Exhibit 10.4

TAX SHARING AGREEMENT

by and among

POTLATCH CORPORATION,

POTLATCH FOREST HOLDINGS, INC.,

POTLATCH LAND & LUMBER, LLC,

and

CLEARWATER PAPER CORPORATION

Dated as of December 15, 2008

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TABLE OF CONTENTS

 

          Page ARTICLE I DEFINITIONS    2 ARTICLE II PREPARATION AND FILING OF
TAX RETURNS    7

Section 2.1

   Potlatch Entities’ Responsibility    7

Section 2.2

   Clearwater’s Responsibility    7

Section 2.3

   Agent    7

Section 2.4

   Manner of Tax Return Preparation    7

Section 2.5

   Tax Services    8 ARTICLE III LIABILITY FOR TAXES    8

Section 3.1

   Potlatch Entities’ Liability for Section 2.1 Taxes    8

Section 3.2

   Clearwater’s Liability for Section 2.2 Taxes    9

Section 3.3

   Subsequent Adjustments    9 ARTICLE IV SPIN-OFF TAXES AND ALLOCATION    9

Section 4.1

   Spin-off Taxes    9

Section 4.2

   Private Letter Rulings; Tax Opinion    10

Section 4.3

   Carryback of Net Operating Losses    11

Section 4.4

   Continuing Covenants    12

Section 4.5

   Allocation of Tax Assets    13 ARTICLE V INDEMNIFICATION    13

Section 5.1

   Generally    13

Section 5.2

   Inaccurate, Incomplete or Untimely Information    13

Section 5.3

   Adjustments to Payments    14

Section 5.4

   Reporting of Indemnifiable Loss    14

Section 5.5

   No Indemnification for Tax Items    15

Section 5.6

   REIT Status    15

Section 5.7

   Double Recovery    15 ARTICLE VI PAYMENTS    15

Section 6.1

   In General    15

Section 6.2

   Treatment of Payments    15

Section 6.3

   Prompt Performance    15

Section 6.4

   After Tax Amounts    15

Section 6.5

   Interest    16

 

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Section 6.6

   REIT Savings    16 ARTICLE VII TAX PROCEEDINGS    17

Section 7.1

   Audits    17

Section 7.2

   Notice    17

Section 7.3

   Remedies    17

Section 7.4

   Control of Spin-off Tax Proceedings    18 ARTICLE VIII MISCELLANEOUS
PROVISIONS    18

Section 8.1

   Cooperation and Exchange of Information    18

Section 8.2

   Dispute Resolution    19

Section 8.3

   Notices    19

Section 8.4

   Changes in Law    20

Section 8.5

   Confidentiality    20

Section 8.6

   Assignment    21

Section 8.7

   Affiliates    21

Section 8.8

   Authority    21

Section 8.9

   Entire Agreement    21

Section 8.10

   Governing Law and Jurisdiction    21

Section 8.11

   Counterparts    22

Section 8.12

   Severability    22

Section 8.13

   Parties in Interest    22

Section 8.14

   Failure or Indulgence Not Waiver    22

Section 8.15

   Setoff    22

Section 8.16

   Amendments    22

Section 8.17

   Interpretation    22

 

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TAX SHARING AGREEMENT

This Tax Sharing Agreement (this “Agreement”) is dated as of December 15, 2008,
by and among Potlatch Corporation, a Delaware corporation (“Potlatch”), Potlatch
Forest Holdings, Inc., a Delaware corporation and wholly owned subsidiary of
Potlatch (“Holdings”), Clearwater Paper Corporation f/k/a Potlatch Forest
Products Corporation, a Delaware corporation and currently a direct, wholly
owned subsidiary of Potlatch (“Clearwater”), and Potlatch Land & Lumber, LLC, a
Delaware limited liability company and currently a direct, wholly owned
subsidiary of Clearwater (“RetainCo,” and together with Potlatch, Holdings, and
Clearwater, the “Parties,” with each sometimes referred to herein as a “Party”).

RECITALS

WHEREAS, the Boards of Directors of the Parties have each determined that it is
appropriate and desirable to separate the Pulp-Based Business from the Retained
Business and accordingly have caused the Parties to enter into the Separation
and Distribution Agreement dated as of December 15, 2008 (the “Separation
Agreement”);

WHEREAS, as set forth in the Separation Agreement, and subject to the terms and
conditions thereof, the Parties currently contemplate that Clearwater will
contribute and transfer to RetainCo, and RetainCo will receive and assume,
assets and liabilities currently held by Clearwater and associated with the
Retained Business and Clearwater will distribute all of the stock of RetainCo to
Holdings in a transaction intended to qualify as a tax-free reorganization and
distribution under sections 368(a)(1)(D) and 355 of the Code (the “Internal
Spin-off”);

WHEREAS, as set forth in the Separation Agreement, and subject to the terms and
conditions thereof, the Parties currently contemplate that, following the
Internal Spin-off, Holdings will distribute all of its shares of Clearwater
common stock to Potlatch and Potlatch will distribute all of its shares of
Clearwater common stock received from Holdings to Potlatch shareholders in a
transaction intended to qualify as a tax-free distribution of the shares of a
controlled corporation under section 355 of the Code (the “Public Spin-off”);

WHEREAS, in contemplation of the Internal Spin-off and the Public Spin-off
(collectively, the “Spin-offs”) pursuant to which RetainCo and its subsidiaries
will become direct and indirect subsidiaries of Potlatch and Holdings (each of
Potlatch, Holdings, RetainCo, and the subsidiaries of RetainCo, a “Potlatch
Entity”) and will cease to be direct and indirect subsidiaries of Clearwater,
and Clearwater will become an independent corporation whose shares are listed on
the New York Stock Exchange, the Parties have determined to enter into this
Agreement, setting forth their agreement with respect to certain Tax matters;
and

WHEREAS, the Parties desire to set forth their agreement on the rights and
obligations of the Potlatch Entities, on the one hand, and Clearwater, on the
other hand, with

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respect to handling and allocating federal, state and local and foreign Taxes,
in periods beginning prior to the Closing Date, Taxes resulting from
transactions effectuated in connection with the Spin-offs and various other Tax
matters.

NOW, THEREFORE, in consideration of the foregoing and the terms, conditions,
covenants and provisions of this Agreement, the Parties mutually covenant and
agree as follows:

ARTICLE I

DEFINITIONS

“After Tax Amount” means any additional amount necessary to reflect (through a
gross-up mechanism) the hypothetical Tax consequences of the receipt or accrual
of any payment required to be made under this Agreement (including payment of an
additional amount or amounts hereunder and the effect of the deductions
available for interest paid or accrued and for Taxes such as state and local
Income Taxes), determined by using the highest marginal corporate Tax rate (or
rates, in the case of an item that affects more than one Tax) for the relevant
taxable period (or portion thereof).

“Audit” includes any audit, assessment of Taxes, or other examination by any
Taxing Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial, including proceedings relating to competent
authority determinations.

“Clearwater Representation Letter” means an officer’s certificate in which
certain representations, warranties and covenants are made on behalf of
Clearwater in connection with the issuance of a Tax Opinion.

“Closing Date” means the date on which the Public Spin-off is effected.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor
thereto.

“Combined Return” means any Tax Return, other than with respect to United States
federal Income Taxes, filed on a consolidated, combined (including nexus
combination, worldwide combination, domestic combination, line of business
combination or any other form of combination) or unitary basis wherein
Clearwater joins in the filing of such Tax Return (for any taxable period or
portion thereof) with one or more Potlatch Entities.

