S-4 1 d477166ds4.htm S-4 S-4
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As filed with the Securities and Exchange Commission on December 7, 2017

Registration 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

POTLATCH CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   6798   82-0156045

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

601 West First Avenue, Suite 1600

Spokane, WA 99201

(509) 835-1500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Lorrie D. Scott, Esq.

Vice President, General Counsel & Corporate Secretary

Potlatch Corporation

601 West First Avenue, Suite 1600

Spokane, WA 99201

(509) 835-1500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Andrew Bor

Stephanie Hirano

Perkins Coie LLP

1201 Third Avenue

Seattle, Washington 98101

(206) 359-8577

 

Jim F. Andrews, Jr.

Vice President, General Counsel & Secretary

Deltic Timber Corporation

210 East Elm Street

El Dorado, Arkansas 71730

(870) 881-9400

 

William L. Taylor

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

(212) 450-4133

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed joint proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☒    Accelerated filer  
  Non-accelerated filer ☐ (Do not check if a smaller reporting company)    Smaller reporting company  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

 

Amount

to be

Registered (1)

 

Proposed

Maximum
Offering Price
per share

 

Proposed

Maximum Aggregate
Offering
Price (2)

  Amount of
Registration Fee (3)

Common Stock, par value $1 per share

  22,272,725 Shares   $91.92   $1,137,393,813.12   $141,605.53

 

 

(1) Represents the maximum number of shares of common stock, par value $1 per share (referred to as “Potlatch common stock”), of Potlatch Corporation (referred to as “Potlatch”) estimated to be issued in connection with the merger described in the enclosed joint proxy statement/prospectus. The estimated maximum number of shares of Potlatch common stock is based upon the product of (1) (a) the number of shares of common stock, par value $0.01 per share (referred to as “Deltic common stock”), of Deltic Timber Corporation (referred to as “Deltic”) outstanding as of December 6, 2017, plus (b) the total number of shares of Deltic common stock reserved for issuance under various Deltic benefit and compensation plans as of December 6, 2017, and (2) 1.80, the exchange ratio set forth in the Agreement and Plan of Merger, dated as of October 22, 2017, among Potlatch, Portland Merger LLC and Deltic.
(2) Estimated solely for purpose of calculating the registration fee required by Section 6(b) of the Securities Act and calculated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act. The proposed maximum aggregate offering price is the product of (1) $91.92, the average of the high and low sales prices per share of Deltic common stock as reported on the New York Stock Exchange on November 30, 2017, and (2)12,373,736, the estimated total number of shares of Deltic common stock that may be canceled and exchanged in the merger, including the estimated total number of shares of Deltic common stock reserved for issuance under various Deltic benefit and compensation plans.
(3) Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $124.50 per $1,000,000 of the proposed maximum aggregate offering price.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained in this joint proxy statement/prospectus is subject to completion or amendment. A registration statement relating to the securities described in this joint proxy statement/prospectus has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED DECEMBER 7, 2017

 

LOGO                              LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

 

Potlatch Corporation, referred to as Potlatch, Portland Merger LLC, a wholly-owned subsidiary of Potlatch, referred to as Merger Sub, and Deltic Timber Corporation, referred to as Deltic, have entered into an Agreement and Plan of Merger, dated as of October 22, 2017, referred to as the merger agreement. Pursuant to the terms of the merger agreement, Deltic will merge with and into Merger Sub, referred to as the merger, with Merger Sub continuing as the surviving entity in the merger.

If the merger is completed, Deltic stockholders will have the right to receive 1.80 shares of Potlatch common stock for each share of Deltic common stock, with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the completion of the merger. Based on the closing price of shares of Potlatch common stock on the Nasdaq Global Select Market, on October 20, 2017, the last trading day before public announcement of the merger, the 1.80 exchange ratio represented approximately $95.40 in value for each share of Deltic common stock. Based on the closing price of shares of Potlatch common stock on the Nasdaq Global Select Market on [                    ], 2017, the latest practicable date before the date of this joint proxy statement/prospectus, the 1.80 exchange ratio represented approximately $[            ] in value for each share of Deltic common stock. Potlatch stockholders will continue to own their existing Potlatch common stock. Shares of Potlatch common stock are currently traded under the symbol “PCH” on the Nasdaq Global Select Market, and shares of Deltic common stock are currently traded under the symbol “DEL” on the New York Stock Exchange. Following the completion of the merger, Potlatch will be known as PotlatchDeltic and its common stock will continue to trade under the symbol “PCH” on the Nasdaq Global Select Market. We urge you to obtain current market quotations of shares of Potlatch common stock and shares of Deltic common stock.

Based on the estimated number of shares of Potlatch common stock and shares of Deltic common stock that will be outstanding immediately prior to the completion of the merger, we estimate that current Potlatch stockholders will own approximately [    ]% of the combined company and former Deltic stockholders will own approximately [    ]% of the combined company.

Potlatch and Deltic will each hold special meetings of their respective stockholders in connection with the proposed merger.

At the special meeting of Potlatch stockholders, Potlatch stockholders will be asked to consider and vote on (1) a proposal to approve the issuance of shares of Potlatch common stock to Deltic stockholders in connection with the merger, referred to as the share issuance proposal, and (2) a proposal to adjourn the Potlatch special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the issuance of shares of Potlatch common stock to Deltic stockholders in connection with the merger, referred to as the Potlatch adjournment proposal. The Potlatch board of directors unanimously recommends that the Potlatch stockholders vote “FOR” each of the share issuance proposal and the Potlatch adjournment proposal.

At the special meeting of Deltic stockholders, Deltic stockholders will be asked to consider and vote on (1) a proposal to approve the adoption of the merger agreement, referred to as the merger proposal, (2) a proposal to adjourn the Deltic special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement, referred to as the Deltic adjournment proposal, and (3) a non-binding, advisory proposal to approve the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger, referred to as the


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compensation proposal. The Deltic board of directors unanimously recommends that the Deltic stockholders vote “FOR” each of the merger proposal, the Deltic adjournment proposal and the compensation proposal.

We cannot complete the merger unless Potlatch stockholders approve the share issuance proposal and Deltic stockholders approve the merger proposal. Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend your special meeting in person, please vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card, (2) calling the toll-free number specified on your proxy card or (3) marking, signing, dating and returning all proxy cards that you receive in the postage-paid envelope provided, so that your shares may be represented and voted at the Potlatch or Deltic special meeting, as applicable.

The obligations of Potlatch and Deltic to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement. More information about Potlatch, Deltic and the merger is contained in this joint proxy statement/prospectus. Potlatch and Deltic encourage you to read this entire joint proxy statement/prospectus carefully before voting, including the section entitled “Risk Factors” beginning on page 28.

We look forward to the successful combination of Potlatch and Deltic.

Sincerely,

 

Michael J. Covey

   John D. Enlow, Sr.

Chairman and Chief Executive Officer

   President and Chief Executive Officer

Potlatch Corporation

   Deltic Timber Corporation

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined that this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated [                    ], 2017 and is first being mailed to the stockholders of Potlatch and stockholders of Deltic on or about [                    , 2017].


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Potlatch Corporation

601 West First Avenue, Suite 1600

Spokane, Washington 99201

(509) 835-1500

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [                    , 2018]

Dear Stockholders of Potlatch Corporation:

We are pleased to invite you to attend the special meeting of stockholders of Potlatch Corporation, a Delaware corporation (referred to as “Potlatch”), which will be held at the Potlatch corporate offices located at 601 West First Avenue, Suite 1600, Spokane, Washington 99201, on [                    , 2018], at [            ], local time, for the following purposes:

 

    to consider and vote on a proposal to approve the issuance of shares of Potlatch common stock, par value $1 per share, in connection with the merger contemplated by the Agreement and Plan of Merger, dated as of October 22, 2017, among Potlatch, Portland Merger LLC, a Delaware limited liability company, and Deltic Timber Corporation, a Delaware corporation, a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice (referred to as the “share issuance proposal”); and

 

    to consider and vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal (referred to as the “Potlatch adjournment proposal”).

Potlatch will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement of the special meeting. Please refer to the joint proxy statement/prospectus accompanying this notice for further information with respect to the business to be transacted at the special meeting.

The Potlatch board of directors has fixed the close of business on [            ] as the record date for determination of Potlatch stockholders entitled to receive notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. Only stockholders of record of shares of Potlatch common stock as of the close of business on the record date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. A list of stockholders of record entitled to vote at the special meeting will be available beginning 10 days prior to the special meeting, and continuing through the special meeting, at Potlatch’s executive offices and principal place of business at 601 West First Avenue, Suite 1600, Spokane Washington for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholders of record present at the special meeting.

Approval of the share issuance proposal and the Potlatch adjournment proposal requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

Your vote is very important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card, (2) calling the toll-free number specified on your proxy card or (3) marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the special meeting. If your shares are held in the name of a bank, broker or other holder of record, please follow the instructions on the voting instruction card furnished by the bank, broker or other holder of record.

Please note that if you hold shares in different accounts, it is important that you vote the shares represented by each account.


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The joint proxy statement/prospectus accompanying this notice provides a detailed description of the merger and the merger agreement. We encourage you to read the accompanying joint proxy statement/prospectus, including any documents incorporated by reference and the annexes to the joint proxy statement/prospectus, carefully and in their entirety. If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies or need help voting your shares of Potlatch common stock, please contact Potlatch’s proxy solicitor:

Georgeson LLC

480 Washington Blvd., 26th Floor

Jersey City, New Jersey 07310

(888) 867-6963 (toll-free)

 

By Order of the Board of Directors,
Lorrie D. Scott, Esq.
Vice President, General Counsel & Corporate Secretary

Spokane, Washington

[                    , 2017]


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DELTIC TIMBER CORPORATION

210 East Elm Street

El Dorado, Arkansas 71730

(870) 881-9400

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On [                    , 2018]

Dear Stockholders of Deltic Timber Corporation:

We are pleased to invite you to attend the special meeting of stockholders of Deltic Timber Corporation, a Delaware corporation (referred to as “Deltic”), which will be held at [            ], on [                    , 2018], at [            ], local time, for the following purposes:

 

    to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of October 22, 2017, among Deltic, Potlatch Corporation, a Delaware corporation (referred to as “Potlatch”), and Portland Merger LLC, a Delaware limited liability company and a wholly-owned subsidiary of Potlatch (referred to as “Merger Sub”), a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, pursuant to which Deltic will be merged with and into Merger Sub, with Merger Sub continuing as the surviving entity in the merger, and each outstanding share of Deltic common stock will be converted into the right to receive 1.80 shares of Potlatch common stock (referred to as the “merger proposal”);

 

    to consider and vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal (referred to as the “Deltic adjournment proposal”); and

 

    to consider and vote on a non-binding, advisory proposal to approve the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger (referred to as the “compensation proposal”).

Deltic will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement of the special meeting. Please refer to the joint proxy statement/prospectus accompanying this notice for further information with respect to the business to be transacted at the special meeting.

The Deltic board of directors has fixed the close of business on [            ] as the record date for determination of Deltic stockholders entitled to receive notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. Only stockholders of record of shares of Deltic common stock as of the close of business on the record date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. A list of stockholders of record entitled to vote at the special meeting will be available for 10 days prior to the special meeting at Deltic’s executive offices and principal place of business at 210 East Elm Street, El Dorado, Arkansas 71730 for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.

Approval of the merger proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Deltic common stock entitled to vote at the special meeting. Approval of the Deltic adjournment proposal and the compensation proposal each requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

Your vote is very important. Whether or not you expect to attend in person, we urge you to vote your shares as promptly as possible by (1) accessing the Internet website specified on your proxy card, (2) calling the toll-free number specified on your proxy card or (3) marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be represented and voted at the special meeting. If your shares are held in the name of a bank, broker or other holder of record, please follow the instructions on the voting instruction card furnished by the bank, broker or other holder of record.


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Please note that if you hold shares in different accounts, it is important that you vote the shares represented by each account.

The joint proxy statement/prospectus accompanying this notice provides a detailed description of the merger and the merger agreement. We encourage you to read the accompanying joint proxy statement/prospectus, including any documents incorporated by reference, and the annexes to the joint proxy statement/prospectus carefully and in their entirety. If you have any questions concerning the merger or the joint proxy statement/prospectus, would like additional copies or need help voting your shares of Deltic common stock, please contact Deltic’s proxy solicitor:

Georgeson LLC

480 Washington Blvd., 26th Floor

Jersey City, New Jersey 07310

(888) 867-6963 (toll-free)

 

By Order of the Board of Directors,
Jim F. Andrews, Jr.
Vice President, General Counsel & Secretary

El Dorado, Arkansas

[                    , 2017]


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ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Potlatch and Deltic from other documents that are not included in, or delivered with, this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

For Potlatch stockholders:    For Deltic stockholders:
Potlatch Corporation
601 West First Ave., Suite 1600
Spokane, Washington 99201
(509) 835-1500
Attn: General Counsel
   Deltic Timber Corporation
210 East Elm Street, P.O. Box 7200
El Dorado, Arkansas 71731-7200
(870) 881-9400
Attn: General Counsel
or    or
Georgeson LLC
480 Washington Blvd., 26th Floor
Jersey City, New Jersey 07310
(888) 867-6963 (toll-free)
   Georgeson LLC
480 Washington Blvd., 26th Floor
Jersey City, New Jersey 07310
(888) 867-6963 (toll-free)

In order for you to receive timely delivery of the documents in advance of the Potlatch special meeting or the Deltic special meeting, as applicable, you must request the information no later than five business days prior to the date of the special meetings (i.e., by [                    , 2018]).

For more information, see the section entitled “Where You Can Find More Information” beginning on page 185.

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (referred to as the “SEC”) by Potlatch (File No. 333-[            ]), constitutes a prospectus of Potlatch under Section 5 of the Securities Act of 1933, as amended (referred to as the “Securities Act”), with respect to the shares of Potlatch common stock to be issued to Deltic stockholders pursuant to the merger agreement. This joint proxy statement/prospectus also constitutes a joint proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting of Potlatch stockholders and a notice of meeting with respect to the special meeting of Deltic stockholders.

Potlatch and Deltic have not authorized anyone to provide you with any information other than the information that is contained in, or incorporated by reference into, this joint proxy statement/prospectus. Potlatch and Deltic take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you. This joint proxy statement/prospectus is dated [                    , 2017]. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Further, you should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to Potlatch stockholders or Deltic stockholders, nor the issuance by Potlatch of shares of common stock in connection with the merger, will create any implication to the contrary.


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This joint proxy statement/prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding Potlatch has been provided by Potlatch, and information contained in this joint proxy statement/prospectus regarding Deltic has been provided by Deltic.

Unless otherwise indicated or as the context otherwise requires, all references in this joint proxy statement/prospectus to:

 

    “combined company” refers collectively to Potlatch and Deltic, following completion of the merger;

 

    “Potlatch” refers to Potlatch Corporation, a Delaware corporation;

 

    “merger agreement” refers to the Agreement and Plan of Merger, dated October 22, 2017, among Potlatch, Portland Merger LLC and Deltic, a copy of which is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by reference;

 

    “Deltic” refers to Deltic Timber Corporation, a Delaware corporation;

 

    “we,” “our” and “us” refer to Potlatch and Deltic, collectively; and

 

    “Merger Sub” refers to Portland Merger LLC, a Delaware limited liability company and a wholly-owned subsidiary of Potlatch.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

     1  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     26  

RISK FACTORS

     28  

Risk Factors Relating to the Merger

     28  

Risk Factors Relating to Potlatch Following the Merger

     33  

THE COMPANIES

     38  

The Companies

     38  

THE POTLATCH SPECIAL MEETING

     39  

THE DELTIC SPECIAL MEETING

     44  

POTLATCH PROPOSAL 1 AND DELTIC PROPOSAL 1: THE ISSUANCE OF POTLATCH SHARES AND THE ADOPTION OF THE MERGER AGREEMENT

     49  

Effects of the Merger

     49  

Background of the Merger

     49  

Potlatch’s Reasons for the Merger; Recommendation of the Potlatch Board

     61  

Deltic’s Reasons for the Merger; Recommendation of the Deltic Board

     64  

Opinion of Potlatch’s Financial Advisor

     69  

Opinion of Deltic’s Financial Advisor

     80  

Financial Interests of Potlatch Directors and Officers in the Merger

     91  

Financial Interests of Deltic Directors and Officers in the Merger

     91  

Board of Directors and Officers Following the Merger

     97  

U.S. Federal Income Tax Consequences of the Merger

     98  

U.S. Federal Income Taxation of Potlatch and its Stockholders

     101  

Accounting Treatment

     117  

Regulatory Clearances Required for the Merger

     117  

Exchange of Shares in the Merger

     117  

Treatment of Deltic Equity Awards

     118  

Dividends and Share Repurchases

     119  

Listing of Potlatch Common Stock

     119  

Delisting and Deregistration of Deltic Common Stock

     119  

No Appraisal Rights

     119  

Certain Potlatch Forecasts

     119  

Certain Deltic Forecasts

     121  

The Merger Agreement

     123  

POTLATCH PROPOSAL 2 AND DELTIC PROPOSAL 2: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE

     145  

DELTIC PROPOSAL 3: NON-BINDING ADVISORY VOTE ON COMPENSATION

     146  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     147  

COMPARATIVE STOCK PRICES AND DIVIDENDS

     160  

DESCRIPTION OF POTLATCH CAPITAL STOCK

     162  

COMPARISON OF RIGHTS OF POTLATCH STOCKHOLDERS AND DELTIC STOCKHOLDERS

     165  

NO APPRAISAL RIGHTS

     180  

LEGAL MATTERS

     180  

EXPERTS

     180  

STOCKHOLDER PROPOSALS

     182  

OTHER MATTERS

     184  

HOUSEHOLDING

     184  

WHERE YOU CAN FIND MORE INFORMATION

     185  

ANNEX A: AGREEMENT AND PLAN OF MERGER

  

ANNEX B: OPINION OF MERRILL LYNCH, PIERCE, FENNER  & SMITH INCORPORATED

  

ANNEX C: OPINION OF GOLDMAN SACHS & CO. LLC

  


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QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of Potlatch or Deltic, may have regarding the merger and the other matters being considered at the special meetings and the answers to those questions. Potlatch and Deltic encourage you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the special meetings. Additional important information is also contained in the annexes to this joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185 for the location of information incorporated by reference in this joint proxy statement/prospectus.

 

Q: Why am I receiving this joint proxy statement/prospectus?

 

A: You are receiving this joint proxy statement/prospectus because you were a stockholder of record of Potlatch or Deltic as of the close of business on the record date for the Potlatch or Deltic special meeting, as applicable. Potlatch and Deltic have agreed to the merger of Deltic with and into Merger Sub under the terms of a merger agreement that is described in this joint proxy statement/prospectus and a copy of which is attached to this joint proxy statement/prospectus as Annex A.

This joint proxy statement/prospectus serves as the proxy statement through which Potlatch and Deltic will solicit proxies to obtain the necessary stockholder approval in connection with the proposed merger. It also serves as the prospectus by which Potlatch will issue shares of Potlatch common stock as the merger consideration.

In order to complete the merger, among other things, Potlatch stockholders must vote to approve the issuance of Potlatch common stock to Deltic stockholders in connection with the merger and Deltic stockholders must vote to adopt the merger agreement.

Potlatch and Deltic will hold separate special meetings to obtain these approvals. This joint proxy statement/prospectus contains important information about the merger and the Potlatch special meeting and Deltic special meeting, and you should read this joint proxy statement/prospectus carefully and in its entirety. The enclosed voting materials allow you to vote your shares without attending your respective special meeting.

Your vote is very important. We encourage you to vote as soon as possible.

 

Q: What will I receive in the merger?

 

A: If the merger is completed, holders of Deltic common stock will be entitled to receive 1.80 shares of Potlatch common stock for each share of Deltic common stock they hold (other than shares of Deltic common stock owned by Deltic as treasury stock) at the effective time of the merger. Deltic stockholders will not receive any fractional shares of Potlatch common stock in the merger. Instead, Potlatch will pay cash in lieu of any fractional shares of Potlatch common stock that a Deltic stockholder would otherwise have been entitled to receive.

If the merger is completed, Potlatch stockholders will not receive any merger consideration and will continue to hold their shares of Potlatch common stock.

 

Q: If I am a Deltic stockholder, how will I receive the merger consideration to which I am entitled?

 

A:

The exchange agent will, promptly after the completion of the merger (and in any event within two business days after such time), mail to each holder of record of Deltic common stock whose shares were converted into the right to receive the merger consideration a letter of transmittal, together with instructions thereto. Upon the surrender of a certificate for cancelation to the exchange agent, together with the letter of

 

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  transmittal, duly completed and validly executed, the holder of this certificate will be entitled to receive the merger consideration. If you are a holder of book-entry shares, the shares of Potlatch common stock will be deemed issued to you on the date of the completion of the merger.

 

Q: What is the value of the merger consideration?

 

A: Because Potlatch will issue 1.80 shares of Potlatch common stock in exchange for each share of Deltic common stock, the value of the merger consideration that Deltic stockholders receive will depend on the price per share of Potlatch common stock at the effective time of the merger. That price will not be known at the time of the special meetings and may be less than the current price or the price at the time of the special meetings. Based on the closing price of shares of Potlatch common stock on the Nasdaq Global Select Market (referred to as “Nasdaq”) on [●], the latest practicable date before the date of this joint proxy statement/prospectus, the 1.80 exchange ratio represented approximately $[●] in value for each share of Deltic common stock. We encourage you to obtain current market quotations of Potlatch common stock and Deltic common stock.

 

Q: When and where will the special meetings be held?

 

A: The Potlatch special meeting will be held at [●] local time on [●], at Potlatch corporate headquarters, 600 West First Avenue, Suite 1600, Spokane, Washington 99201 unless adjourned or postponed to a later date or time.

The Deltic special meeting will be held at [●] on [●], at [●], local time, unless adjourned or postponed to a later date or time.

 

Q: Who is entitled to vote at the special meeting?

 

A: Only stockholders of record of shares of Potlatch common stock as of the close of business on [●] are entitled to notice of, and to vote at, the Potlatch special meeting and any adjournment or postponement of the Potlatch special meeting. Only stockholders of record of Deltic as of the close of business on [●] are entitled to notice of, and to vote at, the Deltic special meeting and any adjournment or postponement of the Deltic special meeting.

 

Q: What proposals will be considered at the special meeting?

 

A: At the special meeting of Potlatch stockholders, Potlatch stockholders will be asked to consider and vote on:

 

    a proposal to approve the issuance of shares of Potlatch common stock, par value $1 per share, in connection with the merger contemplated by the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus (referred to as the “share issuance proposal”); and

 

    a proposal to adjourn the Potlatch special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal (referred to as the “Potlatch adjournment proposal”).

Potlatch will transact no other business at its special meeting except such business as may properly be brought before the Potlatch special meeting or any adjournment or postponement thereof.

At the special meeting of Deltic stockholders, Deltic stockholders will be asked to consider and vote on:

 

    a proposal to adopt the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus, pursuant to which Deltic will be merged with and into Merger Sub and each outstanding share of Deltic common stock will be converted into the right to receive 1.80 shares of Potlatch common stock (referred to as the “merger proposal”);

 

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    a proposal to adjourn the Deltic special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal (referred to as the “Deltic adjournment proposal”); and

 

    a non-binding, advisory proposal to approve the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger (referred to as the “compensation proposal”).

Deltic will transact no other business at its special meeting except such business as may properly be brought before the Deltic special meeting or any adjournment or postponement thereof.

 

Q: How does the Potlatch board of directors recommend that I vote?

 

A: At its meeting on October 22, 2017, the Potlatch board unanimously (1) approved and adopted the merger agreement, (2) approved the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) approved the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement. Accordingly, the Potlatch board unanimously recommends that the Potlatch stockholders vote “FOR” each of the share issuance proposal and the Potlatch adjournment proposal.

 

Q: How does the Deltic board of directors recommend that I vote?

 

A: On October 21, 2017, the Deltic board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Deltic and its stockholders and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. Accordingly, the Deltic board unanimously recommends that Deltic stockholders vote “FOR” each of the merger proposal, the Deltic adjournment proposal and the compensation proposal.

 

Q: How do I vote as a Potlatch stockholder?

 

A: If you are a stockholder of record of Potlatch as of the close of business on the record date for the Potlatch special meeting, you may vote in person by attending the Potlatch special meeting or, to ensure your shares are represented at the meeting, you may vote by:

 

    accessing the Internet website specified on your proxy card;

 

    calling the toll-free number specified on your proxy card; or

 

    marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

If you hold Potlatch shares in the name of a bank, broker or other holder of record, please follow the instructions on the voting instruction card furnished by the bank, broker or other holder of record to ensure that your shares are represented at the Potlatch special meeting.

 

Q: How do I vote as a Deltic stockholder?

 

A: If you are a stockholder of record of Deltic as of the close of business on the record date for the Deltic special meeting, you may vote in person by attending the Deltic special meeting or, to ensure your shares are represented at the meeting, you may vote by:

 

    accessing the Internet website specified on your proxy card;

 

    calling the toll-free number specified on your proxy card; or

 

    marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

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If you hold shares of Deltic common stock in the name of a bank, broker or other holder of record, please follow the instructions on the voting instruction card furnished by the bank, broker or other holder of record to ensure that your shares are represented at the Deltic special meeting.

 

Q: What vote is required to approve each proposal?

 

A: Potlatch. Approval of the share issuance proposal and the Potlatch adjournment proposal requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

Deltic. Approval of the merger proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Deltic common stock entitled to vote at the Deltic special meeting. Approval of the Deltic adjournment proposal and the compensation proposal each requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

 

Q: How many votes do I have?

 

A: Potlatch. You are entitled to one vote for each share of Potlatch common stock that you owned as of the close of business on [●], the record date for the Potlatch special meeting. As of the close of business on the record date for the Potlatch special meeting, there were approximately [●] shares of Potlatch common stock outstanding and entitled to vote at the Potlatch special meeting.

Deltic. You are entitled to one vote for each share of Deltic common stock that you owned as of the close of business on [●], the record date for the Deltic special meeting. As of the close of business on the record date for the Deltic special meeting, there were approximately [●] shares of Deltic common stock outstanding and entitled to vote at the Deltic special meeting.

 

Q: What will happen if I fail to vote or I abstain from voting?

 

A: Potlatch. If you fail to vote or fail to instruct your bank, broker or other holder of record to vote, it will not count towards the approval of the share issuance proposal or the Potlatch adjournment proposal. With respect to the share issuance proposal and the Potlatch adjournment proposal, if you mark your proxy or voting instructions to abstain, it will have no effect on the Potlatch adjournment proposal, assuming that a quorum is present.

Deltic. If you fail to vote, fail to instruct your bank, broker or other holder of record to vote, or vote to abstain, it will have the same effect as a vote against the merger proposal. If you fail to vote, fail to instruct your bank, broker or other holder of record to vote, or mark your proxy or voting instructions to abstain, it will have no effect on the Deltic adjournment proposal or the compensation proposal, assuming that a quorum is present.

 

Q: What constitutes a quorum?

 

A: Potlatch. Stockholders who hold at least a majority of the issued and outstanding shares of Potlatch common stock as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum for the transaction of business at the Potlatch special meeting. Abstentions and “broker non-votes” (shares held by banks, brokers or other holders of record that are present, in person or by proxy, at the Potlatch special meeting but with respect to which the bank, broker or other holder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the bank, broker or other holder of record does not have discretionary voting power on such proposal) will be counted as present for purposes of determining the presence of a quorum.

Deltic. Stockholders who hold at least a majority of the issued and outstanding shares of Deltic common stock as of the close of business on the record date and who are entitled to vote must be present or

 

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represented by proxy in order to constitute a quorum for the transaction of business at the Deltic special meeting. Shares of Deltic common stock represented at the Deltic special meeting but not voted, including shares for which a stockholder directs an “abstention” from voting, will be counted as present for purposes of establishing a quorum. Broker non-votes (shares held by banks, brokers or other holders of record that are present, in person or by proxy, at the Deltic special meeting but with respect to which the bank, broker or other holder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the bank, broker or other holder of record does not have discretionary voting power on such proposal) will be counted as present for purposes of determining the presence of a quorum.

 

Q: If my shares are held in “street name” by my bank, broker or other holder of record, will my bank, broker or other holder of record automatically vote my shares for me?

 

A: No. If you are a beneficial owner of shares held in street name (that is, if you hold your shares through a bank, broker or other holder of record), you should follow the voting instructions you receive from the bank, broker or other holder of record to vote your shares. The bank, broker or other holder of record must receive explicit voting instructions from you to be able to vote on the share issuance proposal, the Potlatch adjournment proposal, the merger proposal, the Deltic adjournment proposal or the compensation proposal, each of which is considered to be non-routine under the applicable rules of the Nasdaq and New York Stock Exchange (referred to as “NYSE”), as applicable. Banks, brokers and other holders of record do not have discretion to vote on non-routine matters unless the beneficial owner of the shares has given explicit voting instructions. Consequently, if you do not give your bank, broker or other holder of record explicit instructions, your shares will not be voted on the share issuance proposal, the Potlatch adjournment proposal, the merger proposal, the Deltic adjournment proposal or the compensation proposal and will be considered “broker non-votes” on these proposals. Please check the voting form used by your bank, broker or other holder of record.

If you are a Potlatch stockholder and you do not provide your bank, broker or other holder of record with instructions:

 

    if your bank, broker or other holder of record submits an unvoted proxy, your shares of Potlatch common stock will be counted for purposes of determining a quorum at the Potlatch special meeting, but will not be voted on any proposal on which your bank, broker or other holder of record does not have discretionary authority; and

 

    your bank, broker or other holder of record may not vote your shares on the share issuance proposal or the Potlatch adjournment proposal, which will have no effect on the vote on these proposals.

If you are a Deltic stockholder and you do not provide your bank, broker or other holder of record with instructions:

 

    if your bank, broker or other holder of record submits an unvoted proxy, your shares of Deltic common stock will be counted for purposes of determining a quorum at the Deltic special meeting and they will not be voted on any proposal at the Deltic special meeting on which your bank, broker or other holder of record does not have discretionary authority; and

 

    your bank, broker or other holder of record may not vote your shares, which will have the same effect as a vote against the merger proposal and, assuming a quorum is present, will have no effect on the Deltic adjournment proposal or the compensation proposal.

Please note that you may not vote shares held in street name by returning a proxy card directly to Potlatch or Deltic or by voting in person at your special meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or other holder of record.

 

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Q: What will happen if I return my proxy card without indicating how to vote?

 

A: If you return your proxy card without indicating how to vote on any particular proposal, the shares of Potlatch common stock or shares of Deltic common stock represented by your proxy will be voted in favor of that proposal.

 

Q: Can I change my vote after I have returned a proxy or voting instruction card?

 

A: Yes. You can change your vote at any time before your proxy is voted at your special meeting. You can do this in one of three ways:

 

    you can send a signed notice of revocation;

 

    you can grant a new, valid proxy bearing a later date (including by telephone or through the Internet); or

 

    if you are a holder of record, you can attend your special meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to the Corporate Secretary of Potlatch or Corporate Secretary of Deltic, as appropriate, no later than the beginning of the applicable special meeting. If your shares are held in street name by your bank, broker or other holder of record, you should contact your bank, broker or other holder of record to change your vote or revoke your proxy.

 

Q: What happens if I transfer my shares of Potlatch or Deltic common stock before the special meeting?

 

A: The record dates for the Potlatch and Deltic special meetings are earlier than both the date of the special meetings and the date that the merger is expected to be completed. If you transfer your Potlatch or Deltic shares after the applicable record date but before the applicable special meeting, you will retain your right to vote at the applicable special meeting. However, if you are a Deltic stockholder, you will have transferred the right to receive the merger consideration in the merger. In order to receive the merger consideration, you must hold your shares through the completion of the merger.

 

Q: What if I hold shares in both Potlatch and Deltic?

 

A: If you are both a stockholder of Potlatch and a stockholder of Deltic, you will receive two separate packages of proxy materials. A vote cast as a Potlatch stockholder will not count as a vote cast as a Deltic stockholder, and a vote cast as a Deltic stockholder will not count as a vote cast as a Potlatch stockholder. Therefore, please separately submit a proxy for each of your Potlatch and Deltic shares.

 

Q: Where can I find the voting results of the special meeting?

 

A: The preliminary voting results for each special meeting will be announced at the Potlatch and Deltic special meetings, respectively. In addition, within four business days following certification of the final voting results, each of Potlatch and Deltic intends to file the final voting results of its special meeting with the SEC on a Current Report on Form 8-K.

 

Q: What will happen if all of the proposals to be considered at the special meeting are not approved?

 

A: As a condition to completion of the merger, Potlatch’s stockholders must approve the share issuance proposal and Deltic’s stockholders must approve the merger proposal. Completion of the merger is not conditioned or dependent on approval of any of the other proposals to be considered at the special meetings.

 

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Q: What happens if the merger is not completed?

 

A: If the merger is not completed for any reason, Deltic stockholders will not receive any consideration for their shares of Deltic common stock, and Deltic will remain an independent public company with Deltic common stock continuing to be traded on the NYSE.

 

Q: Are Deltic stockholders entitled to appraisal rights?

 

A: No. Under the General Corporation Law of the State of Delaware (referred to as the “DGCL”), the holders of Deltic common stock are not entitled to appraisal rights in connection with the merger. For more information, see the section entitled “No Appraisal Rights” beginning on page 179.

 

Q: Why are Deltic stockholders being asked to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger?

 

A: The rules promulgated by the SEC under Section 14A of the Exchange Act require Deltic to seek a non-binding, advisory vote with respect to certain compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger. For more information regarding such payments, see the section entitled “Non-Binding Advisory Vote on Compensation” beginning on page 146.

 

Q: What will happen if Deltic stockholders do not approve, on a non-binding advisory basis, the payments to Deltic’s named executive officers in connection with the completion of the merger?

 

A: The vote on the compensation proposal is a vote separate and apart from the vote on the merger proposal. Accordingly, Deltic stockholders may vote in favor of the merger proposal and not in favor of the compensation proposal, or vice versa. Approval of the compensation proposal is not a condition to completion of the merger with Potlatch, and it is advisory in nature only, meaning it will not be binding on either Potlatch or Deltic. Accordingly, because Deltic is contractually obligated to make these payments, if the proposed merger with Potlatch is completed, the compensation will be payable, subject only to the conditions applicable to these payments, regardless of the outcome of the advisory vote.

 

Q: What are the principal U.S. federal income tax consequences of the Mergers to U.S. holders of Deltic common stock?

 

A: The parties intend for the merger to qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended, (“Code”). It is a condition to Potlatch’s obligation to complete the merger that Potlatch receive an opinion from Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), tax counsel to Potlatch, to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. It is a condition to Deltic’s obligation to complete the merger that Deltic receive an opinion from Davis Polk & Wardwell LLP (“Davis Polk”), tax counsel to Deltic, to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Pursuant to the merger agreement, the opinions described above may be delivered by other counsel reasonably acceptable to the parties. On the basis of the foregoing opinions, a U.S. Holder (as defined on page 98) of Deltic will generally not recognize any gain or loss for U.S. federal income tax purposes as a result of the merger, except with respect to cash received in lieu of fractional shares.

In addition, as a result of the merger, Potlatch will succeed to all of Deltic’s “earnings and profits” for U.S. federal income tax purposes, and in order for Potlatch to maintain its REIT status following the merger, it must distribute all of such earnings and profits prior to the end of the taxable year in which the merger occurs. Accordingly, following the merger, Potlatch will make one or more special distributions, which distributions are expected in substantial part to be paid in cash or Potlatch stock at each stockholder’s

 

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election, with a limit on the aggregate amount of cash that will be available for such distribution (which limit may be as low as 20% under current guidance by the Internal Revenue Service (referred to as “IRS”)) (the foregoing dividends collectively, the “special distribution”). The special distribution will generally be taxable to Potlatch stockholders, including Deltic stockholders that become Potlatch stockholders in the merger, as ordinary income, including in respect of the portion of the special distribution paid in Potlatch stock. Because the Potlatch stock received by a stockholder in the special distribution will be treated as a taxable distribution, the special distribution may give rise to a tax liability in excess of the amount of cash received by the stockholder subject to the discussion at “U.S. Federal Income Taxation of Potlatch and its Stockholders—Taxation of Stockholders—Distributions” beginning on page 111.

The particular consequences of the merger to each common stockholder depend on such holder’s particular facts and circumstances. Stockholders are urged to consult their tax advisors to understand fully the consequences to them of the merger in their specific circumstances. A more detailed discussion of the U.S. federal income tax considerations relevant to the merger can be found in the section entitled ‘‘U.S. Federal Income Tax Consequences of the Merger’’ beginning on page 97 of this joint proxy statement/prospectus.

 

Q: What are the conditions to completion of the merger?

 

A: In addition to the approval of the share issuance proposal by Potlatch’s stockholders and the approval of the merger proposal by Deltic’s stockholders, completion of the merger is subject to the satisfaction of a number of other conditions. For additional information on the conditions to completion of the merger, see the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement—Conditions to Completion of the Merger” beginning on page 140.

 

Q: Will I still be paid dividends prior to the merger?

 

A: Potlatch has announced that beginning in the fourth quarter of 2017, it has increased its annual dividend from $1.50 per share to $1.60 per share. Under the merger agreement, Potlatch is entitled to declare and pay its regular quarterly cash dividend with declaration, record and payment dates consistent with past practice and in accordance with its current dividend policy without Deltic’s consent. Deltic has historically paid quarterly dividends of $0.10 per share to its stockholders. Under the merger agreement, Deltic is entitled to declare and pay its regular quarterly cash dividend with declaration, record and payment dates consistent with past practice and in accordance with its current dividend policy without Potlatch’s consent.

Under the merger agreement, Potlatch and Deltic are required to coordinate with each other to designate the same record and payment dates for any quarterly dividends or distributions declared in accordance with the merger agreement in any calendar quarter in which the closing of the merger might reasonably be expected to occur so that (1) no holder of shares of Potlatch common stock or shares of Deltic common stock will receive two dividends, or fail to receive one dividend, for any single calendar quarter and (2) the quarterly payments of dividends to holders of shares of Potlatch common stock (and any necessary adjustments to Deltic’s schedule for quarterly dividends) will be made substantially in accordance with Potlatch’s historical quarterly dividend payment schedule.

 

Q: When do you expect the merger to be completed?

 

A: Potlatch and Deltic expect the merger to close late in the first quarter or early in the second quarter of 2018. However, the obligations of Potlatch and Deltic to complete the merger are subject to the satisfaction or waiver of several conditions set forth in the merger agreement, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the respective Potlatch and Deltic special meetings and the completion of the merger.

 

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Q: What will happen to outstanding Deltic equity awards in the merger?

 

A: Upon completion of the merger, each outstanding stock option to purchase shares of Deltic common stock will vest in full and be converted into an option, on the same terms (other than vesting) as were applicable prior to the merger, to purchase a corresponding number of shares of Potlatch common stock, after giving effect to the 1.80 exchange ratio. Outstanding Deltic restricted stock awards will, with limited exceptions, vest in full, and the restrictions and forfeiture conditions with respect thereto will lapse and expire, and the shares of Deltic common stock underlying such restricted stock awards will be converted into the right to receive the merger consideration. Outstanding Deltic performance-based restricted stock awards will be deemed to have their performance criteria achieved at the maximum level and, accordingly, will vest in full at 200% of target, and will be converted into the right to receive the merger consideration.

 

Q: What do I need to do now?

 

A: Carefully read and consider the information contained in, and incorporated by reference into, this joint proxy statement/prospectus, including its annexes.

If you are a holder of record, in order for your shares to be represented at your special meeting:

 

    you can attend your special meeting in person;

 

    you can vote through the Internet or by telephone by following the instructions included on your proxy card; or

 

    you can indicate on the enclosed proxy card how you would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope.

If you hold your shares in street name, in order for your shares to be represented at your special meeting, you should instruct your bank, broker or other holder of record as to how to vote your shares, following the directions from your bank, broker or other holder of record provided to you.

 

Q: Do I need to do anything with my shares of Deltic common stock now?

 

A: If you are a Deltic stockholder, after the merger is completed, your shares of Deltic common stock will be automatically converted into shares of Potlatch common stock. You will receive instructions at that time regarding exchanging your shares for shares of Potlatch common stock. You do not need to take any action at this time. Please do not send your Deltic stock certificates with your proxy card.

