Report Finalized: October 18, 2005 Assessment Date: September 29-30, 2005 Assessment Team: John Hodges

Certified by: SmartWood Headquarters 65 Millet St. Suite 201 Richmond, VT 05477 USA Tel: 802-434-5491 Fax: 802-434-3116 www.smartwood.org Certification Assessment Performed by: SmartWood USA rthfield, MN USA Tel: 507/663-1115 Fax: 570/663-7771 Contact person: Jessica S. Martin Email: jmartin@smartwood.org Chain-of-Custody Certification Assessment Report for: Potlatch Corporation, Wood Products Division, Prescott Lumber Mill in Prescott, Arkansas Report Finalized: October 18, 2005 Assessment Date: September 29-30, 2005 Assessment Team: John Hodges ACCREDITED FSC-SECR-0013 1996 Forest Stewardship Council A.C. Type of certificate: Single CoC Certificate issued: October 25, 2005 Certificate code: SW-COC-1673 Report for FSC-STD-40-004 Operation Contact: Brad Fountain Address: P.O Box 610 Prescott, AR 71857

I. INTRODUCTION The purpose of this report is to assess the capability of Potlatch Corporation, Prescott Lumber Mill, hereafter referred to as Company in section I, to ensure that Chain-of-Custody (CoC) procedures are being followed for the handling, processing, and marking/labeling of certified forest products. Complete CoC control systems and the corresponding documentation allow for the tracking of a product from the raw material growing in the forest, through every step of processing, to the final product in the marketplace. SmartWood CoC certification is a confidential, third party verification process that is accredited by the Forest Stewardship Council (FSC). Upon certification by SmartWood, Company may purchase, process, and/or sell certified wood from other FSCcertified suppliers. The SmartWood CoC certification of Company is based on the contents of this report and subsequent audits for verification. If SmartWood-certified companies encounter organizations or individuals having concerns or comments about SmartWood, the FSC, CoC, or other certification topics, these parties are strongly encouraged to contact SmartWood headquarters or the FSC directly. Formal complaints or concerns should be sent in writing, if possible. A. Monitoring SmartWood audits certified companies at least once every year on-site. The purpose of this visit is to verify compliance with FSC chain-of-custody tracking and handling procedures within the company s operation. SmartWood reserves the right to visit the facilities of the company at any time, but usually provides prior notification and arranges for audit scheduling. See Appendix C for details on what is involved in annual audits and how to prepare. As part of the FSC accreditation and auditing process of SmartWood, the FSC reserves the right to visit SmartWood-certified operations on a random basis. The SmartWood certification contract with certified operations requires that these operations agree to random visits by FSC auditors for the purposes of evaluating the adequacy of the SmartWood certification system upon notice by either SmartWood or the FSC. II. COMPANY INFORMATION A. SmartWood Primary Contacts Primary Contact for Certification, Title: Brad Fountain, Plant Manager, Prescott Lumber Mill Address: P.O Box 610, Prescott, AR 71857 Tel: 870-887-2605 Fax: 870-887-2861 E-mail: Brad.Fountain@potlatchcorp.com Certification Agreement Signatory, Title: Brad Fountain, Plant Manager, Prescott Lumber Mill Address: P.O Box 610, Prescott, AR 71857 E-mail: Brad.Fountain@potlatchcorp.com B. SmartWood Customer Fact Sheet Contact The SmartWood website maintains a Customer Fact Sheet for each certified company. This information will be used in your Customer Fact Sheet and is posted upon certification at www.smartwood.org. Public Contact, Title: Matt Roberts, Area Marketing Manager Address: P.O Box 390, Warren, AR 71671 Tel: 870-226-1129 SmartWood Program Page 2

Fax: 870-226-6367 E-mail: Matt.Roberts@potlatchcorp.com Website: www.potlatch.com Services: Sales of southern pine dimension lumber C. Certificate Scope: (te: this information is to be communicated to the FSC) 1. Type of certificate: single certificate. This report covers a single certificate of a single legal entity only. 2. Number of sites included in this certificate: 1 3. Details of sites included in this certificate: Location (address) Operation Type Annual Volume of FSC Inputs (App.) Inputs for FSC Product Group Potlatch Corporation Primary Manufacturer 13,800 mbf Current: 13,800 mbf P.O. Box 610 Potential: 23,000 mbf Prescott, AR 718576 *FSC product group must be based on terminology used in the UN/CEFACT coding system FSC Product Group* (include brief description) FSC-Pure SYP dimensional lumber FSC-Mixed SYP dimensional lumber 4. Size class of certificate holder: (for FSC AAF purposes) Check AAF Size Annual Turnover ($US) Class Class 1 < $200,000 Class 2 $200,001 1,000,000 Class 3 $1,000,001 5,000,000 Class 4 $5,000,001 25,000,000 Class 5 $25,000,001 100,000,000 Class 6 > $100,000,000 5. Location where certification related records will be kept: Office at Prescott, AR 6. Additional details for the scope of the certificate: At present, the FSC certified input to the Prescott mill (logs from Potlatch Certified Forests) is only 6% of production. Therefore, there will be: (1) no on-product labeling of FSC-Mixed material or (2) inventory of FSC-Pure material (from company lands) will be accumulated so that the FSC-mixed material sold will contain at least 10% FSC certified material. Prescott Lumber Mill can sell FSC-Pure material as soon as certification is received. Lumber sales, advertisement, etc. will be handled by the Potlatch office in Warren, AR. D. Certified Sources 1. Has the company purchased certified wood: 2. Company name and FSC certification number of certified suppliers: 3. Potential certified suppliers and certification numbers, if known: Potlatch Company lands, The Forestland Group 4. Total estimated volume of certified inputs (see Appendix D for metric conversions): 23,000 MBF E. Markets Certified Products will be sold in 1. Regions: United States 2. Companies: ne at present 3. List any companies to send certification literature: SmartWood Program Page 3