“Control” means the ownership of stock possessing at least 50 percent of the
total combined voting power of all classes of stock entitled to vote.

“Dispute Resolution Commencement Date” has the meaning set forth in Section 8.3.

“Dispute” has the meaning set forth in Section 8.3.

 

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“Escrow Agreement” has the meaning set forth in Section 6.3.

“Estimated Tax Installment Date” means the estimated Tax installment due dates
prescribed in section 6655(c) of the Code and any other date on which an
installment of Taxes is required to be made.

“Filing Party” has the meaning set forth in Section 7.1.

“Final Determination” means the final resolution of liability for any Tax for
any taxable period, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order by any court of competent jurisdiction; (ii) a
final settlement with the IRS, a closing agreement or accepted offer in
compromise under Code sections 7121 or 7122, or a comparable agreement under the
laws of other jurisdictions, which resolves the entire liability for such Tax
for any taxable period; (iii) any allowance of a refund or credit in respect of
an overpayment of Tax, but only after the expiration of all periods during which
such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any
other final disposition, including by reason of the expiration of the applicable
statute of limitations.

“Income Tax” means any federal, state, local or foreign Tax determined by
reference to income, net worth, gross receipts or capital, or any such Taxes
imposed in lieu of such Tax.

“Indemnifiable Loss Deduction” has the meaning set forth in Section 5.3.

“Indemnified Loss” has the meaning set forth in Section 5.3.

“Indemnifying Party” has the meaning set forth in Section 5.3.

“Indemnitee” has the meaning set forth in Section 5.3.

“Independent Firm” means an accounting firm which has not, except pursuant to
Section 8.3, performed any services since January 1, 2006 for any Party.

“Internal Spin-off” has the meaning given in the recitals to this Agreement.

“Initial Ruling” means any private letter ruling issued by the IRS in connection
with the Spin-offs in response to Potlatch’s initial request for such a letter
ruling.

“IRS” means the United States Internal Revenue Service or any successor thereto,
including, but not limited to its agents, representatives, and attorneys.

“Non-Income Spin-off Taxes” means any Taxes other than Income Taxes imposed on
any Party as a result of or in connection with the Spin-offs that would not have
been imposed but for the Spin-offs.

“Option” means an option to acquire common stock, or other equity-based
incentives the economic value of which is designed to mirror that of an option,
including non-qualified stock options, discounted non-qualified stock options,
cliff options to the extent stock is

 

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issued or issuable (as opposed to cash compensation), and tandem stock options
to the extent stock is issued or issuable (as opposed to cash compensation).

“Owed Party” has the meaning set forth in Section 6.3.

“Owing Party” has the meaning set forth in Section 6.3.

“Payment Period” has the meaning set forth in Section 6.3(e).

“Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.

“Post-Spin Period” means a taxable period beginning after the Closing Date.

“Potlatch Entity” has the meaning set forth in the recitals to this Agreement.

“Potlatch Representation Letter” means an officer’s certificate in which certain
representations, warranties and covenants are made on behalf of any Potlatch
Entity in connection with the issuance of a Tax Opinion.

“Pre-Spin Period” means a taxable period beginning before the Closing Date,
including, for the avoidance of doubt, any taxable period that begins before the
Closing Date and ends following the Closing Date.

“Pre-Spin Refinancing” means the series of transactions to be undertaken by
Clearwater immediately preceding the Spin-offs whereby Clearwater will issue
notes and contribute a portion of the proceeds of such notes to RetainCo in
consideration of the assumption by RetainCo of a portion of Clearwater’s
indebtedness.

“Prohibited Act” has the meaning set forth in Section 4.4.

“Public Spin-off” has the meaning set forth in the recitals to this Agreement.

“Pulp-Based Business” has the meaning set forth in the Separation Agreement.

“Qualifying Income” has the meaning set forth in Section 6.3.

“REIT” has the meaning set forth in Section 5.7.

“REIT Failure Taxes” means any Taxes that are imposed upon Potlatch as a result
of Potlatch’s failure to satisfy the REIT income test requirements of section
856(c)(2) and 856(c)(3) of Code, which failure would not have occurred but for
gain recognized by Potlatch from: (i) the failure of the Spin-offs to qualify as
tax-free under sections 368(a)(1)(D) or 355 of the Code; or (ii) the application
of section 355(d) or section 355(e) of the Code. REIT Failure Taxes include, but
shall not be limited to: (i) corporate-level Taxes imposed on Potlatch during
such years as Potlatch is ineligible to reelect REIT status as a result of the
application of section 856(g) of the Code; and (ii) Taxes imposed under sections
856(c)(7), 856(g)(5), 857(b)(5), or

 

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4981 of the Code, or any section of the Code imposing interest, penalties, or
additions to tax on such Taxes, as a result of the failure described in the
immediately preceding sentence.

“REIT Savings Escrow Notice” has the meaning set forth in Section 6.3.

“Restated Tax Saving Amount” has the meaning set forth in Section 5.4.

“Restricted Period” has the meaning set forth in Section 4.4.

“Retained Business” has the meaning set forth in the Separation Agreement.

“Ruling Documents” means (1) the initial request for a private letter ruling
under section 355 and various other sections of the Code, filed with the IRS in
connection with the Spin-offs, together with any supplemental filings or ruling
requests or other materials subsequently submitted in connection with such
request on behalf of Potlatch, its subsidiaries and shareholders to the IRS, the
appendices and exhibits thereto, and any rulings issued by the IRS to any
Potlatch Entity in response to such request or (2) any similar filings submitted
to, or rulings issued by, any other Tax Authority in connection with the
Spin-offs.

“Separation Agreement” has the meaning set forth in the recitals to this
Agreement.

“Separation Date” means the effective date and time of the transfers of
property, assumption of liability, license, undertaking or agreement in
connection with the separation of the Retained Business and the Pulp-Based
Business, as set forth in the Separation Agreement.

“Spin-off Taxes” means any Taxes imposed on Clearwater or any Potlatch Entity
resulting from, or arising in connection with, the failure of the Internal
Spin-off or the Public Spin-off to be tax-free to such party under section 355
and section 368(a)(1)(D) of the Code, as the case may be (including, without
limitation, any Tax resulting from the application of section 355(d) or section
355(e) of the Code) or corresponding provisions of the laws of any other
jurisdictions, including any REIT Failure Taxes. Each Tax referred to in the
immediately preceding sentence shall be determined using the highest marginal
federal and state corporate Income Tax rate for the relevant taxable period (or
portion thereof).

“Spin-offs” has the meaning set forth in the recitals to this Agreement.

“Supplemental Ruling Documents” means (1) any request for a Supplemental Ruling
and any materials, appendices and exhibits submitted or filed therewith and any
Supplemental Rulings issued by the IRS to any Potlatch Entity in response to any
such request and (2) any similar filings submitted to, or rulings issued by, any
other Taxing Authority in connection with the Spin-offs.

“Supplemental Ruling” means (1) any ruling issued by the IRS in connection with
the Spin-offs other than a ruling in response to Potlatch’s initial request for
a private letter ruling, and (2) any similar ruling issued by any other Taxing
Authority addressing the application of a provision of the laws of another
jurisdiction to the Spin-offs.