 

Q: Do I need to do anything with my shares of Potlatch common stock now?

 

A: If you are a Potlatch stockholder, you are not required to take any action with respect to your Potlatch stock certificates. You will continue to hold your shares of Potlatch common stock.

 

Q: Are there any risks in the merger or the Potlatch share issuance that I should consider?

 

A: Yes. There are risks associated with all business combinations, including the merger, and with the related Potlatch share issuance. These risks are discussed in more detail in the section entitled “Risk Factors” beginning on page 28.

 

Q: Who can help answer my questions?

 

A: Potlatch or Deltic stockholders who have questions about the merger, the Potlatch share issuance or the other matters to be voted on at the special meetings or desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:

 

For Potlatch stockholders:    For Deltic stockholders:
Potlatch Corporation
601 West First Avenue; Suite 1600
Spokane, Washington 99201
Telephone: (509) 835-1500
Attn: General Counsel
   Deltic Timber Corporation
210 East Elm Street, P.O. Box 7200
El Dorado, Arkansas 71731-7200
Telephone: (870) 881-9400
Attn: General Counsel

 

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or    Or
Georgeson LLC
480 Washington Blvd., 26th Floor
Jersey City, New Jersey 07310
(888) 867-6963 (toll-free)
   Georgeson LLC
480 Washington Blvd., 26th Floor
Jersey City, New Jersey 07310
(888) 867-6963 (toll-free)

 

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SUMMARY

This summary highlights information contained elsewhere in this joint proxy statement/prospectus and may not contain all the information that is important to you. Potlatch and Deltic encourage you to read carefully the remainder of this joint proxy statement/prospectus, including the attached annexes and the other documents to which we have referred you, because this section does not provide all the information that might be important to you with respect to the merger and the other matters being considered at the applicable special meeting. See also the section entitled “Where You Can Find More Information” beginning on page 185. We have included page references to direct you to a more complete description of the topics presented in this summary.

The Companies

Potlatch Corporation (See page 38)

Potlatch Corporation

601 West First Avenue; Suite 1600

Spokane, Washington 99201

Telephone: (509) 835-1500

Potlatch Corporation (“Potlatch”), formerly known as Potlatch Holdings, Inc., was incorporated in Delaware in 2005 as a Real Estate Investment Trust (REIT). Potlatch is the successor to the business of the original Potlatch Corporation, which was incorporated in Maine in 1903. Potlatch has approximately 1.4 million acres of timberland in Alabama, Arkansas, Idaho, Minnesota and Mississippi. Potlatch also conducts a land sales and development business and operates saw mills in Arkansas, Idaho, Michigan and Minnesota and one plywood manufacturing facility in Idaho through its taxable REIT subsidiary. Potlatch is headquartered in Spokane, Washington. In 2016 Potlatch generated approximately $599 million in revenue and as of December 31, 2016 had 953 employees.

Potlatch common stock is listed on the Nasdaq under the symbol “PCH”.

Additional information about Potlatch and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185.

Deltic Timber Corporation (See page 38)

Deltic Timber Corporation

210 East Elm Street, P.O. Box 7200

El Dorado, Arkansas 71731-7200

Telephone: (870) 881-9400

Deltic Timber Corporation (“Deltic”) was incorporated in Delaware in 1996 and is a vertically integrated natural resources company engaged primarily in the growing and harvesting of timber and the manufacture and marketing of lumber and medium density fiberboard. Deltic owns approximately 530,000 acres of timberland, mainly in Arkansas and north Louisiana, stocked principally with Southern Pine, known in the industry as a type of “softwood.” Deltic operates two lumber sawmills and one medium density fiberboard plant, all located in Arkansas near Deltic’s timberlands. In addition to its timber, lumber, and medium density fiberboard operations, Deltic is engaged in real estate development in central Arkansas. Deltic is headquartered in El Dorado, Arkansas, and its operations are located primarily in Arkansas and north Louisiana. In 2016, Deltic generated approximately $219 million in net sales, and as of January 31, 2017, Deltic had 547 employees.

Deltic common stock is listed on the NYSE under the symbol “DEL”.

 



 

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Additional information about Deltic and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185.

The Merger and the Merger Agreement

A copy of the merger agreement is attached as Annex A to this joint proxy statement/prospectus. Potlatch and Deltic encourage you to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement” beginning on page 123.

Effects of Merger (See page 49)

On the terms and subject to the conditions in the merger agreement, and in accordance with the DGCL, on the closing date, Deltic will merge with and into Merger Sub. At the effective time of the merger, the separate corporate existence of Deltic will cease and Merger Sub will continue as the surviving entity in the merger.

Merger Consideration (See page 124)

Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of Deltic common stock (other than shares of Deltic common stock owned by Deltic as treasury stock, which will be canceled) will be converted into the right to receive 1.80 shares of Potlatch common stock. This exchange ratio of 1.80 was fixed in the merger agreement and will not be adjusted for changes in the market price of either shares of Potlatch common stock or shares of Deltic common stock. Changes in the price of shares of Potlatch common stock prior to the merger will affect the market value that Deltic stockholders will receive upon completion of the merger.

The price of shares of Potlatch common stock at the closing of the merger may vary from its price on the date the merger agreement was executed, on the date of this joint proxy statement/prospectus and on the date of the special meetings of Potlatch and Deltic. As a result, the market value represented by the exchange ratio will also vary. For example, based on the range of closing prices of shares of Potlatch common stock during the period from October 20, 2017, the last trading day before public announcement of the merger, through [●], 2017, the latest practicable date before the date of this joint proxy statement/prospectus, the exchange ratio represented a market value ranging from a low of $[●] to a high of $[●] for each share of Deltic common stock. Accordingly, at the time of the Deltic special meeting, Deltic stockholders will not know or be able to determine the market value of the consideration they will receive upon completion of the merger.

Treatment of Deltic Equity Awards (See page 124)

Upon completion of the merger, each outstanding stock option to purchase shares of Deltic common stock (referred to as “Deltic Options”) will vest in full and be converted into an option, on the same terms (other than vesting) as were applicable prior to the merger, to purchase a corresponding number of shares Potlatch common stock, after giving effect to the 1.80 exchange ratio. Outstanding Deltic restricted stock awards (referred to as “Deltic Restricted Stock Awards”) will, with limited exceptions, vest in full, and the restrictions and forfeiture conditions with respect thereto will lapse and expire, and the shares of Deltic common stock underlying such restricted stock awards will be converted into the right to receive the merger consideration. Outstanding Deltic performance-based restricted stock awards (referred to as “Deltic Performance-Based Restricted Stock Awards”) will be deemed to have their performance criteria achieved at the maximum level and, accordingly, will vest in full at 200% of target, and will be converted into the right to receive the merger consideration.

U.S. Federal Income Tax Consequences of the Merger (See page 98)

Deltic and Potlatch intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Potlatch’s obligation to complete the merger that Potlatch receive

 

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an opinion from Skadden, Arps, Slate, Meager & Flom LLP, tax counsel to Potlatch, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Deltic’s obligation to complete the merger that Deltic receive an opinion from Davis Polk & Wardwell LLP, tax counsel to Deltic, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Accordingly, and on the basis of the opinions expected to be received in connection herewith, a U.S. Holder (as defined on page 99) of Deltic common stock will generally not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of shares of Deltic common stock for shares of Potlatch common stock in the merger, except with respect to cash received in lieu of fractional shares.

Please carefully review the information set forth in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—U.S. Federal Income Tax Consequences of the Merger” beginning on page 98 for a summary of the U.S. federal income tax consequences of the merger. Please consult your own tax advisors as to the specific tax consequences to you of the merger.

Recommendation of the Potlatch Board (See page 39)

After careful consideration, the Potlatch board, on October 22, 2017, unanimously (1) approved and declared advisable the merger agreement, (2) approved and declared advisable the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) resolved to recommend to Potlatch’s stockholders the approval of the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement. For the factors considered by the Potlatch board in reaching its decision to approve and declare advisable the merger agreement, see the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—Potlatch’s Reasons for the Merger; Recommendation of the Potlatch Board” beginning on page 61. The Potlatch board unanimously recommends that the Potlatch stockholders vote “FOR” each of the share issuance proposal and the Potlatch adjournment proposal.

Recommendation of the Deltic Board (See page 44)

After careful consideration, the Deltic board, on October 21, 2017, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Deltic and its stockholders and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. For the factors considered by the Deltic board in reaching its decision to approve the merger agreement, see the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—Deltic’s Reasons for the Merger; Recommendation of the Deltic Board” beginning on page 64. The Deltic board unanimously recommends that the Deltic stockholders vote “FOR” each of the merger proposal, the Deltic adjournment proposal and the compensation proposal.

Opinion of Potlatch’s Financial Advisor (See page 69)

On October 22, 2017, at a meeting of the Potlatch board, Merrill Lynch, Pierce, Fenner & Smith Incorporated (referred to as “BofA Merrill Lynch”), rendered its oral opinion, confirmed by delivery of a written opinion, dated October 22, 2017, that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations as set forth in its written opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Potlatch.

The full text of the written opinion, dated October 22, 2017, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this document and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to Potlatch’s board (in its capacity as such) for the benefit and use of

 



 

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Potlatch’s board in connection with and for purposes of its evaluation of the exchange ratio from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger, and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Potlatch or in which Potlatch might engage or as to the underlying business decision of Potlatch to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.

Opinion of Deltic’s Financial Advisor (See page 80)

Goldman Sachs & Co. LLC (referred to as “Goldman Sachs”) delivered its opinion to Deltic’s board that, as of October 22, 2017 and based upon and subject to the factors and assumptions set forth therein, the exchange ratio of 1.80 shares of Potlatch common stock to be paid for each share of outstanding Deltic common stock pursuant to the merger agreement was fair from a financial point of view to the holders (other than Potlatch and its affiliates) of Deltic common stock.

The full text of the written opinion of Goldman Sachs, dated October 22, 2017, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of Deltic’s board in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Deltic common stock should vote with respect to the transaction or any other matter. Pursuant to an engagement letter between Deltic and Goldman Sachs, Deltic has agreed to pay Goldman Sachs a transaction fee which is estimated to be approximately $15 million, all of which is payable upon consummation of the transaction; provided, that Deltic may determine to increase such transaction fee by up to $2 million at its sole and absolute discretion.

Financial Interests of Potlatch Directors and Officers in the Merger (See page 91)

Certain of Potlatch’s directors and executive officers have interests in the merger that are in addition to, or different from, the interests of other Potlatch stockholders. The Potlatch board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in adopting and approving the merger agreement and in recommending the approval of the share issuance proposal and the Potlatch adjournment proposal.

Financial Interests of Deltic’s Directors and Officers in the Merger (See page 91)

Certain of Deltic’s directors and executive officers have interests in the merger that are in addition to, or different from, the interests of other Deltic stockholders. The Deltic board was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement and the merger, and in approving the merger and the merger agreement and in recommending the approval of the merger proposal, the Deltic adjournment proposal and the compensation proposal. These interests include:

 

   

Except as provided otherwise, each Deltic Option, Deltic Restricted Stock Award and Deltic Performance-Based Restricted Stock Award ( collectively referred to as “Deltic Equity Awards”) outstanding immediately prior to the completion of the merger will vest in full and be converted into awards representing the right to acquire or receive (as applicable) shares of Potlatch common stock, on the same terms and conditions as were applicable under the corresponding Deltic award. The performance criteria applicable to the Deltic Performance-Based Restricted Stock Awards will be deemed to have their performance criteria achieved at the maximum performance level (i.e., at 200%) of target. Any Deltic Restricted Stock Awards granted between the date of the execution of the merger agreement and the completion of the merger will not vest in full and will instead be converted into a

 



 

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restricted stock award relating to Potlatch common shares, subject to the same restrictions, vesting and forfeiture conditions (including accelerated vesting on a qualifying termination of employment following the completion of the merger);

 

    Consultant agreement between Potlatch and Deltic’s Chief Executive Officer, John Enlow, pursuant to which Mr. Enlow will provide consulting services as vice chairman to Potlatch for a two-year period following the completion of the merger;

 

    Change-in-control retention award agreements between Deltic and three named executive officers (Byrom Walker, David Meghreblian and Jim Andrews) provide for retention award payments upon completion of 90 days of continuous employment following the completion of the merger;

 

    Offer letter with Mr. Enlow provides for severance benefits in the event of certain qualifying terminations of employment within two years following the merger;

 

    Change-in-control agreements with Deltic’s other executive officers provide for severance benefits in the event of certain “qualifying events” (as defined in “Financial Interests of Deltic Directors and Officers in the Merger—Change in Control Agreements” beginning on page 94); and

 

    Deltic’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.

Board of Directors and Officers Following the Merger (See page 98)

Pursuant to the merger agreement, at the time the merger becomes effective (1) the Potlatch board will be expanded from eight directors to 12 directors, consisting of eight directors from Potlatch and four directors from Deltic as selected by Deltic, (2) Michael J. Covey, the current chief executive officer of Potlatch and chairman of its board of directors, will continue to serve as chief executive officer of Potlatch and chairman of its board of directors, (3) Eric J. Cremers, the current president and chief operating officer of Potlatch, will continue to serve as the president and chief operating officer of Potlatch and will continue to serve on the Potlatch board and (4) John D. Enlow, Sr., the current president and chief executive officer of Deltic, will serve as a vice chairman of Potlatch pursuant to a two-year consulting agreement between Potlatch and Mr. Enlow.

Regulatory Clearances Required for the Merger (See page 117)

Potlatch and Deltic have each agreed to take actions in order to obtain regulatory clearance required to consummate the merger. Regulatory clearance includes expiration or termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), following required notifications with and review by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice. On November 9, 2017, Potlatch and Deltic filed their respective notification forms under the HSR Act. On November 27, 2017, Potlatch and Deltic were notified of the termination of the pre-merger waiting period under the HSR Act. Potlatch and Deltic are not aware of any other material regulatory approvals that are required for the completion of the merger.

Completion of the Merger (See page 124)

The merger is expected to close late in the first quarter or early in the second quarter of 2018, subject to the receipt of required stockholder approvals and the satisfaction or waiver of the other closing conditions. We cannot guarantee when or if the merger will be completed.

 



 

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No Solicitation of Alternative Proposals (See page 133)

Potlatch and Deltic have each agreed, from the date of the execution of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, not to, and not to authorize any of its affiliates or its or their respective directors, officers, employees or representatives to:

 

    directly or indirectly solicit, initiate or knowingly encourage or facilitate a takeover proposal (as defined on page 134) or any inquiry or proposal that may reasonably be expected to lead to a takeover proposal; or

 

    enter into or participate in discussions or negotiations with, or furnish any information with respect to, or cooperate with any person who is seeking to make or has made a takeover proposal or any inquiry or proposal that may reasonably be expected to lead to a takeover proposal.

Additionally, except as described below, each party was required, and was required to instruct its affiliates and its and their representatives, upon execution of the merger agreement, to (1) immediately cease and cause to be terminated all existing discussions or negotiations with respect to a takeover proposal or an inquiry or proposal that may reasonably be expected to lead to a takeover proposal and (2) request prompt return or destruction of all confidential information previously furnished to any person or its representatives with respect to a takeover proposal and immediately terminate all physical and electronic data room access previously granted to any such person or its representatives.

Notwithstanding these restrictions, the merger agreement provides that, if, at any time prior to obtaining the approval of its stockholders, Potlatch or Deltic receives, as applicable, a bona fide written takeover proposal that its board of directors determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) constitutes or could reasonably be expected to lead to a superior proposal (as defined on page 134) and which was made after the date of the merger agreement and did not otherwise result from a material breach of the non-solicitation obligations of that party, then Potlatch or Deltic, as applicable, may (1) furnish information with respect to itself and its subsidiaries to the person making such takeover proposal and its representatives pursuant to a customary confidentiality agreement no less restrictive than the confidentiality agreement between Potlatch and Deltic (except that such confidentiality agreement will not be required to contain standstill provisions) (provided that such information has previously been provided to the other party or is provided to the other party prior to or substantially concurrent with the time that it is provided to such person) and (2) participate in discussions regarding the terms of such takeover proposal and negotiate such terms with the person making such takeover proposal.

The merger agreement also requires each party (1) to notify the other promptly (and in any event within one business day of receipt thereof) of any takeover proposal that may reasonably be expected to lead to a takeover proposal, including the material terms and conditions of any such takeover proposal (including any changes thereto) and the identity of the person making a takeover proposal, (2) to keep the other informed in all material respects of the status and details of any takeover proposal and (3) to provide the other, as soon as reasonably practicable, copies of all written and electronic materials that describe any takeover proposal and any material amendments thereto exchanged between each respective party or any of its subsidiaries or any of its or their representatives and any other person who describes any of the terms or conditions of the takeover proposal.

Changes in Board Recommendations (See page 135)

The merger agreement provides that, subject to certain exceptions, neither the Potlatch board, nor the Deltic board will (1) withdraw (or modify in any manner adverse to the other party) or propose publicly to withdraw (or modify in any manner adverse to the other party) its recommendation of the share issuance proposal or the merger proposal, as applicable, (2) adopt, approve, recommend or declare advisable, or propose publicly to

 



 

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adopt, approve, recommend or declare advisable, a takeover proposal or (3) approve, recommend or declare advisable, or propose publicly to approve, recommend or declare advisable, or allow Potlatch or Deltic, as applicable, or any of its affiliates to execute or enter into, any acquisition agreement (other than a confidentiality agreement otherwise permitted by the merger agreement) constituting or relating to, or that is intended to or would reasonably be expected to lead to, any takeover proposal, or requiring, or reasonably expected to cause, such party to abandon, terminate, delay or fail to complete, or that would otherwise prevent or materially impede, interfere with or delay the completion of the merger or any of the other transactions contemplated by the merger agreement (any of the above, an “adverse recommendation change”).

Notwithstanding the foregoing restrictions, at any time prior to obtaining the relevant stockholder approval, the board of directors of Potlatch or Deltic, as applicable, may make an adverse recommendation change if it receives a superior proposal or an intervening event (as defined in the merger agreement) occurs and, in either case, the board of directors of Potlatch or Deltic, as applicable, determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) that the failure to make an adverse recommendation change would be inconsistent with its fiduciary duties under applicable law. However, no adverse recommendation change in connection with a superior proposal or an intervening event may be made until after the fifth business day following such party first delivering to the other party written notice of its intent to take such action, including the terms and conditions of any takeover proposal or superior proposal or the nature of the intervening event; provided that the five business day notice period is shortened to two business days in connection with any amendment to the financial terms or other material terms of a superior proposal.

Conditions to Completion of the Merger (See page 140)

The obligations of each of Potlatch and Deltic to effect the merger are subject to the satisfaction or waiver of certain conditions, including:

 

    the approval by Deltic stockholders of the merger proposal;

 

    the approval by Potlatch stockholders of the share issuance proposal;

 

    the termination or expiration of the waiting period under the HSR Act;

 

    the approval for listing on Nasdaq, subject to official notice of issuance, of the shares of Potlatch common stock issuable to Deltic stockholders in the merger and upon the exercise or settlement, as applicable, of Deltic Options, Deltic Restricted Stock Awards and Deltic Performance-Based Restricted Stock Awards;

 

    the absence of any law or judgment, order or decree issued by any court or tribunal of competent jurisdiction that prevents, makes illegal or prohibits the closing of the merger;

 

    the SEC having declared effective the registration statement of which this joint proxy statement/prospectus forms a part;

 

    the representations and warranties of the other party relating to capital structure, authority, execution and delivery, enforceability and brokers’ fees and expenses being true and correct in all material respects as of the date of the closing of the merger (except to the extent expressly made as of an earlier date, in which case, as of such earlier date);

 

    each other representation and warranty of the other party being true and correct as of the date of the closing of the merger (except to the extent expressly made as of an earlier date, in which case, as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually and in the aggregate, has not had and would not reasonably be expected to have a material adverse effect;

 



 

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    the other party having performed in all material respects all obligations required to be performed by it under the merger agreement;

 

    the receipt of an officer’s certificate executed by an executive officer of the other party certifying that the three preceding conditions have been satisfied;

 

    the absence of a material adverse effect on the other party since the date of the merger agreement;

 

    the receipt of an opinion of Potlatch’s counsel to the effect that commencing with Potlatch’s taxable year ended December 31, 2006, Potlatch has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and its actual method of operation has enabled it, and its proposed method of operation will continue to enable it, to meet the requirements for qualification and taxation as a REIT under the Code;

 

    the receipt of an opinion of that party’s counsel to the effect that the merger will qualify as a reorganization under Section 368(a) of the Code; and

 

    the absence of any declared or paid special distribution (as defined on page 139) by Potlatch in cash in an aggregate amount, together with any cash dividend or distribution Deltic is permitted to declare and pay as a result of such special distribution, the proximate result of which is a lower ratings event (as defined on page 141).

Termination of the Merger Agreement (See page 141)

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the receipt of the requisite stockholder approvals, under the following circumstances:

 

    by mutual written consent of Potlatch and Deltic;

 

    by either Potlatch or Deltic:

 

    if the merger is not completed by July 22, 2018 (referred to as the “end date”); provided that this right to terminate the merger agreement will not be available to a party if the failure of the merger to occur on or before the end date is the result of a breach of the merger agreement by such party or the failure of any representation or warranty of such party contained in the merger agreement to be true and correct;

 

    if the condition that no applicable law and no judgment issued by any court or tribunal of competent jurisdiction be in effect that prevents, makes illegal or prohibits the completion of the merger is not satisfied and the legal restraint giving rise to such non-satisfaction will have become final and non-appealable; provided that the right to terminate the merger agreement pursuant to the preceding clause will not be available to any party if such failure to satisfy such condition is the result of the failure of such party to have complied with its obligations to take, or cause to be taken, certain actions, as described in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement—Efforts to Complete the Merger” beginning on page 137;

 

    if Potlatch stockholders fail to approve the share issuance proposal at the Potlatch special meeting (unless the Potlatch special meeting has been adjourned in which case at the final adjournment thereof);

 

    if Deltic stockholders fail to approve the merger proposal at the Deltic special meeting (unless the Deltic special meeting has been adjourned in which case at the final adjournment thereof);

 

   

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or failure (1) would give rise to the failure of the conditions that (a) the representations and warranties contained in the merger agreement be true and correct at and as of the closing date, except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect (other than certain representations that must be true and correct in all material respects at and as of the closing date) or (b) such party will have performed in all material respects all obligations required to be performed by it under the merger agreement at or prior to the closing date and (2) is not reasonably capable of being cured by such party by the end date or is not cured by such party within 45 days after receiving written notice, except that the right to so terminate the merger agreement will not be available to a party that is then in breach of any covenant or agreement or representation or warranty in the merger agreement such that the conditions relating to the accuracy of its representations and warranties and performance of its obligations would not then be satisfied by such party;

 

    by Potlatch, if a Deltic adverse recommendation change has occurred;

 

    by Deltic, if a Potlatch adverse recommendation change has occurred;

 

    by Potlatch, prior to obtaining approval of the share issuance by its stockholders, in order to enter into a definitive agreement to effect a superior proposal, if Potlatch (1) has complied with its non-solicitation covenants described in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement —No Solicitation of Alternative Proposals”, (2) enters into such definitive agreement concurrently with such termination and (3) pays Deltic the termination fee described in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement—Expenses and Termination Fees”; or

 

    by Deltic, prior to obtaining approval of the merger proposal by its stockholders, in order to enter into a definitive agreement to effect a superior proposal, if Deltic (1) has complied with its non-solicitation covenants described in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement —No Solicitation of Alternative Proposals”, (2) enters into such definitive agreement concurrently with such termination and (3) pays Potlatch the termination fee described in the section entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—The Merger Agreement—Expenses and Termination Fees”.

Expenses and Termination Fees (See page 142)

Generally, all fees and expenses incurred in connection with the merger and the transactions contemplated by the merger agreement will be paid by the party incurring those expenses. However, the merger agreement provides that, upon termination of the merger agreement under certain circumstances, including as a result of a change in the recommendation of a party’s board of directors or termination of the merger agreement by a party to enter into a superior proposal, such party may be obligated to pay the other party a termination fee equal to $66,000,000 with respect to the fee payable by Potlatch and $33,000,000 with respect to the fee payable by Deltic.

Accounting Treatment (See page 117)

Potlatch prepares its financial statements in accordance with GAAP and is the accounting acquirer. The merger will be accounted for in accordance with Accounting Standards Codification 805, Business Combinations. The purchase price will be determined based on the number of shares of common stock issued and the trading price of shares of Potlatch common stock on the date of the merger. The purchase price will also include additional consideration related to converted Deltic equity awards for amounts attributable to pre-merger services. The purchase price will be allocated to the fair values of assets acquired and liabilities assumed. Any

 



 

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residual purchase price after this allocation will be assigned to goodwill, if applicable. Under Accounting Standards Codification 350, IntangiblesGoodwill and Other, goodwill is not amortized but is tested for potential impairment at least annually. The operating results of Deltic will be part of the combined company beginning on the date of the merger.

No Appraisal Rights (See page 119)

Under the DGCL, holders of Deltic common stock are not entitled to appraisal rights in connection with the merger. For additional information, see the section entitled “No Appraisal Rights” beginning on page 180.

Delisting and Deregistration of Deltic Common Stock (See page 119)

Upon the completion of the merger, the Deltic common stock currently listed on the NYSE will cease to be quoted on the NYSE and will subsequently be deregistered under the Exchange Act.

Comparison of Rights of Potlatch Stockholders and Deltic Stockholders (See page 165)

Deltic stockholders receiving the merger consideration will have different rights once they become stockholders of Potlatch due to differences between the governing corporate documents of Potlatch and the governing corporate documents of Deltic. These differences are described in detail in the section entitled “Comparison of Rights of Potlatch Stockholders and Deltic Stockholders” beginning on page 165.

The Special Meetings

The Potlatch Special Meeting (See page 39)

The special meeting of Potlatch stockholders will be held at [●] local time, on [●], at Potlatch corporate headquarters, 600 West First Avenue, Suite 1600, Spokane, Washington 99201 unless adjourned or postponed to a later date or time. At the Potlatch special meeting, Potlatch stockholders will be asked:

 

    to consider and vote on a proposal to approve the issuance of shares of Potlatch common stock, in connection with the merger contemplated by the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus; and

 

    to consider and vote on a proposal to adjourn the Potlatch special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal.

Only holders of record of Potlatch common stock as of the close of business on [●], the record date for the Potlatch special meeting, will be entitled to notice of, and to vote at, the Potlatch special meeting and any adjournments or postponements of the Potlatch special meeting. A list of stockholders of record entitled to vote at the Potlatch special meeting will be available beginning 10 days prior to the Potlatch special meeting, and continuing through the Potlatch special meeting, at Potlatch’s executive offices and principal place of business at 601 West First Avenue, Suite 1600, Spokane, Washington 99201 for inspection by stockholders during ordinary business hours for any purpose germane to the Potlatch special meeting. The list will also be available at the Potlatch special meeting for examination by any stockholder of record present at the Potlatch special meeting.

As of the close of business on the record date for the Potlatch special meeting, there were outstanding a total of approximately [●] shares of Potlatch common stock entitled to vote at the Potlatch special meeting. As of the close of business on the record date, approximately [●]% of the outstanding shares of Potlatch common stock were held by Potlatch directors and executive officers and their affiliates. We currently expect that Potlatch’s directors and executive officers will vote their shares in favor of the above listed proposals, although none of them has entered into any agreements obligating him or her to do so.

 



 

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Completion of the merger is conditioned on approval of the share issuance proposal. Approval of the share issuance proposal requires that the votes cast favoring the share issuance exceed the votes cast opposing it. Approval of the Potlatch adjournment proposal requires that the votes cast favoring the Potlatch adjournment proposal exceed the votes cast opposing it.

The Deltic Special Meeting (See page 44)

The special meeting is scheduled to be held at [●], on [●] at [●], local time, unless adjourned or postponed to a later date or time. At the Deltic special meeting, Deltic stockholders will be asked:

 

    to consider and vote on a proposal to adopt the merger agreement, a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, pursuant to which Deltic will be merged with and into Merger Sub and each outstanding share of Deltic common stock will be converted into the right to receive 1.80 shares of Potlatch common stock;

 

    to consider and vote on a proposal to adjourn the Deltic special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal; and

 

    to consider and vote on a non-binding, advisory proposal to approve the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger.

Only holders of record of shares of Deltic common stock as of the close of business on [●], the record date for the Deltic special meeting, will be entitled to notice of, and to vote at, the Deltic special meeting and any adjournments or postponements of the Deltic special meeting. A list of stockholders of record of Deltic entitled to vote at the special meeting will be available for 10 days before the special meeting at Deltic’s executive offices and principal place of business at 210 East Elm Street, El Dorado, Arkansas 71730 for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. The list will also be available at the special meeting for examination by any stockholder of record present at the special meeting.

As of the close of business on the record date for the Deltic special meeting, there were outstanding a total of approximately [●] shares of Deltic common stock entitled to vote at the Deltic special meeting. As of the close of business on the record date, approximately [●]% of the outstanding shares of Deltic common stock were held by Deltic directors and executive officers and their affiliates. We currently expect that Deltic’s directors and executive officers will vote their shares in favor of above listed proposals, although none of them has entered into any agreements obligating him or her to do so.

Completion of the merger is conditioned on approval of the merger proposal. Approval of the merger proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Deltic common stock entitled to vote at the special meeting. Approval of the Deltic adjournment proposal and the compensation proposal each requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

 



 

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Table of Contents

Selected Historical Financial Data of Potlatch

The following table sets forth selected historical consolidated financial information for Potlatch. The historical consolidated financial information is derived from the audited consolidated financial statements of Potlatch as of and for each of the years in the five-year period ended December 31, 2016. The historical consolidated financial information for Potlatch as of and for the nine months ended September 30, 2017 and 2016 has been derived from unaudited interim consolidated financial statements of Potlatch and, in the opinion of Potlatch’s management, include all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim periods. The following information should be read together with Potlatch’s consolidated financial statements and the notes related to those financial statements incorporated herein by reference. See the section entitled “Where You Can Find More Information” beginning on page 185. Potlatch’s historical consolidated financial information may not be indicative of the future performance of Potlatch or the combined company.

 

     As of and for
nine months ended
September 30,
    As of and for years ended December 31,  
(Dollars in millions—except per share amounts)    2017      2016     2016      2015      2014      2013      2012  

Revenues

   $ 503.4      $ 443.4     $ 599.1      $ 575.3      $ 607.0      $ 570.3      $ 525.1  

Net income (loss) (1)

   $ 74.9      $ (3.4   $ 10.9      $ 31.7      $ 89.9      $ 70.6      $ 42.6  

Total assets (1)(2)(3)

   $ 971.0      $ 933.1     $ 927.7      $ 1,016.6      $ 1,031.7      $ 677.2      $ 714.8  

Long-term debt (including current portion)(1)(2)(3)

   $ 579.3      $ 585.4     $ 584.0      $ 603.9      $ 625.7      $ 316.8      $ 353.5  

Total stockholders’ equity

   $ 191.2      $ 115.8     $ 156.3      $ 203.7      $ 225.1      $ 204.1      $ 138.6  

Capital expenditures: (4)

                   

Property, plant and equipment

   $ 9.4      $ 4.3     $ 5.9      $ 19.0      $ 13.3      $ 10.3      $ 5.6  

Timberlands reforestation and roads

     11.6        10.4       13.4        13.7        11.0        12.3        11.8  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 21.0      $ 14.7     $ 19.3      $ 32.7      $ 24.3      $ 22.6      $ 17.4  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per share:

                   

Basic

   $ 1.83      $ (0.08   $ 0.27      $ 0.78      $ 2.21      $ 1.74      $ 1.06  

Diluted

   $ 1.82      $ (0.08   $ 0.27      $ 0.77      $ 2.20      $ 1.73      $ 1.05  

Dividends per share

   $ 1.125      $ 1.125     $ 1.50      $ 1.50      $ 1.425      $ 1.28      $ 1.24  

Weighted-average shares outstanding (in millions):

                   

Basic

     40.8        40.8       40.8        40.8        40.7        40.5        40.3  

Diluted

     41.2        40.8       41.0        41.0        40.9        40.7        40.6  

 

(1) In the second quarter of 2016, Potlatch sold approximately 172,000 acres of timberlands located in central Idaho for $114 million at a loss of $48.5 million before taxes and repaid $42.6 million of revenue bonds.
(2) In December 2014, Potlatch acquired approximately 201,000 acres of timberland in Alabama and Mississippi for a total purchase price of $384 million, which was funded with $310 million of new term loans and cash on hand.
(3) Debt issuance costs in 2012 - 2014 were reclassified to conform with the 2015 and 2016 presentation.
(4) Excludes the acquisition of timber and timberlands.

 



 

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Selected Historical Financial Data of Deltic

The following table sets forth selected historical consolidated financial information for Deltic. The historical consolidated financial information is derived from the audited consolidated financial statements of Deltic as of and for each of the years in the five-year period ended December 31, 2016. The historical consolidated financial information for Deltic as of and for the nine months ended September 30, 2017 and 2016 has been derived from unaudited interim consolidated financial statements of Deltic and, in the opinion of Deltic’s management, includes all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the interim periods. The following information should be read together with Deltic’s consolidated financial statements and the notes related to those financial statements incorporated herein by reference. See the section entitled “Where You Can Find More Information” beginning on page 185. Deltic’s historical consolidated financial information may not be indicative of the future performance of Deltic or the combined company.

 

    As of and for
nine months ended
September 30,
    As of and for years ended December 31,  
(Dollars in millions—except per share amounts)   2017     2016     2016     2015     2014     2013     2012  

Net sales

  $ 170.2     $ 160.9     $ 219.4     $ 193.9     $ 227.4     $ 199.7     $ 140.9  

Net income

  $ 6.3     $ 6.1     $ 9.2     $ 2.7     $ 19.7     $ 26.2     $ 9.2  

Total assets

  $ 558.2     $ 555.0     $ 554.7     $ 539.2     $ 527.3     $ 411.1     $ 353.0  

Long-term debt (including current portion)

  $ 238.9     $ 241.8     $ 240.8     $ 223.8     $ 202.9     $ 89.8     $ 62.7  

Total stockholders’ equity

  $ 255.4     $ 244.2     $ 251.2     $ 254.0     $ 267.6     $ 266.3     $ 232.2  

Capital expenditures:

             

Woodlands (1)

  $ 2.6     $ 2.8     $ 3.8     $ 3.7     $ 4.0     $ 3.8     $ 4.0  

Manufacturing

  $ 15.1     $ 26.5     $ 32.3     $ 24.3     $ 12.3     $ 16.5     $ 2.5  

Real Estate

  $ 4.2     $ 4.2     $ 8.5     $ 8.1     $ 3.9     $ 4.3     $ 3.0  

Corporate

  $ 0.2     $ 0.1     $ 0.2     $ 1.7     $ 0.1     $ 0.0     $ 0.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capital expenditures

  $ 22.1     $ 33.6     $ 44.8     $ 37.8     $ 20.3     $ 24.6     $ 9.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Timberland acquisitions

  $ 0.4     $ 1.2     $ 1.8     $ 0.9     $ 118.2     $ 8.9     $ 14.5  

Net income (loss) per share:

             

Basic

  $ 0.52     $ 0.50     $ 0.76     $ 0.21     $ 1.56     $ 2.06     $ 0.73  

Diluted

  $ 0.52     $ 0.50     $ 0.76     $ 0.21     $ 1.55     $ 2.05     $ 0.73  

Dividends per share

  $ 0.30     $ 0.30     $ 0.40     $ 0.40     $ 0.40     $ 0.40     $ 0.30  

Weighted-average shares outstanding

(in thousands):

             

Basic

    12,068       12,005       12,010       12,407       12,497       12,566       12,525  

Diluted

    12,165       12,065       12,074       12,467       12,553       12,624       12,588  

 

(1) Excludes timberland acquisitions.

 



 

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Summary Unaudited Pro Forma Condensed Combined Financial Information

The following table presents selected unaudited pro forma condensed combined financial information about Potlatch’s consolidated balance sheet and consolidated statement of operations, after giving effect to the following transactions:

 

    the merger of Potlatch and Deltic (referred to as the “merger”);

 

    the refinancing of Deltic’s long-term debt (referred to as the “Refinancing”); and

 

    the purge of Deltic’s earnings and profits in connection with maintaining PotlatchDeltic’s status as a REIT (referred to as the “E&P Purge”).

The information under “Statement of Operations Data” in the table below gives effect to the merger, Refinancing and the E&P Purge as if they had been completed on January 1, 2016, the beginning of the earliest period presented. The information under “Balance Sheet Data” in the table below assumes the merger, Refinancing and the E&P Purge had been completed on September 30, 2017. This unaudited pro forma combined financial information was prepared using the acquisition method of accounting with Potlatch considered the acquirer of Deltic. See the section entitled “Accounting Treatment” beginning on page 117.

In addition, the unaudited pro forma condensed combined financial information includes adjustments which are preliminary and may be revised during the final fair value assessments and determination of the purchase price allocation. There can be no assurance that these revisions will not result in material changes. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company.

The information presented below should be read in conjunction with the historical consolidated financial statements of Potlatch and Deltic, including the related notes, filed by each of them with the SEC, and with the unaudited pro forma condensed combined financial statements of Potlatch and Deltic, including the related notes, appearing elsewhere in this document. See the sections entitled “Where You Can Find More Information” beginning on page 185 and “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 147. The unaudited pro forma condensed combined financial data is not necessarily indicative of results that actually would have occurred or that may occur in the future had the merger, Refinancing and E&P Purge been completed on the dates indicated.

 

Statement of Operations Data
(Dollars in millions)
   For the Nine Months
Ended September 30,
2017
     For the Twelve Months
Ended December 31,
2016
 

Revenues

   $ 673.6      $ 818.5  

Cost of goods sold

     528.4        689.3  

Gross Profit

     145.2        129.2  

Net income (loss)

     51.4        (22.4

 

Balance Sheet Data

(Dollars in millions)

   As of
September 30, 2017
 

Cash and cash equivalents

   $ 38.7  

Total assets

     2,378.1  

Total liabilities

     1,111.7  

Total equity

     1,266.4  

 



 

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Equivalent and Comparative Per Share Information

The following table sets forth, for the nine months ended September 30, 2017 and the year ended December 31, 2016, selected per share information for shares of Potlatch common stock on a historical and pro forma combined basis and, for the nine months ended September 30, 2017 and the year ended December 31, 2016, selected per share information for Deltic common stock on a historical and pro forma equivalent basis. Except for the historical information as of and for the year ended December 31, 2016, the information in the table is unaudited. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the merger, Refinancing and E&P Purge had been completed as of January 1, 2016, or the financial position that would have occurred if the merger, Refinancing and E&P Purge had been completed as of September 30, 2017, nor is it necessarily indicative of the future operating results or financial position of the combined company. You should read the data with the historical consolidated financial statements and related notes of Potlatch and Deltic contained in their respective Annual Reports on Form 10-K for the year ended December 31, 2016, Potlatch’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and Deltic’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, all of which are incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185.

The Potlatch pro forma combined earnings per share were calculated using the methodology as described below in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 147. The Potlatch pro forma combined cash dividends per share represent the weighted average of Potlatch’s historical cash dividends and Deltic’s historical cash dividends per share. The Potlatch pro forma combined book value per share was calculated by dividing total combined Potlatch and Deltic pro forma common stockholders’ equity by the pro forma equivalent number of shares. The Deltic pro forma equivalent per share amounts were calculated by multiplying the Potlatch pro forma combined per share amounts by the exchange ratio of 1.80.

