Exhibit 10(e)

 

POTLATCH CORPORATION

 

2005 STOCK INCENTIVE PLAN

 

(As Amended Effective December 29, 2005)

 

1. PURPOSE.

 

This Potlatch Corporation 2005 Stock Incentive Plan is intended to provide
incentive to Employees and Directors of Potlatch Corporation (the “Corporation”)
and its eligible Affiliates, to encourage proprietary interest in the
Corporation and to encourage Employees and Directors to remain in the service of
the Corporation or its Affiliates.

 

2. DEFINITIONS.

 

(a) “Administrator” means the Board or either of the Committees appointed to
administer the Plan.

 

(b) “Affiliate” means any entity, whether a corporation, partnership, joint
venture or other organization that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
Corporation.

 

(c) “Award” means any award of an Option, Restricted Stock, Restricted Stock
Units, Performance Shares or an Other Share-Based Award under the Plan.

 

(d) “Beneficiary” means a person designated as such by a Participant or a
Beneficiary for purposes of the Plan or determined with reference to Section 18.

 

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

 

(f) “Cause” means the occurrence of any one or more of the following: (i) the
Participant’s conviction of any felony or crime involving fraud, dishonesty or
moral turpitude; (ii) the Participant’s participation in a fraud or act of
dishonesty against the

 

1

--------------------------------------------------------------------------------

Corporation, its Affiliates or any successor to the Corporation that result in
material harm to the business of the Corporation, its Affiliates or any
successor to the Corporation; or (iii) the Participant’s intentional, material
violation of any contract between the Corporation, its Affiliates or any
successor to the Corporation and the Participant or any statutory duty the
Participant owes to the Corporation, its Affiliates or any successor to the
Corporation that the Participant does not correct within 30 days after written
notice thereof has been provided to the Participant.

 

(g) “Code” means the Internal Revenue Code of 1986, as amended.

 

(h) “Committee” means the Executive Compensation and Personnel Policies
Committee of the Board and the Nominating and Corporate Governance Committee of
the Board.

 

(i) “Common Stock” means the $1 par value common stock of the Corporation.

 

(j) “Corporation” means Potlatch Corporation, a Delaware corporation.

 

(k) “Covered Employee” means the chief executive officer or any Employee whose
total compensation for the taxable year is required to be reported to
stockholders under the Exchange Act by reason of such Employee being among the
four highest compensated officers for the taxable year (other than the chief
executive officer).

 

(l) “Director” means a director of the Corporation.

 

(m) “Disability” means the condition of a Participant 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 continuous period of at least 12
months.

 

2

--------------------------------------------------------------------------------

(n) “Employee” means an individual employed by the Corporation or an Affiliate
(within the meaning of Code section 3401 and the regulations thereunder).

 

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(p) “Exercise Price” means the price per Share of Common Stock at which an
option may be exercised.

 

(q) “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
Wall Street Journal, or if no trading of Shares is reported for that day, on the
next preceding day on which trading was reported.

 

(r) “Good Reason” means that one or more of the following are undertaken by the
Corporation, its Affiliates or any successor to the Corporation without the
Participant’s express written consent: (i) the assignment to the Participant of
any duties or responsibilities that results in a diminution in the Participant’s
position or function as in effect immediately prior to the effective date of a
Change in Control (as defined in Section 7(e) below); provided, however, that a
change in the Participant’s title or reporting relationships shall not provide
the basis for a voluntary termination with Good Reason; (ii) a reduction by the
Corporation, its Affiliates or any successor to the Corporation in the
Participant’s annual base salary, as in effect on the effective date of the
Change in Control or as increased thereafter; (iii) any failure by the
Corporation, its Affiliates or any successor to the Corporation to continue in
effect any benefit plan or program, including incentive plans or plans with
respect to the receipt of securities of the Corporation, its Affiliates or any
successor to the Corporation, in which the

 

