As filed with the Securities and Exchange Commission on December 21, 2001

Registration No. 333-70768

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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AMENDMENT NO. 1

FORM S-4/A

REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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POTLATCH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Delaware 2621 82-0156045
(Primary Standard (I.R.S. Employer
(State or Other Industrial Identification Number)
Jurisdiction of Classification Code
Incorporation or Number)
Organization)

601 West Riverside Avenue, Suite 1100,
Spokane, WA 99201,
(509) 835-1500
(Address, Including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)

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Ralph M. Davisson, Esq.
Vice President and General Counsel
Potlatch Corporation
601 West Riverside Avenue, Suite 1100
Spokane, WA 99201
(509) 835-1500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)

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with a copy to:
Blair W. White, Esq.
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
(415) 983-1000

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Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.

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. [_]

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 or until the registration statement shall
become effective on such date as the SEC, acting pursuant to said section
8(a), may determine.

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TABLE OF ADDITIONAL REGISTRANT GUARANTORS

Exact Name of Registrant State or Other Jurisdiction I.R.S. Employer Industrial Address, Including Zip Code, and
Guarantor as of Incorporation or Identification Classification Telephone Number, Including Area
Specified in its Charter Organization Number Code Number Code, of Principal Executive Offices
- ------------------------ --------------------------- --------------- -------------- -------------------------------------

Duluth & Northeastern Minnesota 41-6006885 2621 601 West Riverside Avenue, Suite 1100
Railroad Company....... Spokane, Washington 99201
(509) 835-1500

St. Maries River Idaho 82-0357545 2621 601 West Riverside Avenue, Suite 1100
Railroad Company....... Spokane, Washington 99201
(509) 835-1500

The Prescott and Arkansas 71-6010539 2621 601 West Riverside Avenue, Suite 1100
Northwestern Railroad Spokane, Washington 99201
Company................ (509) 835-1500

Warren & Saline River Arkansas 71-6012383 2621 601 West Riverside Avenue, Suite 1100
Railroad Company....... Spokane, Washington 99201
(509) 835-1500

SUBJECT TO COMPLETION, DATED DECEMBER 21, 2001

PROSPECTUS

Potlatch Corporation
[POTLATCH LOGO]

Offer to Exchange

$250,000,000 10.00% Senior Subordinated Notes due July 15, 2011

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Terms of the Exchange Offer

. We are offering to exchange $250,000,000 total principal amount of our
10.00% Senior Subordinated Notes due July 15, 2011, which have been
registered under the Securities Act, for any or all of our outstanding
10.00% Senior Subordinated Notes due July 15, 2011.

. The exchange offer expires at 5:00 p.m., New York City time, on , 2001,
unless we extend it.

. We will exchange all original notes that are validly tendered and not
validly withdrawn.

. You may withdraw tenders of original notes at any time before the exchange
offer expires.

. We will not receive any proceeds from the exchange offer.

. The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.

. The terms of the exchange notes are substantially identical to those of the
original notes, except for transfer restrictions, registration rights and
liquidated damages relating to the original notes.

. There is no existing market for the exchange notes and we do not intend to
apply for their listing on any securities exchange.

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See "Risk Factors" beginning on page 12 to read about certain factors you
should consider before buying the notes.

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These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.

The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

The date of this Prospectus is , 2001.

TABLE OF CONTENTS

Where You Can Find More Information....................................... iii
Incorporation of Certain Documents by Reference........................... iii
Forward Looking Statements................................................ iv
Prospectus Summary........................................................ 1
Summary Consolidated Financial and Operating Data......................... 9
Risk Factors.............................................................. 12
Exchange Offer............................................................ 19
Use of Proceeds........................................................... 27
Capitalization............................................................ 28
Selected Historical Consolidated Financial Data........................... 29
Selected Historical Business Segment Financial Data....................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
Industry Overview......................................................... 44
Business.................................................................. 52
Management................................................................ 63
Description of Other Indebtedness......................................... 65
Description of the Exchange Notes......................................... 70
Certain U.S. Federal Tax Considerations................................... 111
Plan of Distribution...................................................... 112
Legal Matters............................................................. 113
Experts................................................................... 113
Index to Consolidated Financial Statements................................ F-1
Independent Auditors' Report.............................................. F-2

You should rely only on the information contained, or incorporated by
reference, in this prospectus. We have not authorized anyone to provide you
with different information. We are not making an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than
the date on the front cover of this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the Securities and Exchange
Commission, or SEC. You may read and copy the reports, proxy statements and
other information that we file with the SEC at the SEC's Public Reference
Room, 450 Fifth Street, N.W., Washington, D.C. 20549, or you may access such
documents electronically on the SEC's website at http://www.sec.gov. Please
call the SEC at 1-800-SEC-0330 for more information on the public reference
room. In addition, reports, proxy statements and other information about
Potlatch are available for inspection at the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005, the Chicago Stock Exchange, 440 South
LaSalle Street, Chicago, Illinois 60605, and the Pacific Stock Exchange, 301
Pine Street, San Francisco, California 94104.

You should not assume that the information in this prospectus is accurate
as of any date other than the date of this prospectus regardless of the date
it was actually delivered. You should rely only on the information provided in
this prospectus. We have not authorized anyone else to provide you with
different information.

We have filed with the SEC in Washington, D.C., a registration statement on
Form S-4 under the Securities Act with respect to the registered notes offered
by this prospectus. This prospectus does not contain all of the information
contained in the registration statement, as permitted by the rules and
regulations of the SEC.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Our Annual Report on Form 10-K for the year ended December 31, 2000, our
Quarterly Reports on Form 10-Q for the periods ended March 31, 2001, June 30,
2001, and September 30, 2001 and our Current Reports on Form 8-K filed with
the SEC on April 2, 2001 and June 19, 2001, all of which have been previously
filed with the SEC, are incorporated by reference into this prospectus.

All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and prior to the
termination of the offering of the notes shall be deemed to be incorporated by
reference into this prospectus and to be part of this prospectus from the date
any such document is filed with the SEC.

Any statement contained in a document incorporated by reference in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or in
any other subsequently filed document which also is incorporated in this
prospectus modifies or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.

We will provide a copy of any and all of the documents we incorporated by
reference in this prospectus, at no cost, to any person who receives this
prospectus. Requests should be submitted in writing or by telephone to Malcolm
A. Ryerse, Potlatch Corporation, 601 W. Riverside Ave., Suite 1100, Spokane,
Washington 99201, telephone (509) 835-1500. TO OBTAIN TIMELY DELIVERY OF THIS
INFORMATION, WE MUST RECEIVE YOUR REQUEST NO LATER THAN FIVE (5) BUSINESS DAYS
BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER.

iii

FORWARD LOOKING STATEMENTS

All statements, other than statements of historical fact, contained within
this prospectus constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. In some cases you can
identify forward-looking statements by terms such as "may," "intend," "might,"
"will," "should," "could," "would," "expect," "believe," "estimate,"
"predict," "potential," or the negative of these terms, and similar
expressions intended to identify forward-looking statements.

These forward-looking statements reflect our current views with respect to
future events and are based on assumptions and subject to risks and
uncertainties and we cannot assure you that the actual results or developments
referenced by such forward-looking statements will be realized. Also, these
forward-looking statements present our estimates and assumptions only as of
the date of this prospectus.

Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include, but are not
limited to, those described in "Risk Factors" or incorporated by reference in
this prospectus, and the following:

. changes in general economic conditions and interest rates;

. competitive conditions and prices in our markets;

. changes in the relationship between supply and demand in the forest
products industry, including the amount of available manufacturing
capacity and wood fiber used in manufacturing our products;

. changes in exchange rates between the U.S. dollar and other currencies;

. manufacturing difficulties;

. changes in the level of construction activity;

. changes in energy costs, the costs of raw materials or other significant
operating expenses;

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

. unforeseen environmental liabilities or expenditures; and

. weather conditions.

Except for our ongoing obligation to disclose material information as
required by federal securities laws, we do not intend to update you concerning
any future revisions to any forward-looking statements to reflect events or
circumstances occurring after the date of this prospectus.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
Because it is a summary, it does not contain all the information you should
consider before making an investment decision. We urge you to read this
prospectus carefully, including the "Risk Factors" section and the consolidated
financial statements and related notes. In this prospectus, unless the context
requires otherwise: (1) "Potlatch," the "Company," "we," "us" and "our" each
refers to Potlatch Corporation and its subsidiaries; (2) the term "Original
Notes" refers to our 10.00% senior subordinated notes due 2011 which were
issued in a transaction exempt from registration under the Securities Act; (3)
the term "Exchange Notes" refers to our 10.00% senior subordinated notes due
2011 which have been registered under the Securities Act pursuant to a
registration statement of which this prospectus is a part; and (4) the term
"Notes" refers to the Original Notes and the Exchange Notes, collectively.

Our Company

Potlatch Corporation is a vertically integrated and diversified forest
products company. Our 6,300 employees manage approximately 1.5 million acres of
timberlands and operate 22 manufacturing facilities located principally in
Arkansas, Idaho, and Minnesota. We convert wood fiber into two broad product
lines: (a) commodity and specialized wood products, including oriented strand
board, or OSB, lumber, plywood and particleboard; and (b) bleached pulp
products, including kraft pulp, paperboard, coated printing papers, and
consumer tissue products.

Our business is organized into four segments:

. Resource segment manages our 1.5 million acres of timberlands located in
Arkansas, Idaho and Minnesota and our 22,000 acre plantation in Oregon
that is being developed for production of hybrid poplar, an alternative
source of fiber. It is the Resource segment's responsibility to procure
wood from our own timberlands as well as from third parties for all of
our manufacturing facilities. In 2000, Resource segment net sales were
$352.3 million, representing approximately 16% of our net sales, before
elimination of intersegment sales. Intersegment sales were $315.1
million in 2000.

. Wood Products segment manufactures and distributes commodity and
specialized OSB, lumber, industrial plywood and particleboard produced
by eleven facilities located in Arkansas, Idaho and Minnesota. Wood
Products segment net sales were $552.9 million in 2000, representing
approximately 26% of our net sales, before elimination of intersegment
sales. Intersegment sales were $13.3 million in 2000.

. Printing Papers segment produces and markets premium coated printing
papers, primarily used for high-end printing needs, such as annual
reports, showroom catalogs, art reproductions and high quality
advertising. We produce our premium coated printing papers at our two
mills in Cloquet and Brainerd, Minnesota. Cloquet provides high-quality
pulp for both of our Minnesota paper mills, and sells more than 35% of
its bleached hardwood pulp in the open market. Printing Papers segment
net sales were $503.4 million in 2000, representing approximately 24% of
our net sales, before elimination of intersegment sales. Intersegment
sales were $1.4 million in 2000.

. Pulp and Paper segment produces tissue products, bleached paperboard
products, and bleached softwood market pulp. In tissue, we produce
premium and various other grades of private label household tissue
products primarily for sale to retail grocery chains such as
Albertson's, Kroger and Safeway. Our bleached paperboard is produced for
use in the packaging of liquids, foods and dry goods, including milk,
juice, food products, pharmaceuticals, toiletries, and other consumable
goods, as well as conversion into paper cups and plates. In addition to
producing bleached softwood pulp for our tissue and paperboard products,
we also sell any excess bleached softwood market pulp in the open
market. Pulp and Paper segment net sales were $730.1 million in 2000,
representing approximately 34% of our net sales, before elimination of
intersegment sales. Intersegment sales were negligible in 2000.

Strategy and Strengths

Our strategy is to maximize the value of our timberland resources and to
achieve the highest level of profitability for our broad range of manufactured
paper and wood products. Key components of this strategy include quality
production and customer-focused sales, with an emphasis on niche product lines
that offer higher profit margins and opportunities where we can be a low-cost
producer. Our competitive strengths that underlie our strategy include:

. Secure Fiber Supply. We have a secure fiber supply for a significant
portion of our wood fiber needs. The timberlands we own include 671,000
acres in Idaho, 501,000 acres in Arkansas, and 337,000 acres in
Minnesota. The wood fiber needs of our manufacturing operations are
sourced in varying degrees, based on market dynamics and mill location,
from our own timberlands and from third parties. Our timberlands
provided approximately 55% of our log requirements for our sawmill and
plywood manufacturing facilities in 2000 and an average of approximately
67% over the past five calendar years. Including the wood fiber used for
pulp, OSB, and particleboard, the percentages our timberlands supplied
to our manufacturing facilities were approximately 30% in 2000 and an
average of approximately 41% over the past five calendar years. It is
our policy to harvest our timberlands at sustainable yield levels in
order to ensure an adequate long-term supply of a substantial portion of
the wood fiber requirements of our manufacturing facilities.

. Cost-Competitive Facilities. We have recently completed a significant
multi-year capital investment program that has resulted in many of our
facilities operating at increased efficiency levels. In an effort to
become a low-cost competitive producer, we have invested over $2.0
billion during the last 15 years to modernize and maintain our plants
and equipment, including more than $910.0 million invested over the past
five years. As a result of this investment, we expect that relatively
little additional capital will need to be invested at our mills for the
foreseeable future. In general, the culmination of this extensive
program provides us with technologically modern and cost-competitive
manufacturing facilities. In addition to capital investments, we have
continued aggressive action over the past 18 months to increase overall
mill efficiency, including workforce reductions, closure of a non-
competitive mill and re-allocation of production, and over the past six
months have reduced our operating costs by increasing our internal
electrical generation and, to a lesser extent, reducing our energy
consumption. These and our other strategic initiatives have resulted in
a significant reduction in our manufacturing costs.

. Superior Quality and Service. Although we maintain quality standards
across all product lines, our operating philosophy for our more
specialized products, including premium coated printing papers and
premium private label household tissue products, is to target higher-end
niche markets where our products successfully compete largely on the
basis of superior quality and customer service. For example, we believe
that our consumer tissue business produces some of the highest-quality
private label consumer tissue products in the U.S. In addition, we
believe that the premium coated papers produced at our mills in
Minnesota rank among the highest-quality and that one of our premium
brands, McCoy, is among the most well-recognized brands in the market
today. We have significant market presence in both high-quality private
label tissue, where, based on grocery store scan data, we believe that
we have the largest share of the private label tissue market for grocery
stores in the western U.S., and in high-quality printing papers, where
we are one of the largest domestic suppliers by volume of Premium and
No. 1 coated printing papers.

. Product Diversity. As an integrated forest products company, we produce
a wide range of paper and wood products. For 2000, the percentage of net
sales for each of our segments, before eliminating intersegment sales,
was 16% for the Resource segment, 26% for the Wood Products segment, 24%
for the Printing Papers segment, and 34% for the Pulp and Paper segment.
We believe that this diversity reduces the effect of cyclicality on our
net sales as a whole because the demand and pricing for many of our
products have tended to fluctuate at different points in the economic
cycle. It has also resulted in a greater level of cash flow stability
than if we were focused on a single product. This cash flow stability
has been demonstrated by our relatively stable level of EBITDDA
performance over the 1990s when our EBITDDA was between $216.1 and
$267.0 million every year, with the exception of 1995 when EBITDDA was
$356.6 million.

Summary of The Exchange Offer

The following summary is provided solely for your convenience. This summary
is not intended to be complete. You should read the full text and more specific
details contained in "The Exchange Offer" section of this prospectus.

The Exchange Offer............ We are offering to issue up to $250,000,000
aggregate principal amount of Exchange Notes in
exchange for a like principal amount of
Original Notes to satisfy our obligations under
the exchange and registration rights agreement
that we entered into when the Original Notes
were sold in transactions exempt from
registration under the Securities Act. We will
issue the Exchange Notes on or promptly after
the expiration date of the exchange offer.

Expiration Date; Tenders...... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2001, unless
extended, in which case the expiration date
will mean the latest date and time to which we
extend the exchange offer.

By tendering your Original Notes, you represent
to us that:

. you are not our "affiliate," as defined
in Rule 405 under the Securities Act;

. any Exchange Notes you receive in the
exchange offer are being acquired by you
in the ordinary course of your business,

. at the time of commencement of the
exchange offer, neither you nor, to your
knowledge, anyone receiving Exchange
Notes from you, has any arrangement or
understanding with any person to
participate in the distribution, as
defined in the Securities Act, of the
Exchange Notes in violation of the
Securities Act;

. if you are not a participating broker-
dealer, you are not engaged in, and do
not intend to engage in, the
distribution of the Exchange Notes, as
defined in the Securities Act; and

. if you are a broker-dealer, you will
receive the Exchange Notes for your own
account in exchange for Original Notes
that were acquired by you as a result of
your market-making or other trading
activities and you will deliver a
prospectus in connection with any resale
of the Exchange Notes you receive. For
further information regarding resales of
the Exchange Notes by participating
broker-dealers, see the discussion below
under the caption "Plan of
Distribution."

Resale........................ We believe that the Exchange Notes may be
offered for resale, resold and otherwise
transferred by you (unless you are our
"affiliate" within the meaning of Rule 405
under the Securities

Act) without compliance with the registration
or prospectus delivery provisions of the
Securities Act if:

. you are acquiring the Exchange Notes in
the ordinary course of your business;
and

. you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate, in a distribution of the
Exchange Notes.

Each participating broker-dealer that receives
Exchange Notes for its own account under the
exchange offer in exchange for Original Notes
that were acquired by the broker-dealer as a
result of market-making or other trading
activity must acknowledge that it will deliver
a prospectus in connection with any resale of
the exchange notes. See "Plan of Distribution."

Any holder of Original Notes who:

. is our affiliate;

. does not acquire Exchange Notes in the
ordinary course of its business; or

. exchanges Original Notes in the exchange
offer with the intention to participate,
or for the purpose of participating, in
a distribution of Exchange Notes must,
in the absence of an exemption, comply
with the registration and prospectus
delivery requirements of the Securities
Act in connection with the resale of the
Exchange Notes.

Conditions to Exchange
Offer......................... The exchange offer is not subject to conditions
other than that (1) it shall not violate
applicable law or any applicable interpretation
of the staff of the SEC and (2) no governmental
authority has suspended or threatened to
suspend the registration of the exchange offer.
The exchange offer is not conditioned upon any
minimum principal amount of Original Notes
being tendered for exchange.

Procedures for Tendering
Original Notes................ If you wish to tender your Original Notes for
Exchange Notes pursuant to the exchange offer,
you must transmit to U.S. Bank Trust National
Association, as exchange agent, on or before
the expiration date, either:

. a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with
your Original Notes and any other
required documentation, to the exchange
agent at its address listed in this
prospectus and on the front cover of the
letter of transmittal; or

. a computer-generated agent's message
transmitted through The Depository Trust
Company's Automated Tender Offer Program
system and received by the exchange
agent and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal.

If you cannot satisfy either of these
procedures on a timely basis, then you should
comply with the guaranteed delivery procedures
described below.

Do not send letters of transmittal and
certificates representing Original Notes to us.

Special Procedures for
Beneficial Owners............. If you are a beneficial owner whose Original
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender your Original
Notes in the exchange offer you should contact
the registered holder promptly and instruct the
registered holder to tender on your behalf. If
you wish to tender on your own behalf, you must
either (1) make appropriate arrangements to
register ownership of the Original Notes in
your name or (2) obtain a properly completed
bond power from the registered holder, before
completing and executing the letter of
transmittal and delivering your Original Notes.

Guaranteed Delivery
Procedures.................... If you wish to tender your Original Notes and
time will not permit the documents required by
the letter of transmittal to reach the exchange
agent before the expiration date, or the
procedure for book-entry transfer cannot be
completed on a timely basis, you must tender
your Original Notes according to the guaranteed
delivery procedure described in this prospectus
under "The Exchange Offer--Procedures for
Tendering Original Notes--Guaranteed Delivery
Procedures."

Acceptance of Original Notes
and Delivery of Exchange
Notes......................... Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will
accept for exchange any and all Original Notes
which are validly tendered in the exchange
offer and not withdrawn before 5:00 p.m., New
York City time, on the expiration date.

Withdrawal Rights............. You may withdraw the tender of your Original
Notes at any time before 5:00 p.m., New York
City time, on the expiration date, by complying
with the procedures for withdrawal described in
this prospectus under "The Exchange Offer--
Withdrawal Rights."

Federal Income Tax
Consequences.................. The exchange of Notes will not be a taxable
event for United States federal income tax
purposes. For a discussion of the material
federal income tax consequences relating to the
exchange of Notes, see "Certain U.S. Federal
Tax Considerations."

Exchange Agent................ U.S. Bank Trust National Association, the
trustee under the indenture governing the
Original Notes, is serving as the exchange
agent.

Consequences of Failure to
Exchange Notes................ If you do not exchange your Original Notes for
Exchange Notes, you will continue to be subject
to the restrictions on transfer provided in the
Original Notes and in the indenture governing
the notes. In general, the Original Notes may
not be offered or sold, unless registered
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. We do not
currently plan to register the Original Notes
under the Securities Act.

Because we anticipate that most holders of
Original Notes will elect to exchange their
Original Notes, we expect the liquidity of the
markets, if any, for the Original Notes
remaining outstanding after the completion of
the exchange offer will be substantially
limited.

Exchange and Registration
Rights Agreement.............. You are entitled to exchange your Original
Notes for Exchange Notes with substantially the
identical terms. The exchange offer satisfies
this right. After the exchange offer is
completed and you have received, or had the
opportunity to receive, Exchange Notes, you
will no longer be entitled to any exchange or
registration rights with respect to your
Original Notes or to additional interest in
respect of the notes.

Summary Description of The Exchange Notes

The following summary is provided solely for your convenience. This summary
is not intended to be complete. You should read the full text and more specific
details contained in "Description of the Exchange Notes" section of this
prospectus.

Issuer........................ Potlatch Corporation.

Notes Offered................. $250.0 million aggregate principal amount of
10.00% Senior Subordinated Notes due 2011 and
registered under the Securities Act.

Maturity Date................. July 15, 2011.

Interest Rate................. 10.00% per year.

Interest Payment Dates........ Interest will accrue from June 29, 2001 and
will be payable semiannually on each January 15
and July 15, commencing January 15, 2002. The
payment of interest on Exchange Notes will be
in lieu of payment of any accrued but unpaid
interest on Original Notes tendered for
exchange.

Subsidiary Guarantors......... The Exchange Notes will be guaranteed by
certain of our subsidiaries that also guarantee
our obligations under our bank credit
facilities. Each subsidiary guarantor will
provide a guarantee of the payment of
principal, premium and interest on the Exchange
Notes on a senior subordinated and unsecured
basis. If we are unable to make payments on the
Exchange Notes when they are due, our
subsidiary guarantors are obligated to make
them instead. Currently, less than 1% of our
assets are held by our subsidiaries.

Ranking....................... The Exchange Notes and the related guarantees
are senior subordinated obligations of Potlatch
and the guarantors. Accordingly they will rank:

. behind all of our and our guarantors'
existing and future senior indebtedness;

. equally with all of our and our
guarantors' existing and future
unsecured senior subordinated
obligations that do not expressly
provide that they are subordinated to
the Exchange Notes or the guarantees;
and

. ahead of any of our and our guarantors'
future debt that expressly provides that
they are subordinated to the Exchange
Notes or the guarantees.

As of September 30, 2001, the Exchange Notes
and the guarantees would have been subordinated
to approximately $901.1 million of senior
indebtedness. As of September 30, 2001, we and
our guarantors had no indebtedness equal or
junior to the Exchange Notes or the guarantees,
as the case may be.

Mandatory Sinking Fund........ None.

Optional Redemption........... We may redeem some or all of the Exchange Notes
at our option at any time on or after July 15,
2006, at the redemption prices listed in
"Description of the Exchange Notes--Optional
Redemption."

Change of Control............. If we experience specific kinds of changes of
control, holders of the Exchange Notes will
have the right to require us to purchase their
Exchange Notes, in whole or in part, at a price
equal to 101% of the principal amount together
with any accrued and unpaid interest to the
date of purchase.

Basic Covenants of
Indenture..................... The covenants contained in the indenture under
which the Exchange Notes will be issued will,
among other things, limit our ability and the
ability of our restricted subsidiaries to:

. borrow money;

. pay dividends, redeem or repurchase our
capital stock;

. make investments;

. sell assets;

. create restrictions on the payment of
dividends or other amounts to us from
our restricted subsidiaries;

. enter into transactions with affiliates;

. enter into sale and lease-back
transactions;

. create liens; and

. consolidate, merge or sell all or
substantially all of our assets.

In addition, the indenture will, among other
things, require us to provide reports to
holders of the Exchange Notes.

These covenants are subject to a number of
important exceptions, limitations and
qualifications which are described under
"Description of the Exchange Notes."

Absence of Market for the
Exchange Notes................ The Exchange notes will be a new issue of
securities for which currently there is no
established trading market.

Risk Factors

You should carefully consider all of the information contained in this
prospectus, including the discussion under the caption "Risk Factors" regarding
specific risks involved in an investment in the Exchange Notes.

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The summary consolidated financial data set forth below under the caption
"Income Statement Data" for each of the years in the three-year period ended
December 31, 2000 and the caption "Balance Sheet Data" as of December 31, 1999
and 2000 is derived from the consolidated financial statements included
elsewhere in this prospectus, which have been audited by KPMG LLP, independent
certified public accountants. The summary consolidated financial data set forth
below under the caption "Balance Sheet Data" as of December 31, 1998, is
derived from our audited consolidated financial statements not included in this
prospectus. The summary consolidated financial data set forth below under the
caption "Income Statement Data" for each of the nine month periods ended
September 30, 2000 and 2001, and the caption "Balance Sheet Data" as of
September 30, 2001, is derived from our unaudited consolidated financial
statements included elsewhere in this prospectus. The summary consolidated
financial data set forth below under the caption "Balance Sheet Data" as of
September 30, 2000, is derived from our unaudited consolidated financial
statements not included in this prospectus. We have prepared the unaudited
information on the same basis as the audited consolidated financial statements
and have included all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our
financial position and operating results. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes related to those financial statements included elsewhere or incorporated
by reference in this prospectus.

Nine Months Ended
Year Ended December 31, September 30,
------------------------------------- -------------------------
1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ----------
(in thousands, except ratio data and net sales
realizations)

Income Statement Data:
Net sales:
Resource................ $ 325,934 $ 337,558 $ 352,324 $ 270,391 $ 304,262
Wood products........... 537,735 637,644 552,907 444,494 405,498
Printing papers......... 435,428 454,734 503,376 382,567 361,180
Pulp and paper.......... 696,719 693,409 730,068 547,317 580,995
Elimination of
intersegment sales..... (307,111) (314,957) (329,905) (255,673) (294,800)
---------- ---------- ---------- ---------- ----------
Total net sales.......... $1,688,705 $1,808,388 $1,808,770 $1,389,096 $1,357,135
---------- ---------- ---------- ---------- ----------
Operating earnings
(loss).................. 99,207 111,993 8,849 17,928 (26,065)
Interest expense, net of
capitalized interest.... 49,744 45,442 59,438 43,637 57,377
Net earnings (loss)...... 37,232 40,947 (a) (33,214)(b) (17,511)(c) (47,748)(d)
Balance Sheet Data (at
period end):
Cash and short-term
investments............. $ 18,072 $ 11,690 $ 11,661 $ 11,246 $ 151,634 (e)
Total assets............. 2,377,306 2,446,500 2,542,445 2,483,269 2,646,589
Total debt............... 797,073 833,585 990,817 912,295 1,151,106
Total stockholders'
equity.................. 930,906 921,039 813,236 840,849 741,072
Other Financial Data:
EBITDDA(f):
Resource................ $ 94,750 $ 93,541 $ 88,189 $ 66,237 $ 54,751
Wood products........... 32,651 111,858 27,934 (g) 40,815(g) 9,656
Printing papers......... 55,822 28,183 53,918 37,764 21,911
Pulp and paper.......... 106,919 69,395 68,312 58,309 44,425 (h)
Corporate............... (40,657) (40,731) (21,246)(i) (19,486)(j) (26,202)
---------- ---------- ---------- ---------- ----------
Total EBITDDA............ $ 249,485 $ 262,246 $ 217,107 $ 183,639 $ 104,541
---------- ---------- ---------- ---------- ----------
Depreciation,
amortization and cost of
fee timber harvested.... $ 150,278 $ 150,253 $ 161,847 $ 121,209 $ 126,036
Capital expenditures..... 147,027 247,651 166,422 119,040 42,795
Ratio of earnings (loss)
to fixed charges(k)..... 1.9x 1.9x 0.1x 0.4x (0.2x)
Adjusted ratio of
earnings (loss) to fixed
charges(l).............. 1.9x 1.9x 0.8x 1.3x (0.2x)
Ratio of total adjusted
debt to total EBITDDA... 7.6x (m)
Ratio of total EBITDDA to
pro forma interest...... 1.7x (n)

Year Ended Nine Months Ended
December 31, September 30,
-------------------- -----------------
1998 1999 2000 2000 2001
------ ------ ------ -------- --------
(in thousands, except ratio data and
net sales realizations)

Selected Production
Statistics:
OSB (msf, 3/8" basis)... 1,077 1,101 1,096 838 849
Lumber (mbf)............ 577 608 638 481 542
Plywood (msf, 3/8"
basis)................. 191 222 172 142 118
Particleboard (msf, 3/4"
basis)................. 69 70 69 52 53
Printing papers (tons).. 359 375 367 290 278
Paperboard (tons)....... 620 596 593 440 460
Tissue (tons)........... 154 162 169 126 131
Pulp (tons)............. 953 925 1,080 798 853
Net Sales
Realizations(n):
OSB (per msf, 3/8"
basis)................. $ 159 $ 205 $ 172 $ 186 $ 135
Lumber (per mbf)........ 402 433 380 393 370
Plywood (per msf, 3/8"
basis)................. 275 309 280 284 260
Particleboard (per msf,
3/4" basis)............ 209 245 239 252 199
Printing papers (per
ton)................... 1,149 1,113 1,139 1,140 1,054
Bleached hardwood kraft
pulp (per ton)......... -- -- 480 479 328
Paperboard (per ton).... 659 610 687 690 656
Tissue (per ton)........ 1,727 1,665 1,715 1,690 1,780
Bleached softwood kraft
pulp (per ton)......... 296 315 466 466 277

- --------
(a) In 1999, net earnings (loss) includes an after-tax charge of $4.6 million
for expenses related to the termination of efforts to form a timber real
estate investment trust.
(b) In 2000, net earnings (loss) includes a $28.3 million after-tax charge to
cover costs associated with a company-wide reduction and reorganization of
our salaried workforce, and for costs associated with the closure of our
Jaype, Idaho plywood mill.

(c) For the nine months ended September 30, 2000, net earnings (loss) includes
a $15.9 million after-tax charge to cover costs associated with a company-
wide reduction and reorganization of our salaried workforce and includes an
$11.2 million after-tax charge associated with the closure of our Jaype,
Idaho plywood mill.

(d) For the nine months ended September 30, 2001, net earnings (loss) includes
a $2.8 million after-tax charge to cover costs associated with the
workforce reduction plan at our pulp, paperboard and consumer products
operations in Idaho.

(e) Includes $97.6 million of cash placed into an interest-bearing escrow
account, the use of which is restricted to repayment of our $100 million
6.25% debentures, which mature on March 15, 2002.

(f) EBITDDA represents operating earnings (loss) before restructuring and other
one-time charges, depreciation, depletion (which we refer to as cost of fee
timber harvested) and amortization. Total EBITDDA includes corporate
expenses as well as EBITDDA of each segment. We believe EBITDDA is a
widely-accepted financial indicator used to analyze and compare companies
on the basis of their ability to incur and service debt. It should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles and is
not indicative of operating earnings or cash flow from operations as
determined under generally accepted accounting principles. Our definition
of EBITDDA may not be comparable to that reported by other companies.

(g) For 2000 and the nine months ended September 30, 2000, EBITDDA excludes the
$18.5 million pre-tax charge associated with the closure of our Jaype,
Idaho plywood mill.

(h) For the nine months ended September 30, 2001, EBITDDA excludes the $4.6
million pre-tax charge associated with the workforce reduction plan at our
pulp, paperboard and consumer products operations in Idaho.

(i) In 2000, EBITDDA excludes the $27.9 million pre-tax charge to cover costs
associated with a company-wide reduction and reorganization of our salaried
workforce.

(j) For the nine months ended September 30, 2000, EBITDDA excludes a $26.0
million pre-tax charge for the company-wide reduction and reorganization of
our salaried workforce.

(k) The ratio of earnings (loss) to fixed charges was calculated by dividing
(1) earnings (loss) from continuing operations, before income taxes,
plus fixed charges, less capitalized interest by (2) fixed charges,
which consist of interest expense incurred, including amortization of
debt expense and discount, and the portion of rental expense estimated
to be representative of the interest factor. The ratio of earnings
(loss) to fixed charges for the year ended December 31, 2000, and for
the nine months ended September 30, 2000 and September 30, 2001
indicates less than one-to-one coverage. The dollar amount of the
deficiency for those periods is $79.3 million, $31.3 million, and $58.4
million respectively.

(l) Adjusted ratio of earnings (loss) to fixed charges excludes restructuring
and other one-time charges for all relevant periods. See footnotes (a), (b)
and (c) above for a description of restructuring and other charges.

(m) Total adjusted debt reflects total debt as of September 30, 2001, after
subtracting $97.6 million of cash placed into an interest-bearing escrow
account, the use of which is restricted to repayment of our $100 million
6.25% debentures, which mature on March 15, 2002. Total EBITDDA is
calculated for the twelve months ended September 30, 2001. Without
subtracting the amount of the escrowed funds, the ratio of total debt to
total EBITDDA is 8.3x.

(n) Pro forma interest reflects interest expense, net of interest income on
pro forma cash, after giving effect to the sale of Original Notes and
initial borrowings under our new bank credit facilities, as if they
occurred at the beginning of the twelve months ended September 30, 2001.
Interest expense includes capitalized interest. Total EBITDDA is
calculated for the twelve months ended September 30, 2001. Without the
benefit of interest income on escrowed funds, the ratio of total EBITDDA
to pro forma interest is 1.5x.

(o) Net sales realizations for each product line are calculated by
subtracting customer freight from net sales and then dividing the result
by the relevant quantities of the product shipped for the period, a
measurement we believe can be helpful in showing trends in the pricing of
our products.

RISK FACTORS

You should carefully consider the risks described below, together with all
of the other information set forth in this prospectus and the documents
incorporated herein by reference, before you decide whether to participate in
the exchange offer.

Risks Related to Our Indebtedness and the Notes

Our substantial indebtedness could adversely affect our cash flow and prevent
us from fulfilling our obligations, including the Notes.

We have a significant amount of indebtedness. As of September 30, 2001, we
had total senior indebtedness of $803.6 million, total indebtedness of
$1,053.6 million, and a debt-to-stockholders' equity ratio of 1.4 to 1, in
each case, after subtracting $97.6 million of cash in an interest-bearing
escrow account, the use of which is restricted to repayment of our $100
million 6.25% Debentures due March 15, 2002. Our ratio of earnings-to-fixed
charges, adjusted to exclude restructuring and other one-time charges, would
have been 0.8x for the year ended December 31, 2000, (0.2x) for the nine
months ended September 30, 2001 and 0.6x for the three months ended September
30, 2001. See "Capitalization."

Our substantial indebtedness could have important consequences to you. For
example, it could:

. make it more difficult for us to satisfy our obligations with respect to
the Notes;

. increase our vulnerability to general adverse economic and industry
conditions;

. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital and capital
expenditures, and for other general corporate purposes;

. limit our flexibility in planning for, or reacting to, changes in our
business and the forest products industry, which may place us at a
competitive disadvantage compared to our competitors that have less
debt; and

. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds.

Despite current indebtedness levels, we and our subsidiaries may still be able
to incur substantially more debt. This could further increase the risks
associated with our substantial leverage.

We may incur substantial additional indebtedness in the future. The terms
of our credit agreement governing our bank credit facilities and the indenture
governing the Notes will allow us and our subsidiaries to incur additional
indebtedness subject to certain limitations and all of those borrowings would
be senior to the Notes. If new debt is added to our current debt levels, or
any debt is incurred by our subsidiaries, the related risks that we and they
now face could increase. See "Description of Other Indebtedness--The Bank
Credit Facilities."

To service our indebtedness, we must generate significant cash flows. Our
ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness,
including the Notes, and to fund planned capital expenditures, will depend on
our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.

Based on our current level of operations, we believe our cash flow from
operations, working capital and available borrowings under our bank credit
facilities will be adequate to meet our future liquidity needs for the next
twelve months and for the foreseeable future. We cannot assure you, however,
that our business will generate sufficient cash flow from operations or that
future borrowings will be available to us under our bank credit facilities in
an amount sufficient to enable us to pay our indebtedness, including the
Notes, or to fund our

other liquidity needs. We will need to refinance our bank credit facilities
when they mature in three years in the case of our revolving credit facility
and four years in the case of our term loan. We cannot assure you that we will
be able to refinance any of our indebtedness, including our bank credit
facilities and the Notes, on commercially reasonable terms or at all.

Your right to receive payments on the Notes is junior to our existing
indebtedness and possibly all of our future borrowings. Further, the
guarantees of the Notes are junior to all of the guarantors' existing
indebtedness and possibly to all of their future borrowings.

The Notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness (other than trade payables) and
all of our and their future borrowings (other than trade payables), except any
future indebtedness that expressly provides that it ranks equal with, or is
subordinated in right of payment to, the Notes and the guarantees. As a
result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors or our or their property, the
holders of senior debt of our company and the guarantors will be entitled to
be paid in full in cash before any payment may be made with respect to the
Notes or the subsidiary guarantees.

In addition, all payments on the Notes and the guarantees may be blocked in
the event of a payment default on senior debt and may be blocked for up to 179
consecutive days in the event of certain non-payment defaults on senior debt.

In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the Notes will
participate with our trade creditors and ratably with all other holders of all
of our and the guarantors' subordinated indebtedness in the assets remaining
after we have paid all of the senior debt. However, because the indenture
requires that amounts otherwise payable to holders of the Notes in a
bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the Notes may receive less, ratably, than holders of trade payables
in any such proceeding. In any of these cases, we and the subsidiary
guarantors may not have sufficient funds to pay all of our creditors and
holders of Notes may receive less, ratably, than the holders of senior debt.

Your ability to enforce the guarantees of the Notes may be limited.

Although the Notes are obligations of Potlatch, they will be
unconditionally guaranteed on an unsecured senior subordinated basis by
certain of Potlatch's subsidiaries. The performance by each subsidiary
guarantor of its obligations with respect to its guarantee may be subject to
review under relevant federal and state fraudulent conveyance and similar
statutes in a bankruptcy or reorganization case or lawsuit by or on behalf of
unpaid creditors of such subsidiary guarantor. Under these statutes, if a
court were to find under relevant federal or state fraudulent conveyance
statutes that a subsidiary guarantor did not receive fair consideration or
reasonably equivalent value for incurring its guarantee of the Notes, and
that, at the time of such incurrence, the subsidiary guarantor: (i) was
insolvent; (ii) was rendered insolvent by reason of such incurrence or grant;
(iii) was engaged in a business or transaction of which the assets remaining
with such subsidiary guarantor constituted unreasonably small capital; or (iv)
intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they matured, then the court, subject to applicable
statutes of limitation, could void the subsidiary guarantor's obligations
under its guarantee, recover payments made under the guarantee, subordinate
the guarantee to other indebtedness of the subsidiary guarantor or take other
action detrimental to the holders of the Notes.

The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the
present fair salable value of that company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and mature or if a company is not able to pay its debts
as they become due. Moreover, regardless of solvency, a court could avoid an
incurrence of indebtedness, including the guarantees, if it determined that
such transaction was made with the intent to hinder, delay or defraud
creditors. In addition, a

court could subordinate the indebtedness, including the guarantees, to the
claims of all existing and future creditors on similar grounds. The guarantees
could also be subject to the claim that, since the guarantees were incurred
for the benefit of Potlatch (and only indirectly for the benefit of the
subsidiary guarantors), the obligations of the subsidiary guarantors under the
guarantees were incurred for less than reasonably equivalent value or fair
consideration.

There can be no assurance as to what standard a court would apply in order
to determine whether a subsidiary guarantor was "insolvent" upon the sale of
the Notes or that, regardless of the method of valuation, a court would not
determine that the subsidiary guarantor was insolvent upon consummation of the
sale of the Notes.

The indenture for the Notes and the credit agreement governing our bank credit
facilities contain various covenants that limit our discretion in the
operation of our business.

The indenture governing the Notes and the credit agreement governing our
bank credit facilities contain various provisions that limit our discretion in
the operation of our business by restricting our ability to:

. incur additional debt and issue preferred stock;

. pay dividends and make other distributions;

. make investments and other restricted payments;

. redeem or repurchase our capital stock;

. enter into sale and lease-back transactions;

. consolidate or merge;

. create liens;

. sell assets; and

. enter into certain transactions with our affiliates.

These restrictions on our ability to operate our business in our discretion
could seriously harm our business by, among other things, limiting our ability
to take advantage of financing, merger and acquisition and other corporate
opportunities.

In addition, our bank credit facilities require that we maintain specific
financial maintenance covenants, including covenants establishing a maximum
funded indebtedness to capitalization ratio, a minimum consolidated net worth
requirement and a minimum fixed charge coverage ratio. Events beyond our
control could affect our ability to meet those financial tests, and we cannot
assure you that we will meet them.

If we default under any financing agreements, our lenders could:

. elect to declare all amounts borrowed to be immediately due and payable,
together with accrued and unpaid interest;

. terminate their commitments, if any, to make further extensions of
credit; and

. become secured to the extent of all of our assets.

If we are unable to pay our obligations to our senior secured lenders, they
could proceed against any or all of the collateral securing our indebtedness
to them. The collateral under our bank credit facilities consists of
approximately 130,000 acres of our timberlands, all of our accounts receivable
and inventory and stock in certain of our subsidiaries. In addition, a breach
of the restrictions or covenants contained in our bank credit facilities or an
acceleration by our senior secured lenders of our obligations to them would
allow the lenders under our bank credit facilities to take security in all of
our assets and would cause a default under the Notes. We may not have, or be
able to obtain, sufficient funds to repay the Notes in full upon acceleration
after we pay our senior secured lenders to the extent of their collateral. See
"Description of Other Indebtedness" and "Description of the Exchange Notes."

If an active trading market does not develop for the Notes you may not be able
to resell.

There is currently no established market for the Notes. The initial
purchasers of the Original Notes are not obligated to make a market for the
Notes and may cease their market-making at any time. In addition, the
liquidity of the trading market in the Notes, and the market price quoted for
the Notes, may be adversely affected by changes in the overall market for
fixed income securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally. As a
result, you cannot be sure that an active trading market will develop for the
Notes. If no active trading market develops, you may not be able to resell
your Notes at their fair market value or at all.

Risks Related to Our Business

Cyclical industry conditions have and may continue to adversely affect our
results of operations and financial condition.

Our operating results reflect the general cyclical pattern of the forest
products industry. All of our pulp-based products, other than tissue products,
are globally-traded commodity products. In addition, our wood products are
subject to competition from manufacturers in North and South America.
Historical prices for our products have been volatile, and we, like other
participants in the forest products industry, have limited direct influence
over the timing and extent of price changes for our products. Product pricing
is significantly affected by the relationship between supply and demand in the
forest products industry. Product supply is influenced primarily by
fluctuations in available manufacturing capacity. Demand is affected by the
state of the economy in general and a variety of other factors. The demand for
our timber resources and wood products is primarily affected by the level of
new residential construction activity and, to a lesser extent, home repair and
remodeling activity, which are subject to fluctuations due to changes in
economic conditions, interest rates, population growth, weather conditions and
other factors. The demand for most of our printing papers and pulp and paper
products is primarily affected by the state of the global economy, in general,
and, in particular, the economies in North America and East Asia. A prolonged
and severe weakness in the markets for one or more of our principal products
could seriously harm our results of operations and financial condition and
could affect our ability to satisfy working capital requirements and our
obligations under various debt instruments, including the Notes.

Intense competition in the forest products industry could prevent us from
increasing or sustaining our net sales and from regaining or sustaining
profitability.

The markets for our products are highly competitive, and companies that
have substantially greater financial resources than we do compete with us in
each market. Our competitors are located worldwide and variations in exchange
rates between the U.S. dollar and other currencies, particularly the Euro,
significantly affect our competitive position compared to our international
competitors. We believe that the strength of the U.S. dollar relative to the
Euro has resulted in significantly increased competition from European
companies, particularly in our coated papers business. In addition, our
industry is capital intensive, which leads to high fixed costs and generally
results in continued production as long as prices are sufficient to cover
variable costs. These conditions have contributed to substantial price
competition, particularly during periods of reduced demand. Some of our
competitors are currently lower-cost producers in some of the businesses in
which we operate, particularly in our pulp-based business, and accordingly
these competitors may be less adversely affected than we are by price
declines.

High energy costs could seriously harm our results of operations.

through price increases and accordingly, energy costs were a significant
factor contributing to our net loss of $47.7 million during the nine months
ended September 30, 2001. Our facilities in Idaho have been the most adversely
affected by the increased cost of energy as a result of comparatively greater
energy price increases in the northwestern U.S. In recent months, we have
reduced our exposure to the volatile spot market for electricity primarily by
increasing our internal production of electricity. This contributed
significantly to a reduction in our energy costs in the three months ending
September 30, 2001, which were $29.5 million, as compared to $35.8 million in
the second quarter and $53.5 million in the first quarter of 2001. Our energy
costs for the third quarter of 2001 were comparable to 2000's third quarter.
During the first half of 2001, we entered into forward contracts for the
purchase of natural gas to reduce our exposure to volatile natural gas prices.
Changes in the value of those contracts are recorded as an asset or liability
as of the end of each reporting period and the corresponding gain or loss is
recognized in our statements of earnings. For the quarter ended September 30,
2001, we adjusted our liability and recorded expense in the amount of $.2
million related to these contracts, which is included in the $29.5 million of
energy costs for the three months ended September 30, 2001. Our energy costs
in future periods will depend principally on our ability to continue to
produce internally a substantial portion of our electricity needs and on
changes in market prices for natural gas.

Our results of operations may be harmed by increases in wood fiber costs.

The percentage of our wood fiber requirements obtained from our timberlands
will fluctuate based on a variety of factors, including changes in our timber
harvest levels and changes in our manufacturing capacity. Our timberlands
provided approximately 55% of log requirements for our sawmill and plywood
manufacturing facilities in 2000 and an average of approximately 67% over the
past five calendar years. Including the wood fiber used for pulp, oriented
strand board, and particleboard, the percentages our timberlands supplied to
our manufacturing facilities were approximately 30% in 2000 and an average of
approximately 41% over the past five calendar years. The cost of various types
of wood fiber that we purchase in the market has at times fluctuated greatly
because of economic or industry conditions. Selling prices of our products
have not always increased in response to wood fiber price increases. On
occasion, our results of operations have been and may in the future be
seriously harmed if we are unable to pass wood fiber price increases through
to our customers.

We are subject to significant environmental regulation and environmental
compliance expenditures.

Our businesses are subject to a wide range of general and industry-specific
environmental laws and regulations, particularly with respect to air
emissions, wastewater discharges, solid and hazardous waste management, site
remediation, forestry operations and endangered species. Compliance with these
laws and regulations is a significant factor in our business. We, as well as
some of our competitors, particularly those with facilities located in the
U.S., are expected to and will continue to incur significant capital and
operating expenditures to maintain compliance with applicable environmental
laws and regulations. Our failure to comply with applicable environmental laws
and regulations and permit requirements could result in civil or criminal
fines or penalties or enforcement actions, including regulatory or judicial
orders enjoining or curtailing operations or requiring corrective measures,
installation of pollution control equipment or remedial actions. As an owner
and operator of real estate, we may be liable under environmental laws for
cleanup and other costs and damages, including tort liability, resulting from
past or present spills or releases of hazardous or toxic substances on or from
our properties. Liability under these laws may be imposed without regard to
whether we knew of, or were responsible for, the presence of such substances
on our property, and, in some cases, may not be limited to the value of the
property.

We believe that our facilities are currently in substantial compliance with
applicable environmental laws and regulations. We cannot assure you, however,
that situations which will give rise to material environmental liabilities
will not be discovered or that the enactment of new environmental laws or
regulations or changes in existing laws or regulations will not require
significant expenditures by us. There can be no assurance that internally
generated funds or other sources of liquidity and capital will be sufficient
to fund unforeseen environmental liabilities or expenditures. See "Business--
Environmental Laws."