 

     Potlatch     Deltic  
     Historical      Pro Forma
Combined
    Historical      Pro
Forma
Equivalent
 

Basic earnings per share:

          

For the nine months ended September 30, 2017

   $ 1.83      $ 0.77     $ 0.52      $ 1.39  

For the year ended December 31, 2016

   $ 0.27      $ (0.34   $ 0.76      $ (0.61

Diluted earnings per share:

          

For the nine months ended September 30, 2017

   $ 1.82      $ 0.77     $ 0.52      $ 1.39  

For the year ended December 31, 2016

   $ 0.27      $ (0.34   $ 0.76      $ (0.61

Cash dividends declared per common share:

          

For the nine months ended September 30, 2017

   $ 1.13      $ 1.06 (1)    $ 0.30      $ 1.90  

For the year ended December 31, 2016

   $ 1.50      $ 1.41 (1)    $ 0.40      $ 2.55  

Book value per common share:

          

As of September 30, 2017

   $ 4.71      $ 20.17     $ 19.93      $ 36.31  

As of December 31, 2016

   $ 3.86        N/A     $ 19.60        N/A  

 

(1) The pro forma combined cash dividends declared per common share assume Potlatch’s historical dividend rate per share, reduced to reflect dilution resulting from the E&P Purge, and the shares issued to consummate the merger. As part of the E&P Purge, PotlatchDeltic expects to issue a stock dividend of approximately 3.9 million shares, calculated based on the closing price of Potlatch common shares of $51.90 on November 7, 2017, which would dilute shares outstanding on a pro forma basis by 6%. As a result, Potlatch’s historical cash dividend declared per common share of $1.50 per year was reduced 6%. The pro forma information is presented assuming the merger, Refinancing and E&P Purge had been completed as of January 1, 2016.

 



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus contain statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to future results and performance, the expected benefits of the merger such as efficiencies, cost savings and growth potential and the expected timing of the merger. Factors listed below, as well as other factors, may cause actual results to differ significantly from these forward-looking statements. There is no guarantee that any of these events anticipated by these forward-looking statements will occur. If any of these events occur, there is no guarantee what effect they will have on operations or financial condition.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often use words such as “expects,” may,” “will,” “believes,” “should,” “approximately,” “anticipates,” “estimates,” “projects,” intends,” plans,” targets” or “approximately.” In addition, these words may use the positive or negative or other variations of those and similar words.

Major risks, uncertainties and assumptions that affect Potlatch’s and Deltic’s businesses and may cause actual results to differ materially from those expressed or implied in these forward-looking statements include those set forth in Potlatch’s and Deltic’s filings with the SEC, including their respective Annual Reports on Form 10-K for the fiscal years ended December 31, 2016, those set forth in the section entitled “Risk Factors” beginning on page 28, as well as, among others, risks, uncertainties and assumptions relating to:

 

    the failure to receive, on a timely basis or otherwise, the required approval of Potlatch’s stockholders or Deltic’s stockholders with respect to the merger;

 

    the risk that any of the conditions to closing of the merger may not be satisfied;

 

    uncertainties as to the timing of the completion of the merger and the ability of Potlatch and Deltic to complete the merger;

 

    the risk that the proposed merger disrupts the plans, operations or existing business relationships of Potlatch or Deltic;

 

    the combined company’s ability to achieve the anticipated financial performance or synergies expected from the merger;

 

    the risk that the business of Potlatch and Deltic will not be integrated successfully or in a timely manner;

 

    unexpected costs or expenses resulting from the merger;

 

    changes in timber growth rates;

 

    changes in silviculture;

 

    timber cruising variables;

 

    changes in state forest acts or best management practices;

 

    changes in timber harvest levels on Potlatch’s or Deltic’s lands;

 

    changes in timber prices;

 

    changes in timberland values;

 

    changes in policy regarding governmental timber sales;

 

    changes in the United States and international economies;

 

    changes in interest rates and discount rates;

 

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    changes in exchange rates;

 

    changes in requirements for FSC® or SFI® certification;

 

    changes in the level of residential and commercial construction and remodeling activity;

 

    changes in tariffs, quotas and trade agreements involving wood products;

 

    changes in demand for Potlatch’s or Deltic’s products;

 

    changes in production and production capacity in the forest products industry;

 

    competitive pricing pressures for Potlatch’s or Deltic’s products;

 

    unanticipated manufacturing disruptions;

 

    changes in general and industry-specific environmental laws and regulations;

 

    unforeseen environmental liabilities or expenditures;

 

    weather conditions;

 

    changes in raw material, energy and other costs;

 

    availability of logging and hauling contractors;

 

    collectability of amounts owed by customers;

 

    changes in federal and state tax laws;

 

    the ability to satisfy complex rules in order for Potlatch to remain qualified as a REIT; and

 

    changes in tax laws that could reduce the benefits associated with Potlatch’s REIT status.

Potlatch and Deltic undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. In the event that Potlatch or Deltic does update any forward-looking statement, no inference should be made that Potlatch or Deltic will make additional updates with respect to that statement, related matters or any other forward-looking statements.

 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 26, you should carefully consider the following risks before deciding whether to vote for the merger proposal, in the case of Deltic stockholders, or for the share issuance proposal, in the case of Potlatch stockholders. In addition, you should read and consider the risks associated with each of the businesses of Potlatch and Deltic because these risks will also affect the combined company. Descriptions of some of these risks can be found in Potlatch’s and Deltic’s respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2016, as, in each case, updated by any subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page  185.

Risk Factors Relating to the Merger

The exchange ratio is fixed and will not be adjusted in the event of any change in either Potlatch’s or Deltic’s stock price.

Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of Deltic common stock (other than shares of Deltic common stock owned by Deltic as treasury stock, which will be canceled) will be converted into the right to receive 1.80 shares of Potlatch common stock. This exchange ratio of 1.80 was fixed in the merger agreement and will not be adjusted for changes in the market price of either shares of Potlatch common stock or shares of Deltic common stock. Changes in the price of shares of Potlatch common stock prior to the merger will affect the market value that Deltic stockholders will receive upon completion of the merger.

The price of shares of Potlatch common stock at the closing of the merger may vary from its price on the date the merger agreement was executed, on the date of this joint proxy statement/prospectus and on the date of the special meetings of Potlatch and Deltic. As a result, the market value represented by the exchange ratio will also vary. For example, based on the range of closing prices of shares of Potlatch common stock during the period from October 20, 2017, the last trading day before public announcement of the merger, through [●], 2017, the latest practicable date before the date of this joint proxy statement/prospectus, the exchange ratio represented a market value ranging from a low of $[●] to a high of $[●] for each share of Deltic common stock. Accordingly, at the time of the Deltic special meeting, Deltic stockholders will not know or be able to determine the market value of the consideration they will receive upon completion of the merger.

Stock price changes may result from a variety of factors (many of which are beyond our control), including, among others, changes in our respective businesses, operations and prospects; changes in market assessments of the business, operations and prospects of either company; investor behavior and strategies; interest rates, general market and economic conditions and other factors generally affecting the price of shares of Potlatch’s common stock and shares of Deltic’s common stock; and federal, state and local legislation, governmental regulation, tariffs, quotas and trade agreements, and legal developments in the businesses in which Potlatch and Deltic operate.

Potlatch’s stock price may be negatively impacted by risks and conditions that apply to Potlatch, which are different from the risks and conditions applicable to Deltic.

Upon completion of the merger, holders of Deltic common stock will become holders of Potlatch common stock. The businesses of Potlatch differ from those of Deltic in important respects and, accordingly, the results of operations of Potlatch after the merger, as well as the market price of shares of Potlatch common stock, may be

 

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affected by factors different from those currently affecting or that have historically affected the independent results of operations of Deltic. Please see Potlatch’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as updated by any subsequent Quarterly Reports on Form 10-Q, all of which are incorporated by reference in this joint proxy statement/prospectus (see the section entitled “Where You Can Find More Information” beginning on page 185 for the location of information incorporated by reference in this joint proxy statement/prospectus), and the section entitled “Cautionary Statements Regarding Forward-Looking Statements” beginning on page 26 for a summary of some of the key factors that might affect Potlatch and the prices at which shares of Potlatch common stock may trade from time to time.

Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Potlatch and Deltic.

If the merger is not completed, the ongoing businesses of Potlatch or Deltic may be adversely affected and Potlatch and Deltic will be subject to several risks without realizing any of the benefits of having the merger completed, including the following:

 

    being subject to certain restrictions on the conduct of its business during the period between the day the merger agreement was executed and termination of the merger agreement, which may adversely affect its ability to execute certain business strategies;

 

    experiencing negative reactions from the financial markets or from their respective customers, suppliers or employees;

 

    being subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against Potlatch or Deltic to perform their respective obligations under the merger agreement; and

 

    the focus of management of each of the companies being on the merger instead of on pursuing other opportunities that could be beneficial to the companies.

In addition, if the merger is not completed, Potlatch or Deltic may be required, under certain circumstances, to pay a termination fee of $66 million and $33 million, respectively, to the other party.

Any delay in completing the merger, which is subject to a number of conditions, some of which are outside of the parties’ control, may reduce or eliminate the expected benefits from the transaction.

In addition to the required stockholder and stockholder approvals, the merger is subject to a number of other conditions beyond Potlatch’s and Deltic’s control that may prevent, delay or otherwise materially adversely affect its completion. Potlatch and Deltic cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger could cause the combined company not to realize some or all of the synergies and other benefits that it expects to achieve if the merger is successfully completed within its expected time frame. The merger agreement contains certain restrictions on the conduct of the parties’ business. If the merger is delayed, these restrictions could adversely affect Potlatch’s or Deltic’s ability to execute business strategies or pursue attractive business opportunities. In addition, a delay could cause management of Potlatch or Deltic, as applicable, to focus on completion of the merger instead of on other opportunities that could be beneficial to Potlatch or Deltic. See the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—The Merger Agreement—Conditions to Completion of the Merger” beginning on page 140.

In addition, if the merger is not completed by July 22, 2018, either Potlatch or Deltic may choose to terminate the merger agreement, subject to certain exceptions. Potlatch or Deltic may also choose to terminate the merger agreement in certain other circumstances, and the parties can mutually decide to terminate the merger agreement at any time prior to the completion of the merger, before or after the stockholder approvals have been

 

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obtained. See the sections entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 141 and “—Expenses and Termination Fees” beginning on page 142.

The merger agreement contains provisions that could discourage a potential competing acquiror of either Potlatch or Deltic or could result in any competing proposal being at a lower price than it might otherwise be.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict Potlatch’s and Deltic’s ability to solicit, initiate, knowingly encourage or facilitate competing third-party proposals to acquire all or a significant part of Potlatch or Deltic. Further, even if the Potlatch board or Deltic board withdraws (or modifies in any manner adverse to the other party) or proposes publicly to withdraw (or modify in any manner adverse to the other party) its recommendation of the share issuance proposal or the merger proposal, as applicable, they will still be required to submit the matter to a vote of their respective stockholders at their respective special meetings unless the merger agreement is terminated in accordance with its terms. In addition, the other party generally has an opportunity to offer to modify the terms of the merger and the merger agreement in response to any takeover proposals that may be made before such board of directors may withdraw or modify its recommendation. In some circumstances, upon termination of the merger agreement, one of the parties may be required to pay a termination fee to the other party. For additional information, see the sections entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 133, “—Changes in Board Recommendations” beginning on page 135, “—Termination of the Merger Agreement” beginning on page 141 and “—Expenses and Termination Fees” beginning on page 142.

These provisions could discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Potlatch or Deltic from considering or proposing an acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than that market value proposed to be received or realized in the merger, or might result in a potential competing acquiror proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

The merger will involve substantial costs.

Potlatch and Deltic have incurred and expect to continue to incur substantial costs and expenses relating directly to the merger and the Potlatch share issuance, including fees and expenses payable to financial advisors, other professional fees and expenses, insurance premium costs, HSR filing fees, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. Potlatch also will incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs, employment-related costs and costs related to the special distribution. Potlatch continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the merger and the integration of the two companies’ businesses.

Uncertainty due to the pendency of the merger could adversely affect the business and operations of Potlatch or Deltic.

In connection with the pendency of the merger, some customers, suppliers or other entities with whom Potlatch or Deltic have a business relationship may delay or defer decisions, which could negatively impact revenues, earnings and cash flows of Potlatch or Deltic, as well as the market price of shares of Potlatch common stock or shares of Deltic common stock, regardless of whether the merger is completed. In addition, customers or suppliers may cease doing business with Potlatch, Deltic or the combined company in anticipation of or following the merger or may change the terms and conditions upon which they are willing to continue to do business. In addition, current or prospective competitors of Potlatch, Deltic or the combined company may seek to take advantage of potential uncertainty or disruption resulting from the merger to interfere with relationships with customers, suppliers or employees.

 

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Until the completion of the merger or the termination of the merger agreement in accordance with its terms, in consideration of the agreements made by the parties in the merger agreement, Potlatch and Deltic are each prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Potlatch or Deltic and their respective stockholders and stockholders.

Until the merger is completed, the merger agreement restricts Potlatch and Deltic from taking specified actions without the consent of the other party, and requires each of Potlatch and Deltic to operate in the ordinary course in all material respects. These restrictions may prevent Potlatch or Deltic from making appropriate changes to their respective businesses or pursuing attractive business opportunities that may arise prior to the completion of the merger. See the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—The Merger Agreement—Conduct of Business” beginning on page 127.

The fairness opinions obtained by the boards of Potlatch and Deltic from their respective financial advisors will not reflect changes in circumstances between signing the merger agreement and the completion of the merger.

Neither the Potlatch board nor the Deltic board has obtained an updated fairness opinion as of the date of this joint proxy statement/prospectus from BofA Merrill Lynch, Potlatch’s financial advisor, or Goldman Sachs, Deltic’s financial advisor.

Changes in the operations and prospects of Potlatch or Deltic, general market and economic conditions and other factors that may be beyond the control of Potlatch or Deltic, and on which the fairness opinions were based, may alter the value of Potlatch or Deltic or the price of shares of Potlatch common stock or shares of Deltic common stock by the time the merger is completed. The opinions do not speak as of the time the merger will be completed or as of any date other than the dates of such opinions. The opinions are included as Annexes B and C to this joint proxy statement/prospectus. For a description of the opinion that the Potlatch board received from its financial advisor, see the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—Opinion of Potlatch’s Financial Advisor” beginning on page 69. For a description of the opinion that the Deltic board received from its financial advisor, see the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—Opinion of Deltic’s Financial Advisor” beginning on page 80. For a description of the factors considered by the Potlatch board in determining to approve the merger agreement and the merger, see the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—Potlatch’s Reasons for the Merger; Recommendation of the Potlatch Board” beginning on page 61. For a description of the factors considered by Deltic’s board in determining to approve the merger agreement and the merger, see the section entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—Deltic’s Reasons for the Merger; Recommendation of the Deltic Board” beginning on page 64.

Potlatch’s executive officers and directors and Deltic’s executive officers and directors have interests in the merger that may be different from, or in addition to, the interests of Potlatch’s stockholders and Deltic’s stockholders generally.

Executive officers of Potlatch and Deltic negotiated the terms of the merger agreement. The Potlatch board approved and adopted the merger agreement and approved the issuance of shares of Potlatch common stock to Deltic stockholders in connection with the merger and determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Potlatch common stock to Deltic stockholders in connection with the merger, are in the best interests of Potlatch and its stockholders. The Deltic board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Deltic and its stockholders and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. In considering these facts and the other information contained in this joint proxy statement/prospectus, you should be aware that Potlatch’s executive officers and directors and Deltic’s executive officers and directors may have financial

 

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interests in the merger that may be different from, or in addition to, the interests of Potlatch’s stockholders or Deltic’s stockholders. See the sections entitled “The Issuance of Potlatch Common Stock and the Adoption of the Merger Agreement—Financial Interests of Potlatch Directors and Officers in the Merger” beginning on page 91 and “—Financial Interests of Deltic Directors and Officers in the Merger” beginning on page 91.

The combined company may incur adverse tax consequences if Potlatch has failed or fails to qualify as a REIT for U.S. federal income tax purposes or as a result of Deltic’s status as a non-REIT “C corporation” for U.S. federal income tax purposes.

Potlatch has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so through and following the merger. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of Potlatch may affect its ability to qualify as a REIT. In order to qualify as a REIT, Potlatch must satisfy a number of requirements, particularly relating to the nature of its assets and its income. A REIT must also make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any capital gains.

If Potlatch has failed or fails to qualify as a REIT for U.S. federal income tax purposes and the merger is completed, the combined company may have significant tax liabilities.

If Potlatch loses its REIT status, or is determined to have lost its REIT status in a prior year, Potlatch will face serious tax consequences that could substantially reduce its cash available for distribution to its stockholders because:

 

    Potlatch would be subject to U.S. federal income tax on its net income at regular corporate rates for the years it did not qualify for taxation as a REIT (and, for these years, would not be allowed a deduction for dividends paid to stockholders in computing its taxable income);

 

    unless Potlatch is entitled to relief under applicable statutory provisions, neither it nor any “successor” corporation, trust or association could elect to be subject to tax as a REIT until the fifth taxable year following the year during which it was disqualified; and

 

    even if Potlatch could re-elect REIT status or obtain relief to re-elect REIT status, (1) for up to five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it would be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election and (2) it would have to distribute all earnings and profits from non-REIT years before the end of the first new REIT taxable year.

Even if Potlatch retains its REIT status, because Deltic is not a REIT for U.S. federal income tax purposes, Potlatch and its stockholders (including Deltic stockholders that become Potlatch stockholders in the merger) will face the following adverse tax consequences:

 

    Potlatch will generally inherit any corporate income tax liabilities of Deltic, including penalties and interest;

 

    Potlatch will be subject to regular corporate-level tax on the built-in gain in each asset of Deltic existing at the time of the merger if Potlatch were to dispose of a Deltic asset during the five-year period following the merger; and

 

    Potlatch will be required to pay one or more special distributions to eliminate any earnings and profits accumulated by Deltic, which distributions will be taxable and are expected in substantial part to be paid in Potlatch stock and thus may cause a stockholder receiving such distributions to incur a tax liability that exceeds the cash received by such stockholder.

 

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As a result of these factors, Potlatch’s failure (before or after the merger) to qualify as a REIT or Deltic’s status as a non-REIT “C corporation” could reduce Potlatch’s cash available for distribution to stockholders or impair its ability after the merger to expand its business and raise capital, could materially adversely affect the value of shares of Potlatch’s common stock, and could have other adverse effects for Potlatch and its stockholders.

Risk Factors Relating to Potlatch Following the Merger

Potlatch is expected to incur substantial expenses related to the integration of Deltic.

Potlatch is expected to incur substantial expenses in connection with the integration of the business, policies, procedures, operations, technologies and systems of Deltic with those of Potlatch. There are a large number of systems that must be integrated, including management information, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. While Potlatch has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of all of the expected integration expenses. Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. These expenses could, particularly in the near term, exceed the savings that Potlatch expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings and synergies related to the integration of the businesses following the completion of the merger. These integration expenses likely will result in Potlatch taking significant charges against earnings following the completion of the merger, but the amount and timing of such charges are uncertain at present.

Following the merger, the combined company may be unable to integrate successfully the businesses of Potlatch and Deltic and realize the anticipated benefits of the merger.

The merger involves the combination of two companies which currently operate as independent public companies. The combined company will be required to devote significant management attention and resources to integrating its business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties the combined company may encounter in the integration process include the following:

 

    the inability to successfully combine the businesses of Potlatch and Deltic in a manner that permits the combined company to achieve the cost savings and synergies anticipated to result from the merger, which would result in the anticipated benefits of the merger not being realized partly or wholly in the time frame currently anticipated or at all;

 

    lost sales and customers as a result of certain customers of either of the two companies deciding not to do business with the combined company;

 

    complexities associated with managing the combined businesses;

 

    integrating personnel from the two companies;

 

    creation of uniform standards, controls, procedures, policies and information systems;

 

    potential unknown liabilities and unforeseen increased expenses or delays associated with the merger; and

 

    performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.

In addition, Potlatch and Deltic have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing

 

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businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the combined company.

The market price of shares of Potlatch common stock may decline in the future as a result of the merger.

The market price of shares of Potlatch common stock may decline in the future as a result of the merger for a number of reasons, including the unsuccessful integration of Potlatch and Deltic or the failure of Potlatch to achieve the perceived benefits of the merger, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees of Potlatch or Deltic which could adversely affect the future business and operations of the combined company following the merger.

Potlatch and Deltic are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans and conduct operations. The combined company’s success after the merger will depend in part upon its ability to retain key management personnel and other key employees of Potlatch and Deltic. Current and prospective employees of Potlatch and Deltic may experience uncertainty about their future roles with the combined company following the merger, which may materially adversely affect the ability of each of Potlatch and Deltic to attract and retain key personnel during the pendency of the merger. Accordingly, no assurance can be given that the combined company will be able to retain key management personnel and other key employees of Potlatch and Deltic.

The merger may not be accretive and may cause dilution to Potlatch’s cash available for distribution per share, which may negatively affect the market price of shares of Potlatch common stock.

The merger is expected to deliver accretion to Potlatch’s cash available for distribution per share in the first full year after the merger, including cost synergies and excluding integration and restructuring activities. This expectation is based on preliminary estimates which may materially change, including the currently expected timing of the merger. Potlatch could also encounter additional transaction-related costs or other factors such as a delay in the closing of the merger or the failure to realize all of the benefits anticipated in the merger. Any of these factors could cause dilution to Potlatch’s cash available for distribution per share or decrease or delay the expected accretive effect of the merger and cause a decrease in the market price of shares of Potlatch common stock.

Current Potlatch stockholders and current Deltic stockholders will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over the combined company’s management.

Current Potlatch stockholders currently have the right to vote in the election of the Potlatch board and other matters affecting Potlatch. Current Deltic stockholders currently have the right to vote in the election of the Deltic board and on other matters affecting Deltic. Immediately after the merger is completed, it is expected that current Potlatch stockholders will own approximately [__]% of the outstanding shares of Potlatch common stock and current Deltic stockholders will own approximately [__]% of the outstanding shares of Potlatch common stock.

As a result of the merger, current Potlatch stockholders and current Deltic stockholders will have less influence on the combined company’s management and policies than they now have on the management and policies of Potlatch and Deltic, respectively.

 

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The unaudited pro forma financial data for Potlatch included in this joint proxy statement/prospectus are preliminary, and Potlatch’s actual financial position and operations after the merger may differ materially from the unaudited pro forma financial data included in this joint proxy statement/prospectus.

The unaudited pro forma financial data for Potlatch included in this joint proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what Potlatch’s actual financial position or operations would have been had the merger been completed on the dates indicated. Potlatch’s actual results and financial position after the merger may differ materially and adversely from the unaudited pro forma financial data included in this joint proxy statement/prospectus. Further, the combined company may recognize goodwill in the merger as part of acquisition accounting. Any goodwill would be subject to annual impairment assessments and a non-cash charge may be necessary if the results of operations and cash flows are unable to support the goodwill subsequent to the merger. For more information see the sections entitled “Summary—Summary Unaudited Pro Forma Combined Condensed Financial Information” beginning on page 24 and “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 147.

The internal financial forecasts for Potlatch and Deltic included in this joint proxy statement/prospectus reflect management estimates and Potlatch’s and Deltic’s actual performance may differ materially from the internal financial forecasts included in this joint proxy statement/prospectus.

The internal financial forecasts for Potlatch and Deltic included in this joint proxy statement/prospectus were prepared based on information Potlatch and Deltic, as applicable, had at the time of preparation and reflect factors and assumptions that are subject to change and do not necessarily reflect current factors and assumptions that Potlatch’s or Deltic’s management, as applicable, may have about their respective businesses. As a result, actual results may differ materially from these internal financial forecasts. The inclusion of these internal forecasts in this joint proxy statement/prospectus should not be regarded as an indication that Potlatch, Deltic or any other recipient of the financial forecasts considered, or now considers, these forecasts to be material or predictive of future results.

While presented with numeric specificity, these internal financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Potlatch and Deltic. Important factors that may affect actual results and cause the internal financial forecasts to not be achieved include risks and uncertainties relating to Potlatch’s and Deltic’s businesses, industry performance, commodity price trends, the regulatory environment, general business and economic conditions, tariffs, quotas and trade agreements and other factors described under the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 26 and “Risk Factors” beginning on page 28 and in Potlatch’s and Deltic’s respective Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as updated by any subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and are incorporated by reference into this joint proxy statement/prospectus. Since the forecasts cover multiple years, this information by its nature becomes less meaningful and predictive with each successive year.

The internal financial forecasts were not prepared for the purpose of public disclosure, nor were they prepared in compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to these internal financial forecasts. The reports of the independent registered public accounting firms incorporated by reference into this joint proxy statement/prospectus relate to Potlatch’s and Deltic’s historical financial information and do not extend to these internal financial forecasts and should not be read to do so. These internal financial forecasts were based on internal management reporting that may differ from Potlatch’s and Deltic’s external public reporting.

None of Potlatch, Deltic or their respective affiliates, advisors, officers, directors or other representatives can provide any assurance that actual results will not differ from these internal financial forecasts, and none of

 

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them undertakes any obligation to update, or otherwise revise or reconcile, these internal financial forecasts to reflect circumstances existing after the time of preparation or to reflect the occurrence of subsequent events even in the event that any or all of the factors or assumptions underlying the forecasts are shown to be in error. For more information see the sections entitled “The Issuance of Potlatch Shares and the Adoption of the Merger Agreement—Certain Potlatch Forecasts” beginning on page 119 and “—Certain Deltic Forecasts” beginning on page 121.

Potlatch’s future results will suffer if the combined company does not effectively manage its expanded operations following the merger.

Following the merger, the size of the business of the combined company will increase significantly beyond the current size of either Potlatch’s or Deltic’s current businesses. In addition, the combined company may continue to expand its operations through additional acquisitions or other strategic transactions. Potlatch’s future success depends, in part, upon its ability to manage its expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected economies of scale, synergies and other benefits currently anticipated from the merger or anticipated from any additional acquisitions or strategic transactions.

Potlatch cannot assure you that it will be able to continue paying dividends as announced.

As noted elsewhere in this joint proxy statement/prospectus, Potlatch has announced that beginning in the fourth quarter of 2017, it has increased its annual dividend from $1.50 per share to $1.60 per share. However, you should be aware that Potlatch stockholders may not receive the same dividends following the merger for reasons that may include any of the following factors:

 

    the combined company may not have enough cash to pay such dividends due to changes in Potlatch’s cash requirements, capital spending plans, cash flow or financial position;

 

    while the dividend practices of Potlatch involve the distribution of a portion of Potlatch’s cash available to pay dividends, the Potlatch board could change its practices at any time; and

 

    the actual amount of dividends distributed and the decision to make any distribution will remain at all times entirely at the discretion of the Potlatch board; and

Potlatch’s stockholders should be aware that they have no contractual or other legal right to dividends.

The shares of Potlatch common stock to be received by Deltic stockholders as a result of the merger will have different rights from the shares of Deltic common stock currently held by Deltic stockholders.

Upon completion of the merger, Deltic stockholders will become Potlatch stockholders and their rights as stockholders will be governed by the DGCL and Potlatch’s Second Restated Certificate of Incorporation (referred to as the “Potlatch certificate of incorporation”) and Potlatch’s Bylaws (referred to as the “Potlatch bylaws”). The rights associated with shares of Potlatch common stock are different from the rights associated with shares of Deltic common stock. See the section entitled “Comparison of Rights of Potlatch Stockholders and Deltic Stockholders” beginning on page 165 for a discussion of the different rights associated with shares of Potlatch common stock.

The credit ratings of the combined company or its subsidiaries may be different from what the companies currently expect.

Potlatch has evaluated the expected credit rating of the combined company and anticipates that the combined company will continue to maintain Potlatch’s current credit rating, including following any incurrence

 

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of new indebtedness in connection with refinancing indebtedness of Deltic. Potlatch’s credit ratings impact the cost and availability of future borrowings, and, as a result, Potlatch’s cost of capital. Potlatch’s ratings reflect each rating organization’s opinion of Potlatch’s financial strength, operating performance and ability to meet Potlatch’s debt obligations. Each of the ratings organizations reviews Potlatch’s ratings periodically, and there can be no assurance that Potlatch’s current ratings will be maintained in the future. Any future downgrades in Potlatch’s ratings could adversely affect Potlatch’s businesses, cash flows, financial condition and operating results.

Potlatch faces intense competition in its markets, and the failure to compete effectively could have a material adverse effect on its business, financial condition and results of operations.

Potlatch competes with North American producers, some of which may have greater financial resources and lower production costs than Potlatch does. The principal basis for competition for many of Potlatch’s products is selling price. Potlatch’s ability to maintain satisfactory margins depends in large part on Potlatch’s ability to control its costs. To the extent that one or more of Potlatch’s competitors become more successful with respect to any key competitive factor, Potlatch’s ability to attract and retain customers could be materially adversely affected. If Potlatch is unable to compete effectively, such failure could have a material adverse effect on its business, financial condition and results of operations.

Historically, Canada has been a significant source of lumber for the U.S. market, particularly in the new home construction market. After years of trade disputes over Canadian lumber imports, the U.S. and Canada executed a definitive agreement establishing a system of tiered taxes and/or volume restrictions relating to Canadian lumber imports to the U.S. However, this agreement expired in October 2015 and it is uncertain when or if a new agreement will be reached, and if reached what the terms of a new agreement would be. Moreover, even if a new agreement is reached, there can be no assurance that it will at all times, or at any time, effectively create a fair trade environment. Therefore, downward pressure on domestic timber and lumber prices caused by Canadian imports could continue or increase.

Other Risk Factors of Potlatch and Deltic

Potlatch’s and Deltic’s businesses are and will be subject to the risks described above. In addition, Potlatch and Deltic are, and will continue to be, subject to the risks described in Potlatch’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Deltic’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, respectively, in each case, as updated by any subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and are incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185 for the location of information incorporated by reference in this joint proxy statement/prospectus.

 

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THE COMPANIES

The Companies

Potlatch Corporation

Potlatch Corporation

601 West First Avenue; Suite 1600

Spokane, Washington 99201

Telephone: (509) 835-1500

Potlatch Corporation (“Potlatch”), formerly known as Potlatch Holdings, Inc., was incorporated Delaware as a Real Estate Investment Trust (“REIT”). Potlatch is the successor to the business of the original Potlatch Corporation, which was incorporated in Maine in 1903. Potlatch has approximately 1.4 million acres of timberland in Alabama, Arkansas, Idaho, Minnesota and Mississippi. Potlatch also conducts a land sales and development business and operates saw mills in Arkansas, Idaho, Michigan and Minnesota and one plywood manufacturing facility in Idaho through its taxable REIT subsidiary Potlatch is headquartered in Spokane, Washington. In 2016 Potlatch generated approximately $599 million in revenue and as of December 31, 2016 had 953 employees.

Potlatch’s common stock is listed on Nasdaq under the symbol “PCH”.

Additional information about Potlatch and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185.

Deltic Timber Corporation

Deltic Timber Corporation

210 East Elm Street, P.O. Box 7200

El Dorado, Arkansas 71731-7200

Telephone: (870) 881-9400

Deltic Timber Corporation (“Deltic”) was incorporated in Delaware in 1996 and is a vertically integrated natural resources company engaged primarily in the growing and harvesting of timber and the manufacture and marketing of lumber and medium density fiberboard. Deltic owns approximately 530,000 acres of timberland, mainly in Arkansas and north Louisiana, stocked principally with Southern Pine, known in the industry as a type of “softwood.” Deltic operates two lumber sawmills and one medium density fiberboard plant, all located in Arkansas near Deltic’s timberlands. In addition to its timber, lumber, and medium density fiberboard operations, Deltic is engaged in real estate development in central Arkansas. Deltic is headquartered in El Dorado, Arkansas, and its operations are located primarily in Arkansas and north Louisiana. In 2016, Deltic generated approximately $219 million in net sales, and as of January 31, 2017, Deltic had 547 employees.

Deltic’s common stock is listed on the NYSE under the symbol “DEL”.

Additional information about Deltic and its subsidiaries is included in documents incorporated by reference in this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 185.

 

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THE POTLATCH SPECIAL MEETING

Date, Time and Place

The special meeting of Potlatch stockholders will be held at [●] local time, on [●], 2018 at Potlatch corporate headquarters, 601 West First Avenue, Suite 1600, Spokane, Washington 99201 unless adjourned or postponed to a later date or time.

Purpose of the Potlatch Special Meeting

At the Potlatch special meeting, Potlatch stockholders will be asked:

 

    to consider and vote on a proposal to approve the issuance of shares of Potlatch common stock, par value $1 per share, in connection with the merger contemplated by the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus (referred to as the “share issuance proposal”); and

 

    to consider and vote on a proposal to adjourn the Potlatch special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal (referred to as the “Potlatch adjournment proposal”).

Recommendation of the Potlatch Board

At its meeting on October 22, 2017, the Potlatch board unanimously (1) approved and adopted the merger agreement, (2) approved the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) approved the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement.

Accordingly, the Potlatch board unanimously recommends that the Potlatch stockholders vote “FOR” each of the share issuance proposal and the Potlatch adjournment proposal.

Potlatch Record Date; Stockholders Entitled to Vote

Only holders of record of shares of Potlatch common stock as of the close of business on [●], the record date for the Potlatch special meeting, will be entitled to notice of, and to vote at, the Potlatch special meeting and any adjournments or postponements of the Potlatch special meeting. A list of stockholders of record entitled to vote at the Potlatch special meeting will be available beginning 10 days prior to the Potlatch special meeting, and continuing through the Potlatch special meeting, at Potlatch’s executive offices and principal place of business at 601 West First Avenue, Suite 1600, Spokane, Washington 99201 for inspection by stockholders during ordinary business hours for any purpose germane to the Potlatch special meeting. The list will also be available at the Potlatch special meeting for examination by any stockholder of record present at the Potlatch special meeting.

As of the close of business on the record date for the Potlatch special meeting, there were outstanding a total of approximately [●] shares of Potlatch common stock entitled to vote at the Potlatch special meeting.

Quorum

A quorum is necessary to transact business at the Potlatch special meeting. Stockholders who hold at least a majority of the issued and outstanding shares of Potlatch common stock as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum for the transaction of business at the Potlatch special meeting. Abstentions and “broker non-votes” (shares held by banks, brokers or other holders of record that are present, in person or by proxy, at the Potlatch special meeting but with respect to which the bank, broker or other holder of record is not instructed by the beneficial owner of

 

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such shares how to vote on a particular proposal and the bank, broker or other holder of record does not have discretionary voting power on such proposal) will be counted as present for purposes of determining the presence of a quorum.

Required Vote

Approval of the share issuance proposal and the Potlatch adjournment proposal requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast.

Abstentions and Broker Non-Votes

The following will not be considered votes cast and will not count towards the approval of the share issuance proposal or the Potlatch adjournment proposal:

 

    broker non-votes; and

 

    a share otherwise present at the Potlatch special meeting as to which a stockholder gives no authority or direction.

Voting Information

You may vote your shares in one of several ways, depending how you own your shares of common stock.

If you are a Potlatch stockholder of record (that is, if your shares are registered in your own name with Potlatch’s transfer agent), you can vote any one of four ways:

 

    Voting on the Internet: Go to the Internet website specified on your proxy card and follow the instructions. You will need to have your Control Number (from your notice or proxy card) with you when you go to the website.

 

    Voting by Telephone: Call the toll-free number specified on your proxy card and follow the instructions. You will need to have your Control Number (from your notice or proxy card) with you when you call.

 

    Voting by Mail: Mark, sign, date and return your proxy card in the postage-paid envelope provided in advance of the Potlatch special meeting.

 

    Voting at the Potlatch Special Meeting: If you decide to attend the Potlatch special meeting and vote in person, you may deposit your proxy card in the ballot box at the registration desk at the Potlatch special meeting or you may complete a ballot that will be distributed at the Potlatch special meeting.

If a proxy is returned without an indication as to how the shares of Potlatch common stock represented are to be voted with regard to a particular proposal, the shares of Potlatch common stock represented by the proxy will be voted in favor of each such proposal. As of the date of this joint proxy statement/prospectus, Potlatch management has no knowledge of any business that will be presented for consideration at the Potlatch special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the related Potlatch proxy card other than the matters set forth in Potlatch’s Notice of Special Meeting of Stockholders. If any other matter is properly presented at the Potlatch special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

If you are a beneficial owner of shares held in street name (that is, if you hold your shares through a bank, broker or other holder of record), you should follow the voting instructions you receive from the holder of record to vote your shares. The bank, broker or other holder of record must receive explicit voting instructions from you

 

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to be able to vote on the share issuance proposal and the Potlatch adjournment proposal, each of which is considered to be non-routine under the applicable rules of the Nasdaq. Banks, brokers and other holders of record do not have discretion to vote on non-routine matters unless the beneficial owner of the shares has given explicit voting instructions. Consequently, if you do not give your bank, broker or other holder of record explicit instructions, your shares will not be voted on the share issuance proposal or the Potlatch adjournment proposal and will be considered “broker non-votes” on these proposals.

Please note that if your shares are held in street name, and you wish to vote in person at the Potlatch special meeting, you must bring to the special meeting a “legal proxy” executed in your favor from the record holder (your bank, broker or other holder of record) of the shares authorizing you to vote at the Potlatch special meeting.

Your vote is very important. Accordingly, whether or not you expect to attend the Potlatch special meeting in person, we urge you to vote your shares as promptly as possible.

How Proxies Are Counted

All shares represented by properly executed proxies received in time for the Potlatch special meeting will be voted at the special meeting in the manner specified by the stockholder giving those proxies. Properly executed proxies that do not contain voting instructions with respect to the share issuance proposal or the Potlatch adjournment proposal will be voted “FOR” that proposal.

Participants in Benefit Plans

If you hold shares of Potlatch common stock in the Potlatch Hourly Company 401(k) or the Potlatch Salaried 401(k) Plan (referred to as the “Plans”), you can vote any one of four ways:

 

    Voting on the Internet: Go to the Internet website specified on your voting instruction form and follow the instructions. You will need to have your control number (from your voting instruction form) with you when you go to the website.

 

    Voting by Telephone: Call the toll-free number specified on your voting instruction form and follow the instructions. You will need to have your control number (from your voting instruction form) with you when you call.

 

    Voting by Mail: Mark, sign, date and return your proxy card in the postage-paid envelope provided in advance of the Potlatch special meeting.

We must receive your voting instructions by 11:59 p.m. Eastern Time, on [●], 2018 in order to tabulate the voting instructions of Plans participants who have voted and communicate those to the Plans trustee, who will ultimately vote your shares. If the proxy card is signed and returned without specific instructions for voting, or if the proxy card received by the Plans trustee is not signed or if the proxy card is not received by the Trustee, you will be treated as directing the Plans trustee to vote your shares of Potlatch common stock held in the Plans in the same proportion as the shares of Potlatch common stock for which the Trustee has received timely instructions from other participants in the Plans, unless to do so would be inconsistent with Title I of the Employee Retirement Income Security Act of 1974.

Revocation of Proxies

You have the right to revoke your proxy at any time before your shares are voted by proxy at the Potlatch special meeting. You may revoke your proxy by delivering a signed statement to Potlatch’s Corporate Secretary at or prior to the Potlatch special meeting or by timely executing and delivering, by Internet, telephone, mail or in person at the Potlatch special meeting, another proxy dated as of a later date.

 

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If shares are held in Potlatch Hourly or Salaried 401K Plans you may revoke your proxy by telephone by calling 1-800-690-6903 and following instructions or via Internet by going to www.proxyvote.com and following instructions.

If your shares are held in “street name” by your bank, broker or other holder of record, you should contact your bank, broker or other holder of record to change your vote or revoke your proxy.

Attending the Potlatch Special Meeting

Attendance at the Potlatch special meeting is limited to holders of shares of Potlatch common stock. If you are a stockholder of record and you plan to attend the Potlatch special meeting, please be prepared to provide proper photo identification, such as a driver’s license. If you are a street name stockholder and you plan to attend the Potlatch special meeting, you must present proof of your ownership of shares of Potlatch common stock as of the record date for the Potlatch special meeting. Acceptable proof would be an original bank or brokerage account statement as of the record date. You also must present photo identification to be admitted. If you arrive at the meeting without proof of your ownership of shares of Potlatch common stock as of the record date or without proper photo identification, you will not be admitted to the meeting.

If you are a street name stockholder and you wish to vote in person at the Potlatch special meeting, you must also bring to the Potlatch special meeting a “legal proxy” executed in your favor from the record holder (your bank, broker or other holder of record) of the shares authorizing you to vote at the Potlatch special meeting.

If you are hearing impaired or require other special accommodations due to disability, please contact Potlatch’s Corporate Secretary prior to the meeting to indicate the accommodations that you will need. No banners, placards, signs, literature for distribution, cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Potlatch special meeting.

