WTD INDUSTRIES, INC.

    United States Securities and Exchange Commission, Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended                   Commission file number
April 30, 1998                              0-16158

WTD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Oregon                                      93-0832150
(State of Incorporation)                    (I.R.S. Employer Identification No.)

10260 S.W. Greenburg Road, Suite 900        Registrant's telephone number,
Portland, Oregon 97223                      including area code: (503) 246-3440
(Address of principal executive offices)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value (Title of Class)


         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. X
                            ---

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
                                             ---  ---

         State  the  aggregate   market  value  of  the  common  stock  held  by
non-affiliates of the registrant, as of July 2, 1998: $6,403,210.

         Indicate the number of shares  outstanding of each of the  registrant's
classes  of  Common  Stock,   as  of  July  2,  1998:   Common  Stock,   no  par
value:  11,154,874.




<PAGE>
                           FORM 10-K TABLE OF CONTENTS
Item No.                                                              Page No.
--------------------------------------------------------------------------------

Part I
1.   Business                                                             3

2.   Properties                                                           8

3.   Legal Proceedings                                                    8

4.   Submission of Matters to a Vote of Security Holders                  8

Part II
5.   Market for the Registrant's Common Stock and
     Related Stockholder Matters                                          9

6.   Selected Financial Data                                             10

7.   Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                 11

8.   Financial Statements and Supplementary Data                         17

9.   Changes in and Disagreements with Accountants
     on Accounting and Financial Disclosure                              17

Part III
10.  Directors and Executive Officers of the Registrant                  18

11.  Executive Compensation                                              21

12.  Security Ownership of Certain Beneficial Owners
     and Management                                                      28

13.  Certain Relationships and Related Transactions                      29

Part IV
14.  Exhibits, Financial Statement Schedules, and Reports
     on Form 8-K
     (a)(1)Financial Statements                                          30
     (a)(2)Financial Statement Schedules                                 30
     (a)(3)Exhibit Index                                                 30
     (b)Reports on Form 8-K                                              35


                                      -2-

<PAGE>
                                     PART I

Item 1.  BUSINESS

         WTD Industries,  Inc. is a forest products company  organized in Oregon
in 1983,  which,  through its subsidiaries,  manufactures  softwood and hardwood
lumber  and  by-products.   WTD  Industries,   Inc.  and  its  subsidiaries  are
hereinafter  referred  to as "WTD" or the  "Company."  The  Company  markets its
products  primarily  in the United  States and Canada  through  its  subsidiary,
TreeSource, Inc.


Products and Markets
--------------------

         Softwood Lumber
         ---------------

         The Company  manufactures a wide variety of softwood  lumber  products,
predominantly  from Douglas fir,  hemlock,  and white fir. The Company  produces
softwood studs in several species,  generally as 2x4 or 2x6 lumber in lengths of
8 to 10 feet. The Company also makes  dimension  softwood lumber in a wide range
of  widths  and  thicknesses  in  lengths  from 6 to 26  feet.  Softwood  lumber
accounted  for 89% of net sales in fiscal 1998,  89% in fiscal 1997,  and 79% in
fiscal 1996.

         The  Company  sells  softwood  lumber to a large  number of  customers,
primarily  distribution  centers,  wholesalers and directly to large  retailers.
Softwood lumber is used in a variety of applications,  including residential and
commercial construction, packaging, and industrial uses.

         Other Products
         --------------

         The  Company  produces a small  quantity  of  hardwood  lumber in sizes
targeted  principally  for the furniture and cabinet  industries.  Wood chips, a
by-product of the manufacturing  process, are sold principally to pulp and paper
manufacturers. Wood chips and other by-products accounted for 7% of net sales in
fiscal 1998, 6% in fiscal 1997, and 14% in fiscal 1996.

         During fiscal 1998, the Company  completed  construction  and commenced
operation of its fingerjointing plant. Fingerjointing is the process of joining,
by applying adhesive to interlocking  fingerjoints,  shorter segments of wood to
make a longer piece of lumber  suitable for use in  construction.  Fingerjointed
products accounted for less than 1% of net sales in fiscal 1998.

         During fiscal 1998, the Company obtained the rights to use and to grant
licenses for others to use, in North America and Mexico,  a patented  technology
called  GREENWELD(R) that enables the gluing of green or unseasoned  lumber. The
Company used the  GREENWELD(R)  process in its  fingerjointing  operation during
fiscal  1998 and may use it in 



                                      -3-
<PAGE>
future fingerjointing  operations.  Also during fiscal 1998, the Company granted
GREENWELD(R) licenses to third parties but did not generate royalty income.

Distribution and Marketing
--------------------------

         The Company markets,  distributes,  and arranges transportation for its
lumber products through its wholly owned subsidiary and sales agent, TreeSource,
Inc.  Through  TreeSource,  the production  capabilities of individual mills are
coordinated to meet a broad range of customer needs.  TreeSource sells primarily
through telephone contacts from its office in Portland, Oregon.

         Shipments of wood products are generally made by rail or truck directly
from the mill.  Exports do not represent a material portion of the Company's net
sales.

         The Company does not attempt to  accumulate a large  backlog of orders.
WTD's general  practice is to maintain an order file  representing  about two to
four weeks' production.  The filling of orders for certain items,  however,  may
require a substantially longer period of time. The dollar value of the Company's
backlog of orders at April 30,  1998 was $8 million  compared  to $10 million at
April 30, 1997.  Backlog on any  particular  date may not be  indicative  of the
Company's  average  backlog,  or net  sales or the  backlog  for any  succeeding
period.

         No single  customer  accounted  for as much as 10% of the Company's net
sales  during  fiscal  1998.  The  loss  of  any  one  customer  would  not,  in
management's  opinion,  have a material  adverse  impact on the  Company and its
subsidiaries taken as a whole.

Timber Supply
-------------

         The  Company   generally   purchases  timber  and  logs  in  sufficient
quantities to match the current operating requirements of its mills.  Management
attempts to maintain log inventories equal to an average of three to four weeks'
operating  requirements,  except where seasonal or weather  factors  necessitate
larger volumes. The goals of the Company's procurement strategy are to limit the
speculative   aspects  of  timber  purchasing  and  to  maintain  the  Company's
adaptability to changing lumber market conditions.

         Timber and logs  comprise the majority of the cost of products  sold by
the Company.  The Company  relies  mainly on open market log purchases to supply
its raw materials  needs. It also purchases  timber-cutting  contracts  ("timber
contracts"),  primarily at public timber sales,  and has  historically  obtained
logs to a minor  extent from its own fee  timberlands.  At April 30,  1998,  the
Company  owned a small  amount of fee  timberlands  in the  vicinity  of various
mills. The following table shows the percentages of logs supplied by open market
purchases,  public timber contracts and fee  timberlands,  and total log footage
required:




                                      -4-

<PAGE>
                       Public
Year Ended   Open      Timber       Fee         Log
 April 30,   Market    Contracts   Timber    Requirements
----------   ------    ---------   ------    ------------

  1994        94%        5%          1%      305,100 MBF
  1995        95%        5%          --      317,100 MBF
  1996        94%        5%          1%      228,162 MBF
  1997        94%        5%          1%      320,507 MBF
  1998        94%        6%          --      284,300 MBF

      MBF - Thousand Board Feet

         During fiscal years 1994 through 1998, the Company operated most of its
mills on a one-shift  basis,  typically  using logs purchased on the open market
from industrial and non-industrial  private land owners. The ability to maintain
the present level of  operations at the Company's  mills depends on a continuing
supply of logs from these private sources.

         The  availability  and cost of timber  and logs have  been,  and should
continue  to be,  influenced  by a  variety  of  factors,  including  demand  by
competitors and exporters, the environmental and harvest policies of federal and
state agencies,  and, in the long term, the level of reforestation.  For further
discussion of current  industry  conditions  relating to timber supply,  see the
section entitled "Factors Affecting Forward-Looking  Statements--Availability of
Logs."

Employees
---------

         The Company and its subsidiaries had  approximately  1,100 employees at
July 2, 1998. During fiscal 1998, the Company lawfully  withdrew  recognition of
the local woodworkers union which had represented workers at the Company's South
Bend facility. The union, in response,  conducted a three month strike which was
abandoned  on January 29,  1998.  The union has filed for a new  election but no
date for the election has been scheduled.  None of the Company's other employees
are  represented  by  this  union.   See  "Factors   Affecting   Forward-Looking
Statements--Manufacturing  Risks." The Company  uses bonus  programs to motivate
its workers. See Note 9 to Consolidated Financial Statements.

Environmental Regulation
------------------------

         The Company is subject to federal,  state and local  pollution  control
regulations,  including air, water and noise pollution, which have required, and
are  expected  to  continue  to  require,   additional   operating  and  capital
expenditures.   During  fiscal  1998,  the  Company  incurred   expenditures  of
approximately  $150,000 for environmental  protection.  Such expenditures  would
have been greater,  but certain capital projects were delayed.  Expenditures are
projected to be  approximately  $775,000 for each of fiscal years 1999 and 2000,
including  costs  to  remediate  the  site  at  Sedro-Woolley,   Washington,  in
preparation for sale. Various regulations  regarding air and water emissions and
disposal or landfill of log yard debris may require material expenditures in the
future. See "Factors  Affecting  Forward-Looking  Statements--Federal  and State
Regulations."




                                      -5-
<PAGE>
Industry Conditions
-------------------

         The United States lumber industry is highly sensitive to the conditions
of the nation's  economy and tends to experience  poor financial  results during
general economic downturns.  Although sales traditionally increase in the spring
and summer  months and decline  during the fall and winter months in response to
seasonal  building  construction  cycles,  such seasonal  patterns are sometimes
absent.  During fiscal 1997, lumber prices were generally strong.  During fiscal
1998, the advent of the Asian financial crisis negatively  impacted the industry
and the  Company.  Demand  for lumber  exports  to Asia was down  significantly.
Manufacturers  in North  America that had been  producing  for the export lumber
market  converted  production  to  supply  the  U.S.  market,  which  caused  an
oversupply of lumber and put strong downward  pressure on lumber prices for most
of the fiscal year,  despite reasonable  interest rates and strong  construction
activity in the United States.