Additional comments: F. Company Background Including n-certified Information 1. Company history and profile: H. Bemis built the first sawmill in Prescott, AR in1891. The mill was sold in 1915 and became Ozan Grafysonia mill. It was sold again in 1929 and became the J.R. Bemis- Ozan lumber mill. The mill was destroyed by fire in 1936 and immediately rebuilt. In 1958 a brand new mill was built that was the most modern in history. It was labeled the "IDEA" mill of the year by Lumberman Magazine. Potlatch purchased Ozan in 1966 and in 1975 the mill was completely rebuilt and a chip mill was added. In 1991 the sawmill underwent modernization with addition of sharp chain/edger/and sorter.. Dry end modernization took place in 1996 and curve-sawing ability was added in 2000. Planer mill-grading optimization was added in 2004 and lineal board edger in 2005. In the near future, the head rig will be replaced, and log deck optimization, double length infeed, additional sorter line, and additional stacker/stripper line will be added. Current production by the lumber mill is 230,000 MBF and the major customers are for structural framing lumber, treaters, truss manufacturers, and laminators. Markets for products cover the entire U.S. The mill employs 199 hourly workers and has 16 salaried employees. 2. Range of products: Southern Yellow Pine Dimensional Lumber 3. Average production volume: 230,000 mbf 4. Markets and companies sold to: Structural framing lumber, truss manufacturers, laminators. Sold to over 100 companies across the U.S. 5. Other schemes company is certified for: (ISO, PEFC, SFI, etc.) ne for lumber mill, Potlatch Lands in Arkansas are FSC and SFI certified. III. ASSESSMENT PROCESS A. Assessors (name, qualifications, affiliations) John Hodges. John has a bachelors degree in forest management from Mississippi State University and a Masters and PhD from the University of Washington. He has 12 years experience in management and research with the U.S. Forest Service, 23 years teaching experience, and 3 years as VP and land manager for Anderson-Tully company. He has served as team leader and team member on dozens of FM and CoC assessments as well as annual audits for SmartWood and FSC. B. Assessment Details 1. Assessment dates: September 29-30, 2006 2. Length of assessment (hours, days): 1 day 3. Facilities and places inspected: Office and mill facilities at Prescott, Arkansas 4. People interviewed including titles: Brad Fountain, Prescott Unit Manager Matt Roberts, Area Wood Flow and Marketing Manager Nick Koulianos, Regional Wood Flow and Marketing Manager Mike Bonnette, Superintendent - Dry end and Plant Services Scott Hamilton, Manufacturing Superintendent Larry Smith, Quality Control/Process Improvement Superintendent SmartWood Program Page 4

5. Brief description of assessment process: The auditor met with Brad Fountain and Matt Roberts on the afternoon of September 29 at the lumber mill office in Prescott, Arkansas. Purpose and procedures for the assessment were discussed. Most of the afternoon was used to obtain and review documentation required for certification. All required documentation had been prepared ahead of time and were available for inspection. The next morning was used to complete review of documentation and interview of personnel involved in the CoC process. The auditor was then given a complete tour of all mill facilities. After the tour a debriefing was given by the auditor to explain the findings and to answer questions about the assessment and the next steps to be taken. C. Prior Assessments 1. Has the company been assessed before: Details, if yes: The Prescott Mill has not been assessed before but all other operations within Potlatch Corporation are certified. 2. Are there other operations within this company that have been assessed: Details, if yes: Potlatch lands in Arkansas are FSC certified as is the sawmill at Warren, AR and the papermill at McGee, AR. IV. Compliance with FSC Chain of custody Requirements The following section summarizes the company s compliance with FSC chain of custody requirements. The checklist is directly based on FSC standard (STD-40-004 FSC chain of custody standard for companies manufacturing FSC-certified products (version 1.0) References to the specific FSC standard number are included in parenthesis at the end of each standard e.g. (1.1). Selected references are also made to FSC-STD-40-201 FSC on-product labeling requirements (version 1). Part 1: Quality System Requirements Standard Requirement Compliance 1.1 Documented procedures exist that cover all elements of the Standard including (3.1): a) Personnel responsible for implementing each part of the control system and key procedures (3.2); b) Scope of the CoC system including definition of FSC product groups (2.1); c) Classification of wood inputs according to FSC defined categories (6.1); d) Tracking and handling of all wood categories e) Forms and records used (2.5); f) Compilation of volume summary data; g) Keeping accurate, complete, up-to-date and accessible records and reports covering all aspects of the standard (4.1); h) Staff training requirements related to the standard (5.1). Findings: A ringbinder had been prepared in advance that gave very complete and detailed information on all the requirements listed above. 1.2 The company has appointed one person (or position) with overall responsibility for the company s compliance with all aspects of the standard (1.1): Findings: Brad Fountain will have this responsibility. 1.3 All key personnel (employees and contractors) demonstrate understanding of their specific responsibilities in order to implement all the requirements of the standard (1.2): Findings: These people were interviewed and it was apparent that they had received the necessary information and understood their responsibilities. SmartWood Program Page 5