3

--------------------------------------------------------------------------------

Participant was participating immediately prior to the effective date of the
Change in Control (hereinafter referred to as “Benefit Plans”), or the taking of
any action by the Corporation, its Affiliates or any successor to the
Corporation that would adversely affect the Participant’s participation in or
reduce the Participant’s benefits under the Benefit Plan or deprive the
Participant of any fringe benefit that the Participant enjoyed immediately prior
to the effective date of the Change in Control; provided, however, that no
voluntary termination with Good Reason shall be deemed to have occurred if the
Corporation, its Affiliates or any successor to the Corporation provide for the
Participant’s participation in benefit plans and programs, that, taken as a
whole, are comparable to the Benefit Plans; (iv) a relocation of the
Participant’s business office to a location more than 50 miles from the location
at which the Participant performs duties as of the effective date of the Change
in Control, except for required travel by the Participant on the Corporation’s,
its Affiliates’ or any successor to the Corporation’s business to an extent
substantially consistent with the Participant’s business travel obligations
prior to the effective date of the Change in Control; or (v) a material breach
by the Corporation, its Affiliates or any successor to the Corporation of any
provision of the Plan or the Option Agreement or any material agreement between
the Participant and the Corporation, its Affiliates or any successor to the
Corporation concerning the terms and conditions of the Participant’s employment.

 

(s) “Incentive Stock Option” means an Option described in Code section 422(b).

 

(t) “Misconduct” means that the Administrator (or its delegate) has determined
in its sole discretion that a Participant has (i) engaged in competition with

 

4

--------------------------------------------------------------------------------

the Corporation or an Affiliate, including, but not limited to, the rendering of
services for any organization or engaging directly or indirectly in any business
that is or may be (in the reasonable discretion of the Administrator) directly
or indirectly competitive with the Corporation or an Affiliate, (ii) induced any
customer of the Corporation or an Affiliate to breach any contract with the
Corporation or an Affiliate or induced any employee of the Corporation or an
Affiliate to be employed or perform services elsewhere, (iii) made any
unauthorized disclosure of any of the secrets or confidential information of the
Corporation or an Affiliate, (iv) committed an act of embezzlement, fraud or
theft with respect to the property of the Corporation or an Affiliate, or
(v) 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 an Affiliate.

 

(u) “Nonqualified Stock Option” means an Option not described in Code section
422(b) or 423(b).

 

(v) “Option” means a stock option granted pursuant to Section 7. “Option
Agreement” means the agreement between the Corporation and the Participant which
contains the terms and conditions pertaining to such Option.

 

(w) “Other Share-Based Award” means an Award granted pursuant to Section 11.
“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.

 

(x) “Outside Director” means a Director who is not an Employee.

 

(y) “Participant” means an Employee or Director who has received an Award.

 

5

--------------------------------------------------------------------------------

(z) “Performance Shares” means an Award denominated in Shares granted pursuant
to Section 10 that may be earned in whole or in part based upon attainment of
performance objectives established by the Administrator pursuant to Section 13.
“Performance Share Agreement” means the agreement between the Corporation and
the recipient of the Performance Shares which contains the terms and conditions
pertaining to the Performance Shares.

 

(aa) “Plan” means this Potlatch Corporation 2005 Stock Incentive Plan.

 

(bb) “Purchase Price” means the Exercise Price times the number of whole Shares
with respect to which an Option is exercised.

 

(cc) “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.

 

(dd) “Restricted Stock Unit” means an Award denominated in Shares granted
pursuant to Section 9 in which the Participant has the right to receive a
specified number of Shares over a specified period of time. “Restricted Stock
Unit Agreement” means the agreement between the Corporation and the recipient of
the Restricted Stock Unit Award which contains the terms and conditions
pertaining to the Restricted Stock Unit Award.

 

(ee) “Share” means one share of Common Stock, adjusted in accordance with
Section 16 (if applicable).

