ASSET PURCHASE AGREEMENT

Asset Purchase Agreement

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INLAND FIBER GROUP LLC | AMERICAN FOREST RESOURCES, LLC | RICHARD L. WENDT

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Title: ASSET PURCHASE AGREEMENT
Governing Law: Oregon Date: 9/7/2006
Law Firm: Foster Pepper PLLC;Perkins CoieLLP

ASSET PURCHASE AGREEMENT

between

INLAND FIBER GROUP, LLC,

AMERICAN FOREST RESOURCES, LLC

and

RICHARD L. WENDT

Dated as of August 14, 2006

CONTENTS

ARTICLE I - PURCHASE OF ASSETS AND ASSUMPTION OF
SPECIFIED LIABILITY

1.1

Purchase of Assets

1.1.1

Equipment

1.1.2

Real Property

1.1.3

Leases

1.1.4

Permits

1.1.5

Books and Records

1.1.6

Timber Interests

1.1.7

Contracts

1.2

Liabilities

1.2.1

Taxes

1.2.2

Litigation

1.2.3

Affiliates

1.2.4

Indebtedness

1.3

Consideration

1.4

Allocation of Purchase Price

1.5

Closing

1.5.1

Closing

1.5.2

Seller's Deliverables at Closing

1.5.3

Purchaser's Deliverables at Closing

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER

2.1

Organization; Good Standing

2.2

Authorization; Binding Effect

2.3

No Conflicts

2.4

Consents and Approvals

2.5

Claims and Legal Proceedings

2.6

Taxes

2.7

Real Property

2.8

Equipment

2.9

Leases and Contracts

2.10

Permits

2.11

Applicable Laws

2.12

Environmental and Safety Matters

2.13

Title to Assets

2.14

Conduct of Business

2.15

Timber Harvesting

2.16

WARN Act

2.17

Financial Statements

2.18

Insurance

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2.19

Disclosure

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PURCHASER

3.1

Capacity

3.2

Binding Effect

3.3

No Conflicts

3.4

Consents and Approvals

3.5

Purchaser’s Knowledge

ARTICLE IV - OTHER COVENANTS AND AGREEMENTS

4.1

No-Shop

4.2

Covenants to Satisfy Conditions; Further Action

4.3

Other Cooperation After Closing

4.4

Seller Duties

4.5

Books and Records

4.6

Regulatory and Other Authorizations; Consents

4.7

Tax Matters

4.8

Oregon Forest Practices Act.

4.9

Title Issues

4.10

Non-Solicitation Waiver

ARTICLE V - CONDITIONS PRECEDENT

5.1

Conditions Precedent to Obligations of Purchaser

5.1.1

Representations and Warranties; Covenants

5.1.2

Consents and Approvals

5.1.3

Additional Documents

5.1.4

No Adverse Changes

5.1.5

Bankruptcy Court Approval

5.1.6

No Injunction or Litigation

5.1.7

Related Transactions

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5.2

Conditions Precedent to Obligations of Seller

5.2.1

Representations and Warranties; Covenants

5.2.2

Additional Documents

5.2.3

No Injunction or Litigation

5.2.4

Bankruptcy Court Approval

5.2.5

Governmental Approvals

5.2.6

Related Transactions

ARTICLE VI – TAXES; EXPENSES; APPORTIONMENT

6.1

Transfer Taxes; Expenses; Pro-ration

6.1.1

Transfer Taxes

6.1.2

Expenses

6.1.3

Pro-ration

ARTICLE VII – INDEMNITY

7.1

Survival

7.2

Seller Indemnification Obligation

7.3

Purchaser Indemnification Obligation

7.4

Additional Indemnification Provisions

7.4.1

Threshold Basket

7.4.2

Maximum Indemnity Liability

7.4.3

Exceptions

7.4.4

AFR Guarantee

ARTICLE VIII – GENERAL

8.1

Default; Termination

8.1.1

Default by Seller

8.1.2

Default by the Purchaser

8.1.3

Termination

8.2

Modification and Waiver

8.3

Construction

8.4

Severability

8.5

Applicable Law

8.6

Parties in Interest; Assignment

8.7

No Third-Party Beneficiaries

8.8

Notices

8.9

Entire Understanding

8.10

Counterparts

8.11

Time is of the Essence

8.12

Broker Commissions

8.13

Confidentiality

8.14

Further Assurances

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SCHEDULES

	Section
Equipment	1.1.1
Real Property	1.1.2
Leases	1.1.3
Permits	1.1.4
Timber Interests	1.1.6
Contracts	1.1.7
Fair Market Value of Assets	1.4
Third-Party Timber Rights	2.13
Permitted Exceptions	4.9

DISCLOSURE MEMORANDUM

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EXHIBITS
Bill of Sale and Assignment	A
Assignment and Assumption Agreement	B
Timber Warranty Deed	C-1
Timber Quitclaim	C-2
Statutory Warranty Deed	D
AFR Balance Sheet	E