Tabulation of Votes

Potlatch has appointed Lorrie D. Scott, Potlatch’s Vice President, General Counsel and Corporate Secretary, to serve as the inspector of election for the Potlatch special meeting. The inspector of election will, among other matters, determine the number of shares represented at the Potlatch special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and certify the results of voting on all proposals submitted to Potlatch stockholders.

Solicitation of Proxies

In accordance with the merger agreement, the cost of proxy solicitation for the Potlatch special meeting will be borne by Potlatch. In addition to the use of the mail, proxies may be solicited by officers and directors and other employees of Potlatch, some of whom may be considered participants in the solicitation, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Potlatch will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Potlatch and Deltic have jointly retained Georgeson LLC to assist in solicitation of proxies for a fee of approximately $24,000, plus reasonable expenses, for these services.

Voting by Potlatch Directors and Executive Officers

As of the close of business on the record date for the Potlatch special meeting, approximately [●]% of the outstanding shares of Potlatch common stock were held by Potlatch directors and executive officers and their affiliates. We currently expect that Potlatch’s directors and executive officers will vote their shares in favor of the above-listed proposals, although none of them has entered into any agreements obligating him or her to do so.

 

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Adjournments

If a quorum is not present or represented, the stockholders entitled to vote at the Potlatch special meeting, present in person or represented by proxy, shall have power to adjourn the Potlatch special meeting from time to time, without notice other than announcement at the Potlatch special meeting, until a quorum is present or represented. If a quorum is present at the Potlatch special meeting but there are not sufficient votes at the time of the Potlatch special meeting to approve the share issuance proposal, then Potlatch stockholders may be asked to vote on the Potlatch adjournment proposal. No notices of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the Potlatch special meeting. At any subsequent reconvening of the Potlatch special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the Potlatch special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the time the proxy is voted at the reconvened meeting.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Potlatch special meeting, please contact Georgeson LLC at 480 Washington Blvd., 26th Floor, Jersey City, New Jersey 07310, toll-free at (888) 867-6963.

 

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THE DELTIC SPECIAL MEETING

Date, Time and Place

The special meeting of Deltic stockholders will be held at [●], on [●], 2018 at [●], local time, unless adjourned or postponed to a later date or time.

Purpose of the Deltic Special Meeting

At the Deltic special meeting, Deltic stockholders will be asked:

 

    to consider and vote on a proposal to adopt the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus, pursuant to which Deltic will be merged with and into Merger Sub and each outstanding share of Deltic common stock will be converted into the right to receive 1.80 shares of Potlatch common stock (referred to as the “merger proposal”);

 

    to consider and vote on a proposal to adjourn the Deltic special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal (referred to as the “Deltic adjournment proposal”); and

 

    to consider and vote on a non-binding, advisory proposal to approve the compensation that may be paid or become payable to Deltic’s named executive officers in connection with the completion of the merger (referred to as the “compensation proposal”).

Recommendation of the Deltic Board

After careful consideration, the Deltic board, on October 21, 2017, unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Deltic and its stockholders and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger.

Accordingly, the Deltic board unanimously recommends that Deltic stockholders vote “FOR” each of the merger proposal, the Deltic adjournment proposal and the compensation proposal.

Deltic Record Date; Stockholders Entitled to Vote

Only holders of record of shares of Deltic common stock as of the close of business on [●], the record date for the Deltic special meeting, will be entitled to notice of, and to vote at, the Deltic special meeting and any adjournments or postponements of the Deltic special meeting. A list of stockholders of record of Deltic entitled to vote at the Deltic special meeting will be available for 10 days before the Deltic special meeting at Deltic’s executive offices and principal place of business at 210 East Elm Street, El Dorado, Arkansas 71730 for inspection by stockholders during ordinary business hours for any purpose germane to the Deltic special meeting. The list will also be available at the Deltic special meeting for examination by any stockholder of record present at the special meeting.

As of the close of business on the record date for the Deltic special meeting, there were outstanding a total of approximately [●] shares of Deltic common stock entitled to vote at the Deltic special meeting.

Quorum

A quorum is necessary to transact business at the Deltic special meeting. Stockholders who hold at least a majority of the issued and outstanding shares of Deltic common stock as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum for the transaction of business at the Deltic special meeting. Shares of Deltic common stock represented at the Deltic

 

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special meeting but not voted, including shares for which a stockholder directs an “abstention” from voting, will be counted as present for purposes of establishing a quorum. Broker non-votes (shares held by banks, brokers or other holders of record that are present, in person or by proxy, at the Deltic special meeting but with respect to which the bank, broker or other holder of record is not instructed by the beneficial owner of such shares how to vote on a particular proposal and the bank, broker or other holder of record does not have discretionary voting power on such proposal) will be counted as present for purposes of determining the presence of a quorum.

Required Vote

Approval of the merger proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Deltic common stock entitled to vote at the Deltic special meeting. Approval of the Deltic adjournment proposal and the compensation proposal each requires that votes cast “FOR” exceed the votes cast “AGAINST” each proposal (with abstentions and broker non-votes not considered votes cast).

Abstentions and Broker Non-Votes

If you fail to vote, fail to instruct your bank, broker or other holder of record to vote, or vote to abstain, it will have the same effect as a vote against the merger proposal. If you fail to vote, fail to instruct your bank, broker or other holder of record to vote, or mark your proxy or voting instructions to abstain, it will have no effect on the Deltic adjournment proposal or the compensation proposal, assuming that a quorum is present.

Voting Options

If you are a Deltic stockholder of record (that is, if your shares are registered in your own name with Deltic’s transfer agent), you can vote any one of four ways:

 

    Voting on the Internet: Go to the Internet website specified on your proxy card and follow the instructions. You will need to have your control number (from your notice or proxy card) with you when you go to the website.

 

    Voting by Telephone: Call the toll-free number specified on your proxy card and follow the instructions. You will need to have your control number (from your notice or proxy card) with you when you call.

 

    Voting by Mail: Mark, sign, date and return your proxy card in the postage-paid envelope provided in advance of the Deltic special meeting.

 

    Voting at the Deltic Special Meeting: If you decide to attend the Deltic special meeting and vote in person, you may deposit your proxy card in the ballot box at the registration desk at the Deltic special meeting or you may complete a ballot that will be distributed at the Deltic special meeting.

Voting in Person

If you plan to attend the Deltic special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held in “street name”, and you wish to vote at the special meeting, you must bring to the special meeting a “legal proxy” executed in your favor from the record holder (your bank, broker or other holder of record) of the shares authorizing you to vote at the special meeting. In addition, if you are a registered stockholder, please be prepared to provide proper identification, such as a driver’s license or passport. If you hold your shares in “street name”, you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other holder of record proving ownership on the Deltic record date, along with proper identification. Stockholders will not be allowed to use cameras, recording devices and other similar electronic devices at the meeting.

 

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Voting of Proxies

A proxy card is enclosed for your use. Deltic requests that you mark, sign and date the accompanying proxy and return it promptly in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed, the shares of Deltic common stock represented by it will be voted at the Deltic special meeting or any adjournment thereof in accordance with the instructions contained in the proxy.

If a proxy is returned without an indication as to how the shares of Deltic common stock represented are to be voted with regard to a particular proposal, the Deltic common stock represented by the proxy will be voted in favor of each such proposal. As of the date of this joint proxy statement/prospectus, Deltic management has no knowledge of any business that will be presented for consideration at the Deltic special meeting and which would be required to be set forth in this joint proxy statement/prospectus or the related Deltic proxy card other than the matters set forth in Deltic’s Notice of Special Meeting of Stockholders. If any other matter is properly presented at the Deltic special meeting for consideration, it is intended that the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their best judgment on such matter.

Your vote is very important. Accordingly, whether or not you plan to attend the Deltic special meeting in person, we urge you to vote your shares as promptly as possible.

How Proxies Are Counted

All shares represented by properly executed proxies received in time for the Deltic special meeting will be voted at the meeting in the manner specified by the stockholder giving those proxies. Properly executed proxies that do not contain voting instructions with respect to the merger proposal, the Deltic adjournment proposal or the compensation proposal will be voted “FOR” that proposal.

Shares Held in “Street Name”

If you hold your shares in a stock brokerage account or if your shares are held by a bank, broker or other holder of record (that is, in street name), you must provide the bank, broker or other holder of record of your shares with instructions on how to vote your shares if you wish them to be counted. Please follow the voting instructions provided by your bank, broker or other holder of record. Please note that you may not vote shares held in street name by returning a proxy card directly to Deltic or by voting in person at your special meeting unless you provide a “legal proxy”, which you must obtain from your bank, broker or other holder of record. Further, banks, brokers or other holders of record who hold shares of Deltic common stock on behalf of their customers may not give a proxy to Deltic to vote those shares without specific instructions from their customers.

If you do not instruct your broker on how to vote your shares of Deltic common stock, your bank, broker or other holder of record may not vote your shares, which will have the same effect as a vote against the merger proposal. If you do not instruct your broker on how to vote your shares of Deltic common stock, it will have no effect on the Deltic adjournment proposal and the compensation proposal, assuming that a quorum is present.

Revocation of Proxies

You have the power to revoke your proxy at any time before your proxy is voted at the Deltic special meeting. You can revoke your proxy in one of four ways:

 

    by sending a signed notice of revocation to Deltic’s Corporate Secretary at 210 East Elm Street, P.O. Box 7200, El Dorado, Arkansas 71731-7200 no later than the beginning of the Deltic special meeting;

 

    by properly submitting a new, valid proxy bearing a later date, which must be received before your votes are counted at the Deltic special meeting (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

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    by submitting a proxy via Internet or by telephone no later than 11:59 p.m. Eastern Time on the day before the Deltic special meeting (in which case only the later-dated proxy is counted and the earlier proxy is revoked); or

 

    if you are a holder of record, you can attend the Deltic special meeting and vote in person, which will automatically cancel any proxy previously given, or you can revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.

If your shares are held in “street name” by your bank, broker or other holder of record, you should contact your bank, broker or other holder of record to change your vote or revoke your proxy.

Tabulation of Votes

Deltic has appointed one or more representatives of Deltic, who will be assisted by Computershare, Inc., as proxy tabulation agent, to serve as the inspector of election for the Deltic special meeting. The inspector of election will, among other matters, determine the number of shares represented at the Deltic special meeting to confirm the existence of a quorum, determine the validity of all proxies and ballots and certify the results of voting on all proposals submitted to the Deltic stockholders.

Solicitation of Proxies

In accordance with the merger agreement, the cost of proxy solicitation for the Deltic special meeting will be borne by Deltic. In addition to the use of the mail, proxies may be solicited by officers and directors and other employees of Deltic, some of whom may be considered participants in the solicitation, without additional remuneration, by personal interview, telephone, facsimile or otherwise. Deltic will also request brokerage firms, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares held of record on the record date and will provide customary reimbursement to such firms for the cost of forwarding these materials. Deltic and Potlatch have jointly retained Georgeson LLC to assist in solicitation of proxies for a fee of approximately $24,000, plus reasonable out-of-pocket expenses.

Voting by Deltic Directors and Executive Officers

As of the close of business on the record date for the Deltic special meeting, approximately [●]% of the outstanding shares of Deltic common stock were held by Deltic directors and executive officers and their affiliates. We currently expect that Deltic’s directors and executive officers will vote their shares in favor of the above-listed proposals, although none of them has entered into any agreements obligating him or her to do so.

Adjournments

If a quorum is not present or represented, the stockholders entitled to vote at the Deltic special meeting, present in person or represented by proxy, shall have power to adjourn the Deltic special meeting from time to time, without notice other than announcement at the Deltic special meeting, until a quorum is present or represented. If a quorum is present at the Deltic special meeting but there are not sufficient votes at the time of the Deltic special meeting to approve the merger proposal, then Deltic stockholders may be asked to vote on the Deltic adjournment proposal. No notices of an adjourned meeting need be given unless the adjournment is for more than 30 days or, if after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the Deltic special meeting. At any subsequent reconvening of the Deltic special meeting at which a quorum is present, any business may be transacted that might have been transacted at the original meeting and all proxies will be voted in the same manner as they would have been voted at the original convening of the Deltic special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the time the proxy is voted at the reconvened meeting.

 

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Assistance

If you need assistance in completing your proxy card or have questions regarding the Deltic special meeting, please contact Georgeson LLC at 480 Washington Blvd., 26th Floor, Jersey City, New Jersey 07310, toll-free at (888) 867-6963.

 

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POTLATCH PROPOSAL 1 AND DELTIC PROPOSAL 1:

THE ISSUANCE OF POTLATCH SHARES AND THE ADOPTION OF THE MERGER AGREEMENT

Effects of the Merger

On the closing date, Deltic will merge with and into Merger Sub. At the effective time of the merger, the separate corporate existence of Deltic will cease and Merger Sub will continue as the surviving entity in the merger. Subject to the terms and conditions of the merger agreement, upon completion of the merger, each share of Deltic common stock issued and outstanding immediately prior to the completion of the merger (other than shares of Deltic common stock owned by Deltic as treasury stock) will be converted into the right to receive 1.80 shares of Potlatch common stock with cash paid in lieu of fractional shares. This exchange ratio is fixed and will not be adjusted for changes in the market price of either shares of Potlatch common stock or shares of Deltic common stock prior to the merger.

Background of the Merger

The Deltic board and management regularly review Deltic’s performance, prospects and strategy, as well as developments in the forest products and real estate industries, opportunities and challenges facing participants in those industries and opportunities to increase stockholder value. In addition, Deltic regularly engages with its stockholders to understand their perspectives on the most effective ways to increase stockholder value, and from time to time, certain of Deltic’s stockholders have suggested that Deltic explore one or more possible business combination transactions.

The Potlatch board and management regularly review Potlatch’s performance, prospects and strategy in light of the current business and economic environment, as well as developments in the timber industry and opportunities and challenges facing participants in that industry. These reviews have included consideration, from time to time, of potential strategic alternatives, including strategic acquisitions and divestitures, business combination transactions and remaining an independent, standalone entity.

On October 10, 2016, the board of directors of Deltic announced the retirement of Ray C. Dillon as Deltic’s long-time President and Chief Executive Officer, and the election of D. Mark Leland, a member of the Deltic board of directors, as interim President and Chief Executive Officer. In the period following the leadership change, Mr. Leland and Robert C. Nolan, Chairman of the board of directors of Deltic, received outreach from certain other companies engaged in the forest products industry, particularly Potlatch and a company referred to as “Party A”, expressing a potential interest in a business combination with Deltic.

From time to time during the period from when Mr. Leland was named interim President and Chief Executive Officer to the time the merger agreement with Potlatch was entered into, Deltic received input from a number of stockholders, particularly Southeastern Asset Management Inc. (“SEAM”), its largest stockholder, regarding their views based on publicly available information and information available from sources other than Deltic as to the courses of action those stockholders considered to be in the best interests of Deltic. Also during this period, Deltic received inquiries from several parties potentially interested in purchasing certain portions of Deltic’s assets such as its sawmills or its medium density fiberboard manufacturing operations, including an indication of interest from a third party with respect to the acquisition of Deltic’s manufacturing business for $200 million. None of these inquiries resulted in substantive discussions regarding a transaction.

Following Deltic’s October 10, 2016 announcement of the retirement of its long-time chief executive officer, Michael J. Covey, Potlatch’s chairman and chief executive officer, called a representative of Goldman Sachs to inquire about approaching Mr. Nolan regarding Potlatch’s possible interest in a merger. A representative of Goldman Sachs spoke to Mr. Nolan and was told that Deltic planned to focus on its search for a new Chief Executive Officer. Goldman Sachs had served as Deltic’s financial advisor since September 2012 on several projects and although Goldman Sachs had not yet been specifically retained to assist with a potential strategic transaction, they assisted Deltic with the initial stages of the process pursuant to the earlier arrangements.

 

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On December 2, 2016, the Potlatch board held a regular meeting. Mr. Covey discussed a potential combination with Deltic, and the Potlatch board authorized Mr. Covey to explore the possibility of a transaction with Deltic.

On January 9, 2017, Mr. Covey updated the Potlatch board about Potlatch’s interest in Deltic and related activities. Mr. Covey requested that the directors review a management presentation on a possible combination with Deltic that had been provided to the Potlatch board.

On January 11, 2017, the Potlatch board held a telephonic meeting to review the management presentation on Deltic and to discuss a possible combination with Deltic. Mr. Covey and Eric J. Cremers, Potlatch’s president and chief operating officer, provided an overview of Deltic, including its timberland, manufacturing, real estate and management, and summarized Deltic’s recent results of operations and stock performance. They discussed several opportunities to improve Deltic’s operations and financial returns. They also reviewed different valuation approaches, based on base case and enhanced synergy assumptions, outlined a range of values for Deltic and requested authority to proceed to explore a possible transaction with Deltic. The Potlatch board authorized management to begin to explore a combination, including engagement of a financial advisor.

On January 13, 2017, at the direction of Potlatch management, a representative of BofA Merrill Lynch had a telephone conversation with a representative of Goldman Sachs, who agreed to contact Mr. Nolan and Mr. Leland regarding Potlatch’s interest.

On January 17, 2017, at the direction of Deltic management, a representative of Goldman Sachs reported to a representative of BofA Merrill Lynch that Deltic’s Chief Executive Officer search was in the advanced stages. At the direction of Potlatch management, the representative of BofA Merrill Lynch asked a representative of Goldman Sachs to request a meeting between Potlatch and Deltic.

On January 19, 2017, Mr. Covey reported to the Potlatch board that management recommended retaining BofA Merrill Lynch as its financial advisor, described BofA Merrill Lynch’s qualifications and outlined the engagement terms with BofA Merrill Lynch.

On February 2, 2017, Messrs. Nolan and Leland met with Messrs. Covey and Cremers. At the meeting, Potlatch indicated an interest in a possible business combination transaction between Potlatch and Deltic, and Potlatch provided Deltic with background information about Potlatch as well as information from Potlatch regarding potential synergies and potential benefits to stockholders of both companies of a combination transaction between Potlatch and Deltic. Messrs. Nolan and Leland indicated to Messrs. Covey and Cremers that Deltic was focused on its process of selecting a new Chief Executive Officer and that they did not believe it was the right time for Deltic to consider a business combination transaction. No specific proposal was made at the meeting.

As a result of the outreach from Party A following the retirement of Mr. Dillon, on February 3, 2017, Messrs. Nolan and Leland met with representatives of Party A. Party A indicated that if Deltic were to be approached by another party regarding a business combination, then Deltic should consider contacting Party A at that time. Messrs. Noland and Leland indicated to the Party A representatives that Deltic was focused on its process of selecting a new Chief Executive Officer and had not been actively considering business combination transactions at that time.

On February 3, 2017, Potlatch and BofA Merrill Lynch executed an engagement letter for BofA Merrill Lynch to serve as Potlatch’s financial advisor in connection with a possible transaction with Deltic.

On February 7, 2017, at the direction of Potlatch management, representatives of BofA Merrill Lynch discussed telephonically with representatives of Goldman Sachs the information that was discussed in the February 2, 2017 meeting between the representatives of Potlatch and Deltic, including information regarding a potential business combination between Potlatch and Deltic.

 

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On February 16, 2017, the Deltic board held a regularly scheduled meeting. Among other things, the Deltic board discussed its annual strategic plan and Goldman Sachs gave a presentation that included a preliminary financial analysis of Deltic and a preliminary analysis of certain potential business combination transactions. The Deltic board determined that it was not yet the time to engage with either Potlatch or other potential merger partners, in part because the Deltic board wanted to retain a new Chief Executive Officer who would lead a full review of Deltic’s strategic position and opportunities to enhance value. Consequently, the Deltic board determined to continue its process for hiring a new Chief Executive Officer. At the direction of the Deltic board, representatives of Goldman Sachs communicated the Deltic board’s position to representatives of BofA Merrill Lynch.

On February 17, 2017, at a regularly scheduled Potlatch board meeting, Mr. Covey and Mr. Cremers briefed the Potlatch board on the status of discussions with Deltic and reviewed an updated Potlatch management presentation regarding a proposed combination with Deltic, including potential operational and financial benefits of the combined companies.

On February 20, 2017, a representative of SEAM contacted Mr. Nolan and indicated that he was aware that Deltic had engaged in discussions with multiple parties regarding a possible combination transaction and encouraged Deltic to announce that fact and continue the engagement.

On February 22, 2017, SEAM, which had previously been a Schedule 13G filer as a passive investor in Deltic, filed a Schedule 13D in connection with its holding in Deltic. SEAM stated in its Schedule 13D that SEAM and Deltic had been approached by “multiple parties interested in merging with or acquiring Deltic”. In the Schedule 13D, SEAM also indicated its belief that a combination with a timber REIT would be beneficial for the Deltic stockholders. Later that day, Deltic issued a press release stating that Deltic had met with representatives of SEAM and looked forward to continued, constructive dialogue with its stockholders focused on enhancing the value of Deltic. The press release also stated that the Deltic board was committed to acting in the best interests of Deltic stockholders, and regularly reviews its strategic priorities and opportunities to enhance value.

On February 23, 2017, the Deltic board held a special meeting to discuss Deltic’s search for a new Chief Executive Officer. After consideration of various factors, including his strategic expertise and his experience in business combination transactions, the board unanimously voted to offer the position of Chief Executive Officer to John D. Enlow, Sr.

On February 27, 2017, Deltic announced the appointment of Mr. Enlow as President and Chief Executive Officer of Deltic, to be effective on March 8, 2017. Deltic also announced that the then-current Chief Financial Officer had been terminated and that Byrom L. Walker had been named as interim Chief Financial Officer of Deltic.

On March 7, 2017, Mr. Covey reviewed with the Potlatch board Potlatch’s preliminary proposal for an all-stock merger with Deltic at an exchange ratio between 1.84 and 1.93 shares of Potlatch common stock for each share of Deltic common stock.

On March 8, 2017, Potlatch submitted a letter to Deltic indicating Potlatch’s interest in a transaction between Potlatch and Deltic. The letter outlined a preliminary non-binding proposal for a stock-for-stock merger whereby Deltic’s stockholders would receive 1.839 – 1.930 shares of Potlatch common stock for every share of Deltic common stock. Based on closing stock prices as of March 6, 2017, the proposal implied an offer price of $81.00—$85.00 per share of Deltic common stock. Potlatch noted that its indication of interest was based on publicly available information only and that it would need to conduct a full due diligence review before it could make a binding offer.

On March 20, 2017, the Deltic board held a special meeting to review Potlatch’s indication of interest. At the invitation of the Deltic board, representatives of Davis Polk, Deltic’s outside counsel, and Goldman Sachs

 

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were present. Davis Polk reviewed with the Deltic board the directors’ fiduciary duties and other legal matters relating to the consideration of a potential strategic transaction. Goldman Sachs discussed, among other things the financial terms of the preliminary non-binding indication of interest from Potlatch. Mr. Enlow provided an overview of the internal valuation of Deltic that was underway, which included a valuation of each of Deltic’s operating segments. Mr. Enlow also discussed aspects of a strategic review to be conducted by Deltic during the next 60-90 days, which would include a competitive benchmarking analysis against Deltic’s peer group and the identification of opportunities to improve performance. After discussion, the Deltic board unanimously agreed that it would be in the Deltic stockholders’ best interests for Deltic to engage Potlatch in further discussion and gather more information. The Deltic board also agreed that Deltic should also continue its own internal valuation and strategic review as discussed by Mr. Enlow. Accordingly, the Deltic board authorized Mr. Enlow and Deltic’s management to engage Potlatch in further discussions and to continue Deltic’s internal valuation and strategic review.

Over the course of the ensuing months, Deltic continued to develop and analyze its strategic alternatives, which included a standalone plan that implemented strategic initiatives to become best in class, the conversion of Deltic’s C-corporation structure into a REIT structure, or a merger with a strategic partner.

On March 21, 2017, Deltic and Goldman Sachs executed an engagement letter for Goldman Sachs to serve as Deltic’s financial advisor in connection with a potential strategic transaction.

Also on March 21, 2017, representatives of Goldman Sachs contacted representatives of BofA Merrill Lynch in accordance with the instructions of the Deltic board at its March 20, 2017 board meeting, and delivered Deltic’s feedback regarding Potlatch’s March 8 written proposal. Goldman Sachs indicated that although Deltic was not conducting a sale process, the board would properly evaluate any proposal that it received. Goldman Sachs further indicated Deltic’s view that Potlatch’s proposal meaningfully undervalued the Deltic business. Goldman Sachs noted that Deltic was engaged in an internal review of its businesses. Goldman Sachs stated that in order for the parties to continue to engage and to share confidential information, the parties would need to enter into a non-disclosure agreement, and offered to provide a draft.

Following a request by SEAM for non-public information, Deltic delivered a draft non-disclosure agreement to SEAM on March 23, 2017. After discussing the proposed terms of the non-disclosure agreement, SEAM informed Deltic that it would not enter into the non-disclosure agreement.

Following the conversation between representatives of Goldman Sachs and representatives of BofA Merrill Lynch on March 31, 2017, Deltic delivered a draft non-disclosure agreement to Potlatch, and thereafter the parties negotiated the terms thereof. On April 5, 2017, Deltic and Potlatch executed a mutual non-disclosure agreement. The non-disclosure agreement contained a customary “standstill” provision, which, subject to certain exceptions, prohibited either party from acquiring shares in the other party’s common stock or taking certain other actions for a period of one year from the date of the non-disclosure agreement.

During the ensuing months, Deltic and Potlatch, with the assistance of their advisors, conducted substantial due diligence on each other including as described below.

On April 6, 2017, Mr. Cremers updated the Potlatch board on developments with Deltic.

On April 11, 2017, Potlatch and its advisors were granted access to the virtual data room developed by Deltic for the potential transaction, and Deltic and its advisors were granted access to the virtual data room developed by Potlatch for the potential transaction.

On April 17, 2017, Potlatch retained a consultant to assist with evaluation of Deltic’s timber inventory.

On April 19, 2017, representatives of each of Deltic, Potlatch, Goldman Sachs and BofA Merrill Lynch met in Dallas, Texas for due diligence discussions regarding Deltic’s and Potlatch’s businesses and financial

 

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projections and the potential synergies from a business combination transaction. Further, the parties discussed in general terms the potential business combination including potential corporate governance and executive leadership of the combined company.

On April 21, 2017, at the direction of Mr. Enlow, representatives of Goldman Sachs contacted the financial advisor of a company engaged in the forest products industry (referred to as “Party B”). From time to time in the first quarter of 2017, the financial advisor of Party B had reached out to Goldman Sachs to inquire regarding a potential transaction with Deltic. On April 25, 2017, Mr. Enlow spoke with the Chief Executive Officer of Party B to discuss a possible business combination transaction pursuant to which Party B, which was smaller than Deltic, would be acquired by Deltic. Over the following several weeks, representatives of Goldman Sachs and representatives of the financial advisor to Party B engaged in several discussions regarding a possible business combination transaction between the two parties. In late May 2017, Deltic determined not to continue considering a potential transaction with Party B because the transaction would likely have required Deltic stockholder approval and Deltic had concluded that in the current environment it would have been difficult to garner stockholder support of a transaction that resulted in material non-organic growth for Deltic.

On April 21, 2017, Mr. Covey updated the Potlatch board on the meeting with Deltic and reviewed topics that were presented and discussed.

On April 27, 2017, the Deltic board held a regularly scheduled meeting at which Deltic’s valuation and strategy were discussed. Mr. Enlow presented preliminary valuation estimates and strategic initiatives for Deltic derived from the ongoing exercise that had been undertaken by Deltic. The Deltic board authorized Mr. Enlow to further develop and report on these valuations and initiatives.

On May 1, 2017, the Deltic board held a special meeting to discuss the business and operations of Potlatch and the internal valuations of Deltic that were being prepared. During this meeting, Mr. Enlow noted that Deltic should expect to receive a definitive offer once Potlatch completed its analysis. The Deltic board directed Deltic management to continue discussions with Potlatch.

Over the course of the period following the April 19 meeting between representatives of Potlatch and Deltic, Potlatch and Deltic and their advisors continued to engage in general due diligence and discussed valuation methodologies and perspectives. Deltic continued to progress its comprehensive strategic review during that period and indicated to Potlatch that such review was ongoing.

On May 3, 2017, at the Potlatch board’s annual meeting, Mr. Covey and Mr. Cremers updated the Potlatch board on the status of discussions with Deltic.

On May 4, 2017, at the direction of Potlatch management, representatives of BofA Merrill Lynch requested that Goldman Sachs provide additional harvest information and responses to questions based on a review of Deltic’s financial forecasts. Representatives of Goldman Sachs responded that Deltic was working on an updated harvest schedule, expected to be completed by May 22, 2017.

On May 22, 2017, representatives of Goldman Sachs advised representatives of BofA Merrill Lynch that Deltic expected to finalize its harvest plan that week and prepare a revised financial forecast within two weeks of completion of the harvest plan and approval of the plan by the Deltic board.

On May 25, 2017, Mr. Covey updated the Potlatch board on the status of discussions with Deltic and likely timing.

On June 7, 2017, a representative of Goldman Sachs informed a representative of BofA Merrill Lynch that the Deltic board would meet on June 15, 2017 to review the new harvest plan and revised financial projections. At the direction of Potlatch management, representatives of BofA Merrill Lynch reiterated Potlatch’s request for additional information relating to Deltic’s timber inventory and responses to questions posed to Deltic’s timber consultant.

 

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On June 9, 2017, Mr. Covey updated the Potlatch board on timing and changes to Deltic’s latest harvest plan.

On June 15, 2017, the Deltic board held a regularly scheduled meeting at which it reviewed and discussed management’s updated reports of its valuation of Deltic and strategic alternatives for Deltic to create value for Deltic stockholders.

On June 16, 2017, a representative of Goldman Sachs informed a representative of BofA Merrill Lynch that the Deltic board had met and had approved the new financial projections. Goldman Sachs posted the new financial projections in the dataroom as well as answers to some of Potlatch’s questions regarding timber inventory.

On June 22, 2017, Potlatch requested additional data relating to Deltic’s timber inventory and manufacturing plants, and on June 27, 2017, at the direction of Potlatch management, representatives of BofA Merrill Lynch contacted representatives of Goldman Sachs about the outstanding requests from Potlatch for additional timber inventory information.

On June 28, 2017, representatives of Potlatch participated in a conference call with representatives of Deltic, as well as representatives of BofA Merrill Lynch and Goldman Sachs, to discuss questions regarding Deltic timberlands raised by Potlatch.

On July 11, 2017, representatives of Potlatch participated in a conference call with representatives of Deltic to discuss Deltic’s new financial model.

On July 13, 2017, Mr. Enlow contacted Mr. Covey and discussed Deltic’s forecasts and the reasons the forecasts Deltic had prepared were higher than Deltic’s historical performance.

On July 17, 2017, at the request of Potlatch management, a representative of BofA Merrill Lynch contacted a representative of Goldman Sachs regarding timing of submittal of an offer and asked for a commitment of a prompt Deltic board meeting to consider the Potlatch offer.

On July 19, 2017, a representative of Goldman Sachs called a representative of BofA Merrill Lynch to request that Potlatch submit its proposal on July 26, 2017.

On July 24, 2017, representatives of Deltic, representatives of Goldman Sachs, representatives of Potlatch and representatives of BofA Merrill Lynch held a due diligence call related to Potlatch’s financial model.

On July 25, 2017, Potlatch submitted to Deltic a revised non-binding proposal for a stock-for-stock merger whereby Deltic’s stockholders would receive 1.710 shares of Potlatch common stock for every share of Deltic common stock, which would result in Deltic stockholders owning approximately 34% of the combined company after the close of the transaction. Based on closing stock prices as of July 25, 2017, the non-binding proposal implied an offer price of $83.02 per share of Deltic common stock and noted that the implied offer price was the midpoint of the $81.00—$85.00 offer price range implied by Potlatch’s preliminary non-binding proposal from March 8, 2017. In the July 25 letter, Potlatch also set forth certain adjustments it had made based on its due diligence to Deltic’s management forecast. The proposal also noted that Potlatch would anticipate the board of directors of the combined company to be comprised of existing board members from both companies, with representation proportional to the respective ownership.

On August 2, 2017, Deltic issued a press release announcing its second quarter 2017 results. Deltic stated in its press release that it was assessing a comprehensive range of strategic alternatives.

On August 4, 2017, the Deltic board held a special meeting in Dallas, Texas to review the terms of the transaction outlined in the July 25, 2017 non-binding proposal from Potlatch. At the invitation of the Deltic

 

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board, representatives of Davis Polk and Goldman Sachs were also in attendance. Davis Polk reviewed with the Deltic board the directors’ fiduciary duties and other legal matters relating to the consideration of a potential strategic transaction. The Deltic board received management’s updated financial analysis regarding Deltic’s timberland valuation, an assessment of possible strategic alternatives and an assessment of the Potlatch proposal. Goldman Sachs discussed with the board the financial terms of the proposal from Potlatch, as well as certain of Deltic’s other strategic options, such as remaining a standalone C-corporation or converting to a standalone REIT. After discussing various considerations, the Deltic board directed Goldman Sachs to relay a counterproposal to Potlatch indicating that continued discussions of a proposed combination would be contingent upon an exchange ratio of at least 2.0 shares of Potlatch common stock for each share of Deltic common stock. The Deltic board also directed Goldman Sachs to reach out to three potential buyers that Goldman Sachs had previously identified as having a potential interest in, and the capability to consummate, a strategic transaction with Deltic, consisting of Party A and two additional forest products industry participants referred to as “Party C” and “Party D”.

On August 4, 2017, at the direction of the Deltic board, Goldman Sachs delivered a telephonic response to a representative of Potlatch indicating that Potlatch’s offer was unacceptable as constructed and that if Potlatch would like to continue to engage in meaningful discussions with Deltic, the exchange ratio would need to be at least 2.0 shares of Potlatch common stock for every share of Deltic common stock. Goldman Sachs also communicated that Deltic believed that the board composition of a combined company should consist of at least three Deltic directors out of a total of eight directors on the board, or four Deltic directors out of a total of eleven directors on the board, that Mr. Enlow should have a senior management role in the combined company, that the combined company should have a new name and that southern operations of the combined company should be headquartered in El Dorado, Arkansas.

After the August 4 board meeting, Deltic management increased its focus on developing its own standalone REIT plan.

On August 8, 2017, Mr. Covey updated the Potlatch board on Deltic’s response.

During mid-August 2017, representatives of both Goldman Sachs and BofA Merrill Lynch held multiple discussions regarding the terms of a potential business combination between Potlatch and Deltic. Also during this time, representatives of Goldman Sachs contacted Party A, Party C and Party D, the three buyers that Goldman Sachs had referenced at the August 4, 2017 Deltic board meeting.

On August 12, 2017, Potlatch lead director John Moody called Deltic director Robert Tudor III to discuss the potential transaction; Mr. Tudor reiterated that the Deltic board would not be inclined to proceed with an offer unless it reflected value superior to what Deltic could achieve on a standalone basis, and that the Deltic board believed that Potlatch’s proposal did not reflect superior value.

On August 17, 2017, Potlatch sent a letter to Deltic responding to the terms that had been conveyed by Goldman Sachs on August 4, 2017 at the direction of the Deltic board. Potlatch indicated in its letter that it was disappointed by the Deltic board’s decision to reject the August 4 offer and in the Deltic board’s position that Deltic stockholders would need to receive at least 2.0 shares of Potlatch common stock for each share of Deltic common stock, but Potlatch maintained that the combination of Potlatch and Deltic was in the best interest of the companies’ respective stockholders. The August 17 letter did not propose a revised exchange ratio or other modified financial terms.

On August 22, 2017, Deltic sent a response to Potlatch’s August 17 letter indicating that the revised non-binding proposal sent on July 25, 2017 undervalued Deltic and the proposed exchange ratio of 1.70 shares of Potlatch common stock for each share of Deltic common stock was below the range given in the March 8 letter. The letter noted that since the March 8 non-binding proposal, Deltic had developed a business improvement plan based on increased harvest levels, mill operating rates and cost reductions, all of which had been previously shared with Potlatch, and the July 25 non-binding proposal did not take the value of this plan into consideration.

 

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The letter further noted that the July 25 non-binding proposal reflected no premium based on Deltic’s and Potlatch’s then five, three, and one-year average share prices, the premium referenced in the July 25 proposal reflected a meaningful and unseasoned run up in Potlatch’s share price and a drop in Deltic’s share price over the preceding three months, and that a vast majority of the synergy benefits in the potential combination could be accomplished with Deltic remaining a standalone company and should not be considered as part of any premium. The letter noted that Deltic was engaging with other parties but was also open to further discussions with Potlatch.

Between August 18, 2017 and August 24, 2017, Deltic held discussions and corresponded with representatives of SEAM. During such interactions, SEAM offered to facilitate discussions with potential buyers on behalf of Deltic and requested that Deltic provide non-public information to SEAM. In order to do so, Deltic stated that SEAM would be required to enter into a customary non-disclosure agreement, which would include a customary standstill provision. After negotiations between the two parties regarding the terms of the non-disclosure agreement and discussions as to the type of information Deltic was prepared to provide to SEAM, SEAM determined that it would not execute the non-disclosure agreement and terminated discussions on the non-disclosure agreement on August 24, 2017.

On August 25, 2017, SEAM filed an amendment to its Schedule 13D filed on February 22, 2017 in connection with its holding in Deltic. SEAM stated in its Schedule 13D amendment that it had engaged in discussions with both Deltic and multiple parties interested in merging with or acquiring Deltic, and that it was aware of at least one highly reputable industry party that had made an unsolicited proposal to merge with Deltic in exchange for stock in the acquiring company. SEAM indicated that it supported this proposal and encouraged other stockholders “to express their views to the board and management for a better outcome than the status quo.”

Between August 25, 2017 and August 28, 2017, Deltic executed non-disclosure agreements with Party A, Party C and two other companies engaged in the forest products industry, referred to as “Party E” and “Party F”, and shortly thereafter the parties were granted access to a virtual data room developed by Deltic for the process. Party C and Party E had indicated to Deltic that they would be working jointly to consider a transaction with Deltic. Party A and Party F also had indicated to Deltic that they would be working jointly to consider a transaction with Deltic. In addition, by this time Party D had indicated that it was not interested in a potential transaction and declined to participate in Deltic’s process.

On August 28, 2017, Deltic issued a press release providing an update regarding its strategic alternatives process. The press release noted that after making significant progress evaluating Deltic’s assets, competitive position, and market risks and opportunities, Deltic was assessing a comprehensive range of strategic alternatives. The press release stated that over the past several months, Deltic had been approached by a number of industry participants regarding interest in a potential strategic transaction, and that Deltic had been actively engaging in evaluating those confidential indications of interests and intended to continue the process to develop potential external strategic alternatives. Additionally, the press release reiterated the Deltic board’s commitment to exploring all options, both internal and external, to maximize stockholder value. The press release also noted that Deltic had met with SEAM on a number of occasions to discuss SEAM’s ideas and that Deltic maintains open dialogue with its stockholders and values their input.

Beginning in late August, as Deltic management continued to evaluate its standalone REIT plan, the risks of that plan became more quantifiable, including risks related to the timing and execution of the plan, particularly in the event of a market downturn.

On August 30, 2017, the Potlatch board held its regular quarterly board meeting and discussed potential paths forward regarding a transaction with Deltic, including increasing the exchange ratio.

On September 6, 2017, representatives of Deltic attended an in-person meeting with representatives of Party C and Party E to discuss Deltic’s business and projections.

 

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On September 7, 2017, representatives of Deltic attended in-person meetings with representatives of Party A and Party F to discuss Deltic’s business and projections and Party A’s business and projections.

On September 11, 2017, at the direction of Potlatch management, a representative of BofA Merrill Lynch suggested to a representative of Goldman Sachs that Deltic and Potlatch meet if Deltic was willing to come down from an exchange ratio of 2.0 shares of Potlatch common stock for each share of Deltic common stock. A representative of Goldman Sachs updated Mr. Enlow, who consulted with Mr. Nolan and instructed Goldman Sachs to inform BofA Merrill Lynch that Deltic would consider an exchange ratio of less than 2.0 shares of Potlatch common stock for each share of Deltic common stock. The Goldman Sachs representative then informed BofA Merrill Lynch that Deltic was engaged with others in a competitive process, but that Deltic would consider an exchange ratio of less than 2.0 shares of Potlatch common stock for each share of Deltic common stock and proposed a meeting to discuss the exchange ratio as well as other aspects of a proposed combination.