We do not maintain insurance for losses to our standing timber from natural
disasters or other causes.

The volume and value of timber that can be harvested from our lands may be
limited by natural disasters such as fire, insect infestation, disease, ice
storms, wind storms, flooding and other weather conditions and other causes.
As is typical in the industry, we do not maintain insurance for any loss to
our standing timber from natural disasters or other causes.

Our business and financial performance may be harmed by future labor
disruptions.

Approximately 3,800 employees, or 60% of our workforce, are unionized. As a
result, there is a risk of work stoppage due to strikes or walkouts. During
2002, a total of three agreements, covering approximately 1,400 employees,
will expire. Any significant work stoppage as a result of failure to
successfully negotiate new collective bargaining agreements could have a
material adverse effect on our business, financial condition and results of
operations.

Our facilities are highly capital intensive and we may not be able to obtain
financing to fund necessary capital expenditures.

Our business is highly capital intensive. Although we have invested
significantly in the past and believe that our capital expenditures will be
less than in prior periods for the foreseeable future, capital expenditures
for expansion or replacement of existing equipment or to comply with
environmental laws may require substantial expenditures. We currently
anticipate our available cash resources, cash anticipated to be generated from
operations and borrowings available from our bank credit facilities will be
sufficient to fund our operating needs and capital expenditures for at least
the next year. At some point in the future, however, we may be required to
obtain additional financing to fund capital expenditures. If additional funds
are obtained through bank credit facilities or the issuance of debt
securities, the holder of this new indebtedness may have rights senior to the
rights of the holders of the Notes. In addition, if we need to obtain
additional funds, we may not be able to do so on terms favorable to us, or at
all. If any such financing is not available when required or is not available
on acceptable terms, we may not be able to fund necessary capital expenditures
which may have a material adverse effect on our business, financial condition
and results of operations.

Risks Related to the Exchange Offer

You must follow certain procedures to tender your Original Notes.

The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the exchange agent of the Original Notes, a properly
completed and duly executed letter of transmittal and all other required
documents. Therefore, if you desire to tender your Original Notes in exchange
for the Exchange Notes, you should allow sufficient time to ensure timely
delivery. Your failure to follow these procedures may result in delay in
receiving Exchange Notes on a timely basis or in your loss of the right to
receive Exchange Notes. Neither we nor the exchange agent is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. If you tender Original Notes in the exchange
offer for the purpose of participating in a distribution of the Exchange
Notes, you will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where the Original Notes were acquired
by the broker-dealer as a result of market-making activities or any other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the Exchange Notes. See "Plan of Distribution."

If you do not exchange your Original Notes for Exchange Notes, your Original
Notes will continue to have restrictions on transfer.

If you do not exchange your Original Notes for Exchange Notes in the
exchange offer, or if your Original Notes are tendered but not accepted, your
Original Notes will continue to have restrictions on transfer, but will

no longer have the exchange and registration rights and liquidated damages
relating to the Original Notes. In general, you may offer or sell any Original
Notes only if the Original Notes are registered under the Securities Act and
applicable state laws, or resold under an exemption from these laws. We do not
intend to register the Original Notes under the Securities Act, other than in
the limited circumstances described in the exchange and registration rights
agreement.

The issuance of the Exchange Notes may adversely affect the market for
Original Notes.

If Original Notes are tendered for exchange, the trading market for
untendered and tendered but unaccepted Original Notes could be adversely
affected.

You may find it difficult to sell your Exchange Notes because no public
trading market for the Exchange Notes exists.

The Exchange Notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market. We do
not intend to list the Exchange Notes on any national securities exchange. In
addition, the Exchange Notes will not be eligible for trading in The Portal
Market. If the Exchange Notes are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending on
prevailing interest rates, the market for similar securities and other
factors, including general economic conditions and our financial condition,
performance and prospects. Accordingly,

. a market for the Exchange Notes may not develop;

. you may not be able to sell your Exchange Notes; and

. you may not be able to sell your Exchange Notes at any particular price.

EXCHANGE OFFER

Purpose of the Exchange Offer

We sold $250,000,000 aggregate principal amount of our 10.00% Notes due
July 15, 2011 in transactions exempt from registration under the Securities
Act on June 29, 2001. In connection with the sale, we entered into an exchange
and registration rights agreement on June 29, 2001 with Goldman, Sachs & Co.,
Banc of America Securities, LLC, Scotia Capital (USA) Inc., Wachovia
Securities, Inc. and Wells Fargo Brokerage Services, LLC, the initial
purchasers of these notes, for the benefit of the holders from time to time
(including the initial purchasers) of the original 10.00% Notes due July 15,
2011 (the "Original Notes"). In the exchange and registration rights
agreement, we agreed, for the benefit of the holders of the Original Notes, to
file with the SEC a registration statement with respect to an issue of notes
identical in all material respects to the Original Notes (the "Exchange
Notes"), except that the Exchange Notes will not be subject to transfer
restrictions, and will not have registration rights or accrue additional
interest as liquidated damages. We agreed to use our best efforts to cause
that registration statement to be declared effective under the Securities Act
within 210 calendar days after June 29, 2001. We have filed the registration
statement of which this prospectus is a part for the purpose of fulfilling our
obligations under the exchange and registration rights agreement. We have
filed a copy of the exchange and registration rights agreement as an exhibit
to the registration statement of which this prospectus is a part.

Promptly after the registration statement of which this prospectus is a
part is declared effective, we are offering to holders of Original Notes the
opportunity to exchange all their Original Notes for Exchange Notes. We will
keep the exchange offer open for at least 30 calendar days (or longer if
required by applicable law) after the date notice of the exchange offer is
mailed to the holders of the Original Notes. For any Original Notes validly
tendered to us pursuant to the exchange offer, the holder of such Original
Notes will receive Exchange Notes which have a principal amount, interest
rate, maturity date and other terms substantially identical to the principal
amount, interest rate, maturity date and other terms of the tendered Original
Notes.

Each holder of the Original Notes who wishes to exchange Original Notes for
Exchange Notes in the exchange offer will be required to represent that (1) it
is not an affiliate of Potlatch within the meaning of the Securities Act, (2)
the Exchange Notes to be received by it were acquired in the ordinary course
of its business and (3) at the time of the exchange offer, it has not engaged
in, does not intend to engage in, and has no arrangement or understanding with
any person to participate in the distribution of the Exchange Notes within the
meaning of the Securities Act. In addition, in connection with any resales of
Exchange Notes, any broker who acquired the Original Notes for its own account
as a result of market-making or other trading activities (a "Participating
Broker-Dealer") must deliver a prospectus meeting the requirements of the
Securities Act. We believe, based on positions taken by the SEC's staff in
interpretive letters to third parties, that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes (other than a resale of unsold allotments from the original sale of the
Original Notes) with this prospectus. Under the exchange and registration
rights agreement, we are required to allow Participating Broker-Dealers to use
this prospectus in connection with the resale of the Exchange Notes for a
period of 180 days starting on the Expiration Date and ending on the close of
business 180 days after the Expiration Date.

If, (1) on or prior to the time the Exchange Offer is completed existing
interpretations of the staff of the SEC are changed such that the debt
securities or related guarantees received by holders in the Exchange Offer for
Original Notes are not or would not, upon receipt, be transferable by each
such holder without restriction under the Securities Act (other than due
solely to the status of such holder as an affiliate of Potlatch within the
meaning of the Securities Act or as a broker-dealer), (2) the exchange offer
is not consummated within 240 days of June 29, 2001, or (3) the Exchange Offer
is not available to any holder of Original Notes, then in each case, we will
promptly notify the holders in writing and at our sole expense:

. file under the Securities Act, on or prior to the later of (i) the 30th
day after the time such obligation to file arises and (ii) the 150th day
after the Closing Date, a shelf registration statement covering resales
of the applicable Original Notes (the "Shelf Registration Statement");

. use our best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act no later than 90 days after
the Shelf Registration Statement is filed; and

. use our best efforts to keep effective the Shelf Registration Statement
until the earlier of two years (or, if Rule 144(k) is amended to provide
a shorter restrictive period, such shorter period) after June 29, 2001
or such time as there are no longer any Registrable Securities
outstanding.

We will, in the event that a Shelf Registration Statement is filed, provide
to each applicable holder copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Original Notes has become effective and take certain other
actions as are required to permit unrestricted resales of the Original Notes.
A holder that sells Original Notes pursuant to the Shelf Registration
Statement will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the exchange
and registration rights agreement that are applicable to such a holder
(including certain indemnification rights and obligations). If we fail to
comply with certain provisions of the exchange and registration rights
agreement, in each case as described below, then liquidated damages shall
become payable in respect of the Original Notes.

Terms of the Exchange Offer

We are offering to exchange up to $250,000,000 total principal amount of
Original Notes for a like total principal amount of Exchange Notes. The
Original Notes must be tendered properly and not withdrawn on or before the
Expiration Date, which is 5:00 p.m. New York City time on , 2001, unless we
extend the exchange offer, in which case the Expiration Date will be the date
to which we have extended the exchange offer. In exchange for Original Notes
properly tendered and accepted, we will issue a like total principal amount of
up to $250,000,000 in Exchange Notes.

The exchange offer is not conditioned upon holders tendering a minimum
principal amount of Original Notes. As of the date of this prospectus,
$250,000,000 aggregate principal amount of Original Notes is outstanding.

Holders of the Original Notes do not have any appraisal or dissenters'
rights in the exchange offer. If holders do not tender Original Notes or
tender Original Notes that we do not accept, those Original Notes will remain
outstanding. Any Original Notes will be entitled to the benefits of the
Indenture, but will not be entitled to any further registration rights under
the exchange and registration rights agreement or liquidated damages in the
form of additional interest on the Original Notes, except under limited
circumstances.

After the Expiration Date, we will return to the holder any tendered
Original Notes that we did not accept for exchange due to, among other things,
an invalid tender.

Holders exchanging Original Notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
letter of transmittal, which describes the procedure for submitting Original
Notes pursuant to the exchange offer (the "Letter of Transmittal"). We will
pay our own expenses incurred in connection with the performance of our
obligations, other than certain taxes described below, in the exchange offer.
See "--Fees and Expenses" for further information regarding fees and expenses.

Neither we nor our board of directors recommends that you tender or not
tender Original Notes in the exchange offer. In addition, we have not
authorized anyone to make any recommendation. You must decide whether to
tender in the exchange offer and, if so, the aggregate amount of Original
Notes to tender.

We have the right, in accordance with applicable law, at any time:

. to delay the acceptance of the Original Notes;

. to terminate the exchange offer if we determine that any of the
conditions to the exchange offer have not occurred or have not been
satisfied;

. to extend the Expiration Date of the exchange offer and keep all
Original Notes tendered other than those Original Notes properly
withdrawn; and

. to waive any condition or amend the terms of the exchange offer.

If we materially change the exchange offer, or if we waive a material
condition of the exchange offer, we will promptly distribute a prospectus
supplement to the holders of the Original Notes disclosing the change or
waiver. We also will extend the exchange offer as required by Rule 14e-1 under
the Securities Exchange Act of 1934, as amended.

If we exercise any of the rights listed above, we will promptly give oral
or written notice of the action to U.S. Bank Trust National Association (the
"Exchange Agent") and will issue a release to an appropriate news agency. In
the case of an extension, an announcement will be made no later than 9:00 am.,
New York City time, on the next business day after the previously scheduled
Expiration Date.

Acceptance for Exchange and Issuance of Exchange Notes

We will issue Exchange Notes to the Exchange Agent for Original Notes
tendered and accepted and not withdrawn promptly after the Expiration Date.
The Exchange Agent might not deliver the Exchange Notes to all tendering
holders at the same time. The timing of delivery depends upon when the
Exchange Agent receives and processes the required documents.

We will be deemed to have exchanged Original Notes validly tendered and not
withdrawn when we give oral or written notice to the Exchange Agent of their
acceptance. The Exchange Agent is an agent for us for receiving tenders of
Original Notes, Letters of Transmittal and related documents. The Exchange
Agent is also an agent for tendering holders for receiving Original Notes,
Letters of Transmittal and related documents and transmitting Exchange Notes
to validly tendering holders. If, for any reason, we (1) delay the acceptance
or exchange of any Original Notes, (2) extend the exchange offer or (3) are
unable to accept or exchange Original Notes, then the Exchange Agent may, on
our behalf and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered notes. Original Notes retained by the Exchange Agent may not be
withdrawn, except according to the withdrawal procedures outlined in the
section entitled "--Withdrawal Rights" below.

In tendering Original Notes, you must represent and warrant in the Letter
of Transmittal or in an Agent's Message (described below) that (1) you have
full power and authority to tender, exchange, sell, assign and transfer
Original Notes, (2) we will acquire good and unencumbered title to the
tendered Original Notes, free and clear of all liens, restrictions, charges
and other encumbrances, and (3) the Original Notes tendered for exchange are
not subject to any adverse claims or proxies. You also must warrant and agree
that you will, upon request, execute and deliver any additional documents we
or the Exchange Agent request to complete the exchange, sale, assignment and
transfer of the Original Notes and that you will comply with your obligations
under the exchange and registration rights agreement.

Procedures for Tendering Original Notes

Valid Tender

You may tender your Original Notes by book-entry transfer or, if you hold
certificated securities, by other means, as described below. For book-entry
transfer, you must deliver to the Exchange Agent either (1) a completed and
signed Letter of Transmittal or (2) an Agent's Message. An "Agent's Message"
means a message, transmitted by The Depository Trust Company, New York, New
York ("DTC"), to and received by the Exchange Agent and forming a part of a
book-entry confirmation (a confirmation of a book-entry transfer of Original
Notes into the Exchange Agent's account at DTC), which states that DTC has
received an express acknowledgment from the tendering participant, which
acknowledgment states that it has received and agrees to be bound by the
Letter of Transmittal and that we may enforce the Letter of Transmittal
against the tendering participant. You must deliver your Letter of Transmittal
by mail, facsimile, hand delivery or overnight carrier, or the Agent's

Message, to the Exchange Agent on or before the Expiration Date. In addition,
to complete a book-entry transfer, you must also either (1) have DTC transfer
the Original Notes into the Exchange Agent's account at DTC using the
automated tender offer program procedures for transfer, and obtain a
confirmation of such a transfer or (2) follow the guaranteed delivery
procedures described below under "--Guaranteed Delivery Procedures."

If you tender less than all of your Original Notes, you should fill in the
principal amount of notes tendered in the appropriate box on the Letter of
Transmittal. If you do not indicate the amount tendered in the appropriate
box, we will assume you are tendering all Original Notes that you hold.

For tendering your Original Notes other than by book-entry transfer, you
must deliver a completed and signed Letter of Transmittal to the Exchange
Agent. Again, you must deliver the Letter of Transmittal by mail, facsimile,
hand delivery or overnight carrier to the Exchange Agent on or before the
Expiration Date. In addition, to complete a valid tender you must either (1)
deliver your Original Notes to the Exchange Agent on or before the Expiration
Date, or (2) follow the guaranteed delivery procedures set forth below under
"--Guaranteed Delivery Procedures."

Delivery of required documents by whatever method you choose is at your
sole risk. Delivery is complete when the Exchange Agent actually receives the
items to be delivered. Delivery of documents to DTC in accordance with DTC's
procedures does not constitute delivery to the Exchange Agent. If delivery is
by mail, then registered mail, return receipt requested, properly insured, or
an overnight delivery service is recommended. In all cases, you should allow
sufficient time to ensure timely delivery.

Signature Guarantees

You do not need to endorse certificates for the Original Notes or provide
signature guarantees on the Letter of Transmittal unless (1) someone other
than the registered holder tenders the certificate or (2) you complete the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (1) or (2) above, you must sign your
Original Notes or provide a properly executed bond power, with the signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or
other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution." Eligible guarantor institutions include:

. a bank;

. a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;

. a credit union;

. a national securities exchange, registered securities association or
clearing agency; or

. a savings association that is a participant in a securities transfer
association.

Guaranteed Delivery Procedures

If you want to tender your Original Notes in the exchange offer and (1) the
certificates for the Original Notes are not immediately available or all
required documents are unlikely to reach the Exchange Agent on or before the
Expiration Date or (2) a book-entry transfer cannot be completed in time, you
may tender your Original Notes if you comply with the following guaranteed
delivery procedures:

. the tender is made by or through an eligible guarantor institution;

. you deliver a properly completed and signed Notice of Guaranteed
Delivery in the form provided with the Letter of Transmittal to the
Exchange Agent on or before the Expiration Date; and

. you deliver the certificates or a confirmation of book-entry transfer
and a properly completed and signed Letter of Transmittal to the
Exchange Agent within three New York Stock Exchange trading days after
you execute the Notice of Guaranteed Delivery.

You may deliver the Notice of Guaranteed Delivery by hand, facsimile or
mail to the Exchange Agent, and you must include a guarantee by an eligible
guarantor institution in the form described in the notice.

Our acceptance of properly tendered Original Notes is a binding agreement
between the tendering holder and us upon the terms and subject to the
conditions of the exchange offer.

Determination of Validity

We will resolve all questions regarding the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered Original Notes. Our resolution of these questions as well as our
interpretation of the terms and conditions of the exchange offer (including
the Letter of Transmittal) is final and binding on all parties. A tender of
Original Notes is invalid until all irregularities have been cured or waived.
Neither we, any of our affiliates or assigns, the Exchange Agent nor any other
person is under any obligation to give notice of any irregularities in tenders
nor will we or they be liable for failing to give any such notice. We reserve
the absolute right, in our sole and absolute discretion, to reject any tenders
determined to be in improper form or unlawful. We also reserve the absolute
right to waive any of the conditions of the exchange offer or any condition or
irregularity in the tender of Original Notes by any holder. We need not waive
similar conditions or irregularities in the case of other holders.

If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless
waived by us, the person must submit proper evidence satisfactory to us, in
our sole discretion, of his or her authority to so act.

A beneficial owner of an Original Note that is held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to
participate in the exchange offer.

Resales of Exchange Notes

We are exchanging the Original Notes for Exchange Notes based upon the
position of the staff of the SEC set forth in interpretive letters to third
parties in other similar transactions. We will not seek our own interpretive
letter. As a result, we cannot assure you that the staff will take the same
position on this exchange offer as it did in interpretive letters to other
parties. Based on the staff's letters to other parties, we believe that
holders of Exchange Notes, other than broker-dealers, can offer the Exchange
Notes for resale, resell and otherwise transfer the Exchange Notes without
delivering a prospectus to prospective purchasers, other than as described
below.

Any holder of Original Notes who is our "affiliate" within the meaning of
the Securities Act or who intends to distribute Exchange Notes, or any broker-
dealer who purchased Original Notes from us to resell pursuant to Rule 144A or
any other available exemption under the Securities Act:

. cannot rely on the staff's interpretations in the above-mentioned
interpretive letters;

. cannot tender Original Notes in the exchange offer; and

. must comply with the registration and prospectus delivery requirements
of the Securities Act to transfer the Original Notes, unless the sale is
exempt.

Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where the Original Notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."

If you want to exchange your Original Notes, you will be required to affirm
that

. you are not our "affiliate" within the meaning of the Securities Act;

. you are acquiring the Exchange Notes in the ordinary course of your
business;

. you have no arrangement or understanding with any person to participate
in a distribution of the Exchange Notes within the meaning of the
Securities Act; and

. you are not and have not engaged in, and do not intend to engage in, a
distribution of the Exchange Notes within the meaning of the Securities
Act.

In addition, we may require you to provide information regarding the number
of "beneficial owners" (within the meaning of Rule 13d-3 under the Exchange
Act) of the Original Notes.

Each broker-dealer that receives Exchange Notes for its own account must
acknowledge that it acquired the Original Notes for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of Exchange Notes. By making this
acknowledgment and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" under the Securities Act. Based on
the position taken by the SEC's staff in certain interpretive letters to third
parties, we believe that broker-dealers who acquired Original Notes for their
own accounts as a result of market-making activities or other trading
activities may fulfill their prospectus delivery requirements with respect to
the Exchange Notes with a prospectus meeting the requirements of the
Securities Act. Accordingly, we believe that a broker-dealer may use this
prospectus to satisfy such requirements. We have agreed that, starting on the
Expiration Date and ending on the close of business on the 180th day following
the Expiration Date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution" for further information. A broker-dealer intending to
use this prospectus in the resale of Exchange Notes must notify us, on or
prior to the Expiration Date, that it is a Participating Broker-Dealer (as
defined above under the heading "Exchange Offer--Purpose of the Exchange
Offer"). This notice may be given in the Letter of Transmittal or may be
delivered to the Exchange Agent. Any Participating Broker-Dealer who is our
"affiliate" within the meaning of the Securities Act may not rely on the
staff's interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act when reselling Exchange
Notes.

We agree to advise you of:

. any SEC request for amendments or supplements to the registration
statement or this prospectus or for additional information;

. the SEC's issuance of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that
purpose; and

. our receipt of any notification with respect to the suspension of the
qualification of the Exchange Notes in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.

Upon the occurrence of any of these events, we agree to notify you, if
applicable, to suspend use of this prospectus and we will prepare, as soon as
practicable, a post-effective amendment to the registration statement or an
amendment or supplement to this prospectus or file any other required document
so that, as subsequently delivered to purchasers of the Exchange Notes, this
prospectus will not include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements in this prospectus,
in the light of the circumstances under which they were made, not misleading.
You agree that you shall suspend use of this prospectus until we have amended
or supplemented the prospectus so that it does not contain any such untrue
statement or omission.

Withdrawal Rights

You can withdraw tenders of Original Notes at any time on or before the
Expiration Date.

For a withdrawal to be effective, you must deliver a written or facsimile
transmission of a notice of withdrawal to the Exchange Agent on or before the
Expiration Date. The notice of withdrawal must specify the name of the person
tendering the Original Notes to be withdrawn, the total principal amount of
Original Notes withdrawn, and the name of the registered holder of the
Original Notes if different from the person tendering the Original Notes. If
you delivered Original Notes to the Exchange Agent, you must submit the serial
numbers of the Original Notes to be withdrawn and the signature on the notice
of withdrawal must be guaranteed by an eligible guarantor institution, except
in the case of Original Notes tendered for the account of an eligible
guarantor institution. If you tendered Original Notes as a book-entry
transfer, the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Original Notes and you
must deliver the notice of withdrawal to the Exchange Agent by written or
facsimile transmission. You may not rescind withdrawals of your tender of
notes. Original Notes properly withdrawn may again be tendered at any time on
or before the Expiration Date.

We will determine all questions regarding the validity, form and
eligibility of withdrawal notices. Our determination will be final and binding
on all parties. Neither we, any of our affiliates or assigns, the Exchange
Agent nor any other person is under any obligation to give notice of any
irregularities in any notice of withdrawal, nor will we or they be liable for
failing to give any such notice. Withdrawn Original Notes will be returned to
the holder after withdrawal.

Interest on Exchange Notes

The Exchange Notes will bear interest at a rate of 10.00% per annum from
June 29, 2001, payable semi-annually, on July 15 and January 15 of each year,
commencing January 15, 2002, to the person in whose names the Exchange Notes
are registered at the close of business on July 1 and January 1, as the case
may be, next preceding such interest payment date. Holders of Exchange Notes
will receive interest on January 15, 2002 from the date of initial issuance of
the Exchange Notes, plus an amount equal to the accrued, but unpaid, interest
on the Original Notes. Interest on the Original Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.

Conditions to the Exchange Offer

If we reasonably believe that:

. the staff of the SEC no longer allows the Exchange Notes to be offered
for resale, resold and otherwise transferred by certain holders without
compliance with the registration and prospectus delivery provisions of
the Securities Act; or

. a governmental body passes any law, statute, rule or regulation which,
in our opinion, prohibits or prevents the exchange offer, or

. the SEC or any state securities authority issues a stop order suspending
the effectiveness of the registration statement or initiates or
threatens to initiate a proceeding to suspend the effectiveness of the
registration statement; or

. we are unable to obtain any governmental approval that we believe is
necessary to complete the exchange offer,

then we may (1) terminate the exchange offer, whether or not any Original
Notes have been accepted for exchange, (2) waive any condition to the exchange
offer or (3) amend the terms of the exchange offer in any respect. Our failure
at any time to exercise any of the foregoing rights will not waive such
rights, and each right will be deemed an ongoing right which may be asserted
at any time or from time to time. Notwithstanding the foregoing, we do not
intend to terminate the exchange offer if none of the foregoing conditions has
occurred.

Exchange Agent

We appointed U.S. Bank Trust National Association as Exchange Agent for the
exchange offer. Holders should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery to the Exchange
Agent addressed as follows:

By Mail: By Overnight Courier or Hand: By Facsimile:

U.S. Bank Trust National Association U.S. Bank Trust National Association (651) 244-8161
Corporate Trust Services 180 East Fifth Street
P.O. Box 64111 St. Paul, MN 55101
St. Paul, MN 55164-0111 Attention: Specialized Finance Confirm:
Services
Mail Station: STPFT 0414 (651) 244-1537

Fees and Expenses

We will pay the Exchange Agent reasonable and customary fees for its
services and reasonable out-of-pocket expenses. We may also pay brokerage
houses and other custodians, nominees and fiduciaries their reasonable out-of-
pocket expenses in forwarding copies of this prospectus and related documents
to holders of Original Notes, and in handling or forwarding tenders for
exchange.

We will pay the transfer taxes for the exchange of the Original Notes in
the exchange offer. If, however, Exchange Notes are delivered to or issued in
the name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of Original Notes in the
exchange offer, then the tendering holder will pay the transfer taxes. If a
tendering holder does not submit satisfactory evidence of payment of taxes or
exemption from taxes with the Letter of Transmittal, the taxes will be billed
directly to the tendering holder.

We will not make any payment to brokers, dealers or other persons
soliciting acceptances in the exchange offer.

Accounting Treatment

We will record the Exchange Notes at the same carrying value as the
Original Notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We intend to amortize the expenses of the exchange offer and
issuance of the Original Notes over the term of the Exchange Notes.

Consequences of Failure to Exchange

If you do not exchange your Original Notes for Exchange Notes pursuant to
the exchange offer, you will continue to be subject to the restrictions on
transfer of the Original Notes as described in the legend on those notes, but
you will not continue to have the registration rights and liquidated damages
relating to the Original Notes. In general, Original Notes may be offered or
sold only if registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. We do not currently anticipate that we will
register the Original Notes under the Securities Act.

Because we anticipate that most holders of Original Notes will elect to
exchange their notes for Exchange Notes, we expect the liquidity of the
market, if any, for the Original Notes remaining outstanding after the
completion of the exchange offer will be substantially limited.

USE OF PROCEEDS

This exchange offer is intended to satisfy certain of our obligations under
the exchange and registration rights agreement entered into in connection with
the offering of the Original Notes. We will not receive any proceeds from the
exchange offer. In consideration for issuing the Exchange Notes, we will
receive in exchange Original Notes of like principal amount, the terms of
which are identical in all material respects to the Exchange Notes, except
that the Exchange Notes will not be subject to transfer restrictions, and will
not have registration rights or accrue additional interest as liquidated
damages. The Original Notes surrendered in exchange for the Exchange Notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the Exchange Notes will not result in any increase in our indebtedness. We
have agreed to bear the expenses of the exchange offer. No underwriter is
being used in connection with the exchange offer.

The net proceeds that we received from the sale of the Original Notes on
June 29, 2001 were approximately $243.3 million, after deducting the
underwriting discount and offering expenses payable by us. We used the gross
proceeds from the sale of the Original Notes and initial borrowings under new
bank credit facilities that closed concurrently with the sale of the Original
Notes, to repay all outstanding indebtedness under our pre-existing bank
credit facilities, pay transaction costs related to the sale of the Original
Notes and our new bank credit facilities, and placed into an interest-bearing
escrow account $96.6 million of cash, the use of which is restricted to the
repayment of our $100 million 6.25% Debentures due March 15, 2002.

CAPITALIZATION

The following table sets forth our summary capitalization as of September
30, 2001, which reflects the issuance of the Original Notes and the
application of the proceeds from the sale of the Original Notes. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and notes related to those financial
statements included as a part of this prospectus.

As of September 30, 2001
------------------------
(dollars in thousands)

Cash and short-term investments....................... $ 54,085
Restricted cash(a).................................... 97,549
----------
$ 151,634
==========
Short-term debt:
Current installments on long-term debt(b)........... $ 133,097
----------
Total short-term debt............................. $ 133,097
----------
Long-term debt:
Three-year revolving credit facility(c)............. $ --
Four-year term loan................................. 197,500
Medium-term notes fixed rate 8.27% to 9.42% due 2003
through 2022....................................... 134,500
Debentures 6.95% due 2015........................... 99,848
Credit sensitive debentures 9.125% due 2009(d)...... 100,000
Revenue bonds fixed rate 5.9% to 7.5% due 2002
through 2030....................................... 136,166
Revenue bonds variable rate due 2007 through 2030... 99,889
Other notes......................................... 106
Senior subordinated Original Notes.................. 250,000
----------
Total long-term debt.............................. $1,018,009
----------
Total debt...................................... $1,151,106
==========
Total debt less escrowed funds.................. $1,053,557
==========
Total stockholders' equity........................ $ 741,072
==========
Total capitalization............................ $1,892,178
==========
Total capitalization less escrowed funds........ $1,794,629
==========

- --------

(a) We have $97.6 million of cash in an interest-bearing escrow account, the
use of which is restricted to repayment of our $100 million 6.25%
Debentures due March 15, 2002.

(b) Includes $100.0 million of our 6.25% Debentures due March 15, 2002.

(c) Our bank credit facilities include a revolving three-year credit facility
of up to $200.0 million in revolving credit loans and letters of credit.
The subfacility for letters of credit is limited to $110.0 million in face
amount of issued and undrawn letters of credit. Any letters of credit
issued under the subfacility have the effect of reducing our available
borrowing capacity under the revolving facility. As of September 30, 2001,
we had letters of credit outstanding in the aggregate amount of $103.0
million. These letters of credit provide credit enhancement for a portion
of our outstanding industrial revenue bonds.

(d) As of September 30, 2001, the interest rate on the credit sensitive
debentures was 9.425%.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data set forth below under
the caption "Income Statement Data" for each of the years in the three-year
period ended December 31, 2000, and under the caption "Balance Sheet Data" as
of December 31, 1999 and 2000, is derived from our consolidated financial
statements included elsewhere in this prospectus, which have been audited by
KPMG LLP, independent certified public accountants. The selected historical
consolidated financial data set forth below under the caption "Income
Statement Data" for each of the years ended December 31, 1996 and 1997, and
under the caption "Balance Sheet Data" as of December 31, 1996, 1997, and
1998, is derived from our audited consolidated financial statements not
included in this prospectus. The selected historical consolidated financial
data set forth below under the caption "Income Statement Data," for the nine-
month periods ended September 30, 2000 and 2001, and under the caption
"Balance Sheet Data" as of September 30, 2001, is derived from our unaudited
consolidated financial statements included in this prospectus. The selected
historical consolidated financial data set forth below under the caption
"Balance Sheet Data" as of September 30, 2000, is derived from our unaudited
consolidated financial statements not included in this prospectus. We have
prepared the unaudited information on the same basis as the audited
consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary
for a fair presentation of our financial position and operating results. The
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the notes related to those financial
statements included elsewhere or incorporated by reference in this prospectus.

Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------------- -------------------------
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands, except ratio data)

Income Statement Data:
Net sales................ $1,675,756 $1,693,371 $1,688,705 $1,808,388 $1,808,770 $1,389,096 $1,357,135
Costs and expenses:
Depreciation,
amortization and cost
of fee timber
harvested.............. 141,521 149,785 150,278 150,253 161,847 121,209 126,036
Materials, labor and
other operating
expenses............... 1,307,434 1,344,166 1,305,923 1,404,562 1,468,316 1,111,815 1,163,515
Selling, general and
administrative
expenses............... 104,114 106,450 133,297 141,580 123,347 93,642 89,079
Restructuring and other
charges................ -- -- -- -- 46,411 (a) 44,502 (b) 4,570 (c)
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,553,069 1,600,401 1,589,498 1,696,395 1,799,921 1,371,168 1,383,200
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from
operations.............. 122,687 92,970 99,207 111,993 8,849 17,928 (26,065)
Interest expense, net of
capitalized interest.... (43,869) (46,124) (49,744) (45,442) (59,438) (43,637) (57,377)
Other income (expense),
net..................... 7,508 7,789 8,712 (507)(d) (3,860) (2,997) 5,166
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
taxes on income and
extraordinary item...... 86,326 54,635 58,175 66,044 (54,449) (28,706) (78,276)
Provision (benefit) for
taxes on income......... 24,792 18,576 20,943 25,097 (21,235) (11,195) (30,528)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)
before extraordinary
item.................... 61,534 36,059 37,232 40,947 (33,214) (17,511) (47,748)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Extraordinary item--loss
from early
extinguishment of debt,
net of tax.............. (3,445) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)...... $ 58,089 $ 36,059 $ 37,232 $ 40,947 $ (33,214) $ (17,511) $ (47,748)
========== ========== ========== ========== ========== ========== ==========
Balance Sheet Data (at
period end):
Cash and short-term
investments............. $ 12,316 $ 15,542 $ 18,072 $ 11,690 $ 11,661 $ 11,246 $ 151,634
Total assets............. 2,265,679 2,365,136 2,377,306 2,446,500 2,542,445 2,483,269 2,646,589
Total debt............... 717,708 817,652 797,073 833,585 990,817 912,295 1,151,106
Total stockholders'
equity.................. 954,195 951,592 930,906 921,039 813,236 840,849 741,072
Other Financial Data:
Capital expenditures..... $ 239,908 $ 158,485 $ 147,027 $ 247,651 $ 166,422 $ 119,040 $ 42,795
Ratio of earnings (loss)
to fixed charges(e)..... 2.3x 1.9x 1.9x 1.9x 0.1x 0.4x (0.2x)
Adjusted ratio of
earnings (loss) to fixed
charges(f).............. 2.3x 1.9x 1.9x 1.9x 0.8x 1.3x (0.2x)

- --------
(a) Includes a $27.9 million pre-tax charge to cover costs associated with a
company-wide reduction and reorganization of our salaried workforce, and
an $18.5 million pre-tax charge associated with the closure of our Jaype,
Idaho plywood mill.

(b) Includes a $26.0 million pre-tax charge for the nine months ended
September 30, 2000 associated with a company-wide reduction and
reorganization of our salaried workforce and a $18.5 million pre-tax
charge associated with the closure of our Jaype, Idaho plywood mill.

(c) Includes a $4.6 million pre-tax charge associated with the workforce
reduction plan at our pulp, paperboard and consumer products operations in
Idaho.

(d) Includes a $7.5 million pre-tax charge for expenses related to the
termination of efforts to form a timber real estate investment trust.

(e) The ratio of earnings (loss) to fixed charges was calculated by dividing
(1) earnings (loss) from continuing operations, before income taxes, plus
fixed charges, less capitalized interest by (2) fixed charges, which
consist of interest expense incurred, including amortization of debt
expense and discount, and the portion of rental expense estimated to be
representative of the interest factor. The ratio of earnings (loss) to
fixed charges for the year ended December 31, 2000, and for the nine
months ended September 30, 2000 and September 30, 2001 indicates less than
one-to-one coverage. The dollar amount of the deficiency for those periods
is $79.3 million, $31.3 million, and $58.4 million respectively.

(f) Adjusted ratio of earnings (loss) to fixed charges excludes restructuring
and other one-time charges for all relevant periods. See footnotes (a),
(b) and (c) above for a description of restructuring and other charges.

SELECTED HISTORICAL BUSINESS SEGMENT FINANCIAL DATA

The selected historical business segment financial data set forth below for
each of the years in the three-year period ended December 31, 2000 and as of
December 31, 1999 and 2000 is derived from our consolidated financial
statements included elsewhere in this prospectus, which have been audited by
KPMG LLP, independent certified public accountants. The selected historical
business segment financial data set forth below for each of the years ended
December 31, 1996 and 1997 and as of December 31, 1996, 1997, and 1998, is
derived from our audited consolidated financial statements not included in
this prospectus. The selected historical business segment financial data set
forth below under the captions "Net Sales" and "Operating Income (Loss)" for
the nine-month periods ended September 30, 2000 and 2001 is derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus. The selected historical business segment financial data set forth
below under the captions "EBITDDA" and "Capital Expenditures" for the nine-
month periods ending September 30, 2000 and 2001 and under the caption
"Assets" as of September 30, 2000 and 2001 is derived from our unaudited
consolidated financial statements not included in this prospectus. We have
prepared the unaudited information on the same basis as the audited
consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary
for a fair presentation of our financial position and operating results. The
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the notes related to those financial
statements included elsewhere or incorporated by reference in this prospectus.

Net Sales:
Resource................ $ -- (a) $ 326,636 $ 325,934 $ 337,558 $ 352,324 $ 270,391 $ 304,262
Wood products........... 566,288 508,437 537,735 637,644 552,907 444,494 405,498
Printing papers......... 470,586 458,698 435,428 454,734 503,376 382,567 361,180
Pulp and paper.......... 696,361 709,478 696,719 693,409 730,068 547,317 580,995
Elimination of
intersegment sales..... (57,479) (309,878) (307,111) (314,957) (329,905) (255,673) (294,800)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total net sales........ $1,675,756 $1,693,371 $1,688,705 $1,808,388 $1,808,770 $1,389,096 $1,357,135
========== ========== ========== ========== ========== ========== ==========
Operating Income (Loss):
Resource................ $ -- (a) $ 88,134 $ 71,296 $ 68,006 $ 61,395 $ 48,286 $ 35,730
Wood products........... 68,056 (40,460) 2,515 83,073 219 (b) 19,147 (b) (13,475)
Printing papers......... 48,570 33,358 14,204 (13,816) 1,530 (1,477) (18,421)
Pulp and paper.......... 40,867 51,043 53,394 14,786 12,929 16,790 4,159 (c)
Corporate............... (71,167) (77,662) (82,579) (87,595) (85,645)(d) (62,964)(d) (81,005)
Eliminations and
adjustments............ -- (a) 222 (655) 1,590 1,534 (3,986) (694)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
taxes on income and
extraordinary item.... $ 86,326 $ 54,635 $ 58,175 $ 66,044 $ (8,038) $ 15,796 $ (73,706)
========== ========== ========== ========== ========== ========== ==========
EBITDDA:
Resource................ $ -- (a) $ 109,631 $ 94,750 $ 93,541 $ 88,189 $ 66,237 $ 54,751
Wood products........... 117,128 (11,371) 32,651 111,858 27,934 (b) 40,815 (b) 9,656
Printing papers......... 83,888 72,794 55,822 28,183 53,918 37,764 21,911
Pulp and paper.......... 96,959 109,732 106,919 69,395 68,312 58,309 44,425(c)
Corporate............... (33,767) (38,031) (40,657) (40,731) (21,246)(d) (19,486)(d) (26,202)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total EBITDDA.......... $ 264,208 $ 242,755 $ 249,485 $ 262,246 $ 217,107 $ 183,639 $ 104,541
========== ========== ========== ========== ========== ========== ==========

Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------------- ---------------------
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)

Assets (at period end):
Resource................ $ -- (a) $ 406,970 $ 410,264 $ 420,326 $ 430,583 $ 423,528 $ 435,520
Wood products........... 698,151 341,204 326,963 291,263 310,100 325,593 390,134
Printing papers......... 592,228 644,457 685,743 828,828 820,132 820,075 783,047
Pulp and paper.......... 850,612 784,631 759,701 731,030 751,980 740,369 701,329
Corporate............... 124,688 187,874 194,635 175,053 229,650 173,704 336,559
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets........... $2,265,679 $2,365,136 $2,377,306 $2,446,500 $2,542,445 $2,483,269 $2,646,589
========== ========== ========== ========== ========== ========== ==========
Capital Expenditures:
Resource................ $ -- (a) $ 19,604 $ 18,832 $ 17,356 $ 20,499 $ 16,205 $ 11,711
Wood products........... 43,992 22,172 18,303 26,557 75,259 50,180 11,425
Printing papers......... 103,574 81,913 87,147 181,944 21,831 18,584 5,400
Pulp and paper.......... 92,083 33,856 21,943 20,850 48,200 33,500 14,203
Corporate............... 259 940 802 944 633 571 56
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total capital
expenditures.......... $ 239,908 $ 158,485 $ 147,027 $ 247,651 $ 166,422 $ 119,040 $ 42,795
========== ========== ========== ========== ========== ========== ==========

- --------
(a) In 1999, we reorganized our segments and established Resource as a stand-
alone segment, which we had previously reported as part of the Wood
Products segment. Segment data prior to 1997 has not been restated for
Resource and Wood Products.

(b) For the year 2000 and the nine months ended September 30, 2000 excludes
an $18.5 million pre-tax charge associated with the closure of our Jaype,
Idaho plywood mill.

(c) Excludes a $4.6 million pre-tax charge associated with the workforce
reduction plan at our pulp, paperboard and consumer products operations
in Idaho.

(d) Excludes restructuring and other pre-tax charges of $27.9 million for the
twelve months ended December 31, 2000 and $26.0 million for the nine
months ended September 30, 2000 associated with a company-wide reduction
and reorganization of our salaried workforce.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those described below, as well as those discussed under "Risk Factors" and
elsewhere in this prospectus.

Overview

We are a vertically integrated and diversified forest products company. We
own approximately 1.5 million acres of timberland and operate 22 manufacturing
facilities, located primarily in Arkansas, Idaho and Minnesota. Our business
is organized into four segments:

. Resource segment manages our timberlands, which supply logs, wood chips,
pulpwood and other wood fiber to our manufacturing segments, as well as
to third parties. The Resource segment also procures wood fiber from
third parties for resale to our other segments. Intersegment sales are
based on prevailing market prices for wood fiber. In 2000, Resource
segment net sales were $352.3 million, representing approximately 16% of
our net sales, before elimination of intersegment sales. Intersegment
sales were $315.1 million in 2000.

. Wood Products segment manufactures oriented strand board, or OSB,
plywood, lumber and particleboard at eleven mills located in Arkansas,
Idaho and Minnesota. These products are largely commodity products which
are sold to wholesalers primarily for use in home building and other
construction activity. Wood Products segment net sales were $552.9
million in 2000, representing approximately 26% of our net sales, before
elimination of intersegment sales. Intersegment sales were $13.3 million
in 2000.

. Printing Papers segment produces high grade coated printing papers and
bleached hardwood market pulp at a pulp mill and two printing papers
manufacturing facilities located in Minnesota. The segment's coated
printing papers are sold through distributors and are used in annual
reports, showroom catalogs and other high-end printing products.
Printing Papers segment net sales were $503.4 million in 2000,
representing approximately 24% of our net sales, before elimination of
intersegment sales. Intersegment sales were $1.4 million in 2000.

. Pulp and Paper segment manufactures bleached paperboard used in
packaging, tissue products primarily sold on a private-label basis by
major grocery store chains in the western U.S., and bleached softwood
market pulp. The Pulp and Paper segment operates two pulp mills, two
paperboard mills, one tissue mill and three tissue converting
facilities. Pulp and Paper segment net sales were $730.1 million in
2000, representing approximately 34% of our net sales, before
elimination of intersegment sales. Intersegment sales for the Pulp and
Paper segment were negligible in 2000.

Most of our net sales are within the U.S. Sales outside of the U.S.,
consisting primarily of paperboard products sold to customers in Asia,
represented approximately 8% of our net sales in 2000. All of our non-U.S.
sales are denominated in U.S. dollars and accordingly we are not subject to
exchange rate risks associated with the receipt of payments in foreign
currencies.

Factors Influencing Our Results of Operations

Our operating results have been and will continue to be influenced by a
variety of factors, including the cyclical nature of the forest products
industry, competition, the efficiency and level of capacity utilization of our
manufacturing operations, changes in our principal expenses, such as wood
fiber expenses and energy costs, changes in the production capacity of our
manufacturing operations as a result of major capital spending projects and
other factors.

Our operating results reflect the general cyclical pattern of the forest
products industry. All of our pulp-based products other than tissue products
are globally-traded commodity products. In addition, our wood products are
subject to competition from manufacturers in North and South America.
Historical prices for our products have been volatile, and we, like other
participants in the forest products industry, have limited direct influence
over the timing and extent of price changes for our products. Product pricing
is significantly affected by the relationship between supply and demand in the
forest products industry. Product supply is influenced primarily by
fluctuations in available manufacturing capacity. Demand is affected by the
state of the economy in general and a variety of other factors. The demand for
our timber resources and wood products is affected by the level of new
residential construction activity and, to a lesser extent, home repair and
remodeling activity, which are subject to fluctuations due to changes in
economic conditions, interest rates, population growth, weather conditions and
other factors. The demand for most of our printing papers and pulp and paper
products is primarily affected by the state of the global economy, in general,
and, in particular, the economies in North America and east Asia.

The markets for our products are highly competitive and companies that have
substantially greater financial resources than we do compete with us in each
of our markets. Our competitors are located throughout the world and
variations in exchange rates between the U.S. dollar and other currencies,
particularly the Euro, significantly affect our competitive position compared
to our international competitors. We believe that the strength of the U.S.
dollar relative to the Euro has resulted in significantly increased
competition from European companies, particularly in our Printing Papers
segment. In addition, our industry is capital intensive, which leads to high
fixed costs and generally results in continued production as long as prices
are sufficient to cover variable costs. These conditions have contributed to
substantial price competition, particularly during periods of reduced demand.
Some of our competitors are currently lower-cost producers in some of the
businesses in which we operate, particularly in our pulp-based business, and
accordingly these competitors may be less adversely affected than we are by
price decreases.

Energy has become one of our most significant operating expenses as a
result of rapid and substantial price increases which commenced in late 2000
and continued in the first half of 2001, before moderating in the third
quarter. We use energy to generate steam used in the paper manufacturing
process and to operate our other machinery. Our energy expenses were $38.9
million greater in the nine months ended September 30, 2001, than in the same
period of 2000. Market conditions prevent us from passing these higher costs
on to our customers through price increases and accordingly, energy costs were
a significant factor contributing to our net loss of $47.7 million during the
nine months ended September 30, 2001. Our facilities in Idaho have been the
most adversely affected by the increased cost of energy as a result of
comparatively greater energy price increases in the northwestern U.S. In
recent months, we have reduced our exposure to the volatile spot market for
electricity primarily by increasing our internal production of electricity.
This contributed significantly to a reduction in our energy costs in the three
months ending September 30, 2001, which were $29.5 million, as compared to
$35.8 million in the second quarter and $53.5 million in the first quarter of
2001. Our energy costs for the third quarter of 2001 were comparable to 2000's
third quarter. During the first half of 2001, we entered into forward
contracts for the purchase of natural gas to reduce our exposure to volatile
natural gas prices. Changes in the value of those contracts are recorded as an
asset or liability as of the end of each reporting period and the
corresponding gain or loss is recognized in our statements of earnings. For
the quarter ended September 30, 2001, we adjusted our liability and recorded
expense in the amount of $.2 million related to these contracts, which is
included in the $29.5 million of energy costs for the three months ended
September 30, 2001. Our energy costs in future periods will depend principally
on our ability to continue to produce internally a substantial portion of our
electricity needs and on changes in market prices for natural gas.

Another significant expense is the cost of wood fiber needed to supply our
manufacturing facilities. Our timberlands provided approximately 55% of log
requirements for our sawmill and plywood manufacturing facilities in 2000 and
an average of approximately 67% over the past five calendar years. Including
the wood fiber used for pulp, OSB and particleboard, the percentages our
timberlands supplied were approximately 30% in 2000 and an average of
approximately 41% over the past five calendar years. The percentage of our
wood fiber requirements supplied by the Resource segment will fluctuate based
on a variety of factors, including

changes in our timber harvest levels and changes in our manufacturing
capacity. For example, the lower percentage of wood fiber supplied in 2000,
compared to the five year average, was primarily the result of the significant
increase in pulp manufacturing capacity resulting from the completion in
December 1999 of our new pulp mill in Cloquet, Minnesota. The cost of various
types of wood fiber that we purchase in the market has at times fluctuated
greatly because of economic or industry conditions. Selling prices of our
products have not always increased in response to wood fiber price increases.
On occasion, our results of operations have been and may in the future be
seriously harmed if we are unable to pass price increases through to our
customers.