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INDEX OF DEFINED TERMS
Defined Terms	Section Reference
Additional Exceptions	Section 4.9
AFR	Introductory Paragraph
AFR Agreement	Recital B
AFR Balance Sheet	Section 2.17
Agreement	Introductory Paragraph
Assets	Section 1.1
Assumption Agreement	Section 1.5.2(c)
Bankruptcy	Recital C
Bill of Sale	Section 1.5.2(b)
Business	Recital A
Cash Payment	Section 1.3
Claim	Section 2.5
Closing	Section 1.5.1
Code	Section 1.4
Contracts	Section 1.1.7
Deeds	Section 1.5.2(e)
Disclosure Memorandum	Article II Introductory Paragraph
Effective Date	Introductory Paragraph
Encumbrance	Section 1.1
Environmental and Safety Law	Section 2.12(f)
Equipment	Section 1.1.1
Excess Harvest	Section 2.15
Facilities	Section 2.11
Financial Statements	Section 2.17
Governmental Body	Section 2.3
Harvest Account	Section 2.15
Hazardous Materials	Section 2.12(f)
including	Section 8.3
knowledge	Article II Introductory Paragraph
Leases	Section 1.1.3
Leased Real Property	Section 1.1.3
Losses	Section 7.2
Off-site Locations	Section 2.12(f)
Permits	Section 1.1.4
Permitted Exceptions	Section 4.9
Plan of Reorganization	Recital D
Purchase Price	Section 1.3
Purchaser	Introductory Paragraph
Purchaser Indemnified Parties	Section 7.2
Real Property	Section 1.1.2
Related Agreements	Section 1.5.2(d)
Related Transactions	Section 5.1.7
Seller	Introductory Paragraph
Surviving Representations and Warranties	Section 7.1
Seller Indemnified Parties	Section 7.3
Tax	Section 2.6
Timber Conveyance	Section 1.5.2(d)
Timber Interests	Section 1.1.6
Title Commitments	Section 4.9
Title Company	Section 1.5.1
Title Policy	Section 4.9
Title Update	Section 4.9
TRS	Recital B
TRS Agreement	Recital B
WARN Act	Section 2.16

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ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this "Agreement") is entered into as of August 14, 2006 (the “Effective Date”) by and between RICHARD L. WENDT ("Purchaser") and INLAND FIBER GROUP, LLC, a Delaware limited liability company ("Seller"). American Forest Resources, LLC, a Delaware limited liability company (“AFR”) is also a signatory to this Agreement but only to evidence its agreement to its obligations under Section 2.15 and Article VII below.

RECITALS

Seller is engaged in the business of growing and harvesting timber and selling logs, standing timber, and related by-products to third party wood processors (the "Business").

Contemporaneously with this Agreement, Purchaser is entering into an Asset Purchase Agreement with AFR to purchase certain timberland owned by AFR (the “AFR Agreement”) and an Asset Purchase Agreement with Timber Resource Services, LLC (“TRS”) to purchase certain tangible personal property related to the operation of the Business (the “TRS Agreement”).

Seller is currently or will shortly file for protection under Chapter 11 of Title 11 of the United States Tax Code (the "Bankruptcy") and will have no operations or assets upon the exit from the Bankruptcy.

Seller wishes to sell to Purchaser, and Purchaser wishes to purchase from Seller, all of the assets of Seller that relate to the Business, as more fully described herein, pursuant to, and as contemplated by, the Seller's plan of reorganization in the Bankruptcy (the "Plan of Reorganization").

AGREEMENT

In consideration of the terms hereof, the parties agree as follows:

ARTICLE I - PURCHASE OF ASSETS AND
ASSUMPTION OF SPECIFIED LIABILITIES

1.1

Purchase of Assets

Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Purchaser, good and marketable title free and clear of any lien, mortgage, pledge, deed of trust, or security interest, other than liens for real property taxes due but not yet payable (each an "Encumbrance"), and Purchaser shall purchase and acquire from Seller, all right, title and interest in and to all of the following assets (collectively the "Assets"):

1.1.1

Equipment

All machinery, equipment, spare parts, furniture, fixtures, computer hardware, leasehold improvements and other tangible personal property described in Schedule 1.1.1 or that is used in the Business, located in the State of Oregon, and owned by Seller (collectively, the "Equipment"), and all rights of Seller to the warranties received from manufacturers and distributors and any related claims, credits, rights of recovery and setoffs with respect to such Equipment.