On September 13, 2017, Mr. Covey informed the Potlatch board that Deltic would consider an exchange ratio below 2.0 and suggested a meeting the following week in Dallas to discuss the issues raised in earlier letters as well as the exchange ratio.

On September 13, 2017, Party C and Party E withdrew from discussions regarding a potential business combination transaction with Deltic. Party C and Party E cited concern that a market premium could not be offered as their reason for withdrawal from the process.

On September 17 and September 18, 2017, Deltic conducted due diligence meetings with Party F and Party A, respectively. No potential transaction terms were discussed during these meetings.

On September 20, 2017, Messrs. Nolan and Enlow and representatives of Goldman Sachs met with Messrs. Covey and Cremers and representatives of BofA Merrill Lynch, at the request of Potlatch. At the meeting, the parties discussed the 1.710 exchange ratio included in Potlatch’s July 25 letter proposal. Messrs. Nolan and Enlow maintained that such an exchange ratio undervalued Deltic. The parties also discussed topics such as board composition and management of the combined company, Potlatch’s vision for the combined company and the potential for increased synergies from the transaction. Later that day Mr. Covey updated the Potlatch board on the substance of the meeting.

Following this meeting, several discussions took place between the Deltic and Potlatch and/or their respective advisors on various issues, including financial projections and valuation. On September 21, 2017, Mr. Covey spoke with Mr. Moody regarding the Deltic transaction and the Potlatch board’s willingness to offer a higher exchange ratio. On September 22, 2017, representatives of Goldman Sachs and the general counsels of each of Deltic and Party A telephonically discussed legal due diligence matters and the process for next steps.

On September 23, 2017, Deltic sent to Potlatch a process letter including instructions for submitting a binding offer for a business combination with Deltic.

On September 24, 2017, at the request of Potlatch management, representatives of BofA Merrill Lynch sent representatives of Goldman Sachs a list of additional questions regarding Deltic’s financial model, and Mr. Cremers sent Mr. Enlow and Mr. Nolan questions relating to Deltic’s manufacturing business.

On September 25, 2017, Party A and Party F withdrew from discussions regarding a potential business combination transaction with Deltic. Party A and Party F cited concern that a market premium could not be offered as their reason for withdrawal from the process.

On September 26 and 27, 2017, representatives of both Goldman Sachs and BofA Merrill Lynch and representatives of Deltic and Potlatch telephonically discussed due diligence matters related to the financial projections of Deltic as well as due diligence matters related to the financial projections of Potlatch.

 

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On September 28, 2017, Mr. Covey spoke with Mr. Nolan to discuss timing as well as board composition and management of the combined company, including the role of Mr. Enlow.

On September 29, 2017, Mr. Covey updated the Potlatch board about a proposed agenda for a special telephonic meeting of the board to be held on October 2, 2017 relating to discussions with Deltic.

On October 2, 2017, Mr. Covey called Mr. Nolan to communicate Potlatch concerns over valuation.

On October 2, 2017, the Potlatch board held a special telephonic board meeting. Members of Potlatch management and representatives of BofA Merrill Lynch and Perkins Coie LLP, legal advisor to Potlatch (referred to as “Perkins Coie”) also attended the meeting. At this meeting, Mr. Covey provided an update on his recent discussions with Mr. Nolan, and the Potlatch board discussed the key messages from these recent discussions, including Deltic’s general expectations regarding price. Mr. Covey summarized the strategic rationale for a transaction with Deltic and the proposed terms for a transaction with Deltic. Representatives of BofA Merrill Lynch reviewed its preliminary financial analyses of a potential transaction with Deltic with the Potlatch board and Potlatch management. Perkins Coie reviewed the duties of Potlatch directors under Delaware law. The Potlatch board engaged in discussions regarding the potential transaction, discussing, among other things, the rationale for the transaction, purchase price, synergies, transaction structure and post-closing plans. After further discussion, the Potlatch board authorized management to submit a bid for Deltic at an exchange ratio of 1.8 shares of Potlatch common stock for each share of Deltic common stock and to proceed with negotiations with Deltic on terms consistent with those discussed.

The same day, Potlatch submitted a letter to Deltic setting forth what Potlatch referred to as its final proposal for a transaction between Potlatch and Deltic. The letter outlined a non-binding proposal for a stock-for-stock merger whereby Deltic stockholders would receive 1.8 shares of Potlatch common stock for every share of Deltic common stock. Pursuant to the terms of the offer, Deltic and Potlatch stockholders would own approximately 35% and 65%, respectively, of the combined company. Based on the closing stock price for Potlatch as of the date of the letter, the proposal implied an offer price of $93.15 per share of Deltic common stock. Potlatch noted that Deltic stockholders would benefit from an approximately 5.75x increase in annual dividends, from $0.40 per share to $2.70 per Deltic share after giving effect to the exchange ratio. The letter also proposed that the board of directors of the combined company be comprised of existing board members from both companies, with representation proportional to the respective ownership, meaning that four Deltic representatives would serve on the twelve-person board of the combined company.

On October 5, 2017, the Deltic board held a special meeting at which all of the directors were present, as well as members of Deltic senior management. At the invitation of the Deltic board, representatives of Davis Polk and Goldman Sachs were also in attendance. Davis Polk reviewed with the Deltic board the directors’ fiduciary duties and other legal matters relating to the consideration of a potential strategic transaction. Deltic’s senior management briefed the Deltic board on the status of conversations with Potlatch and estimates of potential synergies. Mr. Enlow and Goldman Sachs also provided the Deltic board with an update on the broader strategic review process. Additionally, Mr. Enlow updated the Deltic board regarding some of the key terms of the stock-for-stock transaction outlined in the most recent Potlatch letter proposal. Goldman Sachs reviewed the financial terms of the transaction proposal by Potlatch, updated the Deltic board on its discussions with Potlatch and representatives of BofA Merrill Lynch and noted that based on their discussions they did not believe Potlatch would be willing to further increase the proposed exchange ratio. Deltic’s senior management also briefed the board regarding Deltic’s standalone plan, including the potential future conversion of the company into a REIT. This review included a discussion of the costs, benefits and risks of the standalone REIT plan, which risks had become more quantifiable since late August. After discussions of the alternatives available to Deltic, the Deltic board concluded that the Potlatch proposal was the best alternative available for maximizing value for the Deltic stockholders. The Deltic board directed management to continue discussions with Potlatch regarding a potential combination of Deltic and Potlatch and instructed Goldman Sachs to indicate to BofA Merrill Lynch that the exchange ratio in Potlatch’s proposal was acceptable and that Deltic was willing to continue discussions on that

 

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basis but that additional discussions were needed on certain key terms such as corporate governance and executive leadership of the combined company, particularly Mr. Enlow’s role in the management of the combined company, given the significant value of Mr. Enlow’s experience and industry knowledge.

Later that day, representatives of Goldman Sachs advised representatives of BofA Merrill Lynch that the Deltic board had determined that the exchange ratio proposed by Potlatch was acceptable and that Deltic was willing to continue discussions on that basis but that additional discussions were needed on certain key terms such as corporate governance and executive leadership of the combined company. Mr. Covey then updated the Potlatch board.

In the ensuing days, Deltic’s management, Potlatch’s management and their respective advisors engaged in discussions regarding transaction terms, including among other terms, the potential corporate governance structure and executive leadership of the combined company. During this period the parties, including their respective legal and financial advisors, also further progressed in their respective due diligence efforts.

On October 6, 2017, Mr. Nolan called Mr. Covey to further discuss remaining issues relating to board composition, post-merger name, a role for Mr. Enlow and continued presence in El Dorado, Arkansas, and Mr. Covey and Mr. Nolan discussed Mr. Enlow’s role in the combined company.

On October 9, 2017, representatives of Goldman Sachs delivered an initial draft of the merger agreement to representatives of BofA Merrill Lynch. The initial draft of the merger agreement was prepared by Davis Polk. The draft merger agreement provided for a termination fee in certain circumstances, including in the event that either the Deltic board or the Potlatch board changed its recommendation in favor of the potential transaction. The proposed termination fee payable by Potlatch in such circumstances was 5% of the value of Deltic’s outstanding equity, while the proposed termination fee payable by Deltic in such circumstances was 2.5% of the value of Deltic’s outstanding equity.

Following delivery of this draft through October 22, 2017, discussions and negotiations between representatives of Deltic and its advisors, on the one hand, and of Potlatch and its advisors, on the other hand, took place regarding the merger agreement and ancillary documents and the parties exchanged multiple drafts of such documents during this time.

On October 10, 2017, with the consent of the Deltic board, Mr. Enlow met with Mr. Covey in Denver, Colorado to discuss non-financial terms of the transaction including Mr. Enlow’s potential role in the combined company and the terms of such role, board composition of the combined company and executive leadership of the combined company.

On October 11 and 12, 2017, Perkins Coie provided Davis Polk with revised drafts of the merger agreement. The terms of the draft merger agreement included proposed reciprocal termination fees for Potlatch and Deltic equal to 3% of the value of Deltic’s outstanding equity. Davis Polk, Perkins Coie and Skadden held telephone calls to further negotiate the terms of the draft merger agreement and related transaction issues.

On October 15, 2017, Davis Polk provided Perkins Coie with a revised draft of the merger agreement. The draft merger agreement included a proposed termination fee payable by Potlatch equal to 3% of the value of Potlatch’s outstanding equity, and a proposed termination fee payable by Deltic equal to 3% of the value of Deltic’s outstanding equity.

On October 16, 2017, with the consent of the Deltic board, Mr. Enlow spoke with Mr. Covey and reached an agreement regarding Mr. Enlow’s role in the combined company.

On October 17, 2017, Mr. Nolan called Mr. Covey to discuss governance issues and continued presence in El Dorado, Arkansas.

 

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Between October 17 and October 20, 2017, with the consent of the Deltic board, Mr. Enlow, Mr. Nolan and Mr. Covey discussed open compensation and governance issues.

On October 18, 2017, Potlatch provided representatives of Deltic with a draft of a consulting agreement pursuant to which Mr. Enlow would serve as Vice Chairman of the combined company for a period of two years, during which time Mr. Enlow would assist the Chief Executive Officer of the combined company in the orderly integration of Deltic into Potlatch and advise the Chief Executive Officer and the board of directors of the combined company on strategic issues relating to integration, among other duties. With the consent of the Deltic board, the parties negotiated the terms of Mr. Enlow’s consulting agreement in the ensuing days.

From October 18 through October 22, 2017, Perkins Coie and Davis Polk exchanged comments to the draft merger agreement on a daily basis.

On October 21, 2017, the Deltic board held a special meeting to review the terms of the proposed transaction with Potlatch. At the invitation of the board, representatives from Davis Polk and Goldman Sachs were present. Prior to the meetings, among other things, copies of the draft merger agreement (including the related ancillary documents such as the disclosure letters and governance schedule), presentations prepared by each of Davis Polk and Goldman Sachs and proposed board resolutions were provided to the directors. Davis Polk reviewed with the directors their fiduciary duties with respect to the proposed transaction. Davis Polk also reviewed with the directors the terms of the merger agreement, including the merger consideration provisions, covenants (including the board recommendation and non-solicitation provisions), closing conditions, termination rights and associated termination fees, and governance terms. Representatives of Goldman Sachs confirmed to the Deltic board that Goldman Sachs had not provided any financial advisory or underwriting services to Potlatch for which it had received compensation during the preceding two year period. Goldman Sachs reviewed with the Deltic board its financial analysis of the merger consideration and rendered an oral opinion, confirmed by subsequent delivery of a written opinion, to the Deltic board to the effect that, as of the date of its opinion and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio of 1.80 shares of Potlatch common stock to be paid for each outstanding share of Deltic common stock pursuant to the merger agreement was fair from a financial point of view to the holders (other than Potlatch and its affiliates) of Deltic common stock, as more fully described in the section entitled “—Opinion of Deltic’s Financial Advisor” beginning on page 80.

The Deltic board and its advisors discussed Potlatch and the proposed transaction with Potlatch. The Deltic board and its advisors also discussed the standalone options for Deltic, including converting into a REIT, the market conditions and challenges facing Deltic within the industry and the risks of the standalone REIT plan which had become more quantifiable since late August. The Deltic board also discussed the process it had employed, including engaging in discussions with various counterparties, and that given the public disclosure of the process, credible and interested buyers had been given ample opportunity to contact Deltic. The Deltic board considered the benefits of the proposed transaction with Potlatch for the Deltic stockholders and concluded that it was unlikely that any other counterparty would have the strategic interest and financial capability to offer value to Deltic’s stockholders in excess of the proposed transaction with Potlatch. The Deltic board also concluded that the draft merger agreement would not preclude a potential counterparty, if any, from making a potentially superior proposal following the announcement of a transaction with Potlatch. Following its discussions, the board of directors unanimously determined that it was advisable, and in the best interests of, Deltic and its stockholders to enter into the merger agreement, substantially in the form presented, and to consummate the merger and the other transactions contemplated thereby. The directors unanimously authorized and approved the merger agreement, the merger and the other transactions contemplated thereby, directed the merger agreement to be submitted to Deltic’s stockholders for consideration and, subject to the terms of the merger agreement, resolved to recommend that Deltic’s stockholders adopt and approve the merger agreement and the merger.

On October 22, 2017, the Potlatch board held a special meeting. Members of Potlatch management and representatives of BofA Merrill Lynch and Perkins Coie were also in attendance at the meeting. Members of the

 

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Potlatch board had been provided with a set of meeting materials, including a summary of the terms and conditions of the merger agreement prepared by Perkins Coie, the merger agreement and financial analyses of the proposed transaction prepared by representatives of BofA Merrill Lynch. A representative of Perkins Coie provided an overview of the fiduciary duties applicable to the Potlatch board, as well as an overview of the current state of the merger agreement and various transaction terms. Representatives of BofA Merrill Lynch reviewed disclosures previously provided to the Potlatch board, including information regarding BofA Merrill Lynch’s prior investment banking relationships with Potlatch and Deltic. At this meeting, representatives of BofA Merrill Lynch also reviewed its financial analyses of the proposed transaction. Also at the meeting, representatives of BofA Merrill Lynch rendered an oral opinion to the Potlatch board, confirmed by delivery of a written opinion, dated October 22, 2017, that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations set forth in its written opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Potlatch, as more fully described in the section entitled “Opinion of Potlatch’s Financial Advisor” beginning on page 69. Following a discussion of the foregoing matters by members of the Potlatch board, including Potlatch’s other strategic alternatives and prospects as a standalone company, the Potlatch board unanimously (1) approved and adopted the merger agreement, (2) approved the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) approved the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement.

Following the October 21, 2017 meeting of the Deltic board, and the October 22, 2017 meeting of the Potlatch board, Deltic and Potlatch executed and delivered the merger agreement on the evening of October 22, 2017. Deltic and Potlatch issued a joint press release announcing the execution of the merger agreement on Monday, October 23, 2017.

Potlatch’s Reasons for the Merger; Recommendation of the Potlatch Board

At its meeting on October 22, 2017, the Potlatch board unanimously (1) approved and adopted the merger agreement, (2) approved the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) approved the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement. Accordingly, the Potlatch board unanimously recommends that the Potlatch stockholders vote “FOR” each of the share issuance proposal and the Potlatch adjournment proposal.

In evaluating the merger agreement and the issuance of Potlatch common stock to Deltic stockholders, the Potlatch board consulted with, and received the advice of, Potlatch’s management and its legal and financial advisors. In reaching its decision, the Potlatch board considered a number of factors, including the following factors that the Potlatch board viewed as generally supporting its decision to approve and adopt the merger agreement and recommend that Potlatch stockholders vote “FOR” the share issuance proposal and the Potlatch adjournment proposal.

Strategic Considerations. The Potlatch board believes that the merger will provide a number of significant strategic benefits for Potlatch stockholders, including the following:

 

    the merger will create a combined company with a diversified timberland base of nearly 2 million acres, including a total of approximately 930,000 contiguous acres of timberland in Arkansas and Louisiana;

 

    the merger would create 1.2 billion board feet lumber capacity, including combined sawmill capacity of 630 million board feet in Arkansas, in addition to Deltic’s MDF plant;

 

    the combined company will have greater potential to create value for stockholders than Potlatch would otherwise have on a standalone basis, with a significant increase in scale and potential to achieve meaningful synergies through, among other factors, the consolidation of corporate overhead and duplicate functions;

 

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    the combined company will be uniquely positioned to capitalize on the continued recovery in the U.S. housing market;

 

    the combined company will be positioned to further leverage the highest and best use potential across the combined company’s land portfolio;

 

    the combined company is expected to benefit from the adoption of best practices and capabilities from each company;

 

    the combined company’s continued commitment to disciplined capital allocation; and

 

    the merger is expected to deliver accretion to Potlatch’s cash available for distribution per share in the first full year following the closing of the merger, including cost synergies and excluding integration and restructuring activities.

Other Factors Considered by the Potlatch board. In addition to considering the strategic factors described above, the Potlatch board considered the following additional factors, all of which it viewed as supporting its decision:

 

    its knowledge of Potlatch’s business, operations, financial condition, earnings and prospects and its knowledge of Deltic’s business, operations, financial condition, earnings and prospects, taking into account the results of Potlatch’s due diligence review of Deltic;

 

    the results of the due diligence review of Deltic and its business conducted by Potlatch and its advisors;

 

    the fact that eight members of the 12-member combined company board will be members of the existing Potlatch board and that Mr. Covey will be chairman and chief executive officer of the combined company and that Mr. Cremers will be president and chief operating officer of the combined company;

 

    the current and prospective business climate in the industries in which Potlatch and Deltic operate, including the alternatives reasonably available to Potlatch if it did not pursue the merger;

 

    the projected financial results of Potlatch and Deltic as standalone companies and the fit of the transaction with Potlatch’s strategic goals;

 

    the historical trading prices of Potlatch common shares and Deltic common stock;

 

    the oral opinion of BofA Merrill Lynch rendered to the Potlatch board on October 22, 2017, confirmed by the delivery of a written opinion, dated October 22, 2017, that, as of such date, based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations set forth in its written opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Potlatch, as more fully described in the section entitled “Opinion of Potlatch’s Financial Advisor” beginning on page 69;

 

    the historical share prices of Potlatch and Deltic, including the fact that the implied value of the exchange ratio of 1.80 Potlatch common stock per share of Deltic common stock represents an implied premium of 10.1% to the 30-trading-day volume weighted average price ratio of shares of Deltic common stock to Potlatch common stock;

 

    the terms and conditions of the merger agreement, including the strong commitments by both Potlatch and Deltic to complete the merger;

 

    the fact that the merger agreement provides for a fixed exchange ratio and that no adjustment will be made in the merger consideration to be received by Deltic stockholders in the merger as a result of possible increases or decreases in the trading price of Potlatch’s common stock following the announcement of the merger;

 

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    the fact that existing Potlatch stockholders are expected to hold approximately 65% of the combined company immediately after completion of the merger and will have the opportunity to participate in the future performance of the combined company;

 

    the fact that the cultural and operational philosophy of Potlatch and Deltic are compatible in that both companies share similar values rooted in safety, integrity, and sustainability and delivering value to stockholders; and

 

    the anticipated positive customer, supplier and stakeholder reaction to the merger.

The Potlatch board weighed these benefits and supporting factors against a number of other factors identified in its deliberations weighing negatively against the merger, including:

 

    the challenges inherent in the combination of two businesses of the size and scope of Potlatch and Deltic and the size of the companies relative to each other, including the risk that integration costs may be greater than anticipated and the possible diversion of management attention for an extended period of time;

 

    the challenges of developing and executing a successful strategy and business plan for the combined company;

 

    the difficulties of combining the businesses and workforces of Potlatch and Deltic;

 

    the potential that the fixed exchange ratio under the merger agreement could result in Potlatch delivering greater value to the Deltic stockholders than had been anticipated by Potlatch should the value of Potlatch common shares increase after the execution of the merger agreement;

 

    Deltic’s right, subject to certain conditions, to respond to and negotiate with respect to certain alternative takeover proposals made prior to the time Deltic stockholders adopt the merger agreement;

 

    the fact that certain provisions of the merger agreement, although reciprocal, may have the effect of discouraging alternative takeover proposals involving Potlatch;

 

    the restrictions in the merger agreement on the conduct of Potlatch’s and Deltic’s business during the period between execution of the merger agreement and completion of the merger;

 

    the risk that Potlatch stockholders or Deltic stockholders may object to and challenge the merger and take actions that may prevent or delay the completion of the merger, including to vote down the applicable proposals at the Potlatch or Deltic special meeting;

 

    the risk that the pendency of the merger for an extended period of time following the announcement of the merger could have an adverse impact on Potlatch or the combined company;

 

    the potential for diversion of management and employee attention during the period prior to completion of the merger, and the potential negative effects on Potlatch’s and the combined company’s businesses;

 

    the risk that, despite the efforts of Potlatch and Deltic prior to completion of the merger, the combined company may lose key personnel;

 

    the risk of not capturing all the anticipated cost savings and synergies between Potlatch and Deltic and the risk that other anticipated benefits might not be realized;

 

    the possibility that the combined company might not achieve its projected financial results;

 

    the risk that changes in the regulatory landscape may adversely affect the business benefits anticipated to result from the merger; and

 

    the risks of the type and nature described in the section entitled “Risk Factors” beginning on page [28] and the matters described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 26.

 

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The Potlatch board considered all of these factors as a whole, and, on balance, concluded that they supported a determination to (1) approve and adopt the merger agreement, (2) approve the merger upon the terms and subject to the conditions set forth in the merger agreement and (3) approve the issuance by Potlatch of 1.80 shares of Potlatch common stock per share of Deltic common stock pursuant to and in accordance with the terms and conditions of the merger agreement. The foregoing discussion of the factors considered by the Potlatch board is not intended to be exhaustive, but rather is a summary of the principal factors considered by the Potlatch board. In light of the number and wide variety of factors considered in connection with its evaluation of the merger and the complexity of these factors, the Potlatch board did not find it useful to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights to the various factors that it considered in reaching its decision. In considering these factors, individual members of the Potlatch board may have given differing weights to different factors. The Potlatch board conducted an overall review of the factors described above, including thorough discussions with Potlatch’s management and legal and financial advisors.

In considering the recommendation of the Potlatch board to approve the share issuance proposal, Potlatch stockholders should be aware that Potlatch’s directors may have interests in the merger that are different from, or in addition to, those of Potlatch stockholders generally. For additional information, see the section entitled “—Financial Interests of Potlatch Directors and Officers in the Merger” beginning on page 91.

The factors contained in this explanation of the reasoning of the Potlatch board and certain information presented in this section are forward-looking in nature. Therefore, the information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 26.

Deltic’s Reasons for the Merger; Recommendation of the Deltic Board

The Deltic board has determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Deltic and its stockholders. Accordingly, by a vote at a meeting held on October 21, 2017, the Deltic board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Deltic and its stockholders and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger.

Accordingly, the Deltic board unanimously recommends that Deltic stockholders vote “FOR” the merger proposal at the Deltic special meeting.

As described in the section entitled “—Background of the Merger” beginning on page 49, the Deltic board consulted with Deltic’s management and Deltic’s legal and financial advisors and, in reaching its determination and recommendation, the Deltic board considered a number of factors.

Many of the factors considered favored the conclusion of the Deltic board that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Deltic and its stockholders, including the following (which are not in any relative order of importance):

 

    its knowledge of the forest products and real estate industries, the challenges faced by the timber and timberland management and real estate industries, including exposure to macroeconomic trends and regulation and the fact that the industries are highly competitive, cyclical and experience wide fluctuations in product supply and demand;

 

    its familiarity with, and understanding of, Deltic’s business, assets, financial condition, results of operations, current business strategy and prospects;

 

    information, including discussions with Deltic’s management and advisors, regarding Potlatch’s business, assets, financial condition, results of operations, current business strategy and prospects, including the projected long-term financial results of Potlatch;

 

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    the expectation that the combination of Deltic’s and Potlatch’s businesses will result in greater long-term stockholder value, as compared to the other alternatives available to Deltic, including seeking an alternative transaction with another third party, remaining an independent public company or remaining an independent public company and converting to a REIT;

 

    the fact that the consideration to be received by Deltic stockholders is shares in Potlatch, providing Deltic stockholders with a substantial ownership interest in Potlatch following the completion of the merger and an opportunity to participate in the potential for funds available for distribution per share accretion and potential cost synergies created by the merger as well as the upside of the future performance of the combined company generally;

 

    Deltic’s estimate that, in connection with the merger, the combined company would achieve $12 million in post-tax operational cost synergies within approximately two years after the completion of the merger;

 

    the final terms of the merger, including the 1.80 exchange ratio, which based on the closing price of Potlatch common stock on October 19, 2017, implied a value of $96.03 per share of Deltic common stock and the fact that this implied value represents;

 

    an implied premium of 41% based on the closing price per share of Deltic common stock of $67.89 on August 24, 2017 (the last trading day before SEAM filed an amendment to its Schedule 13D);

 

    an implied premium of 9% based on the closing price per share of Deltic common stock of $88.14 on October 19, 2017;

 

    an implied premium of 4% based on the 52-week high closing price per share of Deltic common stock of $91.93 (as of October 19, 2017); and

 

    an implied premium of 75% based on the 52-week low closing price per share of Deltic common stock of $53.74 (as of October 19, 2017);

 

    the opinion of Goldman Sachs rendered to the Deltic board, to the effect that, as of that date of such opinion and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio of 1.80 shares of Potlatch common stock to be paid for each share of outstanding Deltic common stock pursuant to the merger agreement was fair from a financial point of view to the holders (other than Potlatch and its affiliates) of Deltic common stock, as more fully described in the section entitled “—Opinion of Deltic’s Financial Advisor” beginning on page 80;

 

    the fact that the consideration proposed by Potlatch reflected extensive negotiations between the parties and their respective advisors, the fact that Potlatch had increased the exchange ratio in its October 2, 2017 final proposal to 1.80 from the 1.71 exchange ratio in its July 25, 2017 offer letter and the belief of the Deltic board that the agreed merger consideration represented Potlatch’s best proposal;

 

    the fact that the combined company is expected to be treated as a REIT following the merger, which is expected to result in significant tax savings on Deltic’s timber harvest earnings;

 

    Potlatch’s commitment to announce, concurrently with the entry into the merger agreement an increase in its current annual dividend, beginning in the fourth quarter 2017, from $1.50 to $1.60 per common share, representing a dividend that is 7.2x the annual dividend currently received by Deltic stockholders (based on the 1.80 exchange ratio);

 

    the one-time dividend ,pursuant to the E&P Purge, estimated at $250 million consisting of 80% stock and 20% cash to be distributed to PotlatchDeltic stockholders by the end of 2018 as part of the REIT conversion process;

 

    the fact that the combined company will have a diversified timberland base of approximately two million acres including a large component of highly productive southern timberland;

 

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    the fact that the combined company will have increased geographic diversity, and with it, greater harvest flexibility;

 

    the expectation that the combined company will deliver long-term operating improvement, with greater potential for earnings expansion;

 

    the increased financial strength of the combined company and the resulting ability to invest in current businesses and future growth opportunities;

 

    the opportunity to combine expertise, including the skills of experienced managers in the forest products industry, to better meet the needs of the customers of both Deltic and Potlatch;

 

    the risks identified by Deltic management to achieving Deltic’s standalone REIT plan, including risks related to the timing and execution of the plan and Deltic management’s determination that a market downturn would expose Deltic to significant risks;

 

    the fact that because the merger consideration consists of Potlatch common stock and the exchange ratio is fixed, Deltic stockholders will benefit from any increase in the trading price of Potlatch common shares between the announcement of the merger and the closing of the merger and any increases following the closing of the merger;

 

    the fact that the Deltic board had performed a careful assessment of a range of alternatives, including discussions with other parties concerning alternative strategic transactions, continuing to operate on a standalone basis, and continuing to operate on a standalone basis with Deltic converting into a REIT;

 

    the belief that all parties with potential strategic interest and financial capability to engage in a business combination with Deltic had been contacted regarding a potential transaction and none other than Potlatch had submitted an offer;

 

    the fact that Deltic’s strategic review process had been publicly disclosed, enabling all potentially interested counterparties to engage with Deltic and that following the August 28, 2017 press release from Deltic regarding its strategic review process no additional potentially interested parties contacted Deltic or its financial advisor about a business combination;

 

    Deltic’s prospects, as well as the inherent risks of Deltic’s industry and business, as reflected in the risk factors disclosed in Deltic’s filings with the SEC to which Deltic and its stockholders would remain subject if Deltic were to remain an independent public company;

 

    the greater market capitalization and anticipated trading liquidity of Potlatch common stock after the transaction as compared to the current market capitalization and liquidity of Deltic common stock;

 

    the governance terms in the merger agreement, which include the following:

 

    the board of the combined company will consist of twelve directors, consisting of the eight current Potlatch directors and four directors chosen by Deltic from Deltic’s board of directors; and

 

    John Enlow, Deltic’s chief executive officer, will be vice chairman of the combined company for an initial 2-year term.

 

    the nature of the closing conditions included in the merger agreement, as well as the likelihood of satisfaction of all of the conditions to the completion of the proposed merger;

 

    the obligation of Potlatch to use reasonable best efforts to obtain any required antitrust approval;

 

    Deltic’s right to engage in negotiations with, and provide information to, a third party that makes an unsolicited proposal relating to an alternative transaction, if the Deltic board determines in good faith after consultation with its financial advisors and outside legal counsel that such proposal constitutes, or could reasonably be expected to lead to, a “superior proposal” (as more fully described in the section entitled “—The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 133);

 

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    the right of the Deltic board to change its recommendation in favor of the approval of the merger agreement if it has received a “superior proposal” or a “Deltic intervening event” (as more fully described in the section entitled “—The Merger—No Solicitation of Alternative Proposals” beginning on page 133) occurs and it has determined, in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with its directors’ fiduciary duties, subject to certain conditions (including providing notice to Potlatch and taking into account any modifications to the terms of the merger that are proposed by Potlatch);

 

    the right of the Deltic board, at any time prior to obtaining the approval of the merger agreement by the Deltic stockholders, to cause Deltic to terminate the merger agreement and to concurrently enter into a binding definitive agreement providing for a superior proposal, subject to certain conditions (including providing notice to Potlatch, taking into account any modifications to the terms of the merger that are proposed by Potlatch and paying a termination fee to Potlatch) as more fully described in the section entitled “—The Merger Agreement—Expenses and Termination Fees” beginning on page 142;

 

    the right of Deltic to seek to specifically enforce Potlatch’s obligations under the merger agreement in certain instances (as more fully described in the section entitled “—The Merger Agreement—Specific Enforcement” beginning on page 144);

 

    the customary and generally reciprocal nature of the other representations, warranties and covenants of Deltic in the merger agreement;

 

    the structure of the transaction and the terms of the merger agreement, including the fact that the merger is intended to qualify as a “reorganization” within the meaning of the Code, and is therefore generally not expected to be taxable to the Deltic stockholders with respect to the Potlatch common stock received in the merger; and

 

    the requirement that Potlatch pay a termination fee to Deltic under certain circumstances specified in the merger agreement (as more fully described in the section entitled “—The Merger Agreement—Expenses and Termination Fees” beginning on page 142).

In the course of its deliberations, the Deltic board also considered a variety of risks and other potentially negative factors, including the following (which are not in any relative order of importance):

 

    the possibility that the merger may not be completed or that completion may be unduly delayed for reasons beyond the control of Deltic or Potlatch;

 

    the fact that the exchange ratio is fixed, meaning that Deltic stockholders could be adversely affected by a decrease in the trading price of Potlatch common shares during the pendency of the proposed merger and the fact that the merger agreement does not provide Deltic with a price-based adjustment or termination right or other similar protection in favor of Deltic or its stockholders;

 

    the fact that the 1.80 exchange ratio is below the exchange ratio range of 1.839-1.930 in Potlatch’s original, non-binding indication of interest from March 8, 2017 (noting that such range was suggested by Potlatch based solely on publicly available information and was subject to due diligence and further noting that the implied value of $96.03 per share of Deltic common stock based on the closing price of Potlatch common stock on October 19, 2017 and the 1.80 exchange ratio was higher than $83.01 the implied value of Deltic common stock based on the closing price of Potlatch common stock on March 6, 2017 and the midpoint of the exchange ratio range referenced in Potlatch’s original non-binding proposal from March 8, 2017);

 

    the potential for diversion of management and employee attention and for increased employee attrition during the period prior to completion of the proposed merger, and the potential effect of the proposed merger on Deltic’s business and relations with customers and suppliers;

 

   

the fact that the merger agreement may prevent Deltic and its subsidiaries from undertaking certain restructuring transactions in connection with Deltic seeking REIT status that would allow Deltic to

 

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expedite pursuing a REIT conversion as a standalone company if the merger did not occur for any reason;

 

    the restrictions on the conduct of Deltic’s business prior to completion of the proposed merger, requiring Deltic to conduct its business only in the ordinary course of business in all material respects, subject to specific limitations, which could delay or prevent Deltic from undertaking business opportunities that may arise pending completion of the merger and could negatively impact Deltic’s ability to attract and retain employees or negatively impact decisions of customers and suppliers;

 

    the difficulty inherent in integrating the businesses, assets and workforces of two large companies and the risk that anticipated strategic and other benefits to the combined company following completion of the proposed merger, including the forecasted cost synergies described above, will not be realized or will take longer to realize than expected;

 

    the transaction costs to be incurred in connection with the proposed merger, regardless of whether the proposed merger is completed;

 

    the fact that the merger agreement includes restrictions on the ability of Deltic to solicit proposals for alternative transactions, engage in discussions regarding such proposals and enter into an agreement with respect thereto, subject to exceptions and termination provisions, which in some cases require payment of a termination fee by Deltic (as more fully described in the section entitled “—The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 133), which could have the effect of discouraging such proposals from being made or pursued;

 

    Potlatch’s right to engage in negotiations with, and provide information to, a third party that makes an unsolicited proposal relating to an alternative transaction, if the Potlatch board determines in good faith after consultation with its financial advisors and outside legal counsel that such proposal constitutes, or could reasonably be expected to lead to, a “superior proposal” (as more fully described in the section entitled “—The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 133);

 

    the right of the Potlatch board, at any time prior to obtaining the approval of the merger agreement by the Potlatch stockholders, to cause Potlatch to terminate the merger agreement and to concurrently enter into a binding definitive agreement providing for a superior proposal, subject to certain conditions (including providing notice to Deltic, taking into account any modifications to the terms of the merger that are proposed by Deltic and paying a termination fee to Deltic) as more fully described in the section entitled “—The Merger Agreement—Expenses and Termination Fees” beginning on page 142;

 

    the fact that if the merger is not completed, Deltic will have expended significant human and financial resources on a failed transaction, and may also be required to pay a termination fee under various circumstances (as more fully described in the section entitled “—The Merger Agreement—Expenses and Termination Fees” beginning on page 142);

 

    the absence of appraisal rights for Deltic stockholders under Delaware law; and

 

    various other risks associated with the merger and the business of Deltic and the combined company described in the section entitled “Risk Factors” beginning on page 28 and in the section entitled “Cautionary Statements Regarding Forward-Looking Statements” beginning on page 26, respectively.

The Deltic board considered all of these factors as a whole, and, on balance, concluded that they supported a determination to approve the merger agreement and the transactions contemplated by the merger agreement, including the merger. The foregoing discussion of the factors considered by the Deltic board is not intended to be exhaustive, but rather is a summary of the principal factors considered by the Deltic board. In light of the number and wide variety of factors considered in connection with its evaluation of the merger and the complexity of these factors, the Deltic board did not find it useful to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights to the various factors that it considered in reaching its decision. In considering

 

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these factors, individual members of the Deltic board may have given differing weights to different factors. The Deltic board conducted an overall review of the factors described above, including thorough discussions with Deltic’s management and legal and financial advisors.

In considering the recommendation of the Deltic board to approve the merger proposal, Deltic stockholders should be aware that Deltic’s directors may have interests in the merger that are different from, or in addition to, those of Deltic stockholders generally. For additional information, see the section entitled “—Financial Interests of Deltic Directors and Officers in the Merger” beginning on page 91.

The factors contained in this explanation of the reasoning of the Deltic board and certain information presented in this section are forward-looking in nature. Therefore, the information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 26.

Opinion of Potlatch’s Financial Advisor

Potlatch has retained BofA Merrill Lynch to act as Potlatch’s financial advisor in connection with the merger. BofA Merrill Lynch is an internationally recognized investment banking firm, which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Potlatch selected BofA Merrill Lynch to act as Potlatch’s financial advisor in connection with the merger on the basis of BofA Merrill Lynch’s experience in transactions similar to the merger and its reputation in the investment community.

On October 22, 2017, at a meeting of the Potlatch board held to evaluate the merger, BofA Merrill Lynch delivered to the Potlatch board an oral opinion, which was confirmed by delivery of a written opinion dated October 22, 2017, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the opinion, the exchange ratio provided for in the merger was fair, from a financial point of view, to Potlatch.

The full text of BofA Merrill Lynch’s written opinion to the Potlatch board, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this document and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to the Potlatch board for the benefit and use of the Potlatch board (in its capacity as such) in connection with and for purposes of its evaluation of the exchange ratio from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger, and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to Potlatch or in which Potlatch might engage or as to the underlying business decision of Potlatch to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any related matter.

In connection with rendering its opinion, BofA Merrill Lynch:

(i) reviewed certain publicly available business and financial information relating to Deltic and Potlatch;

(ii) reviewed certain internal financial and operating information with respect to the business, operations and prospects of Deltic furnished to or discussed with BofA Merrill Lynch by the management of Deltic, including certain financial forecasts relating to Deltic prepared by the management of Deltic, referred to herein as the Deltic Forecasts;

 

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(iii) reviewed certain financial forecasts relating to Deltic prior to tax savings and certain tax savings forecasts relating to Deltic, in each case prepared by the management of Potlatch, referred to herein as the Potlatch-Deltic Including Tax Savings Forecasts, and discussed with the management of Potlatch its assessments as to the relative likelihood of achieving the future financial results reflected in the Deltic Forecasts and the Potlatch-Deltic Including Tax Savings Forecasts;

(iv) reviewed certain internal financial and operating information with respect to the business, operations and prospects of Potlatch furnished to or discussed with BofA Merrill Lynch by the management of Potlatch, including certain financial forecasts relating to Potlatch prepared by the management of Potlatch, referred to herein as the Potlatch Forecasts;

(v) reviewed certain estimates as to the amount and timing of cost synergies anticipated by the management of Potlatch to result from the merger, referred to herein as the Cost Synergies;

(vi) discussed the past and current business, operations, financial condition and prospects of Deltic with members of senior managements of Deltic and Potlatch, and discussed the past and current business, operations, financial condition and prospects of Potlatch with members of senior management of Potlatch;

(vii) reviewed the potential pro forma financial impact of the merger on the future financial performance of Potlatch, including the potential effect on Potlatch’s estimated cash available for distribution, and the relative financial contributions of Deltic and Potlatch to the future financial performance of the combined company on a pro forma basis;

(viii) reviewed the trading histories for Deltic common stock and the Potlatch common stock and a comparison of such trading histories with each other and with the trading histories of other companies BofA Merrill Lynch deemed relevant;

(ix) compared certain financial and stock market information of Deltic and Potlatch with similar information of other companies BofA Merrill Lynch deemed relevant;

(x) reviewed the merger agreement; and

(xi) performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the managements of Potlatch and Deltic that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect.

With respect to the Deltic Forecasts, BofA Merrill Lynch was advised by Deltic, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Deltic as to the future financial performance of Deltic. With respect to the Potlatch-Deltic Including Tax Savings Forecasts, the Potlatch Forecasts and the Cost Synergies, BofA Merrill Lynch assumed, at the direction of Potlatch, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Potlatch as to the future financial performance of Deltic and Potlatch and the other matters covered thereby and, based on the assessments of the management of Potlatch as to the relative likelihood of achieving the future financial results reflected in the Deltic Forecasts and the Potlatch-Deltic Including Tax Savings Forecasts, BofA Merrill Lynch relied, at the direction of Potlatch, on the Potlatch-Deltic Including Tax Savings Forecasts for purposes of its opinion. BofA Merrill Lynch also relied, at the direction of Potlatch, on the assessments of the management of Potlatch as to Deltic’s ability to achieve the

 

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tax savings forecasts relating to Deltic included in the Potlatch-Deltic Including Tax Savings Forecasts and Potlatch’s ability to achieve the Cost Synergies and was advised by Potlatch, and assumed, that the tax savings forecasts relating to Deltic included in the Potlatch-Deltic Including Tax Savings Forecasts and the Cost Synergies would be realized in the amounts and at the times projected.

