock Rights,
stock appreciation rights not granted in connection with the
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
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of securities convertible into Shares.
Subject to the provisions of the Plan, the Commit-
tee shall have sole and complete authority to determine the
persons to whom and the time or times at which Other Share-
Based Awards shall be made, the number of Shares or other
securities, if any, to be granted pursuant to Other Share-
Based Awards, and all other conditions of the Other Share-
Based Awards. In making an Other Share-Based Award, the
Committee may determine that the recipient of an Other
Share-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or dividend
equivalents with respect to the Shares or other securities
covered by the Award, and the Committee may provide that
such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
The terms of any Other Share-Based Award shall be set forth
in an Other Share-Based Award Agreement between the
Corporation and the Employee, which Agreement shall contain
such provisions as the Committee determines to be necessary
or appropriate to carry out the intent of the Plan with
respect to such Award.
(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:
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(i) Any Other Share-Based Award may not be
sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares
are issued or the Award becomes payable, or, if
later, the date on which any applicable restric-
tion, performance or deferral period lapses.
(ii) The Other Share-Based Award Agreement
shall contain provisions dealing with the disposi-
tion of such Award in the event of a termination
of the Employee's employment prior to the exer-
cise, realization or payment of such Award, and
the Committee in its sole discretion, may provide
for payment of the Award in the event of the
Employee's retirement, Disability or death or the
change of control of the Corporation, with such
provisions to take account of the specific nature
and purpose of the Award.
10. TERM OF PLAN.
Awards may be granted pursuant to the Plan until
the termination of the Plan on December 31, 1998.
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
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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 a party to
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.
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.
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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 422 of the Code.
Except as hereinbefore expressly provided in this
Section 11, a Participant shall have no rights by reason of
any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
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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12. SECURITIES LAW REQUIREMENTS AND LIMITATION OF
RIGHTS.
(a) Securities Law. No Shares shall be issued
pursuant to the Plan unless and until the Corporation has
determined that: (i) it and the Participant have taken all
actions required to register the Shares under the Securities
Act of 1933 or perfect an exemption from the registration
requirements thereof; (ii) any applicable listing
requirement of any stock exchange on which the Common Stock
is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied.
(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
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Share-Based Award shall have no rights other than those of a
general creditor of the Corporation. An Other Share-Based
Award shall represent an unfunded and unsecured obligation
of the Corporation, subject to the terms and conditions of
the applicable Other Share-Based Award Agreement.
13. AMENDMENT OF THE PLAN.
The Board may, insofar as permitted by law, from
time to time, with respect to any Shares at the time not
subject to Awards, suspend or discontinue the Plan or revise
or amend it in any respect whatsoever except that, without
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.
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14. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the
sale of Common Stock pursuant to the exercise of an Option
or the grant of Restricted Stock will be used for general
corporate purposes.
15. NO OBLIGATION TO EXERCISE OPTION.
The granting of an Option shall impose no obliga-
tion upon the Optionee to exercise such Option.
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. PAYMENT OF EXCISE TAXES.
If any payments or transfers to or for the
benefit of the Participant is deemed an "excess parachute
payment" as defined in Section 280G of the Internal Revenue
Code of 1986 (the "Code") subject to the excise tax
imposed by Section 4999 of the Code, the Corporation shall
pay to the Participant an additional amount such that the
total amount of all such payments and benefits (including
payments made pursuant to this Section) to the Participant
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shall equal the total amount of all such payments and
benefits to which the Participant would have been entitled
(but for the Section) net of all applicable federal, state
and local taxes except the excise tax. For purposes of
this Section, the Participant shall be deemed to pay
federal, state and local taxes at the highest marginal rate
of taxation for the applicable calendar year. The amount
of the payment to the Participant shall be estimated by the
firm of independent certified public accountants serving
as the outside auditor of the Corporation, as of the date
of the applicable event as described in Section 7(e)(i)-(iv).
18. WITHHOLDING TAXES.
(a) General. To the extent required by
applicable federal, state, local or foreign law, the
recipient of any payment or distribution under the Plan
shall make arrangements satisfactory to the Corporation for
the satisfaction of any withholding tax obligations that
arise by reason of such payment or distribution. The
Corporation shall not be required to make such payment or
distribution until such obligations are satisfied.
