Exhibit (10)(q)

 

POTLATCH CORPORATION

 

PERFORMANCE SHARE AGREEMENT

 

2000 STOCK INCENTIVE PLAN

 

THIS PERFORMANCE SHARE AGREEMENT made and entered into the Grant Date 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:

 

WHEREAS, the Corporation maintains the the 2000 Stock Incenitve Plans (the
“Plan”), which are incorporated into and form a part of this Agreement, and the
Employee has been selected to receive a contingent grant of performance shares
under Section 9 of the Plan (Other Share Based Awards),

 

NOW, THEREFORE, for valuable consideration, the parties agree as follows:

 

1. Definitions. The following terms used in this Agreement shall have the
meanings set forth in this Paragraph.

 

  (a)   “Agreement” means this Performance Share Agreement.

 

  (b)   “Board” means the Board of Directors of the Corporation.

 

  (c)   “Change in Control” means an event or transaction described under
Paragraph 12 “Change of Control”, subparagraphs (a), (b) and (c) of this
Agreement.

 

  (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
award this target congingent grant of performance share as specified in the
addendum to this Agreement

 

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  (i)   “Disability” means the Employee qualifies for continuing benefits under
the Corporation’s Disability Income Plan after the first full 24 consecutive
months of disability.

 

  (j)   “Other Share-based Award” means an Award granted pursuant to Section 9
of the Plans.

 

  (k)   “Plan” means the Potlatch Corporation 2000 Stock Incentive Plan,
pursuant to which the parties have entered into this Agreement.

 

  (l)   “Securities Act” means the Securities Act of 1933, as amended.

 

  (m)   “Share” means one share of Common Stock, adjusted in accordance with
Section 13 of the Plans.

 

  (n)   “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. Award. Subject to the terms of this Agreement and the addendum attached to
this Agreement, the Employee is hereby awarded a target contingent grant of
performance shares in the number set forth in the attached addendum to this
Agreement. The number of Shares actually payable to the Employee is contingent
on the performance achieved as specified in the addendum to this Agreement. This
award has been granted pursuant to the Plan, a copy of which the Employee may
obtain upon request to the Corporation.

 

3. Performance Measure. The performance measure is a comparison of the
percentile ranking of the Corporation’s total shareholder return (stock price
appreciation plus dividends as calculated pursuant to Paragraph 5 below) as
compared to the total shareholder return performance of a selected peer group of
forest products industry companies as specified in the Performance Schedule
contained in the addendum to this Agreement.

 

4. Performance Period. The performance period is the period specified in the
addendum to this Agreement and represents the period during which the total
shareholder return for Potlatch Corporation and the selected peer group of
forest products industry companies is measured.

 

5. Calculation Of Total Shareholder Return. Total shareholder return for any
given common stock shall be expressed as a percentage and calculated by:

 

  (i)  

subtracting (a) the beginning average stock price for one share of stock
(determined by calculating the average closing stock price during

 

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the two calendar months preceding the beginning of the performance period) from
(b) the ending average stock price for such share of stock (determined by
calculating the average closing stock price during the final two calendar months
of the performance period, after taking into account the affect of any stock
dividends, stock splits, consolidations, recapitalizations, reorganizations or
like events with respect to such share); and

 

  (ii)   adding to the difference determined under subparagraph (i) above, all
cash dividends actually paid on such share of stock during the performance
period; and

 

  (iii)   dividing the sum determined by subparagraphs (i) and (ii) above by the
beginning average stock price determined pursuant to subparagraph (i)(a) above.

 

6. Dividend Equivalents. During the performance period dividend equivalents
shall be accrued and paid out as additional Shares in relation to the calculated
number of performance shares earned at the end of the performance period. For
the purpose of converting dividend equivalents into Shares, the ending average
stock price for Potlatch Shares (as determined pursuant to Paragraph 5(i)(b)
above) shall be used.

 

7. Settlement of Awards. The Corporation shall deliver to the Employee one Share
for each performance share (and dividend equivalents) earned as determined in
accordance with the provisions set forth in the addendum to this Agreement. The
earned performance shares payable to the Employee (including Shares payable
pursuant to Paragraph 6 above) shall be paid solely in Shares. Any fractional
share will be rounded to the closest whole share.

 

8. Time of Payment. Except as otherwise provided in this Agreement, the
performance shares earned as specified in the addendum to this Agreement will be
delivered to the Employee (or, in the case of the Employee’s death before
delivery, to the Employee’s beneficiary) as soon as practicable after the end of
the performance period as set forth in the addendum to this Agreement.

 

9. Committee Discretion to Reduce Award. Notwithstanding any provision in this
Agreement to the contrary, the Committee retains the right, at its sole and
absolute discretion, to reduce or eliminate any award that may become payable
hereunder if the Committee determines that any one or more of the following
conditions have occurred:

 

  (a)   The stockholder return to the Corporation’s stockholders has been
insufficient;

 

  (b)   The stockholder return to the Corporation’s stockholders has been
negative;

 

  (c)   The financial performance of the Corporation has been inadequate; or

 

  (d)   The operational performance of the Corporation has been inadequate

 

In addition, the Committee may reduce or eliminate the award granted hereby
based on the Employee’s individual performance.