BofA Merrill Lynch did not make, and was not provided with, any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Deltic or Potlatch, nor did it make any physical inspection of the properties or assets of Deltic or Potlatch. BofA Merrill Lynch did not evaluate the solvency or fair value of Deltic or Potlatch under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of Potlatch, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on Deltic, Potlatch or the contemplated benefits of the merger. BofA Merrill Lynch also assumed, at the direction of Potlatch, that the merger would qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects of the merger (other than the exchange ratio to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, to Potlatch of the exchange ratio provided for in the merger and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the exchange ratio. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might have been available to Potlatch or in which Potlatch might have engaged or as to the underlying business decision of Potlatch to proceed with or effect the merger. BofA Merrill Lynch did not express any opinion as to what the value of the Potlatch common stock actually would be when issued or the prices at which Potlatch common stock or Deltic common stock will trade at any time, including following announcement or consummation of the merger. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the merger or any related matter.

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by a fairness opinion review committee of BofA Merrill Lynch.

The discussion set forth below in the sections entitled “Selected Publicly Traded Companies Sum-of-the-Parts Analysis”, “Hybrid NAV Sum-of-the-Parts Analysis”, Discounted Cash Flow Sum-of-the-Parts Analysis” and “Financial Analysis of Combination represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to Potlatch’s board in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.

 

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Selected Publicly Traded Companies Sum-of-the-Parts Analysis

BofA Merrill Lynch reviewed publicly available financial and stock market information for the following three publicly traded companies in the timber REIT sector and the following five publicly traded companies in the wood product sector:

Timber REIT Sector

Weyerhaeuser Company;

Rayonier Inc.; and

CatchMark Timber Trust Inc.

Wood Product Sector

Louisiana-Pacific Corporation;

West Fraser Timber Co., Ltd.;

Norbord Inc.;

Canfor Corporation; and

Boise Cascade Company.

 

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BofA Merrill Lynch reviewed, among other things, adjusted enterprise values of the selected publicly traded companies in the timber REIT and wood product sectors, calculated as equity values based on closing stock prices on October 20, 2017, plus debt, unfunded pension liabilities (after-tax), preferred equity and minority interests, less cash and marketable securities, as a multiple of calendar year 2018 estimated adjusted earnings before interest, taxes, depreciation, depletion and amortization, commonly referred to as adjusted EBITDDA. BofA Merrill Lynch then applied (i) a range of adjusted enterprise value to adjusted EBITDDA multiples of 16.0x to 18.0x, based on valuation ranges for the selected publicly traded companies in the timber REIT sector, to the calendar year 2018 estimated adjusted EBITDDA for Potlatch’s Resource / Woodlands and Real Estate segments, (ii) a range of adjusted enterprise value to adjusted EBITDDA multiples of 6.0x to 7.0x, based on valuation ranges for the selected publicly traded companies in the wood product sector, to the calendar year 2018 estimated adjusted EBITDDA for Potlatch’s Wood Products / Manufacturing segment and (iii) a range of adjusted enterprise value to adjusted EBITDDA multiples of 12.9x to 14.5x, based on the valuation ranges for the Resource / Woodlands and Real Estate and the Wood Products / Manufacturing segments blended based on respective EBITDDAs, to the calendar year 2018 estimated adjusted EBITDDA for Potlatch’s Corporate segment (adjusted to add back pension expenses). BofA Merrill Lynch also applied (i) a range of adjusted enterprise value to adjusted EBITDDA multiples of 16.0x to 18.0x, based on valuation ranges for the selected publicly traded companies in the timber REIT sector, to the calendar year 2018 estimated adjusted EBITDDA for Deltic’s Resource / Woodlands and Real Estate segment, (ii) a range of adjusted enterprise value to adjusted EBITDDA multiples of 6.0x to 7.0x, based on valuation ranges for the selected publicly traded companies in the wood product sector, to the calendar year 2018 estimated adjusted EBITDDA for Deltic’s Wood Products / Manufacturing segment and (iii) a range of adjusted enterprise value to adjusted EBITDDA multiples of 11.0x to 12.5x, based on the valuation ranges for the Resource / Woodlands and Real Estate and the Wood Products / Manufacturing segments blended based on respective EBITDDAs, to the calendar year 2018 estimated adjusted EBITDDA for Deltic’s Corporate segment (adjusted to add back pension expenses). Estimated financial data of Potlatch were based on the Potlatch Forecasts, and estimated financial data of Deltic were based on the Potlatch-Deltic Including Tax Savings Forecasts. After accounting for debt and after-tax unfunded pension liabilities, these analyses indicated the following approximate implied per share equity value reference ranges for Potlatch, as compared to its share price of $53.00 as of October 20, 2017, and Deltic, as compared to its share price of $89.12, as of October 20, 2017:

Implied Per Share Equity Value Sum-of-the-Parts Reference Ranges for Potlatch

(Based on Potlatch Forecasts and Information per Potlatch Management)

 

Segment    2018 Adjusted EBITDDA ($mm)   

Implied Value

($mm, except share price)

Resource / Woodlands and Real Estate

   $162    $2,597 - $2,921

Wood Products / Manufacturing

   $75    $447 - $522

Corporate

   ($29)    ($371 - $419)

Consolidated

   $208    $2,673 - $3,024

Total Potlatch

   ( - ) Net Debt    ($463)
   ( - ) Unfunded Pension Liability (After-Tax)    ($72)
   Equity Value    $2,139 - $2,489
   Implied Price Per Share    $51.51 - $59.56

 

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Implied Per Share Equity Value Sum-of-the-Parts Reference Ranges for Deltic

(Based on Potlatch-Deltic Including Tax Savings Forecasts and Deltic filings)

 

Segment    2018 Adjusted EBITDDA ($mm)    Implied Value
($mm, except share price)

Resource / Woodlands and Real Estate

   $56    $893 - $1,005

Wood Products / Manufacturing

   $56    $338 - $394

Corporate

   ($13)    ($142 - $161)

Consolidated

   $99    $1,089 - $1,238

Total Deltic

   ( - ) Net Debt    ($233)
   ( - ) Unfunded Pension Liability (After-Tax)    ($24)
   Equity Value    $831 - $980
   Implied Price Per Share    $67.66 - $79.75

No company used in these analyses is identical or directly comparable to Potlatch or Deltic. Accordingly, an evaluation of the results of the analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which Potlatch and Deltic were compared.

Hybrid NAV Sum-of-the-Parts Analysis

Based on the Potlatch Forecasts and publicly available financial and stock market information, BofA Merrill Lynch reviewed a range of timberland resource values for properties owned or leased on a long-term basis by Potlatch as well as a range of incremental highest and best use real estate values, referred to as incremental HBU, above the timberland resource values for such properties to derive a range of Total Resource / Woodlands and Real Estate Values. BofA Merrill Lynch then applied a range of adjusted enterprise value to adjusted EBITDDA multiples of 6.0x to 7.0x, based on valuation ranges for the selected publicly traded companies in wood products sector, to Potlatch’s calendar year 2018 estimated adjusted EBITDDA attributable to its Wood Products / Manufacturing segment. BofA Merrill Lynch then combined the range of Total Resource / Woodlands and Real Estate Values with the range of total enterprise values attributable to its Wood Products / Manufacturing segment to produce a range of total enterprise values for Potlatch. After accounting for debt and after-tax unfunded pension liabilities, this analysis indicated the following approximate implied per share equity value reference range for Potlatch as compared to its share price of $53.00 as of October 20, 2017:

Implied Per Share Equity Value Reference Ranges for Potlatch

(Based on Potlatch Forecasts, Information per Potlatch Management and analyst estimates)

 

Segment

     

Acres (in thousands)

 

Value per acre

 

Total Value ($mm)

Resource / Woodlands and Real Estate

  Timberlands   1,368   $1,518 - $1671   $2,077 - $2,286
  Incremental HBU / Development / Non-Strategic       $40 - $295

Total Resource / Woodlands and Real Estate Value

      $2,117 - $2,581
Segment      

Estimated 2018

EBITDDA ($mm)

      Total Value ($mm,
except share price)

Wood Products / Manufacturing

    $75     $447 - $522

Total Potlatch

    Total Enterprise Value     $2,564 - $3,103
    ( - ) Net Debt     ($463)
    ( - ) Unfunded Pension Liability (After-Tax)     ($72)
    Equity Value     $2,029 - $2,568
    Implied Price Per Share     $48.88 - $61.87

 

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Based on the Potlatch-Deltic Including Tax Savings Forecasts and publicly available financial and stock market information, BofA Merrill Lynch reviewed a range of timberland resource values for properties owned by Deltic as well as a range of incremental HBU values above the timberland resource values for such properties in addition to real estate values, including values of developed residential lots, undeveloped residential lots and remaining commercial acres, of properties held by Deltic to derive a range of Consolidated Resource / Woodlands and Real Estate Values. BofA Merrill Lynch then applied a range of adjusted enterprise value to adjusted EBITDDA multiples of 6.0x to 7.0x, based on valuation ranges for the selected publicly traded companies in the wood products sector, to Deltic’s calendar year 2018 estimated adjusted EBITDDA attributable to its Wood Products / Manufacturing segment. BofA Merrill Lynch then combined the range of Combined Resource / Woodlands and Real Estate Values with the range of total enterprise values attributable to its Wood Products / Manufacturing segment to produce a range of total enterprise values for Deltic. After accounting for debt and after-tax unfunded pension liabilities, this analysis indicated the following approximate implied per share equity value reference range for Deltic as compared to its share price of $89.12 as of October 20, 2017:

Implied Per Share Equity Value Reference Ranges for Deltic

(Based on Potlatch-Deltic Including Tax Savings Forecasts, Deltic filings and analyst estimates)

 

Segment

       

Acres (in thousands)

  

Value per acre

  

Total Value ($mm)

Resource / Woodlands

   Timberlands    530    $1,600 - $1,700    $849 - $902
   Incremental HBU          $35 - $53

Total Resource / Woodlands

         $884 - $955
          Lots    Value per lot    Total Value ($mm)

Real Estate

   Developed Residential Lots    131    $60,000 - $90,000    $8 - $12
   Undeveloped Residential Lots    2,804    $16,000 - $46,000    $45 - $129
          Acres    Value per acre    Total Value ($mm)
   Remaining Commercial Acres    400    $100,000 - $300,000    $40 - $120

Total Real Estate

            $93 - $261

Consolidated Resource / Woodlands and Real Estate Value

         $977 - $1,216
Segment        

Estimated 2018

EBITDDA ($mm)

        Total Value ($mm,
except share price)

Wood Products / Manufacturing

      $56       $338 - $394
      Total Enterprise Value       $1,315 - $1,610

Total Deltic

      ( - ) Net Debt       ($233)
      ( - ) Unfunded Pension Liability (After-Tax)       ($24)
      Equity Value       $1,057 - $1,352
      Implied Price Per Share       $86.02 - $110.04

 

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Discounted Cash Flow Sum-of-the-Parts Analysis

BofA Merrill Lynch performed a discounted cash flow sum-of-the-parts analysis of Potlatch to calculate the present value of the standalone unlevered, after-tax free cash flows that Potlatch’s business segments were forecasted to generate during the last quarter of 2017 through calendar year 2021 based on the Potlatch Forecasts and publicly available financial and stock market information. BofA Merrill Lynch also calculated terminal values for each Potlatch business segment by applying (i) a range of perpetuity growth rates of (a) 1.50% to 2.00% for Potlatch’s Resource / Woodlands and Real Estate segment and (b) 1.50% to 2.50% for Potlatch’s Wood Products / Manufacturing and Corporate segments to the respective Potlatch business segments’ estimated calendar year 2021 free cash flows (adjusted to account for capital expenditures, depreciation, depletion and amortization) and (ii) a range of discount rates of (a) 6.75% to 8.00% for Potlatch’s Woodlands segment, (b) 6.50% to 7.50% for Potlatch’s Real Estate segment, (c) 11.00% to 13.50% for Potlatch’s Wood Products / Manufacturing segment and (d) 8.00% to 10.00% for Potlatch’s Corporate segment, all of which were based on an estimate of each Potlatch business segment’s respective weighted average cost of capital. The free cash flows and terminal values for each business segment were discounted to present value as of September 30, 2017 using discount rates ranging from (i) 6.75% to 8.00% for Potlatch’s Woodlands segment, (ii) 6.50% to 7.50% for Potlatch’s Real Estate segment, (iii) 11.00% to 13.50% for Potlatch’s Wood Products / Manufacturing segment and (iv) 8.00% to 10.00% for Potlatch’s Corporate segment (adjusted to add back Potlatch’s pension expenses of $1.6 million in the last quarter of 2017, $5.9 million in calendar year 2018, $3.9 million in calendar year 2019, $10.2 million in calendar year 2020, and $7.7 million in calendar year 2021), all of which were based on an estimate of each Potlatch business segment’s weighted average cost of capital. The range of Potlatch’s implied total equity values was then calculated by (i) combining each of the low enterprise values of Potlatch’s four business segments and (ii) combining each of the high enterprise values of Potlatch’s four business segments, in each case, less net debt (which includes Potlatch’s unfunded pension liability of $72 million). This analysis indicated the following approximate implied per share equity value reference range for Potlatch, rounded to the nearest $0.05, as compared to its share price of $53.00 as of October 20, 2017:

Discounted Cash Flow – Sum-of-the-Parts Analysis for Potlatch

(Based on Potlatch Forecasts and Potlatch filings)

 

Segment    Discounted Cash Flow Valuation (Enterprise Value) (in $mm, except share price)  
        Low     Mid     High  

Woodlands

      $ 2,034     $ 2,328     $ 2,730  

Real Estate

      $ 266     $ 301     $ 347  

Wood Products / Manufacturing

      $ 449     $ 518     $ 615  

Corporate

      ($ 296   ($ 353   ($ 441
     

 

 

   

 

 

   

 

 

 

Total Potlatch

   Implied Total Enterprise Value    $ 2,452     $ 2,793     $ 3,250  
   Less Net Debt    ($ 535   ($ 535   ($ 535
     

 

 

   

 

 

   

 

 

 
   Implied Total Equity Value    $ 1,917     $ 2,258     $ 2,716  
     

 

 

   

 

 

   

 

 

 
   Implied Equity Value per Share    $ 46.20     $ 54.40     $ 65.40  
     

 

 

   

 

 

   

 

 

 

BofA Merrill Lynch performed a discounted cash flow sum-of-the-parts analysis of Deltic to calculate the present value of the standalone unlevered, after-tax free cash flows that Deltic’s business segments were forecasted to generate during the last quarter of 2017 through calendar year 2021 based on the Potlatch-Deltic Including Tax Savings Forecasts and publicly available financial and stock market information. BofA Merrill Lynch also calculated terminal values for Deltic’s business segments by applying (i) a range of perpetuity growth rates of (a) 2.50% to 3.00% for Deltic’s Resource / Woodlands and Real Estate segment and (b) 1.50% to 2.50% for Deltic’s Wood Products / Manufacturing and Corporate segments to the respective Deltic business segments’ estimated calendar year 2021 free cash flows (adjusted to account for capital expenditures, depreciation, depletion and amortization) and (ii) a range of discount rates of (a) 6.50% to 7.50% for Deltic’s Resource / Woodlands and Real Estate segment, (b) 11.00% to 13.50% for Deltic’s Wood Products / Manufacturing segment and (c) 8.25% to 10.00% for Deltic’s Corporate segment (adjusted to add back Deltic’s pension

 

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expenses of $1.5 million), all of which were based on an estimate of each Deltic business segment’s respective weighted average cost of capital. The free cash flows and terminal values for each business segment were then discounted to present value as of September 30, 2017 using discount rates ranging from (i) 6.50% to 7.50% for Deltic’s woodlands and real estate segments, (ii) 11.00% to 13.50% for Deltic’s wood products and manufacturing segment and (iii) 8.25% to 10.00% for Deltic’s Corporate segment, all of which were based on an estimate of each Deltic business segment’s respective weighted average cost of capital. At the direction of Potlatch’s management, BofA Merrill Lynch assumed a corporate tax savings to Deltic’s Resource / Woodlands and Real Estate segment due to a REIT conversion. Based on the projected tax savings included in the Potlatch-Deltic Including Tax Savings Forecasts, BofA Merrill Lynch calculated the present value of the estimated tax savings during the last quarter of 2017 through calendar year 2021. BofA Merrill Lynch also calculated the terminal values of Deltic’s estimated tax savings by applying a range of perpetuity growth rates of 1.5% to 2.5% to Deltic’s calendar year 2021 estimated tax savings and a range of discount rates of 6.50% to 7.50%, which were based on an estimate of the weighted average cost of capital of Deltic’s Resource / Woodlands and Real Estate business segment. BofA Merrill Lynch discounted Deltic’s estimated tax savings and the terminal values of Deltic’s estimated tax savings to present value as of September 30, 2017 using discount rates ranging from 6.50% to 7.50%, which were based on based on an estimate of the weighted average cost of capital of Deltic’s Resource / Woodlands and Real Estate business segment. In deriving an implied per share equity value reference range for Deltic, BofA Merrill Lynch considered scenarios including and excluding the Cost Synergies. For the scenario including the Cost Synergies, BofA Merrill Lynch calculated the present value of the estimated the Cost Synergies during the last quarter of 2017 through calendar year 2021, based on the Potlatch-Deltic Including Tax Savings Forecasts. BofA Merrill Lynch also calculated the terminal values of the Cost Synergies by applying a range of perpetuity growth rates of 1.5% to 2.5% to Deltic’s calendar year 2021 estimated Cost Synergies and a range of discount rates of 8.25% to 10.00%, which were based on an estimate of Deltic’s weighted average cost of capital. BofA Merrill Lynch discounted the Cost Synergies and terminal values of the Cost Synergies to a present value as of September 30, 2017 using discount rates ranging from 8.25% to 10.00%, which were based on an estimate of Deltic’s weighted average cost of capital. The range of Deltic’s implied total equity values was then calculated by combining each of the enterprise values of Deltic’s four business segments, the total value of Deltic’s estimated tax savings and, in the scenario including the Cost Synergies, the total value of the Cost Synergies, less net debt (which includes Deltic’s unfunded pension liability of $24 million). This analysis indicated the following approximate implied per share equity value reference ranges for Deltic, rounded to the nearest $0.05, as compared to its share price of $89.12 as of October 20, 2017:

Discounted Cash Flow – Sum-of-the-Parts Analysis for Deltic

(Based on Potlatch-Deltic Including Tax Savings Forecasts, Potlatch filings and Potlatch management’s projections for the Cost Synergies)

 

Segment        

Discounted Cash Flow Valuation
(Enterprise Value)

(in $mm, except share price)

 
        Low     Mid     High  

        Woodlands

   $ 501     $ 582     $ 697  

        Real Estate

   $ 109     $ 126     $ 151  

    Wood Products / Manufacturing

   $ 293     $ 339     $ 403  

        Corporate

   ($ 92   ($ 107   ($ 130

      Tax Savings

   $ 154     $ 181     $ 223  
     

 

 

   

 

 

   

 

 

 

Total Deltic (assumes

Conversion to REIT)

  

Implied Total Enterprise Value

   $ 965     $ 1,121     $ 1,345  
  

Less Net Debt

   ($ 258   ($ 258   ($ 258
  

Implied Total Equity Value

   $ 708     $ 864     $ 1,087  
  

Implied Equity Value per Share

   $ 57.70     $ 70.40     $ 88.50  
     

 

 

   

 

 

   

 

 

 

Cost Synergies

   $ 88     $ 104     $ 128  
     

 

 

   

 

 

   

 

 

 

Total Deltic (including Cost Synergies)

  

Implied Total Equity Value

   $ 796     $ 968     $ 1,215  
  

Implied Equity Value Per Share

   $ 64.90     $ 78.85     $ 98.70  

 

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Financial Analysis of Combination

Based on implied equity value reference ranges for Potlatch and Deltic calculated as described above in the sections entitled “Selected Publicly Traded Companies Sum-of-the-Parts Analysis”, “Hybrid NAV Sum-of-the-Parts Analysis” and Discounted Cash Flow Sum-of-the-Parts Analysis”, BofA Merrill Lynch calculated implied exchange ratios resulting from one share of Deltic being converted into shares of Potlatch, with the top of the range based on the highest Deltic implied equity value and the lowest Potlatch implied equity value and the bottom of the range based on the lowest Deltic implied equity value and the highest Potlatch implied equity value. These analyses indicated the following implied exchange ratio reference ranges, in each case as compared to the exchange ratio of 1.800:

Implied Exchange Ratio reference ranges based on:

 

Selected Publicly Traded

Companies Sum-of-the-Parts

   Hybrid NAV  Sum-of-the-Parts
Analysis
   Discounted Cash
Flow Sum-of-the-Parts
Analysis (excluding
Cost Synergies)
   Discounted Cash
Flow Sum-of-the-Parts
Analysis (including
Cost Synergies)
   Exchange
Ratio

1.128x - 1.549x

   1.390x - 2.253x    0.882x - 1.916x    0.992x - 2.136x    1.800

Other Factors

BofA Merrill Lynch also noted certain additional factors that were not considered part of BofA Merrill Lynch’s material financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:

 

    historical trading prices and historical average exchange ratios of Potlatch common stock and Deltic common stock and their performance relative to key market indices during the five-year period ended October 20, 2017;

 

    selected cash available for distribution estimates for calendar years 2017 and 2018 for Potlatch found in recently published, publicly available Wall Street research analyst reports as of October 20, 2017 and market capitalization as a multiple of cash available for distribution of the selected publicly traded companies in the timber REIT sector;

 

    based on the Potlatch Forecasts, the Potlatch-Deltic Including Tax Savings Forecasts and the Cost Synergies, and assuming an illustrative closing date of December 31, 2017, an analysis of the potential financial impact of the transaction, indicating an illustrative accretion of approximately 1% to the estimated cash available for distribution (adjusted for restructuring expenses and incremental capital expenditures for systems integration provided by Potlatch management) per share of Potlatch common stock for the calendar year 2018 and an illustrative accretion of 5% to the estimated cash available for distribution (adjusted for restructuring expenses and incremental capital expenditures for systems integration provided by Potlatch management) per share of Potlatch common stock for calendar year 2019; and

 

    a discounted cash flow sum-of-the-parts analysis excluding the Cost Synergies based on the Deltic Forecasts.

Miscellaneous

As noted above, the discussion set forth above in the sections entitled “Selected Publicly Traded Companies Sum-of-the-Parts Analysis”, “Hybrid NAV Sum-of-the-Parts Analysis”, “Discounted Cash Flow Sum-of-the-Parts Analysis” and “Financial Analysis of Combination” is a summary of the material financial analyses presented by BofA Merrill Lynch to Potlatch’s board in connection with its opinion and is not a comprehensive description of all analyses undertaken by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate

 

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and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of Potlatch and Deltic. The estimates of the future performance of Potlatch and Deltic in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, of the exchange ratio and were provided to Potlatch’s board in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual values of Deltic or Potlatch.

The type and amount of consideration payable in the merger was determined through negotiations between Potlatch and Deltic, rather than by any financial advisor, and was approved by Potlatch’s board. The decision to enter into the Agreement was solely that of Potlatch’s board. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by Potlatch’s board in its evaluation of the proposed Merger and should not be viewed as determinative of the views of Potlatch’s board or management with respect to the merger or the exchange ratio.

Potlatch has agreed to pay BofA Merrill Lynch for its services in connection with the Merger an aggregate fee of $7.5 million, $1.5 million of which was payable in connection with its opinion and the remainder of which is contingent upon the completion of the merger. Potlatch has also agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any of its affiliates, its and their respective directors, officers, employees and agents and each other person controlling BofA Merrill Lynch or any of its affiliates against certain liabilities, including liabilities under the federal securities laws.

BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of Potlatch, Deltic and certain of their respective affiliates.

BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Potlatch and have received or in the future may receive compensation for the rendering of those services, including (i) having acted or acting as joint lead arranger and joint book manager for, and as a lender under, Potlatch’s Amended and Restated Credit Agreement, dated as of August 12, 2014, as amended from time to time, (ii) having acted as underwriter for a tax

 

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exempt bond offering for Potlatch, and (iii) having provided or providing certain treasury services to Potlatch. From October 1, 2015 through September 30, 2017, BofA Merrill Lynch and its affiliates derived aggregate revenues from Potlatch and its affiliates of approximately $1 million for investment and corporate banking services.

In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Deltic and have received or in the future may receive compensation for the rendering of those services, including having acted or acting as a lender under Deltic’s Second Amended and Restated Revolving Credit Facility, dated November 18, 2014, as amended from time to time. From October 1, 2015 through September 30, 2017, BofA Merrill Lynch and its affiliates derived aggregate revenues from Deltic and its affiliates of approximately $500,000 for investment and corporate banking services.

Opinion of Deltic’s Financial Advisor

Goldman Sachs rendered its opinion to Deltic’s board that, as of October 22, 2017 and based upon and subject to the factors and assumptions set forth therein, the exchange ratio of 1.80 shares of Potlatch common stock to be paid for each share of outstanding Deltic common stock pursuant to the merger agreement was fair from a financial point of view to the holders (other than Potlatch and its affiliates) of Deltic common stock.

The full text of the written opinion of Goldman Sachs, dated October 22, 2017, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided advisory services and its opinion for the information and assistance of Deltic’s board in connection with its consideration of the transaction. The Goldman Sachs opinion is not a recommendation as to how any holder of Deltic common stock should vote with respect to the transaction, or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

    the merger agreement;

 

    annual reports to stockholders and Annual Reports on Form 10-K of Deltic and Potlatch for the five fiscal years ended December 31, 2016;

 

    certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Deltic and Potlatch;

 

    certain preliminary unaudited financial information for the nine month period ended September 30, 2017 for Deltic and Potlatch, prepared by the respective managements of Deltic and Potlatch, in each case, as approved for Goldman Sachs’ use by Deltic;

 

    certain other communications from Deltic and Potlatch to their respective stockholders;

 

    certain publicly available research analyst reports for Deltic and Potlatch; and

 

    certain internal financial analyses and forecasts for Deltic prepared by its management, for Potlatch standalone prepared by the management of Potlatch, and for Potlatch pro forma for the transaction prepared by the management of Potlatch, in each case, as approved for Goldman Sachs’ use by Deltic (which are referred to as the “Forecasts”), including certain operating synergies projected by the management of Potlatch to result from the transaction, as approved for Goldman Sachs’ use by Deltic, (which are referred to as the “Synergies”). Information regarding (i) the Forecasts prepared by management of Potlatch is set forth in the section entitled “—Certain Potlatch Forecasts” beginning on page 119, (ii) the Forecasts prepared by management of Deltic is set forth in the section entitled “—Certain Deltic Forecasts” beginning on page 121 and (iii) the Synergies is set forth in the section entitled “—Potlatch’s Reasons for the Merger; Recommendation of the Potlatch Board” beginning on page 61.

 

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Goldman Sachs also held discussions with members of the senior managements of Deltic and Potlatch regarding their assessment of the strategic rationale for, and the potential benefits of, the transaction and the past and current business operations, financial condition and future prospects of Deltic and Potlatch; reviewed the reported price and trading activity for Deltic common stock and Potlatch common stock; compared certain financial and stock market information for Deltic and Potlatch with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the timber industry and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering this opinion, Goldman Sachs, with Deltic’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with Deltic’s consent that the Forecasts, including the Synergies, were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the managements of Deltic and Potlatch. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Deltic or Potlatch or any of their respective subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without any adverse effect on Deltic or Potlatch or on the expected benefits of the transaction in any way meaningful to its analysis. Goldman Sachs has also assumed that the transaction will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of Deltic to engage in the transaction, or the relative merits of the transaction as compared to any strategic alternatives that may be available to Deltic; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, to the holders (other than Potlatch and its affiliates) of the Deltic common stock, as of the date of the opinion, of the exchange ratio pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transaction or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the transaction, including the fairness of the transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Deltic; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Deltic, or class of such persons, in connection with the transaction, whether relative to the exchange ratio pursuant to the merger agreement or otherwise. Goldman Sachs’ opinion was necessarily based on economic, monetary market and other conditions, as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs does not express any opinion as to the prices at which shares of Potlatch common stock will trade at any time or as to the impact of the transaction on the solvency or viability of Deltic or Potlatch or the ability of Deltic or Potlatch to pay their respective obligations when they come due. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Deltic board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on

 

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market data, is based on market data as it existed on or before October 19, 2017, and is not necessarily indicative of current market conditions.

Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices for Deltic common stock and Potlatch common stock for the 52-week period ended October 19, 2017, which ranged from $53.74 to $91.93 per share of Deltic common stock and $36.95 to $53.35 per share of Potlatch common stock. In addition, Goldman Sachs analyzed the exchange ratio compared to the relative values of Deltic common stock and Potlatch common stock. This analysis resulted in the following:

 

     Exchange Ratio      Deltic Share Price     Implied Deltic Ownership  

August 24, 2017*

     1.52x      $ 67.89       31

October 19, 2017

     1.65x      $ 88.14       33

Proposed Transaction

     1.80x      $ 96.03 **      35

 

* Represents the last trading day prior to the filing of a Schedule 13D amendment by Southeastern Asset Management Inc.
** Implied Deltic share price based on Potlatch share price of $53.35 and the exchange ratio of 1.80.

This analysis indicated the following implied premiums to Deltic’s share price based on the exchange ratio of Potlatch common stock to be paid for each share of outstanding Deltic common stock pursuant to the merger agreement from the relative values of Deltic common stock and Potlatch common stock as of the dates noted below:

 

     Implied Premium  

August 24, 2017

     41

October 19, 2017

     9

52 week high

     4

52 week low

     75

Deltic Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on Deltic. Using discount rates ranging from 9.00% to 10.50%, reflecting estimates of Deltic’s weighted average cost of capital, Goldman Sachs discounted to present value as of September 30, 2017 (i) estimates of unlevered free cash flow for Deltic, which is (A) the sum of earnings before interest and taxes, depreciation, depletion (cost of fee timber harvested) and amortization, and real estate costs recovered upon sale (referred to as “Adjusted EBITDDA”) less the sum of depreciation, depletion, amortization, real estate costs recovered upon sale, pension and other post-employment benefits expenses (including the interest cost and return on plan assets but excluding service cost), less (B) estimated taxes at a rate of 35% for calendar years 2017 through 2021, less (C) the sum of depreciation, depletion, amortization, real estate costs recovered upon sale, capital expenditures and increases in net working capital, for the fourth quarter of 2017 and years 2018 through 2021 and (ii) a range of illustrative terminal values for Deltic, which were calculated by applying perpetuity growth rates ranging from 2.25% to 2.75%, to a terminal year estimate of the unlevered free cash flow for Deltic, as reflected in the Forecasts. Goldman Sachs derived such discount rates, which reflect estimates of weighted average cost of capital, by application of the Capital Asset Pricing Model (“CAPM”), which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for Deltic by adding the ranges of present values it derived above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for Deltic net debt as of September 30, 2017, in each case, as provided by the management of Deltic, to derive a range of illustrative equity values for Deltic. Goldman Sachs then divided such illustrative equity values by the

 

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estimated number of shares of Deltic common stock outstanding on a fully diluted basis as of October 19, 2017 calculated using the treasury stock method, using information provided by the management of Deltic, to derive a range of illustrative present values per share of Deltic common stock ranging from approximately $47 to $67, as rounded to the nearest dollar.

Deltic Sum of the Parts Analysis. Goldman Sachs performed an illustrative sum-of-the-parts analysis for the following business segments of Deltic, in each case using the Forecasts, publicly available information, Deltic’s public filings and investor presentations, and Bloomberg market data as of October 19, 2017:

 

    Woodlands

 

    Oil & Gas

 

    Manufacturing

 

    Real Estate

 

    Corporate

 

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For the purpose of this analysis, Goldman Sachs reviewed certain financial information provided by the management of Deltic and publicly available information to derive a range of illustrative implied values of each of Deltic’s five business segments. Goldman Sachs calculated a range of illustrative implied values for Deltic’s (i) woodlands business segment on a per acreage basis using per acreage unit values provided by Deltic’s management, based on a discounted cash flow analysis, using illustrative discount rates ranging from 5.00% to 6.00%, reflecting estimates of the woodland business’s weighted average cost of capital and derived by application of CAPM, and applying perpetuity growth rates ranging from 0.50% to 1.00%, which was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation, (ii) oil & gas business segment by using public trading multiples (based on the closing share price of the applicable company’s common stock as of October 19, 2017) ranging from 8.0x to 12.0x for certain publicly traded oil & gas companies* with operations that Goldman Sachs, based on its professional judgment and experience, considered similar to Deltic’s oil & gas operations, as a multiple of estimated cash flows for Deltic’s oil & gas segment for calendar year 2017, as provided by Deltic’s management, (iii) manufacturing segment by using public trading multiples for certain publicly traded companies with operations that Goldman Sachs, based on its professional judgment and experience, considered similar to Deltic’s manufacturing operations, as a multiple of Deltic’s Adjusted EBITDDA for its manufacturing business segment for the last twelve months ended September 30, 2017, estimated Adjusted EBITDDA for calendar year 2017 and estimated Adjusted EBITDDA for calendar year 2018, and included in this analysis a proposal submitted by a third party in calendar year 2017 for the purchase of Deltic’s manufacturing business, as provided by the management of Deltic, (iv) real estate business segment by using estimated discounted cash flow values provided by Deltic’s management and (v) corporate segment by using estimated corporate expenditures for Deltic’s woodlands, real estate and manufacturing business segments for calendar year 2017 as provided by the management of Deltic and applying public trading multiples ranging from 17.0x to 18.0x for Deltic’s woodlands and real estate business segments and 7.0x to 8.0x for Deltic’s manufacturing business segment for certain publicly traded timber REIT and building product companies with operations that Goldman Sachs, based on its professional judgment and experience, considered similar to Deltic’s woodlands, real estate and manufacturing operations. The results of this analysis are summarized in the following table:

 

     Implied Value
(US$ in millions)
 

Business Segment

   Low      High  

Woodlands

   $ 940      $ 1,200  

Oil & Gas

   $ 15      $ 25  

Manufacturing

   $ 200      $ 250  

Real Estate

   $ 62      $ 70  

Corporate

   $ (175    $ (200

Goldman Sachs then calculated the implied equity value of Deltic using (i) the sum of the illustrative implied values of each of the five business segments minus (ii) the value of Deltic’s consolidated net debt (including pension liability) as of September 30, 2017, as provided by the management of Deltic. This analysis resulted in a range of implied equity values for Deltic of approximately $785 million to $1,088 million, as rounded to the nearest million dollars. Goldman Sachs then divided such implied equity values by the estimated number of shares of Deltic common stock outstanding on a fully diluted basis as of October 19, 2017 calculated using the treasury stock method, using information provided by the management of Deltic, to calculate an illustrative range of per-share implied values. This analysis resulted in an illustrative range of value indications of $63.96 to $88.52 per share of Deltic common stock.

Deltic Illustrative Present Value of Future Total Return Analysis. Goldman Sachs performed an illustrative analysis of the implied future value and total return per share of the Deltic common stock using the Forecasts and

 

*  Consists of Cross Timbers Royalty Trust, Hugoton Royalty Trust, Mesa Royalty Trust, Enduro Royalty Trust, Permian Basin Royalty Trust, Pacific Coast Oil Trust, Sabine Royalty Trust and San Juan Basin Royalty Trust

 

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publicly available information. For this analysis, Goldman Sachs derived implied future values per share of Deltic common stock by applying multiples ranging from 10.0x to 13.0x to forecasted last twelve months Adjusted EBITDDA, for each of the years 2018 through 2020. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgement and experience, taking into account historical Adjusted EBITDDA for Deltic, as provided by the management of Deltic. Goldman Sachs then assumed that all dividends reflected in the Forecasts were paid out and counted toward the total return per share and discounted these estimated future share prices of Deltic common stock and dividends to September 30, 2017 using an illustrative discount rate of 12.5%, reflecting an estimate of Deltic’s cost of equity to derive a range of illustrative present values of approximately $69 to $100, as rounded to the nearest dollar, per share of Deltic common stock. Goldman Sachs derived such discount rates, which were estimates of cost of equity, by application of CAPM, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally.

Implied Premia of Precedent Transactions. Goldman Sachs reviewed and analyzed the acquisition premia for all publicly disclosed sale transactions involving companies based in the United States as the target and acquirer with a transaction value of greater than $500 million, calculated relative to the target’s closing share price one day prior to the announcement, based on information obtained from Thomson SDC. Using such data for such selected transactions, for the years 2004 to 2017 (through October 19, 2017), Goldman Sachs calculated the average acquisition premia for these transactions for the applicable years and the following table summarizes the results of this analysis:

 

Consideration
(Number of Transactions)

   Average Acquisition Premia
One Day Prior to Announcement
 

All Cash (744)

     42

Cash and Stock (209)

     25

All Stock (158)

     20

All Stock/REIT Only (15)

     10

Based on its review of the all stock and stock/REIT transactions in this analysis, which Goldman Sachs, based on its professional judgment and experience, considered most relevant to its analysis of the transaction, Goldman Sachs applied a reference range of illustrative premiums of 10% to 20% to the per share price of Deltic common Stock as of August 24, 2017 and calculated a range of implied equity values per share of Deltic common Stock of $75 to $81, as rounded to the nearest dollar.

Potlatch Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on Potlatch. Using discount rates ranging from 9.00% to 10.50%, reflecting estimates of Potlatch’s weighted average cost of capital and derived by using CAPM, Goldman Sachs discounted to present value as of September 30, 2017 (i) estimates of unlevered free cash flow for Potlatch, which is (A) Adjusted EBITDDA less the sum of depreciation, depletion, amortization, basis of real estate sold, pension and other post-employment benefits expenses (including the interest cost and return on plan assets but excluding service cost) less (B) estimated taxes at a rate of 36% for Potlatch’s taxable REIT subsidiary and 0% for the REIT for calendar years 2018 through 2021, less (C) the sum of depreciation, depletion, amortization, basis of real estate sold, capital expenditures and increases in net working capital, for the fourth quarter of 2017 and years 2018 through 2021 and (ii) a range of illustrative terminal values for Potlatch, which were calculated by applying perpetuity growth rates ranging from 2.25% to 2.75%, to a terminal year estimate of the unlevered free cash flow for Potlatch, as reflected in the Forecasts. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for Potlatch by adding the ranges of present values it derived above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for Potlatch net debt as of September 30, 2017, in each case, as provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic, to derive a range of illustrative equity values for Potlatch. Goldman

 

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Sachs then divided the range of illustrative equity values it derived by the number of shares of Potlatch common stock outstanding on a fully diluted basis as of October 19, 2017 calculated using the treasury stock method, using information provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic, to derive a range of illustrative present values per share of Potlatch common stock ranging from approximately $36 to $50, as rounded to the nearest dollar.