         Due to particular  weakness in the wide dimension product prices caused
by industry  oversupply,  the Company has  converted its  Sedro-Woolley  mill in
Washington from temporary  curtailment to long-term  shutdown and has designated
that facility for sale. Additionally,  the Company is in preliminary discussions
with parties that have  expressed  interest in purchasing its Trask River Lumber
facility in Tillamook,  Oregon.  During the fourth quarter,  the Company took an
impairment charge in the amount of $4,168,000 to reflect the Company's  estimate
of fair value of these  facilities.  Given the  volatility  of the lumber market
during fiscal 1998, the Company will continue to review each operation's ability
to contribute to earnings or otherwise fit the Company's longer-term strategies.
See Note 2 to Consolidated Financial Statements.

         Wood chip demand and prices are  determined  by  conditions in the pulp
and paper industry and generally are not affected by seasonal  business  cycles.
During fiscal 1997,  reduced demand for pulp and paper products  caused pulp and
paper production  curtailments  and kept chip prices low.  Weakness in wood chip
prices continued into fiscal 1998, with higher prices occurring in the last half
of the fiscal  year.  See "Factors  Affecting  Forward-Looking  Statements"  for
further discussion.

Competition
-----------

         The wood products  industry is highly  competitive and includes a large
number  of  companies   manufacturing   relatively  standardized  products.  The
principal  means of  competition  in the lumber  industry  are log  costs,  unit
production costs, pricing,  product quality, and the ability to satisfy customer
needs promptly. The Company feels it competes effectively based on the foregoing
factors.  Some of WTD's competitors are large,  integrated  companies which have
significantly  greater  financial,  production and marketing  resources than the
Company.  Some of these  competitors  have a  significant  base of low-cost  fee
timberlands and timber  contracts  which protects them from  fluctuations in log
prices and may, under certain operating conditions,  give them an advantage over
the  Company,  which relies on the open log market to supply the bulk of its raw
materials requirements.



                                      -6-
<PAGE>
         The  competition  includes lumber  manufacturers  located in Canada who
benefit from  advantageous  exchange rates when exporting lumber into the United
States. As a result of U.S.  government-initiated trade talks, Canada has agreed
that as of April 1, 1996,  for a period of five  years,  and subject to specific
exceptions,  lumber  producers  in certain  provinces  will pay export  taxes if
pre-established  levels of exports  to the U.S.  are  exceeded.  The goal of the
trade  agreement  is to reduce  the  volume of lumber  exported  to the U.S.  by
Canadian  producers.  This  trade  agreement  has not had  the  desired  effect.
However,  to date,  Canadian lumber producers have paid significant export taxes
for exceeding the pre-established levels of exports.

         See the sections entitled "Timber Supply", "Management's Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations",  and  "Factors
Affecting Forward-Looking Statements."



























                                      -7-
<PAGE>
Item 2.  PROPERTIES
<TABLE>
<CAPTION>
  MANUFACTURING FACILITIES(1)                                            Thousand Board Feet
                                                                    -----------------------------
                                                                      Fiscal          Est. Annual
                                                                       1998            Production
  Softwood Lumber                                                   Production        Capacity(2)
  -----------------                                                 ----------        -----------
<S>                                                                   <C>                <C>   
  Burke Lumber Co., West Burke, Vermont                               38,700             50,000
  Central Point Lumber Co., Central Point, Oregon                     45,600            110,000
  Glide Lumber Products Co., Glide, Oregon                            93,100            125,000
  Morton Forest Products Co., Morton, Washington                      52,500            100,000
  North Powder Lumber Co., North Powder, Oregon                       50,600             90,000
  Pacific Softwoods Co., Philomath, Oregon                            62,300             80,000
  Philomath Forest Products Co., Philomath, Oregon                    82,000            245,000
  Sedro-Woolley Lumber Co., Sedro-Woolley, Washington(3)(4)           31,200                ---
  Spanaway Lumber Co., Spanaway, Washington(5)                        57,300             85,000
  Trask River Lumber Co., Tillamook, Oregon(5)(6)                     46,300            120,000
  Tumwater Lumber Co., Tumwater, Washington(5)                        60,400             70,000
  
  Hardwood Lumber
  ---------------
  Pacific Hardwoods-South Bend Co., South Bend, Washington(5)     `   17,600             24,000
  
  Fingerjointed Lumber
  --------------------
  Midway Engineered Wood Products, Inc., Corvallis, Oregon (4)(5)      3,900             13,000
  
(1) The machinery and  equipment of all  facilities  are subject to the security
    interests of certain lenders.
(2) Capacity is generally computed using a two shift-per-day,  five day-per-week
    operating schedule.
(3) This facility is not operating and is for sale.
(4) These subsidiaries  lease a substantial  portion of their equipment pursuant
    to operating leases.
(5) These  subsidiaries  lease the real  property  on which the mill is  located
    pursuant to ground leases.
(6) This facility is currently operating, but may be sold during fiscal 1999.
</TABLE>
Item 3.  LEGAL PROCEEDINGS

         On or about  January 30,  1991,  WTD  Industries,  Inc. and each of its
subsidiaries filed a voluntary  petition for reorganization  under Chapter 11 of
the Federal  Bankruptcy  Code.  The  proceeding  was filed in the United  States
Bankruptcy  Court  for the  Western  District  of  Washington  in  Seattle  (the
"Bankruptcy  Court"). The jointly  administered  proceeding is entitled:  "In re
Sedro-Woolley Lumber Co., WTD Industries,  Inc., TreeSource, Inc., et al.", Case
Numbers 91-00707 through 91-00721,  91-00736 through 91-00741,  91-00752 through
91-00756,   91-00773  through  91-00778,  and  91-01140  through  91-01149.  The
Company's  Second  Amended  Joint Plan of  Reorganization  was  confirmed by the
Bankruptcy Court on November 23, 1992,  effective November 30, 1992. During 1996
and 1997,  orders were entered in the  Bankruptcy  Court  closing the Chapter 11
cases of WTD Industries, Inc. and all its subsidiaries.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.



 

                                      -8-

<PAGE>
PART II

Item 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED 
           STOCKHOLDER MATTERS

Principal Market
----------------

         Registrant's  Common  Stock is traded on the Nasdaq  Stock Market under
the symbol WTDI in the Nasdaq National  Market.  The number of holders of record
of WTD  Industries,  Inc.  Common  Stock at July 2,  1998 was 602.  The  Company
estimates  that the total number of its direct and  beneficial  shareholders  is
approximately 4,100.

Stock Price and Dividend Information
------------------------------------

         The following tables show the stock price range for the two years ended
April 30, 1998:

                                      Stock Price Range
          Fiscal Year Ended        -----------------------
           April 30, 1998            Low            High
          -----------------        --------       --------
          First Quarter             $1-7/8         $4-3/16
          Second Quarter            $2-1/8         $4-1/8
          Third Quarter             $1-17/32       $2-3/4
          Fourth Quarter            $1-3/8         $2

                                      Stock Price Range
          Fiscal Year Ended        -----------------------
           April 30, 1997            Low            High
          -----------------        --------       --------
          First Quarter             $   5/8        $1-9/16
          Second Quarter            $1-5/16        $2-1/16
          Third Quarter             $1-11/16       $2-3/4
          Fourth Quarter            $1-3/8         $2-1/4



         The share  prices  shown are those  published  by Nasdaq and  represent
prices  between  dealers.  They do not include  retail  markups,  markdowns,  or
commissions.  Prior to the Company's  October 1986 public stock offering,  there
was no public trading market for its Common Stock.

         WTD does not pay any cash dividends on its Common Stock.  The Company's
various debt instruments restrict the payment of dividends. See Notes 5 and 7 to
Consolidated Financial Statements.





                                      -9-
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA
(In Thousands, Except Per-Share Amounts and Ratios)


                                                                        YEAR ENDED APRIL 30,
                                                 ------------------------------------------------------------------

                                                    1998          1997          1996          1995          1994
                                                 ----------    ----------    ----------    ----------    ----------
<S>                                              <C>           <C>           <C>           <C>           <C>    
NET SALES                                         $242,051      $284,086      $191,964      $274,966      $278,115
COST OF SALES                                      231,303       255,068       186,514       262,334       253,732
                                                 ----------    ----------    ----------    ----------    ----------
GROSS PROFIT                                        10,748        29,018         5,450        12,632        24,383

GENERAL, SELLING AND
  ADMINISTRATIVE EXPENSES                           11,290        12,529         9,685        10,366        12,423
IMPAIRMENT CHARGES                                   4,168            --            --            --            --
REORGANIZATION CREDITS                                  --            --          (409)         (532)       (2,487)
                                                 ----------    ----------    ----------    ----------    ----------
OPERATING INCOME (LOSS)                             (4,710)       16,489        (3,826)        2,798        14,447

INTEREST EXPENSE                                    (4,682)       (5,029)       (5,318)       (5,972)       (6,541)
OTHER INCOME (EXPENSE)                                (394)          630           646         1,228           418
                                                 ----------    ----------    ----------    ----------    ----------
INCOME (LOSS) BEFORE INCOME TAXES                   (9,786)       12,090        (8,498)       (1,946)        8,324

PROVISION FOR INCOME TAXES (BENEFIT)                 2,364         3,120        (2,454)       (5,646)        2,024
                                                 ----------    ----------    ----------    ----------    ----------
NET INCOME (LOSS)                                  (12,150)        8,970        (6,044)        3,700         6,300

PREFERRED DIVIDENDS                                  2,290         2,228         2,364         2,126         1,616
                                                 ----------    ----------    ----------    ----------    ----------

NET INCOME (LOSS) APPLICABLE TO
  COMMON SHAREHOLDERS                             ($14,440)       $6,742       ($8,408)       $1,574        $4,684
                                                 ==========    ==========    ==========    ==========    ==========


NET INCOME (LOSS) PER COMMON SHARE, BASIC
  - net income (loss)                               ($1.30)        $0.61        ($0.76)        $0.14         $0.49
    Average shares outstanding                      11,130        11,078        11,077        11,075         9,481

NET INCOME (LOSS) PER COMMON SHARE, DILUTED
  - net income (loss)                               ($1.30)        $0.59        ($0.76)        $0.14         $0.41
    Average shares outstanding                      11,130        11,385        11,077        11,491        11,494

CASH DIVIDENDS PER COMMON SHARE                         --            --            --            --            --

PERIOD END BALANCES
   Working capital                                 $15,158       $29,475       $25,052       $33,740       $44,796
   Total assets                                    $65,311       $86,486       $77,396       $88,944       $97,100
   Long-term debt, excluding current maturities    $36,868       $46,086       $50,310       $51,421       $60,587
   Stockholders' equity                             $4,093       $18,434       $11,686       $20,076       $18,512

SELECTED FINANCIAL RATIOS
   Net income (loss) to average:
     Total assets                                    (16.0) %       10.9 %       (7.3)  %       4.0  %        6.4  %
     Stockholders' equity                           (107.9) %       59.6 %      (38.1)  %      19.2  %       39.1  %
   Average stockholders' equity to average
     total assets                                     14.8 %        18.4 %       19.1   %      20.7  %       16.3  %
</TABLE>





                                      -10-

<PAGE>
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview
--------

         On a quarter-to-quarter basis, the Company's financial results have and
will vary widely, due to seasonal  fluctuations and market factors affecting the
demand for logs, lumber and other wood products. Therefore, past results for any
given year or quarter are not necessarily indicative of future results.