 

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“Tax” and “Taxes” include all taxes, charges, fees, duties, levies, imposts,
rates or other assessments imposed by any federal, state, local or foreign
Taxing Authority, including, but not limited to, income, gross receipts, excise,
property, sales, use, license, capital stock, transfer, franchise, payroll,
withholding, social security, value added and other taxes, and any interest,
penalties or additions attributable thereto.

“Tax Asset” means any Tax Item that has accrued for Tax purposes, but has not
been used during a taxable period, and that could reduce a Tax in another
taxable period, including, but not limited to, a net operating loss, net capital
loss, investment tax credit, foreign tax credit, charitable deduction, credit
related to alternative minimum tax and any other Tax credit.

“Tax Benefit” means a reduction in the Tax liability of a taxpayer for any
taxable period. A Tax Benefit shall be deemed to have been realized or received
from a Tax Item in a taxable period only if and to the extent that the Tax
liability of the taxpayer for such period, after taking into account the effect
of the Tax Item on the Tax liability of such taxpayer in the current period and
all prior periods, is less than it would have been if such Tax liability were
determined without regard to such Tax Item.

“Tax Detriment” means an increase in the Tax liability of a taxpayer for any
taxable period. A Tax Detriment shall be deemed to have been realized or
received from a Tax Item in a taxable period only if and to the extent that the
Tax liability of the taxpayer for such period, after taking into account the
effect of the Tax Item on the Tax liability of such taxpayer in the current
period and all prior periods, is more than it would have been if such Tax
liability were determined without regard to such Tax Item.

“Tax Item” means any item of income, gain, loss, deduction or credit, or other
attribute that may have the effect of increasing or decreasing any Tax.

“Tax Opinion” means an opinion issued to Potlatch by Skadden, Arps, Slate,
Meagher & Flom LLP with respect to the qualification of the Spin-offs for
tax-free treatment under sections 368(a)(1)(D) and 355 of the Code.

“Tax Return” means any return, report, certificate, form or similar statement or
document (including any related or supporting information or schedule attached
thereto and any information return, amended tax return, claim for refund or
declaration of estimated tax) required to be supplied to, or filed with, a
Taxing Authority in connection with the determination, assessment or collection
of any Tax or the administration of any laws, regulations or administrative
requirements relating to any Tax.

“Tax Saving Amount” has the meaning set forth in Section 5.3.

“Tax Services” has the meaning set forth in Section 2.5(a).

“Taxing Authority” means any governmental authority or any subdivision, agency,
commission or authority thereof or any quasi-governmental or private body having
jurisdiction over the assessment, determination, collection or imposition of any
Tax (including the IRS).

 

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“Transition Services Agreement” means the Transition Services Agreement between
Potlatch, Holdings, Clearwater, and RetainCo dated as of December 15, 2008.

“Treasury Regulations” means the final and temporary (but not proposed) income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).

ARTICLE II

PREPARATION AND FILING OF TAX RETURNS

Section 2.1 Potlatch Entities’ Responsibility. The Potlatch Entities shall have
sole and exclusive responsibility for the preparation and filing of:

(a) all Tax Returns with respect to the Potlatch Entities and Clearwater for
Pre-Spin Periods (including, for the avoidance of any doubt, any Pre-Spin Period
with respect to which RetainCo files any Tax Return on a consolidated, combined,
unitary or similar basis with Clearwater);

(b) all Tax Returns with respect to the Potlatch Entities for Post-Spin Periods.

Section 2.2 Clearwater’s Responsibility. Clearwater shall have sole and
exclusive responsibility for the preparation and filing of all Tax Returns with
respect to Clearwater for Post-Spin Periods.

Section 2.3 Agent. Subject to the other applicable provisions of this Agreement,
Clearwater hereby irrevocably designates Potlatch as its sole and exclusive
agent and attorney-in-fact to take such action (including execution of
documents) as Potlatch, in its reasonable discretion, may deem appropriate in
any and all matters (including Audits) relating to any Tax Return described in
Section 2.1(a).

Section 2.4 Manner of Tax Return Preparation.

(a) Unless otherwise required by a Taxing Authority, the Parties shall prepare
and file all Tax Returns, and take all other actions, in a manner consistent
with this Agreement and the Separation Agreement, and, to the extent not
inconsistent with this Agreement, the Separation Agreement or applicable law,
any Ruling Documents and any Supplemental Ruling Documents. All Tax Returns
shall be filed on a timely basis (taking into account applicable extensions) by
the party responsible for filing such Tax Returns under this Agreement.

(b) Subject to Section 2.4(a), Potlatch shall have the exclusive right, in its
reasonable discretion, with respect to any Tax Return described in Section 2.1
to determine (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions
and principles of taxation to be used and the manner in which any Tax Item shall
be reported, (2) whether any extensions may be requested, (3) the elections that
will be made on such Tax Return, (4) whether any amended Tax Return(s)

 

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shall be filed, (5) whether any claim(s) for refund shall be made, (6) whether
any refund shall be paid by way of refund or credited against any liability for
the related Tax, and (7) whether to retain outside firms to prepare or review
such Tax Returns; provided, that Potlatch shall prepare all Tax Returns
described in Section 2.1(a) in a manner consistent with its past Tax reporting
practices.

(c) Within sixty (60) days after filing the Tax Return for the tax year that
includes the Closing Date, Potlatch shall notify Clearwater of the Tax
attributes associated with Clearwater and with RetainCo, and the Tax bases of
the assets and liabilities, transferred to RetainCo pursuant to the Separation
Agreement. Potlatch shall provide Clearwater with preliminary estimates of such
information on or before January 20, 2009.

Section 2.5 Tax Services.

(a) In General. It is the intention of the Parties that except as specifically
provided herein, the Transition Services Agreement shall govern the provision of
tax services by the Potlatch Entities to Clearwater (the “Tax Services”).

(b) Right to Review. Potlatch shall provide or cause to be provided any Tax
Return (or portion or excerpt thereof relating exclusively to Clearwater) to be
filed by Potlatch on behalf of Clearwater pursuant to the Potlatch Entities’
provision of Tax Services at least ten (10) business days prior to the due date
of such Tax Return, including extensions. Clearwater shall have the right to
comment on any such Tax Return (or portion or excerpt thereof, as applicable),
and Potlatch shall reasonably consider Clearwater’s comments.

(c) Information. Potlatch shall provide or cause to be provided to Clearwater
copies of all Tax Returns (or portions or excerpts thereof relating exclusively
to Clearwater) filed on behalf of Clearwater, in each case within fifteen
(15) days of filing, pursuant to the Potlatch Entities’ provision of Tax
Services and promptly provide any notices or communications from any Taxing
Authority relating to any Tax or Tax Return of Clearwater covered by the Tax
Services.

(d) List of Tax Returns. As soon as practicable after the Closing Date, Potlatch
shall provide to Clearwater an updated list of all Tax Returns to be filed by
Potlatch on behalf of Clearwater pursuant to Section 2.1(a).

ARTICLE III

LIABILITY FOR TAXES

Section 3.1 Potlatch Entities’ Liability for Section 2.1 Taxes. The Potlatch
Entities shall be liable for all Taxes due with respect to all Tax Returns
described in Section 2.1, and shall be liable for any Tax deficiency assessed
with respect to such Tax Returns. The Potlatch Entities shall be entitled to
receive and retain all refunds of Taxes previously paid by any Potlatch Entities
with respect to such Taxes.

