Exhibit 10.12

AMENDED AND RESTATED

OPERATING AGREEMENT

OF

U.S. TIMBERLANDS YAKIMA, LLC

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CONTENTS

ARTICLE I DEFINITIONS  

1.1

Definitions

1.2

Construction

ARTICLE II ORGANIZATION

2.1

Formation

2.2

Name

2.3

Registered Office; Registered Agent; Principal Office; Other Offices

2.4

Purpose and Business

2.5

Powers

2.6

Term

2.7

Title to Company Assets

ARTICLE III RIGHTS OF MEMBERS

3.1

Limitation of Liability

3.2

Outside Activities of the Members

3.3

Rights of Members

3.4

Indemnification

3.5

Voting

ARTICLE IV TRANSFERS OF INTERESTS

4.1

Transfer Generally

4.2

Transfer of Membership Interest

4.3

Restrictions on Transfers

ARTICLE V ADMISSION OF MEMBERS; CAPITAL

5.1

Classes of Interests

5.2

Capital Contributions

5.3

Additional Capital Contributions

5.4

Interest and Withdrawal

5.5

Capital Accounts

5.6

Redemption of Preferred Interest

5.7

Loans From Members

5.8

Limited Preemptive Rights

5.9

Fully Paid and Nonassessable Nature of Membership Interests

ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS

6.1

Allocations for Capital Account Purposes

6.2

Allocations for Tax Purposes

6.3

Distributions

ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS      

7.1

Board of Directors

7.2

Powers

7.3

Meeting of the Board of Directors

7.4

Quorum: Acts of the Board

 

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7.5

Electronic Communications

7.6

Committees of Directors

7.7

Compensation of Directors; Expenses

7.8

Removal of Directors

7.9

Directors as Agents

7.10

Limitations on the Company's Activities

7.11

Independent Directors

7.12

Officers

ARTICLE VIII BOOKS, RECORDS AND ACCOUNTING

8.1

Books, Records and Accounting

8.2

Fiscal Year

8.3

Reports

ARTICLE IX TAX MATTERS

9.1

Tax Returns and Information

9.2

Tax Elections

9.3

Tax Controversies

9.4

Withholding

ARTICLE X ADMISSION OF SPECIAL AND ADDITIONAL MEMBERS

10.1

Admission of Special Members

10.2

Admission of Additional Members and Substituted Members

10.3

Amendment of Agreement and Certificate of Formation

ARTICLE XI WITHDRAWAL OF MEMBERS

ARTICLE XII DISSOLUTION AND LIQUIDATION

12.1

Dissolution

12.2

Liquidator

12.3

Liquidation

12.4

Cancellation of Certificate of Formation

12.5

Return of Contributions

12.6

Waiver of Partition

12.7

Capital Account Restoration

ARTICLE XIII AMENDMENT OF AGREEMENT

ARTICLE XIV MERGER

14.1

Authority

14.2

Procedure for Merger or Consolidation

14.3

Approval by Members of Merger or Consolidation

14.4

Certificate of Merger

14.5

Effect of Merger

ARTICLE XV GENERAL PROVISIONS

15.1

Addresses and Notices

15.2

Further Action

15.3

Binding Effect

15.4

Integration

15.5

Creditors

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15.6

Waiver

15.7

Counterparts

15.8

Applicable Law

15.9

Severability of Provisions

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AMENDED AND RESTATED

OPERATING AGREEMENT OF

U.S. TIMBERLANDS YAKIMA, LLC

THIS AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") OF U.S.
TIMBERLANDS YAKIMA, LLC, dated as of September 14, 2001 (the "Effective Date"),
is entered into by and between UST YAKIMA HOLDINGS, LLC, a Delaware limited
liability company ("Yakima Holdings"), and U.S. TIMBERLANDS KLAMATH FALLS,
L.L.C., a Delaware limited liability company ("Klamath"), together with any
other Persons who hereafter become Members in the Company or parties hereto as
provided herein.

WHEREAS, U.S. Timberlands Holding Group, L.L.C., a Delaware limited liability
company ("Holdings L.L.C."), U.S. Timberlands Company, L.P., a Delaware limited
partnership ("MLP"), and Klamath are parties to the Operating Agreement (the
"Original Operating Agreement") dated as of September 28, 1999 (the "Inception
Date") of U.S. Timberlands Yakima, LLC, a Delaware limited liability company
(the "Company");

WHEREAS, in connection with the refinancing of the Company’s credit facility
(the "Refinancing"), Holdings L.L.C. and MLP have each contributed 100% of their
membership interests in the Company to UST Yakima Holdings II, LLC, a Delaware
limited liability company ("Yakima Holdings II") and, in consideration of such
contribution, Yakima Holdings II has issued 49% of its membership interests to
MLP and 51% of its membership interests to Holdings L.L.C.;

WHEREAS, Yakima Holdings II subsequently contributed 100% of its membership
interest in the Company to Yakima Holdings and, in consideration of such
contribution, Yakima Holdings has issued all of its membership interests to
Yakima Holdings II;

WHEREAS, in connection with the Refinancing, the Company has entered into the
U.S. Timberlands Yakima Indenture dated as of the date hereof (the "Indenture")
with BNY Midwest Trust Company, an Illinois corporation (the "Trustee"), as
trustee, and MBIA Insurance Corporation, a New York stock insurance company
("MBIA"), as insurer;

WHEREAS, it is a condition to the obligations of the Trustee and MBIA to
consummate the transactions contemplated by the Indenture that Yakima Holdings,
Klamath and the Company enter into this Agreement;

WHEREAS, in order to permit the Company to effect the Refinancing on terms more
favorable than otherwise would have been available and to provide certain other
benefits to Klamath, certain economic terms of Klamath's membership interest in
the Company have been amended as set forth herein; and

WHEREAS, Yakima Holdings and Klamath desire to enter into this Agreement to
provide for, among other things, the management of the business and affairs of
the Company, the respective and relative rights of Yakima Holdings and Klamath
to and between each other with respect to the Company, the rights and
obligations of any other Persons subsequently admitted as Members, and certain
other matters.

NOW, THEREFORE, in consideration of the covenants, conditions and agreements
contained herein, the parties hereto hereby agree as follows:

ARTICLE I
DEFINITIONS

1.1  

Definitions

The following definitions shall be for all purposes, unless otherwise clearly
indicated to the contrary, applied to the terms used in this Agreement.  

"Additional Member" means a Person admitted to the Company as a Member pursuant
to Section 10.2 and who is shown as such on the books and records of the
Company.

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"Adjusted Capital Account" means the Capital Account maintained for each Member
as of the end of each fiscal year of the Company, (a) increased by any amounts
that such Member is obligated to restore under the standards set by Treasury
Regulations Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore
under Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by:  (i) the amount of all losses and deductions that, as of the end
of such fiscal year, are reasonably expected to be allocated to such Member in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulations Section 1.751-1(b)(2)(ii); and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Member in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Member's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1.3.1
or 6.1.3.2).  The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(c)(i) or 5.5(c)(ii). Once an Adjusted Property
is deemed distributed by, and recontributed to, the Company for federal income
tax purposes upon a termination of the Company pursuant to Treasury Regulations
Section 1.708-1(b)(1)(iv), such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is subsequently
adjusted pursuant to Section 5.5(c)(i) or 5.5(c)(ii).

"Affiliate" means, with respect to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with the Person in question. As used herein, the term
"control" means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.

"Agreed Allocation" means any allocation, other than a Required Allocation, of
an item of income, gain, loss or deduction pursuant to the provisions of Section
6.1, including, without limitation, a Curative Allocation (if appropriate to the
context in which the term "Agreed Allocation" is used).

"Agreed Value" of any Contributed Property means the fair market value of such
property or other consideration at the time of contribution as determined by the
Board using such reasonable method of valuation as it may adopt; provided,
however, that the Agreed Value of any property deemed contributed to the Company
for federal income tax purposes upon termination and reconstitution thereof
pursuant to Section 708 of the Code (whether before or after finalization of
Proposed Treasury Regulations Section 1.708-1(b)(l)(iv)) shall be determined in
accordance with Section 5.5(c)(i).  Subject to Section 5.5(c)(i), the Board
shall, in its discretion, use such method as it deems reasonable and appropriate
to allocate the aggregate Agreed Value of Contributed Properties contributed to
the Company in a single or integrated transaction among each se parate property
on a basis proportional to the fair market value of each Contributed Property.
 The Agreed Value of the Contributed Property contributed by Klamath as of to
the Effective Date, exclusive of any accrued and unpaid Guaranteed Payment
thereon, is $40,500,000, comprised of Antelope Timberlands (Agreed Value
$22,000,000); Camp 9 (Agreed Value $12,000,000); Hager Mountain Tract (Agreed
Value $3,500,000) and Sprague River Tract (Agreed Value $3,000,000).

"Agreement" means this Amended and Restated Operating Agreement of U.S.
Timberlands Yakima, LLC, as it may be amended, supplemented or restated from
time to time. This Agreement shall constitute a "limited liability company
agreement" as such term is defined in the Delaware Limited Liability Company
Act.

"Amended and Restated Management Agreement" means that certain amended and
restated management agreement dated as of the date hereof by and among the
Company, Services and Services Yakima.

"Antelope Timberlands" has the meaning set forth on Schedule A.  

"Associate" means, when used to indicate a relationship with any Person,
     (a) any corporation or organization of which such Person is a director,
officer or partner or is, directly or indirectly, the owner of 20% or more of
any class of voting stock or other voting interest; (b) any trust or other
estate in which such Person has at least a 20% beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity; and (c)
any relative or spouse of such Person, or any relative of such spouse, who has
the same principal residence as such Person.

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"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,

(a)  

the sum of (i) all cash and cash equivalents of the Company Group on hand at the
end of such Quarter and (ii) all additional cash and cash equivalents of the
Company Group on hand on the date of determination of Available Cash with
respect to such Quarter resulting from borrowings for working capital purposes
made subsequent to the end of such Quarter, less

(b)  

the amount of any cash reserves that is necessary or appropriate in the
reasonable discretion of the Board to (i) provide for the proper conduct of the
business of the Company Group (including reserves for future capital
expenditures and for anticipated future credit needs of the Company Group)
subsequent to such Quarter, (ii) comply with applicable law or any loan
agreement, security agreement, mortgage, debt instrument or other agreement or
obligation to which any Group Member is a party or by which it is bound or its
assets are subject, or (iii) provide funds for distributions under Section 6.3
in respect of any one or more of the next four Quarters; provided, however, that
disbursements made by a Group Member or cash reserves established, increased or
reduced after the end of such Quarter but on or before the date of determination
of Available Cash with respect to such Quarter shall be deemed to have been
made, established, increased or reduced, for purposes of determining Available
Cash, within such Quarter if the Board so determines.

Notwithstanding the foregoing, "Available Cash" with respect to the Quarter in
which the Liquidation Date occurs and any subsequent Quarter shall equal zero.

"Bankruptcy" means, with respect to any Person, if such Person (i) makes an
assignment for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against it
an order for relief, in any bankruptcy or insolvency proceedings, (iv) files a
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any statute, law
or regulation, (v) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature, (iv) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Person or of all or any
substantial part of its properties, or (vii) if 120 days after the commencement
of any proce eding against the Person seeking reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any statute, law
or regulation, if the proceeding has not been dismissed, or if within 90 days
after the appointment without such Person's consent or acquiescence of a
trustee, receiver or liquidator of such Person or of all or any substantial part
of its properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated.  The
foregoing definition of "Bankruptcy" is intended to replace and shall supersede
and replace the definition of "Bankruptcy" set forth in Sections 18-101(l) and
18-304 of the Delaware Limited Liability Company Act.

"Basic Documents" means the Indenture, any and all Supplements thereto, the
Insurance Agreement, the Note Purchase Agreement, the Notes, the Mortgage
Documents and the Amended and Restated Management Agreement and all documents
and certificates contemplated thereby or delivered in connection therewith.

"Board" or "Board of Directors" means the Board of Directors of the Company;
provided, however, that except where, pursuant to the provisions of Section
7.10, determinations of the Board require the participation of the Independent
Directors, and except as the context otherwise requires, references herein to
the Board or Board of Directors (or to the makeup of or action by the Board)
shall be deemed to exclude reference to the Independent Directors.  For the
avoidance of doubt, “Board” or “Board of Directors” shall include both the
Regular Directors and the Independent Directors for purposes of the making of
determinations of the Board pursuant to Sections 7.10(b) and 7.10(c).

"Book-Tax Disparity" means with respect to any item of Contributed Property or
Adjusted Property, as of the date of any determination, the difference between
the Carrying Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of such date. A
Member's share of the Company's Book-Tax Disparities in all of its Contributed
Property and Adjusted Property will be reflected by the difference between such
Member's Capital Account balance as maintained pursuant to Section 5.5 and the
hypothetical balance of such Member's Capital Account computed as if it had been
maintained strictly in accordance with federal income tax accounting principles.

"Business Day" means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States of America or
the states of New York or Washington shall not be regarded as a Business Day.

"Camp 9" has the meaning set forth on Schedule A.

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"Capital Account" means the capital account maintained for a Member pursuant to
Section 5.5.  The "Capital Account" of a Member in respect of a Membership
Interest shall be the amount that such Capital Account would be if such
Membership Interest were the only interest in the Company held by a Member from
and after the date on which such Membership Interest was first issued.

"Capital Contribution" means any cash, cash equivalents or the Net Agreed Value
of Contributed Property that a Member contributes to the Company pursuant to
this Agreement.

"Carrying Value" means (a) with respect to a Contributed Property, the Agreed
Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Members' Capital
Accounts in respect of such Contributed Property and (b) with respect to any
other Company property, the adjusted basis of such property for federal income
tax purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Sections
5.5(c)(i) and 5.5(c)(ii) and to reflect changes, additions or other adjustments
to the Carrying Value for dispositions and acquisitions of Company properties,
as deemed appropriate by the Board.