Potlatch Sum of the Parts Analysis. Goldman Sachs performed an illustrative sum-of-the-parts analysis for the following business segments of Potlatch, in each case using the Forecasts, publicly available information, Potlatch’s public filings and investor presentations, and Bloomberg market data as of October 19, 2017:

 

    Timberlands

 

    Manufacturing

 

    Real Estate

 

    Corporate

For the purpose of this analysis, Goldman Sachs reviewed certain financial information provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic and publicly available information to derive a range of illustrative implied values of each of Potlatch’s four business segments. Goldman Sachs calculated a range of illustrative implied values for Potlatch’s (i) timberlands segment on a per acreage basis using unit values as of August 2017, assuming a 5% increase to such values due to increases in market price as instructed by Potlatch’s management, based on a discounted cash flow analysis, using illustrative discount rates ranging from 5.00% to 6.00%, reflecting estimates of the timberlands business’s weighted average cost of capital and derived by application of CAPM, and applying a perpetuity growth rate of 0%, which was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term growth of gross domestic product and inflation, (ii) manufacturing segment by using public trading multiples for certain public traded companies with operations that may be considered similar to Potlatch’s manufacturing operations, as a multiple of Potlatch’s Adjusted EBITDDA for its manufacturing segment for the last twelve months ended September 30, 2017, estimated Adjusted EBITDDA for calendar year 2017 and estimated Adjusted EBITDDA for calendar year 2018, as provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic, (iii) real estate segment by using estimated values provided by Deltic’s management and (iv) corporate segment by using estimated consolidated corporate expenditures for Potlatch for calendar year 2017, as provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic, excluding a non-recurring environmental expense of approximately $6 million and applying public trading multiples ranging from 15.0x to 16.0x for Potlatch’s consolidated business segments based on Potlatch’s estimated Adjusted EBITDDA trading multiple for calendar year 2017, based on information provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic. The results of this analysis are summarized in the following table:

 

     Implied Value
(US$ in millions)
 

Business Segment

   Low      High  

Timberlands

   $ 2,050      $ 2,475  

Manufacturing

   $ 450      $ 500  

Real Estate

   $ 260      $ 310  

Corporate

   $ (600    $ (625

Goldman Sachs then calculated the implied equity value of Potlatch using (i) the sum of the illustrative implied values of each of the four business segments minus (ii) the value of Potlatch’s consolidated net debt (including pension liability) as of September 30, 2017, as provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic. This analysis resulted in a range of implied equity values

 

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for Potlatch of approximately $1,622 million to $2,122 million, as rounded to the nearest million dollars. Goldman Sachs then divided such implied equity values by the estimated number of the shares of Potlatch common stock outstanding on a fully diluted basis as of October 19, 2017 calculated using the treasury stock method, using information provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic, to calculate an illustrative range of per-share implied values. This analysis resulted in an illustrative range of value indications of $39.07 to $51.11 per share of Potlatch common stock.

Potlatch Illustrative Present Value of Future Total Return Analysis. Goldman Sachs performed an illustrative analysis of the implied future value and total return per share of Potlatch common stock, using the Forecasts and publicly available information. For this analysis, Goldman Sachs derived implied future values per share of Potlatch common stock by applying multiples ranging from 16.50x to 19.50x to the forecasted last twelve months Adjusted EBITDDA, for each of the years 2018 through 2020. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical Adjusted EBITDDA for Potlatch, as provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic. Goldman Sachs then assumed that all dividends reflected in the Forecasts were paid out and counted toward the total return per share and discounted these estimated future share prices of Potlatch common stock and dividends to September 30, 2017 using an illustrative discount rate of 12.5%, reflecting an estimate of Potlatch’s cost of equity and derived by application of CAPM, to derive a range of illustrative present values of approximately $61 to $74, as rounded to the nearest dollar, per share of Potlatch common stock. In addition, Goldman Sachs performed an illustrative analysis of the implied future value and total return per share of Potlatch common stock by applying dividend yields, ranging from 3.0% to 4.0%, for each of the years 2018 through 2020. Goldman Sachs then assumed that all dividends reflected in the Forecasts were paid out and counted toward the total return per share and discounted these estimated future share prices of Potlatch common stock and dividends to September 30, 2017 using an illustrative discount rate of 12.5%, reflecting an estimate of Potlatch’s cost of equity, to derive a range of illustrative present values of dividends of approximately $41 to $54, as rounded to the nearest dollar, per share of Potlatch common stock.

Illustrative Pro Forma Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the combined company. Using discount rates ranging from 9.00% to 10.50%, reflecting estimates of the combined company’s weighted average cost of capital and derived by application of CAPM, Goldman Sachs discounted to present value as of September 30, 2017 (i) estimates of unlevered free cash flows for the combined company as the sum of the standalone estimates of unlevered free cash flows for Deltic and Potlatch, as reflected in the Forecasts, plus (y) the Synergies minus (z) estimates for the cost to achieve Synergies provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic (such difference, the “Net Synergies”), respectively, for the fourth quarter of 2017 and years 2018 through 2021 and (ii) a range of illustrative terminal values for the combined company, which were calculated by applying perpetuity growth rates ranging from 2.25% to 2.75%, to a terminal year estimate of the unlevered free cash flows for the combined company. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of the illustrative equity values for the combined company by adding the ranges of present values it derived above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for the combined company net debt for the combined company as of September 30, 2017, in each case as provided by the managements of Deltic and Potlatch and approved for Goldman Sachs’ use by the management of Deltic to derive a range of illustrative equity values for the combined company. Goldman Sachs then divided the sum of the illustrative equity values of the combined company it derived by the number of shares of the combined company common stock outstanding on a fully diluted basis as of October 19, 2017 calculated using the treasury stock method, using information provided by the managements of Deltic and Potlatch and approved for Goldman Sachs’ use by the management of Deltic, and applied an exchange ratio of 1.80x, to derive a range of illustrative present values per share of approximately $65 to $90, as rounded to the nearest dollar, per share of Deltic common stock.

 

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Illustrative Present Value of Net Synergies Analysis. Using the Net Synergies approved for Goldman Sachs’ use by the management of Deltic, Goldman Sachs prepared an illustrative present value of the Net Synergies. Using discount rates ranging from 9.00% to 10.50%, reflecting estimates of the combined company’s weighted average cost of capital and derived by application of CAPM, Goldman Sachs discounted to present value as of September 30, 2017 (i) estimates of unlevered free cash flow for the Net Synergies for years 2018 through 2021, as reflected in the Net Synergies, and (ii) a range of illustrative terminal values which were calculated by applying perpetuity growth rates ranging from 2.25% to 2.75%, to terminal year estimates of the unlevered free cash flow for the Net Synergies, by adding the ranges of present values it derived above. Goldman Sachs then divided the range of illustrative present values it derived by the number of fully diluted outstanding shares of the combined company to derive a range of illustrative present values of Net Synergies of $1.77 to $2.32 per share of the combined company.

Illustrative Pro Forma Sum of the Parts Analysis. Goldman Sachs performed a pro-forma sum-of-the-parts analysis for the following business segments of the combined company, in each case using the Forecasts, publicly available information, Deltic’s and Potlatch’s respective public filings and investor presentations, and Bloomberg market data as of October 19, 2017:

 

    Woodlands

 

    Manufacturing

 

    Real Estate

 

    Oil & Gas

 

    Corporate

For the purpose of this analysis, Goldman Sachs calculated the implied equity value of the combined company using (i) the sum of the illustrative implied values for each of the five business segments of Deltic and Potlatch, respectively, plus (ii) the illustrative value of Net Synergies which was calculated by using a projected value of $12 million in run-rate Net Synergies, to the combined company and using a multiple range of 15x to 16x based on Potlatch’s public trading multiple as of October 19, 2017, minus (iii) the value of consolidated net debt for the combined company, as provided by the managements of Deltic and Potlatch and approved for Goldman Sachs’ use by the management of Deltic. This analysis resulted in a range of implied equity values for the combined company of approximately $2,562 million to $3,379 million, as rounded to the nearest million dollars. Goldman Sachs then divided such implied equity values by the estimated number of the shares of common stock of the combined company outstanding on a fully diluted basis as of October 19, 2017, using information provided by managements of Deltic and Potlatch and approved for Goldman Sachs’ use by the management of Deltic, to calculate an illustrative range of per-share implied values. This analysis resulted in an illustrative range of value indications of $40.26 to $53.10 per share of common stock for the combined company and an illustrative range of implied value indications of $72.46 to $95.58 for holders of Deltic common stock using the 1.80x exchange ratio.

Illustrative Present Value of Pro Forma Future Total Return Analysis. Using the Forecasts, including the Net Synergies and publicly available information as of October 19, 2017, Goldman Sachs performed a pro forma illustrative analysis of the future total return per share of the combined company. For the purpose of this analysis, Goldman Sachs calculated the pro-forma future values per common share for the combined company by applying multiples ranging from 14.50x to 17.50x to forecasted last twelve months Adjusted EBITDDA for each of the years 2018 through 2020. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgement and experience, taking into account historical Adjusted EBITDDA for Deltic and Potlatch, as provided by the managements of Deltic and Potlatch and approved for Goldman Sachs use by the management of Deltic. Goldman Sachs then assumed that all dividends were paid out, as reflected in the Forecasts, and counted toward the total return per share and discounted these estimated future share prices of the combined company and dividends to September 30, 2017 using an illustrative discount rate of 12.5%, reflecting

 

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an estimate of the cost of equity for the combined company and derived by application of CAPM, to derive a range of illustrative present values for the combined company of approximately $101 to $129, as rounded to the nearest dollar, per share of Deltic common stock. In addition, Goldman Sachs performed an illustrative analysis of the future total return per share of the combined company by applying dividend yields ranging from 3.0% to 4.0% for each of the years 2018 through 2020 to the forecasted dividends provided by the management of Potlatch and approved for Goldman Sachs’ use by the management of Deltic. Goldman Sachs then assumed that all dividends were paid out and counted toward the total return per share and discounted these estimated future share prices for the combined company and dividends to September 30, 2017 using an illustrative discount rate of 12.5%, reflecting an estimate of the combined company’s cost of equity, to derive a range of illustrative present values of dividends of approximately $75 to $99, as rounded to the nearest dollar, per share for holders of Deltic common stock.

Illustrative Contribution Analysis. Using the Forecasts and publicly available information, Goldman Sachs reviewed specific historical and estimated future operating and financial information including, among other things, Adjusted EBITDDA, the sum of net income, depreciation, depletion and amortization and real estate costs recovered upon sale (referred to as “FFO”), FFO less capital expenditures (referred to as “FAD”) and net asset value (referred to as “NAV”), which is the midpoint values from the sum-of-the-parts analysis for Deltic, Potlatch and the combined company resulting from the merger based on the Forecasts and publicly available information. The following table presents the results of the analysis:

 

     Contribution Analysis  
     Year    Deltic     Potlatch     Implied
Exchange Ratio
 

Adjusted EBITDDA

   2014A-2016A Avg.      26     74     1.3x  
   2017E      28     72     1.4  
   2018E      37     63     1.9  
   2019E      39     61     2.1  

FFO

   2014A-2016A Avg.      27     73     1.3x  
   2017E      28     72     1.3  
   2018E      36     64     1.9  
   2019E      37     63     2.0  

FAD

   2014A-2016A Avg.      11     89     0.4x  
   2017E      16     84     0.7  
   2018E      31     69     1.5  
   2019E      33     67     1.7  

Discounted Cash Flow

   Midpoint      28     72     1.3x  

NAV

   Midpoint      33     67     1.7x  

Equity Market Cap

   October 19, 2017      33     67     1.7x  
   Proposed Transaction      35     65     1.8  

FAD Accretion/Dilution Analysis. Using the Forecasts, including the Net Synergies and other publicly available information as of October 19, 2017, Goldman Sachs prepared analyses of the potential financial impact of the transaction. For each of the fiscal years 2018 and 2019, Goldman Sachs compared the projected FAD per share of the Deltic common stock, on a standalone basis and taking into account the estimated tax benefits from the transaction, to the projected FAD per share of common stock of the combined company. This analysis indicated an illustrative accretion of 2% to the estimated FAD per share of Potlatch common stock for the calendar year 2018 and an illustrative accretion of 5% to the estimated FAD per share of Potlatch common stock for calendar year 2019.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman

 

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Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Deltic or Potlatch or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to Deltic’s board of directors as to the fairness from a financial point of view, to the holders (other than Potlatch and its affiliates) of Deltic common stock, as of the date of the opinion, of the exchange ratio pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Deltic, Potlatch, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The exchange ratio was determined through arm’s-length negotiations between Deltic and Potlatch and was approved by Deltic’s board. Goldman Sachs provided advice to Deltic during these negotiations. Goldman Sachs did not recommend any specific exchange ratio to Deltic or its board or that any specific exchange ratio constituted the only appropriate exchange ratio for the transaction.

As described above, Goldman Sachs’ opinion to Deltic’s board was one of many factors taken into consideration by Deltic’s board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex [●].

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities in which they invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Deltic, Potlatch, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the transaction contemplated by the merger agreement for the accounts of Goldman Sachs and its affiliates and employees and their customers. Goldman Sachs acted as financial advisor to Deltic in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. Goldman Sachs has provided certain financial advisory and/or underwriting services to Deltic and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation. During the two-year period ended October 22, 2017, the Investment Banking Division of Goldman Sachs has not provided any financial advisory or underwriting services to Potlatch or its affiliates for which it has received compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Deltic, Potlatch and their respective affiliates for which the Investment Banking Division of Goldman Sachs may receive compensation.

The Deltic board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement dated March 21, 2017, Deltic engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. The engagement letter between Deltic and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $15 million all of which is contingent upon consummation of the transaction; provided, that Deltic may determine to increase such transaction fee by up to $2 million at its sole and absolute discretion. In addition, Deltic has agreed to reimburse Goldman Sachs for certain of its expenses, including

 

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attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Financial Interests of Potlatch Directors and Officers in the Merger

In considering the recommendation of the Potlatch board that Potlatch stockholders vote to approve the share issuance proposal, you should be aware that certain of Potlatch’s directors and executive officers have interests in the merger that are in addition to, or different from, the interests of other Potlatch stockholders. The Potlatch board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in adopting and approving the merger agreement and in recommending the approval of the share issuance proposal and the Potlatch adjournment proposal. Following completion of the merger, certain members of the Potlatch board will continue to be directors of the combined company and certain executive officers of Potlatch will continue to be executive officers of the combined company, as further described in the section entitled “—Board of Directors and Certain Officers Following the Merger” beginning on page 97.

Potlatch’s directors and executive officers will not receive any special compensation the payment of which is contingent upon completion of the merger. Potlatch’s director and executive compensation programs are described in further detail in Potlatch’s Proxy Statement on Schedule 14A, filed with the SEC on April 3, 2017 and incorporated by reference into this joint proxy statement/prospectus.

Financial Interests of Deltic Directors and Officers in the Merger

Certain of Deltic’s directors and executive officers have interests in the merger that are in addition to, or different from, the interests of other Deltic stockholders. The Deltic board was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement and the merger, and in approving the merger agreement and the merger and in recommending the approval of the merger proposal, the Deltic adjournment proposal and the compensation proposal. For purposes of the Deltic agreements and plans described below, to the extent applicable, the completion of the transactions contemplated by the merger agreement will constitute a change of control, change in control or term of similar meaning. These interests are described in further detail below.

In addition, following completion of the merger, certain members of the Deltic board will serve as directors of the combined company and Mr. Enlow will serve as Vice Chairman of Potlatch pursuant to a consulting agreement with Potlatch, as further described in the section entitled “—Board of Directors and Certain Officers Following the Merger” beginning on page 97.

Treatment of Deltic Equity Awards

Certain Deltic executive officers hold one or more of the following awards: Deltic Options, Deltic Restricted Stock Awards and Deltic Performance-Based Restricted Stock Awards. Deltic non-employee directors hold Deltic Restricted Stock Awards.

Upon completion of the merger, outstanding Deltic Equity Awards will be treated as follows:

 

    Deltic Options. Each Deltic Option that is outstanding immediately prior to the completion of the merger will vest in full and be converted into an option, on the same terms and conditions (other than vesting) as were applicable under the corresponding Deltic Option, to acquire a number of Potlatch common shares equal to the product (rounded down to the nearest whole number) of (1) the number of shares of Deltic common stock subject to the Deltic Option immediately prior to the completion of the merger and (2) 1.80, at an exercise price per share (rounded up to the nearest whole cent) equal to (a) the exercise price per share of Deltic common stock of such Deltic Option immediately prior to the effective time divided by (b) 1.80.

 

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    Deltic Restricted Stock. Each Deltic Restricted Stock Award that is outstanding as of immediately prior to the completion of the merger will vest in full, and the applicable restrictions and forfeiture conditions will lapse and expire, and will be converted into and will represent the right to receive Potlatch common shares equal to the product (rounded down to the nearest whole number) of (1) the number of shares of Deltic common stock subject to the Deltic Restricted Stock Award immediately prior to the completion of the merger and (2) 1.80; provided, that any Deltic Restricted Stock Awards that are granted between the date of the execution of the merger agreement and the completion of the merger will not vest in full and instead will be converted into a restricted award relating to Potlatch common shares and will continue to be subject to the same restrictions, vesting and forfeiture conditions (including accelerated vesting upon a qualifying termination of employment) (referred to as “Converted Deltic Restricted Stock Awards”).

All Converted Deltic Restricted Stock Awards will vest in full in the event of the awardholder’s termination of employment by Potlatch without “cause” or by the awardholder for “good reason” following the completion of the merger. Certain of Deltic’s executive officers may also be entitled to accelerated vesting of their equity awards in the event of a “qualifying event” (as defined in “—Change in Control Agreements beginning on page 94) pursuant to their individual change in control agreements, as described in the section entitled “Change in Control Agreements” beginning on page 94.

 

    Deltic Performance-Based Restricted Stock. Each Deltic Performance-Based Restricted Stock Award that is outstanding as of immediately prior to the completion of the merger will be deemed to have the performance criteria applicable to such Deltic Performance-Based Restricted Stock Award achieved at the maximum level and shall vest in full at 200% of target. Each share of Deltic common stock underlying all such Deltic Performance-Based Restricted Stock Awards will be converted into and will represent the right to receive Potlatch common shares equal to the product (rounded down to the nearest whole number) of (1) the number of shares of Deltic common stock subject to the Deltic Performance-Based Restricted Stock Award immediately prior to the completion of the merger and (2) 1.80.

In addition to the above, it is expected that Deltic’s compensation committee will elect to accelerate all or a portion of the executive officers’ Deltic Equity Awards prior to the completion of the merger (as well as certain annual cash bonus payments) in order to avoid the impact of Section 280G as described in the section entitled “—280G Mitigation Payments” beginning on page 95. The table below sets forth, for each Deltic executive officer, the number of (1) Deltic Options, (2) Deltic Restricted Stock Awards and (3) Deltic Performance-Based Restricted Stock Awards held by such executive officers, and, for each Deltic non-employee director, the number of Deltic Restricted Stock Awards held by such non-employee director, each as of the date of this joint proxy statement/prospectus (and therefore does not reflect any awards that may be granted following the date of this joint proxy statement/prospectus), other than any Deltic Equity Awards that are expected to vest pursuant to their terms prior to February 15, 2018, the assumed closing date of the merger solely for purposes of this transaction-related compensation disclosure. The table below also sets forth the estimated value, per individual, in respect of such equity awards at the effective time of the merger, with such amounts calculated by multiplying the number of shares subject to the Deltic Equity Awards by $91.99 (the average closing market price of Deltic common stock over the first five business days following the first public announcement of the transaction on October 23, 2017), less the applicable exercise price in the case of the Deltic Options. The Deltic Performance-Based Restricted Stock Awards are valued to reflect that performance goals are achieved at the maximum level (i.e., 200%). The amounts shown in the table below also do not attempt to forecast any grants, exercises,

 

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dividends, additional deferrals or forfeitures of Deltic Equity Awards following the date of this joint proxy statement/prospectus.

 

     Deltic Equity Awards (1)  
     Options
(#)
     Restricted
Stock
Awards
(#)
     Performance-
Based
Restricted
Stock
Awards
(#)
            Estimated Value  
     Vested      Unvested            Vested
Awards
     Unvested
Awards
     Total  

Executive Officers

                    

John Enlow

     0        6,836        2,097      $ 4,765        —        $ 1,183,729      $ 1,183,729  

Byrom Walker

     1,253        4,247        1,962      $ 3,992      $ 31,537      $ 991,055      $ 1,022,592  

David Meghreblian

     10,792        5,265        3,362      $ 6,324      $ 311,193      $ 1,606,621      $ 1,917,814  

Kent Streeter

     4,047        5,665        3,699      $ 6,772      $ 98,937      $ 1,721,417      $ 1,820,354  

Jim Andrews, Jr.

     9,880        5,546        3,495      $ 6,612      $ 263,053      $ 1,678,943      $ 1,941,996  

Non-Employee Directors

                    

Deborah Cannon

     —             2,247            $ 206,702      $ 206,702  

Randolph Coley

     —             5,364            $ 493,434      $ 493,434  

Bert Jones

     —             3,646            $ 335,396      $ 335,396  

Christoph Keller III

     —             5,364            $ 493,434      $ 493,434  

D. Mark Leland

     —             2,247            $ 206,702      $ 206,702  

David Lemmon

     —             4,202            $ 386,542      $ 386,542  

Robert Madison Murphy

     —             5,364            $ 493,434      $ 493,434  

Robert Nolan

     —             5,364            $ 493,434      $ 493,434  

Robert Pierson, Jr.

     —             5,364            $ 493,434      $ 493,434  

John Thurston Roach

     —             4,202            $ 386,542      $ 386,542  

Lenore Sullivan

     —             3,646            $ 335,396      $ 335,396  

Robert Tudor III

     —             5,364            $ 493,434      $ 493,434  

 

(1) As of the date of this joint proxy statement/prospectus, all Deltic Restricted Stock Awards and Performance-Based Restricted Stock Awards are unvested and no awards are scheduled to vest according to their terms prior to February 15, 2018.
* Mr. Lemmon and Mr. Roach retired from service on Deltic’s board as of April 27, 2017.

Arrangements with Potlatch

Except as set forth below, as of the date of this joint proxy statement/prospectus, there are no employment, equity contribution or other agreements, arrangements or understandings between any Deltic non-employee directors or executive officers, on the one hand, and Potlatch, on the other hand. The merger is not conditioned upon any non-employee director or executive officer of Deltic entering into any such agreements, arrangements or understandings.

Potlatch and John D. Enlow, Sr., Deltic’s Chief Executive Officer, entered into a consulting agreement (referred to as the “Consultant Agreement”) pursuant to which Mr. Enlow will, as a result of the merger, resign from his employment with Deltic and provide services to Potlatch as a consultant for a two-year term for a consulting fee of $1.85 million for the two-year term. Under the Consultant Agreement, Potlatch acknowledges that Mr. Enlow’s role as Vice Chairman following the closing will constitute a materially diminished role, giving rise to “good reason” under his original employment offer letter with Deltic as defined below. As a result, the parties further acknowledge that Mr. Enlow will be entitled to receive the severance benefits provided under his offer letter upon his resignation from Deltic.

The Consultant Agreement will automatically expire at the end of the 24-month period following the merger. If the agreement is terminated by either party prior to that time, Potlatch will continue to pay Mr. Enlow his consulting fee through the end of the 24-month term.

 

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The merger agreement provides for certain indemnification, exculpation and insurance rights for former and present directors and officers of Deltic or any Deltic subsidiary. See “—Financial Interests of Deltic Directors and Officers in the Merger—Indemnification and Insurance” beginning on page 97.

Deltic Retention Awards

Pursuant to its authority under the merger agreement, Deltic has granted change in control retention awards to three of Deltic’s named executive officers – Mr. Walker, Mr. Meghreblian and Mr. Andrews in amounts equal to $79,688, $50,000 and $71,250, respectively (under the merger agreement, Mr. Enlow was not eligible to receive a retention award). The retention award agreements were entered into between Deltic and each recipient for the purpose of encouraging the named executive officers’ continued contributions and high level of commitment to Deltic through the completion of the merger and for a 90-day period thereafter. As such, the retention award agreements generally provide for the named executive officer’s receipt of a retention award payment upon his completion of at least 90 days of continuous employment following the completion of the merger, except that if the named executive officer is terminated without “cause” prior his receipt of the retention award, he will be entitled to receive his full retention payment as of the termination date. If the merger is not completed by July 22, 2018, the retention award will be null and void.

John Enlow Offer Letter

Deltic is a party to an employment offer letter with Mr. Enlow entered into upon Mr. Enlow’s initial hiring by Deltic dated February 24, 2017 (the “Offer Letter”), which provides for Mr. Enlow’s receipt of certain payments and benefits if he terminates employment in connection with a change in control of Deltic. The Offer Letter provides that, if Mr. Enlow is terminated by the Deltic board without cause or resigns for “good reason” within two years following a change in control of Deltic, he will be entitled to receive the following severance pay and benefits:

 

    Lump sum payment equal to two times base salary plus target bonus;

 

    Pro-rated bonus for the year of termination (based on target);

 

    Accelerated vesting of all stock options and restricted stock (with performance-based restricted stock vesting at actual performance through the date of the change in control);

 

    Company-paid medical benefit continuation for two years following the date of termination; and

 

    Outplacement services for up to a two year period following termination with a maximum cost of $20,000.

Mr. Enlow’s severance payments and benefits are subject to his execution and non-revocation of a release of claims against Deltic, its affiliates and their respective officers and board members.

For purposes of the Offer Letter, “good reason” means (i) a material diminution in Mr. Enlow’s title, role, authority or responsibility (including reporting responsibility); (ii) a reduction in Mr. Enlow’s base salary or target annual bonus or a failure by Deltic to pay any agreed amounts vested and due under the terms of his employment; or (iii) the movement of Mr. Enlow’s principal office more than 50 miles from its original location or any subsequent location agreed by him.

Change in Control Agreements

In connection with the recruitment or promotion of each of the Deltic named executive officers into their executive roles, Deltic entered into a form of executive change in control agreement with each of the named executive officers other than Mr. Enlow.

 

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The change in control agreements for Deltic’s named executive officers (other than Mr. Enlow) provide that, in connection with (i) the executive’s termination of employment by Deltic without cause within two years following a change in control of Deltic or (ii) a reduction in the executive’s salary and potential bonus and/or meaningful diminution in the executive’s job responsibility as a consequence of such change in control (collectively referred to as a “qualifying event”), the executive will receive the following severance pay and benefits:

 

    One year of the executive’s base salary and target bonus;

 

    One year of health and welfare benefits;

 

    Accelerated vesting of all stock options and restricted stock;

 

    Lump sum payment of an after-tax amount of $20,000 for outplacement services; and Gross-up for any excise taxes imposed as a result of any of the above.

Pursuant to the terms of the merger agreement, any Deltic Equity Awards held by a Deltic executive officer that were outstanding prior to the execution of the merger agreement, will immediately vest upon completion of the merger and be converted into the right to receive shares of Potlatch common stock.

For an estimate of the value of the amounts that would be payable to each of the Deltic named executive officers pursuant to the agreements described above, assuming solely for purposes of this transaction-related compensation disclosure that the effective time of the merger occurs on February 15, 2018, and each named executive officer experienced a qualifying event, see the section entitled “—Golden Parachute Compensation” beginning on page 95. We estimate that the aggregate amount of the settlement payments for Deltic Equity Awards, severance payments and benefits described above that would be paid or become payable to Deltic’s named executive officers if the effective time of the merger occurred on February 15, 2018 and they all experienced a qualifying termination at such time would be $4,979,532 for John Enlow, $1,624,948 for Byrom Walker, $2,075,826 for David Meghreblian, $2,243,102 for Kent Streeter and $2,221,898 for Jim Andrews.

280G Mitigation Payments

Pursuant to its authority under the merger agreement, it is expected that Deltic’s compensation committee will elect to accelerate certain payments in respect of the named executive officers’ 2017 annual cash bonuses and Deltic Equity Awards in order to mitigate the impact of Section 280G and 4999 of the Code. As a result, parachute payments made to the named executive officers should not result in a loss of deduction for Deltic under Section 280G of the Code or trigger the adverse tax consequences of Section 4999 of the Code, avoiding the need to gross up the named executive officers for these payments under the terms of their agreements (as described in “—Change in Control Agreements” on page 94) or any other arrangements.

Golden Parachute Compensation

The following table sets forth the information required by Item 402(t) of Regulation S-K regarding certain compensation that will or may be paid or become payable to each of Deltic’s “named executive officers” (as identified in accordance with SEC regulations) and that is based on or otherwise relates to the merger. For additional details regarding the terms of the payments described below, see the section entitled “Financial Interests of Deltic Directors and Officers in the Merger” beginning on page 91.

The amounts listed below are estimates based on assumptions that may or may not actually occur, including the assumption that (1) the effective time of the merger occurs on February 15, 2018, (2) each named executive officer experiences a qualifying termination immediately following the effective time of the merger and (3) the value of Deltic’s common stock at the effective time of the merger is $91.99 (the average closing market price over the first five business days following the first public announcement of the merger on October 23 2017, as required by Item 402(t) of Regulation S-K). The amounts listed below do not reflect certain compensation

 

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actions that may occur before the completion of the merger, including the granting of 2018 annual equity awards or merit-based compensation increases. For these reasons, the actual amounts, if any, to be received by a named executive officer may differ from the amounts set forth below. The amounts in the table below do not include any Deltic Equity Awards that are expected to vest pursuant to their terms prior to February 15, 2018.

 

     Cash (1)      Equity (2)      Perquisites/
Benefits (3)
     Total  

Named Executive Officer

           

John Enlow

   $ 3,753,562      $ 1,183,729      $ 42,241      $ 4,979,532  

Byrom Walker

   $ 589,688      $ 991,055      $ 44,205      $ 1,624,948  

David Meghreblian

   $ 425,000      $ 1,606,621      $ 44,205      $ 2,075,826  

Kent Streeter

   $ 480,500      $ 1,721,417      $ 41,185      $ 2,243,102  

Jim Andrews, Jr.

   $ 498,750      $ 1,678,943      $ 44,205      $ 2,221,898  

 

(1) Cash. As described in the sections entitled “—John Enlow Offer Letter” and “—Change in Control Agreements” beginning on page 94, represents a lump sum payment by Deltic equal to one year of the executive’s base salary and target bonus, or two years in the case of Mr. Enlow, and an additional payment to Mr. Enlow in an amount equal to his pro-rated target annual bonus. Also includes installment payments to Mr. Enlow equal to his consulting rate under his Consultant Agreement as described in the section entitled “—Agreements with Potlatch.” The amounts attributable to the Consultant Agreement are payable through the agreement’s 24-month term regardless of any termination and the rest of the amounts are “double trigger” payments (that is, they are payable upon a qualifying termination that occurs within two years following a change in control), calculated as follows:

 

     Base Salary      Target
Bonus
     Pro Rata
Bonus
     Retention
Awards
     Consultant
Agreement
     Value of
All Cash
Payments
 

Named Executive Officers

                 

John Enlow

   $ 1,000,000      $ 850,000      $ 53,562      $ —        $ 1,850,000      $ 3,753,562  

Byrom Walker

   $ 318,750      $ 191,250      $ —        $ 79,688      $ —        $ 589,688  

David Meghreblian

   $ 250,000      $ 125,000      $ —        $ 50,000      $ —        $ 425,000  

Kent Streeter

   $ 310,000      $ 170,500      $ —        $ —        $ —        $ 480,500  

Jim Andrews, Jr.

   $ 285,000      $ 142,500      $ —        $ 71,250      $ —        $ 498,750  

 

(2) Equity. As described in the section entitled “—Treatment of Deltic Equity Awards” beginning on page 124, represents the value of the Deltic Options, Deltic Restricted Stock Awards and Deltic Performance-Based Restricted Stock Awards, calculated as follows:

 

     Value of
Options (a)
     Value of
Restricted
Stock (b)
     Value of
Performance-
Based Restricted
Stock (c)
     Value of
All Equity
Awards
 

Named Executive Officers

           

John Enlow

   $ 114,161      $ 192,903      $ 876,665      $ 1,183,729  

Byrom Walker

   $ 76,123      $ 180,484      $ 734,448      $ 991,055  

David Meghreblian

   $ 133,861      $ 309,270      $ 1,163,490      $ 1,606,621  

Kent Streeter

   $ 135,233      $ 340,271      $ 1,246,913      $ 1,722,417  

Jim Andrews, Jr.

   $ 140,962      $ 321,505      $ 1,217,476      $ 1,679,943  

 

(a) Options. Represents the value of shares underlying Deltic Options that would accelerate on a “single-trigger” basis upon completion of the merger, calculated at a per share value of $91.99 minus the option’s exercise price, multiplied by the number of shares of Deltic common stock underlying the Deltic Option awarded to the named executive officer.
(b)

Restricted Stock Awards. Represents the cash value of outstanding Deltic Restricted Stock Awards that would accelerate on a “single-trigger” basis upon completion of the merger, calculated at a per share value

 

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  of $91.99, multiplied by the number of shares of Deltic common stock subject to the Deltic Restricted Stock Awards awarded to the named executive officer.
(c) Performance-Based Restricted Stock Awards. Represents the cash value of the Deltic Performance-Based Restricted Stock Awards that would accelerate on a “single-trigger” basis upon completion of the merger, calculated at a per share value of $91.99, based on a number of shares deliverable upon achievement of the performance goals at the maximum level (i.e., 200%), multiplied by the number of shares of Deltic common stock subject to the Deltic Performance-Based Restricted Stock Awards awarded to the named executive officer.
(3) Perquisites/Benefits. As described in the section entitled “—Change in Control Agreements” beginning on page 94, represents for Mr. Enlow (a) company-paid continuation of medical benefits for two years following the date of termination and (b) outplacement services for up to a two year period following termination, and represents for the other four named executive officers (i) one year of health and other welfare benefits and (ii) outplacement services. These benefits are “double-trigger” payments as described above, calculated as follows:

 

     Health &
Welfare
Payment ($)
     Outplacement
Services ($)
     Value of All
Perquisites/
Benefits ($)
 

Named Executive Officers

        

John Enlow

   $ 22,241      $ 20,000      $ 42,241  

Byrom Walker

   $ 11,120      $ 33,085      $ 44,205  

David Meghreblian

   $ 11,120      $ 33,085      $ 44,205  

Kent Streeter

   $ 8,100      $ 33,085      $ 41,185  

Jim Andrews, Jr.

   $ 11,120      $ 33,085      $ 44,205  

Indemnification and Insurance

The merger agreement provides that Potlatch will, and will cause the surviving company to, indemnify, defend and hold harmless, to the fullest extent permitted under applicable law (including to the fullest extent authorized or permitted by any amendments to applicable law adopted after the date of the merger agreement that increase the extent to which a corporation may indemnify its officers and directors) (and shall promptly advance expenses actually and reasonably incurred to the fullest extent permitted under applicable law (including to the fullest extent authorized or permitted by any amendments to applicable law adopted after the date of the merger agreement that increase the extent to which a corporation may indemnify its officers and directors)), each former and present director or officer of Deltic or any of its subsidiaries, as the case may be (referred to as an “indemnified party”), if such indemnified party is or was a party or is threatened to be made a party, to any actual or threatened suit, action or other proceeding, with respect to matters existing or occurring, or acts or omissions occurring, at or prior to the effective time of the merger (including the merger agreement, the merger and other transactions contemplated by the merger agreement and the approval of any of the foregoing), against all claims, losses, liabilities, damages, judgments, inquiries, fines and reasonable fees, costs and expenses actually incurred by the indemnified party in connection with such suit, action or other proceeding, whether asserted or claimed prior to or at the effective time of the merger, arising out of or pertaining to the fact that the indemnified party is or was an officer or director of Deltic or any of its subsidiaries or is or was serving at the request of Deltic or any of its subsidiaries as a director or officer of another person.

The merger agreement requires that Potlatch purchase and provide for six years following the merger director’s and officer’s liability insurance to the present and former officers and directors of Deltic or any of its subsidiaries, with respect to claims against such directors and officers arising from facts or events occurring before the effective time of the merger agreement, on terms and conditions not less favorable to the insured persons and at a cost not to exceed, on an annual basis, an amount greater than 250% of the annual premiums paid by Deltic as of the date of the merger agreement.

 

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In lieu of the insurance discussed in the preceding paragraph, Deltic may obtain( and shall obtain if requested by Potlatch and if such policy is available) a “tail” directors’ and officers’ liability insurance policy on the terms described above and fully pay for such policy prior to the completion of the merger in which event Potlatch’s obligation to obtain such insurance shall be fully satisfied; provided that Deltic may not exercise its option to purchase such tail policy if, after providing written notice to Potlatch of its intention to do so, Potlatch agrees to purchase such tail policy and does so purchase such tail policy prior to completion of the merger.

The merger agreement also requires that, for a period of six years from the effective time of the merger and subject to restrictions on amendment or repeal unless otherwise required by law, the limited liability company agreement of the combined company will contain provisions no less favorable with respect to indemnification, advancement of expenses and limitations on liability of directors and officers than are set forth in the certificate of incorporation or bylaws of Deltic.

If any Deltic indemnified party makes any claim for indemnification or advancement of expenses under the terms of the merger agreement that is denied by Potlatch or the surviving company, and a court of competent jurisdiction determines that the Deltic indemnified party is entitled to such indemnification or advancement of expense, in whole or in part, then Potlatch or the surviving company shall pay such Deltic indemnified party’s reasonable costs and expenses, including legal fees and expenses, incurred in connection with pursing such claim against Potlatch or the surviving company.

Board of Directors and Officers Following the Merger

Pursuant to the merger agreement, at the time the merger becomes effective, the Potlatch board will be expanded from 8 directors to 12 directors, consisting of eight directors from Potlatch and four directors from Deltic as selected by Deltic from its board of directors. The classes of the Potlatch board will be adjusted so that two of the directors from Deltic (referred to as the “2018 Deltic directors”) will be in the 2018 class, one of the directors from Deltic will be in the 2019 class and one of the directors from Deltic will be in the 2020 class. Potlatch has agreed in the merger agreement that it will cause the 2018 Deltic directors to be renominated for election at the 2018 annual meeting of Potlatch stockholders for a three year term and will use reasonable best efforts to have the 2018 Deltic directors so reelected. Michael J. Covey, the current Chairman and Chief Executive Officer of Potlatch, will remain as Chairman and Chief Executive Officer of Potlatch and will remain on the Potlatch board following completion of the merger. Eric J. Cremers, the current President and Chief Operating Officer of Potlatch, will remain as President and Chief Operating Officer of Potlatch and will remain on the Potlatch board following completion of the merger. John D. Enlow, Sr., the current president and chief executive officer of Deltic, will become Vice Chairman of Potlatch at the effective time pursuant to a two-year consulting agreement.

U.S. Federal Income Tax Consequences of the Merger

The following is a general summary of U.S. federal income tax consequences of the merger to U.S. Holders and Non-U.S. Holders (each as defined below) of Deltic common stock. Except as described below with respect to the special distribution, there will be no U.S. federal income tax consequences of the merger to a holder of shares of Potlatch common stock as a result of the merger.

This discussion addresses only holders of Deltic common stock who hold their shares as a capital asset within the meaning of the Code (generally, property held for investment). This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. laws other than those pertaining to regular U.S. federal income tax, nor does it address any tax consequences arising under the federal alternative minimum tax or the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010 (Section 1411 of the Code). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under U.S. federal income tax laws,

 

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including if you are a financial institution; a pension plan or other tax-exempt organization; an S corporation or other pass-through entity (or an investor in an S corporation or other pass-through entity); an insurance company; a regulated investment company; a REIT; a dealer or broker in stocks, securities or currencies; a trader in securities that elects mark-to-market treatment; a holder of Deltic common stock received through the exercise of an employee stock option, through a tax-qualified retirement plan or otherwise as compensation; a U.S. person that has a functional currency other than the U.S. dollar; a person that holds its stock as part of a hedge, straddle, constructive sale, conversion or other integrated transaction; a U.S. expatriate or a person that has ceased to be a U.S. citizen or lawful permanent resident of the United States; a holder who actually or constructively owns or has owned more than 5% of Deltic; or except as expressly set forth below, a person that is not a U.S. Holder.

This discussion is based on the Code, applicable Treasury regulations promulgated under the Code, and court and administrative rulings, decisions and interpretations, each as in effect on the date of this joint proxy statement/prospectus and all of which are subject to change, possibly retroactively. Any such change could affect the accuracy of the statements and conclusions set forth in this discussion.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Deltic common stock that is for U.S. federal income tax purposes: an individual citizen or resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust (1) that is subject to the primary supervision of a court within the United States and all the substantial decisions of which are controlled by one or more U.S. persons or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A ‘‘Non-U.S. Holder’’ generally means any beneficial owner of Deltic common stock that is an individual, corporation, estate or trust that is not a U.S. Holder. For purposes of this discussion, however, Non-U.S. Holder does not include a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or a former citizen or former resident of the United States. Such individuals should consult their own tax advisers as to the specific tax consequences of participating in the merger.

If a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Deltic common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners of partnerships holding Deltic common stock should consult their own tax advisors.

THE FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL OF THE POTENTIAL TAX CONSEQUENCES OF THE MERGER. THE ACTUAL TAX CONSEQUENCES TO YOU OF THE MERGER MAY BE COMPLEX AND WILL DEPEND ON YOUR SPECIFIC SITUATION AND ON FACTORS THAT ARE NOT WITHIN THE CONTROL OF POTLATCH OR DELTIC. PLEASE CONSULT YOUR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.