(b) Nonqualified Options. The Committee may
permit an Optionee who exercises Nonqualified Stock Options
to satisfy all or part of his or her withholding tax obliga-
tions by having the Company withhold a portion of the Shares
that otherwise would be issued to him or her under such
Nonqualified Stock Options. Such Shares shall be valued at
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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 December 2,
1999, the Corporation has caused its authorized officer to
execute the same.
POTLATCH CORPORATION
By /s/ Betty R Fleshman
Secretary
-30-
POTLATCH CORPORATION
1995 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED DECEMBER 2, 1999
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
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Exhibit (10)(n)
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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,
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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.
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(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
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
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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
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
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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
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.
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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.
(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
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<PAGE>
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
the Option (or to call the related stock appreciation right as
described in Section 7 (i)) in whole or in part:
(i) Upon consummation of a reorganization, merger or
consolidation involving the Corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the then outstanding shares of Common Stock (the
"Outstanding Common Stock") and then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors (the "Outstanding Voting Securities")
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction
owns the Corporation either directly or through one or more
subsidiaries), (B) no Person (as defined in subparagraph
(iii) below) (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or such
other corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock
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<PAGE>
of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership is based on the beneficial ownership, directly or
indirectly, of Outstanding Common Stock or Outstanding
Voting Securities immediately prior to the Business
Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such
Business Combination were members of the Board at the time of
the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; provided,
however, if the Corporation and the other party to the Business
Combination agree that the transaction is to be treated as a
pooling of interests for financial reporting purposes, and if
the transaction in fact is so treated, then the right to exercise
the Option (or to call the related stock appreciation right) shall
not be accelerated upon consummation of the Business Combination
to the extent that the Corporation's independent accountants and
the other party's independent accountants separately determine in
good faith that the acceleration would preclude the use of pooling
of interests accounting; or
(ii) On the date that individuals who, as of December
2, 1999 constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a Director
subsequent to December 2, 1999 whose election, or nomination
for election by the Corporation's stockholders, was approved
by a vote of at least a majority of the Directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the
election of removal of Directors, an actual or threatened
solicitation of proxies or consents or any other actual or
threatened action by, or on behalf of any Person other than
the Board; or
(iii) Upon the acquisition after December 2, 1999 by
any individual, entity or group (withing the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
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<PAGE>
either (A) the then Outstanding Common Stock or (B) the
combined voting power of the Oustanding Voting Securities;
provided, however, that the following acquisitions shall not
be deemed to be covered by this subsection (iii): (x) any
acquisition of Outstanding Common Stock or Outstanding
Voting Securities by the Corporation, (y) any acquisition of
Outstanding Common Stock or Outstanding Voting Securities by
any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or (z) any acquisition of
Outstanding Common Stock or Outstanding Voting Securities
by any corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (i) of this
Section 7(d); or
(iv) Upon the consummation of the sale of all or
substantially all of the assets of the Corporation or
approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(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
(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
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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.
(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
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.
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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
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 following the
applicable event described in Section 7(d)(i) through (iv).
Following any such event, 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 from
the Corporation 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. In the case of a stock appreciation right
called after an event described in Section 7(d)(i) or (iv)
above, "Fair Market Value" of purposes of this Subsection
(i) shall be the greater of (A) the Fair Market Value of such
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Shares as of the date immediately prior to the event described
in Section 7(d)(i) or (iv) above, or (B) the value of such Shares
determined as of the date of the call in good faith by the
Committee (as composed on the day preceding the date of the
event described in Section 7(d)(i) or (iv) above), taking into
consideration all relevant facts and circumstances.
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, and provided further, that
if the stock appreciation right is called after an event described
in Section 7(d)(i) or (iv), the payment shall be made in cash.
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.
(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.
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(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
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
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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.
(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.
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(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.