"Certificate of Formation" means the Certificate of Formation of the Company
filed with the Secretary of State of the State of Delaware as referenced in
Section 2.1, as such Certificate of Formation may be amended, supplemented or
restated from time to time.

"Code" means the Internal Revenue Code of 1986, as amended and in effect from
time to time.  Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision of a
successor law.

"Commission" means the United States Securities and Exchange Commission.

"Common Interest" means that common interest in the Company owned by a Common
Interest Member, including, without limitation, such Common Interest Member’s
rights to Net Income, Net Loss and distributions of Available Cash.

"Common Interest Member" means, initially, Yakima Holdings and thereafter any
Member who owns a Common Interest in the Company.

"Company" has the meaning set forth in the recitals hereto.

"Company Group" means the Company and any Subsidiary of the Company, treated as
a single consolidated entity.

"Contributed Property" means each property or other asset, in such form as may
be permitted by the Delaware Limited Liability Company Act, but excluding cash,
contributed to the Company (or deemed contributed to the Company on termination
and reconstitution thereof pursuant to Section 708 of the Code, whether before
or after finalization of Proposed Treasury Regulations Section
1.708-1(b)(1)(iv)).  Once the Carrying Value of a Contributed Property is
adjusted pursuant to Section 5.5(c), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.

"Covered Persons" has the meaning set forth in Section 3.4(a).

"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1.3.9.

"Delaware Limited Liability Company Act" means the Delaware Limited Liability
Company Act, 6 Del. C. §§18-101 et seq., as amended, supplemented or restated
from time to time, and any successor to such statute.

"Directors" means the Persons elected to the Board of Directors from time to
time by the Members, in their capacity as managers of the Company.  The
Directors shall consist of "Regular Directors" and "Independent Directors" as
provided in Sections 7.1(a) and 7.11.  A Director is hereby designated as a
"manager" of the Company within the meaning of Section 18-101(10) of the
Delaware Limited Liability Company Act.

"Economic Risk of Loss" has the meaning set forth in Treasury Regulations
Section 1.752-2(a).

"Effective Date" has the meaning set forth in the recitals hereto.

"Group Member" means a member of the Company Group.

 

 

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"Guaranteed Payment" means an amount equal to 6% per annum, determined on a year
of 365 or 366 days, as the case may be, for the actual number of days for which
the Guaranteed Payment is being determined, cumulative to the extent not paid in
a prior period pursuant to Section 6.3(b), compounded annually, on the average
daily balance of the Unreturned Timberlands Agreed Value from time to time to
which the Guaranteed Payment relates commencing on the Inception Date.

"Hager Mountain Tract" has the meaning set forth on Schedule A.

"Inception Date" has the meaning set forth in the recitals hereto.

"Indenture" has the meaning set forth in the recitals hereto.

"Independent Director" means a natural person who (i) is not a member (whether
direct, indirect or beneficial), customer or supplier of the Company or any of
its Affiliates; (ii) is not a director, officer, employee, Affiliate or
Associate of MLP or any of its Affiliates (other than the Company); (iii) is not
a Person related to any Person referred to in clauses (i) or (ii); (iv) is not a
trustee, conservator or receiver for any Affiliates of MLP; and (v) has, (A)
prior experience as an independent director for a corporation or limited
liability company whose charter documents required the unanimous consent of all
independent directors thereof before such corporation or limited liability
company could consent to the institution of bankruptcy or insolvency proceedings
against it or could file a petition seeking relief under any applicable fede ral
or state law relating to bankruptcy and (B) at least three years of employment
experience with one or more entities (other than the Company or any of its
Affiliates) that provide, in the ordinary course of their respective businesses,
advisory, management or placement services to issuers of securitization or
structured finance instruments, agreements or securities.

"Insurance Agreement" means that certain Insurance and Reimbursement Agreement
dated as of the date hereof by and among the Company, the Trustee, as insured
party, and MBIA.

"Klamath" has the meaning set forth in the recitals hereto.

"Klamath Falls Holdings" means UST Klamath Falls Holdings, LLC, a Delaware
limited liability company.

"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Company of the type described in clause (a)(i) of Section
12.1, the date on which the applicable time period during which the personal
representative of the last remaining Common Interest Member has the right to
elect to reconstitute the Company and continue its business has expired without
such an election being made and (b) in the case of any other event giving rise
to the dissolution of the Company, the date on which such event occurs.

"Liquidator" means one or more Persons selected by the Board to perform the
functions described in Section 12.3 as liquidating trustee of the Company within
the meaning of the Delaware Limited Liability Company Act.

"Majority" means, with respect to Common Interest Members, Members holding, in
the aggregate, more than 50% of the Percentage Interests.

"Management Agreement" means the management agreement between the Company and
each Director substantially in the form attached hereto as Exhibit A.

"Material Action" means to consolidate or merge the Company with or into any
Person, or sell all or substantially all of the assets of the Company, or to
institute proceedings to have the Company be adjudicated bankrupt or insolvent,
or consent to the institution of bankruptcy or insolvency proceedings against
the Company or file a petition seeking, or consent to, reorganization or relief
with respect to the Company under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or a
substantial part of its property, or make any assignment for the benefit of
creditors of the Company, or admit in writing the Company's inability to pay its
debts generally as they become due, or take action in furtherance of any su ch
action, or, to the fullest extent permitted by law, dissolve or liquidate the
Company.

"MBIA" has the meaning set forth in the recitals hereto.

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"Member" means Yakima Holdings and Klamath, and any Person admitted as an
Additional Member of the Company or a Substituted Member of the Company pursuant
to the provisions of this Agreement, each in its capacity as a member of the
Company, so long as they remain members; provided, however, the term "Member"
shall not include the Special Members.

"Membership Interest" means the ownership interest of a Member in the Company.

"Merger Agreement" has the meaning assigned to such term in Section 14.1.

"MLP" has the meaning set forth in the recitals hereto.

"Mortgage Documents" has the meaning set forth in the Indenture.

"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Company upon such contribution or to which such property is subject when
contributed and (b) in the case of any property distributed to a Member by the
Company, the Company's Carrying Value of such property (as adjusted pursuant to
Section 5.5(c)(ii)) at the time such property is distributed, reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.

"Net Income" means, for any taxable year, the excess, if any, of the Company's
items of income and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such taxable
year over the Company's items of loss and deduction (other than those items
taken into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year. The items included in the calculation of Net Income
shall be determined in accordance with Section 5.5(b) and shall not include any
items specially allocated under Section 6.1.3.

"Net Loss" means, for any taxable year, the excess, if any, of the Company's
items of loss and deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such taxable
year over the Company's items of income and gain (other than those items taken
into account in the computation of Net Termination Gain or Net Termination Loss)
for such taxable year. The items included in the calculation of Net Loss shall
be determined in accordance with Section 5.5(b) and shall not include any items
specially allocated under Section 6.1.3.

"Net Termination Gain" means, for any taxable year, the sum, if positive, of all
items of income, gain, loss or deduction recognized by the Company after the
Liquidation Date.  The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1.3.

"Net Termination Loss" means, for any taxable year, the sum, if negative, of all
items of income, gain, loss or deduction recognized by the Company after the
Liquidation Date.  The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 5.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 6.1.3.

"Nonrecourse Built-in Gain" means with respect to any Contributed Properties or
Adjusted Properties that are subject to a mortgage or pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Members pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if
such properties were disposed of in a taxable transaction in full satisfaction
of such liabilities and for no other consideration.

"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulations Section 1.704-2(b), are attributable
to a Nonrecourse Liability.

"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.752-1(a)(2).

"Note Purchase Agreement" means that certain Note Purchase Agreement dated as of
the date hereof by and among the Company, Autobahn Funding Co., LLC, DG Bank
Deutsche Genossenschaftsbank AG and MBIA.

"Notes" has the meaning set forth in the Indenture.  

"Obligations" shall mean the indebtedness, liabilities and obligations of the
Company under or in connection with the Basic Documents (including, without
limitation, the Secured Obligations (as defined in the Indenture)) as in effect
as of any date of determination.

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"Officer" means an officer of the Company described in Section 11.

"Officer's Certificate" means a certificate signed by any Officer of the Company
who is authorized to act for the Company in matters relating to the Company.

"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(4).

"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in Treasury
Regulations Section 1.704-2(i)(2).

"Partner Nonrecourse Deductions" means any and all items of loss, deduction or
expenditure (including, without limitation, any expenditure described in Section
705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury
Regulations Section 1.704-2(i), are attributable to a Partner Nonrecourse Debt.

"Partnership Minimum Gain" means that amount determined in accordance with the
principles of Treasury Regulations Section 1.704-2(d).

"Percentage Interest" means, with respect to each Common Interest Member, such
Member’s share of the profits and losses of the Company and such Member’s
percentage right to receive distributions of the Company’s assets, in each case,
that are allocated or distributed to Common Interest Members pursuant to the
terms of this Agreement.  Initially, Yakima Holdings has a 100% Percentage
Interest.

"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.

"Pledged Interest" shall mean the Membership Interest in the Company pledged by
Yakima Holdings to the Trustee pursuant to the Yakima Holdings Pledge Agreement.
  

"Preferred Interest" means that preferred interest in the Company owned by the
Preferred Interest Member, including, without limitation, such Member's rights
to Net Income, Net Loss and distributions of Available Cash.

"Preferred Interest Member" means, initially, Klamath; for so long as any
Obligation is outstanding, Klamath or any Affiliate of the Company to which
Klamath may transfer the Preferred Interest; and thereafter any Member who owns
the Preferred Interest in the Company.

"Quarter" means, unless the context requires otherwise, a fiscal quarter of the
Company.

"Rating Agency" has the meaning assigned to that term in the Indenture.

"Rating Agency Condition" means, with respect to any action, that each Rating
Agency shall have been given ten days prior notice thereof and that each of the
Rating Agencies shall have notified the Company in writing that such action will
not result in a reduction or withdrawal of the then current rating by such
Rating Agency of any of the Notes.

"Recapture Income" means any gain recognized by the Company (computed without
regard to any adjustment required by Section 734 or 743 of the Code) upon the
disposition of any property or asset of the Company, which gain is characterized
as ordinary income because it represents the recapture of deductions previously
taken with respect to such property or asset.

"Redemption Price" means, as of any date of determination, when used with
reference to all of the outstanding Preferred Interests, the aggregate amount of
the Unreturned Timberlands Agreed Value, and when used with respect to a portion
of the Preferred Interests, the product of (x) a fraction, the numerator of
which is the aggregate amount of the Capital Account allocated to such portion
of the Preferred Interests and the denominator of which is the aggregate Capital
Accounts of all of the Preferred Interests and (y) the aggregate amount of the
Unreturned Timberlands Agreed Value.

"Refinancing" has the meaning set forth in the recitals hereto.

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"Required Allocations" means any allocation of an item of income, gain, loss or
deduction pursuant to Section 6.1.3.1, 6.1.3.2, 6.1.3.4, 6.1.3.7 or 6.1.3.9.

"Residual Gain" or "Residual Loss" means any item of gain or loss, as the case
may be, of the Company recognized for federal income tax purposes resulting from
a sale, exchange or other disposition of a Contributed Property or Adjusted
Property, to the extent such item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate Book-Tax
Disparities.

"Services" means U.S. Timberlands Services Company, L.L.C., a Delaware limited
liability company.

"Services Yakima" means U.S. Timberlands Services Yakima, LLC, a Delaware
limited liability company.

"Special Member" means a Person serving as an Independent Director who is
admitted to the Company as a member of the Company pursuant to Section 10.1.  A
Special Member shall only have the rights and duties expressly set forth in this
Agreement.

"Sprague River Tract" has the meaning set forth on Schedule A.

"Subsidiary" means, with respect to any Person, (a) a corporation of which more
than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of the partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more Subsi
diaries of such Person, or a combination thereof, or (c) any other Person (other
than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.

"Substituted Member" means a Person who is admitted as a Member of the Company
pursuant to Section 4.2, subject to Section 10.2.

 "Surviving Business Entity" has the meaning assigned to such term in Section
14.2(b).

"Tax Distributions" means distributions to the Members in amounts as will enable
the Members to make payment of federal and state income taxes (including
quarterly estimates therefor) which may become due or payable with respect to
each fiscal period or part thereof.

"Transfer" has the meaning assigned to such term in Section 4.1(a).

"Trustee" has the meaning set forth in the recitals hereto.

"Unrealized Gain" attributable to any item of Company property means, as of any
date of determination, the excess, if any, of (a) the fair market value of such
property as of such date (as determined under Section 5.5(c)) over (b) the
Carrying Value of such property as of such date (prior to any adjustment to be
made pursuant to Section 5.5(c) as of such date).

"Unrealized Loss" attributable to any item of Company property means, as of any
date of determination, the excess, if any, of (a) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
5.5(c) as of such date) over (b) the fair market value of such property as of
such date (as determined under Section 5.5(c)).

"Unreturned Timberlands Agreed Value" means the Agreed Value of the Contributed
Property contributed to the Company by Klamath less the sum of all distributions
made to Klamath pursuant to Section 6.3(c).

"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.

"UST Finance Corp." means U.S. Timberlands Finance Corp., a Delaware
corporation.

"Yakima Holdings" has the meaning set forth in the recitals hereto.

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"Yakima Holdings II" has the meaning set forth in the recitals hereto.

"Yakima Holdings Pledge Agreement" means that certain pledge agreement between
Yakima Holdings and the Trustee pursuant to which Yakima Holdings has pledged
the Pledged Interest to the Trustee.

1.2  

Construction

Unless the context requires otherwise:  (a) any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa; (b) references to Articles and Sections refer to Articles and Sections of
this Agreement; and (c) "include" or "includes" means includes, without
limitation, and "including" means including, without limitation.