Finally, changes in our manufacturing capacity primarily as a result of
capital spending programs has significantly affected our results of operations
in recent periods. In December 1999, we completed construction of our new pulp
mill in Cloquet, Minnesota, increasing our annual production from 186,000 tons
in 1999 at the former mill on the same site, to 348,000 tons at the new mill
in 2000. In January 2001, we completed a modernization and expansion of our
OSB mill in Cook, Minnesota. This resulted in an increase in annual production
capacity from 250.0 million square feet to 435.0 million square feet at our
Cook OSB mill. In addition, in September 2000, we closed our plywood mill in
Jaype, Idaho as a result of poor plywood markets, lack of adequate raw
materials and long-term transportation concerns. Each of these changes has had
a significant effect on our levels of net sales and expenses, as well as the
comparability of our operating results from period-to-period. Additionally,
the profitability of our manufacturing segments depends largely on our ability
to operate our manufacturing facilities efficiently and at or near full
capacity. Our operating results would be harmed if market demand does not
justify operating at these levels or if our operations are inefficient or
suffer significant interruption for any reason.

Results of Operations

As noted above, our business is organized into four reporting segments:
Resource; Wood Products; Printing Papers; and Pulp and Paper. Sales or
transfers between the segments are recorded as intersegment sales based on
prevailing market prices. Because of the role of the Resource segment in
supplying our manufacturing segments with wood fiber from both our own
timberlands and from outside third parties, intersegment sales represent a
significant percentage of the Resource segment's total net sales. For the year
ended December 31, 2000, intersegment sales accounted for 89% of the net sales
for the Resource segment. Intersegment sales represent a substantially lower
percentage of net sales for our other segments. For the year ended December
31, 2000, intersegment sales represented less than 3% of net sales for the
Wood Products segment and intersegment sales were an immaterial portion of the
net sales for the Printing Papers and Pulp and Paper segments.

In the period to period discussion of our results of operations below, when
we discuss our consolidated net sales, contributions by each of the segments
to our net sales are reported after elimination of intersegment sales. In the
discussions below under the captions "Discussion of Business Segments," each
segment's net sales are set forth before elimination of intersegment sales.
Additionally, in discussing the operating results of our segments below, we
address net sales realizations, which for each product line are calculated by
subtracting customer freight from net sales and then dividing the result by
the relevant quantities of the product shipped for the period. We believe that
this is a measurement which can be helpful in showing trends in the pricing of
our products.

Nine Months Ended September 30, 2001, Compared to Nine Months Ended September
30, 2000

Net Sales. Net sales consist of product sales, which are generally
recognized upon shipment, less discounts, returns and allowances. Net sales
decreased 2%, or $32.0 million, from $1,389.1 million for the nine months
ended September 30, 2000, to $1,357.1 million for the same period in 2001. The
decrease was primarily the result of a $43.2 million decline in net sales for
the Wood Products segment and a $21.7 million decline in net sales for the
Printing Papers segment. Net sales were lower for the Wood Products segment
primarily due to substantially lower net sales realizations for all of our
panel products, particularly oriented strand board. Lower net sales in the
Printing Papers segment were due to lower net sales realizations for printing
papers. Partially offsetting the decrease in net sales for these segments was
a $33.7 million increase in the Pulp and Paper segment net sales, primarily
for consumer tissue products. Resource segment net sales decreased $.7
million.

Depreciation, amortization and cost of fee timber harvested. Depreciation,
amortization and cost of fee timber harvested primarily consists of
depreciation of our plant and equipment, amortization of logging roads and
debt issue costs, and the cost of timber harvested. This expense amounted to
$126.0 million for the nine months ended September 30, 2001, an increase of
$4.8 million from the prior year period amount of $121.2 million. The increase
was due largely to increased amortization expense as a result of our debt
refinancing activities during the second quarter of 2001.

Materials, labor and other operating expenses. Materials, labor and other
operating expenses primarily consists of personnel costs, wood fiber, chemical
and other raw material costs, energy costs, freight, repair and maintenance
expenses and logging costs. Materials, labor and other operating expenses
increased 5%, or $51.7 million, from $1,111.8 million for the nine months
ended September 30, 2000, to $1,163.5 million for the nine months ended
September 30, 2001. Energy costs were $38.9 million higher for the current
nine months compared to 2000's first nine months, and include a $5.0 million
charge for the fair value adjustment of our natural gas hedging contracts.

Selling, general and administrative expenses. Selling, general and
administrative expenses primarily consist of personnel and related overhead
costs for sales, marketing, finance, research and development, human resources
and general management. Selling, general and administrative expenses decreased
5% to $89.1 million for the nine months ended September 30, 2001, from $93.6
million for the same period of 2000. The decrease was primarily due to
reductions in the workforce made in June 2000 and to reduced selling expenses
related to our printing papers and consumer tissue products.

Restructuring and other charges. In March 2001 we recorded a $4.2 million
pre-tax charge associated with a workforce reduction plan at our pulp,
paperboard and consumer products operations in Idaho. In September 2001 we
recorded an additional $.4 million pre-tax charge for final cost
determinations for pension and medical benefits. In June 2000 we recorded a
$26.0 million pre-tax charge to cover costs associated with a company-wide
reduction and reorganization of our salaried workforce. In September 2000 we
recorded an $18.5 million pre-tax charge for costs associated with the closure
of our Jaype, Idaho, plywood mill.

Interest expense, net of capitalized interest. Interest expense was $57.4
million for the nine months ended September 30, 2001, an increase from $43.6
million in the prior year period. This increase reflects greater indebtedness
during the 2001 period as well as higher interest rates.

Other income (expense), net. For the nine months ended September 30, 2001,
"Other income (expense), net" reflected income of $5.2 million compared to
expense of $3.0 million for the 2000 period.

Provision (benefit) for taxes on income. For the nine months ended
September 30, 2001, we recorded an income tax benefit of $30.5 million,
reflecting our net loss before taxes, based on an estimated tax rate of 39%.
For the nine months ended September 30, 2000, we recorded a benefit of $11.2
million, also reflecting a tax benefit rate of 39%.

Net earnings (loss). We recorded a net loss of $47.7 million for the nine
months ended September 30, 2001, compared to a net loss of $17.5 million for
the same period in 2000.

Discussion of business segments. The Resource segment reported operating
income of $35.7 million for the first nine months of 2001, down from $48.3
million earned in the same period of 2000. Segment net sales increased 13%
from $270.4 million for the 2000 period to $304.3 million for the 2001 period.
The increase in net sales was due to increased wood fiber sales to our other
operating segments in Minnesota, Idaho and Arkansas. Most of the increased
volume was procured from outside sources and resold internally. Resource
segment expenses increased from $222.1 million for the first nine months of
2000 to $268.5 million for the 2001 period. The increase in expenses was
attributable to increased outside wood purchases and increased production
costs.

The Wood Products segment reported an operating loss of $13.5 million for
the first nine months of 2001, compared to operating income of $.6 million
earned in the first nine months of 2000. Segment net sales were

$405.5 million for the first nine months of 2001, 9% lower than the $444.5
million recorded for the 2000 period. Net sales of OSB decreased from $170.6
million for the 2000 period to $128.9 million for the same period in 2001.
Although shipments of OSB were approximately equal to the prior year, net
sales realizations for OSB declined 27%. Net sales of plywood fell 20%, from
$43.3 million for the 2000 period to $34.7 million for the 2001 period,
reflecting the closure of the Jaype, Idaho, mill in the fall of 2000, and an
8% decrease in net sales realizations. Lumber net sales rose $17.8 million, or
9%, to $211.3 million for the 2001 period. Shipments of lumber increased 13%
for the 2001 period, while net sales realizations were down 6% compared to the
first nine months of 2000. Although the segment experienced higher energy and
wood fiber costs during the period, segment expenses decreased to $419.0
million for 2001's first nine months from $443.8 million for the 2000 period
as a result of the closure of our Jaype, Idaho, plywood mill in September
2000. We recorded an $18.5 million pre-tax charge in 2000 for the closure of
the Jaype mill.

The Printing Papers segment reported an operating loss for the first nine
months of 2001 of $18.4 million, versus a loss of $1.5 million reported a year
ago. Segment net sales declined 6%, or $21.4 million, from $382.6 million for
the 2000 period to $361.2 million for the 2001 period. Net sales realizations
for pulp and printing papers declined 32% and 8%, respectively, compared to
the first nine months of 2000. A 55% increase in shipments of market pulp
partially offset the decline in segment net sales. Pulp shipments increased
due to increased production at our Cloquet, Minnesota, pulp mill. Segment
expenses were $379.6 million for the first nine months of 2001, compared to
$384.0 million in 2000's first nine months. Lower expenses for operating
supplies, maintenance materials, selling and administration were partially
offset by higher energy costs and a greater volume of market pulp shipped in
the current period.

The Pulp and Paper segment reported an operating loss for the first nine
months of 2001 of $.4 million, compared to operating income of $16.8 million
for 2000's first nine months. Segment net sales increased to $581.0 million
for the first nine months of 2001 from $547.3 million for the 2000 period. The
increase was due largely to a $38.9 million increase in tissue product net
sales. Tissue product shipments were 11% higher and net sales realizations
increased 5% compared to the 2000 period. Segment expenses increased 10%, from
$530.5 million for the 2000 period to $581.4 million for the 2001 period.
Higher energy and wood fiber costs combined with increases in the overall
volume of shipments and production for the segment were responsible for the
increase in costs.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net sales. Net sales of $1,808.8 million for the year ended December 31,
2000 remained essentially flat as compared to net sales of $1,808.4 million
for the year ended December 31, 1999. Net sales for the Wood Products segment
fell by $82.0 million, as a result of net sales decreases in OSB, lumber, and
plywood. The decrease in net sales for the Wood Products segment was offset by
increased net sales in both the Printing Papers and Pulp and Paper segments.
Net sales for the Printing Papers segment rose $47.2 million from the prior
year, attributable to hardwood market pulp sales from a full year of
production at our new Cloquet, Minnesota pulp mill. Improved net sales of both
paperboard and tissue lifted net sales of the Pulp and Paper segment by $36.7
million.

Depreciation, amortization and cost of fee timber harvested. Expenses for
depreciation, amortization and cost of fee timber harvested rose 8%, from
$150.3 million for the year ended December 31, 1999 to $161.8 million for the
year ended December 31, 2000. The increase of $11.5 million was primarily due
to the increased depreciation expense associated with our new Cloquet,
Minnesota pulp mill. Other depreciation and amortization expenses, and the
cost of fee timber harvested, remained substantially unchanged in 2000 from
1999.

Materials, labor and other operating expenses. For the year ended December
31, 2000, materials, labor and other operating expenses increased by 5% to
$1,468.3 million in 2000 from $1,404.6 million in 1999. Energy costs for the
period increased by 33% to $124.9 million and wood fiber costs increased by 7%
to $498.0 million. The increased wood fiber costs were largely attributable to
increased consumption as our new Cloquet, Minnesota pulp mill was in operation
for the full year. The increase in energy and wood fiber expenses were
partially offset by lower personnel costs resulting from the reduction and
reorganization of our salaried workforce in June 2000 and the closure of our
Jaype, Idaho plywood mill in September 2000.

Selling, general and administrative expenses. Selling, general and
administrative expenses amounted to $123.3 million for the year ended December
31, 2000, an $18.3 million decrease from expenses of $141.6 million for 1999.
The decrease was experienced across most of our selling and administrative
units, and was primarily attributable to the reduction in our salaried
workforce, occurring in June 2000, and lower overall compensation expense in
2000.

Interest expense, net of capitalized interest. Interest expense for 2000 of
$59.4 million was significantly higher than the $45.4 million charged against
income in 1999. The difference was due to a change in the amount of interest
capitalized, $4.0 million in 2000 compared to $10.3 million in 1999, with the
balance reflecting the increase in debt acquired during the year. Less
interest was capitalized in 2000, compared to 1999, mainly due to completing
the construction of our new Cloquet pulp mill in December 1999.

Other income (expense), net. For the year ended December 31, 2000, other
expense, net, was $3.9 million compared to other expense, net, of $0.5 million
in 1999.

Provision (benefit) for taxes on income. For the year ended December 31,
2000, our loss before taxes was offset in part by an income tax benefit of
$21.2 million associated with the loss. For the year ended December 31, 1999,
we recorded a provision for tax expense of $25.1 million. Our effective tax
rate amounted to 39% in 2000 and 38% in 1999.

Restructuring and other charges. For the year ended December 31, 2000, we
recorded restructuring and other charges of $46.4 million. In June 2000, we
recorded a $26.0 million pre-tax charge to cover costs associated with a
company-wide reduction and reorganization of our salaried workforce. In
December an additional $1.9 million pre-tax charge was recorded as a result of
final cost determinations for pension and medical benefits. The charges are
included in the "Restructuring and other charges" line in the Statements of
Earnings in our consolidated financial statements. A total of 290 salaried
positions were affected by the reduction and reorganization. We anticipate
annual pre-tax savings of approximately $21.0 million as a result of the
reduction in workforce. Also included in "Restructuring and other charges" is
an $18.5 million pre-tax charge for costs associated with the closure of our
Jaype, Idaho plywood mill in September 2000. The closure was deemed necessary
due to a combination of poor plywood markets, lack of adequate raw materials
and long-term transportation concerns. The amounts of net sales and operating
income or loss attributable to the mill were not material in relation to net
sales and operating income as a whole. Closure of the mill affected 215
salaried and hourly positions. The mill is scheduled to be dismantled, with
equipment and parts used at other company facilities or sold to outside
bidders. We will continue to operate a log yard at the site.

Net earnings (loss). We recorded a net loss of $33.2 million for the year
ended December 31, 2000, compared to net earnings of $40.9 million for the
year ended December 31, 1999.

Discussion of business segments. Resource segment operating income of $61.4
million for the year ended December 31, 2000 was lower than the $68.0 million
reported in 1999. Net sales for the Resource segment increased $14.8 million
in 2000, as shipments increased by 4% and net sales realizations declined
slightly in Idaho. Increased expenses outstripped these gains, and lower
operating income was largely due to higher costs associated with outside log
purchases in Arkansas and lower net sales realizations. Also contributing to
the lower operating income was a decline in the volume of third party log
sales and sawlog production in Idaho, coupled with fewer non-strategic land
sales by the segment for the 2000 period compared to 1999. Greater timber
harvests in Arkansas and Minnesota partially offset a decrease in timber
harvests in Idaho.

Excluding an $18.5 million charge related to the permanent closure of our
plywood mill in Jaype, Idaho, the Wood Products segment had operating income
of $0.2 million for the year ended December 31, 2000, compared to operating
income of $83.1 million in 1999. Net sales for the Wood Products segment
dropped by $84.7 million in 2000 to $552.9 million. Compared to 1999, net
sales dropped in all categories. In particular, net sales of OSB decreased by
$38.9 million, or 16%, net sales of lumber fell by $25.1 million, or 9%, and
net sales of plywood fell by $20.4 million, or 28%. OSB results were primarily
affected by a 16% decline in net sales realizations. For lumber, net sales
realizations dropped 12% and shipments increased by 3%. Net sales

realizations for plywood fell by 9% and shipments declined by 22%. The decline
in shipments of panel products was due, in part, to the closure of our plywood
mill in Jaype, Idaho and the temporary shutdown of our Cook, Minnesota OSB
mill in early December. The Cook mill was shut down to facilitate the
completion of our modernization and expansion project. The mill resumed
production in late January 2001.

The Printing Papers segment reported operating income of $1.5 million
compared to an operating loss of $13.8 million in 1999. The improvement
resulted from lower average per ton pulp production costs during the year and
the first year of sales of our hardwood market pulp, both of which were a
result of the startup of our new pulp mill in Cloquet, Minnesota in December
1999. Net sales for the segment rose $48.6 million from the prior year.
Hardwood market pulp, sold for the first time in 2000, generated $53.8 million
in net sales. Net sales of printing papers fell by $5.1 million. Net sales
realizations for printing papers rose 2%, while shipments declined 4% compared
to the previous year as demand for printing papers remained soft throughout
2000. Operations were curtailed for approximately one week at our Cloquet
paper mill and two weeks at our Brainerd paper mill in 2000 to help align
inventory levels with existing market conditions. The segment also experienced
increased expenses in 2000 primarily associated with a full year of pulp
production at our new Cloquet, Minnesota pulp mill.

Operating income for the Pulp and Paper segment was $12.9 million in 2000,
which was lower than 1999 operating income of $14.8 million. Segment net sales
increased by 5%, or $36.7 million, for the period. Net sales realizations for
2000 increased by 13% for paperboard, 3% for tissue and 48% for pulp. Tissue
product shipments also rose by 6%. A decline in paperboard and softwood market
pulp shipments, higher energy costs during the second half of the year,
especially in Idaho, and higher costs incurred to continue operations during a
scheduled rebuild of the recovery boiler at our pulp and paperboard mill in
Cypress Bend, Arkansas, were largely responsible for the decrease in segment
operating income.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net sales. Net sales for the year ended December 31, 1999 rose by 7%, or
$119.7 million, to $1,808.4 million from the year earlier net sales amount of
$1,688.7 million. Net sales for the Wood Products segment rose by 21%, or
$107.9 million, and net sales for the Printing Papers segment rose by 4% or
$19.3 million. These gains were partially offset by a decline of 10%, or $4.3
million, in net sales for the Resource segment and a $3.3 million decrease in
net sales for the Pulp and Paper segment.

Depreciation, amortization and cost of fee timber harvested. Expense for
depreciation, amortization and cost of fee timber harvested amounted to $150.3
million for the year ended December 31, 1999 and was substantially unchanged
from the year ended December 31, 1998.

Materials, labor and other operating expenses. Materials, labor and other
operating expenses increased by $98.7 million from $1,305.9 million for the
year ended December 31, 1998, to $1,404.6 million during the year ended
December 31, 1999. The increase was primarily a function of the higher volume
of shipments experienced in all product lines, increased wood fiber costs,
higher personnel costs attributable to higher headcounts in the Pulp and Paper
segment, and greater personnel training and other pre-operating costs
associated with our new Cloquet pulp mill.

Selling, general and administrative expenses. Selling, general and
administrative expenses rose by 6% from the prior year to $141.6 million for
the year ended December 31, 1999. The increase was attributable, in part, to
higher selling expenses associated with increased net sales in all segments
and to increased personnel costs.

Interest expense, net of capitalized interest. Interest expense for the
period ended December 31, 1999, net of capitalized interest, decreased by $4.3
million from the year earlier period to $45.4 million. Slightly higher total
interest expense was offset by a $5.3 million increase in the amount of
capitalized interest.

Other income (expense), net. For the year ended December 31, 1999, other
expense, net, was $0.5 million, compared to other income, net, for the prior
year period of $8.7 million. The difference was largely attributable to $7.5
million in transaction costs associated with a proposed real estate investment
trust for our timberlands that was abandoned.

Provision (benefit) for taxes on income. For the year ended December 31,
1999, we recorded a provision for income taxes of $25.1 million, reflecting a
tax rate of 38%. For the year ended December 31, 1998, we recorded a provision
for income taxes of $20.9 million, reflecting a tax rate of 36%.

Net earnings (loss). We recorded net earnings of $40.9 million for the year
ended December 31, 1999, compared to net earnings of $37.2 million for the
year ended December 31, 1998.

Discussion of business segments. Resource segment operating income of $68.0
million for 1999 was slightly lower than the $71.3 million of operating income
in 1998. Net sales for the segment increased in 1999 compared to 1998.
However, increased log purchases from third parties due to an increase in wood
fiber requirements for our manufacturing facilities in Arkansas led to higher
segment expenses. Lower market prices for logs in Minnesota resulted in
diminished margins on sales in that region.

The Wood Products segment reported 1999 operating income of $83.1 million,
a substantial improvement over the $2.5 million of operating income in 1998.
Net sales of OSB rose $54.2 million, net sales of lumber rose $37.9 million,
net sales of plywood rose $13.5 million, and net sales of particleboard rose
$2.4 million compared to 1998. Demand for panel products was driven by the
strong housing market during 1999, and prices reached historic highs before
declining by year end. Higher net sales realizations were experienced across
all product lines in this segment. Compared to 1998, net sales realizations
for OSB rose by 29%, net sales realizations for lumber increased 8%, net sales
realizations for plywood grew 12%, and net sales realizations for
particleboard advanced 17%. Product shipments increased significantly for
plywood, 10%, and lumber, 8%. Shipments for OSB grew by 2% while shipments for
particleboard remained flat compared to 1998.

The Printing Papers segment incurred an operating loss of $13.8 million in
1999, compared to earnings of $14.2 million in 1998. Net sales of printing
papers increased by 4%, or $19.3 million over net sales for 1998. The increase
in net sales was a result of higher shipments, which grew by 7%, offsetting
declining net sales realizations, which fell by 3%. Weak market conditions
existed throughout the year for coated printing papers. Although segment net
sales were higher than in 1998, net sales realizations were lower in 1999
primarily because a higher percentage of our product mix was in midline,
rather than highline, printing paper grades, which generally yield lower net
sales realizations. The segment also experienced higher costs, related in part
to the increased volumes, for wood fiber, labor, and repair and maintenance,
and segment results for 1999 were adversely affected by start-up costs
associated with our new pulp mill in Cloquet, Minnesota. The mill started up
late in December 1999.

Operating income for the Pulp and Paper segment was $14.8 million in 1999,
significantly lower than the $53.4 million of operating income earned in 1998.
Net sales for the segment fell by $3.3 million to $693.4 million in 1999. Net
sales of paperboard fell by $15.4 million, or 4%, partially offset by a $12.5
million increase in net sales of pulp in 1999. Net sales of tissue were
substantially unchanged at $256.8 million in 1999. Shipments of paperboard and
tissue each rose by 3% in 1999. Net sales for the segment remained
substantially unchanged as a result of lower net sales realizations for
paperboard, weak market conditions for liquid packaging, particularly during
the first half of the year, and a decrease in tissue net sales realizations of
4%. Also, operating problems at the Lewiston, Idaho paperboard mill during the
year resulted in a production decline and higher costs. Higher labor costs at
our Cypress Bend, Arkansas facility also affected results.

Liquidity and Capital Resources

At September 30, 2001, our financial position included long-term debt of
$1.15 billion, including current installments on long-term debt of $133.1
million. Our ratio of long-term debt (excluding current installments) to
stockholders' equity was 1.37 to 1 at September 30, 2001, compared to .99 to 1
at December 31, 2000. Long-term debt increased $216.5 million during the first
nine months of 2001. The increase was due to the issuance in June of $250.0
million of senior subordinated notes due 2011 and borrowings of $200.0 million
under our bank credit facility. Repayment of $100.0 million borrowed under our
old bank credit facility, which had been classified as long-term debt, and the
reclassification of $130.0 million from long-term to current partially offset
the increase. Stockholders' equity declined $72.2 million, largely due to a
net loss of $47.7 million and dividend payments of $28.9 million for the first
nine months of 2001.

We had working capital of $248.9 million at September 30, 2001, an increase
of $204.2 million from December 31, 2000. The increase was largely due to
increases in cash, restricted cash and short-term investments of $140.0
million and prepaid expenses of $41.6 million, combined with decreases of
$188.9 million in notes payable. A decrease in inventories of $26.6 million
and an increase in current installments on long-term debt of $132.8 million
partially offset these amounts.

Net cash provided by operations for the first nine months of 2001 totaled
$81.8 million, compared with $109.5 million for the same period in 2000. The
decline was largely due to a $30.2 million greater net loss in 2001.

We generated net cash from operations of $93.9 million in 2000, $204.6
million in 1999 and $217.5 million in 1998. The decrease in 2000 resulted
primarily from a net loss of $33.2 million in 2000 compared to net earnings of
$40.9 million in 1999, as well as increases in working capital items,
particularly inventories and prepaid expenses. The decrease in cash provided
by operations in 1999 compared to 1998 is largely attributable to a $22.0
million increase in receivables during 1999.

For the nine months ended September 30, 2001, net cash used for investing
was $91.6 million, compared to $121.5 million during the nine months ended
September 30, 2000. The decrease is attributable to a significant decline in
capital expenditures in 2001. Capital spending totaled $42.8 million in the
first nine months of 2001, compared to $119.0 million for the same period in
2000. Spending in 2001 has been focused on routine general replacement,
safety, forest resource and environmental projects. Approximately $4.0 million
has been spent on the modernization and expansion project at our Cook,
Minnesota, oriented strand board mill and another $5.8 million on development
of our hybrid poplar plantation in Boardman, Oregon. Several major projects
accounted for much of the spending in the first nine months of 2000, including
the pulp mill in Cloquet, Minnesota, the Cook project and a recovery boiler
retrofit at the Cypress Bend, Arkansas, pulp mill. With the substantial
completion of our Cloquet pulp mill in late 1999 and our Cook OSB mill in
January 2001, we expect our capital spending to total approximately $54.0
million in 2001.

Net cash used for investing was $167.5 million in 2000, $188.8 million in
1999 and $145.2 million in 1998. The decrease in 2000 was primarily
attributable to an $81.2 million decrease in capital expenditures as compared
to 1999. We made capital expenditures of approximately $187.0 million in
connection with the Cloquet and Cook projects in 1999, compared to
approximately $69.9 million for these projects in 2000. The 1999 period
benefited from receipt of $50.0 million in repayment of a note issued by a
third party. The increase in 1999, compared to 1998, is the result of $100.6
million in additional capital expenditures in 1999, partially offset by
collection of the third party note.

Our total capital expenditures were $166.4 million in 2000, $247.7 million
in 1999 and $147.0 million in 1998. Significant capital projects in 2000
included the expenditure of $55.0 million in connection with the expansion of
our Cook, Minnesota OSB mill, $18.3 million for the retrofit of the recovery
boiler at our Cypress Bend, Arkansas pulp mill and $14.9 million for our
Cloquet, Minnesota pulp mill. Capital spending was significantly higher in
1999 primarily due to capital expenditures of $166.3 million for our Cloquet
pulp mill. This compares to capital expenditures of $78.4 million for our
Cloquet pulp mill in 1998. During the three year period ended December 31,
2000, we spent $259.6 million on our Cloquet pulp mill and $85.9 million on
our Cook OSB mill.

Net cash provided by financing was $102.8 million for the nine months ended
September 30, 2001, compared to $11.7 million during the same period in 2000.
The change primarily reflects the debt restructuring completed in June 2001 in
which we issued $450.0 million of debt, partially offset by debt repayments of
$289.7 million. For the same period in 2000, we borrowed approximately $89.0
million and repaid $10.3 million. We have also purchased less treasury stock
in the current year, spending $8.3 million versus $21.8 million during the
first nine months of 2000. Our dividend payments declined for the first nine
months of 2001, to $28.9 million from $37.3 million for the same period in
2001, due largely to a dividend rate cut announced on August 10, 2001.

Net cash provided by financing was $73.8 million in 2000, compared to net
cash used for financing of $15.9 million in 1999 and $69.7 million in 1998.
The increase in 2000 was primarily the result of additional debt repayment of
$99.7 million in 1999, partially offset by $25.9 million used for the
repurchase of common stock in 2000. The decrease in 1999 was primarily due to
a net increase of $36.5 million in notes payable and long-term debt in 1999
compared to a net decrease of $20.6 million in 1998.

For the first half of 2001, we funded our operating losses and other cash
requirements primarily through borrowings under our bank credit agreements. On
June 29, 2001, we entered into a bank credit facility providing for aggregate
borrowings of up to $400.0 million. Our bank credit facility is comprised of a
four-year term loan, in the amount of $200.0 million, and a three-year
revolving line of credit of up to $200.0 million, including a $110.0 million
subfacility for letters of credit, usage of which reduces availability under
the revolving line of credit. Our obligations under the bank credit facility
are secured by approximately 130,000 acres of our timberlands in Arkansas and
our accounts receivable and inventory. As of September 30, 2001, $200.0
million was outstanding under the four-year term loan, no borrowings were
outstanding under the revolving line of credit and approximately $103.0
million of the revolving line of credit was used to support outstanding
letters of credit. These letters of credit provide credit enhancement for a
portion of our outstanding industrial revenue bonds.

Concurrent with the closing of our bank credit facility, we sold $250.0
million of our senior subordinated notes due 2011 in an institutional private
placement. The notes are unsecured obligations and are subordinated to our
senior notes and bank credit facility. The notes bear interest at a rate of
10% per annum, payable semiannually, and are redeemable, at our option, in
whole or in part, at any time on or after July 15, 2006 at varying redemption
prices.

Both the agreement governing our bank credit facility and the indenture
governing our senior subordinated notes contain certain covenants that, among
other things, restrict our ability and our subsidiaries' ability to create
liens, merge or consolidate, dispose of assets, incur indebtedness and
guarantees, pay dividends, repurchase or redeem capital stock and
indebtedness, make certain investments or acquisitions, enter into certain
transactions with affiliates, make capital expenditures or change the nature
of our business. Our bank credit facility also contains financial maintenance
covenants establishing a maximum funded indebtedness to capitalization ratio,
a minimum consolidated net worth requirement, and a minimum fixed charge
coverage ratio. Events of default under our bank credit facility and the
indenture include, but are not limited to, payment defaults, covenant
defaults, breaches of representations and warranties, cross defaults to
certain other material agreements and indebtedness, bankruptcy and other
insolvency events, material adverse judgments, actual or asserted invalidity
of security interests or loan documentation, and certain change of control
events involving our company.

We used the gross proceeds from the sale of the senior subordinated notes
and initial borrowings under the new bank credit facility to (i) repay all
outstanding indebtedness under our pre-existing bank credit facilities,
(ii) pay transaction costs relating to our new bank credit facility and the
notes offering, and (iii) fund an interest-bearing escrow account with $96.6
million, the use of which is restricted to the repayment of our $100 million
6.25% Debentures due March 15, 2002. We expect that any borrowings under the
revolving credit facility will be used for working capital and other corporate
purposes.

On August 10, 2001, the board of directors of the company announced that
our third quarter dividend would be $.15 per share, representing a 66%
decrease from the previous quarterly dividend rate of approximately $.435 per
share. The dividend rate is set by the board on a quarterly basis taking into
account a variety of factors, including, among other things, conditions in the
forest products industry and the economy generally, our operating results and
cash flows, anticipated capital expenditures and compliance with the terms of
our bank credit facility and senior subordinated notes that limit the payment
of dividends on our common stock. Although we expect to continue to pay
dividends at the reduced rate, our dividend rate is subject to change from
time to time based on the board's business judgment with respect to these and
other relevant factors.

We believe that our cash, cash flow from operations and available
borrowings under our new revolving credit facility will be sufficient to fund
our operations, capital expenditures and debt service obligations for the

next twelve months and for the foreseeable future. We cannot assure you,
however, that our business will generate sufficient cash flow from operations
or that we will remain in compliance with the financial covenants in our bank
credit facilities so that future borrowings thereunder will be available to
us. This will be dependent upon our future financial performance, which will
be affected by general economic, competitive and other factors, including
those discussed above under "Risk Factors," many of which are beyond our
control.

During the first quarter of 2001, Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., Moody's Investors Service Inc.
and Fitch, Inc. completed a review of their ratings on our senior unsecured
long-term debt. As a result of the review, at the end of March 2001, Standard
& Poor's and Fitch adjusted their ratings on this debt from BBB+ to BBB and
Moody's adjusted its rating from Baa1 to Baa3. On April 3, 2001, Standard &
Poor's placed our debt on CreditWatch with negative implications, and, on June
8, 2001, Standard & Poor's adjusted their ratings on our senior unsecured
long-term debt and our corporate credit rating from BBB to BBB- and retained
the debt on CreditWatch with negative implications. On June 11, 2001, Fitch
adjusted its ratings on our senior unsecured long-term debt from BBB to BBB-.
On June 15, 2001, Moody's changed their outlook on our debt rating from stable
to negative. On the same date, Moody's also assigned a Baa2 rating to our bank
credit facilities. These changes in our debt ratings have increased our
borrowing costs.

It is our practice to periodically review strategic and operational
alternatives to improve our operating results and financial position. In this
regard, we consider and plan to continue to consider, among other things,
adjustments to our capital expenditures and overall spending, the
restructuring of our operations to achieve greater efficiencies and the
disposition of assets that may have greater value to others. We cannot assure
you that we will be successful in implementing any new strategic or
operational initiatives or, if implemented, that they will have the effect of
improving our operating results and financial position.

Since December 1999, we have been authorized under a stock repurchase
program to repurchase up to two million shares of our common stock. Under the
plan, purchases of common stock may be made from time to time through open
market and privately negotiated transactions at prices deemed appropriate by
management, and through our put option program. Through September 30, 2001, a
total of 860,900 shares have been acquired under the program. On October 3,
2001, we purchased 50,000 shares in settlement of our remaining outstanding
put option contracts. We do not expect to repurchase additional common stock
in the foreseeable future.

Market Risks of Financial Instruments

Our exposure to market risks on our financial instruments is limited to
interest rate changes on variable rate debt and outstanding debt under our
credit lines as in effect on September 30, 2001, equity price risk on put
option contracts associated with our common stock repurchase program and price
risk related to derivative financial instruments we use to manage energy
costs. As of September 30, 2001, we had approximately $299.9 million of
variable rate debt and credit line debt outstanding. The interest rates
applied to these borrowings are adjusted often and therefore react quickly to
any movement in the general trend of market interest rates. Interest expense
incurred annually related to our variable rate debt and credit lines is
dependent upon the amount outstanding during the year and the extent to which
interest rates rise or fall. The maturity for debt issued under the credit
lines is September 2001 through June 2005, while the variable rate debt has
maturities beginning in 2007 and extending through 2030. All of our other
long-term debt is fixed-rate and therefore changes in market interest rates do
not expose us to risk for these financial instruments. The exposure to equity
price risk on put option contracts associated with our common stock is
immaterial due to the limited number of such contracts outstanding. The fair
value of our derivative financial instruments are directly affected by the
market for natural gas, rising and falling as natural gas prices rise and
fall. Accordingly, our market exposure in this area depends upon the number of
derivative financial instruments we have outstanding at any point in time and
the favorable or unfavorable terms contained in the instruments relative to
the current market prices for natural gas. As of September 2001, we have
derivative financial instruments outstanding which have settlement dates from
October 2001 through March 2002. For the quarter ended September 30, 2001, we
recorded expense in the amount of $.2 million related to these instruments.

INDUSTRY OVERVIEW

The following discussion of the forest products industry is intended to
provide background information concerning the industry in which we operate.
You are cautioned, however, that our business is not necessarily affected by
industry trends or other factors discussed below in the same manner or to the
same degree as the industry generally. For specific information about our
business and operating results, see "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere or incorporated by reference in this prospectus. In addition,
factual industry information provided below is based on data from specified
industry research firms and U.S. government sources. While we consider the
sources of this information to be reliable, we have not independently verified
its accuracy or completeness.

Timber

Timber is the primary raw material used in the forest products industry.
The primary end-markets for timber harvested in the U.S. are: (i) the housing
market, where it is used in the construction of new housing and the repair and
remodeling of existing housing and (ii) the pulp and paper market, where it is
used as a raw material.

The supply of timber is limited by access to timber and by the availability
of timberlands. The availability of timberlands, in turn, is limited by
several factors, including state and federal forest management policies,
alternate uses of land, and loss to urban or suburban real estate development.

The U.S. government is a significant timberland holder, and timber
harvested from government lands has played an important role in the supply and
demand balance of timber. Heightened environmental awareness in recent years
has resulted in the enactment of governmental policies which have reduced the
volume of timber harvested from National Forests from over eight billion board
feet in 1991 to less than three billion board feet in 2000. The resulting
supply decrease has contributed to increased prices for logs and lumber,
benefiting forest products companies with private timber holdings.

[Bar chart titled Timber Harvested on The National Forests.
This bar chart indicates the volume of timber measured in billions of board feet
that have been harvested from National Forests for the years 1991 through 2000.
On the "y" axis are the numbers 1.0., 2.0, 3.0, 4.0, 5.0, 6.0, 7.0, 8.0 and 9.0
spaced equidistantly, each representing the number of board feet in billions
harvested from National Forests. On the "x" axis are each of the years 1991,
1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and 2000, spaced equidistantly.
Each year's harvested amount is indicated by a solid black, two-dimensional
bar on approximately 1/4th of inch wide rising from the "x" axis. The bar chart
indicates that in 1991, approximately 8.5 billion board feet of timber was
harvested from National Forests; in 1992, approximately 7.3 billion board feet
of timber was harvested from National Forests; in 1993, approximately 5.9
billion board feet of timber was harvested from National Forests; in 1994,
approximately 4.8 billion board feet of timber was harvested from National
Forests; in 1995, approximately 3.9 billion board feet of timber was harvested
from National Forests; in 1996, approximately 3.7 billion board feet of timber
was harvested from National Forests; in 1997, approximately 3.3 billion board
feet of timber was harvested from National Forests; in 1998, approximately 3.3
billion board feet of timber was harvested from National Forests; in 1999,
approximately 2.9 billion board feet of timber was harvested from National
Forests; and in 2000, approximately 2.5 billion board feet of timber was
harvested from National Forests.]
- --------
Source: U.S. Department of Agriculture.

The demand for timber is directly related to the underlying demand for
pulp, paper, lumber, panel and other forest products. Population growth and
per-capita income levels largely drive the demand for pulp and paper. The
demand for lumber and manufactured wood products is primarily affected by the
level of new residential construction activity and repair and remodeling
activity within the U.S., which, in turn, is impacted by changes in general
economic and demographic factors, including interest rates for home mortgages
and construction loans.

The value of logs depends upon the species and diameter of the tree
harvested. About two-thirds of all U.S. industrial log production is softwood,
obtained from evergreen, needle-bearing trees such as pine, spruce, fir, and

hemlock. The remaining third is hardwood, derived from broad-leafed, deciduous
trees such as oak, aspen, poplar, gum, and alder. Softwood harvests generate
approximately equal amounts of logs and chips, while hardwood yields mostly
logs.

Logs are sold to sawmills to be cut into lumber, while chips are directed
to pulp mills to be converted into pulp. Residual chips and sawdust from
sawmills serve as additional sources of wood fiber for pulp mills. Pulp
manufacturing is often integrated with paper and paperboard production.
However, a paper mill may not produce all of its own pulp or it may require a
certain type of pulp and will purchase what is called "market pulp" from
outside suppliers.

Wood Products

Wood products companies make products that are used in the construction of
new housing and the repair and remodeling of existing housing as well as
industrial products. These products can be generally classified into three
categories: lumber, structural panels, including oriented strand board, or OSB
and plywood, and non-structural panels, including particleboard and medium
density fiberboard.

Wood products consumption has been generally correlated to housing starts
and residential improvements and repair activity over the last decade.
According to U.S. government data, in the ten year period from 1991 through
2000, U.S. housing starts grew at a 5% compound annual growth rate, while
residential improvements and repairs expenditures grew at a 3% compound annual
growth rate. Correspondingly, according to Institutional Wood Markets
Research, Inc. ("IWMR") and Resource Information Systems, Inc. ("RISI"), two
industry research firms, over the same period, the compound annual growth rate
for structural panels consumption was 5% and softwood lumber consumption was
3%.

[Bar chart titled U.S. Residential Construction Activity.
This bar chart indicates the number of housing starts in millions and the U.S.
Dollar amount of expenditures for residential improvements and repairs for each
of the years 1991 through 2000. On the left "y" axis are the numbers 0.8, 1.0,
1.2, 1.4, 1.6, 1.8 spaced equidistantly, each representing the number of housing
starts in the United States in millions. On the right "y" axis are the numbers
90, 100, 110, 120 and 130, spaced equidistantly, each representing the U.S.
Dollar amount in billions of expenditures for residential improvements and
repairs in the United States. On the "x" axis are the years 1991, 1992, 1993,
1994, 1995, 1996, 1997, 1998, 1999 and 2000 spaced equidistantly. Rising from
the "x" axis for each year are two bars, each approximately 1/4th of inch wide.
One is solid black and the other outlined white. The solid black bar indicates
the number of housing starts in millions in the United States, while the
outlined white bar indicates the expenditures in billions of U.S. Dollars in the
United States for residential improvements and repairs. The bar chart indicates
that in 1991, U.S. housing starts were approximately 1.0 million and
expenditures for residential improvements and repairs were approximately $97.5
billion; in 1992, U.S. housing starts were approximately 1.2 million and
expenditures for residential improvements and repairs were approximately $103.7
billion; in 1993, U.S. housing starts were approximately 1.3 million and
expenditures for residential improvements and repairs were approximately $108.3
billion; in 1994, U.S. housing starts were approximately 1.5 million and
expenditures for residential improvements and repairs were approximately $115.0
billion; in 1996, U.S. housing starts were approximately 1.5 million and
expenditures for residential improvements and repairs were approximately $111.7
billion; in 1997, U.S. housing starts were approximately 1.5 million and
expenditures for residential improvements and repairs were approximately $118.6
billion; in 1998, U.S. housing starts were approximately 1.6 million and
expenditures for residential improvements and repairs were approximately $124.0
billion; in 1999, U.S. housing starts were approximately 1.6 million and
expenditures for residential improvements and repairs were approximately $124.0
billion; and in 2000, U.S. housing starts were approximately 1.6 million and
expenditures for residential improvements and repairs were approximately $127.3
billion.]
- --------
Source: International Wood Markets Research, Inc. (1991-1999); Resource
Information Systems, Inc. (2000)

Structural Panels

Structural panels are panel products used in applications where physical
properties are more important than appearance. Up until the late 1980s,
plywood dominated the structural panel market. Since then, OSB has become an
economical alternative to plywood because of its comparable performance
attributes. OSB is manufactured by processing logs into uniform strands that
are then coated with wax and resin, "oriented" into a mat and permanently
bonded under heat and pressure. The oriented strands give OSB its structural
strength. The relatively abundant and fast growing deciduous trees and under-
utilized coniferous trees used to make OSB are much less expensive than the
logs used to make plywood.

OSB consumption has increased over the last decade as a result of greater
acceptance of OSB as a substitute for plywood, greater production capacity to
meet rising panel demand and a strong North American economy.

According to IWMR, the U.S. structural panel market share of OSB, as measured
by consumption, has increased from 28% in 1991 to 52% in 2000.

[Bar chart titled U.S. Structural Panel Consumption.
This bar chart indicates the plywood consumption as compared to consumption of
OSB in billions of square feet for each of the years 1991 through 2000. On the
"y" axis are the numbers 0, 5, 10, 15, 20 and 25 spaced equidistantly, each
representing the square feet in billions consumed of plywood or OSB,
respectively. On the "x" axis are the years 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, 1999 and 2000 spaced equidistantly. Rising from the "x" axis for
each year are two bars, each approximately 1/4th of inch wide. One is solid
black and the other outlined white. The solid black bar indicates the amount of
plywood consumed in the United States, while the outlined white bar indicates
the amount of OSB consumed in the United States. The bar chart indicates that
in 1991, plywood consumption in the United States was approximately 17.2 billion
square feet while OSB consumption was approximately 6.6 billion square feet; in
1992, plywood consumption in the United States was approximately 17.7 billion
square feet while OSB consumption was approximately 8.2 billion square feet; in
1993, plywood consumption in the United States was approximately 17.7 billion
square feet while OSB consumption was approximately 9.0 billion square feet; in
1994, plywood consumption in the United States was approximately 18.8 billion
square feet while OSB consumption was approximately 10.0 billion square feet; in
1995, plywood consumption in the United States was approximately 18.0 billion
square feet while OSB consumption was approximately 11.0 billion square feet; in
1996, plywood consumption in the United States was approximately 17.8 billion
square feet while OSB consumption was approximately 13.6 billion square feet; in
1997, plywood consumption in the United States was approximately 16.7 billion
square feet while OSB consumption was approximately 15.6 billion square feet; in
1998, plywood consumption in the United States was approximately 17.0 billion
square feet while OSB consumption was approximately 17.6 billion square feet; in
1999, plywood consumption in the United States was approximately 17.9 billion
square feet while OSB consumption was approximately 19.0 billion square feet;
and in 2000, plywood consumption in the United States was approximately 17.4
billion square feet while OSB consumption was approximately 19.1 billion square
feet.]
- --------
Source: International Wood Markets Research, Inc. (1991-1998); Resource
Information Systems, Inc. (1999-2000)

According to data from IWMR and RISI reflected in the table below, North
American structural panel prices fluctuated considerably during the 1990s.
Starting at recession lows in 1991, prices increased to record levels by 1994.
The upward pricing trend was especially pronounced for OSB, but plywood prices
were also strong. Prices started to fall in 1995, and by 1997, OSB prices had
dropped precipitously, while plywood prices remained relatively stable. This
decline reflected a moderate weakening in demand in 1995, and a surge in OSB
capacity resulting from the high profitability of OSB in 1993-1994.

[Line Graph titled U.S. Structural Panel Prices.
This line graph compares the year-to-year movement in price of OSB U.S. North
Central 7/16" basis to Western Plywood Douglas Fir 1/2" basis. On the "y" axis
are the numbers 50, 100, 150, 200, 250, 300, 350, 400 and 450, spaced
equidistantly. Each number on the "y" axis indicates the price in U.S. Dollars
per 1000 square feet of OSB U.S. North Central 7/16" basis and Western Plywood
Douglas Fir 1/2" basis, respectively. On the "x" axis are the years 1991, 1992,
1993, 1994, 1995, 1996, 1997, 1998, 1999 and 2000 spaced equidistantly. The
line graph indicates that in 1991, the price of OSB U.S. North Central 7/16"
basis was approximately $149 per 1000 square feet while the price of Western
Plywood Douglas Fir 1/2" basis was approximately $225 per 1000 square feet; in
1992, the price of OSB U.S. North Central 7/16" basis was approximately $225 per
1000 square feet while the price of Western Plywood Douglas Fir 1/2" basis was
approximately $275 per 1000 square feet; in 1993, the price of OSB U.S. North
Central 7/16" basis was approximately $230 per 1000 square feet while the price
of Western Plywood Douglas Fir 1/2" basis was approximately $315 per 1000
square feet; in 1994, the price of OSB U.S. North Central 7/16" basis was
approximately $250 per 1000 square feet while the price of Western Plywood
Douglas Fir 1/2" basis was approximately $325 per 1000 square feet; in 1995,
the price of OSB U.S. North Central 7/16" basis was approximately $230 per 1000
square feet while the price of Western Plywood Douglas Fir 1/2" basis was
approximately $320 per 1000 square feet; in 1996, the price of OSB U.S. North
Central 7/16" basis was approximately $175 per 1000 square feet while the price
of Western Plywood Douglas Fir 1/2" basis was approximately $300 per 1000
square feet; in 1997, the price of OSB U.S. North Central 7/16" basis was
approximately $140 per 1000 square feet while the price of Western Plywood
Douglas Fir 1/2" basis was approximately $310 per 1000 square feet; in 1998,
the price of OSB U.S. North Central 7/16" basis was approximately $180 per 1000
square feet while the price of Western Plywood Douglas Fir 1/2" basis was
approximately $300 per 1000 square feet; in 1999, the price of OSB U.S. North
Central 7/16" basis was approximately $240 per 1000 square feet while the price
of Western Plywood Douglas Fir 1/2" basis was approximately $375 per 1000
square feet; in 2000, the price of OSB U.S. North Central 7/16" basis was
approximately $185 per 1000 square feet while the price of Western Plywood
Douglas Fir 1/2" basis was approximately $305 per 1000 square feet.]
- --------
Source: International Wood Markets Research, Inc. (1991-1998); Resource
Information Systems, Inc. (1999-2000)

Softwood Lumber

Structural lumber, the main lumber segment in the U.S., accounts for about
two-thirds of total U.S. lumber consumption. It consists of dimension lumber,
studs, and engineered wood, used primarily in residential construction.
Softwood lumber types such as Southern Pine, Douglas fir and Spruce-Pine-Fir,
or SPF, are used primarily in structural end-uses due to their strength and
commercial availability. Non-structural lumber represents the remaining third
of consumption, comprising a wide variety of products including boards,
fencing, decking, siding, interior finishing and pallets.

According to data from IWMR and RISI reflected in the table below, after
hitting a peak of 54.8 billion board feet in 1999, U.S. softwood lumber
consumption fell 3% to 53.0 billion board feet in 2000. The setback in

consumption can be attributed to weakness in mobile home, single-family housing
construction, and the residential repair and remodeling markets where both
lower usage rates and a drop in activity combined to drive lumber consumption
down in 2000.