1.4 The company s FSC CoC control system (policies, systems, procedures, work instructions, etc.) is implemented as designed and is sufficient to ensure that all products specified in the company s FSC product group schedule meet all of the requirements of the standard at all times (2.5): Findings: Procedures and policies have been developed (Exhibit #1), but not implemented since no certified wood has been processed. However it is obvious that the procedures are sufficient to ensure that all products specified in the company's product group schedule meet all of the requirements of the standard. 1.5 The company maintains an up-to-date FSC product group schedule of all product groups included in the company s FSC CoC control system (2.1 and 2.3): Findings: The company will produce only one product - southern yellow pine dimension lumber that can be sold as either FSC-Pure or FSC-Mixed. 1.6 Company classifies each product group as either a) FSC-pure, b) FSC-mixed, or c) FSC-recycled (2.4): Findings: Company can produce FSC-Pure at present and with some modification has the capability to produce FSC-Mixed. 1.7 Company retains all records and reports for at least five (5) years (4.2): Findings: Company has agreed to do so. 1.8 Company provides training to staff in relation to implementation of the defined CoC procedures and policies (5.2): Findings: Training has been provided for those who will have some responsibility for the CoC process. Records of training and signatures of those attending were shown to the auditor. 1.9 Company keeps records of the training provided to staff in relation to the standard (5.3): Findings: Records were given to the auditor. Part 2: Wood Sourcing Standard Requirement Compliance Input specifications 2.1 For the purposes of FSC CoC control and on-product labeling, the company has adopted and uses the definitions of wood, fiber or other materials (e.g. FSC-pure, FSCmixed, post-consumer reclaimed wood, etc.) as specified in the standard (6.1): Findings: Prescott Lumber Mill will use the same designations as the FSC certified sawmill at Warren, AR. 2.2 All wood used by the company in the manufacture of any FSC product group is classified into one or more of the following categories (6.2): a) FSC-pure b) FSC-mixed c) post-consumer reclaimed d) other reclaimed e) controlled Findings: Prescott Lumber mill will have the capability of producing FSC-Pure and FSC-Mixed products. FSC certified material will come from Potlatch FSC certified lands. Procedures for purchase of controlled wood are given in their Policy and Procedures guidelines (Exhibit #1). 2.3 Company classifies as uncontrolled wood all material that it is not clearly identifiable as one of the permitted FSC categories specified in 2.2 above for the purposes of FSC CoC control and maintains this material separate (6.3): Findings: Procedures for identification and handling of uncontrolled wood are given in the company's CoC Policy and Procedures guidelines. (Exhibit #1) SmartWood Program Page 6

Specifications for FSC-certified material 2.4 Company has written specifications for the purchase of all FSC-certified material which includes the following requirements (6.4): a) The company supplying the FSC-certified material shall have a valid FSC FM/COC or CoC certificate; b) Material to be supplied shall be identified as FSC-pure or FSC-mixed; c) Material to be supplied shall be covered by the scope of the supplying company s FSC certificate; d) Transport documentation and invoices issued for the FSC-certified material shall quote the supplying company s FSC certificate code. Findings: All certified wood used by Prescott Lumber Mill will be obtained from company lands that are FSC certified. Specifications for reclaimed wood 2.5 Company has written specifications for the purchase of all reclaimed material which include the following requirements (6.5): a) The reclaimed wood and fiber material shall be correctly described in accordance with FSC definitions (see SW CoC Standard); b) All post-consumer reclaimed material shall be verified with respect to its quantity and compliance with the specified definitions (see SW CoC Standard) through independent verification or through other credible documentation; c) The shipping documentation and invoices issued for independently verified material shall quote the supplying company s certificate registration code or equivalent proof of independent verification. Findings: Specifications for controlled wood 2.6 Company uses controlled wood (non FSC-certified material) in FSC product groups in compliance with FSC controlled wood requirements (6.6, 6.7): NOTE: if company utilizes controlled wood in FSC product groups, an additional evaluation of compliance with the FSC controlled wood standard is required (FSC-STD-40-005). Findings: Specifications for purchase and handling of controlled wood are given in the company document labeled "Controlled Wood Risk Assessment & Procurement Procedures." Specifications for generating reclaimed material on-site 2.7 Company generates and collects reclaimed material on-site, which is used for further processing or for sale. This material is classified into one of the following categories (7.1): a) FSC-pure material b) FSC-mixed material c) post-consumer reclaimed material d) other reclaimed material e) controlled material f) uncontrolled material Findings: 2.8 Company has defined procedures and/or work instructions for the collection and storage of reclaimed material that is generated on site. The category to which the material belongs shall be clearly identified (7.2): te: if it is not possible for the company to identify FSC-Pure from FSC-Mixed, then all material must be classified as FSC-Mixed. If it is not possible to identify post-consumer reclaimed from other reclaimed material then all material must be classified as other reclaimed material. (7.3, 7.4) Findings: Companies collecting or trading in post-consumer reclaimed material 2.9 Company collects and/or trades in post-consumer reclaimed wood for inclusion in FSClabeled products (8.1): Findings: SmartWood Program Page 7