         Lumber  market  conditions  deteriorated  during the second  quarter of
fiscal  year  1998  and  remained  weak  through  the  fourth   quarter,   after
approximately  16 months of good  conditions.  The Company  responded to certain
lumber  price  adjustments  by altering  product mix and reducing log costs when
possible. During much of the year, there was an oversupply of lumber in the U.S.
market.  This was the result of traditional  export producers  manufacturing for
the  U.S.  lumber  market  as  exports  weakened.   Additionally,   demand  from
California, a major segment of the Company's market, was lower than usual due to
the extraordinarily wet weather which delayed construction  projects.  Log costs
declined  slightly  during the year.  In response to the  generally  weak market
conditions,  the Company curtailed  production at selected mills and reduced the
level of operations at various times during the year.

Yearly Comparisons
------------------

         The  following  table  compares  certain  income and expense items as a
percentage of net sales,  and the  period-to-period  percentage  change for each
item:
<TABLE>
<CAPTION>
                                        Income and Expense Items as        Percentage
                                          Percentage of Net Sales      Increase (Decrease)
                                        ---------------------------    -------------------
                                            Year Ended April 30,         1998       1997
                                        ---------------------------       vs         vs
                                          1998      1997      1996       1997       1996
                                        -------   -------   -------
<S>                                      <C>       <C>       <C>        <C>         <C>   
  Net sales                              100.0 %   100.0 %   100.0 %    (14.8)%     48.0 %
  Cost of sales                           95.6      89.8      97.2       (9.3)      36.8
                                        -------   -------   -------
      Gross profit                         4.4      10.2       2.8      (63.0)     432.4

  Selling, general and
   administrative expense                  4.7       4.4       5.0       (9.9)      29.4
  Impairment charges                       1.7       0.0       0.0         NM         NM
  Reorganization credits                   0.0       0.0      (0.2)        NM         NM
                                        -------   -------   -------
      Operating income (loss)             (1.9)      5.8      (2.0)        NM         NM

  Interest expense                        (1.9)     (1.8)     (2.8)      (6.9)      (5.4)
  Other income (expense)                  (0.2)      0.2       0.3         NM       (2.5)
                                        -------   -------   -------
      Income (loss) before Income taxes   (4.0)      4.3      (4.4)        NM         NM

  Provision for income taxes (benefit)     1.0       1.1      (1.3)      (24.2)       NM
                                        -------   -------   -------
      Net income (loss)                   (5.0)%     3.2 %    (3.1)%       NM         NM
                                        =======   =======   =======
</TABLE>
 

Note:   Percentages may not add precisely due to rounding.
NM:     Not meaningful.




                                      -11-
<PAGE>
Comparison of 1998 to 1997
--------------------------

         Net sales for the year ended April 30, 1998 decreased $42.0 million (15
percent) from the year ended April 30, 1997. This was principally  caused by a 9
percent decrease in lumber shipments,  a 17 percent decrease in chip deliveries,
an 8 percent  decrease  in lumber  prices  and a 28  percent  decrease  in other
by-product  revenue,  partially  offset by a 13 percent increase in chip prices.
The reduced lumber shipments  reflect reduced  production  resulting from a weak
market in the current  year  compared  to a strong  market in fiscal  1997.  The
reduced lumber shipments also reflect an inadequate  supply of rail cars to ship
lumber during much of fiscal 1998. The reduced chip deliveries  reflect not only
reduced lumber  production but also improved lumber recovery  resulting in fewer
chips per  thousand  board feet  (mbf) and some trim ends sold to the  Company's
fingerjoint plant instead of being chipped.

         Gross  profit for the year ended  April 30, 1998 was 4.4 percent of net
sales,  compared to 10.2 percent of net sales for the year ended April 30, 1997.
Lumber  prices  declined by 8 percent from the year ended April 30, 1997,  while
the  Company's  log costs  declined  by only 4 percent.  Lumber  production  and
shipments  declined compared to levels in the prior year, when production levels
reflected the favorable  market,  and some  production  curtailment  occurred in
fiscal year 1998 in response to poor lumber prices and inadequate  rail service.
Unit  manufacturing  costs in fiscal year 1998 increased by 3 percent from costs
in fiscal year 1997,  partially due to a general wage increase in September 1996
and more production curtailments in fiscal year 1998.

         Selling,  general and  administrative  expenses in the year ended April
30, 1998  decreased by $1.2  million (10 percent)  from the year ended April 30,
1997. This decrease reflects reduced profit-sharing bonus payments stemming from
lower pretax profits,  partially offset by expenses associated with the start-up
of two WTD  subsidiaries,  Midway  Engineered Wood Products,  Inc. and Greenweld
North America Co., in the first quarter of fiscal 1998.

         During the fourth quarter of fiscal 1998 the Company took an impairment
charge in the amount of $4,168,000 to reflect the Company's estimate of the fair
value of its two facilities for sale,  Sedro-Woolley  Lumber Co. and Trask River
Lumber Co. See Note 2 to Consolidated Financial Statements.

         Interest  expense in the year  ended  April 30,  1998 was $0.3  million
below that  incurred in the year ended April 30,  1997.  This  decrease  was the
result of a reduction in the amount of the Company's outstanding debt.

         Expenses  for the first  quarter of fiscal 1999 will  reflect  payments
made to Bruce L. Engel in  connection  with his  retirement  during the  period,
which may cause an increase in Other Expense in the first quarter of fiscal 1999
as compared to the same quarter in fiscal 1998.

         In the year ended April 30, 1998, the Company  recorded a tax provision
equal to 24  percent of its  pretax  loss,  compared  to a tax  provision  of 26
percent of the pretax  income for the  previous  year.  During  fiscal  1998 the
Company  sustained  significant  operating  losses.  Because  of  the  difficult
operating  environment  and the likely delayed or decreased use of the Company's
deferred  tax  assets to  shelter  future  income,  the  Company  increased  its
valuation reserve to approximately  $9.8 million,  resulting in a charge of $7.3
million in additional  income tax expense in the year ended April 30, 1998.  The
Company  periodically  reviews  the above  factors  and may change the amount of
valuation  allowance  as  facts  and  circumstances   dictate.  See  Note  6  to
Consolidated Financial Statements.



                                      -12-
<PAGE>
Comparison of 1997 to 1996
--------------------------

         Net sales for the year ended April 30, 1997 increased $92.1 million (48
percent)  from  the  year  ended  April  30,  1996.  This  increase  was  caused
principally by a 40 percent increase in lumber shipments,  a 36 percent increase
in chip deliveries and a 17 percent increase in lumber prices,  partially offset
by a 57  percent  decrease  in  chip  prices.  The  increased  lumber  and  chip
deliveries reflect the Company's increased  production resulting from a stronger
lumber market during most of fiscal 1997.

         Gross  profit for the year ended April 30, 1997 was 10.2 percent of net
sales,  compared to 2.8 percent of net sales for the year ended April 30,  1996.
Lumber prices  increased by 17 percent from the year ended April 30, 1996, while
the  Company's  log costs  decreased by 6 percent.  The higher lumber prices and
shipments  were  sufficient to more than offset the effect of lower chip prices.
Unit  manufacturing  costs in fiscal year 1997 increased by 3 percent from costs
in fiscal year 1996. This increase was in part a result of a general increase in
wages in September 1996.

         Selling,  general and  administrative  expenses in the year ended April
30, 1997  increased by $2.8  million (29 percent)  from the year ended April 30,
1996.  This increase  primarily  reflects higher  profit-sharing  bonus payments
which were the result of higher pretax profits.

         Interest  expense in the year  ended  April 30,  1997 was $0.3  million
below that  incurred in the year ended April 30,  1996.  This  decrease  was the
result of a reduction in the amount of the Company's outstanding debt.

         In the year ended April 30, 1997, the Company  recorded a tax provision
equal to 26 percent of its pretax profit.  See Note 6 to Consolidated  Financial
Statements.

LIQUIDITY AND CAPITAL RESOURCES

         At April  30,  1998,  the  Company  had net  working  capital  of $15.2
million, $14.3 million less than at April 30, 1997. The working capital decrease
was primarily the result of operating losses,  capital spending and reduction of
current deferred tax assets, along with principal payments on debt and dividends
paid on the Company's Series A preferred stock.

         Cash and cash  equivalents  decreased by $6.1  million  during the year
ended April 30, 1998, to $2.2 million at year-end. Approximately $6.4 million of
cash was provided by  operations.  About $3.2 million was used to repay  various
debt obligations.  The Company also paid $2.3 million in dividends to holders of
its Series A preferred stock.

         During  fiscal  1998,  the  Company  spent  $7.8  million  for  capital
improvements to its facilities.  Capital  spending for the year ending April 30,
1999 is currently projected to be approximately $2.5 million. The Company had no
material commitments for capital spending at April 30, 1998.

