AFR CONTRIBUTION
AGREEMENT
THIS CONTRIBUTION AGREEMENT (the
“Agreement”) is entered into as of the 18th day of
August, 2006, by and among American Forest Resources, LLC, a
Delaware limited liability company, LLC (“AFR”), Inland
Fiber Group, LLC, a Delaware limited liability company
(“IFG”), and Fiber Finance Corp., a Delaware
corporation (“FFC” and, together with IFG, the
“Debtors”).
W I T N E S S E T H
:
WHEREAS, AFR owns 100% of the membership
interests in IFG Holdings, LLC, which, in turn, owns approximately
99% of the membership interests and 100% of the voting rights in
IFG;
WHEREAS, IFG owns all of the outstanding
common stock of FFC;
WHEREAS, on November 14, 1997, the
Debtors issued $225 million in 9-5/8% unsecured senior notes due
2007 (the “Debtor Notes”);
WHEREAS, AFR currently owes the Secured
Obligations (as defined in the U.S. Timberlands Yakima Indenture,
dated as of September 14, 2001, among AFR, as issuer, BNY Midwest
Trust Company, as trustee, and MBIA Insurance Corporation, as
insurer (“MBIA”), as amended, supplemented, and
restated from time to time), including approximately $113 million
in principal amount of secured notes (the “MBIA
Debt”);
WHEREAS, on December 19, 2003, U.S. Bank
National Association, as successor indenture trustee to State
Street Bank & Trust Company on behalf of the holders of the
Debtor Notes (the “Indenture Trustee”), commenced
litigation in the Court of Chancery of the State of Delaware in and
for New Castle County (the “Action”) against the
Debtors, AFR, Cascades Resource Holdings Group, LLC, Timber
Resource Services, LLC, John M. Rudey, Alan B. Abramson, Aubrey L.
Cole, George R. Hornig, Robert F. Wright, and William A.
Wyman;
WHEREAS, IFG, FFC, AFR, John M. Rudey,
the Indenture Trustee, and 18 holders of the Debtor Notes or their
respective affiliates that collectively own or manage $158.3
million (or approximately 70.4%) of the outstanding principal
amount of the Debtor Notes entered into a support and lock-up
agreement as of August 18, 2006, pursuant to which, among other
things, (1) the Debtors agreed to commence Chapter 11 bankruptcy
cases in the United States Bankruptcy Court for the District of
Delaware (the “Bankruptcy Court”), (2) the Debtors
agreed to file a plan of reorganization (the “Plan”) in
those cases that provides for the payment of $155.25 million to the
Indenture Trustee on behalf of the holders of the Debtor Notes
(subject to certain adjustments set forth in the Plan) (the
“Settlement Amount”), and (3) 18 holders of the Debtor
Notes agreed to vote in favor of the Plan;
WHEREAS, on August 14, 2006, IFG and
Richard L. Wendt, individually (the “Purchaser”),
executed an asset purchase agreement pursuant to which the
Purchaser agreed to acquire all of IFG’s assets (the
“Asset Sale”) for a purchase price of $83 million (the
“Sale Proceeds”);
WHEREAS, the Sale Proceeds would be used
to fund a portion of the Settlement Amount;
WHEREAS, on August 18, 2006, the Debtors,
certain of the other defendants in the Action, AIG Domestic Claims,
Inc., on behalf of American International Specialty Lines Insurance
Company (“AIG”), and The Travelers Indemnity Company,
as successor by merger to Gulf Insurance Company
(“Gulf”), entered into a global claims release and
insurer settlement agreement pursuant to which AIG committed to
fund at least $5.2 million and Gulf committed to fund $3.1 million
in connection with the Plan, for a total of $8.3 million (the
“Insurance Proceeds”);
WHEREAS, the Insurance Proceeds would be
used to fund a portion of the Settlement Amount;
WH