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
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entitled to receive, currently or on a deferred basis, interest
or dividends or dividend equivalents with respect to the Shares
or other securities covered by the Award, and the Committee may
provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. The
terms of any Other Share-Based Award shall be set forth in an
Other Share-Based Award Agreement between the Corporation and the
Employee, which Agreement shall contain such provisions as the
Committee determines to be necessary or appropriate to carry out
the intent of the Plan.
(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.
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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
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 the date on which Nonqualified Stock
Options were last awared pursuant to Section 10(c) below, shall
receive a Nonqualified Stock Option for 5,000 Shares on the date
of the Board's regular meeting in December following his or her
election; and if an Outside Director is so elected on the date
of such meeting, he or she shall receive a Nonqualified Stock
Option for 5,000 Shares on the date of such meeting.
(c) Annual Awards.
Each Outside Director shall receive a Nonqualified Stock
Option for 2,500 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.
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(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
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.
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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).
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
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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 a party to 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.
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 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.
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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
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
22
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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.
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.
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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.
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. PAYMENT OF EXCISE TAXES.
If any payments or transfers to or for the benefit of the
Participant is deemed an "excess parachute payment" as defined
in Section 280G of the Internal Revenue Code of 1986 (the
"Code") subject to the excise tax imposed by Section 4999 of the
Code, the Corporation shall pay to the Participant an additional
amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section) to
the Participant shall equal the total amount of all such payments
and benefits to which the Participant would have been entitled
(but for this Section) net of all applicable federal, state and
local taxes except the excise tax. For purposes of this Section,
the Participant shall be deemed to pay federal, state and local
taxes at the highest marginal rate of taxation for the applicable
calendar year. The amount of the payment to the Participant
24
<PAGE>
shall be estimated by the firm of independent certified public
accountants serving as the outside auditor of the Corporation,
as of the date of the applicable event as described in Section
7(d) (i)-(iv).
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
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 2, 1999, the Corporation has caused its
authorized officer to execute the same.
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POTLATCH CORPORATION
By /s/ Betty R Fleshman
Secretary
26
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.
(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.
EXHIBIT (10)(n)(vi)
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(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.
(l) "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.
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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
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) Upon consummation of a reorganization, merger or
consolidation involving the Corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the then outstanding shares of Common Stock (the
"Outstanding Common Stock") and the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors (the "Outstanding Voting
Securities") immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Corporation
either directly or through one or more subsidiaries), (B) no
* See Paragraph 5 for further explanation of end of term for Option.
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Person (as defined in subparagraph (c) below) (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) sponsored or
maintained by the Corporation or such other corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership is
based on the beneficial ownership, directly or indirectly,
of Outstanding Common Stock or Outstanding Voting Securities
immediately prior to the Business Combination and (C) at
least a majority of the members of the board of directors of
the corporation resulting from such Business Combination
were members of the Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Business Combination; provided, however,
if the Corporation and the other party to the Business
Combination agree that the transaction is to be treated as a
pooling of interests for financial reporting purposes, and
if the transaction in fact is so treated, then the right to
exercise the Option (or to call the related stock
appreciation right) shall not be accelerated upon
consummation of the Business Combination to the extent that
the Corporation's independent accountants and the other
party's independent accountants separately determine in good
faith that the acceleration would preclude the use of
pooling of interests accounting; or
(b) On the date that individuals who, as of December
2, 1999 constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a
director subsequent to December 2, 1999 whose election, or
nomination for election by the Corporation's stockholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors, an actual
or threatened solicitation of proxies or consents or any
other actual or threatened action by, or on behalf of any
Person other than the Board; or
(c) Upon the acquisition after December 2, 1999 by
any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
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<PAGE>
of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either
(A) the then Outstanding Common Stock or (B) the combined
voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not be deemed
to be covered by this subsection (c): (x) any acquisition of
Outstanding Common Stock or Outstanding Voting Securities by
the Corporation, (y) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any employee
benefit plan (or related trust) sponsored or maintained by
the Corporation or (z) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any corporation
pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (a) of this Paragraph 3; or
(d) Upon the consummation of the sale of all or
substantially all of the assets of the Corporation or
approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
4. In the event of a Change in Control, this Option shall
automatically include a stock appreciation right that may be
called by the Employee. After a Change in Control, the 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 after an event 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 immediately prior to the event described in
Paragraph 3(a) or 3(d) or (b) the value determined as of the date
of the call 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.