 

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Section 3.2 Clearwater’s Liability for Section 2.2 Taxes. Clearwater shall be
liable for all Taxes due with respect to Tax Returns described in Section 2.2,
and shall be liable for any Tax deficiency assessed with respect to such Tax
Returns. Clearwater shall be entitled to receive and retain all refunds of Taxes
previously paid by Clearwater with respect to such Taxes.

Section 3.3 Subsequent Adjustments. If, as a result of any payment by a Potlatch
Entity of a Tax in connection with an audit, adjustment, or amended Tax Return
described in Section 2.1, Clearwater receives a reciprocal (i.e., arising
directly from such adjustment) Tax Benefit, Clearwater shall pay the amount of
such Tax Benefit to RetainCo. If, as a result of any payment by Clearwater of a
Tax in connection with an audit, adjustment, or amended Tax Return described in
Section 2.2, the Potlatch Entities receive a reciprocal net Tax Benefit on an
aggregate basis, the Potlatch Entities shall pay the amount of such Tax Benefit
to Clearwater.

ARTICLE IV

SPIN-OFF TAXES AND ALLOCATION

Section 4.1 Spin-off Taxes.

(a) Potlatch Entities’ Liability for Spin-off Taxes. Notwithstanding Article
III, the Potlatch Entities shall be liable for one hundred percent (100%) of any
Spin-off Taxes that are attributable to, or result from, one or more of the
following:

(i) any action or omission by any Potlatch Entity that is materially
inconsistent with any material or information, or that constitutes a material
breach of any material covenant or material representation, pertaining to the
Potlatch Entities in the Ruling Documents, Supplemental Ruling Documents,
Initial Ruling, or Supplemental Ruling, or the Potlatch Representation Letter,
if any;

(ii) any action or omission by any Potlatch Entity after the Closing Date,
including, without limitation, a cessation, transfer to affiliates, or
disposition of its active trades or businesses, or an issuance of stock, stock
buyback or payment of an extraordinary dividend by any Potlatch Entity following
the Spin-offs;

(iii) any acquisition of any stock or assets of any Potlatch Entity by one or
more other Persons occurring prior to or following the Spin-offs; or

(iv) any issuance of stock by any Potlatch Entity, or change in ownership of
stock in any Potlatch Entity, that causes section 355(d) or section 355(e) of
the Code to apply to the Spin-offs.

 

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(b) Clearwater’s Liability for Spin-off Taxes. Notwithstanding Article III,
Clearwater shall be liable for one hundred percent (100%) of any Spin-off Taxes
that are attributable to, or result from, one or more of the following:

(i) any action or omission by Clearwater that is materially inconsistent with
any material or information, or that constitutes a material breach of any
material covenant or material representation, pertaining to Clearwater in the
Ruling Documents, Supplemental Ruling Documents, Initial Ruling, or Supplemental
Ruling, or the Clearwater Representation Letter, if any;

(ii) any action or omission by Clearwater after the Closing Date, including
without limitation, a cessation, transfer to affiliates or disposition of its
active trades or businesses, or an issuance of stock, stock buyback or payment
of an extraordinary dividend by Clearwater following the Spin-offs;

(iii) any acquisition of any stock or assets of Clearwater by one or more other
Persons following the Spin-offs; or

(iv) any issuance of stock by Clearwater, or change in ownership of stock in
Clearwater, that causes section 355(d) or section 355(e) of the Code to apply to
the Spin-offs.

(c) First Party Responsible. The first party to act or fail to act in a manner
that results in the imposition of Spin-off Taxes shall be liable for one hundred
percent (100%) of such Spin-off Taxes pursuant to Section 4.1(a) or 4.1(b), as
applicable; provided, that if such first party is able to act, and does act, in
a manner that results in Spin-off Taxes not being imposed, then such first party
shall not be liable for any Spin-off Taxes imposed as a result of any act or
omission by the other party subsequent to the first party’s action or omission.

(d) No Party Responsible. If Spin-off Taxes are imposed and no Party bears
responsibility for the imposition of such taxes under Section 4.1(c), then
Clearwater shall be liable for twenty percent (20%) of such Spin-off Taxes
pursuant to Section 4.1(a) or 4.1(b), and the Potlatch Entities shall be liable
for eighty percent (80%), of such Spin-off Taxes pursuant to Section 4.1(a) or
4.1(b).

(e) Liability for Non-Income Spin-off Taxes. The liability for any Non-Income
Spin-off Taxes shall be borne by Clearwater only if such liability arises with
respect to the Pre-Spin Refinancing. The liability for all other Non-Income
Spin-off Taxes shall be borne by the Potlatch Entities.

Section 4.2 Private Letter Rulings; Tax Opinion.

(a) Information. Potlatch has provided Clearwater with copies of the Ruling
Documents, if any, submitted on or prior to the date specified in the preamble
to this Agreement, and shall provide Clearwater with copies of any Ruling
Documents or Supplemental Ruling Documents prepared after such date prior to the
submission of such Ruling Documents or Supplemental Ruling Documents, as
applicable, to a Taxing Authority. Potlatch shall provide

 

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Clearwater with a copy of the Potlatch Representation Letter and a copy of the
Tax Opinion, if any. Clearwater shall provide Potlatch with a copy of the
Clearwater Representation Letter.

(b) Cooperation by Clearwater. Clearwater shall cooperate with Potlatch, and
shall take any and all actions reasonably requested by Potlatch, in connection
with (i) Potlatch’s submission of any Ruling Documents prepared after the date
specified in the preamble to this Agreement and (ii) Potlatch’s request for a
Tax Opinion.

(c) Supplemental Rulings.

(i) In General. At the reasonable request of Clearwater, Potlatch shall
cooperate with Clearwater and use its reasonable best efforts to seek to obtain,
as expeditiously as possible, a Supplemental Ruling or other guidance from the
IRS or any other Taxing Authority for the purpose of confirming the continuing
validity of any ruling issued by any Taxing Authority addressing the application
of the law to the Spin-offs; provided that Potlatch shall not be obligated to
seek a Supplemental Ruling if it reasonably believes that seeking such
Supplemental Ruling would adversely affect Potlatch, its shareholders or any
Potlatch Affiliate. Further, in no event shall Potlatch be required to file any
Supplemental Ruling Documents unless Clearwater represents that (A) it has read
the Supplemental Ruling Documents and (B) all information and representations,
if any, relating to Clearwater contained in the Supplemental Ruling Documents
are true, correct and complete in all material respects. Clearwater shall
reimburse the Potlatch Entities for all costs and expenses incurred by any
Potlatch Entity in obtaining a Supplemental Ruling requested by Clearwater.
Clearwater shall not seek any guidance (whether written or oral) from the IRS or
any other Taxing Authority concerning the Spin-offs except as set forth in this
Section 4.2(c).

(ii) Participation Rights. If Potlatch requests a Supplemental Ruling or other
guidance after the date specified in the preamble to this Agreement:
(A) Potlatch shall keep Clearwater informed in a timely manner of all material
actions taken or proposed to be taken by Potlatch in connection therewith;
(B) Potlatch shall (1) reasonably in advance of the submission of any such
Supplemental Ruling Documents provide Clearwater with a draft copy thereof,
(2) reasonably consider Clearwater’s comments on such draft copy, (3) provide
Clearwater with a final copy of the Supplemental Ruling Documents, and
(4) provide Clearwater with notice reasonably in advance of, and Clearwater
shall have the right to attend, any meetings with the Taxing Authority (subject
to the approval of the Taxing Authority) that relate to such Supplemental
Ruling.