 

(ff) “Share Equivalent” means a bookkeeping entry representing a right to the
equivalent of one Share.

 

6

--------------------------------------------------------------------------------

(gg) “Stock Right” means a right to receive an amount equal to the value of a
specified number of Shares which will be payable in Shares or cash as
established by the Administrator.

 

(hh) “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 2, 2004, to be effective
immediately, subject to approval by the Corporation’s stockholders.

 

4. ADMINISTRATION.

 

(a) Administration with respect to Outside Directors.

 

With respect to Awards to Outside Directors, the Plan shall be administered by
(A) the Board or (B) the Nominating and Corporate Governance Committee of the
Board. Notwithstanding the foregoing, all Awards made to members of the
Nominating and Corporate Governance Committee shall be approved by the Board.

 

(b) Administration with respect to Employees.

 

With respect to Awards to Employees, the Plan shall be administered by (A) the
Board or (B) the Executive Compensation and Personnel Policies Committee of the
Board.

 

(i) If any member of the Executive Compensation and Personnel Policies Committee
does not qualify as an “outside director” for purposes of Code section 162(m),
Awards under the Plan for the Covered Employees shall be

 

7

--------------------------------------------------------------------------------

administered by a subcommittee consisting of each Executive Compensation and
Personnel Policies Committee member who qualifies as an “outside director.” If
fewer than two Executive Compensation and Personnel Policies Committee members
qualify as “outside directors,” the Board shall appoint one or more other Board
members to such subcommittee who do qualify as “outside directors,” so that the
subcommittee will at all times consist of two or more members all of whom
qualify as “outside directors” for purposes of Code section 162(m).

 

(ii) If any member of the Executive Compensation and Personnel Policies
Committee does not qualify as a “non-employee director” for purposes of Rule
16b-3 promulgated under the Exchange Act, then Awards under the Plan for the
executive officers of the Corporation and Directors shall be administered by a
subcommittee consisting of each Executive Compensation and Personnel Policies
Committee member who qualifies as a “non-employee director.” If fewer than two
Executive Compensation and Personnel Policies Committee members qualify as
“non-employee directors,” then the Board shall appoint one or more other Board
members to such subcommittee who do qualify as “non-employee directors,” so that
the subcommittee will at all times consist of two or more members all of whom
qualify as “non-employee directors” for purposes of Rule 16b-3 promulgated under
the Exchange Act.

 

(c) Powers of the Administrator.

 

The Administrator shall from time to time at its discretion make determinations
with respect to Employees and Directors who shall be granted Awards, the number
of Shares or Share Equivalents to be subject to each Award, the vesting of
Awards, the

 

8

--------------------------------------------------------------------------------

designation of Options as Incentive Stock Options or Nonqualified Stock Options
and other conditions of Awards to Employees and Directors.

 

The interpretation and construction by the Administrator of any provisions of
the Plan or of any Award shall be final. No member of a Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Award.

 

(d) Claims Administration.

 

Notwithstanding the foregoing, within 30 days after an event described in
Section 7(e)(i) through (iv), the Committee shall appoint an independent
committee consisting of at least three current (as of the effective date of such
event) or former officers and Directors of the Corporation, which shall
thereafter administer all claims for benefits under the Plan. Upon such
appointment the Administrator shall cease to have any responsibility for claims
administration under the Plan but shall continue to administer the Plan.

 

5. ELIGIBILITY.

 

Subject to the terms and conditions set forth below, Awards may be granted to
Employees and Directors. Notwithstanding the foregoing, only employees of the
Corporation and its Subsidiaries may be granted Incentive Stock Options.

 

(a) Ten Percent Stockholders.

 

An Employee who owns more than 10% of the total combined voting power of all
classes of outstanding stock of the Corporation, its parent or any of its
Subsidiaries is not eligible to receive an Incentive Stock Option pursuant to
this Plan. For purposes of this Section 5(a) the stock ownership of an Employee
shall be determined pursuant to Code section 424(d).