Tax Consequences of the Merger in General

Potlatch and Deltic intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Potlatch’s obligation to complete the merger that Potlatch receive an opinion from Skadden, tax counsel to Potlatch, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Deltic’s obligation to complete the merger that Deltic receive an opinion from Davis Polk, tax counsel to Deltic, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Pursuant to the merger agreement, the opinions described above may be delivered by other counsel reasonably acceptable to the parties.

 

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These opinions will be based on customary assumptions and representations from Potlatch and Deltic, as well as certain covenants and undertakings by Potlatch and Deltic, including the assumption that the merger will be completed in the manner described in the merger agreement and this joint proxy statement/prospectus. If any of the assumptions, representations, covenants or undertakings is incorrect, incomplete or inaccurate or is violated, the validity of the opinions described above may be affected and the tax consequences of the merger could differ from those described in this joint proxy statement/prospectus.

An opinion of counsel represents counsel’s best legal judgment but is not binding on the IRS or any court, so there can be no certainty that the IRS will not challenge the conclusions reflected in the opinion or that a court would not sustain such a challenge. Neither Potlatch nor Deltic intends to obtain a ruling from the IRS on the tax consequences of the merger. If the IRS were to successfully challenge the “reorganization” status of the merger, the tax consequences could materially and adversely differ from those described in this joint proxy statement/prospectus.

U.S. Federal Income Tax Consequences to U.S. Holders

Accordingly, and on the basis of the opinions expected to be received at the closing of the mergers, and subject to the discussion below relating to the receipt of cash in lieu of fractional shares:

 

    a U.S. Holder of Deltic common stock will not recognize any gain or loss upon the exchange of shares of Deltic common stock for shares of Potlatch common stock in the merger;

 

    a U.S. Holder of Deltic common stock will have a tax basis in the shares of Potlatch common stock received in the merger equal to the tax basis of the Deltic common stock surrendered in exchange therefor; and

 

    a U.S. Holder of Deltic common stock will have a holding period for shares of Potlatch common stock received in the merger that includes its holding period for its shares of Deltic common stock surrendered in exchange therefor.

Cash in Lieu of Fractional Shares

No fractional shares of Potlatch common stock will be distributed to holders of Deltic common stock in connection with the merger. A U.S. Holder that receives cash in lieu of a fractional shares of Potlatch common stock as part of the merger will generally recognize capital gain or loss measured by the difference between the cash received for such fractional share and the portion of the U.S. Holder’s tax basis in the fractional shares of Potlatch common stock determined as set forth above. Such capital gain or loss will generally be long-term capital gain or loss if the holding period for the shares of Deltic common stock surrendered is more than one year. Long-term capital gain of certain non-corporate taxpayers, including individuals, is generally taxed at preferential rates. The deductibility of capital losses is subject to limitations.

Special Rules for Non-U.S. Holders

Special rules may apply to Non-U.S. Holders under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). Under FIRPTA, subject to certain exceptions described below, a Non-U.S. Holder may need to comply with certain reporting and other requirements under FIRPTA in order not to be subject to tax as a result of the surrender of shares in the merger, and no assurance can be given that a non-U.S. holder will be able to satisfy such requirements if they applied. These additional requirements under FIRPTA will generally not apply if both (i) the class of surrendered shares is treated as ‘‘regularly traded’’ on an established securities market at the time of closing and (ii) the Non-U.S. Holder has not, at any time during the five year period preceding the exchange, owned (actually or constructively) in excess of 5% of that class. Although Deltic expects that its common stock will be treated as ‘‘regularly traded’’ at the time of closing, no assurance can be given in that regard. Non-U.S. holders should consult with their own tax advisors regarding the consequences to them of participating in the merger.

 

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Special Distributions

As a result of the merger, Potlatch will succeed to all of Deltic’s “earnings and profits” for U.S. federal income tax purposes, and in order for Potlatch to maintain its REIT status following the merger, it must distribute all of such earnings and profits prior to the end of the taxable year in which the merger occurs. Accordingly, following the merger, Potlatch will make one or more special distributions (as defined on page 139), which distributions are expected in substantial part to be paid in cash or Potlatch stock at each stockholder’s election, with a limit on the aggregate amount of cash that will be available for such distribution (which limit may be as low as 20% under current IRS guidance). The special distribution will generally be taxable to Potlatch stockholders, including Deltic stockholders that become Potlatch stockholders in the merger, as ordinary income, including in respect of the portion of the special distribution paid in Potlatch stock subject to the discussion at “U.S. Federal Income Taxation of Potlatch and its Stockholders—Taxation of Stockholders—Distributions beginning on page 111.” Because the Potlatch stock received by a stockholder in the special distribution will be treated as a taxable distribution, the special distribution may give rise to a tax liability in excess of the amount of cash received by the stockholder.

Tax Liabilities and Attributes Inherited from Deltic

Potlatch will inherit and become obligated to pay any U.S. federal income tax liabilities of Deltic for periods prior to the consummation of the merger. In addition, Potlatch will generally be subject to U.S. federal income tax if, during the five years following the merger, Potlatch disposes of certain assets that are acquired from Deltic in the merger. In this event, Potlatch would generally be subject to U.S. federal income tax at the highest regular corporate rate on the built-in-gain (i.e., the excess of the asset’s fair market value over its adjusted tax basis), if any, that existed, with respect to such asset at the time of the merger.

U.S. Federal Income Taxation of Potlatch and its Stockholders

The following is a summary of the U.S. federal income tax consequences generally applicable to an investment in Potlatch common stock. For purposes of this section under the heading “U.S. Federal Income Taxation of Potlatch and its Stockholders,” references to “Potlatch” generally mean only Potlatch and not its subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based upon the Code, the Treasury regulations promulgated thereunder, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. The summary is also based upon the assumption that Potlatch and its subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents. This summary is for general information only and is not tax advice. It does not discuss any state, local or non-U.S. tax consequences relevant to Potlatch or an investment in any securities issued by Potlatch, and it does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances or to investors subject to special tax rules, such as:

 

    financial institutions;

 

    insurance companies;

 

    broker-dealers;

 

    regulated investment companies;

 

    partnerships, other pass-through entities and trusts;

 

    persons who hold Potlatch stock on behalf of other persons as nominees;

 

    persons who receive Potlatch stock as compensation;

 

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    persons holding Potlatch stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

 

    and, except to the extent discussed below:

 

    tax-exempt organizations; and

 

    foreign investors.

This summary assumes that investors will hold their Potlatch common stock as a capital asset, which generally means property held for investment.

The U.S. federal income tax treatment of holders of Potlatch common stock depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences to any particular stockholder of holding or disposing of Potlatch common stock will depend on the stockholder’s particular tax circumstances. You are urged to consult your tax advisor regarding the U.S. federal, state, local, and foreign income and other tax consequences to you in light of your particular investment or tax circumstances of acquiring, holding, exchanging, or otherwise disposing of Potlatch common stock.

Taxation of Potlatch

Potlatch has elected to be treated as a REIT commencing with its taxable year ended December 31, 2006, and intends to continue to operate in a manner that will allow it to qualify as a REIT.

Skadden has acted as Potlatch’s REIT tax counsel, and, as a condition to the closing of the merger, Skadden will provide Potlatch with an opinion to the effect that, commencing with Potlatch’s taxable year ended December 31, 2006, Potlatch has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and Potlatch’s proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT. It must be emphasized that the opinion of Skadden is based on reasonable and customary assumptions relating to Potlatch’s organization and operation, and is conditioned upon fact-based representations and covenants made by Potlatch’s management regarding its organization, assets, and income, and the present and future conduct of its business operations. While Potlatch intends to operate so that it will continue to qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in Potlatch’s circumstances, no assurance can be given by Skadden or by Potlatch that Potlatch will qualify as a REIT for any particular year. The opinion will be expressed as of the date issued. Skadden will have no obligation to advise Potlatch or its stockholders of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

Qualification and taxation as a REIT depends on Potlatch’s ability to meet on a continuing basis, through actual operating results, distribution levels, and diversity of stock ownership, various qualification requirements imposed upon REITs by the Code, all the results of which have not been and will not be reviewed by Skadden. Potlatch’s ability to qualify as a REIT also requires that Potlatch satisfy certain asset tests, some of which depend upon the fair market values of assets that Potlatch owns directly or indirectly. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of Potlatch’s operations for any taxable year have satisfied or will satisfy such requirements for qualification and taxation as a REIT.

Taxation of REITs in General

As indicated above, Potlatch’s qualification and taxation as a REIT depends upon its ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Code. The material qualification

 

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requirements are summarized below under “—Requirements for Qualification—General.” While Potlatch intends to operate so that it will continue to qualify as a REIT, no assurance can be given that the IRS will not challenge Potlatch’s qualification, or that it will be able to operate in accordance with the REIT requirements in the future. See “—Failure to Qualify.”

Provided that Potlatch qualifies as a REIT, it will generally be entitled to a deduction for dividends that it pays and therefore it will not be subject to U.S. federal corporate income tax on its net REIT taxable income that is currently distributed to its stockholders. This treatment substantially eliminates the “double taxation” at the corporate and stockholder levels that generally results from an investment in a C corporation. A “C corporation” is a corporation that generally is required to pay tax at the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. In general, the income that Potlatch generates is taxed only at the stockholder level upon a distribution of dividends to Potlatch stockholders.

Most U.S. stockholders that are individuals, trusts or estates are taxed on corporate dividends at a maximum U.S. federal income tax rate of 20% (the same as long-term capital gains). With limited exceptions, however, dividends from Potlatch or from other entities that are taxed as REITs are generally not eligible for this rate and are taxed at rates applicable to ordinary income. The highest marginal non-corporate U.S. federal income tax rate applicable to ordinary income is 39.6%. See “—Taxation of Stockholders—Taxation of Taxable U.S. Stockholders—Distributions.”

Any net operating losses, foreign tax credits and other tax attributes generally do not pass through to Potlatch stockholders, subject to special rules for certain items such as the capital gains that Potlatch recognizes. See “—Taxation of Stockholders—Taxation of Taxable U.S. Stockholders—Distributions.”

If Potlatch qualifies as a REIT, it will nonetheless be subject to U.S. federal tax in the following circumstances:

 

    Potlatch will be taxed at regular corporate rates on any undistributed net REIT taxable income, including undistributed net capital gains.

 

    Potlatch may be subject to the “alternative minimum tax” on its items of tax preference, including any deductions of net operating losses.

 

    If Potlatch has net income from prohibited transactions, which are, in general, sales or other dispositions of inventory or property held primarily for sale to customers in the ordinary course of business, other than certain “foreclosure property,” such income will be subject to a 100% tax. See “—Prohibited Transactions” below.

 

    If Potlatch elects to treat property that it acquires in connection with a foreclosure of a mortgage loan or certain leasehold terminations as “foreclosure property,” Potlatch may thereby avoid the 100% tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%).

 

    If Potlatch fails to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintains its qualification as a REIT because it satisfies other requirements, it will be subject to a 100% tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with its gross income.

 

   

If Potlatch violates the asset tests (other than certain de minimis violations) or other requirements applicable to REITs, as described below, and yet maintains its qualification as a REIT because there is reasonable cause for the failure and other applicable requirements are met, Potlatch may be subject to a penalty tax. In that case, the amount of the penalty tax will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the amount of net income generated by the

 

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nonqualifying assets in question multiplied by the highest corporate tax rate (currently 35%) if that amount exceeds $50,000 per failure.

 

    If Potlatch fails to distribute during each calendar year at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year and (iii) any undistributed net taxable income from prior periods, it will be subject to a nondeductible 4% excise tax on the excess of the required distribution over the sum of (a) the amounts that it actually distributed and (b) the amounts it retained and upon which it paid income tax at the corporate level.

 

    Potlatch may be required to pay monetary penalties to the IRS in certain circumstances, including if it fails to meet record-keeping requirements intended to monitor its compliance with rules relating to the composition of a REIT’s stockholders, as described below in “—Requirements for Qualification—General.”

 

    A 100% tax may be imposed on transactions between Potlatch and a taxable REIT subsidiary (“TRS”) of Potlatch that do not reflect arm’s length terms.

 

    If Potlatch acquires appreciated assets from a corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Code) in a transaction in which the adjusted tax basis of the assets in Potlatch’s hands is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation, Potlatch may be subject to tax on such appreciation at the highest corporate income tax rate then applicable if Potlatch subsequently recognizes gain on a disposition of any such assets during the five-year period following their acquisition from the subchapter C corporation. As described above, these rules would apply to assets acquired by Potlatch from Deltic in the merger. The IRS has, however, issued a revenue ruling that clarifies that the income derived from the harvesting and sale of timber pursuant to timber cutting contracts (as opposed to the gain derived from the sale of timberlands) is not subject to the built-in gains tax. Thus, Potlatch does not expect to be subject to the built-in gains tax on the income it derives from the harvesting and sale of timber from Deltic’s timberlands, but a subsequent sale of such timberlands during the five-year recognition period may be subject to the built-in gains tax.

 

    The earnings of Potlatch’s TRSs will generally be subject to U.S. federal corporate income tax.

In addition, Potlatch and its subsidiaries may be subject to a variety of taxes, including payroll taxes and state, local, and foreign income, property, gross receipts and other taxes on their assets and operations. Potlatch and its subsidiaries could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification—General

The Code defines a REIT as a corporation, trust or association:

 

  (1) that is managed by one or more trustees or directors;

 

  (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

 

  (3) that would be taxable as a domestic corporation but for its election to be subject to tax as a REIT;

 

  (4) that is neither a financial institution nor an insurance company subject to specific provisions of the Code;

 

  (5) the beneficial ownership of which is held by 100 or more persons;

 

  (6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Code to include specified tax-exempt entities); and

 

  (7) that meets other tests described below, including with respect to the nature of its income and assets.

 

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The Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) need not be met during a corporation’s initial tax year as a REIT (which, in Potlatch’s case, was 2006). Potlatch’s certificate of incorporation provides restrictions regarding the ownership and transfers of its stock, which are intended to assist Potlatch in satisfying the stock ownership requirements described in conditions (5) and (6) above. These restrictions, however, may not ensure that Potlatch will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If Potlatch fails to satisfy these share ownership requirements, except as provided in the next sentence, Potlatch’s status as a REIT will terminate. If, however, Potlatch complies with the rules contained in applicable Treasury regulations that require it to ascertain the actual ownership of its shares and it does not know, or would not have known through the exercise of reasonable diligence, that it failed to meet the requirement described in condition (6) above, it will be treated as having met this requirement.

To monitor compliance with the stock ownership requirements, Potlatch generally is required to maintain records regarding the actual ownership of its stock. To do so, Potlatch must demand written statements each year from the record holders of significant percentages of its stock pursuant to which the record holders must disclose the actual owners of the stock (i.e., the persons required to include Potlatch’s dividends in their gross income). Potlatch must maintain a list of those persons failing or refusing to comply with this demand as part of its records. Potlatch could be subject to monetary penalties if it fails to comply with these record-keeping requirements. If you fail or refuse to comply with the demands, you will be required by Treasury regulations to submit a statement with your tax return disclosing your actual ownership of Potlatch stock and other information.

In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. Potlatch has adopted December 31 as its year-end and thereby satisfies this requirement.

Effect of Subsidiary Entities

Ownership of Partnership Interests. If Potlatch is a partner in an entity that is treated as a partnership for U.S. federal income tax purposes, Treasury regulations provide that Potlatch is deemed to own its proportionate share of the partnership’s assets, and to earn its proportionate share of the partnership’s income, for purposes of the asset and gross income tests applicable to REITs. Potlatch’s proportionate share of a partnership’s assets and income is based on its capital interest in the partnership (except that for purposes of the value prong of the 10% asset test, described below, its proportionate share of the partnership’s assets is based on its proportionate interest in the equity and certain debt securities issued by the partnership). In addition, the assets and gross income of the partnership are deemed to retain the same character in Potlatch’s hands. Thus, Potlatch’s proportionate share of the assets and items of income of any of its subsidiary partnerships will be treated as Potlatch’s assets and items of income for purposes of applying the REIT requirements.

If Potlatch becomes a limited partner or non-managing member in any partnership or limited liability company and such entity takes or expects to take actions that could jeopardize Potlatch’s status as a REIT or require Potlatch to pay tax, Potlatch may be forced to dispose of its interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause Potlatch to fail a gross income or asset test, and that Potlatch would not become aware of such action in time to dispose of its interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, Potlatch could fail to qualify as a REIT unless it were entitled to relief, as described below.

Disregarded Subsidiaries. If Potlatch owns a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is generally disregarded as a separate entity for U.S. federal income tax purposes, and all of the subsidiary’s assets, liabilities and items of income, deduction and credit are treated as Potlatch’s assets, liabilities and items of income, deduction and credit, including for purposes of the gross income and asset tests applicable to REITs. A qualified REIT subsidiary is any corporation, other than a TRS (as described below), that is directly or indirectly wholly-owned by a REIT. Other entities that are wholly-owned by Potlatch (either directly or

 

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through other disregarded entities), including single member limited liability companies that have not elected to be taxed as corporations for U.S. federal income tax purposes, are also generally disregarded as separate entities for U.S. federal income tax purposes, including for purposes of the REIT income and asset tests. Disregarded subsidiaries, along with any partnerships in which Potlatch holds an equity interest, are sometimes referred to herein as “pass-through subsidiaries.”

In the event that a disregarded subsidiary of Potlatch ceases to be wholly-owned, the subsidiary’s separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, the subsidiary would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect Potlatch’s ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the securities of another corporation. See “—Asset Tests” and “—Income Tests.”

Taxable REIT Subsidiaries. In general, Potlatch may jointly elect with a subsidiary corporation, whether or not wholly-owned, to treat such subsidiary corporation as a TRS. Potlatch generally may not own more than 10% of the securities of a taxable corporation, as measured by voting power or value, unless Potlatch and such corporation elect to treat such corporation as a TRS. The separate existence of a TRS or other taxable corporation is not ignored for U.S. federal income tax purposes. Accordingly, a TRS or other taxable subsidiary corporation generally is subject to corporate income tax on its earnings, which may reduce the cash flow that Potlatch and its subsidiaries generate in the aggregate, and may reduce Potlatch’s ability to make distributions to its stockholders.

Potlatch is not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by a taxable subsidiary corporation to Potlatch is an asset in Potlatch’s hands, and Potlatch treats the dividends paid to it from such taxable subsidiary corporation, if any, as income. This treatment can affect Potlatch’s income and asset test calculations, as described below. Because Potlatch does not include the assets and income of TRSs or other taxable subsidiary corporations on a look-through basis in determining its compliance with the REIT requirements, Potlatch may use such entities to undertake indirectly activities that the REIT rules might otherwise preclude Potlatch from doing directly or through pass-through subsidiaries. For example, Potlatch may use TRSs or other taxable subsidiary corporations to perform services or conduct activities that give rise to certain categories of income, or to conduct activities that, if conducted by Potlatch directly, would be treated in Potlatch’s hands as non-qualifying income or prohibited transactions, such as sawmill operations.

The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent REIT or the REIT’s tenants that are not conducted on an arm’s length basis. Potlatch intends that all of its transactions with its TRSs, if any, will be conducted on an arm’s length basis.

Income Tests

In order to qualify as a REIT, Potlatch must satisfy two gross income requirements on an annual basis. First, at least 75% of Potlatch’s gross income for each taxable year, excluding gross income from sales of inventory or dealer property in “prohibited transactions,” discharge of indebtedness and certain hedging transactions, generally must be derived from “rents from real property,” gains from the sale of real property, mortgages on real property, and shares in other REITs, interest income derived from mortgage loans to the extent secured by real property (including certain types of mortgage-backed securities), dividends received from other REITs, and specified income from temporary investments. Second, at least 95% of Potlatch’s gross income in each taxable year, excluding gross income from prohibited transactions, discharge of indebtedness and certain hedging transactions, must be derived from some combination of income that qualifies under the 75% gross income test described above, as well as other dividends, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property. Income and gain from certain hedging transactions will be

 

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excluded from both the numerator and the denominator for purposes of both the 75% and 95% gross income tests.

Potlatch believes that its gains derived from timber cutting contracts and lump-sum sales of timber will generally be treated as gains from the sale of real property for purposes of the REIT gross income tests and accordingly that such gains will be treated as qualifying income for both such tests.

Rents Potlatch receives from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if several conditions are met. Potlatch has received in the past and is anticipated to receive in the future rental income derived from certain grazing lands, from certain hunting leases, and from renting rights of way through its properties, as well as from certain other sources connected to its timberlands. It is anticipated that income Potlatch receives from such sources will constitute “rents from real property” under the applicable rules. While it is not expected that Potlatch will receive a substantial amount of rental income, Potlatch intends to take steps to cause such rental income to generally qualify as “rents from real property” for purposes of the 75% and 95% gross income tests.

Potlatch may directly or indirectly receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions generally are treated as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not for purposes of the 75% gross income test. Any dividends that Potlatch receives from another REIT, however, will be qualifying income for purposes of both the 95% and 75% gross income tests.

Any fee income that Potlatch earns will generally not be qualifying income for purposes of either gross income test. Any fees earned by a TRS, however, will not be included for purposes of Potlatch’s gross income tests.

Any income or gain that Potlatch or its pass-through subsidiaries derive from instruments that hedge certain specified risks, such as the risk of changes in interest rates, will be excluded from gross income for purposes of both the 75% and 95% gross income tests, provided that specified requirements are met, including the requirement that the instrument is entered into during the ordinary course of Potlatch’s business and that the instrument be properly identified as a hedge along with the risk that it hedges within prescribed time periods. Income and gain from all other hedging transactions will not be qualifying income for either the 95% or 75% gross income test.

If Potlatch fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, Potlatch may still qualify as a REIT for such year if it is entitled to relief under applicable provisions of the Code. These relief provisions will be generally available if (i) Potlatch’s failure to meet these tests was due to reasonable cause and not due to willful neglect and (ii) following Potlatch’s identification of the failure to meet the 75% or 95% gross income test for any taxable year, it files a schedule with the IRS setting forth each item of its gross income for purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury regulations, which have not yet been issued. It is not possible to state whether Potlatch would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances, Potlatch will not qualify as a REIT. Even if these relief provisions apply, and Potlatch retains its status as a REIT, the Code imposes a tax based upon the amount by which Potlatch fails to satisfy the particular gross income test.

Asset Tests

At the close of each calendar quarter, Potlatch must also satisfy five tests relating to the nature of its assets. First, at least 75% of the value of Potlatch’s total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities, and, under some circumstances, stock or debt instruments

 

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purchased with new capital. For this purpose, real estate assets include interests in real property (such as land, timberlands, buildings, and leasehold interests in real property), stock of other corporations that qualify as REITs, some kinds of mortgage-backed securities and mortgage loans, and debt instruments (whether or not secured by real property) that are issued by a “publicly offered REIT” (i.e., a REIT that is required to file annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934). Assets that do not qualify for purposes of the 75% asset test are subject to the additional asset tests described below.

Second, the value of any one issuer’s securities that Potlatch owns may not exceed 5% of the value of Potlatch’s total assets.

Third, Potlatch may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries and the 10% asset test does not apply to “straight debt” having specified characteristics and to certain other securities described below.

Fourth, the aggregate value of all securities of TRSs that Potlatch holds, together with any nonqualified assets, may not exceed in the aggregate 25% (or, for Potlatch’s 2018 and subsequent taxable years, 20%) of the value of Potlatch’s total assets.

Fifth, no more than 25% of the total value of Potlatch’s assets may be represented by “nonqualified publicly offered REIT debt instruments” (i.e., real estate assets that would cease to be real estate assets if debt instruments issued by publicly offered REITs were not included in the definition of real estate assets).

No independent appraisals have been obtained to support Potlatch’s conclusions as to the value of its total assets or the value of any particular security or securities. Moreover, the values of some assets may not be susceptible to a precise determination, and values are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. Accordingly, there can be no assurance that the IRS will not contend that Potlatch’s interests in its subsidiaries or in the securities of other issuers will not cause a violation of the REIT asset tests.

However, certain relief provisions are available to allow REITs to satisfy the asset requirements or to maintain REIT qualification notwithstanding certain violations of the asset and other requirements. For example, if Potlatch should fail to satisfy the asset tests at the end of a calendar quarter such a failure would not cause Potlatch to lose its REIT qualification if it (i) satisfied the asset tests at the close of the preceding calendar quarter and (ii) the discrepancy between the value of Potlatch’s assets and the asset requirements was not wholly or partly caused by an acquisition of non-qualifying assets, but instead arose from changes in the relative market values of Potlatch’s assets. If the condition described in clause (ii) were not satisfied, Potlatch still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose or by making use of the relief provisions described below.

In the case of de minimis violations of the 10% and 5% asset tests, a REIT may maintain its qualification despite a violation of such requirements if (i) the value of the assets causing the violation does not exceed the lesser of 1% of the REIT’s total assets and $10,000,000 and (ii) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or the relevant tests are otherwise satisfied within that time frame.

Even if Potlatch did not qualify for the foregoing relief provisions, one additional provision allows a REIT which fails one or more of the asset requirements to nevertheless maintain its REIT qualification if (i) the REIT provides the IRS with a description of each asset causing the failure, (ii) the failure is due to reasonable cause and not willful neglect, (iii) the REIT pays a tax equal to the greater of (a) $50,000 per failure and (b) the product

 

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of the net income generated by the assets that caused the failure multiplied by the highest applicable corporate tax rate (currently 35%) and (iv) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in which it identifies the failure, or otherwise satisfies the relevant asset tests within that time frame.

Annual Distribution Requirements

In order to qualify as a REIT, Potlatch is required to distribute dividends, other than capital gain dividends, to its stockholders in an amount at least equal to:

(i) the sum of

(a) 90% of its REIT taxable income, computed without regard to its net capital gains and the deduction for dividends paid; and

(b) 90% of its after tax net income, if any, from foreclosure property; minus

(ii) the excess of the sum of specified items of non-cash income over 5% of its REIT taxable income, computed without regard to its net capital gains and the deduction for dividends paid.

Potlatch generally must make these distributions in the taxable year to which they relate, or in the following taxable year if declared before Potlatch timely files its tax return for the year and if paid with or before the first regular dividend payment after such declaration. These distributions will be treated as received by Potlatch stockholders in the year in which paid.

To the extent that Potlatch distributes at least 90%, but less than 100%, of its REIT taxable income, as adjusted, Potlatch will be subject to tax at ordinary corporate tax rates on the retained portion. Potlatch may elect to retain, rather than distribute, some or all of its net long-term capital gains and pay tax on such gains. In this case, Potlatch could elect for its stockholders to include their proportionate shares of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that Potlatch paid. Potlatch stockholders would then increase the adjusted basis of their stock by the difference between (i) the amounts of capital gain dividends that Potlatch designated and that they include in their taxable income, and (ii) the tax that Potlatch paid on their behalf with respect to that income.

To the extent that in the future Potlatch may have available net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that Potlatch must make in order to comply with the REIT distribution requirements. Such losses, however, will generally not affect the tax treatment to Potlatch stockholders of any distributions that are actually made. See “—Taxation of Stockholders—Taxation of Taxable U.S. Stockholders—Distributions.”

If Potlatch fails to distribute during each calendar year at least the sum of (i) 85% of its ordinary income for such year, (ii) 95% of its capital gain net income for such year and (iii) any undistributed net taxable income from prior periods, Potlatch will be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (a) the amounts actually distributed, plus (b) the amounts of income Potlatch retained and on which Potlatch has paid corporate income tax.

From time to time, Potlatch may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in determining Potlatch’s taxable income. In addition, Potlatch may decide to retain its cash, rather than distribute such cash, in order to repay debt, acquire assets, or for other reasons. If these timing differences occur, Potlatch may borrow funds to pay dividends or pay dividends through the distribution of other property (including shares of Potlatch) in order to meet the distribution requirements, while preserving its cash.

 

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If Potlatch’s taxable income for a particular year is subsequently determined to have been understated, Potlatch may be able to rectify a resultant failure to meet the distribution requirements for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in its deduction for dividends paid for the earlier year. In this case, Potlatch may be able to avoid losing REIT qualification or being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described above. Potlatch will be required to pay interest based on the amount of any deduction taken for deficiency dividends.

In addition to the 90% distribution requirement described above, a REIT that inherits the earnings and profits of a subchapter C corporation must distribute all of such earnings and profits by the end of the taxable year in which such earnings and profits are inherited. As described above under “Tax Consequences of the Merger in General—Special Distributions,” Potlatch will succeed to Deltic’s earnings and profits in the merger and accordingly expects to pay the Special Dividend following the merger, which Special Dividend is expected in substantial part to be paid in shares of Potlatch common stock.

For purposes of the 90% distribution requirement, the excise tax distribution requirement, and the requirement to distribute subchapter C earnings and profits, any dividend that Potlatch declares in October, November or December of any year and that is payable to a stockholder of record on a specified date in any such month will be treated as both paid by Potlatch and received by the stockholder on December 31 of such year, provided that Potlatch actually pays the dividend before the end of January of the following calendar year.

Prohibited Transactions

Net income that Potlatch derives from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (other than “foreclosure property”) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business. Whether property is held as inventory or “primarily for sale to customers in the ordinary course of a trade or business” generally depends on the particular facts and circumstances. However, sales of timberlands that satisfy certain safe harbor requirements specified in the Code are not treated as prohibited transactions. Although Potlatch intends to structure its activities to avoid prohibited transaction characterization, no assurance can be given that any property that Potlatch sells will not be treated as inventory or property held for sale to customers, or that Potlatch can comply with certain safe-harbor provisions of the Code that would prevent such treatment. The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates.

Failure to Qualify

If Potlatch fails to satisfy one or more requirements for REIT qualification other than the income or asset tests, Potlatch could avoid disqualification as a REIT if its failure is due to reasonable cause and not to willful neglect and it pays a penalty of $50,000 for each such failure. Relief provisions are also available for failures of the income tests and asset tests, as described above in “—Income Tests” and “—Asset Tests.”

If Potlatch fails to qualify for taxation as a REIT in any taxable year, and the relief provisions described above do not apply, Potlatch would be subject to tax, including any applicable alternative minimum tax, on its taxable income at regular corporate rates. Potlatch cannot deduct distributions to stockholders in any year in which it is not a REIT, nor would Potlatch be required to make distributions in such a year. In this situation, to the extent of current and accumulated earnings and profits, distributions to stockholders would be taxable as regular corporate dividends. Such dividends paid to U.S. stockholders that are individuals, trusts and estates may be taxable at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate) for qualified dividends. In addition, subject to the limitations of the Code, corporate distributees of such dividends may be eligible for the dividends received deduction. Unless Potlatch is entitled to relief under specific statutory provisions, Potlatch would also be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year

 

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during which Potlatch lost its qualification. It is not possible to state whether, in all circumstances, Potlatch would be entitled to this statutory relief.

Taxation of Stockholders

Taxation of Taxable U.S. Stockholders

The following is a summary of certain U.S. federal income tax consequences of the ownership and disposition of Potlatch stock applicable to taxable U.S. stockholders. A “U.S. stockholder” is any holder of Potlatch common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;

 

    an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or

 

    a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.

If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds Potlatch common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of Potlatch common stock.

Distributions. So long as Potlatch qualifies as a REIT, the distributions that Potlatch makes to its taxable U.S. stockholders out of current or accumulated earnings and profits that Potlatch does not designate as capital gain dividends will generally be taken into account by such stockholders as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, Potlatch’s dividends are not eligible for taxation at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate) for qualified dividends received by most U.S. stockholders that are individuals, trusts and estates from taxable C corporations. Such stockholders, however, are taxed at the preferential rates on dividends designated by and received from REITs to the extent that the dividends are attributable to:

 

    income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax (less the amount of tax);

 

    dividends received by the REIT from TRSs or other taxable C corporations;

 

    income in the prior taxable year from the sales of “built-in gain” property acquired by the REIT from C corporations in carryover basis transactions, less the amount of corporate tax on such income (such as built-in gain recognized by Potlatch on assets acquired from Deltic in the merger); or

 

    subchapter C earnings and profits inherited by the REIT from a subchapter C corporation (such distributions attributable to Deltic earnings and profits inherited by Potlatch in the merger)

Distributions that Potlatch designates as capital gain dividends will generally be taxed to its U.S. stockholders as long-term capital gains, to the extent that such distributions do not exceed Potlatch’s actual net capital gain for the taxable year, without regard to the period for which the stockholder that receives such distribution has held its stock. Potlatch may elect to retain and pay taxes on some or all of its net long-term capital gains, in which case Potlatch may elect to apply provisions of the Code, which treat its U.S. stockholders as having received, solely for tax purposes, Potlatch’s undistributed capital gains, and the stockholders as

 

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receiving a corresponding credit for taxes that Potlatch paid on such undistributed capital gains. See “Taxation of Potlatch—Annual Distribution Requirements.” Corporate stockholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum U.S. federal rates of 20% in the case of U.S. stockholders that are individuals, trusts and estates, and 35% in the case of U.S. stockholders that are corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum U.S. federal income tax rate for taxpayers who are taxed as individuals, to the extent of previously claimed depreciation deductions.

Distributions in excess of Potlatch’s current and accumulated earnings and profits will generally represent a return of capital and will not be taxable to a U.S. stockholder to the extent that the amount of such distributions does not exceed the adjusted basis of the U.S. stockholder’s shares in respect of which the distributions were made. Rather, the distribution will reduce the adjusted basis of the U.S. stockholder’s shares. To the extent that such distributions exceed the adjusted basis of a U.S. stockholder’s shares, the U.S. stockholder generally must include such distributions in income as long-term capital gain if the shares have been held for more than one year, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend that Potlatch declares in October, November or December of any year and that is payable to a stockholder of record on a specified date in any such month will be treated as both paid by Potlatch and received by the stockholder on December 31 of such year, provided that Potlatch actually paid the dividend before the end of January of the following calendar year.

To the extent that Potlatch has available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that Potlatch must make in order to comply with the REIT distribution requirements. See “Taxation of Potlatch—Annual Distribution Requirements.” Such losses, however, are not passed through to U.S. stockholders and do not offset income of U.S. stockholders from other sources, nor would such losses affect the character of any distributions that Potlatch makes, which are generally subject to tax in the hands of stockholders to the extent that Potlatch has current or accumulated earnings and profits.

Dispositions of Potlatch Stock. If a U.S. stockholder sells or disposes of shares of Potlatch, it will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the stockholder’s adjusted tax basis in the shares. In general, capital gains recognized by individuals, trusts and estates upon the sale or disposition of Potlatch stock will be subject to a maximum U.S. federal income tax rate of 20% if the stock is held for more than one year, and will be taxed at ordinary income rates (of up to 39.6%) if the stock is held for one year or less. Gains recognized by stockholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%, whether or not such gains are classified as long-term capital gains. Capital losses recognized by a U.S. stockholder upon the disposition of Potlatch stock that was held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may also offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of Potlatch by a stockholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of actual or deemed distributions that Potlatch makes that are required to be treated by the stockholder as long-term capital gain.

If an investor recognizes a loss upon a subsequent disposition of Potlatch stock or other securities in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose the loss-generating transaction to the IRS. These regulations, though directed towards “tax shelters,” are broadly written and apply to transactions that would not typically be considered tax shelters. The Code imposes significant penalties for failure to comply with these requirements. You should consult your tax advisor concerning any possible disclosure obligation with respect to the receipt or disposition of Potlatch stock or securities or transactions that Potlatch might undertake directly or indirectly. Moreover, you should be aware that Potlatch and other

 

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participants in the transactions in which Potlatch is involved (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.

Passive Activity Losses and Investment Interest Limitations. Distributions that Potlatch makes and gains arising from the sale or exchange by a U.S. stockholder of Potlatch stock will not be treated as passive activity income. As a result, stockholders will not be able to apply any “passive losses” against income or gain relating to Potlatch stock. To the extent that distributions Potlatch makes do not constitute a return of capital, they will be treated as investment income for purposes of computing the investment interest limitation.

Taxation of Non-U.S. Stockholders

The following is a summary of certain U.S. federal income and estate tax consequences of the ownership and disposition of Potlatch stock applicable to non-U.S. stockholders. A “non-U.S. stockholder” is generally any holder of Potlatch common stock that is an individual, corporation, estate or trust that is not a U.S. stockholder. For purposes of this discussion, however, a non-U.S. stockholder does not include a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or a former citizen or former resident of the United States. Such individuals should consult their own tax advisers as to the specific tax consequences of the ownership or disposition of Potlatch common stock. As discussed below, because of the nature of Potlatch’s income, an investment in shares of Potlatch common stock by non-U.S. stockholders may be less favorable than investments in REITs whose principal activity is not timber-related.

Ordinary Dividends. The portion of dividends received by non-U.S. stockholders that (i) is payable out of Potlatch earnings and profits, (ii) is not attributable to capital gains that Potlatch recognizes and (iii) is not effectively connected with a U.S. trade or business of the non-U.S. stockholder, will be subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.

In general, non-U.S. stockholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of Potlatch stock. In cases where the dividend income from a non-U.S. stockholder’s investment in Potlatch stock is, or is treated as, effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business, the non-U.S. stockholder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such dividends. Such effectively connected income must generally be reported on a U.S. income tax return filed by or on behalf of the non-U.S. stockholder. The income may also be subject to a branch profits tax at the rate of 30% (unless reduced or eliminated by treaty) in the case of a non-U.S. stockholder that is a corporation.

Non-Dividend Distributions. Unless Potlatch stock constitutes a U.S. real property interest (“USRPI”), distributions that Potlatch makes which are not dividends out of Potlatch’s earnings and profits will not be subject to U.S. income tax. If Potlatch cannot determine at the time a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. The non-U.S. stockholder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of Potlatch’s current and accumulated earnings and profits. If Potlatch stock constitutes a USRPI, as described below, distributions that Potlatch makes in excess of the sum of (i) the non-U.S. stockholder’s proportionate share of Potlatch’s earnings and profits, plus (ii) the non-U.S. stockholder’s basis in its stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. stockholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax may be enforced by a withholding tax at a rate of 15% of the amount by which the distribution exceeds the non-U.S. stockholder’s share of Potlatch’s earnings and profits.

Capital Gain Dividends. Under FIRPTA, a distribution that Potlatch makes to a non-U.S. stockholder, to the extent attributable to gains from dispositions of USRPIs that Potlatch held directly or through pass-through subsidiaries, or USRPI capital gains, will, except as described below, be considered effectively connected with a

 

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U.S. trade or business of the non-U.S. stockholder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, without regard to whether Potlatch designates the distribution as a capital gain dividend. See above under “—Taxation of Non-U.S. Stockholders—Ordinary Dividends,” for a discussion of the consequences of income that is effectively connected with a U.S. trade or business. In addition, Potlatch will be required to withhold tax equal to 35% of the maximum amount that could have been designated as USRPI capital gains dividends. Distributions subject to FIRPTA may also be subject to a branch profits tax at the rate of 30% (unless reduced or eliminated by treaty) in the hands of a non-U.S. stockholder that is a corporation. A distribution is not attributable to USRPI capital gain if Potlatch held an interest in the underlying asset solely as a creditor. Capital gain dividends received by a non-U.S. stockholder that are attributable to dispositions of Potlatch’s assets other than USRPIs are not subject to U.S. federal income or withholding tax, unless (i) the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S. stockholder would be subject to the same treatment as U.S. stockholders with respect to such gain, except that a non-U.S. stockholder that is a corporation may also be subject to a branch profits tax at the rate of 30% (unless reduced or eliminated by treaty), or (ii) the non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a 30% tax on his capital gains. A significant portion of Potlatch’s assets are USRPIs. It should also be emphasized that the income Potlatch receives under its timber cutting contracts will be characterized for U.S. federal income tax purposes as gain from the sale or other disposition of real property. Potlatch thus currently expects that substantially all of its distributions will be attributable to USRPI capital gains and, accordingly, will be subject to the FIRPTA rules for USRPI capital gain distributions.

A capital gain dividend that would otherwise have been treated as a USRPI capital gain will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, and instead will be treated in the same manner as an ordinary dividend (see “—Taxation of Non-U.S. Stockholders—Ordinary Dividends”), if (i) the capital gain dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (ii) the recipient non-U.S. stockholder does not own more than 10% of that class of stock at any time during the year ending on the date on which the capital gain dividend is received. Potlatch common stock is, and Potlatch anticipates that it will continue to be, “regularly traded” on an established securities exchange.

Dispositions of Potlatch Stock. Unless Potlatch stock constitutes a USRPI, a sale