2.10 Company clearly demonstrates that wood reclaimed from consumers/end users (by either themselves or by suppliers) meets the FSC definition of post-consumer reclaimed material (8.2): te: if materials are mixed prior to sale, then CoC requirements must be applied. (8.3, 8.4) Findings: Receipt and storage of material 2.11 The company shall check all received material on arrival to ensure that the wood/fiber has been clearly classified into a wood category according to FSC Definitions (see SW CoC standards) (9.1): Findings: Company CoC procedures (Exhibit #1) clearly state how this will be accomplished. All FSC-Pure material will come from company lands and each load will be accompanied by a green security ticket (Exhibit #2). The contract number on the ticket is a nine character alphanumeric number beginning with the letter "C". A white trip ticket (Exhibit #3) is used for controlled wood and verification of the controlled status is obtained by checking the source of wood given on the ticket. 2.12 The company shall check on arrival that all wood products are accompanied by shipping documents that include: For FSC-Pure and FSC-Mixed: the correct and valid FSC certificate code. (9.1) Post-consumer reclaimed wood: a valid certificate number or equivalent identification as post-consumer reclaimed. (9.2) Controlled Wood: supplier documentation is sufficient to assess risk as per the controlled wood standard. (9.3) Findings: All FSC-Pure material will come from company lands and will have the green trip ticket described above. The white ticked accompanying controlled wood will have the source and can be checked against information supplied to the weighmaster to see that it does not come from high-risk areas. 2.13 Company ensures that all FSC-Pure material received that is to be used in FSC-Pure products is clearly identified and/or stored separately from the other material categories (9.4): Findings: If sales are anticipated for FSC-Pure material the logs from company lands can be stored separately until the necessary volume is obtained. 2.14 Company ensures that all material that cannot be identified as one of the categories in 2.7 above shall be kept separate from material for use in FSC product groups (9.5): Findings: Procedures are clearly stated in the company's CoC Procedures and Policies. The weighmaster will verify the controlled status of the wood by checking the source of the wood given on the white trip ticket. If there is any question about the controlled status of the logs the weighmaster will hand the truck driver an orange colored ticket, which indicates non-controlled wood. If there is a question about the controlled status of the logs, they are unloaded and stored in a separate location in the log yard. 2.15 Company record keeping systems provide current and accurate information on inventory for each category: Findings: Can be done by the company's Baywood inventory system. On arrival, loads of logs are immediately weighed and inventoried as certified or controlled and a determination can be made at any time of the volume of certified and non-certified (controlled) in inventory. SmartWood Program Page 8

Part 3: Production Control and Records Standard Requirement Information collection and records 3.1 For each product group, the company records the quantity (by volume or weight) of FSC-pure, FSC-mixed, post-consumer reclaimed, other reclaimed, and/or controlled material on a monthly* basis (10.1): a) received as stock for production; b) used for the manufacture of each FSC product group; and c) sold as FSC-certified (FSC-pure, FSC-mixed, or FSC-recycled). Compliance * te: Company may reduce time period to less than one month for sporadic or limited orders (10.2, 10.7). Findings: Is printed on a monthly basis, but can be calculated at any time from the company's Baywood and Lumbertrack inventory systems. Identification of rolling average 3.2 Company procedures define the methodology for determining the rolling average and the claim period for each FSC product group (10.6): Findings: Methodology for determining rolling average is given in the document "FSC CoC - Credit System" for FSC-Mixed material (Exhibit #5). 3.3 Company maintains documented calculations of the rolling average of FSC-certified material for each product group from the specified starting date to the date on which a claim is made (10.3): Findings: Printed on a monthly basis, but can be determined at any time from the Baywood and Lumbertrack inventory systems. 3.4 Company produces for each product group a monthly record of the rolling average of the FSC material used in the product group (10.4): Findings: Can be printed each month from company inventory system. 3.5 The company assigns a number (e.g. a batch number) or other unique identifier by which it is possible to identify all products in the FSC product group (10.5): Findings: Unique number is entered through the Baywood and Lumbertrack inventory systems. 3.6 For each product group the company shall specify an FSC claim period of up to12 calendar months (10.6): Findings: Company will produce only one product (FSC-Mixed Southern Yellow Pine dimensional lumber) for which a claim period is needed and the period will be 12 calendar months. Part 4: Requirements for Labeling Standard Requirement Findings: Prescott Lumber Mill has developed a document that covers all procedures and policy for onproduct use of FSC trademarks and this document fully explains how the company will comply with FSC requirements (Exhibit #4) SmartWood Program Page 9 Compliance 4.1 Company will use FSC on-product labels/logos (12.1): Company s FSC product groups qualify for the following labels: FSC-Pure FSC-Mixed FSC-Recycled Findings: Prescott Lumber Mill will produce one product - dimensional lumber - and it will be sold as FSC- Pure and FSC-Mixed. Eligibility for on-product use of the FSC trademarks 4.2 Company has met eligibility requirements for on product use of FSC trademarks: a) The company complies with parts 1-3 of the standard; b) The product to be labeled is included in the company s FSC product group schedule (11.1); c) FSC labels are used only on products eligible for the specific label (FSC-STD-40-201 sections 1.2, 4.8, 4.9, 4.10).