         The Company  does not have a credit  facility  for working  capital and
therefore  relies on cash provided by its operations to fund its working capital
needs.  There can be no assurance  that such cash will be sufficient to fund the
Company's  operations.  Substantially all of the Company's assets are pledged to
secure its primary debt obligation.



                                      -13-
<PAGE>
         The Company's  Credit and Security  Agreement  dated as of November 30,
1992  (the  "Credit  Agreement")  contains  certain  covenants,   including  the
maintenance of prescribed levels of tangible net worth,  working capital,  total
liabilities  ratio  (as  defined),  adjusted  cumulative  operating  income  (as
defined) and collateral coverage (as defined). The fiscal year 1998 results were
such that the Company  initiated amendments to the Credit Agreement.  The Credit
Agreement  was amended as of October 1, 1997,  January 1, 1998 and April 1, 1998
with respect to certain financial performance covenants. These amendments follow
similar  earlier  amendments.   Improved  operating  conditions  from  those  in
existence during fiscal year 1998 will be necessary for the Company to remain in
compliance  with the  Credit  Agreement.  See Note 5 to  Consolidated  Financial
Statements.

         At April 30, 1998 the  Company's  tangible net worth was $3.9  million,
compared to a negative $1.0 million required by the covenant. At that same date,
the  Company's  working  capital was $15.2  million,  compared  to $9.0  million
required by the  covenant.  Also,  at April 30,  1998,  the  Company's  adjusted
cumulative  operating  income  was  $34.1  million,  compared  to $27.5  million
required. The collateral coverage ratio at April 30, 1998 was 66.3%, compared to
a 50% minimum required level. The total liabilities ratio was 93.7% at April 30,
1998,  compared to a maximum allowed of 105%. The required level of tangible net
worth increases to $0 on January 1, 1999, $2.0 million at July 1, 1999, and $4.0
million at July 1, 2000.  The  required  level of working  capital  increases to
$11.5  million at July 1, 1999,  $14.0 million at July 1, 2000 and $16.5 million
at July 1, 2002.  The required  level of adjusted  cumulative  operating  income
increases to $30.0 million at August 1, 1998, $34.0 million at November 1, 1998,
$37.5  million at July 1, 1999,  $42.5 million at July 1, 2000 and $47.5 million
at July 1, 2001. The minimum required collateral coverage ratio increases to 63%
at July 1, 1999. The maximum  allowed total  liabilities  ratio drops to 100% on
August 1, 1998,  95% at July 1, 1999,  and 85% at July 1, 2000.  During the year
ended  April 30,  1998,  the  Company's  adjusted  cumulative  operating  income
decreased by $2.7 while showing a loss before taxes of $9.8 million. The Company
continues to be in compliance with all covenants contained in this agreement.

         In  accordance  with  the  Company's   Credit   Agreement,   additional
prepayments are required if the Company's  cumulative  operating  income exceeds
certain  specified  amounts.  No such  prepayment  will be required for the year
ended April 30, 1998. In connection with the May 1, 1996 amendment,  the Company
agreed to an  additional  prepayment  computed at 30% of  quarterly  net income.
Payments  made during the year ended April 30, 1998  pursuant to this  provision
totaled  $1.6  million.   Proceeds   from  the  sale  of  its  two   facilities,
Sedro-Woolley  Lumber Co. and Trask River Lumber Co.,  will be applied to reduce
debt.

         The Company has no floating  rate debt,  but the  dividend  rate on its
Series A preferred  stock varies based on Bank of America's prime rate in effect
at the time the  dividends  are  declared.  Based on the prime rate in effect at
July 2, 1998,  annual  preferred  dividends would increase by about $0.1 million
from the amount incurred in the year ended April 30, 1998.

YEAR 2000 COMPLIANCE

         The Company is conducting a review of its computer and other systems to
identify  those  areas that could be  affected  by the "Year  2000" issue and is
developing  an  implementation  plan to resolve  the issue.  The Year 2000 issue
exists because many computer  systems and  applications  currently use two-digit
fields to designate a year. This


                                      -14-
<PAGE>
can  lead to  incorrect  results  when  computer  software  performs  arithmetic
operations,  comparisons or data field sorting  involving years later than 1999.
The Company  presently  believes,  with  modification  to existing  software and
converting  to new  software and  hardware,  the Year 2000 problem will not pose
significant  operational  problems and is not  anticipated to be material to its
financial position or results of operations in any given year.


FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

         The  statements  contained  in this report that are not  statements  of
historical  fact may include  forward-looking  statements (as defined in Section
27A of the  Securities  Act of 1933,  as amended) that involve a number of risks
and  uncertainties.  Moreover,  from time to time the  Company  may issue  other
forward-looking  statements.  The  following  factors are among the factors that
could  cause  actual  results  to  differ  materially  from the  forward-looking
statements   and  should  be  considered  in  evaluating   any   forward-looking
statements.

Adverse Operating Conditions; Fluctuations in Quarterly Results
---------------------------------------------------------------

         Lack of demand for lumber  exports,  particularly  to Asia, has caused,
and may continue to cause,  adverse operating conditions as lumber manufacturers
convert production from export to domestic markets.  Such production  conversion
has caused,  and may continue to cause,  an oversupply of lumber and weakness in
domestic lumber prices.

         On a  quarter-to-quarter  basis, the Company's  financial  results have
varied widely and will continue to vary due to seasonal  fluctuations and market
factors  affecting  both the  availability  of, and the demand for, logs and the
demand  for  lumber  and  other  wood  products.  The  industry  is  subject  to
fluctuations in sales and earnings due to such factors as industry production in
relation to product demand and variations in interest rates and housing  starts.
The demand for lumber and wood  products is  primarily  affected by the level of
new residential  construction  activity which is subject to fluctuations  due to
changes in economic  conditions,  real estate  prices,  interest  rates,  credit
availability,   property  taxes,  energy  costs,   population  growth,   weather
conditions and general economic conditions,  all of which are beyond the control
of the Company. Demand for the Company's products is generally lower in the fall
and winter quarters when activity in the construction, industrial and repair and
remodeling  markets is slower and demand is  generally  higher in the spring and
summer quarters when these markets are more active.  Fire danger and excessively
dry or wet conditions  temporarily reduce logging activity and may increase open
market log prices.  The industry is also affected by timber management  policies
which change from time to time and may cause actual or feared  shortages in some
areas.  These policies change because of environmental  concerns,  public agency
budget issues and a variety of other reasons.  Currency  fluctuations affect the
industry when  exchange  rates spur log exports and drive up domestic log prices
and  when a  relatively  strong  U.S.  dollar  encourages  lumber  exports  from
competing countries,  such as Canada, or discourages exports to other countries,
such as Japan.  Therefore,  past  results  for any given year or quarter are not
necessarily  indicative of future results.  The Company  believes that period to
period comparisons of its financial results may not be meaningful and should not
be relied upon as indications of future performance.

Availability of Logs
--------------------

         Raw materials comprise the majority of the cost of products sold by the
Company.  The Company depends primarily on open market log purchases for its raw
material needs. 


                                      -15-
<PAGE>
The Company  generally  purchases  logs in  sufficient  quantities  to match the
current operating  requirements for its mills. The availability and cost of logs
are influenced by a variety of factors,  including  demands by  competitors  and
exporters,  the environmental and harvest policies of federal and state agencies
and, in the long term, the level of  reforestation.  Various factors,  including
environmental and endangered species concerns, particularly regulations relating
to the northern spotted owl, the marbled  murrelet,  and various species of fish
have limited,  and are likely to continue to limit, the amount of timber offered
for sale by certain United States government  agencies,  which historically have
been major  suppliers of timber to the United States forest  products  industry.
State and private  timber  supplies  may be  inadequate  to fill the  shortfall.
Although the Company does not rely on purchases of federal  timber,  uncertainty
associated with timber supply issues combined with continued lack of significant
public  timber  sales  activity  may  contribute  to log price  volatility.  The
availability of logs may also be affected by other factors,  including damage by
fire, insect infestation,  disease, prolonged drought and natural disasters. Log
and lumber  markets may continue to  experience  rapid  changes in values due to
actual  and  perceived   market   conditions   which  may  sometimes  result  in
inconsistent  relationships  between log and lumber prices.  These changes could
result in large swings in the gross margin on lumber  produced.  There can be no
assurance  that  sales of logs from the  Company's  current  sources  may not be
reduced or that the Company will be able to procure sufficient logs at favorable
prices in order to continue  operation of its  manufacturing  facilities  in the
future.  The  inability of the Company to obtain logs in  sufficient  quantities
could  have a  material  adverse  impact on the  Company's  business,  financial
condition and results of operations.

Federal and State Regulations
-----------------------------

         Laws and regulations dealing with the Company's  operations are subject
to change and new laws and regulations are frequently  introduced concerning the
timber  industry.  From  time  to  time,  bills  are  introduced  in  the  state
legislatures and the U.S.  Congress which relate to the business of the Company,
including the  protection and  acquisition of old growth and other  timberlands,
endangered species, environmental protection and the restriction, regulation and
administration  of timber  harvesting  practices.  The forest products  industry
remains  subject to  potential  state or local ballot  initiatives  and evolving
federal and state case law which could affect timber harvesting practices. It is
impossible to assess the affect of such matters on the future operating  results
or  financial  position of the  Company.  The Company is also subject to various
federal,  state and local  regulations  regarding  waste  disposal and pollution
control,  including air, water and noise  pollution.  The cost of remediation at
the Company's  site at  Sedro-Woolley,  Washington  may be more  expensive  than
anticipated  and may require the  approval  of certain  regulators.  See section
entitled "Environmental Regulation."  Various governmental agencies have enacted
or are considering regulations regarding log yard management and disposal of log
yard  waste  that  may  require  material   expenditures  in  the  future.  Such
regulations could have a material adverse impact on the Company.