[Bar chart titled U.S. Softwood Lumber Consumption.
This bar chart indicates the volume of U.S. softwood lumber consumed measured in
billions of board feet. On the "y" axis are the numbers 30, 35, 40, 45, 50, 55
and 60 spaced equidistantly, each representing the number of board feet in
billions of U.S. softwood lumber consumed. On the "x" axis are each of the
years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and 2000, spaced
equidistantly. Each year's consumed amount is indicated by a solid black, two-
dimensional bar of approximately 3/8th of an inch wide rising from the "x" axis.
The bar chart indicates that in 1991, approximately 41.9 billion board feet of
U.S. softwood lumber was consumed; in 1992, approximately 45.4 billion board
feet of U.S. softwood lumber was consumed; in 1993, approximately 45.4 billion
board feet of U.S. softwood lumber was consumed; in 1994, approximately 47.7
billion board feet of U.S. softwood lumber was consumed; in 1995, approximately
47.3 billion board feet of U.S. softwood lumber was consumed; in 1996,
approximately 49.5 billion board feet of U.S. softwood lumber was consumed; in
1997, approximately 50.9 billion board feet of U.S. softwood lumber was
consumed; in 1998, approximately 52.5 billion board feet of U.S. softwood lumber
was consumed; in 1999, approximately 54.8 billion board feet of U.S. softwood
lumber was consumed; and in 2000, approximately 53.0 billion board feet of U.S.
softwood lumber was consumed.]
- --------
Source: International Wood Markets Research, Inc. (1991-1998); Resource
Information Systems, Inc. (1999-2000)

The softwood lumber industry is considered highly fragmented, as no single
entity has taken a dominant position. As a result, no company has the scale or
scope to significantly influence industry inventory levels or capacity as a
whole.

One factor that has affected industry-wide supply and demand in the past is
the Softwood Lumber Agreement, or SLA. Prior to April 2001, the SLA constrained
Canadian lumber exporters by imposing a quota on four specific Canadian
provinces, British Columbia, Alberta, Ontario, and Quebec. As a result, over
the past decade Canada's market share of U.S. consumption remained at
approximately 33%. One possible result of the expiration of the SLA in March
2001 could be increased competition between Canadian and U.S. producers of
softwood lumber, exerting downward pressure on prices.

Lumber prices are highly volatile due in large part to the seasonal nature
of the construction industry and the impact of interest rates and other factors
on housing starts. According to data from IWMR and RISI, reflected in the table
below, after increasing during the period between 1991 and 1994, softwood
lumber prices experienced a significant drop in 1995. Prices increased again in
1996 and remained essentially flat in 1997, and experienced a steep decline in
1998. Prices peaked again in the third quarter of 1999 before trending down in
2000.

[Line Graph titled U.S. Softwood Lumber Prices, S-P-F Western.
This line graph compares the year-to-year movement in price of U.S. softwood
lumber, S-P-F Western. On the "y" axis are the numbers 100, 150, 200, 250,
300, 350 and 400, spaced equidistantly. Each number on the "y" axis indicates
the price in U.S. Dollars per 1000 board feet of U.S. softwood lumber, S-P-F
Western. On the "x" axis are the years 1991, 1992, 1993, 1994, 1995, 1996, 1997,
1998, 1999 and 2000 spaced equidistantly. The line graph indicates that in 1991,
the price of U.S. softwood lumber, S-P-F Western was approximately $190 per
1000 board feet; in 1992, the price of U.S. softwood lumber, S-P-F Western was
approximately $225 per 1000 board feet; in 1993, the price of U.S. softwood
lumber, S-P-F Western was approximately $330 per 1000 board feet; in 1994, the
price of U.S. softwood lumber, S-P-F Western was approximately $335 per 1000
board feet; in 1995, the price of U.S. softwood lumber, S-P-F Western was
approximately $250 per 1000 board feet; in 1996, the price of U.S. softwood
lumber, S-P-F Western was approximately $350 per 1000 board feet; in 1997, the
price of U.S. softwood lumber, S-P-F Western was approximately $350 per 1000
board feet; in 1998, the price of U.S. softwood lumber, S-P-F Western was
approximately $280 per 1000 board feet; in 1999, the price of U.S. softwood
lumber, S-P-F Western was approximately $350 per 1000 board feet; in 2000, the
price of U.S. softwood lumber, S-P-F Western was approximately $255 per 1000
board feet.]
- --------
Source: International Wood Markets Research, Inc. (1991-1998); Resource
Information Systems, Inc. (1999-2000)

Particleboard

Particleboard is used in the manufacture of furniture, cabinets and floor
underlayment, and is a wood panel product consisting of wood particles of
various sizes that are bonded together with a synthetic resin or binder under
heat and pressure. Particleboard is a versatile, high-quality, low-cost
material for numerous non-structural applications. Additionally, the overall
increasing quality level of particleboard has allowed manufacturers,
especially in the furniture industry, to improve the quality of their
products.

The U.S. composite panel markets, which includes principally particleboard
and medium-density fiberboard, continue to experience slow, but steady growth.
According to data from IWMR and RISI, over the past ten years, particleboard
production in the U.S. has increased by an annual average of over 2%. Since
1996, total North American particleboard supply, as measured by shipments plus
offshore imports, has grown 15% from 5.6 billion square feet in 1996 to 6.5
billion square feet in 2000.

Market Pulp

Market pulp is divided into two basic groups: paper-grade pulp and
dissolving or special alpha pulps. Chemical processes produce most paper-grade
pulps, although mechanical methods are also used.

Chemical paper-grade pulps produced in North America can be further divided
according to process (kraft/sulfate or sulfite), basic wood type (softwood or
hardwood), producing region (northern or southern), and brightness level
(bleached, semibleached, or unbleached). The four most important grades of
chemical grade pulp are (in decreasing quality, as measured in terms of
price): northern bleached softwood kraft (NBSK), southern bleached softwood
kraft (SBSK), northern bleached hardwood kraft (NBHK), and southern bleached
hardwood kraft (SBHK).

According to Pulp & Paper 2000, North American Fact Book ("Pulp & Paper"),
an industry research publication, chemical paper-grade pulp is the predominant
grade of market pulp, with total North American and Scandinavian chemical
paper-grade pulp production in 2000 totaling 22.6 million metric tons. The
largest percentage of production is from softwood fibers, such as spruce, fir,
and pine. Hardwood pulps make excellent printing and writing grades providing
bulk and a good printing surface while softwood pulps are known to enhance
paper strength.

According to Pulp & Paper, as reflected in the table below, pulp prices
dropped to their lowest levels in the 1990s in 1993, only to rebound in 1994
and 1995 to their highest levels during the 1990s. Prices again dropped
precipitously in 1996 and remained relatively flat until trending up in 2000.

[Line Graph titled U.S. Market Pulp Prices, Selected Chemical Paper-Grades.
This line graph compares the year-to-year movement in price of NBSK to NBHK.
On the "y" axis are the numbers 300, 400, 500, 600, 700, 800 and 900, spaced
equidistantly. Each number on the "y" axis indicates the price in U.S.
Dollars per metric ton, delivered, of NBSK and NBHK, respectively. On the "x"
axis are the years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and
2000 spaced equidistantly. The line graph indicates that in 1991, the price
of NBSK was approximately $500 per metric ton, delivered, while the price of
NBHK was approximately $410 per metric ton, delivered; in 1992, the price of
NBSK was approximately $550 per metric ton, delivered, while the price of NBHK
was approximately $480 per metric ton, delivered; in 1993, the price of NBSK
was approximately $400 per metric ton, delivered, while the price of NBHK was
approximately $350 per metric ton, delivered; in 1994, the price of NBSK was
approximately $680 per metric ton, delivered, while the price of NBHK was
approximately $600 per metric ton, delivered; in 1995, the price of NBSK was
approximately $890 per metric ton, delivered, while the price of NBHK was
approximately $800 per metric ton, delivered; in 1996, the price of NBSK was
approximately $600 per metric ton, delivered, while the price of NBHK was
approximately $500 per metric ton, delivered; in 1997, the price of NBSK was
approximately $600 per metric ton, delivered, while the price of NBHK was
approximately $510 per metric ton, delivered; in 1998, the price of NBSK was
approximately $550 per metric ton, delivered, while the price of NBHK was
approximately $520 per metric ton, delivered; in 1999, the price of NBSK was
approximately $545 per metric ton, delivered, while the price of NBHK was
approximately $500 per metric ton, delivered; in 2000, the price of NBSK was
approximately $700 per metric ton, delivered, while the price of NBHK was
approximately $680 per metric ton, delivered. Below the line graph is a
footnote indicating that the source for the information contained in the line
graph is the Pulp & Paper 2000, North American Factbook.]
- --------
Source: Pulp & Paper 2000, North American Factbook

The market pulp sector is highly cyclical, characterized by sharp inventory
swings, production downtime, fluctuating exchange ratios, and prices. Market
pulp cycles are loosely related to underlying supply and demand

conditions and to the general economy. Production levels for paper and
paperboard directly affect demand for market pulp.

Coated Papers

Coated papers are primarily used in media and marketing applications
including corporate annual reports, high-end advertising brochures, magazines
and catalogs, and direct mail advertising.

Coated papers are segmented into two main categories based on price and
quality: coated groundwood papers, which are made from 10% or more of
mechanical pulp, and coated free-sheet papers which are made only from
chemically treated pulp. Chemically treated pulp produces brighter and stronger
paper than groundwood pulp. Coated papers are further segmented into six
product grades, the highest being Premium, which is characterized by the
highest quality and brightness, and grades No. 1 through No. 5, which are
characterized by decreasing quality and brightness. Each grade is produced in a
variety of basic weights per sheet size and finish that can be gloss, dull or
matte. The coating process changes the gloss, ink absorption, texture and
opacity of the paper to meet the performance requirements of each customer
group.

In 2000, the coated papers industry underwent significant consolidation,
with North America's largest paper producer, International Paper, acquiring
Champion International Corp. and Stora Enso Oyj of Finland, Europe's leading
producer, acquiring North America's then-number two producer, Consolidated
Papers, Inc. According to Pulp & Paper, in 2000, the top-five North American
coated paper producers represented 62% of total North American capacity.

[Line Graph titled U.S. Coated No. 1 Prices.
This line graph compares the year-to-year movement in price of U.S. No. 1
coated papers. On the "y" axis are the numbers 1,400, 1,450, 1,500, 1,550,
1,600, 1,650, 1,700, 1,750 and 1,800 spaced equidistantly. Each number on the
"y" axis indicates the price in U.S. Dollars per ton, sheets, of U.S. coated
No.1 papers. On the "x" axis are the years 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, 1999 and 2000 spaced equidistantly. The line graph indicates that
in 1991, the price of U.S. No.1 papers was approximately $1,600 per ton,
sheets; in 1992, the price of U.S. No.1 papers was approximately $1,450 per
ton, sheets; in 1993, the price of U.S. No.1 papers was approximately $1,500
per ton, sheets; in 1994, the price of U.S. No.1 papers was approximately
$1,525 per ton, sheets; in 1995, the price of U.S. No.1 papers was
approximately $1,675 per ton, sheets; in 1996, the price of U.S. No.1 papers
was approximately $1,610 per ton, sheets; in 1997, the price of U.S. No.1
papers was approximately $1,590 per ton, sheets; in 1998, the price of U.S.
No.1 papers was approximately $1,585 per ton, sheets; in 1999, the price of
U.S. No.1 papers was approximately $1,650 per ton, sheets; in 2000, the price
of U.S. No.1 papers was approximately $1,675 per ton, sheets. Below the line
graph is a footnote indicating that the source for the information contained
in the line graph is the Pulp & Paper 2000, North American Factbook.]
- --------
Source: Pulp & Paper 2000, North American Factbook

Like most products in the forest products industry, coated paper demand and
pricing is cyclical. Demand for coated paper is generally correlated with
domestic economic conditions and more specifically to consumption in end-use
markets such as magazine and book publications, food and consumer packaging,
and business papers. Domestic prices are driven by supply and demand, as well
as the U.S. dollar's relative strength against foreign currencies, particularly
the Euro, as foreign producers can benefit from foreign currency devaluation
when exporting product to the U.S. For example, according to data from RISI,
coated two-sided printing paper imports accounted for 20% of domestic
consumption in 2000, which represents over a 50% increase in market share over
the four years since 1996, when imports represented 13% of total U.S.
consumption. In addition to favorable currency exchange rates, the growth in
imports was fueled by the strong domestic economy. Having hit a peak in 1995 of
$1,680 per ton from less than $1,440 per ton in 1992, pricing for No. 1 coated
papers has been somewhat less volatile with a relatively high floor of
approximately $1,600 per ton established in 1997. Since 1997, prices have
trended upward towards 1995 levels.

Bleached Paperboard

The bleached paperboard market has four main product categories: liquid
packaging, folding carton, cup and plate stock, and containers. Lightweight
varieties of bleached paperboard called bleached bristols are used for coated
book cover stock, greeting cards, postcards, trading cards, business cards,
and the like. According to data from Pulp & Paper, in 1999, five companies in
the U.S. bleached paperboard market controlled 80% of the North American
capacity, and the top ten companies held an estimated 96% share.

The increasing demand for recycled and unbleached packaging products and
increased price competition among the major grades of paperboard are
challenges facing bleached paperboard companies. According to data from Pulp &
Paper, in 1994, domestic production reached 638,000 tons, but production
declined to 562,000 tons in 1996. Domestic production has climbed back to
581,000 tons in 1999. According to the U.S. Department of Agriculture,
paperboards' total share of fluid milk packaging shifted from 78% in 1971 to
21% in 1997, whereas the market share of plastic containers increased from 15%
to 79% during this same period. Although carton use for milk packaging has
declined, other types of liquid packaging are growing. This is especially true
for juice drinks, where paperboard can maintain freshness and quality on par
with plastics and provide a better surface for graphics.

As with liquid packaging, bleached paperboard has faced heavy competition
from plastics in the disposable foodservice market. After losing market share
for a number of years, total sales and volume shipments of paper cups, plates,
trays and food containers have edged up in the past few years. According to
data from Pulp & Paper, production of bleached paperboard used to manufacture
these products for the domestic market was approximately 1.2 million tons in
1999, a 7% increase over 1998. In an attempt to counter competition from
plastics, the paper industry has concentrated on improving the strength,
appearance, and design of its cups and other foodservice products.

A reference price for bleached paperboard is the price of 16 pt. coated
folding carton stock. These prices historically have risen and fallen in
relation to U.S. economic cycles and the industry's supply-demand balance.
According to data from Pulp & Paper, as reflected in the table below, bleached
paperboard pricing reached a peak of $930 per ton during the second quarter of
1995 before sliding gradually to $740 per ton in the first two quarters of
1999. Prices did recover modestly starting in the third quarter of 1999,
ultimately reaching $870 per ton in the third quarter of 2000.

[Line Graph titled U.S. 16 Pt. Bleached Kraft Paperboard Prices.
This line graph compares the year-to-year movement in price of U.S. 16 pt.
bleached kraft paperboard. On the "y" axis are the numbers 600, 700, 800, 900
and 1000 spaced equidistantly. Each number on the "y" axis indicates the price
in U.S. Dollars per ton, rolls, of U.S. 16 pt. bleached kraft paperboard. On the
"x" axis are the years 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and
2000 spaced equidistantly. The line graph indicates that in 1991, the price of
U.S. 16 pt. bleached kraft paperboard was approximately $850 per ton, rolls; in
1992, the price of U.S. 16 pt. bleached kraft paperboard was approximately $730
per ton, rolls; in 1993, the price of U.S. 16 pt. bleached kraft paperboard was
approximately $690 per ton, rolls; in 1994, the price of U.S. 16 pt. bleached
kraft paperboard was approximately $720 per ton, rolls; in 1995, the price of
U.S. 16 pt. bleached kraft paperboard was approximately $880 per ton, rolls; in
1996, the price of U.S. 16 pt. bleached kraft paperboard was approximately $800
per ton, rolls; in 1997, the price of U.S. 16 pt. bleached kraft paperboard was
approximately $790 per ton, rolls; in 1998, the price of U.S. 16 pt. bleached
kraft paperboard was approximately $780 per ton, rolls; in 1999, the price of
U.S. 16 pt. bleached kraft paperboard was approximately $790 per ton, rolls; in
2000, the price of U.S. 16 pt. bleached kraft paperboard was approximately $850
per ton, rolls. Below the line graph is a footnote indicating that the source
for the information contained in the line graph is the Pulp & Paper 2000, North
American Factbook.]
- --------
Source: Pulp & Paper 2000, North American Factbook

Tissue

Tissue paper is used principally for the manufacture of bathroom tissue,
facial tissue, napkins and paper towels. According to data from Pulp & Paper,
from 1994 to 1999, total shipments for the U.S. tissue industry increased from
6.1 million tons to 6.8 million tons, a compound annual growth rate of over
2%.

Tissue products are generally divided into two categories, consumer and
commercial/industrial. Consumer tissue accounts for two-thirds of the U.S.
tissue market and is purchased at retail outlets such as supermarkets, drug
stores and mass merchandisers. According to Information Resources, Inc.'s
("IRI") InfoScan Reviews data service, consumer tissue accounted for $8.9
billion in total U.S. dollar sales for the 2000 calendar year. Bathroom tissue
represents 48% of these $8.9 billion total U.S. consumer tissue dollar sales,
followed by paper towels with 30%, and facial tissue and napkins making up the
remaining 22%.

The commercial/industrial market consists of products sold at wholesale to
janitorial supply companies, hotels, offices, restaurants, factories,
airports, the health care industry, schools, and government offices. The
commercial/industrial market represented approximately $2.7 billion in total
U.S. dollar tissue sales for the 2000 calendar year or about one-third of the
total U.S. tissue market. In 2000, according to Pulp & Paper, paper towels
represented 44% of shipments in the commercial/industrial market, followed by
bathroom tissue with 30%, and napkins and facial tissue representing the
remaining 26%.

Private label tissue represents a niche of the consumer tissue market with,
based on data from IRI, U.S. sales over $1.0 billion in 2000. Private label
products are marketed under the brand names of supermarkets, drug stores and
mass merchandisers. Total U.S. private label dollar sales, as a percentage of
the consumer tissue category dollar sales, have increased from 11.6% in
calendar year 1994 to 13.3% in calendar year 2000 according to InfoScan
Reviews data from IRI. Prices for commercial and consumer tissue paper
products are significantly impacted by a number of factors, including raw
material costs, industry capacity, operating rates, demand, general economic
conditions, and product characteristics.

BUSINESS

Our Company

Potlatch Corporation, founded in 1903 in Potlatch, Idaho, is a vertically
integrated and diversified forest products company. Our 6,300 employees manage
approximately 1.5 million acres of timberlands and operate 22 manufacturing
facilities located principally in Arkansas, Idaho, and Minnesota. We convert
wood fiber into two broad product lines: (a) commodity and specialized wood
products, including oriented strand board, or OSB, lumber, plywood and
particleboard; and (b) bleached pulp products, including kraft pulp,
paperboard, coated printing papers, and consumer tissue products. Our business
is organized into four segments:

. Resource segment manages our 1.5 million acres of timberlands located in
Arkansas, Idaho and Minnesota and our 22,000 acre hybrid poplar
plantation in Oregon that is being developed as an alternative source of
fiber. It is the Resource segment's responsibility to procure wood from
our own timberlands as well as from third parties for all of our
manufacturing facilities and to ensure that our timberlands are managed
for the highest and best use. Our timberlands provided approximately 55%
of log requirements for our sawmill and plywood manufacturing facilities
in 2000 and an average of 67% over the past five years. Including the
raw materials used for pulp, OSB and particleboard, the percentages our
timberlands supplied to all of our manufacturing facilities were 30% in
2000 and an average of 41% over the past five years. We believe this
level of self-sourcing mitigates our risk of fiber shortages in
challenging market conditions.

. Wood Products segment manufactures and distributes commodity and
specialized OSB, industrial plywood, commodity and specialized lumber
and particleboard produced by eleven facilities located in Arkansas,
Idaho and Minnesota.

. Printing Papers segment produces and markets highline coated printing
papers, primarily used for high-end printing needs, such as annual
reports, showroom catalogs, art reproductions and high-quality
advertising from our mills in Cloquet and Brainerd, Minnesota. We
believe that one of our highline paper brands, McCoy, is among the most
well-recognized brands in the market today. In addition, we completed
construction of a state-of-the-art premium-grade pulp mill in December
1999 at our Cloquet, Minnesota facility. Cloquet provides high-quality
pulp for both of our Minnesota paper mills, and sells more than 35% of
its bleached hardwood pulp in the open market.

. Pulp and Paper segment produces premium and various other grades of
private label household tissue products primarily for sale to retail
grocery chains such as Albertson's, Kroger and Safeway. We supply
substantially all of the private label tissue products sold by Safeway
and Albertson's nationwide and substantially all of Kroger's private
label tissue in the western U.S. Based on grocery store scan data, in
2000 we supplied over 88% of the private label tissue sold in grocery
stores in the western U.S., and 38% of the private label tissue sold in
grocery stores nationwide. This segment also manufactures and sells
high-quality bleached paperboard stock for use in the packaging of
liquids, foods and dry goods, including milk, juice, food products,
pharmaceuticals, toiletries, and other consumable goods, as well as
conversion into paper cups and plates. The segment also sells a
relatively small amount of bleached softwood market pulp to the extent
it is not used by the segment in the production of paperboard and
tissue.

Our Strategy and Strengths

Our strategy is to maximize the value of our timberland resources and to
achieve the highest level of profitability for our broad range of paper and
wood products. Key components of this strategy include quality production and
customer-focused sales, with an emphasis on product lines in which we can be a
low cost producer, particularly those with higher profit margins. Our
competitive strengths that underlie our strategy include:

Secure Fiber Supply. We have a secure fiber supply for a significant
portion of our needs due to our ability to self-source a large percentage of
raw materials, which is particularly useful in times of short supply in the

market. We own 671,000 acres in Idaho, 501,000 acres in Arkansas, and 337,000
acres in Minnesota. The wood fiber needs of our manufacturing facilities are
sourced in varying degrees, based on market dynamics and mill location, from
our own timberlands and from third parties. Our timberlands provided 55% of
log requirements for our sawmill and plywood manufacturing facilities in 2000
and an average of 67% over the past five years. Including the raw materials
used for pulp, OSB and particleboard, the percentages our timberlands supplied
to all of our manufacturing facilities were 30% in 2000 and an average of 41%
over the past five years. Another aspect of our strategy to ensure our long-
term fiber supply is to only harvest our timberlands at sustainable yield
levels.

Cost-Competitive Facilities. We have recently completed a significant
multi-year capital investment program that has resulted in many of our
facilities operating at increased efficiency. In an effort to become a low-
cost competitive producer, we have invested over $2.0 billion during the last
15 years to modernize and maintain our plants and equipment, including more
than $910.0 million over the past five years. Additionally, as a result of
higher capital investment in the past, we expect that relatively little
maintenance capital will need to be invested at our mills for the foreseeable
future. In general, the culmination of this extensive program provides us with
technologically modern and cost-competitive manufacturing facilities. In
addition to capital investments, we have undertaken aggressive actions to
increase overall mill efficiency, including workforce reductions, closure of a
non-competitive mill and re-allocation of production, and have implemented a
strategy to increase our internal electrical generation by better utilizing
existing capacity. These and other strategic initiatives have resulted in a
significant reduction in our manufacturing costs.

Superior Quality and Service. Although we maintain quality standards across
all product lines, management's operating philosophy for our more specialized
products (including highline coated printing papers and premium private label
household tissue products) is to target higher-end niche markets where our
products successfully compete largely on the basis of superior quality and
customer service. For example, we believe that our consumer tissue business
produces some of the highest-quality private label consumer tissue products in
the U.S. In addition, we believe that we produce some of the highest quality
highline coated papers in North America. Our mills in Minnesota rank among the
highest-quality, and one of our highline paper brands, McCoy, is among the
most well-recognized brands in the market today. We have a significant market
presence in both the private label tissue market, where, based on grocery
store scan data, we were the largest grocery store provider in the western
U.S. in 2000, and in printing papers, where we are one of the largest domestic
suppliers by volume of Premium and No. 1 coated printing papers. We compete in
these markets not only on the basis of price, but also on product quality and
customer service.

Product Diversity. As an integrated forest products company, we produce a
wide variety of paper and wood products, ranging from highly specialized
value-added products such as highline printing papers and private label tissue
to commodity lumber, plywood products and OSB. For 2000, the percentage of net
sales for each of our segments, before eliminating intersegment sales, was 16%
for the Resource segment, 26% for the Wood Products segment, 24% for the
Printing Papers segment, and 34% for the Pulp and Paper segment. We believe
that this diversity reduces the effect of cyclicality on our net sales as a
whole because the demand and pricing for many of our products have tended to
fluctuate at different points in the economic cycle. This cash flow stability
has been demonstrated by our relatively stable level of EBITDDA performance
over the 1990s when our EBITDDA was between $216.1 and $267.0 million every
year, with the exception of 1995 when EBITDDA was $356.6 million.

Our Business Segments

Resource Segment

The Resource segment manages our 1.5 million acres of timberlands located
in Arkansas, Idaho and Minnesota, and a 22,000-acre hybrid poplar plantation
in Oregon. This segment produces and procures wood from others for our
manufacturing facilities. Since 1999, this segment has been operating as a
stand-alone segment, selling wood fiber to our manufacturing facilities at
market prices. We believe that this strategy

maximizes our timber value and motivates management of our other manufacturing
segments to optimize operating efficiencies and identify profitable markets in
which to compete.

Timber and Timberlands. Our 1.5 million acres of timberlands include a wide
diversity of softwood and hardwood species, allowing the segment to market the
resources to a wide variety of manufacturers.

Arkansas. We own 501,000 acres of timberlands in Arkansas, which include
130,000 acres of pine plantations, 222,400 acres of naturally regenerated
pine forests and 102,600 acres of bottomland hardwoods. These timberlands
comprise Southern yellow pine, red oak, white oak and other hardwoods. Our
Arkansas timberlands provide 45% of the raw material for our Arkansas
sawmills and 26% of our requirements at our Arkansas pulp facility.

Idaho. We own 671,000 acres of timberlands in Idaho, primarily in the
northern portion of the state. Primary species on these lands include grand
fir, inland red cedar, Douglas-fir, ponderosa pine, western larch,
Engelmann spruce and western white pine. We supply approximately 79% of the
log requirements for our wood products facilities located in the state.

Minnesota. We own 337,000 acres of timberlands in Minnesota with aspen
and red pine comprising the primary species grown. Our lands in Minnesota
provide approximately 10% of the fiber used in our wood products facilities
and pulp mill in Minnesota.

Oregon. We own a 22,000 acre hybrid poplar plantation in northeastern
Oregon. Hybrid poplars produce short, lighter-colored fiber that has
applications for many wood and paper products. We intend to sell hardwood
sawlogs from these timberlands for conversion into plywood and lumber for
furniture manufacturing and other non-structural uses.

Strategy. The success of the Resource segment is driven by our ability to
execute the following components of our strategy:

Timber Value Maximization. One of the core functions of the Resource
segment is to maximize economic returns from our timberlands. We actively
manage the volume and timing of our timber harvests throughout the season
with the goal of maximizing long-term value to us. We actively monitor
market conditions in order to ensure that our logs are directed to the
market that will yield the highest value. This goal is accomplished by
actively managing our timberlands through intensive silvicultural
practices, log merchandising, the divestiture of unproductive or non-core
timberlands, acquisitions of strategic timberlands and the pursuit of
ancillary revenue sources such as hunting, grazing, mineral or recreational
leases. Consistent with our long-term commitment to sustaining forest
management, the segment regenerates all harvested lands by either natural
means or by replanting as soon as practicable after harvest. We planted
15.8 million trees during 2000, and more than 94.8 million trees have been
planted on our timberlands over the last ten years.

Land Ownership. At times the value of some of our timberlands may be
greater when used for purposes other than timberland operations, or when
they are owned by others. Consequently, we periodically review both current
and projected values of our timberlands to ensure that we are using the
land in a way that is most profitable to us. When appropriate, we expect to
engage in divestitures, acquisitions or exchanges of land in order to
maximize the economic return to us.

Managing Potential Restrictions on Right to Harvest. We actively monitor
and manage, both directly and through industry associations, potential
environmental and regulatory restrictions on the local, state and federal
level to ensure the most profitable harvesting and management of our
timberlands. We also support best management practices, or BMPs, which have
been developed by state regulatory agencies, professional foresters,
environmentalists and others. BMPs are local guidelines that outline the
best way to build roads, harvest trees and perform other on-the-ground
forestry practices. For example, BMPs often require buffer

zones along streams to protect water quality and specify road-building
practices that minimize impact on the forest. Our foresters follow internal
environmental guidelines that meet or exceed BMPs. Our harvest schedules
are dictated by the landbase and not by the needs of our manufacturing
facilities.

Marketing and Sale of Fiber. Until 1999, procurement and fee land
management were run primarily as a source of fiber for our manufacturing
facilities. Management has since created the Resource segment to sell logs and
stumpage into the highest value markets. In accordance with this
reorganization, new markets for fee timber have been identified. We believe
that this focus on achieving the highest returns for our timberlands is
leading to increased efficiencies in the Resource segment and our
manufacturing segments, as they, in turn, are now required to continually
improve performance in order to remain competitive. Beyond efficiently
managing our timberlands, the Resource segment also capitalizes on our
expertise in regional timber and log acquisitions, sales and exchanges, and
provides cost-competitive and reliable procurement services to all of our
converting facilities.

Customers. The segment sells its wood fiber harvested from our timberlands
to a variety of paper and forest products companies situated within
economically viable transportation distance of our timberlands. These
customers range in size from sole proprietorship wholesalers to multinational
corporations such as Georgia-Pacific Corporation and International Paper
Company. Our own manufacturing segments accounted for 89% of our Resource
segment's net sales in 2000.

Competition. The segment competes with owners of timberlands that operate
in areas adjacent to, or near our timberlands ranging from private owners of
small tracts of land to some of the largest timberland companies in the U.S.,
including Plum Creek Timber Company, Inc., International Paper Company,
Weyerhaeuser Company and Boise Cascade Corporation. As wood fiber from
timberlands are generally commodity products, we compete principally on the
basis of price.

Non-Timber Revenue. We have a number of non-timber sources of revenue. We
have granted hunting, recreational, grazing, mineral leases and are actively
pursuing conservation easements. These revenues are typically generated
without impacting the segment's ability to harvest timber in the most
profitable and efficient manner possible.

Wood Products Segment

Our Wood Products segment manufactures a wide range of commodity and
specialty wood products for both industrial and consumer use in eleven
facilities located in Arkansas, Idaho and Minnesota.

Strategy. Our strategy for the Wood Products segment is to compete on the
basis of operational efficiency in each mill and by taking advantage of each
of our mills' range of competitive advantages which include favorable access
to raw materials and production efficiencies. Although our primary emphasis
has been to capitalize on our position as a low-cost producer and to focus on
our customer service, we intend to explore niche markets for higher gross
margin, value-added products such as specialty OSB.

Facilities. We own and operate eleven wood product manufacturing facilities
located near our timberlands.

Annual
Location Capacity
-------- ---------

OSB Mills (msf, 3/8" basis):
Bemidji, Minnesota............................................... 515,000
Cook, Minnesota.................................................. 435,000
Grand Rapids, Minnesota.......................................... 355,000
---------
Total.......................................................... 1,305,000
=========
Lumber Sawmills (mbf):
Prescott, Arkansas............................................... 150,000
Warren, Arkansas(a).............................................. 170,000
Lewiston, Idaho.................................................. 160,000
St. Maries, Idaho................................................ 90,000
Bemidji, Minnesota............................................... 85,000
---------
Total.......................................................... 655,000
=========
Plywood Mill (msf, 3/8" basis):
St. Maries, Idaho................................................ 130,000
=========
Particleboard Mill (msf, 3/4" basis):
Post Falls, Idaho................................................ 70,000
=========

- --------
(a) There are two mills at this location.

Products and Markets. The Wood Products segment produces plywood,
particleboard, OSB and lumber. Although our current product lines are
commodity-oriented in nature, we are now developing new value-added products
that use innovative materials, technology and processes. One such product is
foil-lined OSB, which is designed to be more energy efficient in winter and
summer due to its reflective properties. We believe our value-added products
under development will command premium prices.

Raw Materials. As the transportation of logs is not economically viable
beyond approximately 100 miles, each of our mills obtains fiber from the
Resource segment and other low-cost providers. For the facilities in Arkansas,
approximately 45% of the log supply for each mill is internally sourced and
the remainder is sourced from third parties. In Minnesota, approximately 10%
of our log supply is sourced from our timberlands, with the remainder supplied
by a large number of independent timberlands owners, the State of Minnesota
and various counties. In Idaho, approximately 79% of our log requirements are
met by timber from our Idaho timberlands, with the remainder being supplied by
private timberland owners and the State of Idaho. A significant amount of
potentially harvestable timber in Idaho is owned by the federal government,
which does not currently permit any significant harvesting of this timber.

Customers. Our wood products are sold through our sales offices primarily
to wholesalers for nationwide distribution. Key customers of our Wood Products
segment include regional and national distributors, wholesalers and
independent lumber yards. During 2000, no single customer accounted for more
than 12% of segment sales.

Competition. We believe that competitiveness in the wood products industry
is largely based on individual mill efficiency, rather than the number of
mills operated. For this reason, we believe that we are able to compete
effectively with companies that have a larger number of mills than we have
such as Louisiana-Pacific Corporation, Weyerhaeuser Company, Georgia-Pacific
Corporation and Nexfor Inc. This is due to the fact that it is not economic to
transfer wood between or among facilities, which would permit a greater degree
of specialization and operating efficiencies. Instead, each facility must
utilize the raw materials that are available to it in a relatively limited
geographic area. For this reason, we believe that the competitiveness of the
Wood

Products segment is a function of the efficiency of our mills and the
available resources on a facility-by-facility basis.

Printing Papers Segment

The Printing Papers segment is one of the domestic market leaders in the
production of highline coated papers, which is comprised of Premium and No. 1
grade coated papers. Highline coated papers are used for the highest quality
commercial printing applications such as corporate annual reports and
automotive brochures. We believe one of our highline brands, McCoy, is among
the most well-recognized brands in the market today. Sales of highline grades
account for approximately one-third of the segment's tonnage sold. In the
third quarter of 2001, we believe, based on available data, that we had a 33%
market share in the domestic consumption of highline papers, up from our
average in recent years of 23%.

Strategy. The strategy of the Printing Papers segment is to maintain and
grow our position as one of the leading domestic producers of papers for high-
end commercial printing applications. We believe that we have secured our
current position as a result of superior product quality, dedicated customer
service and the development of well-recognized brands.

Facilities. Our manufacturing facilities are located in Cloquet and
Brainerd, Minnesota and we lease distribution facilities in Chicago, Illinois
and Salt Lake City, Utah. Each of the manufacturing facilities is equipped
with two paper machines, an off-machine coater, and converting equipment. In
addition, a new state-of- the-art pulp mill located at the Cloquet facility
was completed in late 1999 at a cost of $525.0 million. This new 450,000 ton
pulp mill replaced an old 210,000 ton mill which was previously located on the
same site. This mill meets substantially all of the pulp requirements of both
the Cloquet and Brainerd paper machines. In 2000, the segment purchased
approximately 21 percent of the pulp used at its paper mills on the open
market. The completion of the Cloquet facility also allows the segment to sell
premium quality, bleached hardwood kraft pulp into the open market. We believe
that the pulp produced at this mill consists of some of the highest quality
pulp available in the market today. Cloquet currently produces more than 1,190
tons per day. If the mill is able to achieve full design production capacity
of 1,300 tons per day, we believe the pulp mill would be one of the lowest
cost producers in North America. The new pulp mill has reduced pulp
manufacturing costs by approximately 25% per ton, compared to the
manufacturing costs per ton of the old pulp mill in 1999.

Annual
Location Capacity
-------- --------
(in
tons)

Pulp Mill:
Cloquet, Minnesota................................................ 450,000
=======
Paper Mills:
Cloquet, Minnesota................................................ 230,000
Brainerd, Minnesota............................................... 160,000
-------
Total........................................................... 390,000
=======

Products and Markets. During 2000, the Printing Papers segment was one of
the domestic leaders in the production of highline coated papers, earning a
North American market share of approximately 23%, and we believe our McCoy
brand is one of the most well-recognized brands in the highline coated papers
market. We believe the high quality of the paper we produce has led to
significant price premiums and higher margins over our other coated paper
grades.

Raw Materials. The wood and wood chips which provide the fiber for the pulp
mill at Cloquet come from a variety of sources in Minnesota, Wisconsin and
Canada, including 5% from our own timberlands. Almost all of the wood fiber
required for the segment's manufacturing facilities is sourced within 100
miles of the mill. As timberland ownership within this area is significantly
fragmented, we have historically experienced little difficulty procuring wood
fiber for our operations.

Customers. The segment sells its paper to more than 20 distributors at over
200 locations throughout the country. Our two largest distributors are
Unisource and Xpedx, and our top five distributors account for approximately
64% of this segment's sales. The target end-use customers for our paper
include both independent printing companies as well as corporate graphic
design and printing centers. Some of the large end-users of our paper include
Ford Motor Company and DaimlerChrysler. We work with the end-user of our
products and designers to manufacture products according to individual
specifications, allowing us to get our products specified for future projects.
This strategy allows us to compete effectively on service, quality and price.

Competition. The segment competes with other producers of paper, including
Sappi Limited, Stora Enso Oyj and Mead Corporation. We believe that we compete
on the basis of our product quality, dedicated customer service and price.

Pulp and Paper Segment

Our Pulp and Paper segment is comprised of the bleached pulp and paperboard
and consumer tissue product lines.

Bleached Pulp and Paperboard. We produce bleached paperboard stock, a
product used in the high-end segment of the packaging industry due to its
strength, brightness and favorable printing and graphic surface features.
Bleached paperboard is processed into a variety of end products, including
liquid packaging such as milk and juice cartons, paper cups and folding carton
products, including food, cosmetic or pharmaceutical cartons and plate stock.
We also produce and sell, primarily through agents, bleached softwood market
pulp, which is used as the basis for many paper products.

Strategy. Our bleached paperboard strategy is to target value-added
specialized product markets and to allocate production of bleached paperboard
across our two mills in order to most efficiently target business
opportunities. For example, we have determined that the liquid packaging
market provides more pricing stability and higher growth and margin
opportunities than other markets available to us. To this end, we have
recently shifted production of our liquid packaging to our Lewiston, Idaho
facility, whose machines have recently been optimized towards this production,
and which has a pulp base that is better suited to producing products with
strength and quality characteristics necessary for liquid packaging. In
addition, we have recently added coaters to our Lewiston facility, enabling us
to sell paperboard to producers of aseptic packaging. Our paperboard for
aseptic packaging is sold in the U.S., Mexico and Pacific Rim countries and we
believe this product provides opportunities for higher margins and growth. In
response to customer needs, we have also recently introduced a higher
brightness folding carton stock with improved graphics capabilities which is
produced at our Cypress Bend, Arkansas mill.

Facilities. We produce bleached paperboard in two facilities located in
Cypress Bend, Arkansas and Lewiston, Idaho. We believe that our Cypress Bend
mill is one of the lowest cost bleached paperboard mills in the country.

Annual
Capacity
--------
(in
tons)

Pulp Mills:
Cypress Bend, Arkansas............................................ 255,000
Lewiston, Idaho................................................... 500,000
-------
Total........................................................... 755,000
=======
Bleached Paperboard Mills:
Cypress Bend, Arkansas............................................ 275,000
Lewiston, Idaho................................................... 355,000
-------
Total........................................................... 630,000
=======

Products and Markets. We sell several grades of paperboard stock to third
party converters who process the stock into a variety of end-uses. In addition
to the higher-end bleached paperboard used in traditional end-products, we
have also been successful in developing specialty grades suited to specific
customer's needs. Examples of these specialty grades include:

. Coated, two-sided paperboard, which has a functional coating applied to
the back of the sheet for improved printability;

. Dual-sized paperboard, designed to impart a higher moisture or water
resistance than regular frozen food stock;

. Preprint liner paperboard, with special creasing and folding
characteristics;

. Raisin stock, a highly-sized paperboard designed to minimize staining
when wet raisins are packaged; and

. Photo-mount paperboard, an acid-free product used for mounting
photographic materials.

Raw Materials. We obtain substantially all of our pulp from the Lewiston
and Cypress Bend facilities. We obtain wood fiber from our own timberlands and
from third parties.

Customers. The customers for our bleached paperboard consist of a large
number of third party converters located throughout the U.S. and Pacific Rim,
which process the paperboard into a variety of finished products. No customer
accounts for more than 10% of our net sales of bleached paperboard.

Competition. Bleached paperboard is manufactured by ten major suppliers in
the U.S., two in Canada, as well as numerous international producers. We
believe that we, in conjunction with International Paper Company, Westvaco
Corporation, Georgia-Pacific Corporation, and Blue Ridge account for over 75%
of industry capacity. We believe that our bleached paperboard stock competes
on the basis of quality, service and price.

Consumer Tissue. We manufacture private label premium, value and economy
quality facial tissue, paper towels, bathroom tissue and napkins for sale to a
number of retail grocery stores and retail companies. Based on grocery store
scan data, we have the largest share of the private label tissue market for
grocery stores in the western U.S. We supply substantially all of the private
label tissue products sold by Safeway and Albertson's nationwide, and
substantially all of Kroger's private label tissue in the western U.S. Our
goal is to become the preferred supplier of private label consumer tissue in
North America.

Strategy. Our consumer tissue strategy is to capitalize on our leadership
position in the private label segment in order to grow our customer base as
well as expand with our current customers into new markets, particularly into
the eastern U.S. from our western base. We intend to carry out this strategy
by providing private label tissue products of quality comparable to leading
national brands, dedicated customer service, consumer and market insight, and
customer-focused business solutions. The segment is focused on premium tissue
products and pursues opportunities where its customers believe that premium
private label products can compete effectively with branded products. This
strategy is backed by our active product development efforts that have enabled
us to compete by consistently providing quality that we believe is at least
equivalent to targeted national brands.

Facilities. Our tissue products are manufactured on three machines at our
Lewiston, Idaho facility and are then converted into packaged tissue products
at three converting facilities, one in each of Lewiston, Idaho, North Las
Vegas, Nevada, and Benton Harbor, Michigan. We believe that the cost structure
and size of these machines are competitive for the industry.

Annual
Capacity
--------
(in
tons)

Tissue Mill:
Lewiston, Idaho................................................... 170,000
=======
Tissue Converting Facilities:
Lewiston, Idaho................................................... 110,000
North Las Vegas, Nevada........................................... 40,000
Benton Harbor, Michigan(a)........................................ 5,000
-------
Total........................................................... 155,000
=======

- --------
(a) Leased facility, which commenced operations in May 2001.

Products and Markets. Our consumer tissue products include a range of
facial tissues, bathroom tissues, paper towels and napkins. Based on grocery
store scan data, we have an 88% market share of the private label tissue
market for grocery stores in the western U.S., and we supply 38% of the
private label tissue sold in grocery stores nationwide.

Raw Materials. Approximately 65% of the pulp we use to make our tissue
products is obtained from our Lewiston pulp mill. The remaining portion is
purchased on the open market and consists primarily of hardwood pulp, which is
used to enhance the quality of the tissue.

Customers. Our tissue products are marketed through brokers to major retail
outlets. We believe the products' quality has strengthened our relationships
with several key customers and has given us greater access to additional
retailers who have merchandising strategies that are highly focused on quality
private label products. The segment's five principal customers account for
approximately 82% of the segment's tissue sales.

We were named corporate brand "Supplier of the Year" for 2000 by Safeway,
corporate brand "Supplier of the Year" for 1999 by Albertson's, and corporate
brand "Outstanding Supplier" for 1999 by Kroger.

Competition. Our products compete with branded products such as those
produced by Georgia-Pacific Corporation, Kimberly-Clark Corporation and
Procter & Gamble Company, as well as other private label producers. Management
believes that our products compete on the basis of both quality and price. The
pricing for our products is generally below that of nationally branded
products, although management believes that the quality of our products is at
least equivalent to the quality of targeted nationally recognized brands.

Environmental Laws

Manufacturing Operations

We are subject to extensive federal and state environmental regulations at
our manufacturing facilities. We endeavor to comply with all environmental
regulations and regularly monitor our activities for such compliance. We
believe that our manufacturing operations are in compliance, in all material
respects, with these laws and regulations. When issues of non-compliance
become known to us, we believe that we have taken reasonable steps to ensure
that compliance is achieved.

Environmental impacts at some facilities resulting from current or historic
operations may require remediation in the future. In particular, we are
subject to a Consent Order from the Idaho Division of

Environmental Quality, or IDEQ, that requires us to conduct an investigation
of soil and groundwater contamination at the ash ponds located at our
Lewiston, Idaho facility. We are also conducting an investigation of soil and
groundwater contamination at a landfill adjacent to that same facility. On
August 29, 2001, IDEQ issued a Compliance Schedule Order which requires us to
develop and impliment IDEQ-approved plans to investigate and possibly
remediate solid waste management units at the facility. Some remediation may
be required at the ash ponds and the landfill based on the results of the
investigations. Because the investigations are not completed, we cannot
quantify the scope or estimate the potential costs of that remediation at this
time, although we do not expect that these costs will seriously harm our
results of operation or financial condition.

Compliance with environmental regulations requires capital expenditures as
well as additional operating costs. Capital expenditures specifically
designated for environmental compliance totaled approximately $17.0 million
during 2000 and are budgeted to be approximately $16.0 million in 2001. In
addition, we made expenditures for pollution control facilities as part of the
construction of the new Cloquet pulp mill and the modernization and expansion
of the Cook OSB mill.

Of our manufacturing facilities, our pulp-based segments are the most
highly regulated with respect to environmental matters. In early 1998 the U.S.
Environmental Protection Agency (EPA) published the "Cluster Rule" regulations
applicable specifically to the pulp and paper industry. These extensive
regulations govern both air and water emissions. As recently as January 2001,
the EPA issued a new air regulation under the umbrella of the Cluster Rules.
Based on an analysis of the regulations, including the most recent air
regulation, the condition of our three pulp mills, and the work completed in
2000 and 2001, we estimate the total remaining capital expenditures necessary
to comply with the Cluster Rules through 2006 will be approximately $10.0
million, of which approximately $1.5 million has been budgeted for 2001. We do
not expect that such compliance costs will have a material adverse effect on
our competitive position.

The U.S. Environmental Protection Agency is considering promulgating
regulations covering air emissions from our Wood Products segment that could
be similar in scope to the Cluster Rules for the pulp sector. At present, the
wood products regulations have not been formally proposed, and accordingly we
are unable to quantify the costs to comply with any such regulations.

Our pulp mill at Lewiston, Idaho, discharges treated mill effluent into the
nearby Snake River. By federal law we are required to comply with provisions
of a National Pollution Discharge Elimination System (NPDES) permit. As
allowed by federal regulations, we are operating under an NPDES permit which
expired in 1997, but which continues to be in force until the effective date
of a new NPDES permit. Negotiations for a new permit have been ongoing since
that time.

The EPA published a draft NPDES permit in December 1999 which includes an
end-of-the-pipe discharge temperature requirement of 68 degrees Fahrenheit, to
be achieved within five years of the date a new permit becomes effective.
Meeting this requirement would necessitate installation of refrigeration
equipment at a total capital cost ranging between $25 million and $30 million.
Discussions are ongoing with the EPA and other agencies involved in the
reissuance of the NPDES permit. There are regional precedents for a higher
temperature limit. Compliance with a higher temperature limit, should it be
allowed, can be achieved with process modifications and less costly equipment
configurations than refrigeration. If we are required to install and operate
the refrigeration equipment, we believe the pulp mill will be substantially
less competitive than similar mills, none of which face such requirements, and
accordingly could seriously harm our results of operations.

Timberland Operations

Timber operations involve the use and storage of various hazardous
materials such as herbicides, pesticides, fertilizers and gasoline, and may
result in air emissions and discharges of certain materials into streams and
other bodies of water. Accordingly, our operations are subject to federal,
state and local environmental laws and regulations relating to the protection
of the environment. Environmental laws and regulations have changed
substantially and rapidly over the last 20 years, and we anticipate that they
will continue to become increasingly stringent.