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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. Unless otherwise required
by the Plan, 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.
(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
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<PAGE>
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 a party to 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.
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
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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),
and cause such certificate or certificates to be delivered to or
upon the order of such person or persons.
9. If any payments or transfers to or for the benefit of
the Employee are deemed an "excess parachute payment" as defined
in Section 280G of the Internal Revenue Code of 1986 (the "Code")
subject to the excise tax imposed by Section 4999 of the Code,
the Corporation shall pay to the Employee an additional amount
such that the total amount of all such payments and benefits
(including payments made pursuant to this Section) to the
Employee shall equal the total amount of all such payments and
benefits to which the Employee would have been entitled (but for
this Section) net of all applicable federal, state and local
taxes except the excise tax. For purposes of this Section, the
Employee shall be deemed to pay federal, state and local taxes at
the highest marginal rate of taxation for the applicable calendar
year. The amount of the payment to the Employee shall be
estimated by the firm of independent certified public accountants
serving as the outside auditor of the Corporation, as of the date
of the applicable event as described in Paragraph 3(a) through
3(d).
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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
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
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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.
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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
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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.
(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.
EXHIBIT (10)(n)(vii)
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(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).
(l) "Option" means a stock option granted pursuant to the
Plan.
(m) "Option Period" means the term of this Option as
provided in Paragraph 3 of this Agreement.
(n) "Partial Exercise" means an exercise with respect to
less than all of the vested but unexercised Shares subject to
Option held by the person exercising the Option.
(o) "Plan" means the Potlatch Corporation 1995 Stock
Incentive Plan, pursuant to which the parties have entered into
this Agreement.
(p) "Purchase Price" means the Exercise Price times the
number of whole shares with respect to which this Option is
exercised.
(q) "Securities Act" means the Securities Act of 1933, as
amended.
(r) "Share" means one share of Common Stock, adjusted in
accordance with Section 13 of the Plan.
(s) "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Corporation if each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
2. The Corporation grants to Outside Director the option
to purchase that number of shares of Common Stock specified in
Section 3 of the addendum to this Agreement for the Exercise
Price specified in Section 2 of the addendum to this Agreement,
on the terms and conditions stated in this Agreement.
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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
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) Upon consummation of a reorganization, merger or
consolidation involving the Corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the then outstanding shares of Common Stock (the
"Outstanding Common Stock") and the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors (the "Outstanding Voting
Securities") immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Corporation
either directly or through one or more subsidiaries), (B) no
Person (as defined in subparagraph (c) below) (excluding any
corporation resulting from such Business Combination or any
employee benefit plan (or related trust) sponsored or
maintained by the Corporation or such other corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the
*See Paragraph 5 for further explanation of end of term for Option.
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then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership is
based on the beneficial ownership, directly or indirectly,
of Outstanding Common Stock or Outstanding Voting Securities
immediately prior to the Business Combination and (C) at
least a majority of the members of the board of directors of
the corporation resulting from such Business Combination
were members of the Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Business Combination provided, however,
if the Corporation and the other party to the Business
Combination agree that the transaction is to be treated as a
pooling of interests for financial reporting purposes, and
if the transaction in fact is so treated, then the right to
exercise the Option (or to call the related stock
appreciation right) shall not be accelerated upon
consummation of the Business Combination to the extent that
the Corporation's independent accountants and the other
party's independent accountants separately determine in good
faith that the acceleration would preclude the use of
pooling of interests accounting; or
(b) On the date that individuals who, as of December
2, 1999 constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a
director subsequent to December 2, 1999 whose election, or
nomination for election by the Corporation's stockholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors, an actual
or threatened solicitation of proxies or consents or any
other actual or threatened action by, or on behalf of any
Person other than the Board; or
(c) Upon the acquisition after December 2, 1999 by
any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either
(A) the then Outstanding Common Stock or (B) the combined
voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not be deemed
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to be covered by this subsection (c): (x) any acquisition of
Outstanding Common Stock or Outstanding Voting Securities by
the Corporation, (y) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any employee
benefit plan (or related trust) sponsored or maintained by
the Corporation or (z) any acquisition of Outstanding Common
Stock or Outstanding Voting Securities by any corporation
pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (a) of this Paragraph 3; or
(d) Upon the consummation of the sale of all or
substantially all of the assets of the Corporation or
approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
4. In the event of a Change in Control, this Option shall
automatically include a stock appreciation right that may be
called by the Outside Director. After a Change in Control
event, the 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 after an event
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 immediately prior to the event described in Paragraph 3(a)
or 3(d) or (b) the value determined as of the date of the call 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
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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. Unless otherwise required by
the Plan, 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
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
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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 a party to 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.