 

10. Retirement, Disability, or Death During Performance Period. If the
Employee’s employment with the Corporation terminates during the performance
period because of

 

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the Employee’s retirement under the Salaried Employees’ Retirement Plan,
Disability, or death, the Employee (or, in the case of the Employee’s death, the
Employee’s beneficiary) shall be entitled to a prorated number of the
performance shares earned as specified in the addendum to this Agreement. The
prorated number of performance shares earned is determined at the end of the
performance period based on the ratio of the number of completed calendar months
the Employee is employed during the performance period to the total number of
months in the performance period.

 

11. Termination of Employment During the Performance Period. If the Employee’s
employment with the Corporation terminates during the performance period for any
reason other than retirement under the Salaried Employees’ Retirement Plan,
Disability, or death, the entire target contingent grant of performance shares
granted under this Agreement shall be automatically terminated as of the date of
such termination of employment.

 

12. Change of Control. Upon a Change of Control, the Employee will earn a
prorated number of performance shares based on the ratio of the number of
completed calendar months from the beginning of the performance period to the
end of the calendar month in which the Change of Control occurs compared to the
total number of months in the performance period specified in the addendum to
this Agreement. For the purpose of determining the number of Shares to be
awarded, this ratio shall be applied to the number of Shares specified in the
Target Grant of Performance Shares set forth in the addendum to this Agreement
and no performance measure shall be considered. The prorated performance shares
to be awarded (including Shares payable pursuant to Paragraph 6 above) will be
delivered to the Employee as soon as practicable following the date of the
Change of Control.

 

The term Change of Control means:

 

(a) The 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 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)
(a “Person”) (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

 

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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; or

 

(b) 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) 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.

 

13. Available Shares. The Corporation agrees that it will at all times during
the performance 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 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.

 

Subject to any required action by the stockholders, if the Corporation shall be
a party to any merger, consolidation or other reorganization, this Agreement
shall apply to the securities to which a holder of the number of Shares subject
to this Agreement would have been entitled.

 

14. Applicable Taxes. In the event the Corporation determines that it is
required to withhold state or federal income tax as a result of the award of the
Shares, the Employee will make arrangements satisfactory to the Corporation to
enable it to satisfy such withholding requirements.

 

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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 paragraph) 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 paragraph) net of all applicable federal, state and local taxes except
the excise tax. For purposes of this paragraph, 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 under “Change of Control” subparagraphs 12(a) through 12(d) in the
Agreement. If such independent certified public accounting firm is unable to
calculate the payment, the Committee shall select an alternate independent
public accounting firm to make the calculation.

 

15. Relationship to Other Benefits. Performance share awards shall not be taken
into account in determining any benefits under any pension, savings, disability,
severance, group insurance or any other pay related plan of the Corporation.

 

16. Required Deferral. In the event the award of shares would cause the Employee
to qualify as a “covered employee” pursuant to Section 162(m) of the Code, that
portion of the award that would exceed the amount deductible by the Corporation
under 162(m) of the Code shall be automatically deferred until the Employee’s
compensation is no longer subject to Section 162(m) of the Code. Any portion of
the award so deferred shall be converted to stock units and dividend equivalents
shall accrue on the stock units and be paid out as additional shares after the
Employee’s compensation is no longer subject to Section 162(m) of the Code.

 

17. Stockholder Rights. Neither Employee nor Employee’s representative shall
have any rights as a stockholder with respect to any Shares subject to this
Agreement until such Shares shall have been issued to Employee or Employee’s
representative.

 

18. Transfers, Assignments, Pledges. Except as otherwise provided in this
Agreement, 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 award, 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 Award and the rights
and privileges conferred by this Agreement shall immediately become null and
void.

 

However, this Paragraph 18 shall not preclude: (i) an Employee from designating
a beneficiary to succeed, after the Employee’s death, to any rights of the
Employee or

 

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benefits distributable to the Employee under this Agreement not distributed at
the time of the Employee’s death; or (ii) a transfer of any award hereunder by
will or the laws of descent or distribution. In that regard, any such rights
shall be exercisable by the Employee’s beneficiary, and such benefits shall be
distributed to the beneficiary, in accordance with the provisions of this
Agreement and the Plan. The beneficiary shall be the named beneficiary or
beneficiaries designated by the Employee in writing filed with the Corporation
in such form and at such time as the Corporation shall require. If a deceased
Employee fails to designated a beneficiary, or if the designated beneficiary
does not survive the Employee, any benefits distributable to the Employee shall
be distributed to the legal representative of the estate of the Employee. If a
deceased Employee designates a beneficiary and the designated beneficiary
survives the Employee but dies before the complete distribution of benefits to
the designated beneficiary under this Agreement, then any benefits distributable
to the designated beneficiary shall be distributed to the legal representative
of the estate of the designated beneficiary.