1.1.2

Real Property

All real property owned by Seller in the State of Oregon, consisting of approximately 162,521 acres, more or less, together with all and singular easements, covenants, agreements, rights, privileges, tenements, hereditaments and appurtenances thereunto now or hereafter belonging or appertaining thereto (collectively, the "Real Property"). The Real Property (other than the Sort Yard, Seed Orchard and Nursery Property located in Klamath County) is shown generally on the following maps, which depict the combined holdings of Seller and AFR: (i) Oregon Ownership Northwest, prepared by Timber Resource Services, LLC, dated August 4, 2006 (File No. T:\Planning Dept. Projects\KFTrFrmSale\GIS\KFTrFrmNW.mxd), (ii) Oregon Ownership Northeast, prepared by Timber Resource Services, LLC, dated August 4, 2006 (File No. T:\Planning Dept. Projects\KFTrFrmSale\GIS\KFTrFrmNE.mxd), (iii) Oregon Ownership West and a bit of California, prepared by Timber Resource Services, LLC, dated August 4, 2006 (File No. T:\Planning Dept. Projects\KFTrFrmSale\GIS\KFTrFrmW.mxd), and (iv) Oregon Ownership East, prepared by Timber Resource Services, LLC, dated August 4, 2006 (File No. T:\Planning Dept. Projects\KFTrFrmSale\GIS\KFTrFrmE.mxd) (collectively, the “Property Map”) and is legally described on Schedule 1.1.2. To the extent Schedule 1.1.2 fails to legally describe all of the Real Property, Schedule 1.1.2 shall be revised to include all of the Real Property.

1.1.3

Leases

All of Seller's right, title, and interest under the leases described on Schedule 1.1.3 (the "Leases"). The premises leased to Seller pursuant to the Leases is sometimes referred to herein as the "Leased Real Property."

1.1.4

Permits

All governmental approvals, authorizations, consents, licenses, orders, registrations and permits of all Governmental Bodies related to the ownership and operation of the Assets and the Business (the "Permits"), to the extent actually assignable or transferable, set forth in Schedule 1.1.4.

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1.1.5

Books and Records

All data and records related to the Assets and the Business, including production reports and records, service and warranty records, equipment logs, operating guides and manuals, including the software programs necessary to access such data and records.

1.1.6

Timber Interests

All of Seller's right, title, and interest to receive deliveries of, cut, harvest, transport or sell timber, logs and like property or products from or on property other than the Real Property, including any property owned by AFR in the State of Oregon and other affiliates of Seller (collectively, the "Timber Interests"), including, without limitation, those Timber Interests described on Schedule 1.1.6.

1.1.7

Contracts

All of Seller's right, title, and interest under the contracts described on Schedule 1.1.7 (the "Contracts").

1.2

Liabilities

Except as expressly provided herein, Purchaser shall not assume any liabilities of Seller whatsoever, whether known or unknown, disclosed or undisclosed, accrued or hereafter arising, absolute or contingent, and Seller shall maintain responsibility for all such liabilities. Without limiting in any way the foregoing, it is expressly understood that Purchaser is not assuming the following liabilities of Seller:

1.2.1

Taxes

Any liabilities for Taxes, either accruing or relating to periods (or portions thereof) ending on or prior to the Closing or based on or arising out of the sale and purchase provided herein.

1.2.2

Litigation

Any claim, judgment, penalty, settlement agreement or other obligation to pay damages or an action for equitable relief in respect of any action, suit or proceeding that is pending or was resolved on or prior to the Closing, including any claim pertaining to the Bankruptcy, or any claim (whether arising from monies owed, wrongful termination claims, COBRA obligations, wage and hour claims, discrimination or harassment claims or otherwise) arising from any person employed by Seller or its affiliates at any time prior to Closing.

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1.2.3

Affiliates

Any liability, contract, obligation or other relationship between Seller and any person or entity affiliated with Seller.

1.2.4

Indebtedness

Any obligation of Seller to pay monies to any person, except for (a) real property taxes accruing following the Closing with respect to the Assets and (b) as expressly required under the Contracts, Permits and Leases.

1.3

Consideration

The aggregate consideration for the Assets (the "Purchase Price") is Eighty Three Million Dollars ($83,000,000.00) to be paid at the Closing by Purchaser to Seller by wire transfer of immediately available funds to an account designated in writing by the Seller (the "Cash Payment").

1.4

Allocation of Purchase Price

The parties agree to utilize the fair market values set forth in Schedule 1.4 for the purpose of allocating the Purchase Price paid hereunder for the Assets for federal, state, local and other tax purposes, which allocation shall be in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, and all regulations promulgated thereunder, as in effect from time to time (the "Code"). Each party agrees to report the federal, state, local and other tax consequences of the transactions contemplated by this Agreement in a manner consistent with such allocation and shall not take any position inconsistent therewith upon examination of any tax return, in any refund claim, or in any litigation, investigation or otherwise.

1.5

Closing

1.5.1

Closing

The purchase and sale of the Assets and other transactions contemplated hereby shall take place in escrow at a closing (the "Closing") to be held at the offices of AmeriTitle, 300 Klamath Avenue, Klamath Falls, Oregon, 97601 ("Title Company"), on the later of (a) October 4, 2006 or (b) three (3) business days following the satisfaction or waiver of all the conditions to Closing set forth in Sections 5.1.2, 5.1.5, 5.2.4, 5.2.5 but in no event shall Closing be later than January 31, 2007. The sale and purchase of the Assets shall be deemed for all purposes to have taken place as of 12:01 a.m. on the Closing.