Section 4.3 Carryback of Net Operating Losses. Clearwater shall not elect under
section 172(b)(3) of the Code or any similar provision of any state, local or
foreign Tax law to relinquish any right to carry back net operating losses.
Clearwater shall use commercially reasonable efforts to file an amended Tax
Return to carry back such losses to the extent permitted by law, and Clearwater
shall pay to RetainCo the amount of any refund of Taxes so obtained, net of
Clearwater’s reasonable expenses in obtaining such refund.

 

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Section 4.4 Continuing Covenants.

(a) In General. Clearwater and the Potlatch Entities (1) shall not take any
action reasonably expected to result in an increased Tax liability to the other,
a reduction in a Tax Asset of the other or an increased liability to the other
under this Agreement and (2) shall take any action reasonably requested by the
other that would reasonably be expected to result in a Tax Benefit or avoid a
Tax Detriment to the other, provided that such action does not result in any
additional cost not fully compensated for by the requesting party. The Parties
hereby acknowledge that the preceding sentence is not intended to limit, and
therefore shall not apply to, the rights of the parties with respect to matters
otherwise covered by this Agreement.

(b) Spin-off Tax Liabilities.

(i) For 24 months following the Closing Date (the “Restricted Period”),
Clearwater shall not (A) redeem or otherwise repurchase any capital stock other
than pursuant to open market stock repurchase programs meeting the requirements
of Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696, or (B) enter into
any agreements or arrangements with respect to transactions or events
(including, but not limited to, capital contributions or acquisitions, entering
into any partnership or joint venture arrangements, stock issuances, stock
acquisitions, option grants, or a series of such transactions or events (but
excluding the Spin-offs)), in the case of each of clauses (A) and (B) above
that, if considered part of a plan that includes the Internal Spin-off or the
Public Spin-off would result in one or more persons acquiring, directly or
indirectly, stock of Clearwater representing a “50-percent or greater interest”
therein within the meaning of section 355(d)(4) of the Code (any act
inconsistent with the intended tax-free treatment of the Spin-offs described in
the Tax Opinion and any act described in clauses (A) and (B) above,
collectively, a “Prohibited Act”). Notwithstanding the foregoing, the following
shall not be considered a Prohibited Act: (x) the issuance of any compensatory
stock or compensatory stock options, the issuance of any stock pursuant to any
equity award, compensatory option, or restricted stock unit, or the repurchase
of any restricted stock, if such issuance or repurchase satisfies the conditions
of Treasury Regulation § 1.355-7(d)(8)(i); or (y) the issuance of stock to a
retirement plan qualified under section 401(a) or 403(a) of the Code in a
transaction that satisfies the requirements of Treasury Regulation §
1.355-7(d)(9).

(ii) Notwithstanding the foregoing, Clearwater may take any of the Prohibited
Acts, subject to Section 4.1, if Clearwater (A) first obtains (at its expense)
an opinion in form and substance reasonably acceptable to the Potlatch Entities
of a nationally recognized law firm or accounting firm reasonably acceptable to
the Potlatch Entities, which opinion may be based on usual and customary factual
representations, or (B) obtains a supplemental ruling from the IRS, in each case
that such Prohibited Act(s), and any transaction related thereto, will not
affect (x) the qualification of the Spin-offs under section 355 and section
368(a)(1)(D) of the Code and (y) the nonrecognition of gain to Potlatch or to
Clearwater in the Spin-offs. Clearwater may also take any of the Prohibited

 

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Acts, subject to Section 4.1, with the written consent of Potlatch in Potlatch’s
sole and absolute discretion. During the Restricted Period, Clearwater shall
provide, and shall cause its Affiliates to provide, all information reasonably
requested by Potlatch relating to any transaction involving an acquisition
(directly or indirectly) of Clearwater’s stock within the meaning of section
355(e) of the Code. The Parties acknowledge that the payment of monetary
compensation would not be an adequate remedy for a breach of the obligations
described in the Prohibited Acts, and Clearwater consents to the issuance and
entry of an injunction to prevent a breach of the obligations contained in the
Prohibited Acts, subject to the waiver and consent described in the preceding
sentence.

(iii) Notwithstanding anything in this Agreement to the contrary, Clearwater
shall be responsible for, and shall indemnify and hold the Potlatch Entities
harmless from, any Spin-off Taxes resulting from any Prohibited Act taken by
Clearwater or any of its Affiliates, regardless of whether the exception
contained in Section 4.4(b)(ii) is satisfied with respect to such act.

Section 4.5 Allocation of Tax Assets. Potlatch and Clearwater shall cooperate in
determining the allocation of any Tax Assets or Tax liabilities among the
Parties. In the absence of controlling legal authority or unless otherwise
provided under this Agreement, Tax Assets or Tax liabilities shall be allocated
to the legal entity that incurred the cost or burden associated with the
creation of such Tax Assets or Tax liabilities.

ARTICLE V

INDEMNIFICATION

Section 5.1 Generally. The Potlatch Entities shall jointly and severally
indemnify Clearwater and its directors, officers and employees, and hold them
harmless from and against any and all Taxes or Tax deficiencies for which any
Potlatch Entity is liable under this Agreement and any loss, cost, damage or
expense, including reasonable attorneys’ fees and costs, that are attributable
to, or result from the failure of any Potlatch Entity or any director, officer
or employee to make any payment required to be made under this Agreement.
Clearwater shall indemnify the Potlatch Entities and their respective directors,
officers and employees, and hold them harmless from and against any and all
Taxes or Tax deficiencies for which Clearwater is liable under this Agreement
and any loss, cost, damage or expense, including reasonable attorneys’ fees and
costs, that are attributable to, or result from, the failure of Clearwater or
any director, officer or employee to make any payment required to be made under
this Agreement.

Section 5.2 Inaccurate, Incomplete or Untimely Information. The Potlatch
Entities shall jointly and severally indemnify Clearwater and its directors,
officers and employees, and hold them harmless from and against any loss, cost,
damage, fine, penalty, or other expense of any kind attributable to the
negligence of the Potlatch Entities in supplying Clearwater with inaccurate,
incomplete or untimely information, in connection with the preparation of any
Tax Return. Clearwater shall indemnify the Potlatch Entities and their
respective directors, officers and employees, and hold them harmless from and
against any loss,

 

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cost, damage, fine, penalty, or other expense of any kind attributable to the
negligence of Clearwater in supplying any Potlatch Entity with inaccurate,
incomplete or untimely information, in connection with the preparation of any
Tax Return.

Section 5.3 Adjustments to Payments. Any party that is entitled to receive a
payment (the “Indemnitee”) under this Agreement from another party (the
“Indemnifying Party”) with respect to any Taxes, losses, costs, damages or
expenses suffered or incurred by the Indemnitee (an “Indemnified Loss”) shall
pay to such Indemnifying Party, or the Indemnifying Party shall pay to the
Indemnitee, as applicable, an amount equal to the difference between any “Tax
Saving Amount” actually realized by the Indemnitee in the year of the payment
and the amount of the Indemnified Loss. For purposes of this Section 5.3, the
Tax Saving Amount shall equal the amount by which the Income Taxes of the
Indemnitee or any of its affiliates are reduced (including, without limitation,
through the receipt of a refund, credit or otherwise), plus any related interest
received by the Indemnitee (net of Tax) from a Taxing Authority, as a result of
claiming as a deduction or offset on any relevant Tax Return amounts
attributable to an Indemnified Loss (the “Indemnifiable Loss Deduction”).

