Exhibit 10.3

Annual LTIP and Founders Grant RSUs

[Letterhead of Clearwater Paper Corporation]

[Date]

[Name]

[Address]

[Address]

Re: Deferral of RSU Settlements

Dear                     :

You have                      Restricted Stock Units (RSUs) scheduled to vest on
December 31, 2011, and another                      RSUs (the balance of your
“Founders Award”) scheduled to fully vest on January 13, 2012. Ordinarily we
would transfer to you the number of shares of Clearwater Paper common stock
(“Shares”) corresponding to your fully vested RSUs within a period of days after
the vesting date. However, because the compensation from your RSUs will likely
exceed the amount deductible by Clearwater Paper for federal income tax
purposes, we are required to defer the delivery of a portion of these shares
until a later date.

The remainder of this letter explains in more detail the reasons for this
deferral and how it will be administered in practice.

Why must delivery of the Shares be deferred?

Section 12 of your RSU Agreements provides for an automatic deferral of RSU
compensation to the extent that compensation would exceed the amount deductible
by Clearwater Paper under Section 162(m) of the Internal Revenue Code at the
time the RSU award vests.

Section 162(m) imposes a $1 million cap on the tax deduction that can be claimed
by Clearwater Paper for compensation paid to any “covered employee” during a
calendar year. Our “covered employees” for any calendar year are the CEO and the
three most highly compensated executive officers, other than the CFO, who are
employed as of the end of the year. Performance-based compensation, such as our
Performance Share awards and Annual Incentive Plan bonuses, is exempt from the
$1 million limit, but RSUs are not considered “performance-based” and thus are
subject to the limit.

We are expecting that you will be one of our “covered employees” for 2011 and
2012, and that your total non-performance based compensation for 2011 and 2012
will exceed the $1 million deduction limit. That means you will be subject to
the deferral requirement.

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How is the amount to be deferred calculated?

As of December 31, 2011, we will determine whether the value of your RSUs
vesting on that date, plus your other non-performance based compensation for
2011, exceeds the $1 million deduction limit. The value of your RSUs for this
purpose will be determined by multiplying the number of fully vested RSUs by the
closing selling price per Share on the NYSE on December 30, 2011 (the last day
of trading in 2011). If your total non-performance based compensation exceeds $1
million, we will divide the excess amount by the same price per Share to
determine the number of Shares under your RSU award that must be deferred.

Similarly, on January 13, 2012 we will determine whether, and by how much, the
value of your Founders Award RSUs fully vesting on that date, plus your other
non-performance based compensation projected for 2012, exceeds the $1 million
deduction limit. The value of your Founders Award RSUs will be determined by
multiplying the number of fully vested RSUs under that award by the closing
selling price per Share on the NYSE on January 13, 2012. If your total
non-performance based compensation projected for 2012 exceeds $1 million, we
will divide the excess amount by the same price per Share to determine the
number of Shares under your Founders Award that must be deferred.

For example, with respect to the your Founders Award RSUs fully vesting on
January 13, 2012, if the value of one Share on January 13, 2012 is $35 per
share, your RSUs would be worth $            . If your other non-performance
based compensation projected for 2012 is $            , you would exceed the $1
million limit by $            . We would divide the $             excess by $35
per share to determine the number of shares that must be deferred: $            
÷ $35 =              shares.

When will the deferred Shares be paid?

Under Section 12 of your RSU Agreement, the deferred Shares will be settled
after we have determined that deduction of the payment will not be barred by
Section 162(m). That means payment will be made to you after any one of the
following events occurs:

 

  •  

You terminate employment with Clearwater Paper and its affiliates;

 

  •  

You continue employment with Clearwater Paper, but you cease to be a “covered
employee,” i.e., you cease to be CEO or one of the top 3 highest paid executive
officers other than the CFO; or

 

  •  

You continue employment with Clearwater Paper and remain a “covered employee,”
but you have room under the $1 million deduction cap to receive additional
non-performance based compensation at year-end.

In the first situation, we will deliver all of the deferred Shares to you
(subject to applicable withholding taxes) as soon as practicable after your
termination of employment. While that delivery would normally occur within 60
days after your termination of employment, it is likely we will have to delay
delivery for at least 6 months after your termination of employment to comply
with Section 409A of the Internal Revenue Code.

 

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In the second situation, we will deliver all of the deferred Shares to you
(subject to applicable withholding taxes) at or near the end of the calendar
year in which you ceased be a “covered employee,” but no later than 60 days
after the end of that year.

In the third situation, we will perform a year-end calculation to determine the
maximum number of Shares that can be delivered to you. We would first determine
the maximum amount of RSU award compensation that, when added to your other
non-performance based compensation for that calendar year, would not exceed the
$1 million limit, and then divide that amount by the closing selling price per
Share on the NYSE on December 31 (or the last day of trading, if earlier) of
that year. The resulting number of Shares will be paid to you (subject to
applicable withholding taxes) no later than 60 days after the end of that
calendar year. Any Shares that cannot be paid to you at that time will continue
to be deferred until they can be paid to you under one of the three scenarios
described above.

Will the deferred shares be eligible for dividends?

Your deferred Shares will be credited with dividend equivalents if and when
Clearwater Paper pays dividends on its outstanding Shares. The dividend amounts
will be deemed invested in additional Shares, which will be paid to you at the
same time or times as the original deferred Shares are paid to you.

When is the compensation for deferred RSU awards reported for federal income tax
purposes?

Normally, when RSUs vest in a particular calendar year, we report on Form W-2
the fair market value of all of the underlying Shares as “wages” subject to
income tax and FICA tax withholding for that year. Since the settlement of a
portion of your RSUs will be deferred, however, the tax reporting will be
different.

The fair market value of the Shares that are being delivered to you (i.e., that
are not being deferred) will be included in your Form W-2 for the year of
vesting, and will be subject to both income tax and FICA tax withholding. The
Shares that are deferred will not be reported for income tax purposes until they
are later paid to you. However, the fair market value of those deferred Shares
will need to be reported for FICA tax purposes in the year of vesting. There
will be no additional FICA taxes payable on the deferred Shares when the Shares
are later paid to you, even if the Shares have appreciated in value prior to
that time.

We are permitted to treat the “wages” for the deferred Shares as arising at the
end of the calendar year of vesting, when you should have exceeded Social
Security wage base for the year ($106,800 for 2011). So the only portion of the
FICA tax that should apply to the deferred Shares is the 1.45% Medicare tax.
Arrangements will be made to have the 1.45% Medicare tax paid by withholding
shares that are not being deferred.

*            *             *

If you have any questions about this letter, please contact
                                 at                     .

 

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To confirm that you understand and agree with the deferral terms described in
this letter, please sign and date this letter where indicated below. You should
retain a copy of this letter for your records, and return the signed original to
                                     at                                     .

Sincerely,

[Name]

[Title]

 

Acknowledged and agreed:

 

[Name]

Date:                    

 

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