Requirements for labeling with the FSC-pure label 4.3 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% FSC-pure material during the entire claim period (12.2 and FSC-STD-40-201): Findings: Procedures are given in the document entitled "FSC CoC- Labeling and Logo Usage Procedures" (Exhibit #4) Requirements for labeling with the FSC-mixed label (Threshold System) 4.5 Company procedures for labeling based on a threshold system are in compliance with FSC policy (Section 12.3 and FSC-STD-40-201): Findings: Requirements for labeling with the FSC-mixed label (Credit System) Company procedures for labeling based on a credit system are in compliance with FSC policy (Section 12.4, 12.5, 13 and FSC-STD-40-201): te: Company must demonstrate compliance with the FSC Credit System section below (14) Findings: Procedures (Exhibit #4) are in compliance with FSC Credit System. Requirements for labeling with the FSC-recycled label 4.7 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% post-consumer reclaimed wood/fiber during the claim period (12.6 and FSC- STD-40-201): Findings: Approval of labels and claims 4.8 Company demonstrates compliance with FSC on-product labeling requirements (FSC- STD-40-201) for all on-product FSC labels and claims (15.1): Findings: Procedures (Exhibit #4) indicate compliance with FSC on-product labeling. 4.9 Company procedures include: a) Provisions for submission to and approval by SmartWood for on-product labels and/or off-product claims that make use of the FSC trademarks, prior to the labels or material being printed (15.2 and FSC-STD-40-201 sec 1.4). b) Controls to ensure that FSC trademarks are not used for the promotion of products which do not meet the thresholds for labeling outlined in Part 4 of the standard (16.6, 16.8): Findings: See Exhibit #4. 4.10 Company maintains on file records of all SmartWood approvals of logo use and labels (15.3): Findings: Company has agreed to do so and has included the agreement in their procedures for use of FSC on-product labeling (Exhibit #4). 4.11 Company procedures for use of FSC labels include the following provisions: a) FSC labels are not used on-product with the logos or names of other forestry certification schemes (FSC-STD-40-201 sec 1.9). b) FSC labels are applied directly to the certified product or packaging and are clearly visible (FSC-STD-40-201 sec 1.12). c) FSC-labeled products do not carry additional claims referring to the sustainability of the source forest (FSC-STD-40-201 sec 1.11). d) Removal when there is use of simplified FSC labels for internal segregation of certified materials during processing before sale if the labels do not meet all of the FSC requirements (FSC-STD-40-201 sec 2.2). e) Translation of labels is approved by SmartWood prior to use (FSC-STD-40-201 sec 2.3). Findings: See Exhibit #4. SmartWood Program Page 10

Arrangements for printing and applying labels between certificate holders 4.12 If Company will request certified suppliers to label products with Company s FSC certification code (or if Company is requested by buyer to label with buyer s code), then company procedures shall include provisions that: a) Both buyer and manufacturer inform their certification body of the agreement and receive written authorization from the certifier. b) The manufacturer is responsible for final approval of the product label and to ensure that the buyer s label only appears on products supplied to said buyer. c) The buyer makes available background information on the labeling arrangement to all affiliate group companies selling the products in question (FSC-STD-40-201 sec 5.1). Findings: FSC-Credit System check if section not applicable Standard Requirement 4.13 Company has documented procedures for the establishment and maintenance of an FSC-credit account. Written procedures specify: The methodology for creation and management of an FSC credit account for each FSC product group, including forms and record keeping. Findings: Procedures for establishment and maintenance of an FSC-credit account are given in the document "FSC CoC- Credit System" (Exhibit #5). 4.14 Company has documented procedures for the labeling of products under the credit system, including specifications that: a) If the FSC content in a product group falls below the minimum 10% rolling average for labeling then the FSC trademarks shall not be used on-product until the rolling average again meets the specified minimum (12.5, 13.1). b) Labeling shall not be based on future predictions of purchases of FSC-certified material, which exceed the FSC-credit achieved to date (13.2, 14.10). c) On-product labeling does not exceed the total accumulated credit available in the FSCcredit account for that product group at the end of the preceding month (14.5). Findings: See Exhibit #5. FSC-credit accounts 4.15 Company has established an account for each FSC product group. For each account, the company has: a) Identified the inputs for which FSC-credit will be attributed according to different components; b) Identified the conversion factor for each individual component (14.1). Findings: See Exhibit #5. Entering inputs to an FSC-credit-based account 4.16 Company records in the FSC credit account on a monthly basis: a) The FSC credit amount for each FSC product group with the FSC-input entered for each component of the product group. I.e. the FSC credit shall be calculated on the basis of the information specified on the invoice for the purchase of the FSC material (14.2, 14.3). b) The converted amount for each component of the FSC product group. I.e. the converted amount is calculated to reflect the transformation of the component (14.4). Findings: Procedures are given in document "FSC CoC-Credit System" (Exhibit #5). Withdrawing FSC-credit from the FSC-credit account 4.17 Company calculates and records: a) The amount of product (volume or weight) sold as FSC during the month, and deducts this amount from the total FSC credit available at the end of the preceding month (14.6). b) The invoice reference of the FSC labeled products sold in the FSC-credit account (14.7.). Findings: Procedures are given in document "FSC CoC-Credit System" (Exhibit #5). Compliance SmartWood Program Page 11