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 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
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exercised, registered in the name of the person or persons
exercising the Option (or in the name of such person or persons
and another person as community property or as joint tenants),
and cause such certificate or certificates to be delivered to or
upon the order of such person or persons.
9. In the event the Corporation determines that it is
required to withhold state or federal income tax as a result of
the exercise of this Option, as a condition to the exercise of
the Option, Outside Director will make arrangements satisfactory
to the Corporation to enable it to satisfy such withholding
requirements.
10. Neither Outside Director nor Outside Director's
representative shall have any rights as a stockholder with
respect to any Shares subject to this Option until such Shares
shall have been issued to Outside Director or Outside Director's
representative.
11. Unless at the time Outside Director gives notice of the
exercise of this Option, the Shares to be issued are registered
under the Securities Act, the notice shall include a statement to
the effect that all Shares for which this Option is being
exercised are being purchased for investment, and without present
intention of resale, and will not be sold without registration
under the Securities Act or exemption from registration, and such
other representations as the Committee may require. The
Corporation may permit the sale or other disposition of any
Shares acquired pursuant to any such representation if it is
satisfied that such sale or other disposition would not
contravene applicable state or federal securities laws. Unless
the Corporation shall determine that, in compliance with the
Securities Act or other applicable statute or regulation, it is
necessary to register any of the Shares for which this Option has
been exercised, and unless such registration, if required, has
been completed, certificates to be issued upon the exercise of
this Option shall contain the following legend:
"The Shares represented by this certificate have not
been registered under the Securities Act of 1933 and may be
offered, sold or transferred only if 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,
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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.
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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):
___ 5,000 Shares (Director Election)
___ 2,500 Shares (Annual Grant)
This number is subject to adjustment as provided in
Section 13 of the Plan and Paragraph 6 of this stock option
agreement.
The document entitled Stock Option Agreement - Potlatch
Corporation 1995 Stock Incentive Plan is incorporated by this
reference into this addendum.
IN WITNESS WHEREOF, the Corporation has caused this addendum
to the stock option agreement to be executed on its behalf 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
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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 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 26, 2000,
relating to the balance sheets of Potlatch Corporation and consolidated
subsidiaries as of December 31, 1999 and 1998 and the related statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999 which report appears in the
December 31, 1999 annual report on Form 10-K of Potlatch Corporation.
KPMG LLP
March 29, 2000
Exhibit (23)
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or
Richard L. Paulson, 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 my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K
of Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Richard A. Clarke
(DIRECTOR)
Exhibit (24)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Kenneth T. Derr
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Vivian W. Piasecki
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Toni Rembe
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Reuben F. Richards
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Judith M. Runstad
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Robert G. Schwartz
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Charles R. Weaver
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
Frederick T. Weyerhaeuser
(DIRECTOR)
<PAGE>
POWER OF ATTORNEY
I, the undersigned, appoint Betty R. Fleshman or, in her
absence or inability to act, L. Pendleton Siegel or Richard
L. Paulson, 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
my capacity as a Director of Potlatch
Corporation, the Annual Report on Form 10-K of
Potlatch Corporation for the fiscal year ended December 31,
1999, 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 3, 2000.
William T. Weyerhaeuser
(DIRECTOR)
<TABLE> <S> <C>
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0
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<EPS-BASIC> 1.41
<EPS-DILUTED> 1.41
</TABLE>