Section 5.4 Reporting of Indemnifiable Loss. In the event that an Indemnitee
incurs an Indemnified Loss, such Indemnitee shall claim as a deduction or offset
on any relevant Tax Return (including, without limitation, any claim for refund)
such Indemnified Loss to the extent such position is supported by “substantial
authority” (within the meaning of Section 1.6662-4(d) of the Treasury
Regulations) with respect to United States federal, state and local Tax Returns
or has similar appropriate authoritative support with respect to any Tax Return
other than a United States federal, state or local Tax Return. Except as
otherwise provided in this Agreement, the Indemnitee shall have primary
responsibility for the preparation of its Tax Returns and reporting thereon such
Indemnifiable Loss Deduction; provided, that the Indemnitee shall consult with,
and provide the Indemnifying Party with a reasonable opportunity to review and
comment on the portion of the Indemnitee’s Tax Return relating to the
Indemnified Loss. If a Dispute arises between the Indemnitee and the
Indemnifying Party as to whether there is “substantial authority” (with respect
to United States federal, state and local Tax Returns) or similar appropriate
authoritative support (with respect to any Tax Return other than a United States
federal, state or local Tax Return) for the claiming of an Indemnifiable Loss
Deduction, such Dispute shall be resolved in accordance with the principles and
procedures set forth in Section 8.3. Potlatch and Clearwater shall act in good
faith to coordinate their Tax Return filing positions with respect to the
taxable periods that include an Indemnifiable Loss Deduction. There shall be an
adjustment to any Tax Saving Amount calculated under Section 5.3 hereof in the
event of an Audit which results in a Final Determination that increases or
decreases the amount of the Indemnifiable Loss Deduction reported on any
relevant Tax Return of the Indemnitee. The Indemnitee shall promptly inform the
Indemnifying Party of any such Audit and shall attempt in good faith to sustain
the Indemnifiable Loss Deduction at issue in the Audit. Upon receiving a written
notice of a Final Determination in respect of an Indemnifiable Loss Deduction,
the Indemnitee shall redetermine the Tax Saving Amount attributable to the
Indemnifiable Loss Deduction under Section 5.3 hereof, taking into account the
Final Determination (the “Restated Tax Saving Amount”). If the Restated Tax
Saving Amount is greater than the Tax Saving Amount, the Indemnitee shall
promptly pay the Indemnifying Party an amount equal to the difference between
such amounts. If the Restated Tax Saving Amount is less than the Tax Saving
Amount, then the Indemnifying Party shall pay to the Indemnitee an

 

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amount equal to the difference between such amounts promptly after receipt of
written notice setting forth the amount due and the computation thereof.

Section 5.5 No Indemnification for Tax Items. Except as otherwise provided in
Section 5.6, nothing in this Agreement shall be construed as a guarantee of the
existence or amount of any loss, credit, carryforward, basis or other Tax Item,
whether past, present or future, of any Party.

Section 5.6 REIT Status. The Parties acknowledge that Potlatch intends to
continue to qualify as a real estate investment trust within the meaning of
section 856 of the Code (a “REIT”). Notwithstanding anything to the contrary in
this Agreement Clearwater shall use its best efforts to avoid taking any action
that could reasonably be expected to cause Potlatch to fail to qualify as a REIT
for any taxable year.

Section 5.7 Double Recovery. Notwithstanding anything herein to the contrary, no
party shall be entitled to indemnification hereunder for any amount to the
extent such party has otherwise been reimbursed for such amount.

ARTICLE VI

PAYMENTS

Section 6.1 In General. Except as provided in Section 6.6, in the event that one
party (the “Owing Party”) is required to make a payment to another party (the
“Owed Party”) pursuant to this Agreement, then such payments shall be made
according to this Article VI. All payments shall be made to the Owed Party or to
the appropriate Taxing Authority as specified by the Owed Party within the time
prescribed for payment in this Agreement, or if no period is prescribed, within
twenty (20) days after delivery of written notice of payment owing together with
a computation of the amounts due.

Section 6.2 Treatment of Payments. Unless otherwise required by any Final
Determination, the parties agree that any payments made by one party to another
party (other than payments of interest pursuant to Section 6.5 and payments of
After Tax Amounts pursuant to Section 6.4) pursuant to this Agreement shall be
treated for all Tax and financial accounting purposes as nontaxable payments
(dividend distributions or capital contributions, as the case may be) made
immediately prior to the Spin-offs and, accordingly not includible in the
taxable income of the recipient.

Section 6.3 Prompt Performance. All actions required to be taken by any party
under this Agreement shall be performed within the time prescribed for
performance in this Agreement, or if no period is prescribed, such actions shall
be performed promptly.

Section 6.4 After Tax Amounts. If pursuant to a Final Determination it is
determined that the receipt or accrual of any payment made under this Agreement
(other than payments of interest pursuant to Section 6.5) is subject to any Tax,
the party making such payment shall be liable for (a) the After Tax Amount with
respect to such payment and (b) interest at the rate described in Section 6.5 on
the amount of such Tax from the date such Tax

 

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accrues through the date of payment of such After Tax Amount. A party making a
demand for a payment pursuant to this Agreement and for a payment of an After
Tax Amount with respect to such payment shall separately specify and compute
such After Tax Amount. However, a party may choose not to specify an After Tax
Amount in a demand for payment pursuant to this Agreement without thereby being
deemed to have waived its right subsequently to demand an After Tax Amount with
respect to such payment.

Section 6.5 Interest. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement (the “Payment Period”) shall bear
interest for the period from and including the date immediately following the
last date of the Payment Period through and including the date of payment at a
per annum rate equal to the prime rate as published in The Wall Street Journal
on the last day of such Payment Period, plus two percent (2%). Such interest
shall be payable at the same time as the payment to which it relates and shall
be calculated on the basis of a year of 365 days and the actual number of days
for which due.

Section 6.6 REIT Savings.

(a) REIT Savings Escrow. In the event that Potlatch shall determine that any
payment provided for under this Agreement could reasonably be expected to give
rise to a successful challenge to Potlatch’s status as a REIT, Potlatch may
provide notice to Clearwater no less than fifteen (15) business days before the
date on which such payment is to be made that Potlatch intends to apply this
Section 6.6 to the payment (a “REIT Savings Escrow Notice”). Upon receipt of a
valid REIT Savings Escrow Notice and at such time as the payment is required
under this Agreement, Clearwater shall deposit such payment into escrow with an
escrow agent approved by Potlatch, which approval shall not be unreasonably
withheld, and pursuant to a written escrow agreement (the “Escrow Agreement”)
reflecting the terms set forth in this Section 6.6 and otherwise reasonably
acceptable to each of Potlatch and the escrow agent.