 

9

--------------------------------------------------------------------------------

(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. Subject to adjustment as provided in Section 16, the maximum aggregate
number of Shares or Share Equivalents that may be subject to Awards to a
Participant in any calendar year is 250,000 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 Shares subject to
Options, Restricted Stock or Other Share-Based Awards issued under this Plan
shall not exceed 1,600,000 Shares. If any outstanding Option under the Plan for
any reason expires or is terminated or any Restricted Stock or Other Share-Based
Award is forfeited and under the terms of the expired or terminated Award the
Participant received no benefits of ownership during the period the Award was
outstanding, then 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 Award, 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 16.

 

10

--------------------------------------------------------------------------------

7. TERMS AND CONDITIONS OF OPTIONS.

 

Options granted to Employees and Directors pursuant to the Plan shall be
evidenced by written Option Agreements in such form as the Administrator 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, which shall
be subject to adjustment in accordance with Section 16.

 

(b) Exercise Price.

 

Each Option shall state the Exercise Price, determined by the Administrator,
which shall not be less than the Fair Market Value of a Share on the date of
grant, except as provided in Section 16.

 

(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 Administrator 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.

 

11

--------------------------------------------------------------------------------

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, any Option shall be transferred to the Beneficiary
designated by the Participant for this purpose.

 

(e) Change in Control.

 

Subject to Section 7(d), in the event that a Participant’s employment or service
with the Corporation is involuntarily terminated without Cause or voluntarily
terminated for Good Reason within one month prior to or 24 months following the
effective date of a Change in Control (defined below) that is at least six
months following the date of grant of the Option, the Participant shall have the
right to exercise the Option (or to call the related stock appreciation right as
described in Section 7(j)) in whole or in part. For purposes of the Plan, a
“Change in Control” means the occurrence of one or more of the following:

 

(i) 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 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

 

12

--------------------------------------------------------------------------------

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 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

 

(ii) That individuals who, as of December 2, 2004 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, 2004 whose election, or nomination for election by the Corporations
stockholders, was approved by a vote of at least a majority of the Directors
then comprising the Incumbent Board shall be considered as

 

13

--------------------------------------------------------------------------------

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

 

(iii) The acquisition after December 2, 2004 by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of 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,
(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(e); or

 

(iv) 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.

 

14

--------------------------------------------------------------------------------

(f) Termination of Employment Except Death.

 

(i) In the event that a Participant who is an Employee ceases to be employed by
the Corporation or any of its Affiliates 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:

 

  (a) within three months after such termination of employment; or

 

  (b) 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, in addition
to the rights and obligations established in Section 14 below, if the employment
of a Participant is terminated by the Corporation or an Affiliate by reason of
Misconduct, such Option shall cease to be exercisable at the time of the
Participant’s termination of employment. The Administrator (or its delegate)
shall determine whether a Participant’s employment is terminated by reason of
Misconduct. In making such determination the Administrator (or its delegate)
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

 

15

--------------------------------------------------------------------------------

termination and is determined to have occurred by the Administrator (or its
delegate), all outstanding Options shall cease to be exercisable upon such
determination.

 

For purposes of this Section, the employment relationship will be treated as
continuing while the Participant is on military leave, sick leave (including
short term disability) or other bona fide leave of absence (to be determined in
the sole discretion of the Administrator, 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 three months after the Participant ceased active employment,
unless the Participant’s reemployment rights are guaranteed by statute or by
contract.

 

(ii) In the event an Outside Director terminates services as a Director for any
reason other than death, the former Director shall have the right (subject to
the limitations of Section 7(d) above) to exercise the Option either:

 

  (a) within three months after such termination,

 

    or

 

  (b) in the case of termination after five years of service as an Outside
Director, 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
the terms of the Option Agreement 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,

 

16

--------------------------------------------------------------------------------

such Option shall cease to be exercisable at the time of the Outside Director’s
termination of services.