4.18 The company written procedures and or work instructions include provisions to ensure that the FSC-credit account shall not be overdrawn (14.11): Findings: See Exhibit #5. Deducting expired credit from an FSC-credit account 4.19 At the end of each month the company: a) Deducts from the FSC-credit account any remaining credit that was entered more than 12 months previously (14.8.); b) Calculates the total FSC-credit remaining in the FSC-credit account (14.9.). Findings: Procedures to be used are given in the document "FSC COC-Credit System" (Exhibit #5). Part 5: Invoicing, Sales, and Shipping Documentation Standard Requirement 5.1 Company invoices issued for sales of products on the FSC product group schedule include the following required information (16.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) Description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products sold. e) The correct FSC certification code; f) Reference to the product s batch and/or to related shipping documentation, sufficient to link the invoice to the goods received by the customer. SmartWood Program Page 12 Compliance Findings: Information to be included on the company invoices is given in the document "Sales and Shipping Documentation" (Exhibit #6) The auditor was given an example of the invoice to be used. 5.2 Company invoices meet the following requirements: a) The registration code number on invoices is clearly linked to the certified products; b) When several codes cover different certified products on an invoice, there shall be a clear link between the products and their respective code; c) Clear identification of which products appearing on the invoice are FSC-certified and which are not (16.2); d) The statement FSC-pure is only used on invoices accompanying material sold as FSC-pure (16.3); e) For FSC-mixed products from the threshold system, include the minimum percentage of FSC material claimed for the product group over the labeling period (16.4); f) For FSC-mixed products from the credit system, include the statement FSC-credit material (16.5). Findings: The auditor was shown examples of the invoice to be used. The above information is included on the invoice and is specified in the company's Sales and Shipping Documentation (Exhibit #6). Shipping documentation 5.3 Company shipping documents issued for deliveries of products containing FSCcertified or post-consumer reclaimed material include (17.2): a) The correct FSC certification code; b) The percentage of FSC-certified material claimed for the product group as applicable. Findings: This information is specified in the Company's Sales and Shipping Documentation (Exhibit #6) and a copy of a Bill of Lading was given to the auditor. 5.4 Company shipping documents include the following when invoices do not physically accompany FSC-certified products (17.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) A description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products included in the shipment; e) Reference to the sales invoice for the products delivered, sufficient to link the goods shipped to the specific invoice for the goods. Findings: This information is specified in the company's Sales and Shipping Documentation (Exhibit #6).

Sales records 5.5 The company maintains a record of all its buyers of FSC-certified material in the product group schedule as well as volumes of material sold as FSC-certified material (pure, mixed, recycled). This record is available upon request by SW or the FSC (18.1): Findings: Company has agreed to do this and the auditor was shown a record of all buyers. When FSCcertified material is sold the buyers will be designated as such. V. CERTIFICATION RECOMMENDATION A. Assessor Recommendation 1. Based on compliance performance with the Chain-of-Custody standards, the assessor recommends that Company be: Approved for certification upon successful completion of the pre-conditions and agreement to comply with the CARs below. Approved for certification upon agreement to comply with the CARs detailed below. Approved for certification. 2. Company is applying to be certified as exclusive or non-exclusive. B. Pre-conditions ne C. Follow-up Actions by Company to Meet Certification ne D. Corrective Action Requests CAR #: 1/05 Reference Standard #: 9.4 n-compliance Potlatch did not provide a sampling size and methodology for verification of Major: Minor: X transport and purchase documents. Corrective Action Request: Potlatch shall propose sampling size and methodology for verification of transport and purchase document of their suppliers based on the best available guidance provided by FSC sampling methodology, another certification such as SFI, or other statistically appropriate recommendation. Timeline for Compliance: Prior to the next annual audit. SmartWood Program Page 13

APPENDICES Appendix A: Summary of Company s CoC Process and Risk Analysis Certified Product Flow Table with Risk Analysis This table provides an overview of the Company s CoC procedures with control measures that are in place to prevent the mixing of certified and noncertified materials. Handling Procedure Step Purchasing All certified logs will come from company lands. Contamination Risk Factor and Control Measure Tracking and Documentation (Exhibit # when applicable) Receiving Production Shipping and Sales Logs are delivered to the mill site by truck. Logs come from certified company lands, sales purchased and logged by the company, and gatewood. Company will produce FSC-Pure and FSC- Mixed southern pine dimensional lumber. Selecting, shipping, and invoicing` Mixing of loads of non-certified logs with loads of certified logs Certified logs from company lands will have a green security ticket and an alpha numeric number beginning with the letter C Mixing of certified and non-certified material or use of uncontrolled wood Green or white labels will accompany the FSC-Pure or FSC-Mixed lumber throughout the production process Improper mixing of certified and noncertified material Loads of certified logs will have a green security ticket (Exhibit #2) and controlled wood will have a white ticket (Exhibit #3) Batch runs will be used for FSC- Pure material that has been stored separately. Uncontrolled wood will be eliminated based on use of the security tickets (Exhibit #1) Stacks of lumber will be selected based on the green or white labels. Bills of Lading and Invoices will describe product group and will be able to cross reference bill of lading and invoice (Exhibit #6).. SmartWood Program Page 14