ARTICLE II
ORGANIZATION

2.1  

Formation

The Company filed a Certificate of Formation with the Secretary of State of the
State of Delaware on May 3, 1999.  The rights, duties, liabilities and
obligations of the Members and the administration, dissolution and termination
of the Company shall be governed by this Agreement and the Delaware Limited
Liability Company Act.  All Membership Interests shall constitute personal
property of the owner thereof for all purposes, and a Member has no interest in
specific Company property.

2.2  

Name

The name of the Company shall be "U.S. Timberlands Yakima, LLC."  The Company's
business may be conducted under any other name or names deemed necessary or
appropriate by the Board in its sole discretion.  The words "Limited Liability
Company," "L.L.C." or "LLC" shall be included in the Company's name where
necessary for the purpose of complying with the laws of any jurisdiction that so
requires.  Subject to the restrictions set forth in the Indenture, the Board in
its discretion may change the name of the Company at any time and from time to
time and shall notify the Members of such change in the next regular
communication to the Members.

2.3  

Registered Office; Registered Agent; Principal Office; Other Offices

Unless and until changed by the Board, the registered office of the Company in
the State of Delaware shall be located at 1013 Centre Road, New Castle County,
Wilmington, Delaware 19805, and the registered agent for service of process on
the Company in the State of Delaware at such registered office shall be the
Corporation Service Company.  The principal office of the Company shall be
located at 625 Madison Ave., Suite 10-B, New York, New York 10022, or such other
place as the Board may from time to time designate by notice to the Members.
 The Company may maintain offices at such other place or places within or
outside the State of Delaware as the Board deems necessary or appropriate.  The
address of the Board shall be 625 Madison Ave., Suite 10-B, New York, New York
10022, or such other place as the Board may from time to time designat e by
notice to the Members.

2.4  

Purpose and Business

(a)  

The purpose and nature of the business to be conducted by the Company shall be
to:

(i)  

own, hold title to, manage, service, acquire, dispose and operate (or arrange
for an agent to manage, service and/or operate) the timber properties of the
Company;

(ii)  

enter into, perform and comply with the Basic Documents, including the
Indenture, pursuant to which the Company will issue notes secured by the timber
properties and all other assets of the Company and, subject to the provisions of
the Indenture and upon the consummation of the Klamath Falls Transfer (as
defined in the Indenture), the Company's interests in Klamath Falls Holdings;

(iii)  

own equity interests in other entities whose purposes are restricted to those of
the type set forth in clause (i) above; and

(iv)  

engage in any lawful act or activity and exercise any powers permitted to
limited liability companies organized under the laws of the State of Delaware
that are related or incidental to and necessary, convenient or advisable for the
accomplishment of the above-mentioned purposes (including the entering into of
interest rate or basis swap, cap, floor or collar agreements, currency exchange
agreements or similar hedging transactions and referral, management, servicing
and administration agreements).

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(b)  

The Company, by or through any Director or Officer on behalf of the Company, may
enter into and perform the Basic Documents and all documents, agreements,
certificates, or financing statements contemplated thereby or related thereto,
all without any further act, vote or approval of any other Person
notwithstanding any other provision of this Agreement, the Delaware Limited
Liability Company Act or applicable law, rule or regulation.  The foregoing
authorization shall not be deemed a restriction on the powers of any Director or
Officer to enter into other agreements on behalf of the Company.

2.5  

Powers

Subject to the limitations set forth in Section 7.10, the Company, and the
Directors and Officers on its behalf, shall be empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described in Section 2.4 and for the protection and benefit of the Company.

2.6  

Term

The term of the Company commenced upon the filing of the Certificate of
Formation in accordance with the Delaware Limited Liability Company Act and
shall be perpetual unless earlier terminated and dissolved in accordance with
the provisions of Article XII.  The existence of the Company as a separate legal
entity shall continue until the cancellation of the Certificate of Formation as
provided in the Delaware Limited Liability Company Act.

2.7  

Title to Company Assets

Title to Company assets, whether real, personal or mixed and whether tangible or
intangible, shall be deemed to be owned by the Company as an entity, and no
Member, individually or collectively, shall have any ownership interest in such
Company assets or any portion thereof.  All Company assets shall be recorded as
the property of the Company in its books and records, irrespective of the name
in which record title to such Company assets is held.

ARTICLE III
RIGHTS OF MEMBERS

3.1  

Limitation of Liability

Except as otherwise expressly provided by the Delaware Limited Liability Company
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and none of the Members, the Special Members, any
Director or any Officer shall be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a Member,
Special Member, Director or Officer of the Company.

3.2  

Outside Activities of the Members

Any Member, Special Member or any Affiliate of the foregoing shall be entitled
to and may have business interests and engage in business activities in addition
to those relating to the Company, including business interests and activities in
direct competition with the Company Group.  None of the Company, any Member,
Special Member or any Affiliate of the foregoing shall have any rights by virtue
of this Agreement in any business ventures of any Member.

3.3  

Rights of Members

(a)  

In addition to other rights provided by this Agreement or by applicable law, and
except as limited by Section 3.3(b), each Member shall have the right, for a
purpose reasonably related to such Member's interest as a member in the Company,
upon reasonable written demand and at such Member's own expense:

(i)  

to obtain true and full information regarding the status of the business and
financial condition of the Company;

(ii)  

promptly after their becoming available, to obtain a copy of the Company's
federal, state and local income tax returns for each year;

(iii)  

to have furnished to it a current list of the name and last known business,
residence or mailing address of each Member;

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(iv)  

to have furnished to it a copy of this Agreement and the Certificate of
Formation and all amendments thereto;

(v)  

to obtain true and full information regarding the amount of cash and a
description and statement of the Net Agreed Value of any other Capital
Contribution by each Member and which each Member has agreed to contribute in
the future, and the date on which each became a Member; and

(vi)  

to obtain such other information regarding the affairs of the Company as is just
and reasonable.

(b)

The Board may keep confidential from the Members, for such period of time as the
Board deems reasonable, (i) any information that the Board reasonably believes
to be in the nature of trade secrets or (ii) other information the disclosure of
which the Board in good faith believes (A) is not in the best interests of the
Company Group, (B) could damage the Company Group, or (C) any Group Member is
required by law or by agreement with any third party to keep confidential (other
than agreements with Affiliates of the Company the primary purpose of which is
to circumvent the obligations set forth in this Section 3.3).

3.4  

Indemnification

(a)  

No Member, Special Member, Officer, Director, employee or agent of the Company
nor any employee, representative, agent or Affiliate of any Member or Special
Member (collectively, the "Covered Persons") shall be liable to the Company or
any other Person who has an interest in or claim against the Company for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Covered Person in good faith on behalf of the Company and in a
manner reasonably believed to be within the scope of the authority conferred on
such Covered Person by this Agreement, except that a Covered Person shall be
liable for any such loss, damage or claim incurred by reason of such Covered
Person's gross negligence or willful misconduct.

(b)  

To the fullest extent permitted by applicable law, a Covered Person shall be
entitled to indemnification from the Company for any loss, damage or claim
incurred by such Covered Person by reason of any act or omission performed or
omitted by such Covered Person in good faith on behalf of the Company and in a
manner reasonably believed to be within the scope of the authority conferred on
such Covered Person by this Agreement, except that no Covered Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Covered Person by reason of such Covered Person's gross negligence or
willful misconduct with respect to such acts or omissions; provided, however,
that any indemnity under this Section 3.4 by the Company shall be provided out
of and to the extent of Company assets only, and the Members and the Special
Members s hall not have personal liability on account thereof, and provided
further, that so long as any Obligation is outstanding, no indemnity payment
from funds of the Company (as distinct from funds from other sources, such as
insurance) of any indemnity under this Section 3.4 shall be payable from amounts
allocable to any other Person pursuant to the Basic Documents.

(c)  

To the fullest extent permitted by applicable law, expenses (including legal
fees) incurred by a Covered Person defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined by a court of competent jurisdiction that
the Covered Person is not entitled to be indemnified as authorized in this
Section 3.4.

(d)  

A Covered Person shall be fully protected in relying in good faith upon the
records of the Company and upon such information, opinions, reports or
statements presented to the Company by any Person as to matters the Covered
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, or any other facts pertinent to the
existence and amount of assets from which distributions to the Member might
properly be paid.

(e)  

To the extent that, at law or in equity, a Covered Person has duties (including
fiduciary duties) and liabilities relating thereto to the Company or to any
other Covered Person, a Covered Person acting under this Agreement shall not be
liable to the Company or to any other Covered Person for its good faith reliance
on the provisions of this Agreement or any approval or authorization granted by
the Company or any other Covered Person.  The provisions of this Agreement, to
the extent that they restrict the duties and liabilities of a Covered Person
otherwise existing at law or in equity, are agreed by the Members and the
Special Members to replace such other duties and liabilities of such Covered
Person.

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(f)  

The foregoing provisions of this Section 3.4 shall survive any termination of
this Agreement.

3.5  

Voting

Each Common Interest Member shall be entitled to the number of votes equal to
its Percentage Interest on any matter requiring the approval of the Members,
whether pursuant to this Agreement or the Delaware Limited Liability Company
Act.  Except as provided in Article XIII, the Preferred Interest Member shall
not be entitled to vote or consent on any matter requiring the approval of the
Members, whether pursuant to this Agreement or the Delaware Limited Liability
Company Act.

ARTICLE IV
TRANSFERS OF INTERESTS

4.1  

Transfer Generally

(a)  

The term "transfer," when used in this Agreement with respect to a Membership
Interest, shall be deemed to refer to a transaction by which the holder of a
Membership Interest assigns such Membership Interest to another Person who is or
becomes a Member, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise;
provided, however, that the pledge by Yakima Holdings to the Trustee of the
Pledged Interest shall not constitute a transfer until the Trustee exercises its
right to take possession of the Pledged Interest in accordance with the terms of
the Yakima Holdings Pledge Agreement.

(b)  

No Membership Interest shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this Article IV. Any
transfer or purported transfer of a Membership Interest not made in accordance
with this Article IV shall be null and void.

4.2  

Transfer of Membership Interest

Subject to Section 10.2, any Member may assign in whole or in part its
Membership Interest in the Company.  If a Member transfers all or part of its
Membership Interest in the Company pursuant to this Section 4.2, the transferee
shall be admitted to the Company as a Substituted Member of the Company with
respect to such transferred Membership Interest upon its execution of an
instrument signifying its agreement to be bound by the terms and conditions of
this Agreement, which instrument may be a counterpart signature page to this
Agreement.  Such admission shall be deemed effective immediately prior to the
transfer and, immediately following such admission, the transferor Member shall
cease to be a Member of the Company.  Notwithstanding anything in this Agreement
to the contrary, any successor to the Member by merger or consolidation in
compliance with the Basic Documents shall, without further act, be a Member
hereunder, and such merger or consolidation shall not constitute an assignment
for purposes of this Agreement and the Company shall continue without
dissolution.

4.3  

Restrictions on Transfers

(a)  

Notwithstanding Section 4.2 and subject to Section 4.3(c), no transfer of any
Membership Interest shall be made if such transfer would (i) violate the then
applicable federal or state securities laws or rules and regulations of the
Commission, any state securities commission or any other governmental authority
with jurisdiction over such transfer, (ii) terminate the existence or
qualification of the Company or any Member under the laws of the jurisdiction of
its formation, (iii) violate any terms of any Basic Documents, or (iv) cause the
Company or any Member to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for federal income tax purposes (to the
extent not already so treated or taxed).

(b)  

The Board may impose restrictions on the transfer of Membership Interests if a
subsequent opinion of counsel determines that such restrictions are necessary to
avoid a significant risk of the Company or any Member becoming taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes.  The restrictions may be imposed by making such amendments to this
Agreement as the Board may determine to be necessary or appropriate to impose
such restrictions.

(c)  

Notwithstanding any other provisions of this Article IV, the restrictions on
transferability of Membership Interests set forth in this Article IV shall not
apply to the exercise by the Trustee of its right to take possession of the

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Pledged Interest in accordance with the terms of the Yakima Holdings Pledge
Agreement.

ARTICLE V
ADMISSION OF MEMBERS; CAPITAL

5.1  

Classes of Interests

The Company shall be authorized to issue two classes of interests, a Common
Interest and a Preferred Interest.  

5.2  

Capital Contributions

(a)  

As of the Inception Date, the Company acknowledges having received from MLP
$294,000, as a Capital Contribution, in exchange for a 49% Common Interest.  On
the Effective Date, (i) MLP contributed such 49% Common Interest to Yakima
Holdings II in exchange for certain membership interests in Yakima Holdings II
and Yakima Holdings II was admitted as a substituted member in respect of such
Common Interest, (ii) Yakima Holdings II in turn contributed such Common
Interest to Yakima Holdings and withdrew as a member of the Company and (iii)
Yakima Holdings was admitted as a Substituted Member (as defined in the Original
Operating Agreement) in respect of such Common Interest.

(b)  

As of the Inception Date, the Company acknowledges having received from Holdings
$306,000, as a Capital Contribution, in exchange for a 51% Common Interest.  On
the Effective Date, (i) Holdings contributed such 51% Common Interest to Yakima
Holdings II in exchange for certain membership interests in Yakima Holdings II
and Yakima Holdings II was admitted as a substituted member in respect of such
Common Interest, (ii) Yakima Holdings II subsequently contributed such Common
Interest to Yakima Holdings and withdrew as a member of the Company and (iii)
Yakima Holdings was admitted as a Substituted Member (as defined in the Original
Operating Agreement) in respect of such Common Interest.

(c)  

As of the Inception Date, the Company acknowledges having received from Klamath
the Antelope Timberlands, as a Capital Contribution, in exchange for a 100%
Preferred Interest.  Antelope Timberlands has an initial Agreed Value of
$22,000,000.  As of the Effective Date, the Company acknowledges having received
from Klamath additional properties having, in the aggregate, an Agreed Value of
$18,500,000 (and, together with the Agreed Value of Antelope Timberlands,
$40,500,000).