 

(g) Death of Participant.

 

(i) If a Participant who is an Employee dies while in the employ of the
Corporation or an Affiliate, the Option may be exercised at any time before the
end of the option period as specified in the Option Agreement by the
Participant’s designated Beneficiary, 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.

 

(ii) 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 Director’s designated Beneficiary, to
the extent that, at the date of the Director’s death, the Option had vested
pursuant to the terms of the Option Agreement and had not previously been
exercised.

 

(h) 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 16.

 

17

--------------------------------------------------------------------------------

(i) Modification, Extension and Renewal of Options.

 

Subject to the terms and conditions and within the limitations of the Plan,
including the limitations of Section 20, the Administrator may modify, extend or
renew outstanding Options granted to Employees and Directors under the Plan.
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.

 

(j) Stock Appreciation Rights.

 

Each Option granted under the Plan may include a stock appreciation right that
may be exercised only following the applicable Change in Control and termination
events described in Section 7(e). Following such events, 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 the applicable
Change in Control and termination events described in Section 7(e) 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
events described in Section 7(e) above, or (B) the value of such Shares
determined as of the date of the call in good faith by the Administrator (as
composed on the day preceding the date of the events described in Section 7(e)
above), taking into consideration all relevant facts and circumstances. The call
of such stock appreciation right shall be

 

18

--------------------------------------------------------------------------------

subject to such limitations (including, but not limited to, limitations as to
time and amount) as the Administrator 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 Administrator, provided that the
Administrator determines that such settlement is consistent with the purpose set
forth in Section 1. For all purposes under the Plan, the terms “exercise” or
“exercisable” shall be deemed to include the terms “call” or “callable” as such
terms may apply to a stock appreciation right, and in the event of the call of a
stock appreciation right, the underlying Option will be deemed to have been
exercised for all purposes under the Plan.

 

(k) 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.

 

(l) 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 Administrator shall deem advisable.

 

19

--------------------------------------------------------------------------------

8. RESTRICTED STOCK.

 

(a) Grants.

 

Subject to the provisions of the Plan, the Administrator shall have sole and
complete authority to determine the Employees and Directors 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
Administrator may condition the grant of Restricted Stock upon the attainment of
specified performance objectives established by the Administrator pursuant to
Section 13 or such other factors as the Administrator 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 Participant, which Agreement
shall contain such provisions as the Administrator 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 Administrator 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.

 

20

--------------------------------------------------------------------------------

(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 Administrator 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 Administrator, 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 Administrator 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 Administrator, 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 Administrator so
determines, invested in additional shares of Restricted Stock to the extent
available under Section 6, or otherwise invested. 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.

 

21

--------------------------------------------------------------------------------

(iii) The Administrator 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. RESTRICTED STOCK UNITS.

 

(a) Grants.

 

Subject to the provisions of the Plan, the Administrator shall have sole and
complete authority to determine the Employees and Directors to whom, and the
time or times at which, grants of Restricted Stock Units will be made, the
number of Restricted Stock Units to be awarded, the price (if any) to be paid by
the recipient of the Restricted Stock Units, the time or times within which such
Restricted Stock Units may be subject to forfeiture, and all other terms and
conditions of the Restricted Stock Unit Awards. The Administrator may condition
the grant of Restricted Stock Unit Awards upon the attainment of specified
performance objectives established by the Administrator pursuant to Section 13
or such other factors as the Administrator may determine, in its sole
discretion.

 

The terms of each Restricted Stock Unit Award shall be set forth in a Restricted
Stock Unit Award Agreement between the Corporation and the Participant, which
Agreement shall contain such provisions as the Administrator determines to be

 

22

--------------------------------------------------------------------------------

necessary or appropriate to carry out the intent of the Plan. With respect to a
Restricted Stock Unit Award, no certificate for shares of stock shall be issued
at the time the grant is made (nor shall any book entry be made in the records
of the Corporation) and the Participant shall have no right to or interest in
shares of stock of the Corporation as a result of the grant of Restricted Stock
Units.