The Federal Clean Air Act and Clean Water Act, and their state equivalents,
may affect timber operations through controls on site preparation activities
and regulatory programs designed to reduce waste discharged into bodies of
water. For example, the U.S. Environmental Protection Agency and its state
counterparts have designated certain bodies of water as "water quality
impaired," triggering a requirement to establish Total Maximum Daily Loads
("TMDLs") for such bodies of water. The TMDL process could result in
additional limitations being placed on harvesting activities in some or all of
the states where we operate.

In addition, our timber operations are affected by federal and state laws
designed to protect wetlands. The Federal Clean Water Act authorizes the
regulation of "wetland" areas. Access to timberlands located within a
protected wetlands area may be limited, and we may be required to expend
substantial sums for the protection of such wetland areas.

The Federal Endangered Species Act and similar state laws and regulations
protect species threatened with possible extinction. A number of species
indigenous to our timberlands have been and in the future may be protected
under these laws and regulations. The presence of protected species on or near
our timberlands may restrict or prohibit timber harvesting, road building and
other silvicultural activities on portions of our lands that contain the
protected species or abut their habitats. In addition, our timberlands may be
affected by regulatory requirements relating to habitats for threatened and
endangered aquatic species. Road building and harvesting activities near
streams containing such aquatic species may be limited or prohibited due to
the perceived impact on sedimentation and water quality. We believe that we
are managing our harvesting operations in the areas affected by protected
species in substantial compliance with applicable federal and state
regulations, and that the presence of such species on our lands will not
materially adversely affect our ability to proceed with our current harvest
plans.

Employees

We had approximately 6,300 employees as of September 30, 2001. The work
force consisted of approximately 1,500 salaried, 4,700 hourly and 100
temporary or part-time employees. As of September 30, 2001, approximately 60%
of the workforce were covered under collective bargaining agreements. Three
agreements, covering approximately 1,400 of the union hourly workforce will
expire in 2002. We consider our labor relations to be good.

Legal Matters

We are a party from time to time to various routine legal proceedings.
These primarily involve commercial claims, products liability claims, personal
injury claims and workers' compensation claims. We cannot predict the outcome
of these lawsuits, legal proceedings and claims with certainty. Nevertheless,
we believe that the outcome of these proceedings, even if determined
adversely, would not have a material adverse effect on our business, financial
condition and results of operations.

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information as of December 15, 2001,
with respect to each person who is an executive officer or director of our
Company:

Name Age Title
---- --- -----

Director, Chairman of the Board and Chief
L. Pendleton Siegel.......... 59 Executive Officer
Richard L. Paulson........... 60 President and Chief Operating Officer
Vice President, Minnesota Pulp and Paper
Phillip M. Baker............. 41 Division
Richard K. Kelly............. 54 Vice President, Wood Products Division
Vice President, Consumer Products and
Craig H. Nelson.............. 45 Paperboard Division
John R. Olson................ 53 Vice President, Resource Management Division
Vice President, Finance, Chief Financial
Gerald L. Zuehlke............ 53 Officer and Treasurer
Richard A. Clarke............ 71 Director
Boh A. Dickey................ 57 Director
Vivian W. Piasecki........... 71 Director
Gregory L. Quesnel........... 53 Director
Toni Rembe................... 65 Director
Reuben F. Richards........... 72 Director
Judith M. Runstad............ 57 Director
Frederick T. Weyerhaeuser.... 70 Director
Dr. William T. Weyerhaeuser.. 58 Director

L. Pendleton Siegel, Chairman of the Board and Chief Executive Officer. Mr.
Siegel was first elected an officer of our Company in 1983 and has served as
our Chairman of the Board and Chief Executive Officer since May 1999. From May
1994 to May 1999, he was our President and Chief Operating Officer. Mr. Siegel
was elected to our Board of Directors effective November 1997. He is a member
of the Finance Committee of our Board of Directors.

Richard L. Paulson, President and Chief Operating Officer. Mr. Paulson was
first elected as an officer in 1992 and has served as President and Chief
Operating Officer of our Company since May 1999. From May 1996 through April
1999, he was Vice President of our Minnesota Pulp and Paper Division. Prior to
May 1996, he was Vice President of our Consumer Products Division.

Phillip M. Baker, Vice President, Minnesota Pulp and Paper Division. Mr.
Baker was first elected an officer of our Company in 1999 and has served as
Vice President of our Minnesota Pulp and Paper Division since May 1999. Prior
to May 1999, Mr. Baker was an appointed officer and served in the following
positions: from December 1997 through April 1999 Mr. Baker was Vice President,
Sales and Marketing for our Minnesota Pulp and Paper Division; from October
1997 through November 1997 he was Vice President, Marketing, for our Minnesota
Pulp and Paper Division. From May 1996 through September 1997 he was Director
of Purchasing Services. Prior to May 1996, Mr. Baker was the Environmental
Manager for our Pulp-Based Operations.

Richard K. Kelly, Vice President, Wood Products Division. Mr. Kelly was
first elected an officer of our Company in 1999 and has served as Vice
President of our Wood Products Division, since July 1999. From May 1999 to
July 1999 he served as elected Vice President of our Western Wood Products
Division. From April 1993 to May 1999, he was an appointed officer and served
as Vice President of our Western Wood Products Division.

Craig H. Nelson, Vice President, Consumer Products and Paperboard
Division. Mr. Nelson was first elected an officer of our Company in 1996 and
has served as Vice President of our Consumer Products and Paperboard Division
since May 2000. From May 1996 through May 2000, he was Vice President of our
Consumer Products Division. Prior to May 1996, he was an appointed officer
serving as Vice President, Manufacturing of our Consumer Products Division.

John R. Olson, Vice President, Resource Management Division. Mr. Olson was
first elected an officer of our Company in 1999 and has served as Vice
President of our Resource Management Division since May 1999. From August 1998
through May 1999 he was an appointed officer serving as Vice President of our
Resource Management Division. From August 1992 to August 1998, he was our
Poplar Project Manager.

Gerald L. Zuehlke, Vice President, Finance, Chief Financial Officer and
Treasurer. Mr. Zuehlke was first elected an officer of our Company in 1994 and
has served as our Vice President, Finance, Chief Financial Officer and
Treasurer since June 2000. From June 1994 to June 2000, he was our Treasurer.

Richard A. Clarke, Director. Mr. Clarke has been a director of our Company
since 1985. Mr. Clarke was Chairman of the Board of Pacific Gas and Electric
Company (a public utility) from May 1986 through June 1995 and its Chief
Executive Officer from May 1986 through June 1994. Mr. Clarke is also a
director of CNF, Inc. (a supply chain logistics management company), PG&E
Corporation and Pacific Gas and Electric Company.

Boh A. Dickey, Director. Mr. Dickey has been a director of our Company
since 2000. Mr. Dickey has served as Chairman of Certworld, Inc. (an insurance
services company) since July 2001. Mr. Dickey was President, Chief Operating
Officer and a Director of SAFECO Corporation (an insurance and financial
services company) from August 1996 to January 2001, and its Executive Vice
President from January 1992 through August 1996.

Vivian W. Piasecki, Director. Mrs. Piasecki has been a director of our
Company since 1992. Mrs. Piasecki was a member of the Board of Overseers for
the University of Pennsylvania School of Nursing from January 1991 through
January 2000, and a member of the Board of the University of Pennsylvania
Medical Center from January 1988 through January 2000.

Gregory L. Quesnel, Director. Mr. Quesnel has been a director of our
Company since 2000. Mr. Quesnel has served as President and Chief Executive
Officer of CNF, Inc. (a supply chain logistics management company) since
January 1998, was its President and Chief Operating Officer from January 1997
through January 1998, and its Executive Vice President and Chief Financial
Officer from January 1994 through January 1997.

Toni Rembe, Director. Ms. Rembe has been a director of our Company since
1975. Ms. Rembe has been a partner of Pillsbury Winthrop LLP (a law firm)
since 1971 and is also a director of SBC Communications Inc., and AEGON N.V.

Reuben F. Richards, Director. Mr. Richards has been a director of our
Company since 1974. Mr. Richards was Chairman of the Board of Terra Industries
Inc. (an agricultural company) from May 1983 through April 1996, and Chairman
of the Board of Minorco (U.S.A.) Inc. (a natural resources company) from May
1990 through March 1996 and its President and Chief Executive Officer from
February 1994 through March 1996. Mr. Richards is also a director of Engelhard
Corporation.

Judith M. Runstad, Director. Mrs. Runstad has been a director of our
Company since 1999. Mrs. Runstad has been of counsel to Foster Pepper &
Shefelman PLLC (a law firm) since January 1998, and was a partner from 1978 to
January 1998. Mrs. Runstad is also a director of Wells Fargo & Co., and SAFECO
Corporation (an insurance and financial services company).

Frederick T. Weyerhaeuser, Director.* Mr. Weyerhaeuser has been a director
of our Company since 1960. He was Chairman of the Board and Treasurer of
Clearwater Investment Trust (a financial management company) from April 1987
through March 1998, and Chairman of the Board and Treasurer of Clearwater
Management Company (an investment advisor) from February 1987 through June
1996.

Dr. William T. Weyerhaeuser, Director.* Dr. Weyerhaeuser has been a
director of our Company since 1990. Dr. Weyerhaeuser was a Clinical
Psychologist in Tacoma, Washington from 1975 through December 1998, owner and
Chairman of the Board of YCOM Networks (a telephone company) from 1984 through
July 2000 and Chairman of the Board of Rock Island Company (an investment
company) from July 1994 through June 1998. Dr. Weyerhaeuser is also a director
of Clearwater Management Company, Inc., and Columbia Banking System, Inc.
- --------
* Dr. William T. Weyerhaeuser and Mr. Frederick T. Weyerhaeuser are first
cousins.

DESCRIPTION OF OTHER INDEBTEDNESS

Our Bank Credit Facilities

Concurrently with the sale of the Original Notes, we entered into new
senior secured credit facilities which we refer to in this prospectus as our
bank credit facilities. Our bank credit facilities provide for aggregate
borrowings by us of up to $400.0 million. Our bank credit facilities provide
for:

. a revolving three-year credit facility of up to $200.0 million in
revolving credit loans and letters of credit; and

. a four-year term loan of $200.0 million.

Prior to the maturity date, funds borrowed under the revolving credit
facility may be borrowed, repaid and reborrowed without premium or penalty.
The subfacility for letters of credit is limited to $110.0 million in the face
amount of the issued and undrawn letters of credit. Under the revolving credit
facility, borrowings are subject to the satisfaction of customary conditions,
including absence of a default and accuracy of representations and warranties.

As of September 30, 2001, we had letters of credit outstanding in the
aggregate amount of $103.0 million. These letters of credit provide credit
enhancement for a portion of our outstanding industrial revenue bonds and have
the effect of reducing our borrowing capacity under our bank credit
facilities. As a result, as of September 30, 2001, we had available borrowing
capacity under our $200.0 million revolving credit facility of approximately
$97.0 million.

Maturity

The revolving credit facility matures on June 29, 2004. The term loan
facility matures on June 29, 2005.

Guarantees; Security

Our obligations under our bank credit facilities are guaranteed by certain
of our subsidiaries. All guarantees are guarantees of payment and not of
collection. Our bank credit facilities are secured by, among other things:

. A first priority perfected security interest in approximately 130,000
acres of our timberlands in Arkansas;

. A first priority perfected security interest in all our accounts
receivable and inventory and all of our guarantors' accounts receivable
and inventory; and

. A first priority perfected security interest in all of the capital stock
of certain of our subsidiaries, which capital stock shall not be subject
to any other lien or encumbrance.

The security interest in the Arkansas timberlands permits us to harvest or
sell the covered timberlands so long as we substitute timberlands of equal or
greater value pursuant to additional documentation and other terms reasonably
satisfactory to the administrative agent.

In addition to the foregoing, upon the earlier of an event of default under
our bank credit facilities or a decline in our senior secured debt rating to
BB or below from Standard & Poor's or to Ba2 or below from Moody's, we will
have to grant the lenders under our bank credit facilities a lien upon all of
our other assets. This lien would ratably secure: (i) our bank credit
facilities; (ii) any interest rate swap or foreign currency swap or similar
agreement we enter into with the lenders of our bank credit facility, and
(iii) loans outstanding under our other indebtedness.

We will be released from the provisions of these security interests once
(i) we achieve a leverage ratio of less than 3.0 to 1.0 for two consecutive
fiscal quarters and (ii) the term loan is fully repaid. If, after the
collateral has been released, we have a leverage ratio of greater than 4.5 to
1.0, all of the security interests described above would again be granted to
support our bank credit facilities.

Several of the indentures governing our other indebtedness require us to
provide equal and ratable security for any outstanding amounts in the event we
grant a security interest to other lenders in our Principal Properties, as
described below under "--6.25% Debentures." The security interest that we
initially provided under our bank credit facilities did not require us to
provide security for any of our other currently outstanding indebtedness under
the existing indentures.

Interest; Fees

Borrowings under our bank credit facilities bear interest at a rate equal
to LIBOR, as adjusted for reserve requirements, plus the applicable margin or
the base rate plus the applicable margin. The base rate is defined as the
higher of (i) the Bank of America prime rate and (ii) the Federal Funds rate
plus 0.5%. The applicable margin for (i) revolving credit loans initially
shall be 275 basis points for LIBOR loans and 175 basis points for base rate
loans, and (ii) term loans initially shall be 275 basis points for LIBOR loans
and 175 basis points for base rate loans. Upon our delivery of a covenant
compliance report on December 31, 2001, the applicable margin in the case of
revolving credit loans would be determined in accordance with a performance
pricing grid. We may select an interest period of 1, 2, 3, or 6 months for
LIBOR loans, subject to availability. Interest is payable at the end of the
selected interest period, but no less frequently than quarterly. A default
rate applies on all loans in the event of a default at a rate per annum of 2%
above the applicable interest rate.

Under our bank credit facilities, we will also be required to pay a
commitment fee, ranging from 0.40% to 0.75%, on the unused portion of each
lender's share of our new revolving credit facility. The commitment fee is
payable quarterly in arrears commencing upon closing. We also are charged a
letter of credit fee, due quarterly in arrears. Fees are equal to the
applicable margin for LIBOR loans on a per annum basis plus a fronting fee of
0.125% per annum to be paid to the letter of credit issuing lender for its own
account. Fees are calculated on the aggregate stated amount and stated
duration for each letter of credit.

Prepayments

We may voluntarily prepay the revolving credit facility in whole or in part
at any time without penalty. However, if any prepayment is made with respect
to a LIBOR loan, we will be required to compensate the lenders for losses and
expenses incurred as a result of such prepayment. If any optional or mandatory
prepayment is made with respect to the term loan facility, we are subject to a
premium, based on the amount of the prepayment or amount that becomes due. At
any time, we may irrevocably cancel all or part of the unutilized portion of
the revolving credit facility that is in excess of the stated amount of all
letters of credit.

In addition, we are required to prepay amounts outstanding under our bank
credit facilities with net cash proceeds from (i) asset sales, (ii) debt
issuances, and (iii) the issuance of our equity stock.

Covenants

Our bank credit facilities require us to meet certain financial tests,
including, but not limited to covenants restricting our ability and our
subsidiaries' ability to create liens, merge or consolidate, dispose of
assets, incur indebtedness and guarantees, pay dividends, repurchase or redeem
capital stock and indebtedness (including the notes), make certain investments
or acquisitions, enter into certain transactions with affiliates, make capital
expenditures or change the nature of our business. Our bank credit facilities
also contain financial maintenance covenants, including covenants establishing
a maximum funded indebtedness to capitalization ratio, a minimum consolidated
net worth requirement, and a minimum fixed charge coverage ratio.

Events of Default

Our bank credit facilities contain customary events of default, including,
but not limited to, payment defaults, covenant defaults, breaches of
representations and warranties, cross default to certain other material
agreements and indebtedness, bankruptcy and other insolvency events, material
judgments, certain ERISA matters, actual or asserted invalidity of security
interests or loan documentation, and a change of control of Potlatch.

6.25% Debentures

In 1999, we issued $100.0 million of 6.25% Debentures due March 15, 2002 in
exchange for an equivalent amount of notes outstanding previously issued in a
private offering. As of September 30, 2001, we had $100.0 million of our 6.25%
Debentures outstanding. Our 6.25% Debentures are non-convertible unsecured
obligations, and are not subject to redemption prior to maturity or entitled to
any sinking fund. Pursuant to our bank credit agreement, we placed $96.6
million of cash into an escrow fund which, together with future accrued
interest, is expected to be sufficient to repay the principal amount of our
6.25% Debentures.

In the indenture pursuant to which our 6.25% Debentures were issued, we
agreed, among other things to:

(i) refrain from creating, assuming or incurring any lien upon any of
our Principal Properties whether owned as of the offering of the debentures
or thereafter, that together with all outstanding obligations and
indebtedness secured by liens exceeds 10% of our consolidated net tangible
assets at the end of the immediately preceding fiscal year without making
effective provisions whereby the debentures shall be secured equally and
ratably with any and all other obligations. Exceptions include (a) liens
upon any property or assets owned by any subsidiary when it became a
subsidiary; (b) liens on any principal property existing at the time of its
acquisition and liens on principal property acquired, constructed or
improved which are created contemporaneously with or within 180 days after
the completion of such acquisition, improvement or construction to secure
or provide payment for the purchase price of property acquired or the cost
of such construction or improvement; (c) tax liens, governmental charges,
materialmen's, mechanics', landlords' or other like liens securing
obligations not overdue or which shall be contested in good faith; (d)
various pledges and deposits; (e) any lease; (f) liens in favor of
governmental units to secure payments in connection with acquisitions,
construction and improvements; (g) easements or similar encumbrances that
do not materially impair the use of the principal property; (h) judgement
liens for the payment of money not in excess of $10.0 million or those
being contested in good faith; (i) liens on timberlands in connection with
arrangements to cut or pay for timber in order to provide the lien holder
with a specified amount of money; (j) liens in the ordinary course of
business relating to the exploring for, developing or producing oil, gas,
or other minerals on, or on any interest in, or on any proceeds from the
sale of property acquired for such purposes; (k) liens to extend or renew
other permitted liens;

(ii) refrain from sale and leaseback transactions involving any of our
principal property unless the proceeds of the sale are at least equal to
the fair value of the principal property involved and either (a) an amount
equal to the cash portion of the net proceeds of the sale is applied within
180 days to the retirement of funded debt or other debt securities or to
the purchase of property other than the principal property involved in the
sale and leaseback transaction, or (b) the principal property involved in
the sale and leaseback transaction could have been subject to a permissible
lien under the indenture, as described above; and

(iii) refrain from merging or selling the Company unless the new or
acquiring entity is organized and existing under the laws of the U.S., any
state thereof or the District of Columbia and the new or acquiring entity
expressly assumes all payment and other obligations relating to the
debentures and the new or acquiring entity shall not immediately after the
transaction have outstanding indebtedness secured by any liens not
permitted by the indenture for the debentures, as described above.

The indenture defines our Principal Properties as (a) any building,
structure or other facility used primarily for manufacturing whose gross book
value exceeds 10% of our consolidated net tangible assets, and (b) any
timberlands owned in fee or under contract, other than timberlands which, in
the aggregate, do not exceed 10% of our total acreage owned in fee or under
contract.

Medium-Term Notes

In 1990, we registered to offer and sell from time to time up to $250.0
million aggregate principal amount of our debt securities, consisting of
debentures, notes or other nonconvertible, unsecured evidence of indebtedness,
for general corporate purposes, including capital expenditures. Subsequently,
on January 24, 1991, we offered and sold $150.0 million of medium-term notes
with maturity dates ranging from 9 months to 30 years

from the date of issuance pursuant to an unlimited indenture. On December 12,
1991, we offered and sold an additional $100.0 million of medium-term notes
with maturity dates ranging from 9 months to 30 years from the date of
issuance pursuant to the same indenture. The specific currency or composite
currency, interest rate, issue price and maturity date of each note issued is
set forth on the pricing supplement for that note. As of September 30, 2001,
we had $164.5 million of our medium-term notes with interest rates ranging
from 8.27% to 9.46%, and maturity dates ranging from 2002 to 2022. The medium-
term notes are non-convertible, unsecured obligations and are not subject to
redemption prior to maturity and are not entitled to any sinking fund.

In the indenture pursuant to which the medium-term notes were issued, we
agreed to the same covenants and negative pledges as those in the indenture
relating to our 6.25% Debentures described above.

On April 2, 2002, $30.0 million of our medium-term notes will mature.

9.125% Credit Sensitive Debentures

In 1989, we issued $100.0 million of 9.125% Credit Sensitive Debentures due
2009. As of September 30, 2001 there was $100.0 million of the 9.125% Credit
Sensitive Debentures outstanding. The interest rate payable on the debentures
is generally subject to adjustment on the calendar day that changes in the
debt rating of the debentures occur as determined by Standard & Poor's or
Moody's. The interest rate scale ranges from 8.825% for AAA and Aaa ratings,
respectively, to 14% for B1 and B+ ratings or lower, respectively. The current
interest rate on the debentures is 9.425%. The debentures are non-convertible,
unsecured obligations. The debentures may not be redeemed prior to maturity
and are not entitled to any sinking fund.

In the indenture pursuant to which the 9.125% Credit Sensitive Debentures
were issued, we agreed to the same covenants and negative pledges as those in
the indenture relating to our 6.25% Debentures described above, except that we
have agreed to refrain from creating, assuming or incurring any liens upon our
Principal Properties that, together will all other indebtedness secured by
liens, would exceed 5% of our consolidated net tangible assets at the end of
the immediately preceding fiscal year.

6.95% Debentures

In 1995, we offered and sold $100.0 million of 6.95% Debentures due
December 15, 2015 pursuant to a limited indenture. As of September 30, 2001
$100.0 million of 6.95% Debentures remained outstanding. The debentures are
non-convertible, unsecured obligations. The debentures are not subject to
redemption prior to maturity and are not entitled to any sinking fund.

In the indenture pursuant to which the $100.0 million of 6.95% Debentures
were issued, we agreed to the same covenants and negative pledges as those in
the indenture relating to our 6.25% Debentures described above.

Fixed Rate Revenue Bonds

As of September 30, 2001, we had $137.4 million of indebtedness represented
by various fixed rate revenue bonds with interest rates ranging from 5.9% to
7.5% and maturity dates ranging from 2001 through 2030. The fixed rate revenue
bonds were issued by political subdivisions or agencies of Minnesota, Idaho
and Arkansas, and the proceeds were subsequently loaned to us to finance some
of our pollution control and solid waste disposal facilities located within
those states. We agreed to pay the relevant political subdivision or agency in
installments which, as to amount, correspond to the payments of principal of
and premium, if any, on the bonds, whether at maturity, upon prior redemption
or acceleration, or otherwise.

Variable Rate Revenue Bonds

As of September 30, 2001 we had $100.1 million of indebtedness represented
by various variable rate revenue bonds with interest rates ranging from 3.429%
to 5.432% and maturity dates ranging from 2007 through 2030. The variable rate
revenue bonds were issued by political subdivisions or agencies of Minnesota,
Idaho and

Arkansas, and the proceeds were subsequently loaned to us to finance some of
our pollution control and solid waste disposal facilities located within those
states. We agreed to pay the relevant political subdivision or agency in
installments which, as to amount, correspond to the payments of principal of
and premium, if any, on the bonds, whether at maturity, upon prior redemption
or acceleration, or otherwise. We have also entered into agreements with
remarketing agents in connection with the bonds pursuant to which the
remarketing agents have agreed, among other things, to remarket bonds
presented to them under various circumstances as described in the related
indentures.

Concurrently with the issuance of the bonds, we caused letters of credit to
be delivered to the trustees of the bonds to provide for the payment of
principal of the bonds and from 35 to 210 days' interest, depending on the
issuance, accrued on the bonds to the extent that moneys are not available
therefor under the indenture for the bonds. The trustees may also draw upon
the letters of credit to pay the purchase price of the bonds tendered to them
or to the remarketing agents for purchase. We must reimburse all payments made
from the letters of credit.

DESCRIPTION OF THE EXCHANGE NOTES

You can find the definitions of certain terms used in this description
under the subheading "--Certain Definitions." In this description, the word
"Potlatch" refers only to Potlatch Corporation and not to any of its
subsidiaries.

The Original Notes were, and the Exchange Notes will be, issued under an
Indenture dated as of June 29, 2001 between Potlatch, the Guarantors and U.S.
Bank Trust National Association, as trustee. The terms of the Original Notes,
the Exchange Notes and the related guarantees include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.

The terms of the Exchange Notes are nearly identical to the terms of the
Original Notes in all material respects, including interest rate and maturity,
except that the Exchange Notes will not be subject to:

. the restriction on transfer;

. the exchange and registration rights agreement's covenants regarding
registration of the notes; and

. accrual of additional interest as liquidated damages.

The following description is a summary of the material provisions of the
indenture. It does not restate the agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights
as holders of the Notes. Copies of the indenture will be available upon
written request to Potlatch as described under "Available Information."
Certain defined terms used in this description but not defined below under "--
Certain Definitions" have the meanings assigned to them in the indenture.

The Original Notes, the Exchange Notes and any additional notes
subsequently issued under the indenture will be treated as a single class for
all purposes under the Indenture. For purposes of this description, references
to the "Notes" include the Original Notes, the Exchange Notes, and any
additional notes subsequently issued under the indenture. The registered
Holder of a Note will be treated as the owner of it for all purposes. Only
registered Holders will have rights under the indenture.

Brief Description of the Exchange Notes and the Guarantees

The Exchange Notes

The Exchange Notes will be:

. general unsecured obligations of Potlatch;

. subordinated in right of payment to all existing and future Senior Debt
of Potlatch and the Guarantors, including borrowings under the Credit
Agreement;

. equal in right of payment to any future senior subordinated Indebtedness
of Potlatch; and

. unconditionally guaranteed by the Guarantors.

The Guarantee

The Exchange Notes will be guaranteed by all of Potlatch's present and
future Restricted Subsidiaries, which are now or will in the future be
guarantors of the Obligations under the Credit Agreement.

Each guarantee of the Exchange Notes will be:

. a general unsecured obligation of that Guarantor;

. subordinated in right of payment to all existing and future Senior Debt
of Potlatch and that Guarantor; and

. equal in right of payment with any future senior subordinated
Indebtedness of that Guarantor.

As of September 30, 2001, Potlatch and the Guarantors had total Senior Debt
of approximately $901.1 million. As indicated above and as discussed in detail
below under the caption "--Subordination," payments on the Notes and under the
guarantees are subordinated to the payment of the Senior Debt. The indenture
permits us and the Guarantors to incur additional Senior Debt.

Not all of our subsidiaries will guarantee the Exchange Notes. In the event
of a bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, the non-guarantor subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to distribute any of
their assets to us. The guarantor subsidiaries generated less than 1% of our
net sales in the twelve-month period ended September 30, 2001 and held less
than 1% of our consolidated assets as of September 30, 2001. In addition,
under the circumstances described below under the caption "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we are
permitted to designate other of our subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries are not subject to many of the
restrictive covenants in the indenture and do not guarantee the Notes.

The Original Notes are, and the Exchange Notes will be, effectively
subordinated in right of payment to all Indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of our
subsidiaries that are not Guarantors. Any right of Potlatch to receive assets
of any of its subsidiaries upon the subsidiary's liquidation or reorganization
(and the consequent right of the holders of the Notes to participate in those
assets) are effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that Potlatch is itself recognized as a
creditor of the subsidiary, in which case the claims of Potlatch are
subordinate in right of payment to any security in the assets of the
subsidiary and any indebtedness of the subsidiary senior to that held by
Potlatch. As of September 30, 2001, Potlatch's subsidiaries had less than $0.1
million of Indebtedness and less than $0.2 million of trade payables and other
liabilities outstanding.

Principal, Maturity and Interest

Potlatch issued Original Notes in an aggregate principal amount of $250.0
million. Potlatch may issue additional notes from time to time. Any offering
of additional notes is subject to the covenant described below under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." The Original Notes, the Exchange Notes and any additional
notes subsequently issued under the indenture will be treated as a single
class for all purposes under the indenture, including, without limitation,
waivers, amendments, redemptions and offers to purchase. Potlatch will issue
Notes in denominations of $1,000 and integral multiples of $1,000. The Notes
will mature on July 15, 2011.

Interest on the Notes accrues at the rate of 10.00% per annum and is
payable semi-annually in arrears on January 15 and July 15, commencing on
January 15, 2002. Potlatch will make each interest payment to the Holders of
record on the immediately preceding January 1 and July 1.

Interest on the Notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.

We will also pay Special Interest to Holders of Original Notes if our
registration statement relating to the Exchange Notes is not timely filed or
declared effective on a timely basis, or if we fail to consummate the exchange
offer for the Original Notes on a timely basis. These provisions are more
fully explained below under the heading "--Registration Rights; Special
Interest."

Methods of Receiving Payments on the Notes

If a Holder has given wire transfer instructions to Potlatch at least 10
business days prior to the applicable payment date, Potlatch will pay all
principal, interest and premium and Special Interest, if any, on that Holder's
Notes in accordance with those instructions. All other payments on Notes will
be made at the office or agency of the paying agent and registrar within the
City and State of New York unless Potlatch elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders.

Paying Agent and Registrar for the Notes

The trustee will initially act as paying agent and registrar. Potlatch may
change the paying agent or registrar without prior notice to the Holders of
the Notes, and Potlatch or any of its Subsidiaries may act as paying agent or
registrar.

Transfer and Exchange

A Holder may transfer or exchange Notes in accordance with the indenture.
The registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of Notes.
Holders will be required to pay all taxes due on transfer. Potlatch is not
required to transfer or exchange any Note selected for redemption. Also,
Potlatch is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.

Subsidiary Guarantees

The Original Notes are, and the Exchange Notes will be, guaranteed by each
of Potlatch's current and future Restricted Subsidiaries. These Subsidiary
Guarantees are joint and several obligations of the Guarantors. Each
Subsidiary Guarantee is subordinated to the prior payment in full of all
Senior Debt. The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent the Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See the discussion
under the caption "Risk Factors--Your ability to enforce the guarantees of the
Notes may be limited" in this prospectus.

A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to or consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another Person, other than Potlatch
or another Guarantor, unless:

(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and

(2) either:

(a) the Person acquiring the property in any such sale or disposition
or the Person formed by or surviving any such consolidation or
merger assumes all of the obligations of that Guarantor under the
indenture and its Subsidiary Guarantee pursuant to a supplemental
indenture satisfactory to the trustee; or

(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.

The Subsidiary Guarantee of a Guarantor will be released:

(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or
after giving effect to such transaction) a Restricted Subsidiary of
Potlatch, if the sale or other disposition complies with the "Asset
Sale" provisions of the indenture; or

(2) in connection with any sale of all of the Capital Stock of that
Guarantor to a Person that is not (either before or after giving effect
to such transaction) a Restricted Subsidiary of Potlatch, if the sale
complies with the "Asset Sale" provisions of the indenture; or

(3) if Potlatch designates any Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the indenture.

See "--Repurchase at the Option of Holders--Asset Sales."

Notwithstanding the foregoing, each Guarantor will be released and
discharged from its obligations under its Subsidiary Guarantee on any date
selected by Potlatch or such Guarantor that occurs on or after the date that
such Guarantor is released and discharged from all its obligations in respect
of the payment of amounts due and payable under any Credit Facility.

Subordination

The payment of principal, interest, premium and Special Interest, if any,
and other payment obligations on, or with respect to, the Notes (including any
obligation to repurchase the Notes) is subordinated to the prior payment in
full of all Senior Debt of Potlatch, including Senior Debt incurred after the
date of the indenture.

The holders of Senior Debt are entitled to receive payment in full of all
Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of Notes are entitled to receive
any payment with respect to the Notes (except that Holders of Notes may
receive and retain Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance"), in the
event of any distribution to creditors of Potlatch or any of the Guarantors:

(1) in a liquidation or dissolution of Potlatch or any of the Guarantors;

(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Potlatch or any of the Guarantors, or their
property;

(3) in an assignment for the benefit of creditors; or

(4) in any marshaling of Potlatch's or any Guarantor's assets and
liabilities.

In addition, neither Potlatch nor any of the Guarantors may make any
payment in respect of the Notes (except in Permitted Junior Securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if:

(1) a payment default on Designated Senior Debt occurs; or

(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior
Debt to accelerate its maturity and the trustee receives a notice of
such default (a "Payment Blockage Notice") from a representative of the
holders of any Designated Senior Debt.

Payments on the Notes may and will be resumed:

(1) in the case of a payment default, upon the date on which such default
is cured or waived;

(2) in the case of a nonpayment default, upon the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated;
and

(3) in either case, upon the earlier of the payment in full of the
obligations outstanding under and the satisfaction and discharge or
defeasance of Designated Senior Debt.

No new Payment Blockage Notice may be delivered unless and until:

(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and

(2) all scheduled payments of principal, interest and premium and Special
Interest, if any, on the Notes that have come due have been paid in
full in cash.

No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee will be, or be made,
the basis for a subsequent Payment Blockage Notice, unless such default has
been cured or waived for a period of not less than 90 days.

If the trustee or any Holder of the Notes receives a payment in respect of
the Notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when:

(1) the payment is prohibited by these subordination provisions; and

(2) the trustee or the Holder has actual knowledge that the payment is
prohibited;

the trustee or the Holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the trustee or the Holder, as the case may be,
will deliver the amounts in trust to the holders of Senior Debt or their
proper representative.

Potlatch and the trustee must promptly notify holders of Designated Senior
Debt if payment of the Notes is accelerated because of an Event of Default.

As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Potlatch or any of the
Guarantors, Holders of Notes may recover less on a pro rata basis, than
creditors of Potlatch or any of the Guarantors who are holders of Senior Debt.
See the discussion under the caption "Risk Factors--Your right to receive
payments on the Notes is junior to our existing indebtedness and possibly all
of our future borrowings. Further, the guarantees of the Notes are junior to
all of the guarantors' existing indebtedness and possibly to all of their
future borrowings" in this prospectus.

Optional Redemption

Beginning July 15, 2006, Potlatch, at any time and from time to time, may
redeem all or a part of the Notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Special Interest,
if any, on the Notes redeemed, to the applicable redemption date, if redeemed
during the twelve-month period beginning on July 15 of the years indicated
below:

Year Percentage
---- ----------

2006.............................................................. 105.000%
2007.............................................................. 103.333%
2008.............................................................. 101.667%
2009 and thereafter............................................... 100.000%

Mandatory Redemption

Potlatch is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

Repurchase at the Option of Holders

Change of Control

If a Change of Control occurs, each Holder of Notes will have the right to
require Potlatch to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's Notes pursuant to a Change of Control
offer on the terms set forth in the indenture. In the Change of Control offer,
Potlatch will offer a Change of Control payment in cash equal to 101% of the
aggregate principal amount of Notes repurchased plus accrued and unpaid
interest and Special Interest, if any, on the Notes repurchased, to the date
of purchase. Within 30 days following any Change of Control, Potlatch will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the
Change of Control payment date specified in the notice, which date will be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, pursuant to the procedures required by the indenture and described in
such notice. Potlatch will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent those laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change
of Control provisions of the indenture, Potlatch will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions of the
indenture by virtue of such conflict.

On the Change of Control payment date, Potlatch will, to the extent lawful:

(1) accept for payment all Notes or portions of Notes properly tendered
pursuant to the Change of Control offer;

(2) deposit with the paying agent an amount equal to the Change of Control
payment in respect of all Notes or portions of Notes properly tendered;
and

(3) deliver or cause to be delivered to the trustee the Notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of Notes or portions of Notes being purchased by
Potlatch.

The paying agent will promptly mail to each Holder of Notes properly
tendered the Change of Control payment for such Notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.

Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control,
Potlatch will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Notes required by this covenant. Potlatch will
publicly announce the results of the Change of Control offer on or as soon as
practicable after the Change of Control payment date.

The provisions described above that require Potlatch to make a Change of
Control offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the Holders of the Notes to require that Potlatch
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.

Notwithstanding the foregoing, Potlatch will not be required to make a
Change of Control offer, as provided above, if (a) in connection with or in
contemplation of any Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all Notes validly tendered at a cash price equal to
or higher than the Change of Control payment and has purchased all Notes
properly tendered in accordance with the terms of such Alternate Offer or (b)
a third party makes the Change of Control offer in the manner, at the times
and otherwise in compliance with the requirements set forth in the indenture
applicable to a Change of Control offer made by Potlatch and purchases all
Notes properly tendered and not withdrawn under the Change of Control offer.

The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Potlatch and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require Potlatch to repurchase its Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Potlatch and its Subsidiaries taken as a whole to another Person or
group may be uncertain.

Asset Sales

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:

(1) Potlatch (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;

(2) if the fair market value exceeds $10.0 million, the fair market value
is evidenced by a resolution of the Board of Directors of Potlatch set
forth in an officers' certificate delivered to the trustee;

(3) if the fair market value exceeds $25.0 million, the fair market value
is evidenced by an opinion as to the fairness of such Asset Sale from a
financial point of view to Potlatch or such Restricted Subsidiary
issued by an accounting, appraisal or investment banking firm of
national standing; and

(4) at least 75% of the consideration received in the Asset Sale by
Potlatch or such Restricted Subsidiary is in the form of (i) cash or
Cash Equivalents or (ii) Replacement Assets, or a combination of both.
For purposes of this provision, each of the following will be deemed to
be cash:

(a) any liabilities, as shown on Potlatch's or such Restricted
Subsidiary's most recent balance sheet, of Potlatch or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or
any Subsidiary Guarantee) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that
releases Potlatch or such Restricted Subsidiary from further
liability, provided, however, that in the case of liabilities in
respect of industrial revenue bonds of Potlatch, to the extent that
Potlatch or such Restricted Subsidiary is required to remain as an
obligor under such Indebtedness notwithstanding such novation
agreement, then such liabilities will be deemed to be cash for
purposes of this provision if, in addition to such assumption, such
transferee agrees to indemnify Potlatch or such Restricted
Subsidiary from any and all liabilities under such Indebtedness
pursuant to a customary indemnification agreement; and

(b) any securities, notes or other obligations received by Potlatch or
any such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods,
converted by Potlatch or such Restricted Subsidiary into cash, to
the extent of the cash received in that conversion.

Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Potlatch may apply those Net Proceeds at its option:

(1) to repay Senior Debt;

(2) to acquire all or substantially all of the assets of, or a majority of
the Voting Stock of, another Permitted Business;

(3) to make a capital expenditure; or

(4) to acquire other long-term assets that are used or useful in a
Permitted Business.

Pending the final application of any Net Proceeds, Potlatch may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $25.0 million, Potlatch will
make an Asset Sale offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar
to those set forth in the indenture with respect to offers to purchase or
redeem with the proceeds of sales of assets to purchase the maximum principal
amount of Notes and such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds. The offer price in any Asset Sale offer will be
equal to 100% of the principal amount plus accrued and unpaid interest and
Special Interest, if any, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale offer,
Potlatch may use those Excess Proceeds for any purpose, including general
corporate purposes, not otherwise prohibited by the indenture. If the
aggregate principal amount of Notes and other pari passu Indebtedness tendered
into such Asset Sale offer exceeds the amount of Excess Proceeds, the trustee
will select the Notes and such other pari passu Indebtedness to be purchased
on a pro rata basis or on any other basis that the trustee deems to be fair
and appropriate. Upon completion of each Asset Sale offer, the amount of
Excess Proceeds will be reset at zero. Until such time as the Excess Proceeds
from Asset Sales equal or exceed $25.0 million, Potlatch will not be required
to commence an Asset Sale offer pursuant to this paragraph.

Potlatch will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent
those laws and regulations are applicable in connection with each repurchase
of Notes pursuant to an Asset Sale offer. To the extent that the provisions of
any securities laws or regulations conflict with the Asset Sale provisions of
the indenture, Potlatch will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such conflict.

Notwithstanding the foregoing, Potlatch will not be required to make an
Asset Sale offer with Excess Proceeds, as provided above, if prior to the time
that it would be required to make an Asset Sale offer with such Excess
Proceeds Potlatch has made an offer to purchase any and all Notes validly
tendered with the Net Proceeds from such Asset Sales at a cash price equal to
or higher than that required by an Asset Sale offer (an "Alternate Asset Sale
Offer"), and has purchased all Notes properly tendered in accordance with the
terms of such Alternate Asset Sale Offer.

The agreements governing Potlatch's outstanding Senior Debt currently
prohibit Potlatch from purchasing any Notes, and also provide that certain
change of control or asset sale events with respect to Potlatch would
constitute a default under these agreements. Any future credit agreements or
other agreements relating to Senior Debt to which Potlatch becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
or Asset Sale occurs at a time when Potlatch is prohibited from purchasing
Notes, Potlatch could seek the consent of its senior lenders to the purchase
of Notes or could attempt to refinance the borrowings that contain such
prohibition. If Potlatch does not obtain such a consent or repay such
borrowings, Potlatch will remain prohibited from purchasing Notes. In such
case, Potlatch's failure to purchase tendered notes could constitute an Event
of Default under the indenture which would, in turn, constitute a default
under such Senior Debt if it provides for such a default. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the Holders of Notes.

Selection and Notice

If less than all of the Notes are to be redeemed at any time, the trustee
will select Notes for redemption as follows:

(1) if the Notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the Notes are listed; or

(2) if the Notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.

No Notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address, except that redemption notices may be mailed more than 60
days prior to a redemption date if the notice is issued in connection with a
defeasance of the Notes or a satisfaction and discharge of the indenture.
Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount of that
Note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original Note will be issued in the name of the
Holder of Notes upon cancellation of the original Exchange Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.

Certain Covenants

Restricted Payments

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:

(1) declare or pay any dividend or make any other payment or distribution
on account of Potlatch's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in

connection with any merger or consolidation involving Potlatch or any of
its Restricted Subsidiaries) or to the direct or indirect holders of
Potlatch's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of Potlatch or to
Potlatch or a Restricted Subsidiary of Potlatch);

(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Potlatch) any Equity Interests of Potlatch or any direct or
indirect parent of Potlatch;

(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except a
payment of interest or principal at the Stated Maturity thereof; or

(4) make any Restricted Investment (all such payments and other actions set
forth in these clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence of such Restricted Payment; and

(2) Potlatch would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable six-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and

(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Potlatch and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3) and (4) of the next succeeding
paragraph), is less than the sum, without duplication, of:

(a) 50% of the Consolidated Net Income of Potlatch for the period (taken
as one accounting period) from the beginning of the fiscal quarter
commencing July 1, 2001 to the end of Potlatch's most recently ended
fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit),
plus

(b) 100% of the aggregate net cash proceeds received by Potlatch since
the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Potlatch
(other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of Potlatch that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible or exchangeable debt
securities) sold to a Subsidiary of Potlatch), plus

(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition,
if any) and (ii) the initial amount of such Restricted Investment,
plus

(d) 50% of any dividends received by Potlatch or a Wholly Owned
Restricted Subsidiary after the date of the indenture from an
Unrestricted Subsidiary of Potlatch, to the extent such dividends
were not otherwise included in Consolidated Net Income of Potlatch
for such period, plus

(e) to the extent that any Unrestricted Subsidiary of Potlatch is
redesignated as a Restricted Subsidiary after the date of the
indenture, the lesser of (i) the fair market value of Potlatch's
Investment in such Subsidiary as of the date of such redesignation
or (ii) such fair market value as of the date on which such
Subsidiary was originally designated as an Unrestricted Subsidiary,
plus

(f) $50.0 million.

So long as no Default has occurred and is continuing or would be caused
thereby (other than in the case of clauses (1) and (3) below), the preceding
provisions will not prohibit:

(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the dividend
payment would have complied with the provisions of the indenture;

(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of Potlatch or any Guarantor or of any
Equity Interests of Potlatch in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a
Subsidiary of Potlatch) of, Equity Interests of Potlatch (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition will be excluded from
clause (3)(b) of the preceding paragraph;

(3) the payment of any dividend in respect of shares of Potlatch's Capital
Stock, provided that the aggregate amount of all such dividends paid
pursuant to this clause (3), excluding dividends payable pursuant to
clause (1) above, shall not exceed an amount equal to the sum of (i)
$25.0 million and (ii) an amount equal to 25% of the Net Proceeds from
one or more Asset Sales during any twelve-month period that, in the
aggregate, exceed $200.0 million, but only to the extent that such Net
Proceeds are used to repay or irrevocably defease then outstanding
Senior Debt, and any commitments related thereto are permanently
reduced by the amount of any such repayment or the principal amount of
any such Senior Debt defeased, and provided, further, that any dividend
payments made pursuant to this clause (3) may not exceed $55.0 million
in any twelve-month period;

(4) purchases of Potlatch's Capital Stock pursuant to the exercise of put
options outstanding on the date of the indenture, or payments in
respect of closing out such contracts, in an aggregate amount not to
exceed $2.5 million;

(5) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Potlatch or any Guarantor with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness;

(6) the payment of any dividend by a Restricted Subsidiary of Potlatch to
the holders of its Equity Interests on a pro rata basis;

(7) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Potlatch or any Restricted Subsidiary of
Potlatch held by any member of Potlatch's (or any of its Restricted
Subsidiaries') management or former management pursuant to any
management equity subscription agreement, stock option agreement,
employment agreement, stock compensation plan or similar agreement, but
excluding payments made to holders upon the exercise of stock
appreciation rights, approved by Potlatch's Board of Directors or a
committee of its Board of Directors comprised solely of two or more
"non-employee directors" (within the meaning of Rule 16b-3(b)(3)(i)
under the Exchange Act); provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests may
not exceed $1.0 million in any twelve-month period;

(8) payments made to holders of stock appreciation rights as a result of
the exercise of such stock appreciation rights which are (i) granted
and unexercised as of the date of the indenture, including stock
appreciation rights granted in connection with the grant of options to
purchase shares of Capital Stock, and (ii) granted following the date
of the indenture, including stock appreciation rights granted in
connection with the grant of options to purchase shares of Capital
Stock, provided that the exercise price of the stock appreciation
rights in respect of which payments may be made pursuant to this clause
(8)(ii) shall not be less than the fair market value of one share of
Potlatch's common stock as of the date of grant, and as otherwise
determined in accordance with the plan or arrangement approved by
Potlatch's Board of Directors or a committee of its Board of Directors
comprised solely of two or more "non-employee directors" (within the
meaning of Rule 16b-3(b)(3)(i) under the Exchange Act) pursuant to
which such stock appreciation rights are granted, and, provided,
further, that the number of stock appreciation rights granted following
the date of the indenture, excluding stock appreciation rights granted
in connection with the grant of options to purchase shares of Capital
Stock, in respect of which payments may be made pursuant to this clause
(8)(ii) shall not exceed 500,000;

(9) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the
exercise price thereof and repurchases of Capital Stock deemed to
occur upon the withholding of a portion of the Capital Stock granted
or awarded to an employee to pay for the taxes payable by such
employee upon such grant or award; and

(10) cash dividends on, and other payments in respect of, shares of
Disqualified Stock issued pursuant to the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," but excluding payments for the redemption or
repurchase of shares of Permitted Redeemable Stock at the option of
the holder thereof.

For purposes of clause (3) of the preceding paragraph, the Net Proceeds
from any such Asset Sale shall be counted only once for purposes of paying
dividends pursuant to such clause (3).

The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Potlatch or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by
this covenant will be determined by the Board of Directors whose resolution
with respect thereto will be delivered to the trustee. Not later than the date
of making any Restricted Payment, Potlatch will deliver to the trustee an
officers' certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this
"Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.

Incurrence of Indebtedness and Issuance of Preferred Stock

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and Potlatch will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that Potlatch may incur Indebtedness (including Acquired
Debt) and issue Disqualified Stock, and Potlatch's Restricted Subsidiaries may
incur Indebtedness and issue preferred stock, if the Fixed Charge Coverage
Ratio for Potlatch's most recently ended six full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such six-quarter period.

If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest rate on such Indebtedness shall be calculated
as if the weighted average interest rate that would have been applicable to
such Indebtedness determined over the latest 12-month period ending on the
last calendar month immediately prior to the date of determination had been
the applicable rate on such Indebtedness for the entire period (taking into
account any interest rate swap agreement, interest rate cap agreement or other
financial agreement or arrangement designed to protect Potlatch or any of its
Restricted Subsidiaries against fluctuations in interest rates (including any
agreement that exchanges a fixed rate interest obligation for a floating rate
interest obligation) applicable to such Indebtedness if such agreement or
arrangement has a remaining term in excess of 12 months).