5.3  

Additional Capital Contributions

With the consent of the Board, any Member may, but shall not be obligated to,
make additional Capital Contributions to the Company.  The provisions of this
Agreement, including this Section 5.3, are intended to benefit the Members and
the Special Members and, to the fullest extent permitted by law, shall not be
construed as conferring any benefit upon any creditor of the Company (and no
such creditor of the Company shall be a third-party beneficiary to this
Agreement) and the Members and the Special Members shall not have any duty or
obligation to any creditor of the Company to make any contributions to the
Company or to issue any call for capital pursuant to this Agreement.

5.4  

Interest and Withdrawal

No interest shall be paid by the Company on Capital Contributions. No Member
shall be entitled to the withdrawal or return of its Capital Contribution,
except to the extent, if any, that distributions made pursuant to this Agreement
or upon termination of the Company may be considered as such by law and then
only to the extent provided for in this Agreement.  Except to the extent
expressly provided in this Agreement, no Member shall have priority over any
other Member either as to the return of Capital Contributions or as to profits,
losses or distributions.  

5.5  

Capital Accounts

(a)  

The Company shall maintain for each Member (or a beneficial owner of Membership
Interests held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Company in accordance with Section 6031(c) of the
Code or any other method acceptable to the Board in its sole discretion) owning
a Membership Interest a separate Capital Account with respect to such Membership
Interest in accordance with the rules of Treasury Regulations Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made to the Company with respect to such Membership
Interest pursuant to this Agreement and (ii) all items of Company income and
gain (including, without limitation, income and gain exempt from tax) computed
in accordance with Section 5.5(b) and allocated with respect to such Membership
Interest pursuant to Section 6.1, and decreased by (x) the amount of cash or Net
Agreed Value of all actual and deemed distributions of cash or property made
with respect to such Membership Interest pursuant to this Agreement and (y) all
items of Membership deduction and loss computed in accordance with Section
5.5(b) and allocated with respect to such Membership Interest pursuant to
Section 6.1.

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(b)  

For purposes of computing the amount of any item of income, gain, loss or
deduction that is to be allocated pursuant to Article VI and is to be reflected
in the Members' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:

(i)  

Solely for purposes of this Section 5.5, the Company shall be treated as owning
directly its proportionate share (as determined by the Board) of all property
owned by any Subsidiary that is classified as a partnership for federal income
tax purposes.

(ii)  

All fees and other expenses incurred by the Company to promote the sale of (or
to sell) a Membership Interest that can neither be deducted nor amortized under
Section 709 of the Code, if any, shall, for purposes of Capital Account
maintenance, be treated as an item of deduction at the time such fees and other
expenses are incurred and shall be allocated among the Members pursuant to
Section 6.1.

(iii)  

Except as otherwise provided in Treasury Regulations Section
1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of the
Code that may be made by the Company and, as to those items described in Section
705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such
items are not includible in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.  To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(b) of
the Code is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment in the Capital Accounts shall be treated as an
item of gain or loss.< /P>

(iv)  

Any income, gain or loss attributable to the taxable disposition of any Company
property shall be determined as if the adjusted basis of such property as of
such date of disposition was equal in amount to the Company's Carrying Value
with respect to such property as of such date.

(v)  

In accordance with the requirements of Section 704(b) of the Code, any
deductions for depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted basis of such
property on the date it was acquired by the Company was equal to the Agreed
Value of such property.  Upon an adjustment pursuant to Section 5.5(c) to the
Carrying Value of any Company property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery or
amortization attributable to such property shall be determined (A) as if the
adjusted basis of such property were equal to the Carrying Value of such
property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method and
useful life (or, if appl icable, the remaining useful life) as is applied for
federal income tax purposes; provided, however, that, if the asset has a zero
adjusted basis for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method that the
Board may adopt.

(vi)  

If the Company's adjusted basis in a depreciable or cost recovery property is
reduced for federal income tax purposes pursuant to Section 48(q)(1) or 48(q)(3)
of the Code, the amount of such reduction shall, solely for purposes hereof, be
deemed to be an additional depreciation or cost recovery deduction in the year
such property is placed in service and shall be allocated among the Members
pursuant to Section 6.1.  Any restoration of such basis pursuant to Section
48(q)(2) of the Code shall, to the extent possible, be allocated in the same
manner to the Members to whom such deemed deduction was allocated.

(vii)  

A transferee of a Membership Interest shall succeed to a pro rata portion of the
Capital Account of the transferor relating to the Membership Interest so
transferred.

(c)  

(i)  

In accordance with Treasury Regulations Section 1.704- 1(b)(2)(iv)(f), on an
issuance of additional Membership Interests for cash or Contributed Property,
the Capital Account of all Members and the Carrying Value of each Company
property immediately prior to such issuance shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such Company
property, as if such Unrealized Gain or Unrealized Loss had been recognized on
an actual sale of each such property immediately prior to such issuance and had
been allocated to the Members at such time pursuant to Section 6.1 in the same
manner as any item of gain or loss actually recognized during such period would
have been allocated.  In determining such Unrealized Gain or Unrealized Loss,
the aggregate cash amount and fair market value of all Company assets
(including, without limitation, cash or cash equivalents) immediately prior to
the issuance of additional Membership Interests shall be determined by the Board
using such reasonable method of valuation as it may adopt; provided, however,
that the Board, in arriving at such valuation, must take fully into account the
fair market value of the Membership Interests of all Members at such time.  The
Board shall allocate such aggregate value among the assets of the Company (in
such manner as it determines in its discretion to be reasonable) to arrive at a
fair market value for individual properties.

 

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(ii)  

In accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a Member of any
Company property (other than a distribution of cash that is not in redemption or
retirement of a Membership Interest), the Capital Accounts of all Members and
the Carrying Value of all Company property shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such Company
property, as if such Unrealized Gain or Unrealized Loss had been recognized in a
sale of such property immediately prior to such distribution for an amount equal
to its fair market value, and had been allocated to the Members at such time
pursuant to Section 6.1 in the same manner as any item of gain or loss actually
recognized during such period would have been allocated.  In determining such
Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market
value of all Company assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of an
actual distribution that is not made pursuant to Section 12.4 or in the case of
a deemed contribution and/or distribution occurring as a result of a termination
of the Company pursuant to Section 708 of the Code, be determined and allocated
in the same manner as that provided in Section 5.5(c)(i) or (B) in the case of a
liquidating distribution pursuant to Section 12.4, be determined and allocated
by the Liquidator using such reasonable method of valuation as it may adopt.

5.6  

Redemption of Preferred Interest

(a)  

The Preferred Interest may be redeemed, in whole or in part, for an amount equal
to the sum of the Redemption Price of the Preferred Interests called for
redemption, plus the unpaid Guaranteed Payment pursuant to Section 6.3(b) with
respect to the Preferred Interests being redeemed, both of which being
determined as of the date of redemption, as follows:

(i)  

So long as any Obligation is outstanding and for one year and one day after the
date on which the Obligations are satisfied in full, by the Company, at its
option; and

(ii)  

Thereafter, by the Preferred Interest Member, at its option.

(b)  

Any payment of the Redemption Price owing to the Preferred Interest Member
resulting from a redemption under this Section 5.6 shall, at the Company’s
option, be payable by the following means:

(i)  

100% cash or

(ii)  

Return of timber properties (x) having an Agreed Value equal to the Redemption
Price of the Preferred Interest being redeemed and (y) acceptable to the
Preferred Interest Member, plus any accrued but yet unpaid Guaranteed Payments
with respect to such Preferred Interests pursuant to Section 6.3.

(c)  

Notwithstanding anything contained in Section 5.6(a) and 5.6(b), no redemption
shall take place during any period in which such a redemption would be
prohibited by applicable law or by any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which the Company
is a party or by which it is bound or its assets are subject.

5.7  

Loans From Members

Loans by a Member to the Company shall not constitute Capital Contributions.  If
any Member shall advance funds to the Company in excess of the amounts required
hereunder to be contributed by it to the capital of the Company, the making of
such excess advances shall not result in any increase in the amount of the
Capital Account of such Member.  The amount of any such excess advances shall be
a debt obligation of the Company to such Member and shall be payable or
collectible only out of the Company assets in accordance with the terms and
conditions upon which such advances are made.

5.8  

Limited Preemptive Rights

No Person shall have preemptive, preferential or other similar rights with
respect to (a) additional Capital Contributions; (b) the issuance or sale of any
class or series of Membership Interests, whether unissued, held in the treasury
or hereafter created; (c) the issuance of any obligations, evidences of
indebtedness or other securities of the Company convertible into or exchangeable
for, or carrying or accompanied by any rights to receive, purchase or subscribe
to, any such Membership Interests; (d) the issuance of any right of subscription
to or right to receive, or any warrant or option for the purchase of, any such
Membership Interests; or (e) the issuance or sale of any other securities that
may be issued or sold by the Company.

 

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5.9  

Fully Paid and Nonassessable Nature of Membership Interests

All Membership Interests issued pursuant to, and in accordance with the
requirements of, this Article V shall be fully paid and nonassessable Membership
Interests, except as such nonassessability may be affected by Section 18-607 or
Section 18-804 of the Delaware Limited Liability Company Act.

ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

6.1  

Allocations for Capital Account Purposes

For purposes of maintaining the Capital Accounts and in determining the rights
of the Members among themselves, the Company's items of income, gain, loss and
deduction (computed in accordance with Section 5.5(b)) shall be allocated among
the Members in each taxable year (or portion thereof) as provided herein below.

6.1.1  

Net Income

After giving effect to the special allocations set forth in Section 6.1.3, Net
Income for each taxable year and all items of income, gain, loss and deduction
taken into account in computing Net Income for such taxable period shall be
allocated among the Members as follows:

(a)  

First, among the Common Interest Members in accordance with their Percentage
Interests until the cumulative amount of Net Income allocated to the Common
Interest Members pursuant to this Section 6.1.1(a) equals the cumulative amount
of Net Losses allocated to the Common Interest Members pursuant to Section
6.1.2(d);

(b)  

Second, to the Preferred Interest Member until the cumulative amount of Net
Income allocated to the Preferred Interest Member pursuant to this Section
6.1.1(b) equals the cumulative amount of Net Losses allocated to it pursuant to
Section 6.1.2(c);

(c)  

Third, among the Common Interest Members in accordance with their Percentage
Interests until the cumulative amount of Net Income allocated to the Common
Interest Members pursuant to this Section 6.1.1(c) equals the cumulative amount
of Net Losses allocated to the Common Interest Members pursuant to Section
6.1.2(b); and

(d)  

Thereafter, to the Common Interest Members in accordance with their respective
Percentage Interests.

6.1.2  

Net Loss

After giving effect to the special allocations set forth in Section 6.1.3, Net
Loss for each taxable period and all items of income, gain, loss and deduction
taken into account in computing Net Loss for such taxable period shall be
allocated among the Members as follows:

(a)  

First, among the Common Interest Members in accordance with their Percentage
Interests until the cumulative amount of Net Losses allocated to the Common
Interest Members pursuant to this Section 6.1.2(a) equals the cumulative amount
of Net Income allocated to the Common Interest Members pursuant to Section
6.1.1(d);

(b)  

Second, among the Common Interest Members in proportion to and to the extent
necessary to cause each Common Interest Member's Capital Account to equal zero;

(c)  

Third, to the Preferred Interest Member to the extent necessary to cause its
Capital Account to equal zero; and

(d)  

Thereafter, among the Common Interest Members in accordance with their
respective Percentage Interests.

 

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6.1.3  

Special Allocations

Notwithstanding any other provision of this Section 6.1, the following special
allocations shall be made for such taxable period:

6.1.3.1  

Partnership Minimum Gain Chargeback

Notwithstanding any other provision of this Section 6.1, if there is a net
decrease in Partnership Minimum Gain during any Company taxable period, each
Member shall be allocated items of Company income and gain for such period (and,
if necessary, subsequent periods) in the manner and amounts provided in Treasury
Regulations Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any
successor provision.  For purposes of this Section 6.1.3, each Member's Adjusted
Capital Account balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 6.1.3 with respect to such taxable period
(other than an allocation pursuant to Sections 6.1.3.5 and 6.1.3.6).  This
Section 6.1.3.1 is intended to comply with the Partnership Minimum G ain
chargeback requirement in Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.

6.1.3.2  

Chargeback of Partner Nonrecourse Debt Minimum Gain

Notwithstanding the other provisions of this Section 6.1 (other than Section
6.1.3.1), except as provided in Treasury Regulations Section 1.704-2(i)(4), if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any
Company taxable period, any Member with a share of Partner Nonrecourse Debt
Minimum Gain at the beginning of such taxable period shall be allocated items of
Company income and gain for such period (and, if necessary, subsequent periods)
in the manner and amounts provided in Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions.  For purposes
of this Section 6.1.3, each Member's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall be
effected, prior to the application of any other allocations pursuant to this
Section 6 .1.3, other than Section 6.1.3.1 and other than an allocation pursuant
to Sections 6.1.3.5 and 6.1.3.6, with respect to such taxable period.  This
Section 6.1.3.2 is intended to comply with the chargeback of items of income and
gain requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.

6.1.3.3  

Qualified Income Offset

In the event any Member unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and
gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations
promulgated under Section 704(b) of the Code, the deficit balance, if any, in
its Adjusted Capital Account created by such adjustments, allocations or
distributions as quickly as possible unless such deficit balance is otherwise
eliminated pursuant to Section 6.1.3.1 or 6.1.3.2.