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1.5.2

Seller's Deliverables at Closing

At the Closing, Seller shall deliver or cause to be delivered to the Purchaser:

(a)

a receipt for the Cash Payment;

(b)

an executed Bill of Sale in substantially the form attached hereto as Exhibit A, pursuant to which Seller will convey the Assets (other than the Leases, Contracts, Permits, the Real Property, and the Timber Interests) to Purchaser and Purchaser will assume the obligations of Seller arising after the Closing with respect to the Assets conveyed thereby (the "Bill of Sale") and other such instruments executed by Seller as may reasonably be requested by the Purchaser to transfer title to the Assets to the Purchaser;

(c)

executed counterparts of the Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit B, pursuant to which Seller will assign the Leases, Contracts, Permits and Timber Interests (to the extent the Timber Interests are contractual in nature) to Purchaser and Purchaser will assume the obligations of Seller arising after the Closing under the Leases, Contracts, Permits and Timber Interests (the "Assumption Agreement");

(d)

executed Timber Warranty Deeds conveying to Purchaser all Timber Interests of record in any County in Oregon, substantially in the form attached hereto as Exhibit C-1 (the "Timber Warranty Deeds");

(e)

executed Timber Quitclaims releasing to Purchaser any interest Seller may have in any timber located on the lands of AFR to the extent not conveyed pursuant to the Timber Warranty Deeds, substantially in the form attached hereto as Exhibit C-2 (the "Timber Quitclaims");

(f)

executed Statutory Warranty Deeds in substantially the form attached hereto as Exhibit D conveying the Real Property to Purchaser, subject only to the Permitted Exceptions (as hereinafter defined) (the "Deeds"). The Deeds, the Bill of Sale, the Assumption Agreement, the Timber Warranty Deeds and the Timber Quitclaims are sometimes referred to herein as the "Related Agreements";

(g)

the certificates and other documents required to be delivered pursuant to Section 5.1; and

(h)

consents to the assignment of Seller's interest in the Leases to Purchaser duly executed by the landlords thereunder, unless an order of the bankruptcy court having jurisdiction over the Bankruptcy makes such consents unnecessary.

1.5.3

Purchaser's Deliverables at Closing

At the Closing, the Purchaser shall deliver to Seller or third parties on behalf of Seller:

(a)

the Cash Payment, disbursed as set forth in Section 1.3, by wire transfer in immediately available funds;

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(b)

an executed counterpart to each Related Agreement to which Purchaser is a party; and

(c)

the certificates and other documents required to be delivered pursuant to Section 5.2.

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER

To induce Purchaser to enter into and perform this Agreement and the Related Agreements, and except as is otherwise set forth in the disclosure memorandum hereto (the "Disclosure Memorandum"), which shall constitute in their entirety a representation and warranty under this Article II, Seller represents and warrants to Purchaser as of the date of this Agreement and as of the Closing as follows in this Article II. All references to the term “Seller” in this Article II shall also mean any affiliated predecessor of Seller if the context of such reference relates to periods prior to Seller having taken title to the referenced Asset. The term "knowledge" as used in this Article II with respect to Seller means the actual knowledge of Martin Lugus, Bob Broadhead, Cathy Gray, Bob Longo, John Rudey and Thomas C. Ludlow.

2.1

Organization; Good Standing

Seller is a limited liability company duly organized and validly existing under the laws of the State of Delaware, has the power and authority to own, operate or lease its properties and assets now owned, operated or leased by it and to carry on its business as currently conducted, and is duly qualified to do business in, and is in good standing in, the State of Oregon.

2.2

Authorization; Binding Effect

Seller has the power and authority to enter into and, subject to the confirmation of the Plan of Reorganization or entry of a bankruptcy court order approving this transaction, carry out its obligations under this Agreement and the Related Agreements. The execution and delivery by Seller of this Agreement and the Related Agreements to which it is a party, and, subject to the confirmation of the Plan of Reorganization or entry of a bankruptcy court order approving this transaction, the performance of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of Seller. This Agreement has been duly executed and delivered by Seller, and constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, except as to the effect, if any, of the confirmation of the Plan of Reorganization or entry of a bankruptcy court order approving this transaction, and rules of law governing specific performance, injunctive relief, and other equitable remedies. At the Closing, the Related Agreements shall be duly executed and delivered by Seller, and, subject to the confirmation of the Plan of Reorganization or entry of a bankruptcy court order approving this transaction, shall constitute legal, valid and binding obligations of Seller enforceable against it in accordance with the terms of such agreement, except as to the effect, if any of rules of law governing specific performance, injunctive relief, and other equitable remedies.