The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness, Disqualified Stock or preferred
stock, as applicable (collectively, "Permitted Debt"):

(1) the incurrence by Potlatch and any of its Restricted Subsidiaries of
additional Indebtedness and letters of credit under Credit Facilities
in an aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Potlatch and its
Restricted Subsidiaries thereunder) not to exceed (A) the greater of

(i) $400.0 million; and

(ii) the sum of 85% of the book value of accounts receivable and 50% of
the book value of Inventory of Potlatch and its Restricted
Subsidiaries, calculated on a consolidated basis in accordance with
GAAP;

less, (B) all indebtedness outstanding under the Credit Agreement incurred
pursuant to clause (2) below;

(2) the incurrence by Potlatch and the Guarantors of Indebtedness and
letters of credit under the Credit Agreement;

(3) the incurrence by Potlatch and its Restricted Subsidiaries of the
Existing Indebtedness;

(4) the incurrence by Potlatch and the Guarantors of Indebtedness
represented by the Original Notes and the related Subsidiary Guarantees
issued on the date of the indenture and the Notes to be issued pursuant
to the this prospectus;

(5) the incurrence by Potlatch or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in
the business of Potlatch or such Subsidiary, in an aggregate principal
amount at any time outstanding pursuant to this clause (5), including
all Permitted Refinancing Indebtedness incurred and Permitted
Redeemable Stock issued to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (5), not to exceed $50.0
million;

(6) the incurrence by Potlatch or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the indenture to
be incurred under the first paragraph of this covenant or clauses (3),
(4), (5), (6), (10), (11) or (12) of this paragraph;

(7) the issuance by Potlatch of Permitted Redeemable Stock, the net
proceeds of which are used to refund, refinance or replace (A)
Indebtedness that was permitted to be incurred under the first
paragraph of this covenant or clauses (3), (4), (5), (6), (10), (11) or
(12) of this paragraph, (B) Disqualified Stock that was permitted to be
issued under the first paragraph of this covenant or (C) Permitted
Redeemable Stock that was permitted to be issued under this clause (7)
of this paragraph;

(8) the incurrence by Potlatch or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Potlatch and any of its
Restricted Subsidiaries; provided, however, that:

(a) if Potlatch or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the
Notes, in the case of Potlatch, or the Subsidiary Guarantee, in the
case of a Guarantor; and

(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Potlatch or a Restricted Subsidiary of Potlatch and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not
either Potlatch or a Restricted Subsidiary of Potlatch, will be
deemed, in each case, to constitute an incurrence of such
Indebtedness by Potlatch or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (8);

(9) the guarantee by Potlatch or any of the Guarantors of Indebtedness of
Potlatch or a Restricted Subsidiary of Potlatch that was permitted to
be incurred by another provision of this covenant;

(10) industrial revenue bonds of Potlatch or any of its Restricted
Subsidiaries incurred to finance the construction or improvement of
their respective operations in an aggregate principal amount at
anytime outstanding pursuant to this clause (10), including all
Permitted Refinancing Indebtedness incurred and Permitted Redeemable
Stock issued to refund, refinance or replace Indebtedness incurred
pursuant to this clause (10), not to exceed $100.0 million;

(11) the incurrence by Potlatch or any of its Restricted Subsidiaries of
Indebtedness issuable upon the conversion or exchange of shares of
Disqualified Stock, pursuant to the terms of such Disqualified Stock
issued in accordance with the first paragraph of this covenant; and

(12) the incurrence by Potlatch or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred and Permitted Redeemable Stock
issued to refund, refinance or replace any Indebtedness incurred
pursuant to this clause (12), not to exceed $50.0 million.

For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant:

(1) the outstanding principal amount of any particular Indebtedness shall
be counted only once and any obligation arising under any guarantee,
Lien, letter of credit or similar instrument supporting such
Indebtedness shall be disregarded;

(2) in the event that an item of proposed Indebtedness meets the criteria
of more than one of the categories of Permitted Debt described in
clauses (1) through (12) above, or is entitled to be incurred pursuant
to the first paragraph of this covenant, Potlatch will be permitted to
classify such item of Indebtedness on the date of its incurrence in any
manner that complies with this covenant;

(3) Indebtedness under Credit Facilities outstanding on the date on which
Original Notes were first issued and authenticated under the indenture
will be deemed to have been incurred on such date in reliance on the
exception provided by clause (1) of the definition of Permitted Debt;
and

(4) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence
of Indebtedness or an issuance of Disqualified Stock for purposes of
this covenant; provided, in each such case, that the amount thereof is
included in Fixed Charges of Potlatch as accrued.

No Senior Subordinated Debt

Potlatch will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to
the Notes. No Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Debt and senior in any respect in right of
payment to such Guarantor's Subsidiary Guarantee.

Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:

(1) pay dividends or make any other distributions on its Capital Stock to
Potlatch or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to Potlatch or any of its Restricted
Subsidiaries;

(2) make loans or advances to Potlatch or any of its Restricted
Subsidiaries; or

(3) transfer any of its properties or assets to Potlatch or any of its
Restricted Subsidiaries.

However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:

(1) agreements governing Existing Indebtedness and the Credit Facilities as
in effect on the date of the indenture and any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of those agreements, provided
that the amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements on the
date of the indenture;

(2) the indenture, the Notes and the Subsidiary Guarantees;

(3) applicable law;

(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Potlatch or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the indenture to be
incurred;

(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;

(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the
nature described in clause (3) of the preceding paragraph;

(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;

(8) Permitted Refinancing Indebtedness and Permitted Redeemable Stock,
provided that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness and Permitted Redeemable Stock
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;

(9) Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenant described below under the caption "--
Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;

(10) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, asset sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business; and

(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.

Designation of Restricted and Unrestricted Subsidiaries

The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default;
provided that in no event will the business currently operated by Potlatch be
transferred to or held by an Unrestricted Subsidiary. All Guarantors will be
designated as Restricted Subsidiaries and all non-guarantor Subsidiaries will
be designated as Unrestricted Subsidiaries. If an Unrestricted Subsidiary is
designated as a Restricted Subsidiary, the aggregate principal amount of all
outstanding Indebtedness of such Unrestricted Subsidiary shall be an
incurrence of Indebtedness as of the date of such designation which must
comply with the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." If a Restricted Subsidiary is
designated as an Unrestricted Subsidiary, the aggregate fair market value of
all outstanding Investments owned by Potlatch and its Restricted Subsidiaries
in the Subsidiary properly designated will be deemed to be an Investment made
as of the time of the designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "--Restricted Payments" or Permitted Investments, as
determined by Potlatch. That designation will only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default.

Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Restricted Subsidiaries

Potlatch will not, and will not permit any of its Wholly Owned Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of Potlatch to any
Person (other than Potlatch or a Wholly Owned Restricted Subsidiary of
Potlatch), unless:

(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary; and

(2) the Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above
under the caption "--Repurchase at the Option of Holders--Asset Sales."

In addition, Potlatch will not permit any Wholly Owned Restricted Subsidiary
of Potlatch to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to Potlatch or a Wholly Owned Restricted Subsidiary of
Potlatch.

Transactions with Affiliates

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:

(1) the Affiliate Transaction is on terms that are no less favorable to
Potlatch or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Potlatch or such
Restricted Subsidiary with an unrelated Person; and

(2) Potlatch delivers to the trustee with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.

The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:

(1) any employment agreement entered into by Potlatch or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of Potlatch or such Restricted
Subsidiary;

(2) transactions between or among Potlatch and/or its Restricted
Subsidiaries;

(3) transactions with a Person that is an Affiliate of Potlatch solely
because Potlatch owns an Equity Interest in, or controls, such Person;

(4) payment of reasonable directors fees to non-employee directors, such
amounts to be consistent with industry practice in effect at the time
of such payment;

(5) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans
approved by its Board of Directors or a committee thereof comprised
solely of independent directors;

(6) the grant of stock options or similar rights to employees and directors
of Potlatch pursuant to plans approved by its Board of Directors or a
committee thereof comprised solely of independent directors;

(7) sales of Equity Interests (other than Disqualified Stock) to Affiliates
of Potlatch;

(8) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Restricted Payments";

(9) charitable contributions by Potlatch and its Restricted Subsidiaries to
charitable foundations, charitable trusts and other charitable entities
established by Potlatch in amounts consistent with past practice; and

(10) payments to tax-exempt entities established by Potlatch which pay
administrative benefits to Potlatch employees or retirees in amounts
consistent with past practice, but only for so long as such entities
conduct their operations and business in a manner consistent with past
practice determined as of the date of the indenture.

Sale and Leaseback Transactions

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that Potlatch or
any Restricted Subsidiary may enter into a sale and leaseback transaction if:

(1) Potlatch or that Restricted Subsidiary, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described
above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described below under the caption "--Liens";

(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an officers' certificate
delivered to the trustee, of the property that is the subject of that
sale and leaseback transaction; and

(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Potlatch applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales."

Liens

Potlatch will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
of any kind securing Indebtedness, Attributable Debt or trade payables on any
asset now owned or hereafter acquired, except Permitted Liens.

Merger, Consolidation or Sale of Assets

Potlatch may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not Potlatch is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of Potlatch and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:

(1) either: (a) Potlatch is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Potlatch) or to which such sale, assignment, transfer, conveyance or
other disposition has been made, is a corporation organized or existing
under the laws of the United States, any state of the United States or
the District of Columbia;

(2) the Person formed by or surviving any such consolidation or merger (if
other than Potlatch) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of Potlatch under its Indebtedness, including the notes,
the indenture and the exchange and registration rights agreement
pursuant to agreements reasonably satisfactory to the trustee;

(3) immediately after such transaction no Default or Event of Default
exists; and

(4) Potlatch or the Person formed by or surviving any such consolidation or
merger (if other than Potlatch), or to which such sale, assignment,
transfer, conveyance or other disposition has been made:

(a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of Potlatch
immediately preceding the transaction; and

(b) will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable six-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."

In addition, Potlatch may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets"

covenant will not apply to a sale, assignment, transfer, conveyance or other
disposition of assets between or among Potlatch and any of its Wholly Owned
Restricted Subsidiaries.

Additional Subsidiary Guarantees

If Potlatch or any of its Subsidiaries acquires or creates another
Subsidiary after the date of the indenture, and that newly acquired or created
Subsidiary becomes a guarantor under the Credit Agreement, then that newly
acquired or created Subsidiary will become a Guarantor and execute a
supplemental indenture and deliver an opinion of counsel satisfactory to the
trustee within ten business days of the date on which it was acquired or
created, and Potlatch's Board of Directors will designate the newly created or
acquired Subsidiary as a Restricted Subsidiary in accordance with the covenant
under the caption "--Designation of Restricted and Unrestricted Subsidiaries."

Reports

Whether or not required by the SEC, so long as any Notes are outstanding,
Potlatch will furnish to the Holders of Notes, within the time periods
specified in the SEC's rules and regulations:

(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Potlatch were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by Potlatch's certified independent
accountants; and

(2) all current reports that would be required to be filed with the SEC on
Form 8-K if Potlatch were required to file such reports.

In addition, following the consummation of the exchange offer, whether or
not required by the SEC, Potlatch will file a copy of all of the information
and reports referred to in clauses (1) and (2) above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.

Events of Default and Remedies

Each of the following is an Event of Default:

(1) default for 30 days in the payment when due of interest on, or Special
Interest with respect to, the Notes whether or not prohibited by the
subordination provisions of the indenture;

(2) default in payment when due of the principal of, or premium, if any, on
the Notes, whether or not prohibited by the subordination provisions of
the indenture;

(3) failure by Potlatch or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--
Asset Sales," "--Certain Covenants--Restricted Payments," "--Certain
Covenants-- Incurrence of Indebtedness and Issuance of Preferred Stock"
or "--Certain Covenants--Merger, Consolidation or Sale of Assets,"
which failure cannot be remedied or, if such failure can be remedied,
is not remedied within 30 days after the date on which notice thereof
requiring Potlatch to remedy the default has been given to Potlatch by
the trustee or the holders of at least 25% in aggregate outstanding
principal amount of the Notes;

(4) failure by Potlatch or any of its Subsidiaries for 60 days after notice
to comply with any of the other agreements in the indenture has been
given to Potlatch by the trustee or the holders of at least 25% in
aggregate outstanding principal amount of the Notes;

(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Potlatch or any of its Restricted

Subsidiaries (or the payment of which is guaranteed by Potlatch or any
of its Restricted Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the indenture, if that
default:

(a) is caused by a failure to pay principal of, or interest or premium,
if any, on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or

(b) results in the acceleration of such Indebtedness prior to its
express maturity,

and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $25.0 million or more;

(6) failure by Potlatch or any of its Subsidiaries to pay, bond, discharge
or have stayed final, non-appealable judgments aggregating in excess of
$25.0 million, which judgments are not paid, bonded, discharged or
stayed for a period of 60 days;

(7) except as permitted by the indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor,
or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and

(8) certain events of bankruptcy or insolvency described in the indenture
with respect to Potlatch or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary.

In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Potlatch, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Notes will become
due and payable immediately without further action or notice. If any other
Event of Default occurs and is continuing, the trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.

Holders of the Notes may not enforce the indenture or the Notes except as
provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default if
it determines that withholding notice is in their interest, except a Default
or Event of Default relating to the payment of principal, interest, or Special
Interest.

The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest or Special Interest on, or the principal of, the Notes.

In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Potlatch with the
intention of avoiding payment of the premium that Potlatch would have had to
pay if Potlatch then had elected to redeem the Notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to July 15,
2006 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Potlatch with the intention of avoiding the prohibition on
redemption of the Notes prior to July 15, 2006, then the premium specified in
the indenture will also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.

Potlatch is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Potlatch is required to deliver to the trustee a statement
specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator, stockholder or agent of
Potlatch or any Guarantor, as such, will have any liability for any
obligations of Potlatch or any Guarantor under the Notes, any Subsidiary
Guarantee, the indenture, any supplemental indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting an Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Notes. The waiver may not be effective to waive liabilities under the federal
securities laws.

Legal Defeasance and Covenant Defeasance

Potlatch may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:

(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Special
Interest, if any, on such Notes when such payments are due from the
trust referred to below;

(2) Potlatch's obligations with respect to the Notes concerning issuing
temporary notes, mutilated, destroyed, lost or stolen notes and the
maintenance of an office or agency for payment and money for security
payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the trustee, and
Potlatch's and the Guarantor's obligations in connection therewith; and

(4) the Legal Defeasance provisions of the indenture.

In addition, Potlatch may, at its option and at any time, elect to have the
obligations of Potlatch and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "--Events
of Default and Remedies" will no longer constitute an Event of Default with
respect to the Notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1) Potlatch must irrevocably deposit with the trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, or interest and premium and
Special Interest, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and
Potlatch must specify whether the Notes are being defeased to maturity
or to a particular redemption date;

(2) in the case of Legal Defeasance, Potlatch has delivered to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming
that (a) Potlatch has received from, or there has been published by,
the Internal Revenue Service a ruling or (b) since the date of the
indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion
of counsel will confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, Potlatch has delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance

and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;

(4) no Default or Event of Default has occurred and is continuing on the
date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);

(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Potlatch or
any of its Subsidiaries is a party or by which Potlatch or any of its
Subsidiaries is bound, including the Credit Agreement;

(6) Potlatch must deliver to the trustee an officers' certificate stating
that the deposit was not made by Potlatch with the intent of preferring
the Holders of Notes over the other creditors of Potlatch with the
intent of defeating, hindering, delaying or defrauding creditors of
Potlatch or others; and

(7) Potlatch must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least two-thirds in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the indenture or the Notes may be
waived with the consent of the Holders of at least two-thirds in aggregate
principal amount of the then outstanding Notes (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or
exchange offer for, Notes).

Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):

(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");

(3) reduce the rate of or change the time for payment of interest on any
Exchange Note;

(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Special Interest, if any, on the Note (except a
rescission of acceleration of the Note by the Holders of at least two-
thirds in aggregate principal amount of the Note and a waiver of the
payment default that resulted from such acceleration);

(5) make any Note payable in money other than that stated in the Exchange
Note;

(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of Holders of Notes to receive payments
of principal of, or interest or premium or Special Interest, if any, on
the Notes;

(7) waive a redemption payment with respect to any Notes (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");

(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of the
indenture; or

(9) make any change in the preceding amendment and waiver provisions.

Without the consent of the holders of a majority of the aggregate principal
amount of Senior Debt then outstanding, Potlatch and the Guarantors will not
amend the subordination, legal defeasance or covenant

defeasance provisions of the indenture in a manner that adversely affects the
rights of holders of Senior Debt. In addition, any amendment to, or waiver of,
the provisions of the indenture relating to subordination that adversely
affects the rights of the Holders of the Notes will require the consent of
each Holder of Notes then outstanding.

Notwithstanding the preceding, without the consent of any Holder of Notes,
Potlatch, the Guarantors and the trustee may amend or supplement the indenture
or the Notes:

(1) to cure any ambiguity, defect or inconsistency;

(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;

(3) to provide for the assumption of Potlatch's obligations to Holders of
Notes in the case of a merger or consolidation or sale of all or
substantially all of Potlatch's assets;

(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the indenture of any such Holder;

(5) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act;

(6) to provide for the issuance of additional notes in accordance with the
limitations set forth in the indenture as of the date of the
indenture; or

(7) to allow any Guarantor to execute a supplemental indenture and/or a
Subsidiary Guarantee with respect to the Notes.

Satisfaction and Discharge

The indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when:

(1) either:

(a) all Notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and Notes for
whose payment money has been deposited in trust and thereafter
repaid to Potlatch, have been delivered to the trustee for
cancellation; or

(b) all Notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing
of a notice of redemption or otherwise or will become due and
payable within one year and Potlatch or any Guarantor has
irrevocably deposited or caused to be deposited with the trustee
as trust funds in trust solely for the benefit of the Holders,
cash in U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable Government
Securities, in amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire
indebtedness on the Notes not delivered to the trustee for
cancellation for principal, premium and Special Interest, if any,
and accrued interest to the date of maturity or redemption;

(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which Potlatch or any Guarantor
is a party or by which Potlatch or any Guarantor is bound;

(3) Potlatch or any Guarantor has paid or caused to be paid all sums
payable by it under the indenture; and

(4) Potlatch has delivered irrevocable instructions to the trustee under
the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.

In addition, Potlatch must deliver an officers' certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction
and discharge have been satisfied.

Concerning the Trustee

If the trustee becomes a creditor of Potlatch or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue, or
resign.

The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation
to exercise any of its rights or powers under the indenture at the request of
any Holder of notes, unless such Holder has offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.

Additional Information

Anyone who receives this offering memorandum may obtain a copy of the
indenture and exchange and registration rights agreement without charge by
writing to Potlatch Corporation, 601 West Riverside Avenue, Suite 1100,
Spokane, Washington 99201, Attention: Secretary.

Book-Entry, Delivery and Form

The Exchange Notes initially will be represented by one or more notes in
registered, global form without interest coupons (the "Global Notes"). The
Global Notes will be deposited upon issuance with the trustee as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant in DTC as described below. Beneficial interests
in the Global Notes may be held directly through the DTC by organizations that
have an account with the DTC or indirectly through organizations that have
accounts with the DTC, including through the Euroclear System ("Euroclear")
and Clearstream Banking, S.A. ("Clearstream").

Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes." Except in
the limited circumstances described below, owners of beneficial interests in
the Global Notes will not be entitled to receive physical delivery of notes in
certificated form.

Transfers of beneficial interests in the Global Notes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Clearstream),
which may change from time to time.

Depository Procedures

The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience.
These operations and procedures are solely within the control of the
respective settlement systems and are subject to changes by them. Potlatch
takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss
these matters.

DTC has advised Potlatch that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to

other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the "Indirect Participants"). Persons
who are not Participants may beneficially own securities held by or on behalf
of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants
and Indirect Participants.

DTC has also advised Potlatch that, pursuant to procedures established by
it:

(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and

(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants)
or by the Participants and the Indirect Participants (with respect to
other owners of beneficial interest in the Global Notes).

Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes
who are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream will hold interests in the Global Notes
on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositories, which
are Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a
Global Note, including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Clearstream may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such Persons will be limited to that extent. Because DTC can act only on
behalf of Participants, which in turn act on behalf of Indirect Participants,
the ability of a Person having beneficial interests in a Global Note to pledge
such interests to Persons that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.

Except as described below, owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.

Payments in respect of the principal of, and interest and premium and
Special Interest, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the indenture. Under the terms of the indenture, Potlatch and the
trustee will treat the Persons in whose names the Notes, including the Global
Notes, are registered as the owners of the Notes for the purpose of receiving
payments and for all other purposes. Consequently, neither Potlatch, the
trustee nor any agent of Potlatch or the trustee has or will have any
responsibility or liability for:

(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.

DTC has advised Potlatch that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not
receive payment on such payment date. Each relevant Participant is credited
with an amount proportionate to its beneficial ownership of an interest

in the principal amount of the relevant security as shown on the records of
DTC. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee
or Potlatch. Neither Potlatch nor the trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and Potlatch and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.

Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions
directly to the depositories for Euroclear or Clearstream.

DTC has advised Potlatch that it will take any action permitted to be taken
by a Holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the
right to exchange the Global Notes for notes in certificated form, and to
distribute such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation
to perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither Potlatch nor the trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

Exchange of Global Notes for Certificated Notes

A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:

(1) DTC (a) notifies Potlatch that it is unwilling or unable to continue
as depositary for the Global Notes and Potlatch fails to appoint a
successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act;

(2) Potlatch, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or

(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.

In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in

the names, and issued in any approved denominations, requested by or on behalf
of the depositary (in accordance with its customary procedures).

Same Day Settlement and Payment

Potlatch will make payments in respect of the Notes represented by the
Global Notes (including principal, premium, if any, interest and Special
Interest, if any) by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. Potlatch will make all payments
of principal, interest and premium and Special Interest, if any, with respect
to Certificated Notes by wire transfer of immediately available funds to the
accounts specified by the Holders of the Certificated Notes or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Notes represented by the Global Notes are expected to be eligible
to trade in The Portal Market and to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes
will, therefore, be required by DTC to be settled in immediately available
funds. Potlatch expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.

Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Potlatch that cash received in Euroclear or Clearstream as a result of sales
of interests in a Global Note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.

Registration Rights; Special Interest

The following description is a summary of the material provisions of the
exchange and registration rights agreement. It does not restate that agreement
in its entirety. We urge you to read the proposed form of exchange and
registration rights agreement in its entirety because it, and not this
description, defines your registration rights as Holders of the Original
Notes. See "--Additional Information."

Potlatch, the Guarantors and the Initial Purchasers entered into the
exchange and registration rights agreement on June 29, 2001. Pursuant to the
exchange and registration rights agreement, Potlatch agreed to file with the
SEC the Exchange Offer Registration Statement on the appropriate form under
the Securities Act with respect to the Exchange Notes. Upon the effectiveness
of the Exchange Offer Registration Statement, Potlatch will offer to the
Holders of Transfer Restricted Securities pursuant to the Exchange Offer who
are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for Exchange Notes.

(i) on or prior to the time the Exchange Offer is completed existing SEC
interpretations are changed such that the debt securities received by
Holders, other than Holders of Transfer Restricted Securities in the
Exchange Offer for notes are not or would not be, upon receipt,
transferable by each such Holder without restriction under the
Securities Act;

(ii) the Exchange Offer has not been completed within 240 days following
the date on which the Original Notes were initially issued; or

(iii) the Exchange Offer is not available to any Holder,

Potlatch and the Guarantor shall, in lieu of (or, in the case of clause
(iii), in addition to) conducting the Exchange Offer contemplated by the
exchange and registration rights agreement, file under the Securities Act on
or prior to the later of (i) the 30th day after the time such obligation to
file arises, and (ii) the 150th day after the date on which the Original Notes
were initially issued, a "shelf" registration statement providing for the

registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Original Notes pursuant to Rule 415 under the Securities Act or
any similar rule that may be adopted by the SEC (such filing, the "Shelf
Registration" and such registration statement, the "Shelf Registration
Statement").

For purposes of the preceding, "Transfer Restricted Securities" means each
Original Note until:

(1) the date on which such Original Note has been exchanged by a Person
other than a broker-dealer for a Exchange Note in the Exchange Offer;

(2) following the exchange by a broker-dealer in the Exchange Offer of an
Original Note for an Exchange Note, the date on which such Exchange
Note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in
the Exchange Offer Registration Statement;

(3) the date on which such Original Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement; or

(4) the date on which such Original Note is distributed or is eligible to
be distributed without restriction, to the public pursuant to Rule 144
under the Securities Act; or

(5) it ceases to be outstanding.

The exchange and registration rights agreement provides that:

(1) Potlatch and the Guarantors will file an Exchange Offer Registration
Statement with the SEC on or prior to 150 days after the date on which
the Original Notes were initially issued;

(2) Potlatch and the Guarantors will use their best efforts to have the
Exchange Offer Registration Statement declared effective by the SEC on
or prior to 210 days after the date on which the Original Notes were
initially issued;

(3) unless the Exchange Offer would not be permitted by applicable law or
SEC policy, Potlatch and the Guarantors will:

(a) commence the Exchange Offer; and

(b) use their best efforts to issue on or prior to 30 business days, or
longer, if required by the federal securities laws, after the date
on which the Exchange Offer Registration Statement was declared
effective by the SEC, Exchange Notes in exchange for all Original
Notes tendered prior thereto in the Exchange Offer; and

(4) if obligated to file the Shelf Registration Statement, Potlatch and the
Guarantors will use their best efforts to file the Shelf Registration
Statement with the SEC on or prior to the later of (i) the 30th day
after such filing obligation arises, and (ii) the 150th day after the
date on which the Original Notes were initially issued and to cause the
Shelf Registration to be declared effective by the SEC on or prior to
90 days after the Shelf Registration Statement is filed.

If:

(1) Potlatch and the Guarantors fail to file any of the registration
statements required by the exchange and registration rights agreement
on or before the date specified for such filing; or

(2) any of such registration statements is not declared effective by the
SEC on or prior to the date specified for such effectiveness or

(3) Potlatch and the Guarantors fail to consummate the Exchange Offer
within 30 business days of the effective date of the Exchange Offer
Registration Statement; or

(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but shall thereafter either be
withdrawn by Potlatch or the Guarantors or shall become subject to an

effective stop order issued pursuant to Section 8(d) of the Securities
Act suspending the effectiveness of such registration statement (except
as specifically permitted by the exchange and registration rights
agreement) without being succeeded immediately by an additional
registration statement filed and declared effective (each such event
referred to in clauses (1) through (4) above, a "Registration Default"),

then Potlatch and the Guarantors will pay Special Interest to each Holder of
Original Notes. With respect to the first 90-day period immediately following
the occurrence of the first Registration Default the per annum interest rate
on the Original Notes will increase by 0.25% per annum. The amount of the
Special Interest will increase by an additional 0.25% per annum with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Special Interest for all Registration
Defaults of 1.0% per annum.

All accrued Special Interest will be paid by Potlatch and the Guarantors on
each payment date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated Notes
by wire transfer to the accounts specified by them or by mailing checks to
their registered addresses if no such accounts have been specified. In each
case, wire transfers will be made only to accounts of Holders who have given
wire transfer instructions to Potlatch at least ten business days prior to
payment.

Special Interest on such Original Notes shall cease to accrue (A) in the
case of clause (1) above, upon the filing of the Exchange Registration
Statement or Shelf Registration Statement, (B) in the case of clause (2)
above, upon the effectiveness of the Exchange Offer Registration Statement or
Shelf Registration Statement, (C) in the case of clause (3) above, upon the
completion of the Exchange Offer, (D) in the case of clause (4) above, upon
the cessation of the stop order suspending the effectiveness of such Shelf
Registration Statement and (E) with respect to Holders other than affiliates
of Potlatch, upon the expiration of two years (or such shorter period as may
be prescribed by Rule 144(k) under the Securities Act, or any successor
provisions thereof, under the Securities Act) commencing on the date of the
initial issuance of the Original Notes.

Holders of Original Notes will be required to make certain representations
to Potlatch (as described in the exchange and registration rights agreement)
in order to participate in the Exchange Offer and will be required to deliver
certain information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods set forth in the exchange and registration rights agreement
in order to have their Original Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Special Interest set forth
above. By acquiring Transfer Restricted Securities, a Holder will be deemed to
have agreed to indemnify Potlatch and the Guarantors against certain losses
arising out of information furnished by such Holder in writing for inclusion
in any Shelf Registration Statement. Holders of Original Notes will also be
required to suspend their use of the prospectus included in the Shelf
Registration Statement under certain circumstances upon receipt of written
notice to that effect from Potlatch.

Certain Definitions

Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.

"Acquired Debt" means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person;

but excluding Indebtedness of such other Person that is extinguished, retired
or repaid concurrent with such other Person becoming a Subsidiary of such
specified Person.

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial ownership of
10% or more of the Voting Stock of a Person will be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and
"under common control with" have correlative meanings.

"Asset Sale" means:

(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of Potlatch and its Subsidiaries,
taken as a whole, will be governed by the provisions of the indenture
described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under
the caption "--Certain Covenants--Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and

(2) the issuance of Equity Interests by any of Potlatch's Restricted
Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.

Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:

(1) any single transaction or series of related transactions that involves
assets with an aggregate fair market value of less than $5.0 million;

(2) one or more transactions during any twelve-month period with an
aggregate fair market value of less than $10.0 million, determined
without regard to whether such transactions are related, but including
all transactions that are deemed not to be Asset Sales pursuant to
clause (1) above;

(3) a transfer of assets between or among Potlatch and its Restricted
Subsidiaries;

(4) an issuance of Equity Interests by a Restricted Subsidiary to Potlatch
or to another Restricted Subsidiary;

(5) the sale or lease of equipment, Inventory, accounts receivable or other
assets in the ordinary course of business;

(6) the conveyance of real property, including timberlands, for charitable
and environmental conservation purposes, consistent with past practice;

(7) dispositions by Potlatch or any of its Restricted Subsidiaries of
timberlands for other timberlands, provided, that if Potlatch or such
Restricted Subsidiary receives consideration consisting of assets other
than timberlands in such exchange, then such disposition shall be
deemed an Asset Sale to the extent of the fair market value of such
non-timberland consideration received and, provided, further, that the
Board of Directors shall have approved such disposition and exchange
and determined the fair market value of the assets subject to such
transaction in accordance with the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales";

(8) the sale or other disposition of cash or Cash Equivalents; and

(9) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain Covenants--
Restricted Payments."

"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such
lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with GAAP.

"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition. The terms "Beneficially Owns" and "Beneficially Owned" have a
corresponding meaning.

"Board of Directors" means, as the context may require:

(1) with respect to Potlatch or a Restricted Subsidiary that is a
corporation, the board of directors of the corporation or a committee
thereof;

(2) with respect to a partnership, the board of directors of the general
partner of the partnership; and

(3) with respect to any other Person, the board or a committee of such
Person serving a similar function.

"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.

"Capital Stock" means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and

(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

"Cash Equivalents" means:

(1) United States dollars;

(2) (a) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the
United States government (provided that the full faith and credit of
the United States is pledged in support of those securities) having
maturities of not more than six months from the date of acquisition,
and (b) certificates, depositary receipts or other instruments which
evidence a direct ownership interest in obligations described in clause
(a) above or in any specific interest or principal payments due in
respect thereof; provided, however, that the custodian of such
obligations or specific interest or principal payments shall be a bank
or trust company (which may include the trustee or any paying agent)
subject to federal or state supervision or examination with a combined
capital and surplus of at least $50.0 million; and provided, further,
that except as may be otherwise required by law, such custodian shall
be obligated to pay to the holders of such certificates, depositary
receipts or other instruments the full amount received by such
custodian in respect of such obligations or specific payments and shall
not be permitted to make any deduction therefrom;

(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case, with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of $500.0
million and a Thomson Bank Watch (or such successor thereto) Rating of
"B" or better;

(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;

(5) commercial paper having the highest rating obtainable from Moody's or
S&P and in each case maturing within six months after the date of
acquisition; and

(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.

"Change of Control" means the occurrence of any of the following:

(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of Potlatch and its Restricted Subsidiaries taken as a whole to
any "person" (as that term is used in Section 13(d)(3) of the Exchange
Act);

(2) the adoption of a plan relating to the liquidation or dissolution of
Potlatch;

(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above) becomes the Beneficial Owner, directly or indirectly, of
more than 35% of the Voting Stock of Potlatch, measured by voting power
rather than number of shares, provided, however, such person shall not
be deemed to be such a Beneficial Owner of shares tendered pursuant to
a tender offer or exchange offer paid by or on behalf of that person or
any Affiliate of that person until the tendered shares are accepted for
purchase or exchange, and provided further, however, that no person who
is a Beneficial Owner of Voting Stock of Potlatch as of the date of the
indenture (an "Existing Holder") or a Permitted Transferee
(collectively a "Permitted Holder") shall be deemed to have become the
Beneficial Owner of Voting Stock of Potlatch as a result of the
formation of a "syndicate" or "group" (each within the meaning of
Section 13(d)(3) of the Exchange Act) with one or more other Permitted
Holders to the extent of the Voting Stock of Potlatch as to which such
other Permitted Holder or Permitted Holders is a Beneficial Owner as of
the date of the indenture;

(4) the first day on which a majority of the members of the Board of
Directors of Potlatch are not Continuing Directors; or

(5) Potlatch consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, Potlatch, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Potlatch or such other Person is converted into or exchanged
for cash, securities or other property, other than any such transaction
where the Voting Stock of Potlatch outstanding immediately prior to
such transaction is converted into or exchanged for Voting Stock (other
than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock
of such surviving or transferee Person (immediately after giving effect
to such issuance);

provided, however, that a Change of Control will be deemed not to occur
pursuant to clauses (1), (3), (4) and (5) above if either:

(x) the acquiring "person" is a corporation with outstanding senior
subordinated unsecured long-term debt securities having a maturity at
least equal to the then remaining term of the Notes and such debt
securities are rated not less than Investment Grade (without giving
effect to any third-party credit support or enhancement) by both S&P
and Moody's for a period of at least 60 consecutive days beginning on
the date of the event that would otherwise constitute such Change of
Control, or

(y) in the event that the acquiring "person" is a corporation that either
(1) does not have any outstanding senior subordinated unsecured long-
term debt securities having a maturity at least equal to the then
remaining term of the Notes that are rated by both S&P and Moody's at
any time during a period of 60 consecutive days beginning on the date
of such event, or (2) after the date of such event but during such 60-
day period, has outstanding senior subordinated unsecured long-term
debt securities having a maturity at least equal to the then remaining
term of the Notes that have been rated not less than Investment Grade
(without giving effect to any third-party credit support or
enhancement) by both S&P

and Moody's which rating continues in effect for the remainder of such
period, and, in the case of subclauses (1) and (2) of this clause (y),
the Notes shall be rated immediately upon such Change of Control at
Investment Grade.

"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:

(1) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus

(2) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus

(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus

(4) depreciation, amortization and cost of fee timber harvested (including
amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its
Restricted Subsidiaries for such period to the extent that such
depreciation, amortization, cost of fee timber harvested and other
non-cash expenses were deducted in computing such Consolidated Net
Income; minus

(5) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business;

in each case, on a consolidated basis and determined in accordance with GAAP.

Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation, amortization and cost of fee timber
harvested and other non-cash expenses of, a Subsidiary of Potlatch will be
added to Consolidated Net Income to compute Consolidated Cash Flow of Potlatch
only to the extent that a corresponding amount would be permitted at the date
of determination to be dividended to Potlatch by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.

"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:

(1) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary of the specified Person;

(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been

100

obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded;

(4) the cumulative effect of a change in accounting principles will be
excluded; and

(5) the Net Income (but not loss) of any Unrestricted Subsidiary will be
excluded, whether or not distributed to the specified Person or one of
its Subsidiaries.

"Consolidated Net Worth" means, with respect to any specified Person as of
any date, the sum of:

(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus

(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person
upon issuance of such preferred stock.

"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Potlatch who:

(1) was a member of such Board of Directors on the date of the indenture
(the "Incumbent Board"); or

(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Incumbent Board, any such member of
the Board of Directors thereafter being considered a member of the
Incumbent Board.

"Credit Agreement" means that certain Credit Agreement, dated as of the
date of the issuance of the Notes, by and among Potlatch, the Guarantors, the
lenders party thereto and Bank of America, N.A., as administrative agent,
providing for up to $400.0 million of borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time.

"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit
loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.

"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.

"Designated Senior Debt" means:

(1) any Indebtedness outstanding under the Credit Agreement; and

(2) after payment in full of all Obligations under the Credit Agreement,
any other Senior Debt permitted under the indenture the principal
amount of which is $25.0 million or more and that has been designated
by Potlatch as "Designated Senior Debt."

"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or

101

otherwise, or redeemable at the option of the holder of the Capital Stock, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature. Notwithstanding the preceding sentence, any Capital
Stock that would constitute Disqualified Stock solely because the holders of
the Capital Stock have the right to require Potlatch to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale will
not constitute Disqualified Stock if the terms of such Capital Stock provide
that Potlatch may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the
covenant described above under the caption "--Certain Covenants--Restricted
Payments."

"Domestic Subsidiary" means any Restricted Subsidiary of Potlatch that was
formed under the laws of the United States or any state of the United States
or the District of Columbia or that guarantees or otherwise provides direct
credit support for any Indebtedness of Potlatch.

"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

"Existing Indebtedness" means up to $975.0 million in aggregate principal
amount of Indebtedness of Potlatch and its Subsidiaries (other than
Indebtedness under the Credit Agreement) in existence on the date of the
indenture, until such amounts are repaid.

"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:

(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations; plus

(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus

(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus

(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of Potlatch (other than
Disqualified Stock) or to Potlatch or a Restricted Subsidiary of
Potlatch, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with
GAAP.

"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any six-quarter period, the ratio of the Consolidated Cash Flow of such
Person and its Restricted Subsidiaries for such period to the Fixed Charges of
such Person and its Restricted Subsidiaries for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than
ordinary working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated and on or prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase or redemption of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the proceeds
therefrom as if the same had occurred at the beginning of the applicable six-
quarter reference period.

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In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the six-
quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date will be given pro forma effect as if
they had occurred on the first day of the six-quarter reference period
and Consolidated Cash Flow for such reference period will be
calculated on a pro forma basis in accordance with Regulation S-X
under the Securities Act, but without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;

(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and

(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Restricted Subsidiaries following the Calculation Date.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.

"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.

"Guarantors" means (1) Potlatch's Subsidiaries that from time to time are
guarantors of the Obligations under the Credit Agreement, which as of the date
of the indenture are Duluth & Northeastern Railroad, Co., The Prescott and
Northwestern Railroad Company, St. Maries River Railroad Company, and Warren
and Saline River Railroad Company, and (2) any other subsidiary that executes
a Subsidiary Guarantee in accordance with the provisions of the indenture, and
their respective successors and assigns.

"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:

(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and

(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.

"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent and without
duplication:

(1) in respect of borrowed money;

(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);

(3) in respect of banker's acceptances;

(4) representing Capital Lease Obligations;

(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable; or

(6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person

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(whether or not such Indebtedness is assumed by the specified Person) and, to
the extent not otherwise included, the Guarantee by the specified Person of
any indebtedness of any other person.

The amount of any Indebtedness outstanding as of any date will be:

(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and

(2) the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.

"Inventory" of a Person means all inventory of such Person, including (i)
all raw materials, logs, timber, forest growth, work-in-process, parts,
components, assemblies, supplies and materials used or consumed by such
Person's business, (ii) all goods, wares and merchandise, finished or
unfinished, held for sale or lease and (iii) all goods returned or repossessed
by such Person.

"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the
forms of loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Potlatch
or any Subsidiary of Potlatch sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of Potlatch such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of Potlatch, Potlatch will be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments." The acquisition
by Potlatch or any Subsidiary of Potlatch of a Person that holds an Investment
in a third Person will be deemed to be an Investment by Potlatch or such
Subsidiary in such third Person in an amount equal to the fair market value of
the Investment held by the acquired Person in such third Person in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments."

"Investment Grade" means (i) BBB- or above, in the case of S&P (or its
equivalent under any successor Rating Categories of S&P) and Baa3 or above, in
the case of Moody's (or its equivalent under any successor Rating Categories
of Moody's) or (ii) the equivalent in respect of the Rating Categories of any
Rating Agencies.

"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.

"Moody's" means Moody's Investors Service Inc. and its successors.

"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:

(1) any gain or loss, together with any related provision for taxes on
such gain (but not loss), realized in connection with: (a) any Asset
Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries; and

(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss.

104

"Net Proceeds" means the aggregate cash proceeds received by Potlatch or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation
expenses incurred as a result of the Asset Sale, taxes paid or payable as a
result of the Asset Sale, in each case, after taking into account any
available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness, other than
Senior Debt secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.

"Non-Recourse Debt" means Indebtedness:

(1) as to which neither Potlatch nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;

(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action
against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the
Notes) of Potlatch or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment of the
Indebtedness to be accelerated or payable prior to its stated
maturity; and

(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of Potlatch or any of its
Restricted Subsidiaries.

"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, costs and expenses and other
liabilities payable under the documentation governing any Indebtedness.

"Permitted Business" means any business conducted by Potlatch on the date
of the indenture, and any business reasonably related thereto.

"Permitted Investments" means:

(1) any Investment in Potlatch or in a Restricted Subsidiary of Potlatch;

(2) any Investment in Cash Equivalents;

(3) any Investment by Potlatch or any Restricted Subsidiary of Potlatch in
a Person, if as a result of such Investment:

(a) such Person becomes a Restricted Subsidiary of Potlatch; or

(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Potlatch or a Restricted Subsidiary of Potlatch;

(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";

(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Potlatch;

(6) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance
and other similar deposits;

(7) Investments constituting loans, advances or extensions of credit to
employees, officers, supervisory or management board members and
directors made in the ordinary course of business;

(8) Investments consisting of purchases and acquisitions of inventory,
supplies, materials and equipment or licenses, contribution or leases
of intellectual property, in any case, in the ordinary course of
business;

105

(9) Investments in Permitted Joint Ventures and Unrestricted Subsidiaries
in an amount not to exceed, together with the amount of all other
Investments outstanding under this clause (9), at the time of such
Investment and after giving pro forma effect thereto, $20.0 million;

(10) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant
to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer;

(11) Hedging Obligations; and

(12) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (12) since
the date of the indenture, not to exceed $20.0 million.

"Permitted Joint Ventures" means any arrangement with another Person or
Persons, structured as an unincorporated joint venture, partnership,
association or limited liability company (i) in which Potlatch and/or any
Wholly Owned Restricted Subsidiary owns at least 15% of the outstanding
Capital Stock thereof and (ii) which engages only in a business of the type
conducted by Potlatch on the date of the indenture or in a business ancillary
thereto.

"Permitted Junior Securities" means:

(1) Equity Interests in Potlatch; or

(2) debt securities that are subordinated to all Senior Debt and any debt
securities issued in exchange for Senior Debt to the same extent as,
or to a greater extent than, the Notes are subordinated to Senior Debt
under the indenture.

"Permitted Liens" means:

(1) Liens of Potlatch and any Guarantor securing Senior Debt that was
permitted by the terms of the indenture to be incurred;

(2) Liens in favor of Potlatch or the Guarantors;

(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Potlatch or any Subsidiary of
Potlatch; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Potlatch or the Subsidiary;

(4) Liens on property existing at the time of acquisition of the property
by Potlatch or any Subsidiary of Potlatch, provided that such Liens
were in existence prior to the contemplation of such acquisition;

(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the third paragraph of the covenant
entitled "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock"; provided, however, that (a) the principal amount
of any Indebtedness secured by such a Lien does not exceed 100% of
such purchase price or cost, (b) such Lien does not extend to or cover
any other property other than such item of property and any
improvements on such item and (c) the incurrence of such Indebtedness
is permitted by "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock";

(7) Liens existing on the date of the indenture;

(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,

106

provided that any reserve or other appropriate provision as is
required in conformity with GAAP has been made therefor;

(9) Liens in connection with escrow deposits made in connection with any
acquisition of assets;

(10) Liens incurred in the ordinary course of business in connection with
workers' compensation and unemployment insurance, social security
obligations, assessments or governmental charges which are not
overdue for more than 60 days;

(11) Liens of carriers, warehousemen, mechanics, vendors (solely to the
extent arising by operation of law), laborers and materialmen
incurred in the ordinary course of business for sums not yet due or
being contested in good faith, if reserves or other appropriate
provision shall have been made therefor;

(12) Liens created by or existing as a result of any litigation or legal
proceeding which is currently being contested in good faith by
appropriate action promptly initiated and diligently conducted,
including the Lien of any judgment;

(13) easements or similar encumbrances, rights-of-way, restrictions, minor
defects or irregularities in title not interfering in any material
respect with the ordinary conduct of the business of Potlatch or such
Restricted Subsidiary;

(14) Liens incurred in the ordinary course of business of Potlatch or any
Restricted Subsidiary of Potlatch with respect to obligations that do
not exceed $10.0 million at any one time outstanding;

(15) Liens on timberlands in connection with any arrangement entered into
in the ordinary course of business under which Potlatch or any of its
Subsidiaries is obligated to cut or pay for timber in order to
provide the lien holder with respect to such timberlands with a
specified amount of money, however determined;

(16) Liens created or assumed in the ordinary course of business of
exploring for, developing or producing oil, gas or other minerals
(including borrowings in connection therewith) on, or any interest
in, or on any proceeds from the sale of, property acquired for such
purposes, production therefrom (including the proceeds thereof), or
material or equipment located thereon; and

(17) Liens to secure Indebtedness incurred to renew, extend, refinance or
refund, in whole or in part, Indebtedness secured by any Lien referred
to in the foregoing clauses (1) through (17) so long as such Lien does
not extend to any other property and the principal amount of
Indebtedness so secured does not exceed the principal amount of
Indebtedness so renewed, extended, refinanced or refunded, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or
the amount of any premium reasonably determined by Potlatch as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase, plus the expenses of Potlatch in
connection with such refinancing;

"Permitted Redeemable Stock" means any Disqualified Stock of Potlatch
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund Indebtedness (other than
intercompany Indebtedness) or other Disqualified Stock of Potlatch; provided
that:

(1) the stated redemption value of such Permitted Redeemable Stock does not
exceed the principal amount (or accreted value, if applicable) of the
Indebtedness, or the stated redemption value of the Disqualified Stock
being extended, refinanced, renewed, replaced, defeased or refunded
(plus all accrued interest on such Indebtedness or dividends on or
other payments in respect of such Disqualified Stock, and the amount of
all expenses and premiums incurred in connection therewith);

(2) such Permitted Redeemable Stock has

(i) a final maturity date or mandatory redemption date later than

(a) the final maturity date of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, or

(b) the maturity date or mandatory redemption date of the
Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded; and

107

(ii) a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness or the
Disqualified Stock being extended, refinanced, renewed, replaced,
defeased or refunded;

provided further that if such Permitted Redeemable Stock permits the holders
thereof to require Potlatch to repurchase or redeem such Permitted Redeemable
Stock at the option of the holder thereof prior to the final maturity of the
Notes, then the terms of such Permitted Redeemable Stock shall also provide
that Potlatch may not repurchase or redeem any such Permitted Redeemable Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Certain Covenants--
Restricted Payments."

"Permitted Refinancing Indebtedness" means any Indebtedness of Potlatch or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund
other Indebtedness of Potlatch or any of its Restricted Subsidiaries (other
than intercompany Indebtedness); provided that:

(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness extended,
refinanced, renewed, replaced, defeased or refunded (plus all accrued
interest on the Indebtedness and the amount of all expenses and
premiums incurred in connection therewith);

(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;

(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of
payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and

(4) such Indebtedness is incurred either by Potlatch or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.

"Permitted Transferee" means any direct or indirect transferee of Voting
Stock of Potlatch from an Existing Holder (1) by gift, bequest, distribution
from (or deposit into) a trust or other transfer without consideration, (2) by
succession or testamentary disposition upon death or (3) to a spouse or former
spouse pursuant to an agreement for division of community property or other
property settlement agreement in connection with a marital dissolution or
legal separation. A Permitted Transferee shall be deemed to be the Beneficial
Owner of any such Voting Stock as of the date of the indenture.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

"Rating Agencies" means (i) S&P and Moody's or (ii) if S&P or Moody's or
both of them are not making ratings of the Notes publicly available, a
nationally recognized U.S. rating agency or agencies, as the case may be,
selected by Potlatch, which will be substituted for S&P or Moody's or both, as
the case may be.