6.1.3.4  

Gross Income Allocations

In the event any Member has a deficit balance in its Capital Account at the end
of any Company taxable period in excess of the sum of (A) the amount such Member
is required to restore pursuant to the provisions of this Agreement and (B) the
amount such Member is deemed obligated to restore pursuant to Treasury
Regulations Sections 1.704-2(g) and 1.704-2(i)(5), such Member shall be
specially allocated items of Company gross income and gain in the amount of such
excess as quickly as possible; provided, however, that an allocation pursuant to
this Section 6.1.3.4 shall be made only if and to the extent that such Member
would have a deficit balance in its Capital Account as adjusted after all other
allocations provided for in this Section 6.1 have been tentatively made as if
this Section 6.1.3.4 were not in this Agreement.

6.1.3.5  

Nonrecourse Deductions

Nonrecourse Deductions for any taxable period shall be allocated to the Members
in accordance with their respective Percentage Interests.  If the Board
determines in its good faith discretion that the Company's Nonrecourse
Deductions must be allocated in a different ratio to satisfy the safe harbor
requirements of the Treasury Regulations promulgated under Section 704(b) of the
Code, the Board is authorized, upon notice to the Members, to revise the
prescribed ratio to the numerically closest ratio that does satisfy such
requirements.

 

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6.1.3.6  

Partner Nonrecourse Deductions

Partner Nonrecourse Deductions for any taxable period shall be allocated 100% to
the Member that bears the Economic Risk of Loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Treasury Regulations Section 1.704-2(i).  If more than one
Member bears the Economic Risk of Loss with respect to a Partner Nonrecourse
Debt, such Partner Nonrecourse Deductions attributable thereto shall be
allocated between or among such Members in accordance with the ratios in which
they share such Economic Risk of Loss.

6.1.3.7  

Nonrecourse Liabilities

For purposes of Treasury Regulations Section 1.752-3(a)(3), the Members agree
that Nonrecourse Liabilities of the Company in excess of the sum of (A) the
amount of Partnership Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Members in accordance with their
respective Percentage Interests.

6.1.3.8  

Code Section 754 Adjustments

To the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Section 734(b) or 743(c) of the Code is required, pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis), and such
item of gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Treasury Regulations.

6.1.3.9  

Curative Allocation

(a)  

Notwithstanding any other provision of this Section 6.1, other than the Required
Allocations, the Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net amount of items of
income, gain, loss and deduction allocated to each Member pursuant to the
Required Allocations and the Agreed Allocations, together, shall be equal to the
net amount of such items that would have been allocated to each such Member
under the Agreed Allocations had the Required Allocations and the related
Curative Allocation not otherwise been provided in this Section 6.1.
 Notwithstanding the preceding sentence, Required Allocations relating to (1)
Nonrecourse Deductions shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2) Partner
Nonrecourse Dedu ctions shall not be taken into account except to the extent
that there has been a decrease in Partner Nonrecourse Debt Minimum Gain.
 Allocations pursuant to this Section 6.1.3.9(a) shall only be made with respect
to Required Allocations to the extent the Board reasonably determines that such
allocations will otherwise be inconsistent with the economic agreement among the
Members. Further, allocations pursuant to this Section 6.1.3.9(a) shall be
deferred with respect to allocations pursuant to clauses (1) and (2) above to
the extent the Board reasonably determines that such allocations are likely to
be offset by subsequent Required Allocations.

(b)  

The Board shall have reasonable discretion, with respect to each taxable period,
to (1) apply the provisions of Section 6.1.3.9(a) in whatever order is most
likely to minimize the economic distortions that might otherwise result from the
Required Allocations and (2) divide all allocations pursuant to Section
6.1.3.9(a) among the Members in a manner that is likely to minimize such
economic distortions.

6.2  

Allocations for Tax Purposes

(a)  

Except as otherwise provided herein, for federal income tax purposes, each item
of income, gain, loss and deduction shall be allocated among the Members in the
same manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Section 6.1.

(b)  

In an attempt to eliminate Book-Tax Disparities attributable to a Contributed
Property or Adjusted Property, items of income, gain, loss, depreciation,
amortization and cost recovery deductions shall be allocated for federal income
tax purposes among the Members as follows:

(i)  

(A) In the case of a Contributed Property, such items attributable thereto shall
be allocated among the Members in the manner provided under Section 704(c) of
the Code that takes into account the variation between the Agreed Value of such
property and its adjusted basis at the time of contribution; and (B) any item of
Residual Gain or Residual Loss attributable to a Contributed Property shall be
allocated among the Members in the same manner as its correlative item of "book"
gain or loss is allocated pursuant to Section 6.1.

(ii)  

(A) In the case of an Adjusted Property, such items shall (1) first, be
allocated among the Members in a manner consistent with the principles of
Section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations thereof
pursuant to Section 5.5(c)(i) or 5.5(c)(ii), and (2) second, in the event such
property was originally a Contributed Property, be allocated among the Members
in a manner consistent with Section 6.2(b)(i)(A); and (B) any item of Residual
Gain or Residual Loss attributable to an Adjusted Property shall be allocated
among the Members in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 6.1.

 

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(iii)  

The Board shall apply the principles of Treasury Regulations Section 1.704-3(d)
to eliminate Book-Tax Disparities.

(c)  

For the proper administration of the Company and for the preservation of
uniformity of the Membership Interests (or any class or classes thereof), the
Board shall have sole discretion to (i) adopt such conventions as it deems
appropriate in determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for federal income tax
purposes of income (including, without limitation, gross income) or deductions;
and (iii) amend the provisions of this Agreement as appropriate (x) to reflect
the proposal or promulgation of Treasury Regulations under Section 704(b) or
Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of
the Membership Interests (or any class or classes thereof).  The Board may adopt
such conventions, make such allocations and make such amendments to this
Agreement a s provided in this Section 6.2(c) only if such conventions,
allocations or amendments would not have a material adverse effect on the
Members and if such allocations are consistent with the principles of Section
704 of the Code.

(d)  

The Board in its discretion may determine to depreciate or amortize the portion
of an adjustment under Section 743(b) of the Code attributable to unrealized
appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax
Disparity) using a predetermined rate derived from the depreciation or
amortization method and useful life applied to the Company's common basis of
such property, despite any inconsistency of such approach with Proposed Treasury
Regulations Section 1.168-2(n), Treasury Regulations Section 1.167(c)-l(a)(6) or
the legislative history of Section 197 of the Code.  If the Board determines
that such reporting position cannot reasonably be taken, the Board may adopt
depreciation and amortization conventions under which all purchasers acquiring
Membership Interests in the same month would receive depreciation and amortiza
tion deductions, based on the same applicable rate as if they had purchased a
direct interest in the Company's property.  If the Board chooses not to utilize
such aggregate method, the Board may use any other reasonable depreciation and
amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any Membership Interests that would not have a material
adverse effect on the Members.

(e)  

Any gain allocated to the Members upon the sale or other taxable disposition of
any Company asset shall, to the extent possible, after taking into account other
required allocations of gain pursuant to this Section 6.2, be characterized as
Recapture Income in the same proportions and to the same extent as such Members
(or their predecessors in interest) have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income.

(f)  

All items of income, gain, loss, deduction and credit recognized by the Company
for federal income tax purposes and allocated to the Members in accordance with
the provisions hereof shall be determined without regard to any election under
Section 754 of the Code that may be made by the Company; provided, however, that
such allocations, once made, shall be adjusted as necessary or appropriate to
take into account those adjustments permitted or required by Sections 734 and
743 of the Code.

(g)  

The Board may adopt such methods of allocation of income, gain, loss or
deduction between a transferor and a transferee of a Membership Interest as it
determines necessary, to the extent permitted or required by Section 706 of the
Code and the Regulations and rulings promulgated thereunder.

(h)  

Allocations that would otherwise be made to a Member under the provisions of
this Article VI shall instead be made to the beneficial owner of Membership
Interests held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Company in accordance with Section 6031(c) of the
Code or any other method acceptable to the Board in its sole discretion.

6.3  

Distributions

(a)  

Notwithstanding any limitations provided elsewhere in this Agreement, the Board
shall cause the Company to (i) for each taxable year, distribute pro rata among
the Members the Tax Distributions and (ii) distribute to Yakima Holdings an
amount sufficient to pay ordinary and reasonable holding company operating
expenses (including any expenses necessary to maintain the "bankruptcy remote"
status of Yakima Holdings); provided, however, that no such distributions shall
be made to the extent that the Board determines, in its sole discretion, that
funds are not legally available for such distribution by virtue of applicable
law or contractual obligation.  Distributions pursuant to this Section 6.3(a)
shall be applied against amounts otherwise distributable to Members pursuant to
Section 6.3(b) or 6.3(c).

 

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(b)  

After giving effect to the distributions set forth in Section 6.3(a), an amount
shall be paid to the Preferred Interest Member equal to the excess, if any, of
(i) the cumulative Guaranteed Payment owed to the Preferred Interest Member from
the inception of the Company through the date of such payment over (ii) the sum
of all prior payments made to the Preferred Interest Member pursuant to this
Section 6.3(b).  If any such amount required pursuant to this Section 6.3(b)
would be prohibited by applicable law or by any loan agreement, security
agreement, mortgage, debt instrument or other agreement or obligation to which
the Company is a party or by which it is bound or its assets are subject, then
such unpaid amount shall compound and be paid as soon as such prohibitions are
eliminated; provided, however, that no other Member shall be obligated to c
ontribute additional amounts to the Company in order to fund such payments.
 Amounts distributed to the Preferred Interest Member pursuant to this Section
6.3(b) are intended to constitute guaranteed payments within the meaning of
Section 707(c) of the Code and shall not be treated as distributions for
purposes of determining the Preferred Interest Member' s Capital Account.  The
parties hereto agree that, notwithstanding the foregoing, the Preferred Interest
is intended to be an equity interest in the Company and the Preferred Interest
Member shall have no claim as a creditor of the Company with respect to any
amount payable to the Preferred Interest Member pursuant to this Section 6.3(b).

(c)  

The Board may make such other distributions as it deems appropriate in its sole
discretion.  Any distributions made pursuant to this Section 6.3(c) shall first
be made to the Preferred Interest Member in an amount equal to the Unreturned
Timberlands Agreed Value and then to the Common Interest Members pro rata in
proportion to their Percentage Interests.  No such distributions shall be made
if prohibited by Section 18-607 or Section 18-804 of the Delaware Limited
Liability Company Act or any other applicable law or by any loan agreement,
security agreement, mortgage, debt instrument or other agreement or obligation
to which the Company is a party or by which it is bound or its assets are
subject.

(d)  

The Company acknowledges that distributions made pursuant to Sections 6.3(b) or
6.3(c) hereof are subject to restrictions set forth in Section 7(b) of the
Yakima Holdings Pledge Agreement.

(e)  

The Board shall have the discretion to treat taxes paid by the Company on behalf
of, or amounts withheld with respect to, all or less than all of the Members as
a distribution of Available Cash to such Members.

ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

7.1  

Board of Directors

(a)

Pursuant to Section 18-404 of the Delaware Limited Liability Company Act, the
Company shall have two classes of Directors which are hereby established: the
first class shall consist of the Regular Directors and the second class shall
consist of the Independent Directions appointed in accordance with Section 7.11.
 The Regular Directors shall manage the business and affairs of the Company
subject to the provisions of Section 7.10 and the Independent Directors shall
have only the powers and duties set forth in Section 7.10 and Section 10.1.

(b)

Subject to Sections 7.10 and 7.11, the business and affairs of the Company shall
be managed by or under the direction of a Board of one or more Directors
designated by the Majority of the Common Interest Members.  Subject to Section
7.11, the Majority of the Common Interest Members may determine at any time in
their sole and absolute discretion the number of Directors to constitute the
Board.  The authorized number of Directors may be increased or decreased by the
Majority of the Common Interest Members at any time in their sole and absolute
discretion, upon notice to all Directors, and subject in all cases to Section
7.11.  The initial number of Directors shall be five, two of which shall be
Independent Directors pursuant to Section 7.11.  Each Director elected,
designated or appointed by the Majority of the Common Interest Members shall
hold office until a successor is elected and qualified or until such Director's
earlier death, resignation, or removal.  Each Director shall execute and deliver
a copy of the Management Agreement upon the commencement of his or her service
as a Director.  Each Officer of the Company is hereby authorized to execute any
Management Agreement on behalf of the Company.  A Director need not be a Member.
 The initial Directors designated by the Members are listed on Schedule B
hereto.

7.2  

Powers

Subject to Section 7.10, the Board of Directors shall have the power to do any
and all acts necessary, convenient or incidental to or for the furtherance of
the purposes described herein, including all powers, statutory or otherwise.
 Subject to Section 2.4, the Board of Directors has the authority to bind the
Company.  No Member, in its capacity as a Member, will have any right, power or
authority to act for or on behalf of the Company or to bind the Company.

 

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7.3  

Meeting of the Board of Directors

The Board of Directors of the Company may hold meetings, both regular and
special, within or outside the State of Delaware.  Regular meetings of the Board
may be held without notice at such time and at such place as shall from time to
time be determined by the Board.  Special meetings of the Board may be called by
the President on not less than one day's notice to each Director by telephone,
facsimile, mail, telegram, e-mail or any other means of communication, and
special meetings shall be called by the President or Secretary in like manner
and with like notice upon the written request of any one or more of the
Directors.

7.4  

Quorum: Acts of the Board

At all meetings of the Board or any committee thereof, a majority of the
Directors constituting the Board or such committee, as applicable, shall
constitute a quorum for the transaction of business and, except as otherwise
provided in any other provision of this Agreement, the act of a majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Board.  If a quorum shall not be present at any meeting of the Board or any
committee thereof, the Directors present at such meeting may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.  Any action required or permitted to be taken at any
meeting of the Board or of any committee thereof may be taken without a meeting
if the minimum number of members of the Board or committee, as the cas e may be,
that would be necessary to authorize or take such action at a meeting attended
by all members of the Board or such committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee, as the case may be.