Manufacturing Risks
-------------------

         The Company manufactures  softwood and hardwood lumber and by-products.
As  a  manufacturer,   the  Company   continually   faces  risks  regarding  the
availability  and  cost of raw  materials  and  labor,  the  potential  need for
additional  capital  equipment,   increases  in  maintenance  costs,  plant  and
equipment  obsolescence,  quality  control  and  excess  capacity.  See  section
entitled "Industry  Conditions."  The Company curtails  production at facilities
from time to time due to conditions  which  temporarily  impair log flow or when
imbalances  between log costs and product  prices cause the cost of operation to
exceed


                                      -16-
<PAGE>
the cost of shutdown.  There has been union  activity at the Company's  hardwood
facility and labor  disturbances may also curtail or shut down  production.  See
section entitled  "Employees." The Company may permanently close facilities that
are  determined  to lack future  potential for profit under  expected  operating
conditions.  A disruption in the Company's production or distribution could have
a material adverse impact on the Company's financial results.

Liquidity and Capital Resources
-------------------------------

         The Company  does not have a credit  facility  for working  capital and
therefore  relies on cash provided by its operations to fund its working capital
needs. The Company's cash flow is affected by numerous factors,  including sales
of its products,  cost of raw materials and  seasonality of its business.  There
can be no assurance that cash provided by operations  will be sufficient to fund
the Company's  future  operating  and capital  needs.  Substantially  all of the
Company's  assets are  pledged as  security  for its  primary  debt  obligation.
Improved operating conditions from those in existence during fiscal 1998 will be
necessary  for the  Company  to  remain  in  compliance  with its  primary  debt
agreement. See Note 5 to Consolidated Financial Statements.

Fingerjointing Plant
--------------------

           Completion  of  construction  and  commencement  of operations of the
Company's  fingerjoint  plant  occurred  in  fiscal  1998.  The  success  of the
fingerjointed  products  will  depend on a variety of  factors,  including  cost
effective  implementation of manufacturing and assembly  processes and effective
sales and marketing  efforts.  Operations were curtailed in May 1998 in response
to adverse  conditions and there can be no assurance as to when  operations will
resume.

Licensing of New Technology
---------------------------

         The Company may use a patented  technology known as GREENWELD(R)  which
allows the gluing of green or unseasoned lumber in its fingerjointing  operation
and to license the  technology  to other lumber  producers in North  America and
Mexico.  There  can be no  assurance  that the  Company  will be  successful  in
licensing this technology to other  manufacturers  or obtain approval for use of
the technology in Canada or Mexico.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements and supplementary  data required by this item
are listed in Item 14 of Part IV of this report which begins at page 30.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         None.






                                      -17-
<PAGE>
PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are:

        Name                      Age   Position
        ----                      ---   --------
Larry G. Black.................... 52   Director
Scott Christie.................... 49   Director
Richard W. Detweiler.............. 56   Director
David J. Loftus................... 56   Treasurer
K.  Stanley Martin................ 56   Director, Vice President-Finance and
                                          Chief Financial Officer
Robert J.  Riecke................. 48   Director, Vice President-Administration,
                                          General Counsel and Secretary
John C. Stembridge................ 39   Interim Chief Operating Officer and
                                          Vice President-Sales and Marketing
James R. Wilson................... 48   Vice President-Timber
William H. Wright................. 63   Director

         The Company  currently has seven Board seats,  with one position vacant
because of the  retirement on July 1, 1998, of Bruce L. Engel,  a former Class 3
director and Company president. The Company intends to leave the seat vacant for
now, but may elect to fill it in the future.

         Pursuant to the Company's  Articles of  Incorporation  and Bylaws,  the
Board is divided into three classes of directors with terms of three years.  The
terms of Class 1 Directors,  Messrs.  Wright and  Detweiler,  expire at the 1998
Annual Meeting of Shareholders,  the terms of Class 2 Directors,  Messrs.  Black
and Christie,  expire at the 1999 Annual Meeting of Shareholders,  and the terms
of Class 3  Directors,  Messrs.  Martin and  Riecke,  expire at the 2000  Annual
Meeting of  Shareholders.  Commencing  in 1998,  and at each  annual  meeting of
shareholders  thereafter,  the successors to the class of directors  whose terms
expired  at that  meeting  will be  elected  to hold  office for a term of three
years.

         In the event the Company  fails to make a certain  number of  scheduled
dividend  payments,  or if a certain  financial  ratio  covenant  violation  has
occurred and is  continuing,  on its Series A preferred  stock,  holders of such
stock may, under the  circumstances  and in the manner provided in the Company's
Fourth  Restated  Articles  of  Incorporation,  elect a majority of the Board of
Directors by replacing  incumbent  Board members or  increasing  the size of the
Board.

         Larry G.  Black  was  elected  for a two year  term at the 1997  Annual
Meeting  of  Shareholders.  Mr.  Black  is  president  of  Quinault  Corporation
("Quinault"),  owner of approximately  29% of the Company's common stock.  Since
its formation in 1985,  Mr. Black has been chief  executive  officer of Quinault
Logging Company, which is in the business of buying timber and selling logs. Mr.
Black has been  involved  in the  timber  industry  for more than 30 years.  See
"Certain Relationships and Related Transactions."



                                      -18-
<PAGE>
         Scott Christie has been a director of the Company since March 1988. Mr.
Christie is currently general partner of Christie Capital Management. Since 1987
Mr.  Christie has been engaged as an investment  advisor for his own account and
the account of other  individuals.  From 1983 until 1987 Mr. Christie was senior
vice  president of Kidder,  Peabody & Co.  Incorporated,  an investment  banking
firm. Mr. Christie headed Kidder,  Peabody's underwriting team for the Company's
initial public offering and 1987 debenture offering.

         Richard W.  Detweiler has been a director of the Company since December
1995.  Mr.  Detweiler  is  currently  a  partner  of  Carlisle  Enterprises,  an
investment  partnership.  From 1990 to 1996 Mr.  Detweiler  was chief  executive
officer  of  Precision  Aerotech,  a  diversified   manufacturing  company.  Mr.
Detweiler  has 33 years of  manufacturing  management  experience,  including 16
years in general management.

         David J. Loftus was appointed  treasurer of the Company in October 1993
and continues to serve as vice  president-finance  of TreeSource,  the Company's
marketing subsidiary,  a position he has held since May 1986. As treasurer,  Mr.
Loftus is  primarily  responsible  for cash  management  matters  and credit and
banking  relationships.  For the eight  years prior to joining  TreeSource,  Mr.
Loftus served as the  assistant  treasurer  for a  publicly-traded  company with
operations in the forest products industry.

         K. Stanley Martin is vice  president-finance of the Company, a position
he has held since  September  1983, and has been chief  financial  officer since
April 1991.  Mr.  Martin has been a director of the Company  since January 1994.
Mr.  Martin is  responsible  for all financial  affairs of the Company.  For the
eleven  years  prior to 1983,  Mr.  Martin  served as a  financial  officer  for
publicly-traded   companies  having  all  or  a  substantial  portion  of  their
operations in the forest  products  industry.  Mr. Martin is a certified  public
accountant.

         Robert J. Riecke became vice president-administration of the Company in
May 1989, has been general counsel of the Company since January 1987,  assistant
secretary  from March 1983 until  January  1994,  and a director  of the Company
since March 1986.  Mr. Riecke was named corporate secretary in January 1994. Mr.
Riecke has primary  responsibility  for the Company's  legal,  risk  management,
environmental compliance, investor relations, and human resource functions. From
1976 through  1986,  Mr.  Riecke was in private law  practice.  Since 1983,  Mr.
Riecke has devoted much of his professional  endeavors to legal matters relating
to the Company and its subsidiaries.  Mr. Riecke is a graduate of the University
of Illinois School of Law.

         John C. Stembridge was appointed vice  president-sales and marketing of
the Company in February 1995 and was elected interim chief operating  officer in
May 1998. Mr. Stembridge joined TreeSource,  the Company's marketing subsidiary,
in 1989 and has served as its vice  president  and  general  manager  since June
1991. Mr. Stembridge has primary  responsibility for managing all aspects of the
Company's lumber  manufacturing,  sales and  transportation.  For the nine years
prior to joining TreeSource,  Mr. Stembridge was involved in domestic and export
lumber sales, primarily with North Pacific Lumber Co.







                                      -19-
<PAGE>
         James R. Wilson was appointed vice  president-timber  of the Company in
October 1993.  Mr. Wilson has primary  responsibility  for the Company's  timber
supply program.  Prior to his present  position,  Mr. Wilson served at both mill
and corporate  levels of WTD Industries  commencing in February  1992.  Prior to
1992,  Mr.  Wilson  served as general  manager of  Estacada  Lumber  Company,  a
division of RSG Forest  Products.  From 1973 to 1984, Mr. Wilson was involved in
all phases of the wood products industry with Crown Zellerbach Corporation.

         William H. Wright has been a director of the Company  since April 1992.
Mr.  Wright has held a variety of  management  positions in the forest  products
industry since 1957. He is currently president of Heartwood  Consulting Service,
which advises forest products clients. From 1989 until 1994 he was president and
chief executive officer of Dee Forest Products Inc., a manufacturer of hardboard
and  related  products.  From 1984 to 1989 Mr.  Wright  was  general  manager of
Stevenson Co-Ply Inc., a manufacturer of veneer and plywood.


Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

         Section 16(a) of the  Securities  Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers, directors and persons who
own more than 10  percent  of the  common  stock  file with the  Securities  and
Exchange  Commission  ("SEC") initial reports of beneficial  ownership on Form 3
and reports of changes in beneficial  ownership of common stock and other equity
securities of the Company on Form 4.  Officers,  directors,  and greater than 10
percent  shareholders  of the Company are required by SEC regulations to furnish
to the  Company  copies of all  Section  16(a)  reports  that they file.  To the
Company's  knowledge,  based solely on reviews of such reports  furnished to the
Company and written  representations  that no other  reports are  required,  all
Section 16(a) filing  requirements  applicable  to its  officers,  directors and
greater than 10 percent  beneficial  owners were complied with during the fiscal
year ended April 30, 1998.


