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2.3

No Conflicts

The execution, delivery and, subject to the confirmation of the Plan of Reorganization or bankruptcy court order approving this transaction, performance by Seller of this Agreement and the Related Agreements, and the consummation of the transactions contemplated hereby and thereby do not and will not (a) violate, conflict with, or result in any breach of, any provision of Seller's organizational documents or its limited liability company operating agreement; or (b) violate, conflict with, result in any breach of, or constitute a default (or an event that, with notice or lapse of time or both, would constitute a default) under any contract, agreement or judgment, decree, writ, order or injunction to which Seller is a party or by which it is bound; or (c) result in the creation of any Encumbrance on any of the Assets; or (d) violate any applicable law, statute, rule, ordinance or regulation of any Governmental Body (defined below); or (e) violate or result in the suspension, revocation, modification, invalidity or limitation of any Permits relating to the Business or the Assets; or (f) violate or give any other party rights of acceleration, amendment, termination or cancellation under any contract, agreement, judgment, decree, writ, order or injunction or other restriction to which Seller is a party or by which it is bound or which relates to the Business or the Assets. "Governmental Body" means any federal, state, local or other court or governmental body, any subdivision, agency, commission or authority thereof, or any quasi-governmental or private body exercising any regulatory or taxing authority thereunder, domestic or foreign.

2.4

Consents and Approvals

Except as expressly provided for herein, the execution, delivery and performance by Seller of this Agreement and the Related Agreements do not, and will not, require any consent, approval, exemption, authorization or other action by, or filing with or notification to, any Governmental Body or any other third party except as may be required by a Plan of Reorganization or bankruptcy court order approving this transaction.

2.5

Claims and Legal Proceedings

Except as set forth in Section 2.5 of the Disclosure Memorandum, there is not any action, suit, proceeding, audit, investigation or claim (each a "Claim") pending against Seller with respect to the Assets before or by any Governmental Body or nongovernmental department, commission, board, bureau, agency or instrumentality or any other person, nor is there any mediation or arbitration proceeding in process, and to the knowledge of Seller no event has occurred or circumstance exists that a reasonable person would, on the basis of objective criteria such as knowledge of damage to persons or property or receipt of notices or correspondence threatening or directed towards litigation, consider likely to give rise to or serve as a basis for the commencement of any Claim. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which Seller, with respect to the Assets, is a party; that involve the transactions contemplated herein; or that would or reasonably could be expected to have a material adverse effect upon the Assets. No claim, action, proceeding or investigation is pending, which questions the validity of this Agreement or any of the Related Agreements or any action taken or to be taken by Seller hereunder or thereunder.

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2.6

Taxes

Except to the extent such imposition might arise due to the failure of any portion of the Real Property to meet the stocking or species standards under the Oregon Forest Practices Act, Seller has not taken any action with respect to, changed the use of, or otherwise permitted any event to occur that would result in the Real Property being subject to the imposition of deferred or additional property taxes arising out of any change in use of the Real Property or the disqualification of the Real Property from any tax deferral or abatement programs. Notwithstanding the foregoing, to Seller's knowledge no portion of the Real Property that is currently in any tax deferral or abatement program based on its use as forestland is subject to disqualification from such program due to its failure to meet the stocking or species standards under the Oregon Forest Practices Act. All tax returns required to be filed by Seller with respect to the Assets and the Business have been duly and timely filed and all such tax returns are true, correct and complete in all material respects. Seller has not sought nor is it the beneficiary of any extension of time within which to file a Tax return. All Tax obligations of Seller with respect to the Assets and the Business or that are reflected on the Tax returns filed by Seller have been timely paid or are being contested in good faith. Seller has no liability for any Tax obligations with respect to the Assets or the Business and no interest or penalties have accrued or are accruing with respect thereto, whether state, county, local or otherwise with respect to any periods prior to the Closing except those that will be paid in full through the Closing at the Closing or that, if not timely paid by Seller, could not result in (a) an Encumbrance on any of the Assets or (b) the commencement of a Claim against Purchaser. There is no Claim pending or threatened in respect of any Taxes relating to the Assets or the Business, nor has any deficiency or claim for any such Taxes been proposed, asserted or threatened. Seller has no Knowledge that any Governmental Body is likely to assess any additional Taxes for any period prior to the Closing. Seller is not subject to a contract or agreement relating to the sharing, allocation or payment of, or indemnity for, Taxes. Seller has not been a member of an affiliated group within the meaning of Internal Revenue Code Section 1504 (or any similar group defined under a similar provision of state, local or foreign law), and Seller has no liability for Taxes of any other person. There are no liens on any of the Assets with respect to Taxes, other than liens for Taxes not yet due and payable. For purposes of this Agreement, "Tax" or "Taxes" mean (i) all taxes, charges, fees, levies or other assessments, including income, excise, gross receipts, personal property, real property, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, severance, stamp, occupation, windfall profits, social security and unemployment or other taxes imposed by the United States or any agency or instrumentality thereof, any state, county, local or foreign government, or any agency or instrumentality thereof, and any interest or fines, and any and all penalties or additions relating to such taxes, charges, fees, levies or other assessments; (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being or ceasing to be a member of an affiliated, consolidated, combined or unitary group for any period (including any liability under Treasury Regulations Section 1.1502-6 or any comparable provision of law); and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

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2.7

Real Property

To Seller’s knowledge, the Real Property and the Leased Real Property, the improvements thereon, and the use and operation thereof comply, in all material respects, with all zoning and building laws, ordinances, orders or requirements of any state, municipal or other governmental departments or agencies having jurisdiction against or affecting such property.