 

(b) Restrictions and Conditions.

 

The Restricted Stock Units awarded pursuant to this Section 9 shall be subject
to the following restrictions and conditions:

 

(i) At the time of grant of a Restricted Stock Unit Award, the Administrator may
impose such restrictions or conditions on the vesting of the Restricted Stock
Units, as the Administrator deems appropriate. Within these limits, the
Administrator, 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 Administrator may determine
in its sole discretion.

 

(ii) Dividend equivalents may be credited in respect of Restricted Stock Units,
as the Administrator deems appropriate. Such dividend equivalents may be
converted into additional Restricted Stock Units by dividing (1) the aggregate
amount or value of the dividends paid with respect to that number of Shares
equal to the number of Restricted Stock Units then credited by (2) the Fair
Market Value per Share on the payment date for such dividend. The additional
Restricted Stock Units credited by reason of such dividend equivalents will be

 

23

--------------------------------------------------------------------------------

subject to all of the terms and conditions of the underlying Restricted Stock
Unit Award to which they relate.

 

(iii) The Administrator shall specify the conditions under which Restricted
Stock Units shall vest or be forfeited and such conditions shall be set forth in
the Restricted Stock Unit Agreement.

 

(c) Deferral Election.

 

Each recipient of a Restricted Stock Unit Award shall be entitled to elect to
defer all or a percentage of any Shares he or she may be entitled to receive
upon the lapse of any restrictions or vesting period to which the Award is
subject. This election shall be made by giving notice in a manner and within the
time prescribed by the Administrator. Each Participant must indicate the
percentage (expressed in whole percentages) he or she elects to defer of any
Shares he or she may be entitled to receive. If no notice is given, the
Participant shall be deemed to have made no deferral election. Each deferral
election filed with the Administrator shall become irrevocable on and after the
prescribed deadline.

 

10. PERFORMANCE SHARES.

 

(a) Grants.

 

Subject to the provisions of the Plan, the Administrator shall have sole and
complete authority to determine the Employees and Directors to whom, and the
time or times at which, grants of Performance Shares will be made, the number of
Performance Shares to be awarded, the price (if any) to be paid by the recipient
of the Performance Shares, the time or times within which such Performance
Shares may be subject to forfeiture, and all other terms and conditions of the
Performance Share Awards. The

 

24

--------------------------------------------------------------------------------

Administrator may condition the grant of Performance Share Awards upon the
attainment of specified performance objectives established by the Administrator
pursuant to Section 13 or such other factors as the Administrator may determine,
in its sole discretion.

 

The terms of each Performance Share Award shall be set forth in a Performance
Share Award Agreement between the Corporation and the Participant, which
Agreement shall contain such provisions as the Administrator determines to be
necessary or appropriate to carry out the intent of the Plan. With respect to a
Performance Share Award, no certificate for shares of stock shall be issued at
the time the grant is made (nor shall any book entry be made in the records of
the Corporation) and the Participant shall have no right to or interest in
shares of stock of the Corporation as a result of the grant of Performance
Shares.

 

(b) Restrictions and Conditions.

 

The Performance Shares awarded pursuant to this Section 10 shall be subject to
the following restrictions and conditions: At the time of grant of a Performance
Share Award, the Administrator may set performance objectives in its discretion
which, depending on the extent to which they are met, will determined the number
of Performance Shares that will be paid out to the Participant. The time period
during which the performance objectives must be met will be called the
“Performance Period.” After the applicable Performance Period has ended, the
recipient of the Performance Shares will be entitled to receive the number of
Performance Shares earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
objectives have been achieved. After the grant of

 

25

--------------------------------------------------------------------------------

a Performance Share Award, the Administrator, in its sole discretion, may reduce
or waive any performance objective for such Performance Share Award.