7.5  

Electronic Communications

Members of the Board, or any committee designated by the Board, may participate
in meetings of the Board, or any committee, by means of telephone conference or
similar communications equipment that allows all Persons participating in the
meeting to hear each other, and such participation in a meeting shall constitute
presence in Person at the meeting.  If all the participants are participating by
telephone conference or similar communications equipment, the meeting shall be
deemed to be held at the principal place of business of the Company.

7.6  

Committees of Directors

(a)  

The Board may, by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more of the
Directors of the Company.   The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.

(b)  

In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in the place of any such absent or
disqualified member.

(c)  

Any such committee, to the extent provided in the resolution of the Board, and
subject to, in all cases, Sections 7.10 and 7.11, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Company.  Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board.
 Each committee shall keep regular minutes of its meetings and report the same
to the Board when required.

7.7  

Compensation of Directors; Expenses

The Board shall have the authority to fix the compensation of Directors.  The
Directors may be paid their expenses, if any, of attendance at meetings of the
Board, which may be a fixed sum for attendance at each meeting of the Board or a
stated salary as Director.  No such payment shall preclude any Director from
serving the Company in any other capacity and receiving compensation therefor.
 Members of special or standing committees may be allowed like compensation for
attending committee meetings.

 

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7.8  

Removal of Directors

Unless otherwise restricted by law and subject to Section 7.11, any Director or
the entire Board of Directors may be removed or expelled, with or without cause,
at any time by the Majority of the Common Interest Members, and any vacancy
caused by any such removal or expulsion may be filled by action of the Majority
of the Common Interest Members.

 

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7.9  

Directors as Agents

To the extent of their powers set forth in this Agreement and subject to Section
7.10, the Directors are agents of the Company for the purpose of the Company's
business, and the actions of the Directors taken in accordance with such powers
set forth in this Agreement shall bind the Company.  Notwithstanding the last
sentence of Section 18-402 of the Delaware Limited Liability Company Act, except
as provided in this Agreement or in a resolution of the Directors, a Director
may not bind the Company.

7.10  

Limitations on the Company's Activities

(a)  

This Section 7.10 is being adopted in order to comply with certain provisions
required in order to qualify the Company as a "special purpose" entity.

(b)  

The Members shall not, so long as any Obligation is outstanding, amend, alter,
change or repeal the definition of "Independent Director," Article XI or XIII,
or Sections 1.1, 2.4, 2.5, 3.4, 4.2, 6.3, 7.1-7.11, 10.1, 10.2, 12.1, 12.7 or
15.5 of this Agreement without the unanimous written consent of the Board
(including all Independent Directors).  Subject to this Section 7.10, the
Members reserve the right to amend, alter, change or repeal any provisions
contained in this Agreement in accordance with Article XIII.

(c)  

Notwithstanding any other provision of this Agreement and any provision of law
that otherwise so empowers the Company, the Members, the Board, any Officer or
any other Person, none of the Members, the Board, any Officer or any other
Person shall be authorized or empowered, nor shall they permit the Company,
without the prior written consent of the Majority of the Common Interest Members
and the prior unanimous written consent of the Board (including all Independent
Directors), to take any Material Action, provided, however, that the Board may
not vote on, or authorize the taking of, any Material Action, unless there are
at least two Independent Directors then serving in such capacity.

(d)  

The Board and each Member shall cause the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if (i) the
Board shall determine that the preservation thereof is no longer desirable for
the conduct of its business and that the loss thereof is not disadvantageous in
any material respect to the Company and (ii) the Rating Agency Condition is
satisfied.  The Board also shall cause the Company to:

(i)  

maintain its own separate books and records and bank accounts;

(ii)  

at all times hold itself out to the public and all other Persons as a legal
entity separate from each Member and any other Person and not as a department or
division of any Member or any other Person;

(iii)  

have a Board of Directors separate from that of each Member and any other
Person;

(iv)  

file its own tax returns, if any, as may be required under applicable law, to
the extent (1) not part of a consolidated group filing a consolidated return or
returns or (2) not treated as a division for tax purposes of another taxpayer,
and pay any taxes so required to be paid under applicable law;

(v)  

not commingle its assets with assets of any other Person;

(vi)  

conduct its business in its own name and strictly comply with all organizational
formalities to maintain its separate existence;

 

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(vii)  

maintain separate financial statements;

(viii)  

pay its own liabilities only out of its own funds;

(ix)  

maintain an arm's length relationship with its Affiliates and the Members;

(x)  

pay the salaries of its own employees, if any;

(xi)  

not hold out its credit or assets as being available to satisfy the obligations
of others;

(xii)  

allocate fairly and reasonably any overhead for shared office space and other
shared expenses;

(xiii)  

use separate stationery, invoices and checks;

(xiv)  

not pledge its assets for the benefit of any other Person;

(xv)  

correct any misunderstanding known to it regarding its separate identity;

(xvi)  

maintain adequate capital in light of its contemplated business purpose,
transactions and liabilities;

(xvii)  

cause its Board of Directors to meet at least annually or act pursuant to
written consent and keep minutes of such meetings and actions and observe all
other Delaware limited liability company formalities;

(xviii)  

not acquire any securities of any Member (other than as contemplated by the
Basic Documents); and

(xix)  

cause the Directors, Officers, agents and other representatives of  the Company
to act at all times with respect to the Company consistently and in furtherance
of the foregoing and in the best interests of the Company.

Failure of the Company, or any Member or the Board on behalf of the Company, to
comply with any of the foregoing covenants or any other covenants contained in
this Agreement shall not affect the status of the Company as a separate legal
entity or the limited liability of the Members or the Directors.

(e)  

So long as any Obligation is outstanding, the Board shall not cause or permit
the Company to:  

(i)  

guarantee any obligation of any Person, including any Affiliate;

(ii)  

engage, directly or indirectly, in any business other than the actions required
or permitted to be performed under Section 2.4, the Basic Documents or this
Section 7.10.

(iii)  

incur, create or assume any indebtedness other than as expressly permitted under
the Basic Documents;

(iv)  

make or permit to remain outstanding any loan or advance to, or own or acquire
any stock or securities of, any Person, except that the Company may invest in
those investments permitted under the Basic Documents and may make any advance
required or expressly permitted to be made pursuant to any provisions of the
Basic Documents and permit the same to remain outstanding in accordance with
such provisions;

(v)  

to the fullest extent permitted by law, engage in any dissolution, liquidation,
consolidation, merger, asset sale or transfer of ownership interests other than
such activities as are expressly permitted pursuant to any provision of the
Basic Documents; or

(vi)  

form, acquire or hold any Subsidiary other than Klamath or UST Finance Corp.,
any entity owning Klamath or UST Finance Corp or any other entity which (A) is
restricted to purposes of the type set forth in Section 2.4(a)(i) and (B) upon
the formation or acquisition by the Company of such entity, pledges all of its
assets to the Trustee for the benefit of the holders of the Notes.

7.11  

Independent Directors

As long as any Obligation is outstanding, each Member shall cause the Company at
all times to have at least two Independent Directors who will be appointed by
the Majority of the Common Interest Members.  Each Independent Director accepts
its right and authority as an Independent Director under this Agreement and
agrees to perform and discharge its duties and obligations as an Independent
Director under this Agreement, and further agrees that such rights, authorities,
duties and obligations shall continue until its successor as an Independent
Director is appointed in accordance with the provisions of this Section 7.11.
 The initial Independent Directors of the Company are listed on Schedule B
attached hereto.  Each initial Independent Director shall indicate acceptance of
his appointment by execution of a counterpart of this Agreement. To the fullest
extent permitted by law, including Section 18-1101 (c) of the Delaware Limited
Liability Company Act, the Independent Directors shall consider only the
interests of the Company, including its respective creditors, in acting or
otherwise voting on the matters referred to in Sections 7.10(b) and 7.10(c).
  No resignation or removal of an Independent Director, and no appointment of a
successor Independent Director, shall be effective until such successor (i)
shall have accepted his or her appointment as an Independent Director by a
written instrument, which may be a counterpart signature page to the Management
Agreement, and (ii) shall have executed a counterpart to this Agreement as
required by Section 10.1.  In the event of a vacancy in the position of
Independent Director, the Majority of the Common Interest Members shall, as soon
as practicable, appoint a successor Independent Director.  All right, power and
authority of the Independent Directors shall be limited to the extent necessary
to exercise those rights and perform those duties specifically set forth in this
Agreement.  Except as provided in the fifth sentence of this Section 7.11, in
exercising their rights and performing their duties under this Agreement, any
Independent Director shall have a fiduciary duty of loyalty and care similar to
that of a director of a business corporation organized under the General
Corporation Law of the State of Delaware.  It is hereby further agreed by all
the parties hereto, including the Members, that, to the extent that, at law or
at equity, the Independent Directors have duties (including fiduciary duties)
and liabilities relating thereto to the Company or to the Members, the
Independent Directors’ duties and liabilities at law or at equity have been
expressly modified by contract as herein provided.  No Independent Director
shall at any time serve as trustee in bankruptcy for any Affiliate of the
Company.

 

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7.12  

Officers

(a)  

Officers.  The initial Officers of the Company shall be designated by the
Majority of the Common Interest Members.  The additional or successor Officers
of the Company shall be chosen by the Board and shall consist of at least a
President, a Secretary and a Treasurer.  The Board of Directors may also choose
one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers.
 Any number of offices may be held by the same person.  The Board shall choose a
President, a Secretary and a Treasurer.  The Board may appoint such other
Officers and agents as it shall deem necessary or advisable who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.  The salaries of all
Officers and agents of the Company shall be fixed by or in the manner prescribed
by the Board.  The Officers of the Company shall hold office until their
successors are chosen and qualified.  Any Officer may be removed at any time,
with or without cause, by the affirmative vote of a majority of the Board.  Any
vacancy occurring in any office of the Company shall be filled by the Board.
 The initial Officers of the Company designated by the Majority of the Common
Interest Members are listed on Schedule C hereto.

(b)  

President.  The President shall be the chief executive officer of the Company,
shall preside at all meetings of the Board, shall be responsible for the general
and active management of the business of the Company and shall see that all
orders and resolutions of the Board are carried into effect.  The President or
any other Officer authorized by the President or the Board shall execute all
bonds, mortgages and other contracts.

(c)  

Vice President.  In the absence of the President or in the event of the
President's inability to act, the Vice President, if any (or in the event there
be more than one Vice President, the Vice Presidents in the order designated by
the Directors, or in the absence of any designation, then in the order of their
election), shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President.  The Vice Presidents, if any, shall perform such other duties and
have such other powers as the Board may from time to time prescribe.

(d)  

Secretary and Assistant Secretary.  The Secretary shall be responsible for
filing legal documents and maintaining records for the Company.  The Secretary
shall attend all meetings of the Board and record all the proceedings of the
meetings of the Board in a book to be kept for that purpose and shall perform
like duties for the standing committees when required.  The Secretary shall
give, or shall cause to be given, notice of all meetings of each Member, if any,
and special meetings of the Board, and shall perform such other duties as may be
prescribed by the Board or the President, under whose supervision the Secretary
shall serve.  The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board (or if there be no
such determination, then in order of their election), shall, in th e absence of
the Secretary or in the event of the Secretary's inability to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.

(e)  

Treasurer and Assistant Treasurer.  The Treasurer shall have the custody of the
Company funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board.  The Treasurer
shall disburse the funds of the Company as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President and to
the Board, at its regular meetings or when the Board so requires, an account of
all of the Treasurer's transactions and of the financial condition of the
Company.  The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board (or if there be no
such determination, then in the order of their election), shall, in the absence
of the Treasurer or in the event of the Treasurer's inability to act, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.

(f)  

Officers as Agent.  The Officers, to the extent of their powers set forth in
this Agreement or otherwise vested in them by action of the Board not
inconsistent with this Agreement, are agents of the Company for the purpose of
the Company's business and, subject to Section 7.10 the actions of the Officers
taken in accordance with such powers shall bind the Company.

(g)  

Duties of Board and Officers.  Except to the extent otherwise provided herein,
each Director and Officer shall have a fiduciary duty of loyalty and care
similar to that of directors and officers of business corporations organized
under the General Corporation Law of the State of Delaware.

 

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ARTICLE VIII
BOOKS, RECORDS AND ACCOUNTING

8.1  

Books, Records and Accounting

The Board shall keep or cause to be kept at the principal office of the Company
appropriate books and records with respect to the Company's business, including
all books and records necessary to provide to the Members any information
required to be provided pursuant to Section 3.3(a).  Any books and records
maintained by or on behalf of the Company in the regular course of its business,
including books of account and records of Company proceedings, may be kept on,
or be in the form of, computer disks, hard drives, punch cards, magnetic tape,
photographs, micrographics or any other information storage device; provided,
however, that the books and records so maintained are convertible into clearly
legible written form within a reasonable period of time.  The books of the
Company shall be maintained, for financial reporting purposes, on an accru al
basis in accordance with U.S. GAAP.  

8.2  

Fiscal Year

The fiscal year of the Company shall be a fiscal year ending December 31.

8.3  

Reports

(a)  

Within 60 days after the end of each fiscal quarter, the Board shall cause to be
prepared an unaudited report setting forth as of the end of such fiscal quarter:

(i)  

unless such quarter is the last fiscal quarter, a balance sheet of the Company;
and

(ii)  

unless such quarter is the last fiscal quarter, an income statement of the
Company for such fiscal quarter.

(b)  

The Board shall use diligent efforts to cause to be prepared and mailed to each
Member, within 90 days after the end of each fiscal year, an audited or
unaudited report setting forth as of the end of such fiscal year:

(i)  

a balance sheet of the Company; and

(ii)  

an income statement of the Company for such fiscal year.