2.8

Equipment

The Equipment set out in Schedule 1.1.1 constitutes all machinery, equipment, spare parts, furniture, fixtures, computer hardware, leasehold improvements and other tangible personal owned by Seller and used in the operation of the Business, includes all the operating assets of Seller, and is sufficient, together with the Related Transactions, to permit Purchaser to conduct the Business in substantially the same manner as conducted by Seller prior to the Closing.

2.9

Leases and Contracts

The Leases and the Contracts constitute the only contracts, agreements, leases, rental agreements or other instrument or agreement to which Seller is a party or to which Seller has rights which relate to the Assets or operation of Business. The Leases and the Contracts are valid, binding, and enforceable against Seller. Seller is not now in default under any Lease or Contract in any material respect, and to the knowledge of Seller, no other party to any Lease or Contracts is in material default thereunder. Seller has not given or received any notice of default or termination with respect to any Lease or Contract during the three-year period prior to the Effective Date. There exist no contracts, obligations or arrangements between Seller and any affiliate of Seller with respect to the Assets or the Business.

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2.10

Permits

All Permits that are required for the ownership and operation of the Assets and the Business as conducted during the three-year period prior to the Effective Date have been obtained by Seller and are in full force and effect and are listed on Schedule 1.1.4, except for such Permits which the failure to obtain, individually and in the aggregate, does not and reasonably could not be expected to have a material adverse effect on the Assets. To Seller’s knowledge, Seller is and has been in compliance with all of the Permits, and Seller has not received any notice of any alleged violation (whether past or present and whether remedied or not) of, nor any threat of the suspension, revocation, modification, invalidity or limitation of, any Permit, nor is Seller aware of any basis for any claim of any such violation or any such threat. All such Permits will be effectively assigned to Purchaser (to the extent legally assignable) without additional liability to Purchaser. No Permit held by Seller or related to the Assets or the Business that is not assigned pursuant to this Agreement is required to own and operate the Assets or conduct the Business, as conducted during the three-year period prior to Effective Date.

2.11

Applicable Laws

Seller is in compliance with all currently existing, federal, state, local and foreign laws, rules, regulations, requirements, ordinances, decrees and orders applicable to the operation of the Facilities (defined below) and the Assets, except for such instances of noncompliance which, individually and in the aggregate, do not and reasonably could not be expected to have any materially adverse effect on the Assets or the Business. Without limiting the foregoing, to Seller’s knowledge, Seller is in compliance with the Oregon Forest Practices Act (ORS 527.610 et seq. ) and has no knowledge of any fines or obligations currently owing with respect to a failure to so comply, nor does Seller have knowledge (on the basis of objective criteria such as possession of notes or records or receipt of notices or correspondence threatening or discussing the possibility of any such fine), of any basis for the imposition of such fines or obligations. Seller has not received any notice of any alleged violation (whether past or present and whether remedied or not), nor is Seller aware of any basis for any claim of any such violation, of any such laws, rules, regulations, requirements, ordinances, decrees and orders. "Facilities" means the Real Property and the Leased Real Property and all plants, buildings, structures, improvements, machinery and equipment located thereon. To Seller’s knowledge, Seller is not currently in violation of any applicable building or other law, ordinance or regulation in respect of the Facilities, except for such violations which, individually and in the aggregate, do not and could not reasonably be expected to have any material adverse effect on the Assets. To Seller’s knowledge, there is no law, statute, rule, ordinance or regulation promulgated by any Governmental Body or any judgment that materially and adversely affects or could reasonably be expected to materially and adversely affect the ability of Purchaser to own or operate the Assets, Facilities or Business in the same manner as heretofore and currently owned or operated.

2.12

Environmental and Safety Matters

(a)

To Seller's knowledge, the Assets and the Facilities were in material compliance with Environmental and Safety Laws when Seller acquired the Assets and the Facilities and during its ownership of the Assets and the Facilities no third-party has caused the Assets and the Facilities to no longer be in material compliance with Environmental and Safety Laws. Neither Seller nor any of its agents have caused the Assets and the Facilities to no longer be in material compliance with Environmental and Safety Laws, and Seller has received no notice or communication from any Governmental Body or any private citizen acting in the public interest alleging that any of the Assets or the Facilities is not in compliance with any Environmental and Safety Law. Seller has provided to Purchaser complete copies of all environmental reports, studies, analyses or monitoring related to the Assets in the possession of Seller, all of which are listed in Section 2.12(a) of the Disclosure Memorandum.

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(b)

There is no asserted Claim by any Governmental Body, person or entity alleging potential liability of Seller or any other party (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence or release, or alleged presence or release, into the environment of any Hazardous Substance on, at or from the Assets or the Facility, that is pending or, to Seller's knowledge, threatened, in respect of any of the Assets or the Facilities.

(c)

Seller has not, and to Seller's knowledge, no other party has (i) treated, generated, stored or disposed of any Hazardous Materials on or at the Facilities or the Assets in violation of applicable law; (ii) released Hazardous Materials on, at or from the Assets or the Facilities in violation of applicable law; or (iii) transported Hazardous Materials to or from the Facilities or Assets in violation of applicable law prior to the Closing.