Appendix B: VERIFICATION SYSTEM FOR CONTROLLED WOOD 1.0 Quality System Requirements Standard Requirement Compliance 1.1 Documented procedures include all elements of the controlled wood standard including (2.0): i) Origin of wood verification and documentation (6.0) j) Requirements for supplier declarations (7.0) k) Completing a risk assessment (8.0) l) Evaluating high risk sources (9.0) Findings: Procedures are given in the Company s CoC procedures dealing with controlled wood (FSC-Mixed products). (Exhibit #1) 1.2 The company has an updated list of all incoming controlled wood materials (1.0). Findings: Information is in company s Baywood inventory system. 2.0 Company Requirements Standard Requirement Company Policy 2.1 Company has a publicly available written policy commitment endorsed by a senior executive to exclude wood harvested from the following sources (5.1): a) wood harvested from forest areas where traditional or civil rights are violated; b) wood harvested from non FSC-certified forest areas having high conservation values which are threatened; c) wood harvested from genetically modified (GM) trees; d) illegally harvested wood; e) natural forest that has been converted to plantations or non-forest use. Compliance Findings: Policy is given in the Controlled Wood Risk Assessment & Procurement Procedures document, a copy of which was provided to the auditor. Origin of Wood Inputs 2.2 Company has a publicly available list that identifies and records the countries and district of origin of its incoming controlled wood and wood fiber (6.1). Findings: A copy was given to the auditor. 2.3 Company identifies and records the documentation that its suppliers shall have available to confirm the origin of controlled wood to district level (6.2). Findings: This information is provided on the white security ticket that must be provided for each load of logs. 2.4 Company s suppliers of controlled wood have agreed to provide such information on request (6.3). Findings: They have agreed to do so and have received training concerning controlled wood and will have a copy of and sign the Gatewood Master Agreement (Exhibit #8). 2.5 Company has implemented a verification system for transport and purchase documents on sampling basis to confirm the country and district of origin of controlled wood and fiber (6.4). Findings: Information on how this is done is provided in the CoC procedures for controlled wood (Exhibit #1). SmartWood Program Page 15

Incoming wood 2.6 For all incoming controlled wood, Company requires supplying companies to provide: a) declaration confirming the origin of the wood or fiber to district level. b) declaration that the wood or wood fiber in the shipment is controlled to avoid sources specified in FSC-STD-30-010 (FSC standard for forest managers for controlled wood) (7.1). Findings: This is accomplished by use of the white security ticket (Exhibit #3) and is checked against highrisk sources by the weighmaster. Risk Assessment 2.7 Company evaluates all forest areas from which non FSC-certified controlled wood is sourced in accordance with the criteria for identifying high-risk forest areas as specified in annex 2 of the standard (8.1). Findings: This has been done in cooperation with Arkansas Natural Heritage. 2.8 Company has a system for evaluating wood from forest areas, which are high-risk in relation to the categories listed in section 4.1 of FSC-STD-30-010 FSC standard for forest managers for controlled wood, in accordance with 2.10 to 2.13 below (8.2). Findings: This has been established in cooperation with Arkansas Natural Heritage. Wood from these areas will be treated as uncontrolled and stacked separately until status can be assessed. 2.9 Company re-evaluates the source and justifies the basis on which it has been categorized in case the categorization of high risk and low risk forests are challenged and evidence provided thereof e.g. by external party (8.4) Findings: Process for this is given in the Controlled Wood Risk Assessment & Procurement Procedures document. Evaluating High Risk 2.10 In case of sourcing controlled wood and fiber from high risk areas company has implemented a program for evaluation incoming wood (9.2). Findings: This is accomplished by use of the white security ticket (Exhibit #3) an immediate recording of source that can be checked by computer against high-risk areas. 2.11 For controlled wood and fiber coming from high-risk forest areas, the Company has either: a) required the supplier to provide it with independent verification by an FSC accredited certification body to confirm that the source in question is controlled for the categories identified in FSC-STD-30-010 FSC Requirements for forest managers for controlled wood; or b) ascertained the forest management unit of origin of the wood or wood fiber and include the source in the Company program of verification to confirm that (for the category or categories of high-risk forest areas identified) such sources comply with FSC-STD-30-010 FSC requirements for forest managers for controlled wood (9.3). Findings: Accomplished by use of white security tickets (Exhibit #3) and checked against information for high-risk areas, and information supplied by Arkansas Natural Heritage. 2.12 If the Company carries out verification as specified in 2.11.b, the company undertakes field inspections on the basis of sampling in accordance with the requirements outlined in Annex 3 of the Standard. Field inspections investigate that wood or wood supplied complies with the requirements outlined in STD-30-010 FSC requirements for forest managers for controlled wood (9.4). Findings: Process is given in company s Controlled Wood Risk Assessment and Procurement Procedures, but sampling size and methodology are not given. See CAR 1/05. 2.13 In case Company is unable to ascertain the forest management unit of origin of the wood or wood fiber in question the Company provides justification by which it has confirmed that that source has been controlled (9.5). Findings: Procedures are given in company s Controlled Wood Risk Assessment and Procurement Procedures. SmartWood Program Page 16

Records 2.14 Company maintains records that demonstrates compliance with 2.10 to 2.13 for a minimum of 5 years (10.1). Findings: Company has agreed to do so and have stated so in their CoC Procedures. Excluding Uncontrolled Wood 2.15 Company has procedures in place to ensure that where documentation relating to compliance with this standard is not provided or is incomplete or unreliable, or source evaluations reveal that the source cannot be confirmed as being controlled, such material shall not be mixed with controlled wood/fibre wood until the supplier can demonstrate full compliance with the specifications outlined in FSC-STD-30-010 FSC requirements for forest managers for controlled wood for that material source (11.1). Findings: Such material will be detected by use of the white security tickets and will be stored separately until verification is supplied by supplier or by checking by company employees. CITES Species 2.16. If incoming wood is from species listed in Annex 1, 2 or 3 of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) it is accompanied by relevant licences and/or export permits (12.1). Findings: Company will not purchase wood from other countries. Exhibits collected for this section: Exhibit #7 Gatewood Master Agreement. SmartWood Program Page 17

Appendix C: Summary of Exhibits Collected and Included with this Report Exhibit #1 Prescott Lumber Mill CoC Procedures Exhibit #2 - Labeling and Logo Usages Procedures Exhibit #3 - FSC- CoC Credit System Exhibit #4 - Sales and Shipping Documentation Exhibit #5- Gatewood Master Agreement SmartWood Program Page 18