"Rating Category" means (i) with respect to S&P, any of the following
categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B,
CCC, CC, C and D (or equivalent successor categories); (ii) with respect to
Moody's, any of the following categories (any of which may include a "1," "2"
or "3"): Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor
categories); and (iii) the equivalent of any such categories of S&P or Moody's
used by another Rating Agency, if applicable.

"Replacement Assets" means (i) long-term assets that will be used or useful
in a Permitted Business, (ii) substantially all of the assets of another
Permitted Business, or (iii) a majority of the Voting Stock of any Person

108

engaged in a Permitted Business that will become on the date of acquisition
thereof a Restricted Subsidiary as a result of such acquisition.

"Restricted Investment" means an Investment other than a Permitted
Investment.

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

"S&P" means Standard & Poor's Rating Services, a division of the McGraw-
Hill Companies, Inc. and its successors.

"Senior Debt" means:

(1) all Indebtedness of Potlatch and the Guarantors outstanding under the
Credit Agreement and all Hedging Obligations;

(2) any other Indebtedness of Potlatch and the Guarantors permitted to be
incurred under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes; and

(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).

Notwithstanding anything to the contrary in the preceding sentence, Senior
Debt will not include:

(1) any liability for federal, state, local or other taxes owed or owing by
Potlatch or the Guarantors;

(2) any intercompany Indebtedness of Potlatch or any of its Subsidiaries to
Potlatch or any of its Affiliates;

(3) any trade payables; or

(4) the portion of any Indebtedness that is incurred in violation of the
indenture.

"Significant Subsidiary" means any Subsidiary, other than an Unrestricted
Subsidiary that has no Indebtedness other than Non-Recourse Debt, that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the date hereof.

"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.

"Subsidiary" means, with respect to any specified Person:

(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person (or a combination thereof); and

(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).

"Unrestricted Subsidiary" means any Subsidiary of Potlatch (or any
successor to any of them) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary:

(1) is not party to any agreement, contract, arrangement or understanding
with Potlatch or any Restricted Subsidiary of Potlatch unless the
terms of any such agreement, contract, arrangement or understanding

109

are no less favorable to Potlatch or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of Potlatch;

(2) is a Person with respect to which neither Potlatch nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and

(3) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Potlatch or any of its Restricted
Subsidiaries.

Any designation of a Subsidiary of Potlatch as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy
of the resolution of the Board of Directors giving effect to such designation
and an officers' certificate certifying that such designation complied with
the preceding conditions and was permitted by the covenant described above
under the caption "--Certain Covenants--Restricted Payments." If, at any time,
any Unrestricted Subsidiary would fail to meet the preceding requirements as
an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of
Potlatch as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," Potlatch will be in default of such covenant. The Board of Directors
of Potlatch may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of Potlatch of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will only be permitted if (1) such Indebtedness is permitted under the
covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the six-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.

"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

"Weighted Average Life to Maturity" means, (i) when applied to any
Indebtedness at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity,
in respect of the Indebtedness, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the
making of such payment; by

(2) the then outstanding principal amount of such Indebtedness; and

(ii) when applied to any Disqualified Stock or Permitted Redeemable
Stock at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity, stated
redemption value or other payments in respect of such Disqualified
Stock or Permitted Redeemable Stock, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment; by

(2) the then outstanding stated redemption value of such Disqualified
Stock or Permitted Redeemable Stock.

"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
will at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more
Wholly Owned Restricted Subsidiaries of such Person.

110

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS

The following general discussion summarizes certain U.S. federal income tax
considerations relating to the exchange of old notes for registered notes in
the exchange offer. This discussion is a summary for general information
purposes only and does not contain a complete analysis of all the potential
tax considerations relating to the exchange. This discussion does not consider
the impact, if any, of a holder's personal circumstances on the tax
consequences of the exchange offer to such holder. This discussion also does
not address the U.S. federal income tax consequences to holders subject to
special treatment under the U.S. federal income tax laws, such as banks and
financial institutions, insurance companies, tax-exempt entities, dealers in
securities or currencies, or persons that hold the old notes as part of a
hedging transaction, straddle or conversion transaction. This discussion is
based upon the U.S. federal income tax law now in effect, which is subject to
change possibly retroactively.

This summary may not cover your particular circumstances because it does
not consider foreign, state or local tax rules, disregards certain federal tax
rules, and does not describe future changes in federal tax rules. Please
consult your tax advisor rather than relying on this general description.

The Exchange Offer

An exchange of old notes for registered notes under the terms of the
exchange offer will not constitute a taxable exchange for federal income tax
purposes. Accordingly, (1) a holder will not recognize taxable gain or loss as
a result of exchanging old notes for registered notes under the terms of the
exchange offer, (2) the holding period of the registered notes will include
the holding period of the old notes exchanged for the registered notes, and
(3) the adjusted tax basis of the registered notes will be the same as the
adjusted tax basis, immediately before the exchange, of the old notes
exchanged for the registered notes.

111

PLAN OF DISTRIBUTION

Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to
the immediately following sentence, we believe that the Exchange Notes to be
issued pursuant to the exchange offer may be offered for resale, resold and
otherwise transferred by the holders thereof (other than holders who are
broker-dealers) without further compliance with the registration and
prospectus delivery provisions of the Securities Act. However, any purchaser
of Original Notes who is our affiliate within the meaning of the Securities
Act or who intends to participate in the exchange offer for the purpose of
distributing the Exchange Notes, or any broker-dealer who purchased the
Original Notes from us to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, (1) will not be able to rely on the
interpretations of the staff set forth in the above-mentioned no-action
letters, (2) will not be entitled to tender its Original Notes in the exchange
offer and (3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Original Notes unless the sale or transfer is made pursuant to an
exemption from such requirements. We do not intend to seek our own no-action
letter, and there can be no assurance that the SEC's staff would make a
similar determination with respect to the Exchange Notes as it has in such no-
action letters to third parties.

Each holder of the Original Notes who wishes to exchange the Original Notes
for Exchange Notes in the exchange offer will be required to represent that
(1) it is not our affiliate within the meaning of the Securities Act, (2) the
Exchange Notes to be received by it were acquired in the ordinary course of
its business and (3) at the time of the exchange offer, it has not engaged in,
does not intend to engage in, and has no arrangement or understanding with any
person to participate in the distribution of the Exchange Notes within the
meaning of the Securities Act. In addition, in connection with any resales of
Exchange Notes, any Participating Broker-Dealer who acquired the Original
Notes for its own account as a result of market-making or other trading
activities must deliver a prospectus meeting the requirements of the
Securities Act. Based upon no-action letters from the SEC's staff to third
parties, we believe that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Original
Notes) with this prospectus. Under the exchange and registration rights
agreement, we are required to allow Participating Broker-Dealers to use this
prospectus in connection with the resale of, such Exchange Notes for a period
starting on the Expiration Date and ending on the close of business 180 days
after the Expiration Date.

Neither we nor the guarantors will receive any proceeds from any sale of
Exchange Notes by brokers-dealers. Exchange Notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of
any such resale of Exchange Notes and any commissions or concessions received
by them may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.

For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We will pay our own expenses incurred in connection with the
performance of our obligations in the exchange offer other than commissions or
concessions of any brokers or dealers and other than certain taxes and will
indemnify the holders of the Exchange Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
We note, however, that in the

112

opinion of the SEC, indemnification against liabilities arising under federal
securities laws is against public policy and may be unenforceable.

LEGAL MATTERS

The validity of the Exchange Notes offered hereby will be passed upon for
us by Pillsbury Winthrop LLP, San Francisco, California. Toni Rembe, a member
of Pillsbury Winthrop LLP, is a director of Potlatch and at December 1, 2001
owned 3,612 shares of our common stock, options to acquire 4,250 shares of our
common stock, and 7,029 common stock units.

EXPERTS

The consolidated financial statements of Potlatch Corporation as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, have been included and incorporated by reference
herein and in the registration statement in reliance on the report of KPMG
LLP, independent certified public accountants, appearing elsewhere and
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.

113

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Audited Consolidated Financial Statements
Report of KPMG LLP, Independent Auditors................................ F-2
Statements of Earnings for the years ended December 31, 2000, 1999 and
1998................................................................... F-3
Balance Sheets at December 31, 2000 and 1999............................ F-4
Statements of Cash Flows for the years ended December 31, 2000, 1999 and
1998................................................................... F-5
Statements of Stockholders' Equity for the years ended December 31,
2000, 1999 and 1998.................................................... F-6
Summary of Principal Accounting Policies................................ F-7
Notes to Consolidated Financial Statements.............................. F-9
Unaudited Consolidated Financial Statements
Statements of Earnings for the nine months ended September 30, 2001 and
2000................................................................... F-28
Condensed Balance Sheets at September 30, 2001 and December 31, 2000
(audited).............................................................. F-29
Condensed Statements of Cash Flows for the nine months ended September
30, 2001 and 2000...................................................... F-30
Notes to Consolidated Financial Statements.............................. F-31

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors:

We have audited the accompanying balance sheets of Potlatch Corporation and
consolidated subsidiaries as of December 31, 2000 and 1999 and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Potlatch Corporation and
consolidated subsidiaries as of December 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

KPMG LLP
Portland, Oregon
January 24, 2001

F-2

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF EARNINGS
(Dollars in thousands--except per-share amounts)

For the years ended December 31
-----------------------------------
2000 1999 1998
---------- ---------- ----------

Net sales................................. $1,808,770 $1,808,388 $1,688,705
---------- ---------- ----------
Costs and expenses:
Depreciation, amortization and cost of
fee timber harvested................... 161,847 150,253 150,278
Materials, labor and other operating
expenses............................... 1,468,316 1,404,562 1,305,923
Selling, general and administrative
expenses............................... 123,347 141,580 133,297
Restructuring and other charges (Note
14).................................... 46,411 -- --
---------- ---------- ----------
1,799,921 1,696,395 1,589,498
---------- ---------- ----------
Earnings from operations.................. 8,849 111,993 99,207
Interest expense, net of capitalized
interest of $3,964 ($10,320 in 1999 and
$5,070 in 1998).......................... (59,438) (45,442) (49,744)
Other income (expense), net............... (3,860) (507)* 8,712
---------- ---------- ----------
Earnings (loss) before taxes on income.... (54,449) 66,044 58,175
Provision (benefit) for taxes on income
(Note 5)................................. (21,235) 25,097 20,943
---------- ---------- ----------
Net earnings (loss)....................... $ (33,214) $ 40,947 $ 37,232
========== ========== ==========
Net earnings (loss) per common share:
Basic................................... $(1.16) $1.41 $1.28
Diluted................................. (1.16) 1.41 1.28
========== ========== ==========

Net sales figures have been restated due to the reclassification of freight
costs.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
- --------
* Includes a nonrecurring charge of $7.5 million ($4.6 million after tax) for
expenses related to the termination of efforts to form a timber real estate
investment trust.

The accompanying notes and summary of principal accounting policies are an
integral part
of these financial statements.

F-3

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

BALANCE SHEETS
(Dollars in thousands--except per-share amounts)

At December 31
----------------------
2000 1999
---------- ----------

ASSETS
Current assets:
Cash (Note 10)...................................... $ 11,652 $ 11,531
Short-term investments (Note 10).................... 9 159
Receivables, net of allowance for doubtful accounts
of $1,012 ($1,786 in 1999)......................... 187,819 184,312
Inventories (Note 1)................................ 223,206 196,733
Prepaid expenses.................................... 61,153 23,767
---------- ----------
Total current assets.................................. 483,839 416,502
Land, other than timberlands.......................... 9,044 9,073
Plant and equipment, at cost less accumulated
depreciation of $1,609,210 ($1,487,310 in 1999) (Note
2)................................................... 1,637,374 1,616,055
Timber, timberlands and related logging facilities,
net (Note 3)......................................... 333,249 335,194
Other assets (Note 4)................................. 78,939 69,676
---------- ----------
$2,542,445 $2,446,500
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Notes 6 and 10)...................... $ 188,943 $ 121,464
Current installments on long-term debt (Notes 6 and
10)................................................ 325 10,323
Accounts payable and accrued liabilities (Note 7)... 249,831 232,959
---------- ----------
Total current liabilities............................. 439,099 364,746
---------- ----------
Long-term debt (Notes 6 and 10)....................... 801,549 701,798
---------- ----------
Other long-term obligations (Note 8).................. 184,147 172,986
---------- ----------
Deferred taxes (Note 5)............................... 293,961 275,644
---------- ----------
Put options (Notes 9 and 10).......................... 10,453 10,287
---------- ----------
Stockholders' equity:
Preferred stock, Authorized 4,000,000 shares........ -- --
Common stock, $1 par value, Authorized 40,000,000
shares, issued 32,721,980 shares................... 32,722 32,722
Additional paid-in capital.......................... 128,984 128,678
Retained earnings................................... 773,697 856,609
Common shares in treasury 4,375,546 (3,749,748 in
1999).............................................. (122,167) (96,970)
---------- ----------
Total stockholders' equity............................ 813,236 921,039
---------- ----------
$2,542,445 $2,446,500
========== ==========

The accompanying notes and summary of principal accounting policies are an
integral part
of these financial statements.

F-4

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CASH FLOWS
(Dollars in thousands)

For the years ended December
31
-------------------------------
2000 1999 1998
--------- --------- ---------

CASH FLOWS FROM OPERATIONS
Net earnings (loss)......................... $ (33,214) $ 40,947 $ 37,232
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Depreciation, amortization and cost of fee
timber harvested......................... 161,847 150,253 150,278
Deferred taxes............................ 18,317 21,953 16,757
Other, net................................ (2,129) (3,190) (3,105)
Decrease (increase) in receivables.......... (3,507) (22,044) 16,891
Decrease (increase) in inventories.......... (26,473) 3,524 (17,954)
Decrease (increase) in prepaid expenses..... (37,386) 3,491 (485)
Increase in accounts payable and accrued
liabilities................................ 16,457 9,695 17,930
--------- --------- ---------
Net cash provided by operations........... 93,912 204,629 217,544
--------- --------- ---------
CASH FLOWS FROM INVESTING
Decrease in short-term investments.......... 150 -- --
Additions to investments.................... (4,493) (51,720) (13,207)
Reductions in investments................... 1,350 57,492 13,755
Collection of note receivable............... -- 50,000 --
Funding of qualified pension plans.......... (6) (10) (1,816)
Additions to plant and equipment, and to
land other than timberlands................ (157,243) (237,671) (137,160)
Additions to timber, timberlands and related
logging facilities......................... (9,179) (9,980) (9,867)
Disposition of plant and properties......... 1,877 3,046 3,115
--------- --------- ---------
Net cash used for investing............... (167,544) (188,843) (145,180)
--------- --------- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts................... 415 (2,075) 5,425
Increase (decrease) in notes payable........ 67,479 46,525 (20,611)
Proceeds from long-term debt................ 100,000 99,935 --
Repayment of long-term debt................. (10,247) (109,948) 32
Issuance of treasury stock.................. 861 1,250 550
Purchase of treasury stock.................. (25,892) -- (3,261)
Dividends on common stock................... (49,698) (50,362) (50,472)
Other, net.................................. (9,165) (1,230) (1,403)
--------- --------- ---------
Net cash provided by (used for)
financing................................ 73,753 (15,905) (69,740)
--------- --------- ---------
Increase (decrease) in cash................. 121 (119) 2,624
Balance at beginning of year................ 11,531 11,650 9,026
--------- --------- ---------
Balance at end of year...................... $ 11,652 $ 11,531 $ 11,650
========= ========= =========

Net interest paid (net of amounts capitalized) in 2000, 1999 and 1998 was
$59.3 million, $43.9 million and $49.7 million, respectively. Net income taxes
paid in 2000, 1999 and 1998 were $.2 million, $4.5 million and $4.2 million,
respectively.

The accompanying notes and summary of principal accounting policies are an
integral part
of these financial statements.

F-5

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands--except per-share amounts)

Common Stock
Issued Additional Retained Total
------------------ Paid-In Earnings Stockholders'
Shares Amount Capital Amount Treasury Stock Equity
---------- ------- ---------- -------- ------------------- -------------

Balance, December 31,
1997................... 32,721,980 $32,722 $127,554 $879,264 3,727,118 $ 87,948 $951,592
Exercise of stock
options............... -- -- 471 -- (23,825) (550) 1,021
Shares purchased at
cost.................. -- -- -- -- 100,000 4,000 (4,000)
Put options............ -- -- -- -- -- 5,206 (5,206)
Premium on issuance of
put options........... -- -- -- -- -- (739) 739
Net earnings........... -- -- -- 37,232 -- -- 37,232
Common dividends, $1.74
per share............. -- -- -- (50,472) -- -- (50,472)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
1998................... 32,721,980 $32,722 $128,025 $866,024 3,803,293 $ 95,865 $930,906
Exercise of stock
options and stock
awards................ -- -- 653 -- (53,545) (1,250) 1,903
Put options............ -- -- -- -- -- 3,443 (3,443)
Premium on issuance of
put options........... -- -- -- -- -- (1,088) 1,088
Net earnings........... -- -- -- 40,947 -- -- 40,947
Common dividends, $1.74
per share............. -- -- -- (50,362) -- -- (50,362)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
1999................... 32,721,980 $32,722 $128,678 $856,609 3,749,748 $ 96,970 $921,039
Exercise of stock
options and stock
awards................ -- -- 306 -- (35,102) (861) 1,167
Shares purchased at
cost.................. -- -- -- -- 660,900 22,253 (22,253)
Put options............ -- -- -- -- -- 4,240 (4,240)
Premium on issuance of
put options........... -- -- -- -- -- (435) 435
Net loss............... -- -- -- (33,214) -- -- (33,214)
Common dividends, $1.74
per share............. -- -- -- (49,698) -- -- (49,698)
---------- ------- -------- -------- --------- -------- --------
Balance, December 31,
2000................... 32,721,980 $32,722 $128,984 $773,697 4,375,546 $122,167 $813,236
========== ======= ======== ======== ========= ======== ========

The accompanying notes and summary of principal accounting policies are an
integral part
of these financial statements.

F-6

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Consolidation

The financial statements include the accounts of Potlatch Corporation and
its subsidiaries after elimination of significant intercompany transactions
and accounts. There are no significant unconsolidated subsidiaries.

Potlatch Corporation is an integrated forest products company with
substantial timber resources. It is engaged principally in the growing and
harvesting of timber and the manufacture and sale of wood products, printing
papers and pulp and paper products. Its timberlands and all of its
manufacturing facilities are located within the continental United States. The
primary market for the company's products is the United States, although it
sells a significant amount of paperboard to countries in the Pacific Rim.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.

Inventories

Inventories are stated at the lower of cost or market. The last-in, first-
out method is used to determine cost of logs, lumber, plywood, particleboard
and chips. The average cost method is used to determine cost of all other
inventories.

Earnings Per Common Share

Earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding in accordance with
Financial Accounting Standards Board Statement No. 128, "Earnings Per Share."
The following table reconciles the number of common shares used in the basic
and diluted earnings per share calculations:

2000 1999 1998
---------- ---------- ----------

Basic average common
shares outstanding....... 28,522,659 28,946,900 29,000,250
Incremental shares due to:
Common stock options.... -- 18,971 19,294
Put options............. -- 1,291 --
---------- ---------- ----------
Diluted average common
shares outstanding....... 28,522,659 28,967,162 29,019,544
========== ========== ==========

Incremental shares due to common stock options of 4,209 and put options of
40,039 were not included in the diluted average common shares outstanding
total for 2000 due to their antidilutive effect as a result of the company's
net loss for the year. Stock options to purchase 2,025,050, 1,949,725 and
1,230,475 shares of common stock for 2000, 1999 and 1998, respectively, were
not included in the computation of diluted earnings per share because the
exercise prices of the stock options were greater than the average market
price of the common shares.

Properties

Property, plant and equipment are valued at cost less accumulated
depreciation. Depreciation of buildings, equipment and other depreciable
assets is determined using the straight-line and units of production methods
of depreciation. Estimated useful lives range from 30 to 40 years for
buildings and structures and 2 to 25 years for equipment.

F-7

Timber, timberlands and related logging facilities are valued at cost net
of the cost of fee timber harvested and depreciation or amortization. Logging
roads and related facilities are amortized over their useful lives or as
related timber is removed. Cost of fee timber harvested is determined annually
based on the estimated volumes of recoverable timber and related cost.

Major improvements and replacements of property are capitalized.
Maintenance, repairs, and minor improvements and replacements are expensed.
Upon retirement or other disposition of property, applicable cost and
accumulated depreciation or amortization are removed from the accounts. Any
gains or losses are included in earnings.

Shipping Costs

To determine net sales the company deducts from gross sales several cost
items. Historically, one of these items has been the costs it incurs to ship
its products to customers. Shipping costs incurred for the years ended
December 31, 2000, 1999 and 1998 were $138.1 million, $131.6 million and
$122.8 million, respectively. In September 2000 the Emerging Issues Task Force
of the Financial Accounting Standards Board reached a consensus on Issue 00-10
"Accounting for Shipping and Handling Fees and Costs." The Issue concludes
that shipping costs should not be netted against revenues but included in cost
of sales. As a result, the company has restated net sales and cost of sales
for all years presented in this report.

Income Taxes

The provision for taxes on income is based on earnings reported in the
financial statements. Deferred income taxes are recorded for the temporary
differences between reported earnings and taxable income using current tax
laws and rates.

Preoperating and Startup Costs

Preoperating and startup costs are expensed as incurred in compliance with
the Accounting Standards Executive Committee Statement of Position 98-5,
"Reporting on the Costs of Startup Activities."

Environment

As part of its corporate policy, the company has an ongoing process to
monitor, report on and comply with environmental requirements. Based on this
ongoing process, accruals for environmental liabilities are established in
accordance with Statement of Financial Accounting Standards No. 5.

Pending Accounting Pronouncements

In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative financial instruments and hedging
activities. SFAS No. 133, as amended, becomes effective for the company's
fiscal year 2001. The Statements require recognition of derivatives as assets
or liabilities in the Balance Sheets, measured at fair value. The company
currently has not entered into any significant contracts or agreements that
would be classified as derivative financial instruments.

F-8

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Inventories

2000 1999
-------- --------
(Dollars in
thousands)

Logs, pulpwood, chips and sawdust......................... $ 22,108 $ 23,339
Lumber and other manufactured wood products............... 14,800 10,945
Pulp, paper and converted paper products.................. 125,914 102,815
Materials and supplies.................................... 60,384 59,634
-------- --------
$223,206 $196,733
======== ========
Valued at lower of cost or market:
Last-in, first-out basis................................ $ 34,503 $ 31,860
Average cost basis...................................... 188,703 164,873
-------- --------
$223,206 $196,733
======== ========

If the last-in, first-out inventory had been priced at lower of current
average cost or market, the values would have been approximately $23.6 million
higher at December 31, 2000, and $28.5 million higher at December 31, 1999.

Note 2. Plant and Equipment

2000 1999
---------- ----------
(Dollars in
thousands)

Land improvements..................................... $ 60,912 $ 59,012
Buildings and structures.............................. 451,398 419,155
Machinery and equipment............................... 2,412,848 2,374,570
Other................................................. 107,179 106,875
Construction in progress.............................. 214,247 143,753
---------- ----------
$3,246,584 $3,103,365
========== ==========

Depreciation charged against income amounted to $136.5 million in 2000
($126.7 million in 1999 and $126.3 million in 1998).

Authorized but unexpended appropriations for capital projects totaled
$114.3 million at December 31, 2000. Of that amount, $89.8 million is budgeted
to be expended in 2001. Historically, the company has spent less on capital
expenditures than the annual amount budgeted and expects that trend to
continue in 2001. Spending on projects may be delayed due to acquisition of
environmental permits, acquisition of equipment, engineering, weather and
other factors.

Note 3. Timber, Timberlands and Related Logging Facilities

2000 1999
-------- --------
(Dollars in
thousands)

Timber and timberlands.................................... $286,293 $290,917
Related logging facilities................................ 46,956 44,277
-------- --------
$333,249 $335,194
======== ========

The cost of timber harvested from company-owned lands amounted to $8.3
million in 2000 ($8.8 million in 1999 and $9.3 million in 1998). The cost of
permit timber harvested from non-company owned lands amounted to $14.3 million
in 2000 ($12.5 million in 1999 and $12.1 million in 1998). Amortization of
logging roads and related facilities amounted to $2.1 million in 2000 ($1.7
million in 1999 and $1.7 million in 1998).

F-9

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4. Other Assets

2000 1999
----------- -----------
(Dollars in thousands)

Pension assets....................................... $ 66,151 $ 59,377
Other................................................ 12,788 10,299
----------- -----------
$ 78,939 $ 69,676
=========== ===========

Note 5. Taxes on Income

The provision (benefit) for taxes on income is comprised of the following:

2000 1999 1998
-------- ------- -------
(Dollars in thousands)

Current........................................... $ 1,517 $ 3,763 $ 4,453
Deferred.......................................... (22,752) 21,334 16,490
-------- ------- -------
Provision (benefit) for taxes on income........... $(21,235) $25,097 $20,943
======== ======= =======

The provision (benefit) for taxes on income differs from the amount
computed by applying the statutory federal income tax rate of 35 percent to
earnings before taxes on income due to the following:

2000 1999 1998
-------- ------- -------
(Dollars in thousands)

Computed "expected" tax expense (benefit)...... $(19,057) $23,115 $20,361
State and local taxes, net of federal income
tax benefits.................................. (2,123) 2,492 2,022
Tax credits and other benefits................. -- (150) (1,570)
Foreign sales corporation...................... (548) (685) (1,221)
All other items................................ 493 325 1,351
-------- ------- -------
Provision (benefit) for taxes on income........ $(21,235) $25,097 $20,943
Effective tax rate............................. 39.0% 38.0% 36.0%
======== ======= =======

The tax effects of significant temporary differences creating deferred tax
assets and liabilities at December 31 were:

2000 1999
--------- ---------
(Dollars in
thousands)

Plant and equipment................................... $(376,899) $(352,770)
Timber, timberlands and related logging facilities.... (25,807) (25,783)
Postretirement benefits............................... 59,140 55,214
Alternative minimum tax............................... 58,236 57,871
Net operating loss carryforward....................... 33,334 --
Employee benefits..................................... 21,275 18,511
Pensions.............................................. (16,843) (14,003)
Other, net............................................ 11,972 7,879
--------- ---------
Net deferred tax liability............................ (235,592) (253,081)
Current deferred tax assets(1)........................ (58,369) (22,563)
--------- ---------
Net noncurrent deferred tax liabilities............... $(293,961) $(275,644)
========= =========

- --------
(1) Included in Prepaid expenses in the Balance Sheets.

F-10

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of December 31, 2000, the company had an $85.5 million net operating
loss carryforward that will expire after 20 years.

The company's federal income tax returns have been examined and settlements
have been reached for all years through 1988. The company believes that
adequate provision has been made for likely assessments of additional taxes.

Note 6. Debt

2000 1999
-------- --------
(Dollars in
thousands)

Revenue bonds fixed rate 5.9% to 7.5% due 2000 through
2030.................................................... $137,044 $137,314
Revenue bonds variable rate due 2007 through 2030........ 99,879 99,866
Debentures 6.25% due 2002................................ 99,975 99,953
Debentures 6.95% due 2015................................ 99,840 99,829
Credit sensitive debentures 9.125% due 2009.............. 100,000 100,000
Medium-term notes fixed rate 8.27% to 9.46% due 2000
through 2022............................................ 165,000 175,000
Commercial paper 7.4% to 8.55%........................... 100,000 --
Other notes.............................................. 136 159
-------- --------
801,874 712,121
Less current installments on long-term debt.............. 325 10,323
-------- --------
Long-term debt........................................... $801,549 $701,798
======== ========

The interest rate payable on the 9.125 percent credit sensitive debentures
is subject to adjustment if certain changes in the debt rating of the
debentures occur. No such change in the interest rate payable has occurred.

The commercial paper is backed by the company's credit arrangements,
enabling it to classify up to $100.0 million of short-term borrowings as long-
term debt, which the company chose to do at December 31, 2000. The remaining
balance of commercial paper outstanding at December 31, 2000, totaling $88.9
million, as well as all commercial paper outstanding at December 31, 1999,
totaling $96.5 million, were classified as a portion of current notes payable
in the Balance Sheets. At December 31, 2000, the weighted average annual
interest rate payable on commercial paper was 7.8 percent.

Certain credit agreements have restrictive covenants. At December 31, 2000,
the company was in compliance with such covenants. The company does not
currently have any covenants in any of its loan agreements which limit the
payment of dividends. No significant assets of the company have been pledged,
mortgaged or otherwise subjected to liens.

Payments due on long-term debt during each of the five years subsequent to
December 31, 2000 are as follows:

(Dollars
in
thousands)
----------

2001.............................................................. $ 325
2002.............................................................. 130,606
2003.............................................................. 15,707
2004.............................................................. 100,707
2005.............................................................. 1,708

F-11

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, 2000, the company maintained credit lines of $300.0 million
for general corporate purposes. Of that amount, $200.0 million was available
for short-term borrowings, $50.0 million of which will expire on November 7,
2001, and the balance is subject to renewal annually. The $100.0 million long-
term portion will expire on November 17, 2004. At December 31, 2000, the
company had $100.0 million of outstanding indebtedness under the short-term
credit line, which is classified as a portion of current notes payable in the
Balance Sheets. The weighted average annual interest rate payable for such
indebtedness was 7.14 percent.

Note 7. Accounts Payable and Accrued Liabilities

2000 1999
-------- --------
(Dollars in
thousands)

Trade accounts payable.................................... $ 68,707 $ 69,723
Accrued wages, salaries and employee benefits............. 54,460 57,822
Accrued taxes other than taxes on income.................. 18,393 17,360
Accrued interest.......................................... 8,225 8,012
Accrued taxes on income................................... 15,124 13,827
Book overdrafts........................................... 28,348 27,933
Accrued restructuring and mill closure charges............ 23,007 --
Other..................................................... 33,567 38,282
-------- --------
$249,831 $232,959
======== ========

Note 8. Other Long-Term Obligations

2000 1999
-------- --------
(Dollars in
thousands)

Postretirement benefits................................... $151,643 $141,574
Pension and related liabilities........................... 21,323 19,932
Other..................................................... 11,181 11,480
-------- --------
$184,147 $172,986
======== ========

Note 9. Put Options

In December 1999, the company implemented a stock repurchase program to
repurchase up to 2 million shares of stock. Under the plan purchases of common
stock may be made from time to time through open market and privately
negotiated transactions at prices deemed appropriate by management, and
through the company's put option program.

In conjunction with the repurchase program, the company issued put options
which gave the purchaser the right to sell shares of Potlatch stock to the
company at prices ranging from $31.50 to $42.73 per share on specific dates in
1999, 2000 and 2001. Activity during 2000 and 1999 is summarized as follows:

Shares Covered Potential
by Put Options Obligation
-------------- ----------
(Dollars in thousands)

Balance, December 31, 1998......................... 200,000 $ 6,844
Sales............................................ 250,000 10,287
Expirations...................................... (200,000) (6,844)
-------- -------
Balance, December 31, 1999......................... 250,000 10,287
Sales............................................ 100,000 4,240
Repurchases...................................... (100,000) (4,074)
-------- -------
Balance, December 31, 2000......................... 250,000 $10,453
======== =======

F-12

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The company's potential obligations of $10.5 million and $10.3 million at
December 31, 2000 and 1999, respectively, are classified as "Put options" in
the Balance Sheets and the related offset is recorded in "Common shares in
treasury" under Stockholders' equity.

Note 10. Disclosures about Fair Value of Financial Instruments

Estimated fair values of the company's financial instruments are as
follows:

2000 1999
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Dollars in thousands)

Cash and short-term investments........ $ 11,661 $ 11,661 $ 11,690 $ 11,690
Current notes payable.................. 188,943 188,943 121,464 121,464
Long-term debt......................... 801,874 816,887 712,121 698,377
Put options............................ 10,453 10,453 10,287 10,287

For short-term investments, current notes payable and put options, the
carrying amount approximates fair value. The fair value of the company's long-
term debt is estimated based upon the quoted market prices for the same or
similar debt issues. The amount of long-term debt for which there is no quoted
market price is immaterial and the carrying amount approximates fair value.

F-13

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 11. Retirement, Savings and Other Postretirement Benefit Plans

Substantially all employees of the company are eligible to participate in
401(k) savings plans and are covered by noncontributory defined benefit
pension plans. These include both company-sponsored and multi-employer plans.
In 2000, 1999 and 1998 the company made matching 401(k) contributions on
behalf of employees of $9.8 million, $9.1 million and $8.1 million,
respectively. The company also provides benefits under company-sponsored
defined benefit retiree health care and life insurance plans, which cover most
salaried and certain hourly employees. Most of the retiree health care plans
require retiree contributions and contain other cost-sharing features. The
retiree life insurance plans are primarily noncontributory.

The change in benefit obligation, change in plan assets, funded status and
related balance sheet amounts for company-sponsored benefit plans are as
follows:

Other
Pension Benefit Postretirement
Plans Benefit Plans
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Dollars in thousands)

Benefit obligation at beginning of
year............................. $ 487,720 $ 481,337 $ 159,671 $ 168,341
Service cost...................... 13,944 13,870 3,360 3,486
Interest cost..................... 34,181 31,921 11,641 10,894
Plan amendments................... 8,415 15,381 (3,782) (674)
Actuarial losses (gains).......... (381) (25,874) 9,346 (13,502)
Curtailments...................... -- -- (1,858) --
Special termination benefits...... -- -- 5,418 --
Mergers, sales and closures....... (1,216) -- -- --
Benefits paid..................... (31,900) (28,915) (10,997) (8,874)
--------- --------- --------- ---------
Benefit obligation at end of
year............................. 510,763 487,720 172,799 159,671
--------- --------- --------- ---------
Fair value of plan assets at
beginning of year................ 661,310 637,873 43,970 43,079
Actual return on plan assets...... 36,310 51,384 (2,098) 6,388
Employer contribution............. 1,186 968 -- --
Benefits paid..................... (31,900) (28,915) (6,459) (5,497)
--------- --------- --------- ---------
Fair value of plan assets at end
of year.......................... 666,906 661,310 35,413 43,970
--------- --------- --------- ---------
Funded status..................... 156,143 173,590 (137,386) (115,701)
Unrecognized prior service cost... 31,897 29,688 (9,168) (5,658)
Unrecognized net gain............. (137,199) (159,649) (5,089) (20,215)
Unrecognized net transition
asset............................ (120) (292) -- --
--------- --------- --------- ---------
Prepaid (accrued) benefit cost.... $ 50,721 $ 43,337 $(151,643) $(141,574)
========= ========= ========= =========

The projected benefit obligation, accumulated benefit obligation and value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $17.9 million, $14.1 million and $0, respectively,
at December 31, 2000, and $26.3 million, $22.2 million and $7.7 million,
respectively, at December 31, 1999.

F-14

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net periodic (benefit) costs were:

Other Postretirement
Pension Benefit Plans Benefit Plans
------------------------- -------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------- ------- -------
(Dollars in thousands)

Service cost............ $13,944 $13,870 $12,340 $ 3,360 $ 3,486 $ 2,815
Interest cost........... 34,181 31,921 30,552 11,641 10,894 10,757
Expected return on plan
assets................. (55,553) (49,334) (44,118) (3,691) (3,621) (3,172)
Amortization of prior
service cost........... 3,075 2,477 1,973 (717) (412) (411)
Recognized actuarial
gain................... (3,586) (5) (187) -- -- --
Recognized net initial
asset.................. (172) (374) (626) -- -- --
Other................... -- -- -- 58 -- 66
------- ------- ------- ------- ------- -------
Net periodic (benefit)
cost................... $(8,111) $(1,445) $ (66) $10,651 $10,347 $10,055
======= ======= ======= ======= ======= =======

The 2000 pension benefit presented above excludes a cost of $1.9 million
for a workforce reduction program and a mill closure, which is included in
"Restructuring and other charges" in the Statements of Earnings. The 2000
postretirement cost presented above excludes $3.9 million for a workforce
reduction program, which is included in "Restructuring and other charges" in
the Statements of Earnings.

Weighted average assumptions as of December 31 were:

Other Postretirement
Pension Benefit Plans Benefit Plans
------------------------- ----------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------ ------ ------

Discount rate.............. 7.25% 7.25% 6.75% 7.25% 7.25% 6.75%
Expected return on plan
assets.................... 9.50 9.50 9.50 9.00 9.00 9.00
Rate of salaried
compensation increase..... 5.00 5.00 5.00 -- -- --

The health care cost trend rate assumption used in determining the
accumulated postretirement benefit obligation is 5.92 percent for 2000. The
rate is assumed to decrease to 5.25 percent in 2001 and remain at that level
thereafter. This assumption has a significant effect on the amounts reported.
A one percentage point change in the health care cost trend rates would have
the following effects:

1% Increase 1% Decrease
----------- -----------
(Dollars in thousands)

Effect on total of service and interest cost
components....................................... $ 2,310 $ (1,890)
Effect on postretirement benefit obligation....... 22,118 (18,317)

Hourly employees at two of the company's manufacturing facilities
participate in a multi-employer defined benefit pension plan, the Paper,
Allied-Industrial, Chemical and Energy Workers International Union (PACE)
Pension Fund. The company also makes contributions to a trust fund established
to provide retiree medical benefits for these employees, which is managed by
PACE. Company contributions to these plans in 2000, 1999 and 1998 amounted to
$5.2 million, $4.7 million and $4.7 million, respectively.

Note 12. Stock Compensation Plans

The company currently has four fixed stock option plans under which options
are issued and outstanding. Options are granted at market value and prior to
1995 may have included a stock appreciation right. Options may also be issued
in the form of restricted stock and other share-based awards, none of which
were outstanding

F-15

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

at December 31, 2000. Options are fully exercisable after two years and expire
not later than 10 years from the date of grant. The company was originally
authorized to issue up to 1.2 million, 1.5 million, 1.7 million and 1.4
million shares under its 1983 Stock Option Plan, 1989 Stock Incentive Plan,
1995 Stock Incentive Plan and 2000 Stock Incentive Plan, respectively. At
December 31, 2000, no shares were available for future use under the 1983
Stock Option Plan and 1989 Stock Incentive Plan, while approximately 12,000
and 1.2 million shares were authorized for future use under the 1995 Stock
Incentive Plan and the 2000 Stock Incentive Plan, respectively.

The company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized when options are granted under the
plans. Had compensation costs for the plans been determined based on the fair
value at the grant dates for option awards under those plans as prescribed by
Financial Accounting Standards Board Statement No. 123, the company's net
earnings (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:

For the years ended
December 31
-------------------------
2000 1999 1998
-------- ------- -------
(Dollars in thousands--
except per-share
amounts)

Net earnings (loss)
as reported..................................... $(33,214) $40,947 $37,232
pro forma....................................... (35,782) 38,459 35,287
Diluted earnings (loss) per share
as reported..................................... $ (1.16) $ 1.41 $ 1.28
pro forma....................................... (1.25) 1.33 1.22

A summary of the status of the company's stock options as of December 31,
2000, 1999 and 1998 and changes during those years is presented below:

2000 1999 1998
------------------------- ------------------------- -------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
------- ---------- ------------- ---------- ------------- ---------- -------------

Outstanding at January
1...................... 2,529,850 $41.97 2,096,600 $41.96 1,758,725 $42.81
Granted................. 469,575 32.06 541,775 41.39 430,300 37.75
Shares exercised........ (18,900) 29.96 (35,650) 35.76 (23,825) 34.60
SARs exercised.......... (16,400) 30.37 (14,400) 35.72 (27,350) 32.25
Canceled or expired..... (300,100) 41.65 (58,475) 41.85 (41,250) 44.71
---------- ---------- ----------
Outstanding at December
31..................... 2,664,025 40.41 2,529,850 41.97 2,096,600 41.96
Options exercisable..... 1,984,437 42.29 1,792,425 42.60 1,504,900 42.50
Options outstanding
which include a stock
appreciation right..... 142,225 187,875 204,375
Shares reserved for
future grants.......... 1,248,680 1,496,355 593,525
Fair value of options
granted during the
year................... $ 5.77 $ 9.58 $ 5.86

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 2000, 1999 and 1998, respectively: dividend yield of 5.43, 4.21 and
4.61 percent; stock volatility of .2707, .2355 and .1945; risk free rate of
return of 5.21, 6.28 and 5.03 percent; and expected term of 10 years for all
grants.

F-16

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding
at December 31, 2000:

Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Number Weighted Avg. Weighted Avg. Number Weighted Avg.
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/00 Contractual Life Price at 12/31/00 Price
- ------------------------ ----------- ---------------- ------------- ----------- -------------

$32.0625 to $37.75...... 1,045,650 7.9 years $34.75 576,075 $36.95
$41.25 to $48.25........ 1,618,375 6.1 years 44.07 1,408,362 44.47
--------- ---------
$32.0625 to $48.25...... 2,664,025 6.8 years 40.41 1,984,437 42.29

Note 13. Segment Information

The company has divided its operations into four reporting segments:
resource, wood products, printing papers and pulp and paper, based upon
similarities in product lines, manufacturing processes, marketing and
management of its businesses. The resource segment manages the company's
timberland base and provides wood fiber to the manufacturing segments. The
wood products segment produces oriented strand board, lumber, plywood and
particleboard. The printing papers segment produces coated printing papers and
pulp. The pulp and paper segment produces paperboard, consumer tissue and
pulp.

The reporting segments follow the same accounting policies used for the
company's consolidated financial statements and described in the summary of
significant accounting policies with the exception of the valuation of
inventories. All segment inventories are reported using the average cost
method and the LIFO reserve is recorded at the corporate level. Management
evaluates a segment's performance based upon profit or loss from operations
before income taxes. Intersegment sales or transfers are recorded based on
prevailing market prices.

F-17

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Following is a tabulation of business segment information for each of the
past three years. Certain prior year amounts have been reclassified to conform
to the 2000 presentation. Corporate information is included to reconcile
segment data to the consolidated financial statements.

2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)

Segment Sales:
Resource............................... $ 352,324 $ 337,558 $ 325,934
---------- ---------- ----------
Wood products:
Oriented strand board................ 208,067 246,943 192,775
Lumber............................... 246,129 271,235 233,310
Plywood.............................. 51,550 71,924 58,451
Particleboard........................ 19,481 20,126 17,725
Other................................ 27,680 27,416 35,474
---------- ---------- ----------
552,907 637,644 537,735
---------- ---------- ----------
Printing papers:
Printing papers...................... 449,621 454,734 435,428
Pulp................................. 53,755 -- --
---------- ---------- ----------
503,376 454,734 435,428
---------- ---------- ----------
Pulp and paper:
Paperboard........................... 426,537 410,493 425,932
Tissue............................... 282,625 256,764 257,165
Pulp................................. 20,906 26,152 13,622
---------- ---------- ----------
730,068 693,409 696,719
---------- ---------- ----------
2,138,675 2,123,345 1,995,816
Elimination of intersegment sales........ (329,905) (314,957) (307,111)
---------- ---------- ----------
Total consolidated net sales....... $1,808,770 $1,808,388 $1,688,705
========== ========== ==========
Intersegment Sales or Transfers: (1)
Resource............................... $ 315,116 $ 298,859 $ 282,938
Wood products.......................... 13,311 16,042 24,061
Printing papers........................ 1,428 -- --
Pulp and paper......................... 50 56 112
---------- ---------- ----------
Total.............................. $ 329,905 $ 314,957 $ 307,111
========== ========== ==========

- --------
(1) Intersegment sales for 1998-2000, which were based on prevailing market
prices, consisted primarily of logs, chips, pulp logs and other fiber
sales to the wood products, printing papers and pulp and paper segments.

F-18

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)

Operating Income (Loss):
Resource............................. $ 61,395 $ 68,006 $ 71,296
Wood products........................ (18,283) 83,073 2,515
Printing papers...................... 1,530 (13,816) 14,204
Pulp and paper....................... 12,929 14,786 53,394
Eliminations and adjustments......... 1,534 1,590 (655)
---------- ---------- ----------
59,105 153,639 140,754
Corporate Items:
Administration expense............... (25,664) (38,228) (37,247)
Interest expense..................... (59,438) (45,442) (49,744)
Other, net........................... (28,452) (3,925) 4,412
---------- ---------- ----------
Consolidated earnings (loss) before
taxes on income..................... $ (54,449) $ 66,044 $ 58,175
========== ========== ==========
Depreciation, Amortization and Cost of
Fee Timber Harvested:
Resource............................. $ 25,260 $ 23,945 $ 24,109
Wood products........................ 27,715 28,785 30,136
Printing papers...................... 52,388 41,999 41,618
Pulp and paper....................... 55,383 54,609 53,525
---------- ---------- ----------
160,746 149,338 149,388
Corporate............................ 1,101 915 890
---------- ---------- ----------
Total.............................. $ 161,847 $ 150,253 $ 150,278
========== ========== ==========
Assets:
Resource............................. $ 430,583 $ 420,326 $ 410,264
Wood products........................ 310,100 291,263 326,963
Printing papers...................... 820,132 828,828 685,743
Pulp and paper....................... 751,980 731,030 759,701
---------- ---------- ----------
2,312,795 2,271,447 2,182,671
Corporate............................ 229,650 175,053 194,635
---------- ---------- ----------
Total consolidated assets.......... $2,542,445 $2,446,500 $2,377,306
========== ========== ==========
Capital Expenditures:
Resource............................. $ 20,499 $ 17,356 $ 18,832
Wood products........................ 75,259 26,557 18,303
Printing papers...................... 21,831 181,944 87,147
Pulp and paper....................... 48,200 20,850 21,943
---------- ---------- ----------
165,789 246,707 146,225
Corporate............................ 633 944 802
---------- ---------- ----------
Total.............................. $ 166,422 $ 247,651 $ 147,027
========== ========== ==========

F-19

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

All of the company's manufacturing facilities and all other assets are
located within the continental U.S. However, the company sells and ships
products to many foreign countries. Geographic information regarding the
company's net sales is summarized as follows:

2000 1999 1998
---------- ---------- ----------
(Dollars in thousands)

United States.............................. $1,660,546 $1,681,704 $1,515,050
Japan...................................... 52,661 50,741 64,129
Australia.................................. 7,245 14,759 23,022
Canada..................................... 20,870 16,944 31,234
China...................................... 22,594 16,130 25,939
Italy...................................... 14,606 13,087 18,631
Other foreign countries.................... 30,248 15,023 10,700
---------- ---------- ----------
Total consolidated net sales............. $1,808,770 $1,808,388 $1,688,705
========== ========== ==========

Note 14. Restructuring and Other Charges

In June 2000 the company recorded a $26.0 million pre-tax charge to cover
costs associated with a company-wide reduction and reorganization of its
salaried workforce. In December an additional $1.9 million pre-tax charge was
recorded as a result of final cost determinations for pension and medical
benefits. The charges are included in the "Restructuring and other charges"
line in the Statements of Earnings. A total of 290 salaried positions were
affected by the reduction and reorganization. As of December 31, 2000, $16.5
million had been recorded against the accrued liability associated with the
charge. The company anticipates annual pre-tax savings of $21 million as a
result of the reduction in force. Also included in "Restructuring and other
charges" is an $18.5 million pre-tax charge for costs associated with the
closure of its Jaype, Idaho, plywood mill in September. The closure was deemed
necessary due to a combination of poor plywood markets, lack of adequate raw
materials and long-term transportation concerns. The amounts of revenues and
operating income or loss attributable to the mill were not material in
relation to revenues and operating income of the company as a whole. Closure
of the mill affected 215 salaried and hourly positions. As of December 31,
2000, $6.9 million had been recorded against the accrued liability associated
with the charge. The mill is scheduled to be dismantled, with equipment and
parts used at other company facilities or sold to outside bidders. The company
will continue to operate a log yard at the site. The following table
summarizes the components of the accrued liabilities and the amounts applied
against them as of December 31, 2000:

Accrued Ancillary
Compensation and Site Asset
Employee Benefits Maintenance Valuation Total
----------------- ----------- --------- --------
(Dollars in thousands)

Workforce reduction
charge................. $ 27,909 $ -- $ -- $ 27,909
Cash payments......... (14,492) -- -- (14,492)
Noncash allocations... (2,009) -- -- (2,009)
-------- ------ ------ --------
11,408 -- -- 11,408
-------- ------ ------ --------
Mill closure charge..... 7,825 3,837 6,840 18,502
Cash payments......... (2,562) (489) -- (3,051)
Noncash allocations... (3,852) -- -- (3,852)
-------- ------ ------ --------
1,411 3,348 6,840 11,599
-------- ------ ------ --------
$ 12,819 $3,348 $6,840 $ 23,007
======== ====== ====== ========

F-20

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 15. Financial Results by Quarter (Unaudited)

Three Months Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- ------------------ ------------------ ------------------
2000 1999 2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands--except per-share amounts)

Net sales............... $474,556 $450,475 $462,523 $445,166 $452,017 $480,083 $419,674 $432,664
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Depreciation,
amortization and cost
of fee timber
harvested............. 40,837 37,427 38,829 35,146 41,543 38,270 40,638 39,410
Materials, labor and
other operating
expenses.............. 382,359 360,106 365,826 346,786 363,630 360,567 356,501 337,103
Selling, general and
administrative
expenses.............. 33,140 31,879 33,132 34,917 27,370 34,136 29,705 40,648
Restructuring and other
charges............... -- -- 26,000 -- 18,502 -- 1,909 --
-------- -------- -------- -------- -------- -------- -------- --------
456,336 429,412 463,787 416,849 451,045 432,973 428,753 417,161
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) from
operations............ $ 18,220 $ 21,063 $ (1,264) $ 28,317 $ 972 $ 47,110 $ (9,079) $ 15,503
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss).... $ 2,436 $ 625 $ (9,444) $ 9,366 $(10,503) $ 22,589 $(15,703) $ 8,367
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per
common share:
Basic.................. $ .08 $ .02 $ (.32) $ .33 $ (.37) $ .78 $ (.55) $ .29
Diluted................ .08 .02 (.32) .33 (.37) .77 (.55) .29
======== ======== ======== ======== ======== ======== ======== ========

Net sales figures have been restated due to the reclassification of freight
costs.