(d)

To Seller's knowledge, when Seller acquired the Real Property there were no, and during its ownership of the Real Property no third-party has caused or created any, known conditions, circumstances, activities, practices, events, plans or actions that could interfere with, or prevent the compliance or continued compliance with, or result in any liability under, any Environmental and Safety Law or which otherwise form the basis under any Environmental and Safety Law of any past, present or future Claims, based on or related to the manufacture, generation, processing, distribution, use, treatment, handling, storage, disposal, transport or abandoning of Hazardous Materials on, at, around or under the Assets, the Facilities or any Off-site Locations, or the emission, discharge, spill, migration, release, disposal or placing of Hazardous Materials, or the threat of the same, into the air, ground (surface and subsurface), water (surface and subsurface) and workplace on, at, around or under the Assets, the Facilities or any Off-site Locations. Neither Seller nor any of its agents have caused or created any known conditions, circumstances, activities, practices, events, plans or actions that could interfere with, or prevent the compliance or continued compliance with, or result in any liability under, any Environmental and Safety Law or which otherwise form the basis under any Environmental and Safety Law of any past, present or future Claims, based on or related to the manufacture, generation, processing, distribution, use, treatment, handling, storage, disposal, transport or abandoning of Hazardous Materials on, at, around or under the Assets, the Facilities, or any Off-site Locations, or the emission, discharge, spill, migration, release, disposal or placing of Hazardous Materials, or the threat of the same, into the air, ground (surface and subsurface), water (surface and subsurface) and workplace on, at, around or under the Assets, the Facilities, or any Off-site Locations.

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(e)

There are no facts known to Seller that would be material to an evaluation by Purchaser of the status of the Assets or the Facilities with respect to compliance with any Environmental and Safety Law, or conditions that now or in the future may require remedial action to achieve such compliance.

(f)

For purposes of this Agreement, the following definitions are used:

"Environmental and Safety Law" means any federal, state, local or other law, statute, rule, ordinance or regulation or any common law pertaining to public or worker health, welfare or safety of the Environment, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq. , as amended by the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. § 6901 et seq. ; the Federal Clean Air Act, 42 U.S.C. § 7401-7626; the Federal Water Pollution Control Act and Federal Clean Water Act of 1977, as amended, 33 U.S.C. § 1251 et seq. ; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 135 et seq. ; the Federal Environmental Pesticide Control Act, the Federal Toxic Substances Control Act, 15 U.S.C. § 2601 et seq. ; the Federal Safe Drinking Water Act, 42 U.S.C. § 300(f) et seq. ; the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. § 11001 et seq. ; and the Occupational Safety and Health Act of 1970, 29 U.S.C. § 651 et seq.

"Hazardous Materials" means any hazardous or toxic substances, materials or wastes, including, but not limited to: those substances included in the definitions of "Hazardous Substances," "Hazardous Materials," "Toxic Substances," "Hazardous Waste," "Solid Waste," "Pollutant," or "Contaminant" in any environmental or safety law and the Hazardous Material Transportation Act, 49 U.S.C. § 1801 et seq. , and in the regulations promulgated pursuant to those laws; those substances listed in the United States Department of Transportation Table (49 C.F.R. § 172.101 and any amendments thereto); such other substances, materials and wastes which previously, currently or in the future are regulated or are classified as hazardous or toxic by any Governmental Body (defined below); and asbestos, polychlorinated biphenyls and oil and petroleum products or by-products.

"Off-site Locations" means any location where Hazardous Materials from the Assets or the Facilities were treated, handled, stored, disposed, transported or abandoned or to which Hazardous Materials from the Assets or the Facilities were emitted, discharged, spilled, migrated, released, disposed or placed.

2.13

Title to Assets

(a)

The Assets, together with the tangible personal property being acquired from TRS in connection with the Related Transactions, include all assets and rights owned or possessed by Seller related to the Business as it is presently conducted, and comprise all the tangible and intangible property necessary to conduct the Business as conducted by Seller during the three-year period prior to the Effective Date. Seller has good title, and upon the Closing, Purchaser will acquire good and marketable title, to all the Assets, free and clear of all Encumbrances. The Assets, including the Real Property, includes all of the tangible assets owned by Seller in the State of Oregon.

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(b)

The Real Property consists of approximately 162,521 acres, more or less.

(c)

The location of the Real Property is shown generally on the Property Map.

(d)

Schedule 2.13 sets forth the only contracts and understandings with, and the only existing or contingent rights of, any person, including without limitation American Forest Resources, LLC and any other affiliates of Seller, to currently or prospectively receive deliveries of, cut, harvest, remove, transport or sell timber, logs and like property or products from the Real Property (the “Third-Party Timber Rights”), whether by log delivery contracts, deeds sales or otherwise. Seller is not now in default in any material respect under any contract, agreement or understanding with respect to the Third-Party Timber Rights, and to the knowledge of Seller, no other party under any contract, agreement or understanding with respect to the Third-Party Timber Rights, is in material default.