(b) Escrow Agreement. The Escrow Agreement shall provide that the payment in
escrow or the applicable portion thereof shall be released to Potlatch on an
annual basis based upon the delivery by Potlatch to the escrow agent of any one
or a combination of the following: (i) a letter from Potlatch’s independent tax
advisors indicating the maximum amount that can be paid by the escrow agent to
Potlatch without causing Potlatch to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code for the applicable taxable year of Potlatch
determined as if the payment of such amount did not constitute income described
in sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(I) of the Code (such income,
“Qualifying Income”), in which case the escrow agent shall release to Potlatch
such maximum amount stated in the advisor’s letter, or (ii) a letter from
Potlatch’s counsel indicating that Potlatch received a ruling from the IRS
holding that the receipt by Potlatch of such payment would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
sections 856(c)(2) and (3) of the Code (or alternatively, Potlatch’s outside
counsel or accountant has rendered a legal opinion or a tax opinion,
respectively, to the effect that the receipt by Potlatch of such payment would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of sections 856(c)(2) and (3) of the Code), in which case the
escrow agent shall release to Potlatch the remainder of such payment. The Escrow
Agreement shall also provide that Potlatch shall bear all costs and expenses
under the Escrow Agreement and that any portion of any payment held in escrow
for ten (10) years shall be released by the escrow agent to

 

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Clearwater. Clearwater shall not be a party to the Escrow Agreement and shall
not bear any liability, cost or expense resulting directly or indirectly from
the Escrow Agreement (other than any Taxes associated with the release of funds
to Clearwater from the escrow). Potlatch shall fully indemnify Clearwater and
hold Clearwater harmless from and against any such liability, cost or expense
(other than any Taxes associated with the release of funds to Clearwater from
the escrow).

(c) Cooperation. Clearwater shall cooperate in good faith to amend this
Section 6.6 at the reasonable request of Potlatch in order to (x) maximize the
portion of such payment that may be distributed to Potlatch hereunder without
causing Potlatch to fail to meet the requirements of sections 856(c)(2) and
(3) of the Code, (y) improve Potlatch’s chances of securing a favorable ruling
described in this Section 6.6 or (z) assist Potlatch in obtaining a favorable
legal opinion from its outside counsel or accountant as described in this
Section 6.6. Potlatch shall reimburse Clearwater for the reasonable costs and
expenses of such cooperation.

ARTICLE VII

TAX PROCEEDINGS

Section 7.1 Audits. The party responsible for preparing and filing a Tax Return
pursuant to Article I (the “Filing Party”) shall have the exclusive right to
control, contest, and represent the interests of any Party in any Audit relating
to such Tax Return and, in its reasonable discretion, to resolve, settle or
agree to any deficiency, claim or adjustment proposed, asserted or assessed in
connection with or as a result of any such Audit. The Filing Party’s rights
shall extend to any matter pertaining to the management and control of an Audit,
including execution of waivers, choice of forum, scheduling of conferences and
the resolution of any Tax Item. Any costs incurred in handling, settling, or
contesting an Audit shall be borne by the Filing Party. The Filing Party shall,
to the extent such information is available, advise the non-Filing Party of any
significant Tax issue subject to an Audit by any Taxing Authority, and shall
keep the non-Filing Party informed with respect to any contest, compromise or
settlement thereof.

Section 7.2 Notice. Within twenty (20) business days after a party receives a
written notice or other information from a Taxing Authority of the existence of
a Tax issue that may give rise to an indemnification obligation under this
Agreement, such party shall notify the other party of such issue, and thereafter
shall promptly forward to the other party copies of notices and material
communications with any Taxing Authority relating to such issue. The failure of
one party to notify the other party of any matter relating to a particular Tax
for a taxable period or to take any action specified in this Agreement shall not
relieve such other party of any liability and/or obligation which it may have
under this Agreement with respect to such Tax for such taxable period, except to
the extent that such other party’s rights under this Agreement are materially
prejudiced by such failure.

Section 7.3 Remedies. Clearwater agrees that no claim against any Potlatch
Entity and no defense to Clearwater’s liabilities or obligations to any Potlatch
Entity under this Agreement shall arise from the resolution by Potlatch of any
deficiency, claim or adjustment relating to the redetermination of any Tax Item
of any Potlatch Entity.

 

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Section 7.4 Control of Spin-off Tax Proceedings. Potlatch shall have the
exclusive right and sole discretion to control, contest, and represent the
interests of any Party in any Audits relating to Spin-off Taxes and to resolve,
settle or agree to any deficiency, claim or adjustment proposed, asserted or
assessed in connection with or as a result of any such Audit. Potlatch’s rights
shall extend to any matter pertaining to the management and control of such
Audit, including execution of waivers, choice of forum, scheduling of
conferences and the resolution of any Tax Item. Clearwater shall be entitled
through counsel of its choosing and reasonably acceptable to Potlatch to monitor
the conduct or settlement of any such Audit by Potlatch, and Potlatch shall
provide Clearwater and such counsel with such information as either of them may
reasonably request (which request may be general or specific), but all costs and
expenses incurred in such monitoring shall be borne by Clearwater. Clearwater
may assume sole control of any Audits relating to Spin-off Taxes if it
acknowledges in writing that it has sole liability for any Spin-off Taxes that
might arise in such Audit.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 8.1 Cooperation and Exchange of Information.

(a) Cooperation. Potlatch and Clearwater shall each cooperate fully (and each
shall cause its respective Affiliates to cooperate fully) with all reasonable
requests from another Party hereto, or from an agent, representative or advisor
to such party, in connection with the preparation and filing of Tax Returns,
claims for refund, and Audits concerning issues or other matters covered by this
Agreement. Such cooperation shall include, without limitation:

(i) the retention until the expiration of the applicable statute of limitations,
and the provision upon request, of Tax Returns, books, records (including
information regarding ownership and Tax basis of property), documentation and
other information relating to the Tax Returns, including accompanying schedules,
related work papers, and documents relating to rulings or other determinations
by Taxing Authorities;

(ii) the execution of any document that may be reasonable in connection with any
Tax Proceeding, or the filing of a Tax Return or refund claim by Clearwater or a
Potlatch Entity, including certification, to the best of a Party’s knowledge, of
the accuracy and completeness of the information it has supplied or any power of
attorney required by the applicable Taxing Authority to be provided by one Party
to another Party for the performance by such other Party of acts required or
permitted under this Agreement; and

(iii) the use of the Party’s reasonable best efforts to obtain any documentation
that may be necessary or reasonably helpful in connection with any of the
foregoing.

 

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Each party shall use commercially reasonable efforts to comply in connection
with the foregoing matters within ten (10) business days or such shorter period
as may be required by the applicable Taxing Authority or otherwise in connection
with the Tax Proceeding. Each party shall make its employees and facilities
available on a reasonable and mutually convenient basis in connection with the
foregoing matters.

(b) Failure to Perform. If a party materially fails to comply with any of its
obligations set forth in Section 8.1(a) upon reasonable request and notice by
the other party, and such failure results in the imposition of additional Taxes,
the non-performing party shall be liable in full for such additional Taxes
notwithstanding anything to the contrary in this Agreement.

Section 8.2 Dispute Resolution. Any dispute, controversy or claim arising out of
or relating to this Agreement or the breach, termination or validity hereof
(“Dispute”) which arises between Clearwater and any Potlatch Entity shall first
be negotiated between the appropriate senior executives of Potlatch and
Clearwater who shall have the authority to resolve the matter. Such executives
shall meet to attempt in good faith to negotiate a resolution of the Dispute
prior to pursuing other available remedies, within ten (10) days of receipt by
Potlatch or Clearwater, as applicable, of notice of a Dispute, which date of
receipt shall be referred to herein as the “Dispute Resolution Commencement
Date.” If the senior executives are unable to resolve the Dispute within thirty
(30) days from the Dispute Resolution Commencement Date, then Potlatch and
Clearwater shall jointly retain a nationally recognized Independent Firm to
resolve the Dispute. If Potlatch and Clearwater cannot mutually agree upon an
Independent Firm, then any Dispute which Potlatch and Clearwater cannot resolve
within thirty (30) days from the Dispute Resolution Commencement Date shall be
resolved by a nationally recognized accounting firm selected by the American
Arbitration Association; provided, that the American Arbitration Association
shall not select any accounting firm that is then providing auditing or tax
services to any of the Parties. The accounting firm selected by the American
Arbitration Association shall act as an arbitrator to resolve all points of
disagreement, and its decision shall be final and binding upon all parties
involved. Any such arbitration shall be conducted in Spokane, Washington.
Following the decision of such firm, Potlatch and Clearwater shall each take or
cause to be taken any action necessary to implement the decision of such firm.
Potlatch and Clearwater shall share equally the administrative costs of the
arbitration and such firm’s fees and expenses, and shall each bear their
respective other costs and expenses related to the arbitration.