 

19. No Employment Rights. 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.

 

20. Administration. The authority to manage and control the operation and
administration of this Agreement shall be vested in the Committee, and the
Committee shall have all powers with respect to this Agreement as it has with
respect to the Plan. Any interpretation of this Agreement by the Committee and
any decision made by it with respect to this Agreement is final and binding.

 

21. Interpretation. This Agreement shall be interpreted and construed in a
manner consistent with the terms of the applicable Plan. If there is any
discrepancy between the terms and conditions of this Agreement and the terms and
conditions of the applicable Plan, the provisions of the Plan shall control.

 

22. Applicable Law. Except as provided in Paragraph 20 of this Agreement, this
Agreement shall be interpreted and construed in a manner consistent with the
Plan and in accordance with the laws of the State of Delaware without regard to
choice of law principles. If there is any discrepancy between the terms and
conditions of this Agreement and the terms and conditions of the Plan, the terms
and conditions of the Plan shall control.

 

23. Term of the Agreement. The term of this Agreement shall end at either upon
delivery of any award payable hereunder to the Employee or, if earlier, upon the
termination of Employee’s employment with the Corporation or its Subsidiaries
for any reason other than retirement under the Salaried Employees’ Retirement
Plan, Disability or death.

 

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POTLATCH CORPORATION

 

2000 STOCK INCENTIVE PLAN

 

ADDENDUM TO PERFORMANCE SHARE AGREEMENT

 

Employee:                                         
                                        
                                                                              
Grant Date:                                         
                                        
                                                                             

Target Grant of Performance Shares:                             
                                        
                                                 

 

Performance Period: January 1, 2004 through December 31, 2006

 

Performance Measure:

 

The performance measure is a comparison of the percentile ranking of Potlatch
Corporation’s total shareholder return (TSR), which includes stock price
appreciation plus dividends paid during the performance period, to the TSR
performance of selected peer group of forest products industry companies listed
on Exhibit 1 hereto.

 

Performance Schedule:

 

The performance schedule below shows the percentage of the target grant that
will be awarded at the end of the performance period depending upon the actual
TSR percentile ranking achieved by Potlatch during the performance period:

 

TSR Percentile
Rank

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   % of Target
Grant Awarded

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> 85%

       150 %    

85%

       150 %    

70%

       125 %    

55%

       100 % = target payout level    

50%

       75 %    

45%

       50 %    

40%

       25 %    

< 40%

       0 %

 

The percent of the target grant awarded for achieved TSR percentiles between the
levels shown above is determined by interpolation. The exact number of
performance shares awarded to the Employee after multiplication by the
appropriate factor (or

 

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determined by interpolation) plus dividend equivalents accrued during the
performance period will be rounded to the nearest whole number of shares.

 

The document entitled Performance Share Agreement – Potlatch Corporation 2000
Stock Incentive Plan is incorporated by this reference into this addendum and
the terms of the Performance Share Agreement shall be controlling in the event
of any discrepancy.

 

IN WITNESS WHEREOF, the Corporation has caused this Addendum to the Performance
Share 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:  

 

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      By  

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                Vice President Human Resources Date:  

 

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      By  

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                Employee

 

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Exhibit 1

 

Performance Share Measure

Forest Products Industry Peer Group

 

Company Name

 

  1.   Abitibi-Consolidated, Inc.

 

  2.   Boise

 

  3.   Bowater

 

  4.   Canfor Corporation

 

  5.   Caraustar Industries, Inc.

 

  6.   Cascades, Inc.

 

  7.   Chesapeake

 

  8.   Deltic Timber Corporation

 

  9.   Doman Industries Limited

 

  10.   Domtar, Inc.

 

  11.   Georgia-Pacific

 

  12.   Glatfelter

 

  13.   International Forest Products Limited

 

  14.   International Paper

 

  15.   Longview Fibre

 

  16.   Louisiana-Pacific

 

  17.   MeadWestvaco

 

  18.   Nexfor, Inc.

 

  19.   Norske Skog Canada Limited

 

  20.   Packaging Corp of America

 

  21.   Packaging Dynamics Corporation

 

  22.   Plum Creek

 

  23.   Pope & Talbot

 

  24.   Rayonier

 

  25.   Rock-Tenn Company

 

  26.   Slocan Forest Products

 

  27.   Smurfit-Stone

 

  28.   Sonoco Products Company

 

  29.   Taiga Forest Products

 

  30.   Tembec, Inc.

 

  31.   Temple Inland

 

  32.   Universal Forest Products

 

  33.   West Fraser Timber Company

 

  34.   Weyerhaeuser

 

If two of the listed companies merge during the applicable performance period,
their combined TSR will be used for ranking purposes. If any listed company goes
out of business or otherwise ceases to exist as an independent company during
the applicable performance period, it will not be taken into consideration in
determining TSR ranking for that performance period.

 

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