Certain 1999 amounts have been reclassified to conform to the 2000
presentation.

F-21

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 16. Subsidiary Guarantors

The Original Notes are, and the Exchange Notes will be, fully and
unconditionally guaranteed, on a joint and several basis, by four of the
Company's subsidiaries, which are also guarantors, on an unconditional, joint
and several basis, of the obligations under our current credit facilities.

Consolidating statements of earnings for the years ended December 31, 2000,
1999, and 1998 are as follows:

For the year ended December 31, 2000
------------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

Net sales..................... $1,808,770 $1,952 $(1,952) $1,808,770
---------- ------ ------- ----------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested.................. 161,630 217 -- 161,847
Materials, labor and other
operating expenses......... 1,470,391 (123) (1,952) 1,468,316
Selling, general and
administrative expenses.... 122,848 499 -- 123,347
Restructuring and other
charges.................... 46,411 -- -- 46,411
---------- ------ ------- ----------
1,801,280 593 (1,952) 1,799,921
---------- ------ ------- ----------
Earnings from operations...... 7,490 1,359 -- 8,849
Interest expense.............. (59,438) -- -- (59,438)
Other income (expense), net... (3,861) 1 -- (3,860)
---------- ------ ------- ----------
Earnings (loss) before taxes
on income and equity in net
income of consolidated
subsidiaries................. (55,809) 1,360 -- (54,449)
Equity in net income of
consolidated subsidiaries.... 830 -- (830) --
Provision (benefit) for taxes
on income.................... (21,765) 530 -- (21,235)
---------- ------ ------- ----------
Net earnings (loss)........... $ (33,214) $ 830 $ (830) $ (33,214)
========== ====== ======= ==========

For the year ended December 31, 1999
------------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

Net sales..................... $1,808,388 $1,601 $(1,601) $1,808,388
---------- ------ ------- ----------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested.................. 149,989 264 -- 150,253
Materials, labor and other
operating expenses......... 1,406,353 (190) (1,601) 1,404,562
Selling, general and
administrative expenses.... 141,091 489 -- 141,580
---------- ------ ------- ----------
1,697,433 563 (1,601) 1,696,395
---------- ------ ------- ----------
Earnings from operations...... 110,955 1,038 -- 111,993
Interest expense.............. (45,442) -- -- (45,442)
Other income (expense), net... (518) 11 -- (507)
---------- ------ ------- ----------
Earnings before taxes on
income and equity in net
income of consolidated
subsidiaries................. 64,995 1,049 -- 66,044
Equity in net income of
consolidated subsidiaries.... 650 -- (650) --
Provision for taxes on
income....................... 24,698 399 -- 25,097
---------- ------ ------- ----------
Net earnings.................. $ 40,947 $ 650 $ (650) $ 40,947
========== ====== ======= ==========

F-22

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the year ended December 31, 1998
------------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

Net sales...................... $1,688,705 $1,926 $(1,926) $1,688,705
---------- ------ ------- ----------
Costs and expenses:
Depreciation, amortization and
cost of fee timber
harvested.................... 150,025 253 -- 150,278
Materials, labor and other
operating expenses........... 1,307,733 116 (1,926) 1,305,923
Selling, general and
administrative expenses...... 132,664 633 -- 133,297
---------- ------ ------- ----------
1,590,422 1,002 (1,926) 1,589,498
---------- ------ ------- ----------
Earnings from operations....... 98,283 924 -- 99,207
Interest expense............... (49,744) -- -- (49,744)
Other income, net.............. 8,712 -- -- 8,712
---------- ------ ------- ----------
Earnings before taxes on income
and equity in net income of
consolidated subsidiaries..... 57,251 924 -- 58,175
Equity in net income of
consolidated subsidiaries..... 591 -- (591) --
Provision for taxes on income.. 20,610 333 -- 20,943
---------- ------ ------- ----------
Net earnings................... $ 37,232 $ 591 $ (591) $ 37,232
========== ====== ======= ==========

Condensed consolidating balance sheets as of December 31, 2000 and 1999 are
as follows:

December 31, 2000
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

ASSETS
Current assets:
Cash.......................... $ 10,529 $ 1,123 $ -- $ 11,652
Short-term investments........ 9 -- -- 9
Receivables, net.............. 187,046 863 (90) 187,819
Inventories................... 222,963 243 -- 223,206
Prepaid expenses.............. 61,133 20 -- 61,153
---------- -------- ------- ----------
Total current assets........... 481,680 2,249 (90) 483,839
Land, other than timberlands... 8,636 408 -- 9,044
Plant and equipment, at cost
less accumulated
depreciation.................. 1,635,777 1,597 -- 1,637,374
Timber, timberlands and related
logging facilities............ 333,249 -- -- 333,249
Other assets................... 80,185 -- (1,246) 78,939
---------- -------- ------- ----------
$2,539,527 $ 4,254 $(1,336) $2,542,445
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable................. $ 188,943 $ -- $ -- $ 188,943
Current installments on long-
term debt.................... 325 -- -- 325
Accounts payable and accrued
liabilities.................. 249,513 408 (90) 249,831
---------- -------- ------- ----------
Total current liabilities...... 438,781 408 (90) 439,099
Intercompany transfers......... 28,073 (28,073) -- --
Long-term debt................. 801,549 -- -- 801,549
Other long-term obligations.... 184,147 -- -- 184,147
Deferred taxes................. 293,961 -- -- 293,961
Put options.................... 10,453 -- -- 10,453
Stockholders' equity........... 782,563 31,919 (1,246) 813,236
---------- -------- ------- ----------
$2,539,527 $ 4,254 $(1,336) $2,542,445
========== ======== ======= ==========

F-23

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1999
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

ASSETS
Current assets:
Cash........................ $ 11,251 $ 280 $ -- $ 11,531
Short-term investments...... 159 -- -- 159
Receivables, net............ 183,545 922 (155) 184,312
Inventories................. 196,542 191 -- 196,733
Prepaid expenses............ 23,751 16 -- 23,767
---------- -------- ------- ----------
Total current assets.......... 415,248 1,409 (155) 416,502
Land, other than timberlands.. 8,665 408 -- 9,073
Plant and equipment, at cost
less accumulated
depreciation................. 1,614,258 1,797 -- 1,616,055
Timber, timberlands and
related logging facilities... 335,194 -- -- 335,194
Other assets.................. 70,922 -- (1,246) 69,676
---------- -------- ------- ----------
$2,444,287 $ 3,614 $(1,401) $2,446,500
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable............... $ 121,464 $ -- $ -- $ 121,464
Current installments on
long-term debt............. 10,323 -- -- 10,323
Accounts payable and accrued
liabilities................ 232,797 317 (155) 232,959
---------- -------- ------- ----------
Total current liabilities..... 364,584 317 (155) 364,746
Intercompany transfers........ 27,689 (27,689) -- --
Long-term debt................ 701,798 -- -- 701,798
Other long-term obligations... 172,986 -- -- 172,986
Deferred taxes................ 275,644 -- -- 275,644
Put options................... 10,287 -- -- 10,287
Stockholders' equity.......... 891,299 30,986 (1,246) 921,039
---------- -------- ------- ----------
$2,444,287 $ 3,614 $(1,401) $2,446,500
========== ======== ======= ==========

F-24

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Condensed consolidating statements of cash flows for the years ended
December 31, 2000, 1999 and 1998 are as follows:

For the year ended December 31, 2000
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
(Dollars in thousands)

CASH FLOWS FROM OPERATIONS
Net earnings (loss).......... $ (34,044) $ 830 $ -- $ (33,214)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operations:
Depreciation, amortization
and cost of fee timber
harvested................. 161,630 217 -- 161,847
Deferred taxes............. 18,317 -- -- 18,317
Working capital changes.... (51,003) 94 -- (50,909)
Other, net................. (2,129) -- -- (2,129)
--------- ------ ----- ---------
Net cash provided by
operations............... 92,771 1,141 -- 93,912
--------- ------ ----- ---------
CASH FLOWS FROM INVESTING
Decrease in short-term
investments................. 150 -- -- 150
Additions to investments..... (4,493) -- -- (4,493)
Reductions in investments.... 1,350 -- -- 1,350
Investments and advances from
subsidiaries................ 281 (281) -- --
Additions to plant and
properties.................. (166,405) (17) -- (166,422)
Other, net................... 1,871 -- -- 1,871
--------- ------ ----- ---------
Net cash used for
investing................ (167,246) (298) -- (167,544)
--------- ------ ----- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.... 415 -- -- 415
Increase in notes payable.... 67,479 -- -- 67,479
Proceeds from long-term
debt........................ 100,000 -- -- 100,000
Repayment of long-term debt.. (10,247) -- -- (10,247)
Issuance of treasury stock... 861 -- -- 861
Purchase of treasury stock... (25,892) -- -- (25,892)
Dividends.................... (49,698) -- -- (49,698)
Other, net................... (9,165) -- -- (9,165)
--------- ------ ----- ---------
Net cash provided by
financing................ 73,753 -- -- 73,753
--------- ------ ----- ---------
Increase (decrease) in cash.. (722) 843 -- 121
Balance at beginning of
period...................... 11,251 280 -- 11,531
--------- ------ ----- ---------
Balance at end of period..... $ 10,529 $1,123 $ -- $ 11,652
========= ====== ===== =========

F-25

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the year ended December 31, 1999
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
(Dollars in thousands)

CASH FLOWS FROM OPERATIONS
Net earnings................. $ 40,297 $ 650 $ -- $ 40,947
Adjustments to reconcile net
earnings to net cash
provided by operations:
Depreciation, amortization
and cost of fee timber
harvested................. 149,989 264 -- 150,253
Deferred taxes............. 21,953 -- -- 21,953
Working capital changes.... (4,589) (745) -- (5,334)
Other, net................. (3,190) -- -- (3,190)
--------- ------- ----- ---------
Net cash provided by
operations.............. 204,460 169 -- 204,629
--------- ------- ----- ---------
CASH FLOWS FROM INVESTING
Additions to investments..... (51,720) -- -- (51,720)
Reductions in investments.... 57,492 -- -- 57,492
Collection of note
receivable.................. 50,000 -- -- 50,000
Investments and advances from
subsidiaries................ 1,008 (1,008) -- --
Additions to plant and
properties.................. (247,539) (112) -- (247,651)
Other, net................... 3,036 -- -- 3,036
--------- ------- ----- ---------
Net cash used for
investing............... (187,723) (1,120) -- (188,843)
--------- ------- ----- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.... (2,075) -- -- (2,075)
Increase in notes payable.... 46,525 -- -- 46,525
Proceeds from long-term
debt........................ 99,935 -- -- 99,935
Repayment of long-term debt.. (109,948) -- -- (109,948)
Issuance of treasury stock... 1,250 -- -- 1,250
Dividends.................... (50,362) -- -- (50,362)
Other, net................... (1,230) -- -- (1,230)
--------- ------- ----- ---------
Net cash used for
financing............... (15,905) -- -- (15,905)
--------- ------- ----- ---------
Increase (decrease) in cash.. 832 (951) -- (119)
Balance at beginning of
period...................... 10,419 1,231 -- 11,650
--------- ------- ----- ---------
Balance at end of period..... $ 11,251 $ 280 $ -- $ 11,531
========= ======= ===== =========

F-26

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the year ended December 31, 1998
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
(Dollars in thousands)

CASH FLOWS FROM OPERATIONS
Net earnings................. $ 36,641 $ 591 $ -- $ 37,232
Adjustments to reconcile net
earnings to net cash
provided by operations:
Depreciation, amortization
and cost of fee timber
harvested................. 150,025 253 -- 150,278
Deferred taxes............. 16,757 -- -- 16,757
Working capital changes.... 16,303 79 -- 16,382
Other, net................. (3,105) -- -- (3,105)
--------- ------ ----- ---------
Net cash provided by
operations.............. 216,621 923 -- 217,544
--------- ------ ----- ---------
CASH FLOWS FROM INVESTING
Additions to investments..... (13,207) -- -- (13,207)
Reductions in investments.... 13,755 -- -- 13,755
Investments and advances from
subsidiaries................ 166 (166) -- --
Additions to plant and
properties.................. (146,813) (214) -- (147,027)
Other, net................... 1,299 -- -- 1,299
--------- ------ ----- ---------
Net cash used for
investing............... (144,800) (380) -- (145,180)
--------- ------ ----- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.... 5,425 -- -- 5,425
Decrease in notes payable.... (20,611) -- -- (20,611)
Repayment of long-term debt.. 32 -- -- 32
Issuance of treasury stock... 550 -- -- 550
Purchase of treasury stock... (3,261) -- -- (3,261)
Dividends.................... (50,472) -- -- (50,472)
Other, net................... (1,403) -- -- (1,403)
--------- ------ ----- ---------
Net cash used for
financing............... (69,740) -- -- (69,740)
--------- ------ ----- ---------
Increase in cash............. 2,081 543 -- 2,624
Balance at beginning of
period...................... 8,338 688 -- 9,026
--------- ------ ----- ---------
Balance at end of period..... $ 10,419 $1,231 $ -- $ 11,650
========= ====== ===== =========

F-27

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF EARNINGS
(Dollars in thousands--except per-share amounts)

Nine Months Ended
September 30
----------------------
2001 2000
---------- ----------

Net sales.............................................. $1,357,135 $1,389,096
---------- ----------
Costs and expenses:
Depreciation, amortization and cost of fee timber
harvested........................................... 126,036 121,209
Materials, labor and other operating expenses........ 1,163,515 1,111,815
Selling, general and administrative expenses......... 89,079 93,642
Restructuring and other charges (Note 4)............. 4,570 44,502
---------- ----------
1,383,200 1,371,168
---------- ----------
Earnings (loss) from operations........................ (26,065) 17,928
Interest expense....................................... (57,377) (43,637)
Other income (expense), net............................ 5,166 (2,997)
---------- ----------
Loss before taxes on income............................ (78,276) (28,706)
Provision (benefit) for taxes on income (Note 2)....... (30,528) (11,195)
---------- ----------
Net loss............................................... $ (47,748) $ (17,511)
========== ==========
Net loss per common share (Note 3):
Basic................................................ $(1.69) $(0.61)
Diluted.............................................. (1.69) (0.61)
Dividends per common share (annual rate)............... 1.17 1.74
Average shares outstanding (in thousands):
Basic................................................ 28,280 28,561
Diluted.............................................. 28,280 28,561

The accompanying notes are an integral part of these financial statements.

F-28

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED BALANCE SHEETS
(Dollars in thousands--except per-share amounts)

September 30, December 31,
2001 2000
------------- ------------

ASSETS
Current assets:
Cash............................................. $ 7,176 $ 11,652
Restricted cash (Note 5)......................... 97,549 --
Short-term investments........................... 46,909 9
Receivables, net................................. 187,674 187,819
Inventories (Note 6)............................. 196,580 223,206
Prepaid expenses................................. 102,788 61,153
---------- ----------
Total current assets............................... 638,676 483,839
Land, other than timberlands....................... 9,042 9,044
Plant and equipment, at cost less accumulated
depreciation...................................... 1,498,227 1,637,374
Timber, timberlands and related logging
facilities........................................ 394,861 333,249
Other assets....................................... 105,783 78,939
---------- ----------
$2,646,589 $2,542,445
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................... $ -- $ 188,943
Current installments on long-term debt........... 133,097 325
Accounts payable and accrued liabilities......... 256,682 249,831
---------- ----------
Total current liabilities.......................... 389,779 439,099
Long-term debt (Note 7)............................ 1,018,009 801,549
Other long-term obligations........................ 189,965 184,147
Deferred taxes..................................... 305,661 293,961
Put options........................................ 2,103 10,453
Stockholders' equity............................... 741,072 813,236
---------- ----------
$2,646,589 $2,542,445
========== ==========
Stockholders' equity per common share.............. $ 26.20 $ 28.69
Working capital.................................... $ 248,897 $ 44,740
Current ratio...................................... 1.6:1 1.1:1

The accompanying notes are an integral part of these financial statements.

F-29

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Nine Months Ended
September 30
--------------------
2001 2000
--------- ---------

CASH FLOWS FROM OPERATIONS
Net loss............................................... $ (47,748) $ (17,511)
Adjustments to reconcile net loss to net cash provided
by operations:
Depreciation, amortization and cost of fee timber
harvested............................................ 126,036 121,209
Deferred taxes........................................ 11,700 (8,956)
Working capital changes............................... (5,982) 16,369
Other, net............................................ (2,168) (1,599)
--------- ---------
Net cash provided by operations...................... 81,838 109,512
--------- ---------
CASH FLOWS FROM INVESTING
Increase in restricted cash............................ (97,549) --
Decrease (increase) in short-term investments.......... (46,900) 150
Additions to investments............................... (3,415) (3,525)
Reductions in investments.............................. 1,558 918
Additions to plant and properties...................... (42,795) (119,040)
--------- ---------
Net cash used for investing.......................... (189,101) (121,497)
--------- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.............................. (2,031) 1,209
Increase (decrease) in notes payable................... (188,943) 38,976
Proceeds from long-term debt........................... 450,000 50,000
Repayment of long-term debt............................ (100,768) (10,266)
Long-term debt issuance fees........................... (15,352) --
Issuance of treasury stock............................. 3,524 468
Purchase of treasury stock............................. (8,349) (21,818)
Dividends.............................................. (28,868) (37,328)
Other, net............................................. (6,426) (9,550)
--------- ---------
Net cash provided by financing....................... 102,787 11,691
--------- ---------
Decrease in cash....................................... (4,476) (294)
Balance at beginning of period......................... 11,652 11,531
--------- ---------
Balance at end of period............................... $ 7,176 $ 11,237
========= =========

Net interest payments (net of amounts capitalized) for the nine months ended
September 30, 2001 and 2000 were $38.8 million and $36.1 million, respectively.
Net income tax payments for the nine months ended September 30, 2001 and 2000
were $0.4 million and $0.3 million, respectively.

The accompanying notes are an integral part of these financial statements.

F-30

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)

Note 1. General

The accompanying condensed balance sheets at September 30, 2001, and
December 31, 2000, the statements of earnings for the nine months ended
September 30, 2001 and 2000 and the condensed statements of cash flows for the
nine months ended September 30, 2001 and 2000, have been prepared in
conformity with accounting principles generally accepted in the United States
of America. We believe that all adjustments necessary for a fair statement of
the results of such interim periods have been included. All adjustments were
of a normal recurring nature; there were no material nonrecurring adjustments.

Note 2. Income Taxes

The provision for taxes on income has been computed by applying an
estimated annual effective tax rate. This rate was 39 percent for the nine
months ended September 30, 2001 and 2000.

Note 3. Earnings Per Common Share

Earnings per common share are computed by dividing net earnings by the
weighted average number of common shares outstanding in accordance with FASB
Statement No. 128, "Earnings Per Share."

The following table reconciles the number of common shares used in the
basic and diluted earnings per share calculations (in thousands):

Nine Months Ended
September 30
-----------------
2001 2000
-------- --------

Basic average common shares outstanding.................... 28,280 28,561
Incremental shares due to common stock options............. -- --
Incremental shares due to put options...................... -- --
-------- --------
Diluted average common shares outstanding.................. 28,280 28,561
======== ========

Incremental shares due to common stock options and put options were not
included in the diluted average common shares outstanding total due to their
antidilutive effect as a result of the company's net loss for the period. The
amounts (in thousands) not included for stock options and put options totaled
7 and 35, respectively, for the nine months ended September 30, 2001 and 6 and
38, respectively, for the nine months ended September 30, 2000. Stock options
to purchase 1,957,800 and 1,964,375 shares of common stock for the nine months
ended September 30, 2001 and 2000, respectively, were not were not included in
the computation of diluted earnings per share because the exercise price of
the stock options were greater than the average market price of common shares.

Note 4. Restructuring Charges

In March 2001, we recorded a $4.2 million charge associated with a
workforce reduction plan at our pulp, paperboard and consumer products
operations in Idaho. In September 2001 an additional $0.4 million pre-tax
charge was recorded as a result of final cost determinations for pension and
medical benefits. The plan permanently reduced the workforce by 124 hourly
production and maintenance positions.

In June 2000, we recorded a $26.0 million pre-tax charge to cover costs
associated with a company-wide reduction and reorganization of our salaried
production and administrative workforce. In December 2000 an additional $1.9
million pre-tax charge was recorded as a result of final cost determinations
for pension and

F-31

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

medical benefits. In establishing the initial liability, we estimated 261
employees would be terminated. As of December 31, 2000, and September 30,
2001, a total of 273 employees had been terminated under the reduction and
reorganization plan. As of September 30, 2001, $23.7 million had been recorded
against the accrued liability associated with the charge. We anticipate annual
pre-tax savings of $21 million as a result of the reduction in force.

In September 2000, we recorded an $18.5 million pre-tax charge for costs
associated with the closure of our Jaype, Idaho, plywood mill. The closure was
deemed necessary due to a combination of poor plywood markets, lack of
adequate raw materials and long-term transportation concerns. The amounts of
revenues and operating income or loss attributable to the mill were not
material in relation to revenues and operating income of the company as a
whole. As of December 31, 2000, 5 salaried and 200 hourly production and
maintenance employees had been terminated due to the closure. As of September
30, 2001, a total of 5 salaried and 207 hourly production and maintenance
employees had been terminated due to the closure. The mill was dismantled in
2001, with equipment and parts used at our other facilities or sold to outside
bidders. We will continue to operate a log yard at the site. As of September
30, 2001, $16.0 million had been recorded against the accrued liability
associated with the charge.

The following table summarizes the components of the accrued liabilities
for all of these charges and the cash and noncash amounts applied against them
as of September 30, 2001:

Accrued
Compensation Ancillary
and Employee Site Asset
Benefits* Maintenance Valuation Total
------------ ----------- --------- --------
(Dollars in thousands)

Hourly workforce reduction
charge.......................... $ 4,570 $ -- $ -- $ 4,570
Cash payments.................. (1,238) -- -- (1,238)
Noncash allocations............ (3,217) -- -- (3,217)
-------- ------ ------ --------
115 -- -- 115
-------- ------ ------ --------
Salaried workforce reduction
charge.......................... 27,909 -- -- 27,909
Cash payments.................. (21,707) -- -- (21,707)
Noncash allocations............ (2,009) -- -- (2,009)
-------- ------ ------ --------
4,193 -- -- 4,193
-------- ------ ------ --------
Mill closure charge.............. 7,825 3,837 6,840 18,502
Cash payments.................. (4,342) (1,340) -- (5,682)
Noncash allocations............ (3,852) -- (6,457) (10,309)
-------- ------ ------ --------
(369) 2,497 383 2,511
-------- ------ ------ --------
$ 3,939 $2,497 $ 383 $ 6,819
======== ====== ====== ========

- --------

* Noncash allocation amounts represent costs incurred for postretirement
medical and pension benefits.

Note 5. Restricted Cash

In June 2001, under the terms of our new bank credit facility, we placed
$96.6 million of cash into an interest-bearing escrow account. The escrow
account's use is restricted to repayment of our $100 million 6.25% debentures,
which mature on March 15, 2002.

F-32

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6. Inventories

Inventories at the balance sheet dates consist of:

September 30, December 31,
2001 2000
------------- ------------

Raw materials..................................... $ 90,019 $105,022
Work in process................................... 5,634 3,849
Finished goods.................................... 100,927 114,335
-------- --------
$196,580 $223,206
======== ========

Note 7. Long-term Debt

In June 2001, we issued $250.0 million of senior subordinated debentures and
we borrowed $200.0 million under our bank credit facility. Part of the proceeds
were used to repay $100.0 million borrowed under our old credit facility that
had been classified as long-term debt.

F-33

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 8. Segment Information

Nine Months Ended
September 30,
-----------------
2001 2000
---------- ----------
(Dollars in
thousands)

Segment Sales
Resource.................................... $ 304,262 $ 270,391
---------- ----------
Wood products
Oriented strand board..................... 128,932 170,572
Lumber.................................... 211,299 193,522
Plywood................................... 34,671 43,346
Particleboard............................. 10,903 15,306
Other..................................... 19,693 21,748
---------- ----------
405,498 444,494
---------- ----------
Printing papers
Printing papers........................... 317,619 344,839
Pulp...................................... 43,561 37,728
---------- ----------
361,180 382,567
---------- ----------
Pulp and paper
Paperboard................................ 325,266 323,262
Tissue.................................... 244,945 206,087
Pulp...................................... 10,784 17,968
---------- ----------
580,995 547,317
---------- ----------
1,651,935 1,644,769
Elimination of intersegment sales............. (294,800) (255,673)
---------- ----------
Total consolidated net sales............ $1,357,135 $1,389,096
========== ==========
Intersegment sales or transfers
Resource.................................... $ 278,682 $ 244,122
Wood products............................... 14,370 10,126
Printing papers............................. 1,718 1,384
Pulp and paper.............................. 30 41
---------- ----------
Total..................................... $ 294,800 $ 255,673
========== ==========
Operating Income (Loss)
Resource.................................... $ 35,730 $ 48,286
Wood products............................... (13,475) 645 (a)
Printing papers............................. (18,421) (1,477)
Pulp and paper.............................. (411)(b) 16,790
Eliminations and adjustments................ (694) (3,986)
---------- ----------
2,729 60,258
Corporate..................................... (81,005) (88,964)(c)
---------- ----------
Consolidated loss before taxes on income...... $ (78,276) $ (28,706)
========== ==========

- --------

(a) Includes a pre-tax charge of $18.5 million associated with the closure of
a plywood plant in Idaho.

(b) Includes a pre-tax charge of $4.6 million associated with the workforce
reduction plan at our pulp, paperboard and consumer products operations
in Idaho.

(c) Includes a pre-tax charge of $26.0 million associated with a company-wide
reduction and reorganization of our salaried workforce.

F-34

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9. Subsidiary Guarantors

A portion of our outstanding debt is unconditionally guaranteed, on a joint
and several basis, by four of the Company's subsidiaries, which are also
guarantors, on an unconditional, joint and several basis, of the obligations
under our current credit facilities.

Consolidating statements of earnings for the nine months ended September
30, 2001 and 2000 are as follows:

For the nine months ended September 30, 2001
------------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

Net sales..................... $1,357,135 $1,729 $(1,729) $1,357,135
---------- ------ ------- ----------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested................... 125,906 130 -- 126,036
Materials, labor and other
operating expenses.......... 1,165,029 215 (1,729) 1,163,515
Selling, general and
administrative expenses..... 88,666 413 -- 89,079
Restructuring and other
charges..................... 4,570 -- -- 4,570
---------- ------ ------- ----------
1,384,171 758 (1,729) 1,383,200
---------- ------ ------- ----------
Earnings (loss) from
operations................... (27,036) 971 -- (26,065)
Interest expense.............. (57,377) -- -- (57,377)
Other income, net............. 5,158 8 -- 5,166
---------- ------ ------- ----------
Earnings (loss) before taxes
on income and equity in net
income of consolidated
subsidiaries................. (79,255) 979 -- (78,276)
Equity in net income of
consolidated subsidiaries.... 597 -- (597) --
Provision (benefit) for taxes
on income.................... (30,910) 382 -- (30,528)
---------- ------ ------- ----------
Net earnings (loss)........... $ (47,748) $ 597 $ (597) $ (47,748)
========== ====== ======= ==========

F-35

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the nine months ended September 30, 2000
------------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

Net sales..................... $1,389,096 $1,487 $(1,487) $1,389,096
---------- ------ ------- ----------
Costs and expenses:
Depreciation, amortization
and cost of fee timber
harvested.................. 121,037 172 -- 121,209
Materials, labor and other
operating expenses......... 1,113,257 45 (1,487) 1,111,815
Selling, general and
administrative expenses.... 93,321 321 -- 93,642
Restructuring and other
charges.................... 44,502 -- -- 44,502
---------- ------ ------- ----------
1,372,117 538 (1,487) 1,371,168
---------- ------ ------- ----------
Earnings from operations...... 16,979 949 -- 17,928
Interest expense.............. (43,637) -- -- (43,637)
Other income (expense), net... (2,998) 1 -- (2,997)
---------- ------ ------- ----------
Earnings (loss) before taxes
on income and equity in net
income of consolidated
subsidiaries................. (29,656) 950 -- (28,706)
Equity in net income of
consolidated subsidiaries.... 580 -- (580) --
Provision (benefit) for taxes
on income.................... (11,565) 370 -- (11,195)
---------- ------ ------- ----------
Net earnings (loss)........... $ (17,511) $ 580 $ (580) $ (17,511)
========== ====== ======= ==========

Condensed consolidating balance sheets as of September 30, 2001 and
December 31, 2000 are as follows:

September 30, 2001
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

ASSETS
Current assets:
Cash........................ $ 6,833 $ 343 $ -- $ 7,176
Restricted cash............. 97,549 -- -- 97,549
Short-term investments...... 46,909 -- -- 46,909
Receivables, net............ 187,295 402 (23) 187,674
Inventories................. 196,278 302 -- 196,580
Prepaid expenses............ 102,762 26 -- 102,788
---------- -------- ------- ----------
Total current assets.......... 637,626 1,073 (23) 638,676
Land, other than timberlands.. 8,634 408 -- 9,042
Plant and equipment, at cost
less accumulated
depreciation................. 1,496,760 1,467 -- 1,498,227
Timber, timberlands and
related logging facilities... 394,861 -- -- 394,861
Other assets.................. 107,029 -- (1,246) 105,783
---------- -------- ------- ----------
$2,644,910 $ 2,948 $(1,269) $2,646,589
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY

Current liabilities:
Current installments on
long-term debt............. $ 133,097 $ -- $ -- $ 133,097
Accounts payable and accrued
liabilities................ 256,580 125 (23) 256,682
---------- -------- ------- ----------
Total current liabilities..... 389,677 125 (23) 389,779
Intercompany transfers........ 29,655 (29,655) -- --
Long-term debt................ 1,018,009 -- -- 1,018,009
Other long-term obligations... 189,965 -- -- 189,965
Deferred taxes................ 305,661 -- -- 305,661
Put options................... 2,103 -- -- 2,103
Stockholders' equity.......... 709,840 32,478 (1,246) 741,072
---------- -------- ------- ----------
$2,644,910 $ 2,948 $(1,269) $2,646,589
========== ======== ======= ==========

F-36

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2000
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
---------- ---------- ------------ ------------
(Dollars in thousands)

ASSETS
Current assets:
Cash........................ $ 10,529 $ 1,123 $ -- $ 11,652
Short-term investments...... 9 -- -- 9
Receivables, net............ 187,046 863 (90) 187,819
Inventories................. 222,963 243 -- 223,206
Prepaid expenses............ 61,133 20 -- 61,153
---------- -------- ------- ----------
Total current assets.......... 481,680 2,249 (90) 483,839
Land, other than timberlands.. 8,636 408 -- 9,044
Plant and equipment, at cost
less accumulated
depreciation................. 1,635,777 1,597 -- 1,637,374
Timber, timberlands and
related logging facilities... 333,249 -- -- 333,249
Other assets.................. 80,185 -- (1,246) 78,939
---------- -------- ------- ----------
$2,539,527 $ 4,254 $(1,336) $2,542,445
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable............... $ 188,943 $ -- $ -- $ 188,943
Current installments on
long-term debt............. 325 -- -- 325
Accounts payable and accrued
liabilities................ 249,513 408 (90) 249,831
---------- -------- ------- ----------
Total current liabilities..... 438,781 408 (90) 439,099
Intercompany transfers........ 28,073 (28,073) -- --
Long-term debt................ 801,549 -- -- 801,549
Other long-term obligations... 184,147 -- -- 184,147
Deferred taxes................ 293,961 -- -- 293,961
Put options................... 10,453 -- -- 10,453
Stockholders' equity.......... 782,563 31,919 (1,246) 813,236
---------- -------- ------- ----------
$2,539,527 $ 4,254 $(1,336) $2,542,445
========== ======== ======= ==========

F-37

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Condensed consolidating statements of cash flows for the nine months ended
September 30, 2001 and 2000 are as follows:

For the nine months ended September 30, 2001
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
(Dollars in thousands)

CASH FLOWS FROM OPERATIONS
Net earnings (loss).......... $ (48,345) $ 597 $ -- $ (47,748)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operations:
Depreciation, amortization
and cost of fee timber
harvested................. 125,906 130 -- 126,036
Deferred taxes............. 11,700 -- -- 11,700
Working capital changes.... (6,095) 113 -- (5,982)
Other, net................. (2,168) -- -- (2,168)
--------- ------- ----- ---------
Net cash provided by
operations............... 80,998 840 -- 81,838
--------- ------- ----- ---------
CASH FLOWS FROM INVESTING
Increase in restricted cash.. (97,549) -- -- (97,549)
Increase in short-term
investments................. (46,900) -- -- (46,900)
Additions to investments..... (3,415) -- -- (3,415)
Reductions in investments.... 1,558 -- -- 1,558
Investments and advances from
subsidiaries................ 1,620 (1,620) -- --
Additions to plant and
properties.................. (42,795) -- -- (42,795)
--------- ------- ----- ---------
Net cash used for
investing................ (187,481) (1,620) -- (189,101)
--------- ------- ----- ---------
CASH FLOWS FROM FINANCING
Change in book overdrafts.... (2,031) -- -- (2,031)
Decrease in notes payable.... (188,943) -- -- (188,943)
Proceeds from long-term
debt........................ 450,000 -- -- 450,000
Repayment of long-term debt.. (100,768) -- -- (100,768)
Long-term debt issuance
fees........................ (15,352) -- -- (15,352)
Issuance of treasury stock... 3,524 -- -- 3,524
Purchase of treasury stock... (8,349) -- -- (8,349)
Dividends.................... (28,868) -- -- (28,868)
Other, net................... (6,426) -- -- (6,426)
--------- ------- ----- ---------
Net cash provided by
financing................ 102,787 -- -- 102,787
--------- ------- ----- ---------
Decrease in cash............. (3,696) (780) -- (4,476)
Balance at beginning of
period...................... 10,529 1,123 -- 11,652
--------- ------- ----- ---------
Balance at end of period..... $ 6,833 $ 343 $ -- $ 7,176
========= ======= ===== =========

F-38

POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the nine months ended September 30, 2000
-----------------------------------------------
Parent Subsidiary
Company Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------
(Dollars in thousands)

CASH FLOWS FROM OPERATIONS
Net earnings (loss).......... $ (18,091) $ 580 $ -- $(17,511)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operations:
Depreciation, amortization
and cost of fee timber
harvested................. 121,037 172 -- 121,209
Deferred taxes............. (8,956) -- -- (8,956)
Working capital changes.... 16,125 244 -- 16,369
Other, net................. (1,599) -- -- (1,599)
--------- ------ ----- --------
Net cash provided by
operations.............. 108,516 996 -- 109,512
--------- ------ ----- --------
CASH FLOWS FROM INVESTING
Decrease in short-term
investments................. 150 -- -- 150
Additions to investments..... (3,525) -- -- (3,525)
Reductions in investments.... 918 -- -- 918
Investments and advances to
subsidiaries................ 69 (69) -- --
Additions to plant and
properties.................. (119,040) -- -- (119,040)
--------- ------ ----- --------
Net cash used for
investing............... (121,428) (69) -- (121,497)
--------- ------ ----- --------
CASH FLOWS FROM FINANCING
Change in book overdrafts.... 1,209 -- -- 1,209
Increase in notes payable.... 38,976 -- -- 38,976
Proceeds from long-term
debt........................ 50,000 -- -- 50,000
Repayment of long-term debt.. (10,266) -- -- (10,266)
Issuance of treasury stock... 468 -- -- 468
Purchase of treasury stock... (21,818) -- -- (21,818)
Dividends.................... (37,328) -- -- (37,328)
Other, net................... (9,550) -- -- (9,550)
--------- ------ ----- --------
Net cash provided by
financing............... 11,691 -- -- 11,691
--------- ------ ----- --------
Increase (decrease) in cash.. (1,221) 927 -- (294)
Balance at beginning of
period...................... 11,251 280 -- 11,531
--------- ------ ----- --------
Balance at end of period..... $ 10,030 $1,207 $ -- $ 11,237
========= ====== ===== ========

F-39

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

$250,000,000

Potlatch Corporation

10.00% Senior Subordinated Notes due July 15, 2011

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

EXCHANGE OFFER

[date]

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

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended. Article Seventh of Potlatch's Restated
Certificate of Incorporation provides for indemnification to the fullest
extent permitted by the Delaware General Corporation Law. Potlatch also
maintains insurance policies which insure its officers and directors against
certain liabilities. Potlatch has also entered into agreements with its
directors and certain of its officers that will require Potlatch, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers to the fullest extent not
prohibited by law.

Item 21. Exhibits and Financial Statement Schedules

The following documents are filed herewith or incorporated here by
reference.

Exhibit
Number Description of Exhibits
------- -----------------------

3.1* Restated Certificate of Incorporation of Potlatch Corporation as of
May 1, 1987, (incorporated herein by reference to Exhibit 3(i) of
Potlatch's Form 10-K for the year ended December 31, 1998, filed on
March 8, 1999)

3.2* By-Laws of Potlatch Corporation, as amended effective January 25, 2001
(incorporated herein by reference to Exhibit 3(c) of Potlatch's Form
10-K for the year ended December 31, 2000, filed on March 20, 2001)

4.1* Form of the Potlatch Corporation's 10.00% Senior Subordinated Notes
due 2011 (included in
Exhibit 4.2)

4.2* Indenture dated as of June 29, 2001, by and among Potlatch
Corporation, the Guarantors named therein, and U.S. Bank Trust
National Association, as Trustee (incorporated herein by reference to
Exhibit (10)(O) of Potlatch's Form 10-Q for the quarter ended June 30,
2001, filed on August 13, 2001)

4.3* Exchange and Registration Rights Agreement, dated as of June 29, 2001,
by and among Potlatch Corporation, the Guarantors named therein,
Goldman, Sachs & Co., Banc of America Securities LLC, Scotia Capital
(USA) Inc., Wachovia Securities, Inc., and Wells Fargo Brokerage
Services, LLC

5.1* Opinion of Pillsbury Winthrop LLP

10.1* Credit Agreement dated as of June 29, 2001 among Potlatch Corporation,
the Guarantors named therein, the Lenders named therein, Bank of
America as Administrative Agent, Banc of America Securities LLC as
Lead Arranger and Sole Book Manager, Wachovia Securities, Inc. as
Joint Lead Arranger, Wachovia Bank, N.A. as Syndication Agent and
Northwest Farm Credit Services, PCA as Documentation Agent
(incorporated herein by reference to Exhibit (10)(P) of Potlatch's
Form 10-Q for the quarter ended June 30, 2001, filed on August 13,
2001)

12.1 Statement of Computation of Ratio of Earnings to Fixed Charges

23.1 Consent of KPMG LLP

23.2* Consent of Pillsbury Winthrop LLP (included in Exhibit 5.1)

24.1* Powers of Attorney

25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of U.S. Bank Trust National Association

II-1

Exhibit
Number Description of Exhibits
------- -----------------------

99.1* Form of Letter of Transmittal

99.2* Form of Notice of Guaranteed Delivery

99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees

99.4* Form of Letter to Clients

- --------
* Previously filed

Item 22. Undertakings

1. The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(b) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement; and

(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change in such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the
"Securities Act"), each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of any employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be an initial bona
fide offering thereof.

3. The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.

II-2

4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.

5. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Potlatch
Corporation certifies that it has reasonable grounds to believe that it meets
all the requirements of filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Spokane, State of Washington on the
21st day of December, 2001.

Potlatch Corporation

/s/ *
By: _________________________________
L. Pendleton Siegel
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person, in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

(i) /s/ * Principal Executive December 21, 2001
_____________________________________ Officer: Chairman of
L. Pendleton Siegel the Board and Chief
Executive Officer and
Director

(ii) /s/ * Principal Financial December 21, 2001
_____________________________________ Officer: Vice
Gerald L. Zuehlke President, Finance and
Chief Financial Officer

(iii) /s/ * Principal Accounting December 21, 2001
_____________________________________ Officer: Controller
Terry L. Carter

(iv) /s/ * Director December 21, 2001
_____________________________________
Richard A. Clarke

/s/ * Director December 21, 2001
_____________________________________
Boh A. Dickey

/s/ * Director December 21, 2001
_____________________________________
Vivian W. Piasecki

/s/ * Director December 21, 2001
_____________________________________
Gregory L. Quesnel

/s/ * Director December 21, 2001
_____________________________________
Toni Rembe

II-4

Signature Title Date
--------- ----- ----

/s/ * Director December 21, 2001
_____________________________________
Reuben F. Richards

/s/ * Director December 21, 2001
_____________________________________
Judith M. Runstad

/s/ * Director December 21, 2001
_____________________________________
L. Pendleton Siegel

/s/ * Director December 21, 2001
_____________________________________
Frederick T. Weyerhaeuser

/s/ * Director December 21, 2001
_____________________________________
William T. Weyerhaeuser

/s/ Malcolm A. Ryerse Attorney-in-Fact
*By: ________________________________
Malcolm A. Ryerse

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Duluth &
Northeastern Railroad Company certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form S-4 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State of
Washington on the 21st day of December, 2001.

Duluth & Northeastern Railroad
Company

/s/ *
By: _________________________________
Robert B. Purcell
President and Director

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person, in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

(i) /s/ * Principal Executive December 21,
_____________________________________ Officer: President and 2001
Robert B. Purcell Director

(ii) /s/ * Principal Financial December 21,
_____________________________________ Officer: Treasurer 2001
Douglas D. Spedden

(iii) /s/ * Principal Accounting December 21,
_____________________________________ Officer: Controller 2001
Terry L. Carter

(iv) /s/ * Director December 21,
_____________________________________ 2001
Phillip M. Baker

/s/ * Director December 21,
_____________________________________ 2001
Richard K. Kelly

/s/ * Director December 21,
_____________________________________ 2001
Richard L. Paulson

/s/ * Director December 21,
_____________________________________ 2001
Gerald L. Zuehlke

/s/ Malcolm A. Ryerse Attorney-in-Fact
*By: ________________________________
Malcolm A. Ryerse

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Warren and
Saline River Railroad Company certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form S-4 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State of
Washington on the 21st day of December, 2001.

Warren and Saline River Railroad
Company

/s/ *
By: _________________________________
Richard K. Kelly
President and Director

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person, in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

(i) /s/ * Principal Executive December 21,
_____________________________________ Officer: President and 2001
Richard K. Kelly Director

(ii) /s/ * Principal Financial December 21,
_____________________________________ Officer: Treasurer and 2001
Douglas D. Spedden Assistant Secretary

(iii) /s/ * Principal Accounting December 21,
_____________________________________ Officer: Controller 2001
Terry L. Carter

(iv) /s/ * Director December 21,
_____________________________________ 2001
Thomas G. Herion

/s/ Director December 21,
_____________________________________ 2001
Malcolm A. Ryerse

/s/ * Director December 21,
_____________________________________ 2001
Richard L. Paulson

/s/ * Director December 21,
_____________________________________ 2001
Gerald L. Zuehlke

/s/ Malcolm A. Ryerse Attorney-in-Fact
*By: ________________________________
Malcolm A. Ryerse

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, St. Maries
River Railroad Company certifies that it has reasonable grounds to believe
that it meets all the requirements of filing on Form S-4 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Spokane, State of Washington on the
21st day of December, 2001.

St. Maries River Railroad Company

/s/ *
By: _________________________________
Richard K. Kelly
President and Director

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person, in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

(i) /s/ * Principal Executive December 21,
_____________________________________ Officer: President and 2001
Richard K. Kelly Director

(ii) /s/ * Principal Financial December 21,
_____________________________________ Officer: Treasurer and 2001
Douglas D. Spedden Assistant Secretary

(iii) /s/ * Principal Accounting December 21,
_____________________________________ Officer: Controller, 2001
Terry L. Carter Assistant Secretary and
Assistant Treasurer

(iv) /s/ * Director December 21,
_____________________________________ 2001
David L. Allred

/s/ * Director December 21,
_____________________________________ 2001
Thomas G. Herion

/s/ * Director December 21,
_____________________________________ 2001
Richard L. Paulson

/s/ Malcolm A. Ryerse Director December 21,
_____________________________________ 2001
Malcolm A. Ryerse

/s/ * Director December 21,
_____________________________________ 2001
Gerald L. Zuehlke

/s/ Malcolm A. Ryerse Attorney-in-Fact
*By: __________________________________
Malcolm A. Ryerse

II-8

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Prescott and
Northwestern Railroad Company certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on Form S-4 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State of
Washington on the 2nd day of October, 2001.

The Prescott and
NorthwesternRailroad Company

/s/ *
By: _________________________________
Richard K. Kelly
President and Director

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person, in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

(i) /s/ * Principal Executive December 21,
_____________________________________ Officer: President and 2001
Richard K. Kelly Director

(ii) /s/ * Principal Financial December 21,
_____________________________________ Officer: Treasurer and 2001
Douglas D. Spedden Assistant Secretary

(iii) /s/ * Principal Accounting December 21,
_____________________________________ Officer: Controller 2001
Terry L. Carter

(iv) /s/ * Director December 21,
_____________________________________ 2001
Thomas G. Herion

/s/ * Director December 21,
_____________________________________ 2001
Richard L. Paulson

/s/ Malcolm A. Ryerse Director December 21,
_____________________________________ 2001
Malcolm A. Ryerse

/s/ * Director December 21,
_____________________________________ 2001
Gerald L. Zuehlke

/s/ Malcolm A. Ryerse Attorney-in-Fact
*By: _________________________________
Malcolm A. Ryerse

II-9

EXHIBIT INDEX

The following documents are filed herewith or incorporated here by
reference.

Exhibit
Number Description of Exhibits
------- -----------------------

4.1* Form of the Potlatch Corporation's 10.00% Senior Subordinated Notes
due 2011 (included in
Exhibit 4.2)

5.1* Opinion of Pillsbury Winthrop LLP

12.1 Statement of Computation of Ratio of Earnings to Fixed Charges

23.1 Consent of KPMG LLP

23.2* Consent of Pillsbury Winthrop LLP (included in Exhibit 5.1)

24.1* Powers of Attorney

25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of U.S. Bank Trust National Association

99.1* Form of Letter of Transmittal

99.2* Form of Notice of Guaranteed Delivery

99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees

99.4* Form of Letter to Clients

- --------
* Previously filed