Purpose: Exhibit #1 Prescott Lumber Mill FSC CoC Procedures: The purpose of this training document is to ensure Potlatch Corporation Prescott Lumber Mill has developed Chain-of- Custody (CoC) control systems and procedures that are followed for the handling, processing, and marking/labeling of certified forest products. Complete CoC control systems and the corresponding documentation allow for tracking of a product from the raw material in the wood yard, through every step of processing, to the finished product loaded on the truck for delivery. Production of FSC-certified and controlled wood is expected to bring a premium price on the marketplace and is thus an important part of Potlatch Corporation Prescott Lumber Mill product mix going forward. Potlatch Corporation Prescott Lumber Mill has developed separate FSC CoC procedures for the following products: FSC-Mixed (Yellow colored document) o Production of FSC-mixed lumber and controlled wood. o Can be sold as FSC-mixed lumber, controlled wood, or to fill non-specific lumber orders. FSC-Pure (Green colored document) o Production of FSC-pure lumber. o Can be sold as FSC-pure lumber, FSC-mixed, controlled wood or to fill non-specific lumber orders. Uncontrolled Wood (orange colored document) o Production of uncontrolled wood. o Can only be used to fill non-specific wood orders. The primary manufacturing focus of the Prescott Lumber Mill will be on the production of FSC-mixed (yellow colored document). However, from time to time mill managers may switch from FSC-mixed production to FSC-pure or uncontrolled wood production. Mill managers will hold meetings with the appropriate mill personnel/mill areas before changing production focus. Please refer to the attached color coded documents and your area(s) of responsibility when you have been notified of a change in production focus or if you have questions regarding: handling of wood or lumber in designated areas; handling of lumber with colored labels placed next to the lumber track ticket. You may also contact the designated person responsible for ensuring appropriate CoC implementation in your area(s) the designated person can be found by finding the name in italics under the area(s) in question. SmartWood Program Page 19

FSC-Mixed Prescott Lumber Mill FSC CoC Procedures: 1. Weighmaster/Scale House (Larry Smith/Scott Hamilton) The weigh master will verify the certified status of the logs via the Potlatch contract number. o Truck drivers coming from Potlatch Corporation timberlands or purchased sales have a green security ticket to identify each load coming into the plant. o The green security ticket is given to the weighmaster and the contract number and green security ticket number is entered into the logging system. The contract number is a unique nine character alphanumeric number that begins with the letter C and identifies wood coming from Potlatch Corporation lands as opposed to purchased wood. A white trip ticket is used for controlled wood for gatewood. Verification of the controlled status of the gatewood is obtained by checking the sources of wood. o If there is any question about the controlled status of the logs the weigh master will hand the truck driver an orange colored ticket (which indicates uncontrolled wood). After weighing the load and collecting the security tickets, the weigh master will direct the driver to the sawmill log yard. If there is any question about the controlled status of the logs they are unloaded and stored in a separate location (uncontrolled run) on the log yard. 2. Log Yard/Scalers (FSC-Mixed Certification) (Larry Smith/Scott Hamilton) The log scaler will enter the green or white security ticket number, stapled to load, into the scalers hand-held computer. o Uncontrolled logs (indicated by an orange colored ticket) are unloaded on a deck marked for uncontrolled logs. Signs bearing Uncontrolled Wood are utilized to denote decks where uncontrolled logs are stored. The logs are unloaded and counted. The stem count is entered into the hand-held computers. The cull is deducted on the hand-held computers and the information is downloaded into the logging system. The weigh master will print the scale ticket and give the truck driver a copy of the scale ticket. 3. Sawmill Process Runs (FSC-Mixed Certification) (Scott Hamilton) All uncontrolled wood is cleared from the log deck and drop sorters. FSC and controlled logs (FSC-mixed) are selected for FSC-mixed processing through the sawmill. FSC-mixed logs are debarked and sent through various primary and secondary breakdowns in the sawmill. FSC-mixed green lumber is trimmed and sorted by size and dimension in the drop sorter. 4. Green Yard (FSC-Mixed Certification) (Mike Bonnette) FSC-mixed green lumber from drop sorters is stacked and stored in runs that are not either FSC-pure or uncontrolled. Stacks of FSC-mixed green lumber sold as green are transported to the shipping area. Stacks of FSC-mixed green lumber to be kiln dried are stacked and stickered for kiln dry and assembled on a kiln car, which is assigned a lumber track ticket. 5. Dry Kiln (FSC-Mixed Certification) (Mike Bonnette) The FSC-mixed lumber goes in as a bundle and comes out of the kiln as a bundle still bearing the lumber track ticket. The lumber bundle is then transported to an area inside the warehouse to cool. 6. Planer Mill (FSC-Mixed Certification) (Mike Bonnette) All uncontrolled wood is cleared from the planer mill and drop sorters. FSC-mixed lumber is run in batches as rough or run in batches to be surfaced. These batches are run as all FSC-mixed lumber. The FSC-mixed lumber is graded, tallied and sent to the sorters. A lumber track ticket is attached to the stack of lumber. 7. Warehouse/Inventory (FSC-Mixed Certification) (Mike Bonnette) Finished FSC-mixed lumber is transported to the finished goods warehouse. o Lumber to be sold as FSC-mixed is stored separately from lumber identified as FSC-pure (green colored label) or uncontrolled wood (orange colored label). SmartWood Program Page 20