                                      -20-
<PAGE>
Item 11.  EXECUTIVE COMPENSATION


SUMMARY COMPENSATION TABLE

         The following  table shows the cash and non-cash  compensation  paid by
the  Company  for each of the last  three  fiscal  years to the chief  executive
officer  and the four other most  highly  compensated  executive  officers  (the
"Named Executive Officers").
<TABLE>
<CAPTION>
                                                                              Long Term
                                                                            Compensation
                                                                               Awards
                                                                        --------------------
                                           Annual Compensation(1)       Number of Securities
                                       -------------------------------
    Name and Principal Position        Year    Salary($)     Bonus($)    Underlying Options
  -------------------------------      ----    ----------    ---------  --------------------
<S>                                    <C>     <C>           <C>        <C>
  Bruce L. Engel(2)                    1998    $  300,000    $  68,300              --
  President                            1997    $  300,000    $ 171,122          35,000
                                       1996    $  300,000    $  23,142              --

  K. Stanley Martin                    1998    $  120,000    $  27,320              --
  Vice President-Finance and           1997    $  120,000    $  68,447          35,000
    Chief Financial Officer            1996    $  120,000    $   9,256              --

  Robert J. Riecke                     1998    $  132,000    $  30,052              --
  Vice President-                      1997    $  132,000    $  75,295          35,000
    Administration, General            1996    $  132,000    $  10,183              --
    Counsel and Secretary

  John C. Stembridge                   1998    $  100,000    $  27,448              --
  Interim Chief Operating Officer      1997    %  100,000    $  80,238          35,000
    and Vice President-Sales and       1996    $  100,000    $  12,197              --
    Marketing

  James R. Wilson                      1998    $  100,000    $  22,766              --
  Vice President-Timber                1997    $  100,000    $  57,040          35,000
                                       1996    $  100,000    $   7,714              --


(1)  Personal  benefits for each  executive  officer  named in the table did not
     exceed $50,000 or 10% of such executive  officers'  total annual salary and
     bonus  for  the  fiscal  years  ended  April  30,  1998,   1997  and  1996,
     respectively.
(2)  Mr. Engel retired effective July 1, 1998.

</TABLE>







                                      -21-
<PAGE>
                       OPTION GRANTS IN LAST FISCAL YEAR

         No executive  officer  named above  received  option  grants during the
fiscal year ended April 30, 1998.


                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

         The following  table provides  information on option  exercises for the
last fiscal year by the named executive officers and the value of such officers'
unexercised options as of April 30, 1998:
<TABLE>
<CAPTION>
                                           Number of Securities             Value of Unexercised
                                          Underlying Unexercised            In-the-Money Options
                          Shares       Options at April 30, 1998 (#)       at April 30, 1998 ($)(1)
                       Acquired on     -----------------------------     -----------------------------
          Name         Exercise (#)    Exercisable     Unexercisable     Exercisable     Unexercisable
          ----         ------------    -----------     -------------     -----------     -------------
<S>                    <C>             <C>             <C>               <C>             <C>
  Bruce L. Engel(2)       68,500         332,125           18,375         $  15,530        $    873

  K. Stanley Martin          --           48,425           18,375         $   9,737        $    873

  Robert J. Riecke           --           51,625           18,375         $  11,677        $    873

  John C. Stembridge         --           26,625           18,375         $     790        $    873

  James R. Wilson            --           26,625           18,375         $     790        $    873


(1)  Based on the fair  market  value of the Common  Stock at April 30,  1998 of
     $1.5625 per share. 
(2)  Mr. Engel retired effective July 1, 1998.
</TABLE>


                              EMPLOYMENT AGREEMENTS

         On May 27, 1998, the Company  entered into  Employment  Agreements with
each of its  executive  officers,  except Mr.  Engel.  The Company has agreed to
employ  each  officer  until May 31,  1999.  The  agreement  requires a lump sum
payment  equal to 12 times the last monthly base salary plus the total amount of
any bonus compensation  awarded in the last 12 months to a terminated officer in
the event that the  officer is  terminated  for  reasons  other than  cause,  as
defined, prior to said date. See Exhibit 10.9.













                                      -22-
<PAGE>
Benefits

         The Company  maintains an Internal  Revenue Code ("IRC") Section 401(k)
retirement savings plan under which employees, including executive officers, are
permitted  to make salary  deferral  contributions.  Executive  officers are not
entitled to employer matching contributions pursuant to this plan.

Compensation of Directors
-------------------------

         Each of the Company's  outside  directors is paid an annual retainer of
$15,000 for attending up to six Board  meetings,  plus $750 for each  additional
Board  meeting  or  committee  meeting  attended  and $225  for  each  telephone
conference meeting attended or written consent executed.  Directors who are also
employees  of the  Company  do not  receive  additional  compensation  for their
services as directors.  In fiscal 1998,  no outside  directors  received  option
grants.

Executive Bonuses
-----------------

         Monthly  discretionary  bonuses  are  paid to the  Company's  executive
officers, as well as other management and administrative employees,  pursuant to
the Company's  profit  sharing bonus plan. The bonuses are based upon net pretax
profits and are generally allocated according to base salary level. Bonuses paid
to executive officers for services rendered to the Company during the year ended
April 30, 1998 are included in the amounts  shown in the  "Summary  Compensation
Table."

Stock Option Plan
-----------------

         In October  1996 the Company,  after  receiving  shareholder  approval,
implemented  a Stock  Option Plan ("1996  Option  Plan") to  supersede  the 1986
Option Plan, which terminated in July 1996.

         The purpose of the 1996 Option Plan is to enhance the  long-term  value
of  the  Company  by  offering  opportunities  to  those  employees,  directors,
officers,  consultants,  agents,  advisors and  independent  contractors  of the
Company and its  subsidiaries  who are key to the Company's  growth and success,
and  to  encourage  them  to  remain  in the  service  of the  Company  and  its
subsidiaries and to acquire and maintain stock ownership in the Company.

         Subject to adjustment  from time to time as provided in the 1996 Option
Plan,  a maximum of 525,000  shares of Common Stock are  available  for issuance
under the 1996 Option Plan. Not more than 50,000 shares of Common Stock,  in the
aggregate,  may be granted under the 1996 Option Plan to any participant  during
any fiscal year of the Company,  except for one-time grants of options for up to
100,000 shares may be made to newly hired participants.

         Any shares of Common Stock that cease to be subject to an option (other
than by reason of exercise),  including,  without limitation, in connection with
the  cancellation  of an award will be available for issuance in connection with
future grants of awards under the 1996 Option Plan.



                                      -23-
<PAGE>
         Options granted under the 1996 Option Plan will be "nonqualified  stock
options" (that is, options that are not designed to qualify as "incentive  stock
options,"  as defined in IRC  Section  422).  The option  price for each  option
granted under the 1996 Option Plan will be determined by the plan administrator,
but will be not less than 85% of the Common  Stock's  fair  market  value on the
date of grant.  For purposes of the 1996 Option Plan,  "fair market value" means
the last  reported  sales  price for the Common  Stock as reported by the Nasdaq
National Market for a single trading day.

         The option term will be fixed by the plan administrator,  but if not so
specified  will be ten years.  Each  option  will be  exercisable  pursuant to a
vesting schedule  determined by the plan  administrator.  If not so established,
the  option  will vest over four  years  from the date of grant  with 20% of the
shares of underlying  Common Stock vesting on the six-month  anniversary  of the
grant date and an additional  20% of the shares  vesting after every  successive
year of the optionee's  continuous  employment or relationship with the Company.
The plan  administrator  will also  determine the  circumstances  under which an
option will be exercisable in the event the optionee ceases to provide  services
to  the  Company  or one of its  subsidiaries.  If not so  established,  options
generally  will be exercisable  for one year after  termination of services as a
result of disability or death and for one month after all other terminations. An
option will not be  exercisable  if the  optionee's  services are terminated for
cause, as defined in the 1996 Option Plan.

         The  1996  Option  Plan  is  administered  by the  Company's  Board  of
Directors.  The Board may delegate the responsibility for administering the 1996
Option Plan to a committee or  committees  consisting  of two or more members of
the  Board  of  Directors,  subject  to  such  limitations  as the  Board  deems
appropriate.  Committee  members  will  serve  for such  term as the  Board  may
determine, subject to removal by the Board at any time.


Board Compensation Committee Report on Executive Compensation
-------------------------------------------------------------

         The Compensation Committee is composed of two independent  non-employee
directors, Mr. Christie and Mr. Wright.

         The Compensation  Committee is responsible for recommending to the full
Board of Directors,  for its approval,  the base  compensation for all executive
officers.  Executive  officers who serve on the Company's  Board of Directors do
not  participate  in  any   deliberations  or  decisions   regarding  their  own
compensation. The Compensation Committee receives recommendations from the chief
executive  officer  regarding  appropriate  levels of base  compensation for the
other executive officers, including executive officers who are directors.

         The Company's executive officer  compensation  policies are designed to
attract,  motivate and retain senior  management by providing an opportunity for
overall  competitive  compensation based on an adequate base compensation amount
and  participation  in a profit  based bonus  system in effect for all  salaried
employees of the Company.



                                      -24-
<PAGE>
         The profit  sharing  component  of the overall  compensation  system is
designed to reward all salaried  employees,  including  executive  officers,  in
relation  to  the  Company's  monthly  performance  and  to  encourage  salaried
employees  at all levels of the Company to work  together for the common goal of
maximizing profits. Salaried employees at the WTD corporate level (including all
executive  officers)  receive  10%  of  monthly  consolidated  pre-tax  profits,
allocated according to base salary level.

         It is the Company's  practice to participate in and use, as a basis for
comparison,  an analysis of executive  compensation in the Northwest prepared by
the compensation consulting group of Milliman & Robertson, Inc. This analysis is
useful in establishing  base salary levels and monitoring  overall  compensation
levels as compared to other publicly-traded companies of similar size. Executive
officers'  compensation  paid  during  fiscal  year 1998,  with  respect to base
salary,  cash bonus and total  cash  compensation,  was below the median  levels
published  in the  1997/1998  Milliman &  Robertson  compensation  survey of all
industries.

         The Company also uses long-term stock-based incentive  opportunities in
the form of options to purchase the Company's  Common Stock.  The Company's 1996
Option Plan provides for the grant of stock options to employees of the Company.
Stock option  awards are  determined  on a  discretionary  basis by the Board of
Directors.  Executive  officers who serve on the Company's Board of Directors do
not participate in any  deliberations  or decisions  regarding  option awards to
them.  The  Committee   believes  that  stock-based   performance   compensation
arrangements are beneficial in aligning management's and shareholders' interests
in the advancement of shareholder value.