 

11. 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 11 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 Administrator shall have sole and
complete authority to determine the Employees and Directors 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 Administrator may
condition the grant of an Other Share-Based Award upon the attainment of
specified performance goals or such other factors as the Administrator shall
determine, in its sole discretion. In granting an Other Share-Based Award, the
Administrator 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 Administrator 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

 

26

--------------------------------------------------------------------------------

an Other Share-Based Award Agreement between the Corporation and the
Participant, which Agreement shall contain such provisions as the Administrator
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 or the Director’s service prior to the exercise, realization or
payment of such Award, and the Administrator in its sole discretion may provide
for payment of the Award in the event of the Participant’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.

 

12. 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 12 shall reduce the number
of Shares authorized for Options, Restricted Stock or Other Share-Based Awards
under Section 6

 

27

--------------------------------------------------------------------------------

but shall not be considered an Award for purposes of the maximum grant
limitation in Section 5(b).

 

13. PERFORMANCE OBJECTIVES.

 

The Administrator shall determine the terms and conditions of Awards at the date
of grant or thereafter; provided that performance objectives for each year, if
any, shall be established by the Administrator not later than the latest date
permissible under Code section 162(m). To the extent that such Awards are paid
to Employees the performance objectives to be used, if any, shall be expressed
in terms of one or more of the following: total shareholder return; earnings per
share; stock price; return on equity; net earnings; related return ratios; cash
flow; net earnings growth; earnings before interest, taxes, depreciation and
amortization (EBITDA); return on assets; increase in revenues; decrease in
expenses; increase in funds from operations (FFO); and increase in FFO per
share. Performance objectives, if any, established by the Administrator may be
(but need not be) different from year-to-year, and different performance
objectives may be applicable to different Participants.

 

14. FORFEITURE ON ACCOUNT OF MISCONDUCT.

 

Notwithstanding any other provision of this Plan to the contrary, if the
Participant engages in Misconduct prior to, or during the twelve month period
following, the exercise of the Option or the vesting of the Award without the
Administrator’s (or its delegate’s) express written consent, the Administrator
(or its delegate) may

 

(a) rescind the exercise of any Option exercised during the period beginning
twelve months prior to through 24 months after the Participant’s termination of
employment or service with the Corporation or its Affiliates and cancel all
outstanding

 

28

--------------------------------------------------------------------------------

Awards within 24 months after the Participant’s termination of employment or
service with the Corporation or its Affiliates, and

 

(b) demand that the Participant pay over to the Corporation the proceeds (less
the Participant’s purchase price, if any) received by the Participant upon the
sale, transfer or other transaction involving the Shares acquired upon the
exercise of any Option exercised during the period beginning twelve months prior
to through 24 months after the Participant’s termination of employment or
service with the Corporation or its Affiliates or the vesting of any Award
within 24 months after the Participant’s termination of employment or service
with the Corporation or its Affiliates, in such manner and on such terms and
conditions as may be required, and, without limiting any other remedy the
Corporation or its Affiliates may have, the Corporation shall be entitled to
set-off against the amount of any such proceeds any amount owed the Participant
by the Corporation or its Affiliates to the fullest extent permitted by law.

 

15. TERM OF PLAN.

 

Awards may be granted pursuant to the Plan until the termination of the Plan on
December 1, 2014.

 

16. 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 or Share Equivalents covered by or referenced
in each outstanding Award, and the Exercise Price of each outstanding Option and
any price required to be paid for Restricted Stock or Other Share-Based Award
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares

 

29

--------------------------------------------------------------------------------

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 outstanding
Award shall pertain and apply to the securities to which a holder of the number
of Shares or Share Equivalents 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 Administrator, 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 Code section 422.

 

Except as expressly provided in this Section 16, 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

 

30

--------------------------------------------------------------------------------

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.

 

17. 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 an Affiliate or
to remain a Director. The Corporation and its Affiliates 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.

 

31

--------------------------------------------------------------------------------

(c) Stockholders’ Rights.