(c)  

The Board shall, after the end of each fiscal year, use reasonable efforts to
cause the Company's independent accountants, if any, to prepare and transmit to
each Member as promptly as possible any such tax information as may be
reasonably necessary to enable each Member to prepare its federal, state and
local income tax returns relating to such fiscal year.

ARTICLE IX
TAX MATTERS

9.1  

Tax Returns and Information

The Company shall timely file all returns of the Company that are required for
federal, state and local income tax purposes on the basis of the accrual method
and a taxable year ending on December 31. The tax information reasonably
required by the Members for federal and state income tax reporting purposes with
respect to a taxable year shall be furnished to them within 90 days of the close
of the calendar year in which the Company's taxable year ends. The
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.

 

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9.2  

Tax Elections

(a)  

With the best interests of the Members in mind, the Board shall make a
determination as to whether the Company shall make the election under Section
754 of the Code in accordance with applicable Regulations thereunder.

(b)  

The Company shall elect to deduct expenses incurred in organizing the Company
ratably over a 60 month period as provided in Section 709 of the Code.

(c)  

Except as otherwise provided herein, the Board shall determine whether the
Company should make any other elections permitted by the Code.

9.3  

Tax Controversies

Subject to the provisions hereof, Yakima Holdings is designated as the "tax
matters partner" (as defined in the Code) and is authorized and required to
represent the Company (at the Company's expense) in connection with all
examinations of the Company's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Company funds for
professional services and costs associated therewith.  Each Member agrees to
cooperate with Yakima Holdings and to do or refrain from doing any or all things
reasonably required by Yakima Holdings to conduct such proceedings.

9.4  

Withholding

Notwithstanding any other provision of this Agreement, the Board is authorized
to take any action that it determines in its discretion to be necessary or
appropriate to cause the Company to comply with any withholding requirements
established under the Code or any other federal, state or local law, including,
without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code.
 To the extent that the Company is required or elects to withhold and pay over
to any taxing authority any amount resulting from the allocation or distribution
of income to any Member (including, without limitation, by reason of Section
1446 of the Code), the amount withheld may at the discretion of the Board be
treated by the Company as a distribution of cash pursuant to Section 6.3 in the
amount of such withholding from such Member.

ARTICLE X
ADMISSION OF SPECIAL AND ADDITIONAL
MEMBERS

10.1  

Admission of Special Members

Upon the occurrence of any event that causes the last remaining Common Interest
Member to cease to be a Member of the Company, each Person acting as an
Independent Director pursuant to Section 7.11 shall, without any action of any
Person and simultaneously with such Common Interest Member ceasing to be a
Member of the Company, automatically be admitted to the Company as a Special
Member and shall continue the Company without dissolution.  No Special Member
may withdraw from the Company or transfer its rights as Special Member unless
(i) a successor Special Member has been admitted to the Company as Special
Member by executing a counterpart to this Agreement, and (ii) such successor has
also accepted its appointment as Independent Director pursuant to Section 7.11;
provided, however, the Special Members shall automatically cease to be Members
of the Company upon the admission to the Company of an Additional Member.  Upon
admission to the Company, each Special Member shall be a member of the Company
that has no interest in the profits, losses and capital of the Company and has
no right to receive any distributions of Company assets.  Pursuant to Section
18-301 of the Delaware Limited Liability Company Act, a Special Member shall not
be required to make any Capital Contributions to the Company and shall not
receive a Membership Interest.  A Special Member, in its capacity as Special
Member, may not bind the Company.  Except as required by any mandatory provision
of the Delaware Limited Liability Company Act, each Special Member, in its
capacity as Special Member, shall have no right to vote on, approve or otherwise
consent to any action by, or matter relating to, the Company, including, without
limitation, the merger, consolidation or conversion of the Company.  In order to
implement the admission to the Company of each Special Member, each person
acting as an Independent Director pursuant to Section 7.11 shall execute a
counterpart to this Agreement.  Prior to its admission to the Company as Special
Member, each Person acting as an Independent Director shall not be a member of
the Company and shall have no rights or obligations under this Agreement except
its duties and obligations as an Independent Director, including, without
limitation, its duty and obligation to become a Special Member and be admitted
to the Company upon the occurrence of the conditions specified in this Section
10.1.  

 

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10.2  

Admission of Additional Members and Substituted Members

(a)  

A Person (other than Yakima Holdings, Klamath or a Substituted Member) who makes
a Capital Contribution to the Company in accordance with this Agreement shall be
admitted to the Company as an Additional Member only upon furnishing to the
Board (i) evidence of acceptance in form satisfactory to the Board of all the
terms and conditions of this Agreement, and (ii) such other documents or
instruments as may be required in the discretion of the Board to effect such
Person's admission as an Additional Member.

(b)  

Notwithstanding anything to the contrary in this Section 10.2, (i) no Person
shall be admitted as an Additional Member or a Substituted Member without the
 consent of a Majority of the Common Interest Members which consent may be given
or withheld in their discretion and (ii) so long as any Obligation remains
outstanding, no Additional Member or a Substituted Member may be admitted to the
Company unless (i) the Rating Agency Condition is satisfied and (ii) such
admission is permitted under the Basic Documents.  The admission of any Person
as an Additional Member or a Substituted Member shall become effective on the
date on which the name of such Person is recorded as such in the books and
records of the Company, following the consent of the Majority of the Common
Interest Members to such admission.  This Section 10.2(b) shall not apply t o
the admission of the Trustee or its nominee as a Substituted Member upon the
exercise by the Trustee of its right to take possession of the Pledged Interest
in accordance with the terms of the Yakima Holdings Pledge Agreement.

10.3  

Amendment of Agreement and Certificate of Formation

To effect the admission to the Company of any Member, the Board shall take all
steps necessary and appropriate under the Delaware Limited Liability Company Act
to amend the records of the Company to reflect such admission and, if necessary,
to prepare as soon as practicable an amendment to this Agreement, and, if
required by law, the Board shall prepare and file an amendment to the
Certificate of Formation.

 

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ARTICLE XI
WITHDRAWAL OF MEMBERS

So long as any Obligation is outstanding, no Member may withdraw from the
Company, except as permitted under the Basic Documents and if the Rating Agency
Condition is satisfied.  If any Member is permitted to withdraw from the Company
pursuant to this Article XI, an Additional Member of the Company shall be
admitted to the Company, subject to Section 10.2, upon its execution of an
instrument signifying its agreement to be bound by the terms and conditions of
this Agreement, which instrument may be a counterpart signature page to this
Agreement.  Such admission shall be deemed effective immediately prior to the
withdrawal and, immediately following such admission, the withdrawing Member
shall cease to be a member of the Company.  The Preferred Interest Member shall
not be permitted to withdraw from the Company pursuant to this Article XI until
such time as the Preferred Interest Member is permitted to cause the Company to
redeem, or the Company exercises its right to redeem, the Preferred Interest
pursuant to Section 5.6.

ARTICLE XII
DISSOLUTION AND LIQUIDATION

12.1  

Dissolution

(a)  

Subject to Section 7.10 and Section 10.1, the Company shall be dissolved, and
its affairs shall be wound up upon the first to occur of the following: (i) the
termination of the legal existence of the last remaining Common Interest Member
of the Company or the occurrence of any other event which terminates the
continued membership of the last remaining Common Interest Member of the Company
in the Company unless the business of the Company is continued in a manner
permitted by this Agreement or the Delaware Limited Liability Company Act or
(ii) the entry of a decree of judicial dissolution under Section 18-802 of the
Delaware Limited Liability Company Act.  Upon the occurrence of any event that
causes the last remaining Common Interest Member of the Company to cease to be a
Member of the Company, to the fullest extent permitted by law, the personal
representative of such Common Interest Member is hereby authorized to, and
shall, within 90 days after the occurrence of the event that terminated the
continued membership of such Common Interest Member in the Company, agree in
writing (i) to continue the Company and (ii) to the admission of the personal
representative or its nominee or designee, as the case may be, as a Substituted
Member of the Company, effective as of the occurrence of the event that
terminated the continued membership of the last remaining Common Interest Member
of the Company in the Company.

(b)  

Notwithstanding any other provision of this Agreement, the Bankruptcy of a
Member or a Special Member shall not cause the Member or Special Member,
respectively, to cease to be a Member or Special Member of the Company and upon
the occurrence of such an event, the business of the Company shall continue
without dissolution.

(c)  

Notwithstanding any other provision of this Agreement, each of the Members and
the Special Members waives any right it might have to agree in writing to
dissolve the Company upon the Bankruptcy of a Member or a Special Member, or the
occurrence of an event that causes a Member or a Special Member to cease to be a
Member or Special Member of the Company.

(d)  

In the event of dissolution, the Company shall conduct only such activities as
are necessary to wind up its affairs (including the sale of the assets of the
Company in an orderly manner), and the assets of the Company shall be applied in
the manner, and in the order of priority, set forth in Section 18-804 of the
Delaware Limited Liability Company Act.

(e)  

The Company shall terminate when (i) all of the assets of the Company, after
payment of or due provision for all debts, liabilities and obligations of the
Company shall have been distributed to the Members in the manner provided for in
this Agreement and (ii) the Certificate of Formation shall have been canceled in
the manner required by the Delaware Limited Liability Company Act.

12.2  

Liquidator

Upon dissolution of the Company, the Board shall select one or more Persons to
act as Liquidator.  The Liquidator shall be entitled to receive such
compensation for its services as may be approved by the Majority of the Common
Interest Members.  The Liquidator shall agree not to resign at any time without
15 days' prior notice and may be removed at any time, with or without cause, by
notice of removal approved by the Majority of the Common Interest Members.  Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days thereafter be approved
by the Majority of the Common Interest Members.  The right to approve a
successor or substitute Liquidator in the manner provided herein shall be deem
ed to refer also to any such successor or substitute Liquidator approved in the
manner herein provided.  Except as expressly provided in this Article XII, the
Liquidator approved in the manner provided herein shall have and may exercise,
without further authorization or consent of any of the parties hereto, all the
powers conferred on the Board under the terms of this Agreement (but subject to
all the applicable limitations, contractual and otherwise, on the exercise of
such powers) to the extent necessary or desirable in the good faith judgment of
the Liquidator to carry out the duties and functions of the Liquidator hereunder
for and during such period of time as shall be reasonably required in the good
faith judgment of the Liquidator to complete the winding up and liquidation of
the Company as provided for herein.

12.3  

Liquidation

The Liquidator shall proceed to dispose of the assets of the Company, discharge
its liabilities, and otherwise wind up its affairs in such manner and over such
period as the Liquidator determines to be in the best interest of the Members,
subject to Section 18-804 of the Delaware Limited Liability Company Act and the
following:

12.3.1  

Disposition of Assets

The assets may be disposed of by public or private sale or by distribution in
kind to one or more Members on such terms as the Liquidator and such Member or
Members may agree.  If any property is distributed in kind, the Member receiving
the property shall be deemed for purposes of Section 12.3.3 to have received
cash equal to its fair market value; and contemporaneously therewith,
appropriate cash distributions must be made to the other Members.  The
Liquidator may, in its absolute discretion, defer liquidation or distribution of
the Company's assets for a reasonable time if it determines that an immediate
sale or distribution of all or some of the Company's assets would be impractical
or would cause undue loss to the Members. The Liquidator may, in its absolute
discretion, distribute the Company's assets, in whole or in part, in kind if it
determines that a sale would be impractical or would cause undue loss to the
Members.

12.3.2  

Discharge of Liabilities

Liabilities of the Company include amounts owed to Members otherwise than in
respect of their distribution rights under Article VI.  With respect to any
liability that is contingent, conditional or unmatured or is otherwise not yet
due and payable, the Liquidator shall either settle such claim for such amount
as it thinks appropriate or establish a reserve of cash or other assets to
provide for its payment.  When paid, any unused portion of the reserve shall be
distributed as additional liquidation proceeds.

12.3.3  

Liquidation Distributions

All property and all cash in excess of that required to discharge liabilities as
provided in Section 12.3.2 shall be distributed to the Members in the following
manner:

(a)  

First, to the Preferred Interest Member to the extent of any unpaid Guaranteed
Payment due it pursuant to Section 6.3(b) through the date of liquidation

(b)  

Second, to the Preferred Interest Member to the extent of the Unreturned
Timberlands Agreed Value; and

(c)  

Third, to the Preferred Interest Member and then among the Common Interest
Members, in each case in accordance with, and to the extent of the positive
balances in such Preferred Interest Member's and Common Interest Members'
respective Capital Accounts, as determined after taking into account all Capital
Account adjustments (other than those made by reason of distributions pursuant
to this Section 12.3.3) for the taxable year of the Company during which the
liquidation of the Company occurs (with such date of occurrence being determined
pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(g)), and such
distribution shall be made by the end of such taxable year (or, if later, within
90 days after said date of such occurrence).

 

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12.4  

Cancellation of Certificate of Formation

Upon the completion of the distribution of Company cash and property as provided
in Section 12.3 in connection with the liquidation of the Company, the Company
shall be terminated and the Certificate of Formation, as well as all
qualifications of the Company as a foreign limited liability company in
jurisdictions other than the State of Delaware, shall be canceled and such other
actions as may be necessary to terminate the Company shall be taken.

12.5  

Return of Contributions

The Directors shall not be personally liable for, and shall have no obligation
to contribute or loan any monies or property to the Company to enable it to
effectuate, the return of the Capital Contributions of the Members, or any
portion thereof, it being expressly understood that any such return shall be
made solely from Company assets.

12.6  

Waiver of Partition

Except as otherwise expressly provided in this Agreement, to the fullest extent
permitted by law, each of the Members and the Special Members hereby irrevocably
waives any right or power that such Person might have to cause the Company or
any of its assets to be partitioned, to cause the appointment of a receiver for
all or any portion of the assets of the Company, to compel any sale of all or
any portion of the assets of the Company pursuant to any applicable law or to
file a complaint or to institute any proceeding at law or in equity to cause the
dissolution, liquidation, winding up or termination of the Company.  No Member
shall have any interest in any specific assets of the Company, other than with
respect to redemption of Preferred Interests pursuant to Section 5.6 payable, in
whole or in part, in property of the Company, and no Member shal l have the
status of a creditor with respect to any distribution pursuant to Section 6.3
hereof.

