Document:

Form of Outside Director Stock Option Agreement for 1995 Stock Incentive Plan

 EXHIBIT (10) (n) (vii) 
  
 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. 
  

 -1- 

 (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 specified in Section 3 of the addendum
	  	 From one year from the Date of Grant to end of term for
Option

		
	 50% of the number of shares specified in Section 3 of the addendum
	  	 From two years from the Date of Grant to end of 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 will be
deemed to have been exercised for all purposes under the Plan. 
  

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 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 with the Corporation’s Restated Certificate of Incorporation. 
  

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 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 

  

 -7- 

 
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, 

  

 -8- 

 
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. 
  

 -9- 

 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

  

 -10-Consent to Special Cash Dividend and Stock Repurchase Plan

 Exhibit (10) (o) (i) 
  
 CONSENT 
  
 October 15, 2004 
  
 Potlatch Corporation 
 601 West Riverside Avenue, Suite 1100 
 Spokane, WA 99201 
 Attn:        Gerald L. Zuehlke, Vice President and Chief
Financial Officer 
  

			
	Re:	  	Credit Agreement dated as of June 29, 2004 among Potlatch Corporation, a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party
thereto, and Bank of America, N.A., as Administrative Agent (as amended, modified, restated and supplemented from time to time, the “Credit Agreement”).

  
 Ladies and Gentlemen: 
  
 Reference is hereby made to the above-referenced Credit Agreement.
Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Credit Agreement. 
  
 You have notified the Administrative Agent that the Borrower intends to implement (i) a special dividend with respect to the Borrower’s common stock
in the amount of $2.50 per share for an aggregate dividend of approximately $80,000,000 which shall be paid during fiscal year 2004 (the “Special Dividend”) and (ii) a stock repurchase program pursuant to which the Borrower will
repurchase up to approximately 1,600,000 shares of its common stock for an aggregate purchase price of no more than $90,000,000 over the remaining term of Credit Agreement (the “Stock Repurchases”). Each of the Special Dividend and
the Stock Repurchase constitute Restricted Payments that are not permitted pursuant to Section 7.07 of the Credit Agreement. Accordingly, you have requested that, notwithstanding the terms of Section 7.07 of the Credit Agreement, the Required
Lenders and the Administrative Agent consent to the Special Dividend and the Stock Repurchases. 
  
 The Administrative Agent and the Required Lenders hereby consent to the Special Dividend and the Stock Repurchases so long as (i) no Default or Event of
Default exists at the time of such payment or would result therefrom, (ii) such payments are permitted pursuant to the terms of the Senior Subordinated Note Indenture, to the extent the Senior Subordinated Notes are still outstanding at the time of
such payments and (iii) in the case of the Special Dividend, the aggregate amount of all cash dividends paid by the Borrower with respect to its common stock during fiscal year 2004 shall not exceed $100,000,000. 
  
 Except to the extent specifically provided to the contrary in this letter,
all terms and conditions of the Credit Agreement shall remain in full force and effect, without modification or limitation. This consent shall not operate as a consent to any other action or inaction by the Borrower or any of the Guarantors, or as a
waiver of any right, power, or remedy of any Lender or the Administrative Agent under, or any provision contained in, the Credit Agreement except as specifically provided herein. This consent may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which taken together shall be deemed to constitute one and the same instrument. This letter shall constitute a Loan Document. 

					
	 	 	Very truly yours,
		
	ADMINISTRATIVE AGENT:	 	BANK OF AMERICA, N.A.,
	 	 	In its capacity as Administrative Agent
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:	 	  

	LENDERS:	 	 	 	 
	 	 	BANK OF AMERICA, N.A.,
	 	 	Individually in its capacity as Issuing Lender, Swing Line
	 	 	Lender and as a Lender
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:	 	  

		
	 	 	U.S. BANK, NATIONAL ASSOCIATION
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:	 	  

		
	 	 	WACHOVIA BANK, NATIONAL ASSOCIATION
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:	 	  

		
	 	 	THE BANK OF NOVA SCOTIA
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:	 	  

  
 [Lender Signatures
Continue] 

			
	COOPERATIEVE CENTRALE RAIFFEISEN-
	BOERENLEENBANK B.A. “RABOBANK
	INTERNATIONAL” NEW YORK BRANCH
		
	By:	 	  

	Name:	 	  

	Title:	 	  

		
	By:	 	  

	Name:	 	  

	Title:	 	  

	
	WELLS FARGO BANK, N.A.
		
	By:	 	  

	Name:	 	  

	Title:	 	  

	  
 COBANK ACB

		
	By:	 	  

	Name:	 	  

	Title:	 	  

	
	STERLING SAVINGS BANK
		
	By:	 	  

	Name:	 	  

	Title:	 	  

	
	THE BANK OF TOKYO-MITSUBISHI, LTD.
	SEATTLE BRANCH
		
	By:	 	  

	Name:	 	  

	Title:	 	  

  
 [Lender
Signatures Continue] 

			
	 NORTHWEST FARM CREDIT SERVICES, FLCA
  

	By:	 	  

	Name:	 	  

	Title:	 	  

	
	 CAPITAL FARM CREDIT
  

	By:	 	  

	Name:	 	  

	Title:	 	  

 The terms of the foregoing Consent 
 dated as of October 15, 2004 are hereby 
 acknowledged and agreed to: 
  

					
	BORROWER:	 	POTLATCH CORPORATION
			
	 	 	By:	 	  

	 	 	Name:	 	  

	 	 	Title:

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