 

A Participant shall have no dividend rights, voting rights or other rights as a
stockholder with respect to any Shares covered by his or her Award prior to the
issuance of a stock certificate for such Shares. No adjustment shall be made for
cash dividends or other rights for which the record date is prior to the date
when such certificate is issued.

 

(d) Creditors’ Rights.

 

A holder of an Other Share-Based Award shall have no rights other than those of
a general creditor of the Corporation. An Other Share-Based Award shall
represent an unfunded and unsecured obligation of the Corporation, subject to
the terms and conditions of the applicable Other Share-Based Award Agreement. An
Other Share-Based Award shall not be deemed to create a trust for the benefit of
any individual.

 

18. BENEFICIARY DESIGNATION.

 

Participants and their Beneficiaries may designate on the prescribed form one or
more Beneficiaries to whom distribution shall be made of any Award outstanding
at the time of the Participant’s or Beneficiary’s death. A Participant or
Beneficiary may change such designation at any time by filing the prescribed
form with the Administrator. If a Beneficiary has not been designated or if no
designated Beneficiary survives the Participant or Beneficiary, distribution
will be made to the residuary beneficiary under the terms of the Participant’s
or Beneficiary’s last will and testament or, in the absence of a last will and
testament, to the Participant’s or Beneficiary’s estate as Beneficiary.

 

32

--------------------------------------------------------------------------------

19. 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 Administrator; or

 

(e) Amend this Section 19 to defeat its purpose.

 

The foregoing notwithstanding, the Plan may not be amended (including any
amendment of this Section 19) or terminated by the Board during the three-year
period following an event described in Section 7(e)(i) through (iv) if such
amendment or termination would alter the provision of this Section 19 or impair
any outstanding rights under any Awards previously granted under the Plan.

 

20. NO AUTHORITY TO REPRICE.

 

Without the consent of the stockholders of the Corporation, except as provided
in Section 16, the Administrator shall have no authority to effect either
(i) the repricing of any outstanding Options under the Plan or (ii) the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of Common Stock.

 

33

--------------------------------------------------------------------------------

21. NO OBLIGATION TO EXERCISE OPTION.

 

The granting of an Option shall impose no obligation upon the Participant to
exercise such Option.

 

22. APPROVAL OF STOCKHOLDERS.

 

This Plan and any amendments requiring stockholder approval pursuant to
Section 19 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.

 

23. PAYMENT OF EXCISE TAX.

 

If any payments or transfers to or for the benefit of a Participant are deemed
an “excess parachute payment” as defined in Code section 280G subject to the
excise tax imposed by Code section 4999, 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 [serving as the outside

 

34

--------------------------------------------------------------------------------

auditor of the Corporation], as of the date of the applicable Change in Control
or termination events as described in Section 7(e).

 

24. 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) Other Awards.

 

The Administrator may permit a Participant who exercises Nonqualified Stock
Options or who vests in Restricted Stock Awards 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 or Restricted Stock Awards. Such Shares shall be valued at the
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 Administrator, shall be subject to such restrictions as the
Administrator may impose, including any restrictions required by rules of the
Securities and Exchange Commission.

 

35

--------------------------------------------------------------------------------

25. SUCCESSORS AND ASSIGNS.

 

The Plan shall be binding upon the Corporation, its successors and assigns, and
any parent corporation of the Corporation’s successors or assigns.
Notwithstanding that the Plan may be binding upon a successor or assign by
operation of law, the Corporation shall require any successor or assign to
expressly assume and agree to be bound by the Plan in the same manner and to the
same extent that the Corporation would be if no succession or assignment had
taken place.

 

26. EXECUTION.

 

To record the amendment of the Plan to read as set forth herein effective as of
December 29, 2005, the Corporation has caused its authorized officer to execute
the same.

 

POTLATCH CORPORATION

By   /S/    BARBARA M. FAILING              

 

36