Section 8.3 Notices. Notices, offers, requests or other communications required
or permitted to be given by any party pursuant to the terms of this Agreement
shall be given in writing to Potlatch or Clearwater, as applicable, to the
following addresses or facsimile numbers:

If to any Potlatch Entity, at:

c/o Potlatch Corporation

601 W. First Avenue, Ste. 1600

Spokane, Washington 99201

 

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Attention: General Counsel

with a copy to Potlatch’s tax department at the same address.

If to Clearwater, at:

601 West Riverside Avenue

Suite 1100

Spokane, Washington 99201

Attention: General Counsel

or to such other address or facsimile number as the party to whom notice is
given may have previously furnished to the other in writing as provided herein.
Any notice involving non-performance, termination, or renewal shall be sent by
hand delivery, recognized overnight courier or, within the United States, may
also be sent via certified mail, return receipt requested. All other notices may
also be sent by facsimile, confirmed by first class mail. All notices shall be
deemed to have been given when received, if hand-delivered; when receipt is
confirmed, if transmitted by facsimile or similar electronic transmission
method; one (1) working day after it is sent, if sent by recognized overnight
courier; and three (3) days after it is postmarked, if mailed by first class
mail or certified mail, return receipt requested, with postage prepaid.

Section 8.4 Changes in Law.

(a) Any reference to a provision of the Code, Treasury Regulations, or a law of
another jurisdiction shall include a reference to any applicable successor
provision or law.

(b) If, due to any change in applicable law or regulations or their
interpretation by any court of law or other governing body having jurisdiction
subsequent to the date specified in the preamble to this Agreement, performance
of any provision of this Agreement or any transaction contemplated hereby shall
become impracticable or impossible, the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
provision.

Section 8.5 Confidentiality. Each of the parties hereto shall hold and cause its
directors, officers, employees, advisors and consultants to hold in strict
confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, all information
(other than any such information relating solely to the business or affairs of
such party) concerning the other parties hereto furnished it by such other party
or its representatives pursuant to this Agreement (except to the extent that
such information can be shown to have been (1) in the public domain through no
fault of such party or (2) later lawfully acquired from other sources not under
a duty of confidentiality by the party to which it was furnished), and no party
shall release or disclose such information to any other person, except its
directors, officers, employees, auditors, attorneys, financial advisors, bankers
or other consultants who shall be advised of and agree to be bound by the
provisions of this Section 8.5. Each of the parties hereto shall be deemed to
have satisfied its obligation to hold confidential

 

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information concerning or supplied by the other parties if it exercises the same
care as it takes to preserve confidentiality for its own similar information.

Section 8.6 Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives and
successors, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. This Agreement may be enforced separately
by Clearwater and each Potlatch Entity. No party may assign this Agreement or
any rights or obligations hereunder, without the prior written consent of the
other parties hereto, and any such assignment shall be void; provided, that
Clearwater and each Potlatch Entity may assign this Agreement to a successor
entity in conjunction with such party’s reincorporation.

Section 8.7 Affiliates. Potlatch shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any Potlatch Entity; provided, that if it is
contemplated that a Potlatch Entity may cease to be a controlled, directly or
indirectly, by Potlatch as a result of a transfer of its stock or other
ownership interests to a third party in exchange for consideration in an amount
approximately equal to the fair market value of the stock or other ownership
interests transferred and such consideration is not distributed outside of the
group of Potlatch Entities to the shareholders of Potlatch, then Potlatch shall
request in writing no later than thirty (30) days prior to such cessation that
Clearwater execute a release of such Potlatch Entity from its obligations under
this Agreement effective as of such transfer, provided that Potlatch shall
succeed to the rights of such Potlatch Entity under this Agreement and shall
have confirmed in writing the obligations of Potlatch and the remaining Potlatch
Entities with respect to their own obligations and the obligations of the
departing Potlatch Entity, and that such departing Potlatch Entity shall have
executed a release of any rights it may have against Clearwater by reason of
this Agreement.

Section 8.8 Authority. Each of the parties hereto represents, on behalf of
itself and its affiliates, to the other that (a) it has the corporate power and
authority to execute, deliver and perform this Agreement, (b) the execution,
delivery and performance of this Agreement by it have been duly authorized by
all necessary corporate or other action, (c) it has duly and validly executed
and delivered this Agreement and (d) this Agreement is a legal, valid and
binding obligation, enforceable against it in accordance with its terms subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors’ rights generally and general equity
principles.

Section 8.9 Entire Agreement. This Agreement, the Separation Agreement, the
other Ancillary Agreements and the Exhibits and Schedules attached hereto and
thereto, constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.

Section 8.10 Governing Law and Jurisdiction. This Agreement shall be construed
in accordance with, and all Disputes hereunder shall be governed by, the laws of
the State of Washington, excluding its conflict of law rules.

 

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Section 8.11 Counterparts. This Agreement, including the Schedules and Exhibits
hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.

Section 8.12 Severability. If any term or other provision of this Agreement or
the Schedules or Exhibits attached hereto is determined by a non-appealable
decision by a court, administrative agency or arbitrator to be invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.

Section 8.13 Parties in Interest. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, shall be binding
upon the Parties, inure solely to the benefit of Clearwater and the Potlatch
Entities and their respective permitted assigns, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.

Section 8.14 Failure or Indulgence Not Waiver. No failure or delay on the part
of any party hereto in the exercise of any right hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any failure to exercise,
or any single or partial exercise, of any such right preclude other or further
exercise thereof or of any other right.

Section 8.15 Setoff. All payments to be made by any party under this Agreement
may be netted against payments due to such party under this Agreement, but
otherwise shall be made without setoff, counterclaim or withholding, all of
which are hereby expressly waived.

Section 8.16 Amendments. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
this Agreement.

Section 8.17 Interpretation. When a reference is made in this Agreement to an
Article or a Section, or to an Exhibit or a Schedule, such reference shall be to
an Article or Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. The headings contained in this Agreement, in any Exhibit or
Schedule, and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Any capitalized term used in any Schedule or Exhibit but not
otherwise defined therein, shall have the meaning assigned to such term in this
Agreement.

[SIGNATURE PAGE FOLLOWS]

 

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WHEREFORE, the parties have signed this Tax Sharing Agreement effective as of
the date first set forth above.

 

POTLATCH CORPORATION By:  

/s/    Michael J. Covey

Name:   Michael J. Covey POTLATCH FOREST HOLDINGS, INC. By:  

/s/    Michael J. Covey

Name:   Michael J. Covey POTLATCH LAND & LUMBER, LLC By:  

/s/    Michael J. Covey

Name:   Michael J. Covey CLEARWATER PAPER CORPORATION By:  

/s/    Gordon L. Jones

Name:   Gordon L. Jones

Signature Page to Tax Sharing Agreement