         No option grants were made to executive officers during the 1998 fiscal
year.

         WTD  provides  the same  group life and health  insurance  coverage  to
executive  officers as other  employees  and requires all  employees,  including
executive  officers,  to pay approximately  25% of health insurance  premiums by
payroll deduction.

         The Company  allows its executive  officers and all other  employees to
contribute a percentage of their  compensation to the  Company-sponsored  401(k)
Retirement Savings Plan. Executive officers and other salaried employees are not
generally entitled to matching contributions.

         Neither the executive  officers nor other  employees are covered by any
other Company-sponsored retirement plans.

         All of the policies described above apply to Mr. Engel's  compensation.
No additional benefits or requirements specifically apply to the chief executive
officer.

         No option grants were made to Mr. Engel during the 1998 fiscal year.

         Mr.  Engel's base salary for fiscal year 1998 was $300,000.  The median
base salary for chief executive  officers of comparably sized public  companies,
as published by the Milliman & Robertson compensation survey, is $301,634.




                                      -25-
<PAGE>
         Mr.  Engel  received a cash bonus of $68,300  during  fiscal  year 1998
under the profit sharing plan described above,  reflecting profitable operations
during the first part of the fiscal year.  Mr. Engel's cash bonus and total cash
compensation  amounts were below the  published  median  levels;  the  published
median levels were $143,590 and $400,000, respectively.

         Mr. Engel retired effective July 1, 1998.

         Compensation Committee Members

         Scott Christie
         William H. Wright

































                                      -26-
<PAGE>

Stock Performance Graph
-----------------------



                         [GRAPH]


<TABLE>
<CAPTION>
                                   Base
                                   Period        Return        Return        Return       Return        Return
       Company/Index Name        April 1993    April 1994    April 1995    April 1996   April 1997    April 1998
--------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>            <C>          <C>           <C>           <C>  
WTD Industries, Inc.                 100         108.89         62.23         24.43        64.44         55.55
S&P 500 Index                        100         105.32        123.72        161.09       201.58        284.36
Paper & Forest Products-500          100         100.42        120.75        135.81       135.40        172.22

</TABLE>




















                                      -27-
<PAGE>
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table shows  beneficial  ownership as of July 2, 1998 of
the Company's  Common Stock by (i) each director,  (ii) each beneficial owner of
more than 5 percent of the Common Stock, (iii) the Named Executive Officers, and
(iv) all  directors  and officers as a group.  Except as otherwise  specifically
noted, each person noted below has sole investment and voting power with respect
to shares indicated.
<TABLE>
<CAPTION>
                                                     Amount and Nature
    Name and Address of Beneficial Owner       of Beneficial Ownership(1)(2)   Percent
  -------------------------------------------  -----------------------------   -------                                            
<S>                                            <C>                             <C>    
  Quinault Corporation
  P.O. Box C                                          3,261,600                  29.2%
  Aberdeen, WA 98570

                                                     Amount and Nature
    Name of Directors and Executive Officers   of Beneficial Ownership(2)(3)   Percent
  -------------------------------------------  -----------------------------   -------                                            
  Larry G. Black(4)                                   3,261,600                  29.2%

  Scott Christie                                         78,750                    .7%

  Richard W. Detweiler                                   40,000                    .4%

  K. Stanley Martin                                      58,425                    .5%

  Robert J. Riecke                                       51,625                    .5%

  John C. Stembridge                                     27,925                    .2%

  James R. Wilson(5)                                     26,725                    .2%

  William H. Wright                                      78,750                    .7%

  All directors and executive officers as a group
  (9 persons)                                         3,644,425                  31.6%
================================================================================
</TABLE>
(1)   As determined by reference to the beneficial owner's most recent Form 4 or
      13D filing.
(2)   Beneficial Ownership is calculated as of July 2, 1998.
(3)   Includes shares reserved for issuance under options  exercisable within 60
      days of July 2,  1998 as  follows:  Mr.  Christie  78,750;  Mr.  Detweiler
      40,000;  Mr. Martin 48,425;  Mr. Riecke 51,625; Mr. Stembridge 26,625; Mr.
      Wilson 26,625;  and Mr. Wright 78,750.  
(4)   Mr. Black, by virtue of being president and sole director of Quinault,  is
      deemed to beneficially own the shares owned by Quinault.
(5)   Mr.  Wilson  shares  with  his  spouse  Christine  R.  Wilson  voting  and
      investment power as to 100 shares beneficially owned. See Note 3 above for
      details of individual option rights.













                                      -28-
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During fiscal 1998, five of the Company's  subsidiaries  purchased logs
from Quinault Logging Company in the amount of approximately  $2.1 million.  Mr.
Larry G.  Black,  a director  of the  Company,  is  president  and a director of
Quinault  Logging Company and is president and sole director of Quinault,  owner
of approximately 29% of the Company's common stock.

         The Company,  Bruce L. Engel,  Quinault and Larry G. Black entered into
an agreement dated as of June 10, 1997 (the "Agreement").  Pursuant to the terms
of the Agreement, the Company and Mr. Engel will have the right of first refusal
with respect to any shares of the Company's  Common Stock sold by Quinault prior
to June 15, 1999. In addition,  Quinault granted Mr. Engel an option to purchase
shares of the  Company's  Common  Stock  such that the  amount of the  Company's
Common  Stock  owned by Mr.  Engel and his  affiliates  will equal the number of
shares  owned by  Quinault,  Mr.  Black and their  affiliates.  Pursuant  to the
Agreement,  Quinault,  Mr. Black and their affiliates may not, without the prior
written  consent of the Company's  Board,  act in a manner that would (i) remove
Mr.  Engel as an  officer  or  director  of the  Company  or (ii)  result in the
liquidation,  sale, merger or other combination of the Company.  Pursuant to the
Agreement  the Company  nominated  Mr.  Black for  election as a director at the
Company's  1997 Annual  Meeting of  Shareholders.  The  Agreement  restricts the
Company from taking certain actions to dilute Quinault's  holdings.  Pursuant to
the  Agreement,   the  Company   recommended   the  removal  of  certain  voting
restrictions  placed on Quinault pursuant to ORS 60.801--816 (the "Control Share
Restrictions") at the 1997 Annual Meeting of Shareholders.




















                                      -29-
<PAGE>
PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements                                                Page
------ --------------------                                                ----

         The following  consolidated  financial statements 
of the Registrant and its subsidiaries are contained in 
this report:

         Report of Independent Certified Public Accountants                 37

         Consolidated Statements of Operations for the Years
           Ended April 30, 1998, 1997 and 1996                              38

         Consolidated Balance Sheets at April 30, 1998 and 1997             39

         Consolidated Statements of Cash Flows for the Years
           Ended April 30, 1998, 1997 and 1996                              41

         Consolidated Statement of Changes in Stockholders'
           Equity for the Years Ended April 30, 1998,
           1997 and 1996                                                    42

         Notes to Consolidated Financial Statements                         43

(a)(2) Financial Statement Schedules
------ -----------------------------

         The schedules called for under Regulation S-X are not submitted because
they are not applicable,  are not required,  or because the required information
is not material or is included in the financial statements or notes thereto.

(a)(3) Exhibit Index                                                       Page
------ -------------                                                       ----

2.1           Final form of Registrant's Second Amended
              Joint Plan of Reorganization dated October 5,
              1992, filed with the United States Bankruptcy
              Court for the Western District of Washington. (1)

3.1           Fourth Restated Articles of Incorporation of the
              Registrant adopted November 27, 1992, as amended
              on March 4, 1998.                                             60 

3.2           Second Restated Bylaws of the Registrant effective
              November 27, 1992.  (8)







                                      -30-
<PAGE>
                                                                           Page
                                                                           ----

4.2           Credit and Security Agreement dated as of November 30,
              1992, between Registrant and Principal Mutual Life
              Insurance Company, Aetna Life Insurance Company, The
              Northwestern Mutual Life Insurance Company, Chemical
              Bank, Seattle-First National Bank, and Bank of America
              Oregon. (2)

4.2.1         Amendment dated as of October 18, 1994 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (9)

4.2.2         Amendment dated as of January 27, 1995 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (11)

4.2.3         Amendment dated as of May 1, 1995 to Credit and Security
              Agreement dated as of November 30, 1992, between
              Registrant and Principal Mutual Life Insurance Company,
              Aetna Life Insurance Company, The Northwestern Mutual
              Life Insurance Company, Chemical Bank, Seattle-First
              National Bank, and Bank of America Oregon. (11)

4.2.4         Amendment dated as of January 1, 1996 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (12)

4.2.5         Amendment dated as of May 1, 1996 to Credit and Security
              Agreement dated as of November 30, 1992, between
              Registrant and Principal Mutual Life Insurance Company,
              Aetna Life Insurance Company, The Northwestern Mutual
              Life Insurance Company, Chemical Bank, Seattle-First
              National Bank, and Bank of America Oregon. (13)

4.2.6         Amendment dated as of December 17, 1996 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (14)




                                 -31-
<PAGE>
                                                                           Page
                                                                           ----

4.2.7         Amendment dated as of October 1, 1997 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (17)

4.2.8         Amendment dated as of January 1, 1998 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.
              (18)

4.2.9         Amendment dated as of April 1, 1998 to Credit and
              Security Agreement dated as of November 30, 1992,
              between Registrant and Principal Mutual Life Insurance
              Company, Aetna Life Insurance Company, The Northwestern
              Mutual Life Insurance Company, Chemical Bank,
              Seattle-First National Bank, and Bank of America Oregon.      80

4.3           Indenture dated as of November 30, 1992, between
              Registrant and State Street Bank and Trust Company, as
              Trustee, with respect to 8% Senior Subordinated Notes
              due 2005. (3)

10.1          Amended and Restated 1986 Stock Option Plan dated
              December 30, 1992.* (4)

10.1.2        Form of Stock Option Agreement for directors of
              Registrant.* (8)

10.1.3        Form of Stock Option Agreement for executive officers of
              the Registrant.* (8)

10.1.4        1996 Stock Option Plan dated October 21, 1996.* (16)