2.14

Conduct of Business

From and after the Effective Date until Closing, except as contemplated by the Plan of Reorganization or orders of a bankruptcy court with authority over Seller, Seller will operate the Business in accordance with its past practices and shall refrain from (a) making any material capital expenditures, except to the extent necessary to comply with law or to the extent that in Seller's reasonable judgment such action is necessary to protect the total value of the Assets or (b) taking any action that could be reasonably anticipated as having a material adverse impact on the total value of the Assets. Notwithstanding anything to the contrary herein, Seller, its officers and directors, may take all such actions as are necessary or desirable to fulfill their fiduciary obligations as a debtor in possession in bankruptcy, but any such action that results in a material adverse impact to the total value of the Assets shall result in Purchaser having the rights set forth in Section 3.5 below.

2.15

Timber Harvesting

(a)

The aggregate amount of timber harvested by Seller and AFR in the State of Oregon prior to closing will not exceed 24.958 million board feet unless (a) this restriction is not approved by the bankruptcy court having jurisdiction over the bankruptcy of Seller or (b) Seller, AFR, or both are obligated to deliver timber in excess of such amount pursuant to certain log delivery agreements entered into prior to the Effective Date. Seller and AFR shall not harvest any timber after October 4, 2006 unless (a) this restriction is not approved by the bankruptcy court having jurisdiction over the Bankruptcy or (b) Seller or AFR is obligated to harvest timber after such date in order to comply with certain log delivery agreements entered into prior to the Effective Date and disclosed in Schedule 1.1.7.

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(b)

If for any reason Seller and AFR are required to harvest in excess of 24.958 million board feet in the State of Oregon or harvest logs in the State of Oregon after October 4, 2006 due to a delay in the Closing, Seller shall deposit all amounts received on account of timber harvested on the Real Property, which results in more than 24.958 million board feet being harvested in the State of Oregon (the "IFG Excess Harvest") into a segregated account (the "IFG Harvest Account"). Title in the IFG Harvest Account shall be held by Purchaser, unless this Agreement is terminated prior to Closing, in which case title to the IFG Harvest Account shall be deemed held by Seller. Seller shall be entitled to withdraw from the IFG Harvest Account amounts reasonably necessary to pay the expenses of Seller and TRS associated with managing the IFG Excess Harvest, which expenses shall include only (i) direct costs associated with harvesting, scaling, and delivering logs, and costs of operating the Real Property including property taxes, fire dues, severance taxes, harvest taxes and (ii) reasonable indirect costs including personnel costs for employees in Oregon and overhead associated with operating the Business in Oregon but shall not include any administrative costs incurred outside of the State of Oregon. At least thirty-six (36) hours prior to withdrawing any funds from the IFG Harvest Account, Seller shall provide, by facsimile sent to (541) 885-7467 (Attn: Craig Dittman), a written statement setting forth the amount to be withdrawn and a breakdown of the expenses for which it is being withdrawn. Seller shall not deposit any funds other than those received on account of the IFG Excess Harvest in the IFG Harvest Account and may not withdraw any funds from the IFG Harvest Account except as expressly provided herein. At Closing, the final amount owing to cover Seller’s expenses to conduct the IFG Excess Harvest shall be paid over to Seller, and Purchaser may thereafter withdraw all amounts held in the IFG Harvest Account for its own purposes. At Closing, Seller shall provide to Purchaser records, certified to be complete and accurate, of all amounts deposited and withdrawn from the IFG Harvest Account, if any. To the extent the IFG Excess Harvest is sourced by AFR, AFR will maintain harvest and expense records in a format mutually acceptable to AFR and Purchaser. At or prior to closing, AFR and Purchaser will agree on an appropriate reduction to the purchase price under the AFR Agreement equal to the difference between (a) all amounts received on account of timber harvested other than on the Real Property, which resulted in more than 24.958 million board feet being harvested in the State of Oregon (the "AFR Excess Harvest") and (b) the expenses of AFR and TRS associated with managing the AFR Excess Harvest, which expenses shall include only (the “AFR Excess Harvest Expenses”): (i) direct costs associated with harvesting, scaling, and delivering logs, and costs of operating the real property owned by AFR including property taxes, fire dues, severance taxes, harvest taxes and (ii) reasonable indirect costs including personnel costs for employees in Oregon and overhead associated with operating the Business in Oregon but shall not include any administrative costs incurred outside of the State of Oregon (without duplication for any such indirect costs paid from the IFG Harvest Account or due at Closing with respect to the IFG Excess Harvest). AFR will maintain harvest and expense records in a format mutually acceptable to AFR and Purchaser. At Closing, AFR shall provide to Purchaser records, certified to be complete and accurate, of all amounts received with respect to the AFR Excess Harvest and the AFR Excess Harvest Expenses.

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2.16

WARN Act

Seller either (i) is not and has not been an “employer” or has not engaged in any “plant closing�

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