12.7  

Capital Account Restoration

No Member shall have any obligation to restore any negative balance in its
Capital Account upon liquidation of the Company.

ARTICLE XIII
AMENDMENT OF AGREEMENT

Subject to Section 7.10, this Agreement may be modified, altered, supplemented
or amended pursuant to a written agreement executed and delivered by the
Majority of the Common Interest Members; provided, however, that no
modification, alteration, supplement or amendment which would have a material
adverse effect on a Preferred Interest Member or would modify, alter, supplement
or amend any of the terms of this Agreement applicable to the Preferred
Interests shall be effective without the prior written consent of the holders of
a majority of the Preferred Interests.  Notwithstanding anything to the contrary
in this Agreement, so long as any Obligation is outstanding, this Agreement may
not be modified, altered, supplemented or amended unless the Rating Agency
Condition is satisfied and such action is not prohibited by the Basic Documents
except:

(a)  

to cure any ambiguity;

(b)  

to convert or supplement any provision in a manner consistent with the intent of
this Agreement and the other Basic Documents; or

(c)  

to effect a change that, in the sole discretion of the Board, is necessary or
advisable to qualify or continue the qualification of the Company as a limited
liability company in which the Members have limited liability under the laws of
any state or to ensure that the Company will not be treated as an association
taxable as a corporation or otherwise taxed as an entity for federal income tax
purposes.

  

ARTICLE XIV
MERGER

14.1  

Authority

The Company may merge or consolidate with one or more corporations, limited
liability companies, business trusts or associations, real estate investment
trusts, common law trusts or unincorporated businesses, including a general
partnership or limited partnership, formed under the laws of the State of
Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.

14.2  

Procedure for Merger or Consolidation

Merger or consolidation of the Company pursuant to this Article XIV requires the
prior approval of the Board.  If the Board shall determine, in the exercise of
its discretion, to consent to the merger or consolidation, the Board shall
approve the Merger Agreement, which shall set forth:

 

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(a)  

The names and jurisdictions of formation or organization of each of the business
entities proposing to merge or consolidate;

(b)  

The name and jurisdiction of formation or organization of the business entity
that is to survive the proposed merger or consolidation (the "Surviving Business
Entity");

(c)  

The terms and conditions of the proposed merger or consolidation;

(d)  

The manner and basis of exchanging or converting the equity securities of each
constituent business entity for, or into, cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity; and (i) if any general or limited partner interests, securities or
rights of any constituent business entity are not to be exchanged or converted
solely for, or into, cash, property or general or limited partner interests,
rights, securities or obligations of the Surviving Business Entity, the cash,
property or general or limited partner interests, rights, securities or
obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) that the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conv ersion of, their general or limited partner interests, securities
or rights, and (ii) in the case of securities represented by certificates, upon
the surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;

(e)  

A statement of any changes in the constituent documents or the adoption of new
constituent documents (the articles or certificate of incorporation, articles of
trust, declaration of trust, certificate or agreement of limited partnership or
other similar charter or governing document) of the Surviving Business Entity to
be effected by such merger or consolidation;

(f)  

The effective time of the merger, which may be the date of the filing of the
certificate of merger pursuant to Section 14.4 or a later date specified in or
determinable in accordance with the Merger Agreement (provided, that if the
effective time of the merger is to be later than the date of the filing of the
certificate of merger, the effective time shall be fixed no later than the time
of the filing of the certificate of merger and stated therein); and

(g)  

Such other provisions with respect to the proposed merger or consolidation as
are deemed necessary or appropriate by the Board or as required by applicable
law.

14.3  

Approval by Members of Merger or Consolidation

(a)  

Except as provided in Section 14.3(d), the Board, upon its approval of the
Merger Agreement, shall direct that the Merger Agreement be submitted to a vote
of the Common Interest Members, whether at a special meeting or by written
consent.  A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.

(b)  

Except as provided in Section 14.3(d), the Merger Agreement shall be approved
upon receiving the affirmative vote or consent of all of the Common Interest
Members.

(c)  

Except as provided in Section 14.3(d), after such approval by vote or consent of
all of the Common Interest Members, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.

(d)  

Notwithstanding anything else contained in this Article XIV or in this
Agreement, the Board is permitted, in its discretion, without Member approval,
to merge the Company or any Group Member into, or convey all the Company's
assets to, another limited liability entity that shall be newly formed and shall
have no assets, liabilities or operations at the time of such Merger other than
those it receives from the Company or other Group Member if (i) the Board has
received an opinion of counsel that the merger or conveyance, as the case may
be, would not result in the loss of the limited liability of any Member or any
member in Klamath or cause the Company or Klamath to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously treated as such), (ii)
the sole purpose of such merger or conveyance is to effect a mere change in the
legal form of the Company into another limited liability entity, and (iii) the
governing instruments of the new entity provide the Members with the same rights
and obligations as are herein contained.

 

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14.4  

Certificate of Merger

Upon the required approval of the Merger Agreement by the Board and Common
Interest Members, a certificate of merger shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with the requirements
of the Delaware Limited Liability Company Act.

14.5  

Effect of Merger

(a)  

At the effective time of the certificate of merger:

(i)  

all the rights, privileges and powers of each of the business entities that has
merged or consolidated, and all property, real, personal and mixed, and all
debts due to any of those business entities and all other things and causes of
action belonging to each of those business entities, shall be vested in the
Surviving Business Entity and after the merger or consolidation shall be the
property of the Surviving Business Entity to the extent they were of each
constituent business entity;

(ii)  

the title to any real property vested by deed or otherwise in any of those
constituent business entities shall not revert and is not in any way impaired
because of the merger or consolidation;

(iii)  

all rights of creditors and all liens on or security interests in property of
any of those constituent business entities shall be preserved unimpaired; and

(iv)  

all debts, liabilities and duties of those constituent business entities shall
attach to the Surviving Business Entity and may be enforced against it to the
same extent as if the debts, liabilities and duties had been incurred or
contracted by it.

(b)  

A merger or consolidation effected pursuant to this Article XIV shall not be
deemed to result in a transfer or assignment of assets or liabilities from one
entity to another.

ARTICLE XV
GENERAL PROVISIONS

15.1  

Addresses and Notices

Any notice, demand, request, report or proxy materials required or permitted to
be given or made to a Member under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Member at
the address described below.  Any notice to the Company shall be deemed given if
received by the Board at the principal office of the Company designated pursuant
to Section 2.3.  The Board may rely and shall be protected in relying on any
notice or other document from a Member or other Person if believed by it to be
genuine.

15.2  

Further Action

The parties shall execute and deliver all documents, provide all information and
take or refrain from taking action as may be necessary or appropriate to achieve
the purposes of this Agreement.

15.3  

Binding Effect

The parties hereto hereby acknowledge and agree that the Company will become a
party to this Agreement by execution of a copy hereof by a Director or Officer
on behalf of the Company, and in connection therewith, the Company shall have
the right to enforce the terms of this Agreement against each of the parties
hereto.  Notwithstanding any other provision of this Agreement, each Member
agrees that this Agreement including, without limitation, Articles XI and XIII
and Sections 2.4, 2.5, 3.4, 4.2, 7.1-7.11, 10.2, 12.1, 15.3 and 15.5,
constitutes a legal, valid and binding agreement of such Members, and is
enforceable against such Members by the Independent Directors, in accordance
with its terms.  In addition, the Independent Directors shall be intended
beneficiaries of this Agreement.

 

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15.4  

Integration

This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.

15.5  

Creditors

None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditor of the Company or by any creditor of a Member or a
Special Member.  Nothing in this Agreement shall be deemed to create any right
in any Person (other than Covered Persons) not a party hereto, and this
Agreement shall not be construed in any respect to be a contract in whole or in
part for the benefit of any third Person (except as provided in Section 15.3).

15.6  

Waiver

No failure by any party to insist on the strict performance of any covenant,
duty, agreement or condition of this Agreement or to exercise any right or
remedy consequent upon a breach thereof shall constitute a waiver of any such
breach of any other covenant, duty, agreement or condition.

15.7  

Counterparts

This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
 Each party shall become bound by this Agreement immediately upon affixing its
signature hereto.

15.8  

Applicable Law

This Agreement shall be construed in accordance with and governed by the laws of
the State of Delaware, without regard to the principles of conflicts of law.

15.9  

Severability of Provisions

Each provision of this Agreement shall be considered severable and if for any
reason any provision or provisions herein are determined to be invalid,
unenforceable or illegal under any existing or future law, such invalidity,
unenforceability or illegality shall not impair the operation of or affect those
portions of this Agreement which are valid, enforceable and legal.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

UST YAKIMA HOLDINGS, LLC,

a Delaware limited liability company

By:

/s/ John M. Rudey______________

Name:  John M. Rudey

Its:  President

U.S. TIMBERLANDS KLAMATH FALLS, L.L.C.

By:

U.S. TIMBERLANDS SERVICES COMPANY, L.L.C., a Delaware limited liability company

Its Manager

By:

/s/ John M. Rudey______________

Name:  John M. Rudey

Its:  President

In accordance with Section 15.3 of this Agreement, U.S. Timberlands Yakima, LLC
hereby executes this Agreement for the purpose of becoming a party hereto and
agreeing to perform its obligations and duties hereunder and becoming entitled
to enjoy its rights and benefits hereunder and, without limiting the generality
of the foregoing, U.S. Timberlands Yakima, LLC shall have the right to enforce
the terms of this Agreement against the parties hereto.

U.S. TIMBERLANDS YAKIMA, LLC

By:

/s/ John M. Rudey______________

Name:  John M. Rudey

Its:  President

Agreed and Consented to by the Independent Directors, and in the event admitted
as a Special Member pursuant to Section 10.1 of this Agreement, by the Special
Members.

By: /s/ Mark A. Ferrucci_______________

      Mark A. Ferrucci, Independent Director

By: /s/ Kim A. Lutthans____________

      Kim E. Lutthans, Independent Director

--------------------------------------------------------------------------------

Schedule A

Real Property Contributed by Klamath

"Antelope Timberlands" means the property described the "Antelope Tract" in the
legal description attached.

"Camp 9" means the property described as such in the legal description attached.

"Hagar Mountain Tract" means the property described as such in the legal
description attached.

"Sprague River Tract" means the property described as such in the legal
description attached.

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Schedule B

Directors of U.S. Timberlands Yakima, LLC

Regular Directors

John M. Rudey

Laurie G. Rudey

George R. Hornig

Independent Directors

Mark A. Ferrucci

Kim E. Lutthans

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Schedule C

Officers of U.S. Timberlands Yakima, LLC

John M. Rudey – President

Thomas C. Ludlow – Vice President, Secretary and Treasurer

--------------------------------------------------------------------------------

Exhibit A

Management Agreement

U.S. Timberlands Yakima, LLC

625 Madison Avenue, Suite 10-B

New York, New York  10022    

___________, 2001

[                             ]

Re:

Management Agreement – U.S. Timberlands Yakima, LLC, a Delaware

limited liability company (the "Company")

Ladies and Gentlemen:

Reference is made to the Amended and Restated Operating Agreement of U.S.
Timberlands Yakima, LLC, a Delaware limited liability company (the "Company"),
dated as of September __, 2001, as it may be amended or restated from time to
time (the "Operating Agreement"). Capitalized terms used and not otherwise
defined herein have the meanings set forth in the Operating Agreement.

For good and valuable consideration, each of the undersigned Persons, who have
been designated as Regular Directors or Independent Directors of the Company (as
set forth on Schedule A hereto) in accordance with the Operating Agreement,
hereby agrees as follows:

1.

Each of the undersigned accepts such Person's rights and authority as a Regular
Director or Independent Director, as the case may be, under the Operating
Agreement and agrees to perform and discharge such Person's duties and
obligations as a Regular Director or Independent Director, as the case may be,
under the Operating Agreement, and further agrees that such rights, authorities,
duties and obligations under the Operating Agreement shall continue until such
Person's successor as a Regular Director or Independent Director, as the case
may be, is designated or until such Person's resignation or removal as a Regular
Director or Independent Director, as the case may be, in accordance with the
Operating Agreement.  Each Regular Director agrees and acknowledges that it has
been designated as a "manager" of the Company within the meaning of t he
Delaware Limited Liability Company Act.   

2.

So long as any Obligation is outstanding, each of the undersigned agrees, solely
in its capacity as a creditor of the Company on account of any indemnification
or other payment owing to the undersigned by the Company, not to acquiesce,
petition or otherwise invoke or cause the Company to invoke the process of any
court or governmental authority for the purpose of commencing or sustaining a
case against the Company under any federal or state bankruptcy, insolvency or
similar law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Company or any substantial part of
the property of the Company, or ordering the winding up or liquidation of the
affairs of the Company.

3.

THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED
BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

4.

This Management Agreement may be executed in any number of counterparts, each of
which shall be deemed an original of this Management Agreement and all of which
together shall constitute one and the same instrument

IN WITNESS WHEREOF, the undersigned have executed this Management Agreement as
of the day and year first above written.

U.S. Timberlands Yakima, L.L.C.

By: _________________________

Name:

Title:

________________________________

John M. Rudey

________________________________

Laurie G. Rudey

________________________________

George R. Hornig

________________________________

Mark A. Ferrucci

________________________________

Kim E. Lutthans

--------------------------------------------------------------------------------

Schedule A

Regular Directors

John M. Rudey

Laurie G. Rudey

George R. Hornig

Independent Directors

Mark A. Ferrucci

Kim E. Lutthans