10.1.5        Form of Stock Option Agreement for directors and
              officers of the Registrant.* (19)

10.3          Form of Indemnification Agreement for directors,
              officers and certain employees effective January 30,
              1991.* (8)

10.4          Description of Management Profit-Sharing Bonus Plan.*
              (5)

10.61         WTD Industries, Inc. Retirement Savings Plan and Trust
              dated as of May 1, 1989.* (6)




                                 -32-
<PAGE>
                                                                           Page
                                                                           ----

10.62         Amendment No. 1 to WTD Industries, Inc. Retirement
              Savings Plan and Trust Effective May 1, 1989.* (7)

10.63         Amendment No. 2 to WTD Industries, Inc. Retirement
              Savings Plan and Trust adopted May 30, 1991.* (7)

10.64         Amendment No. 3 to WTD Industries, Inc. Retirement
              Savings Plan and Trust adopted June 26, 1992.* (7)

10.65         Amendment No. 4 to WTD Industries, Inc. Retirement
              Savings Plan and Trust adopted April 30, 1993.* (8)

10.66         Amendment No. 5 to WTD Industries, Inc. Retirement
              Savings Plan and Trust adopted December 28, 1994.* (10)

10.67         Amendment No. 6 to WTD Industries, Inc. Retirement
              Savings Plan and Trust adopted June 10, 1997.* (19)

10.7          Agreement dated effective as of June 10, 1997 among the
              Company, Engel, Quinault and Black. (15)

10.8          Amended and Restated Rights Agreement dated as of March
              4, 1998, between the Registrant and ChaseMellon
              Shareholder Services, as Rights Agent. (20)

10.9          Employment Agreement dated May 27, 1998 between
              Registrant and Robert J. Riecke.* ***                         85

12.2          Computation of Registrant's Net Income (Loss) to Average
              Total Assets.                                                 91

12.3          Computation of Registrant's Net Income (Loss) to Average
              Stockholders' Equity.                                         92 

12.4          Computation of Registrant's Average Stockholders' Equity
              to Average Total Assets.                                      93

21.1          Subsidiaries of the Registrant (list updated as of July
              2, 1998).                                                     94

23.1          Consent of Independent Certified Public Accountants.          95

27.1          Financial Data Schedule.**

27.2          Restated Financial Data Schedule.**

         (1)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's report on Form 8-K dated November 23, 1992.



                                 -33-
<PAGE>
         (2)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1992 previously filed with the Commission.

         (3)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1993 previously filed with the Commission.

         (4)  Incorporated  by  reference  to  exhibit  6.0 to the  Registrant's
Registration  Statement on Form S-8 (No.  33-62714) filed with the Commission on
May 14, 1993.

         (5)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  Registration  Statement on Form S-1 (No.  33-7389)  filed with the
Commission  on July 21, 1986,  as amended by Amendment  Nos. 1 through 3 thereto
filed with the Commission on September 3, 1986, October 14, 1986 and October 24,
1986, respectively.

         (6)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1989,
previously filed with the Commission.

         (7)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1992,
previously filed with the Commission.

         (8)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1993,
previously filed with the Commission.

         (9)  Incorporated  by  reference  to the  exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1994, previously filed with the Commission.

         (10)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1995, previously filed with the Commission.

         (11)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1995,
previously filed with the Commission.

         (12)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1996, previously filed with the Commission.

         (13)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1996,
previously filed with the Commission.

         (14)  Incorporated  by reference to exhibit  4.2.4 to the  Registrant's
quarterly report on Form 10-Q for the quarter ended January 31, 1997, previously
filed with the Commission.



                                 -34-
<PAGE>
         (15)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's report on Form 8-K filed with the Commission on June 12, 1997.

         (16)  Incorporated  by reference  to exhibit  99.1 to the  Registrant's
Registration  Statement on Form S-8 (No. 333-15461) filed with the Commission on
November 4, 1996.

         (17)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  October 31,
1997, previously filed with the Commission.

         (18)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  quarterly  report on Form 10-Q for the quarter  ended  January 31,
1998, previously filed with the Commission.

         (19)  Incorporated  by  reference  to the exhibit of like number to the
Registrant's  annual  report on Form  10-K for the year  ended  April 30,  1997,
previously filed with the Commission.

         (20)  Incorporated  by  reference  to exhibit  2.1 to the  Registrant's
report on Form 8-A filed with the Commission on March 20, 1998.

         *   Management contract or compensatory plan or arrangement.

         **  This schedule has been submitted  in the electronic form prescribed
             by EDGAR.

         ***  A schedule attached to this exhibit identifies all other documents
              not  required to be filed as exhibits  because  such  exhibits are
              substantially identical to this exhibit.

         Except for instruments already filed as exhibits to this Form 10-K, the
Registrant  agrees  to  furnish  the  Commission  upon  request  a copy  of each
instrument with respect to long-term debt of the Registrant and its consolidated
subsidiaries, the amount of which does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.

     (b)  Reports on Form 8-K
     ---  -------------------

         A current  report on Form 8-K,  describing  the  Amended  and  Restated
Rights Agreement between the Registrant and ChaseMellon Shareholder Services, as
Rights Agent, was filed with the Securities and Exchange Commission on March 20,
1998.









                                 -35-
<PAGE>
SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

WTD Industries, Inc.
(Registrant)



By:/s/ Robert J. Riecke
   --------------------------
Robert J. Riecke
Vice President-Administration
July 22, 1998

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated as of July 22, 1998.


/s/ Robert J. Riecke                          /s/ K. S. Martin
----------------------------------            ----------------------------------
Robert J. Riecke                              K. Stanley Martin
Vice President-Administration                 Vice President-Finance (Principal
and Director                                  Financial and Accounting Officer)
                                              and Director

/s/ John C. Stembridge                        /s/ Larry G. Black
----------------------------------            ----------------------------------
John C. Stembridge                            Larry G. Black, Director
Interim Chief Operating Officer

/s/ Scott Christie                            /s/ Richard W. Detweiler
----------------------------------            ----------------------------------
Scott Christie, Director                      Richard W. Detweiler, Director

/s/ William H. Wright
----------------------------------
William H. Wright, Director










                                 -36-
<PAGE>
[MOSS ADAMS LETTERHEAD]


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Stockholders
WTD Industries, Inc.


We have audited the accompanying  consolidated balance sheets of WTD Industries,
Inc. and  subsidiaries  (the  "Company") as of April 30, 1998 and 1997,  and the
related  consolidated  statements  of  operations,  cash  flows and  changes  in
stockholders' equity, for each of the years in the three-year period ended April
30, 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of WTD Industries, Inc.
and  subsidiaries  as of April 30, 1998 and 1997,  and the results of operations
and their cash flows for each of the years in the three-year  period ended April
30, 1998, in conformity with generally accepted accounting principles.



                                                 /s/ Moss Adams LLP
                                                 ------------------
                                                 MOSS ADAMS



Beaverton, Oregon
June 4, 1998






                                 -37-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in Thousands, Except Per-Share Amounts)




                                                      YEAR ENDED APRIL 30,
                                       ------------------------------------------------
                                           1998              1997               1996
                                       ------------      ------------      ------------
<S>                                    <C>               <C>               <C>    
NET SALES                              $   242,051       $   284,086       $   191,964

COST OF SALES                              231,303           255,068           186,514

                                       ------------      -----------       -----------
GROSS PROFIT                                10,748            29,018             5,450

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                   11,290            12,529             9,685
IMPAIRMENT CHARGES                           4,168                --                --
REORGANIZATION CREDITS                          --                --              (409)

                                       ------------      ------------      ------------
OPERATING INCOME (LOSS)                     (4,710)           16,489            (3,826)

OTHER INCOME (EXPENSE)
     Interest expense                       (4,682)           (5,029)           (5,318)
     Miscellaneous                            (394)              630               646

                                       ------------      ------------      ------------
                                            (5,076)           (4,399)           (4,672)

                                       ------------      ------------      ------------
INCOME (LOSS) BEFORE INCOME TAXES           (9,786)           12,090            (8,498)

PROVISION FOR INCOME TAXES (BENEFIT)         2,364             3,120            (2,454)

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

NET INCOME (LOSS)                          (12,150)            8,970            (6,044)

PREFERRED DIVIDENDS                          2,290             2,228             2,364

                                       ------------      ------------      ------------
NET INCOME (LOSS) APPLICABLE
  TO COMMON STOCKHOLDERS               $   (14,440)      $     6,742       $    (8,408)
                                       ============      ============      ============


NET INCOME (LOSS) PER COMMON SHARE
   - BASIC                                  ($1.30)            $0.61            ($0.76)
                                            =======            =====            =======


   - DILUTED                                ($1.30)            $0.59            ($0.76)
                                            =======            =====            =======






The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      -38-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                 (In Thousands)



                                                                        APRIL 30,
                                                             ------------------------------
                                                                 1998              1997
                                                             ------------      ------------
<S>                                                         <C>               <C>
CURRENT ASSETS                                               
   Cash and cash equivalents                                $      2,157      $      8,209
   Accounts receivable, net                                       10,464            16,830
   Inventories                                                    14,005            17,760
   Prepaid expenses                                                1,195             1,817
   Income tax refund receivable                                       --             1,145
   Deferred tax asset                                                750             1,383
   Assets held for sale                                            6,685               361
   Timber, timberlands and timber-related assets                   4,252             3,936
                                                              -----------       -----------
      Total current assets                                        39,508            51,441
                                                             
                                                             
NOTES AND ACCOUNTS RECEIVABLE                                        103               124
                                                             
TIMBER AND TIMBERLANDS                                                --               629
                                                             
PROPERTY, PLANT AND EQUIPMENT, at cost                       
   Land                                                            2,849             3,343
   Buildings and improvements                                     11,123            11,194
   Machinery and equipment                                        62,623            70,391
                                                              -----------       -----------
                                                                  76,595            84,928
                                                             
     Less accumulated depreciation                                52,378            56,557
                                                              -----------       -----------
                                                                  24,217            28,371
                                                             
   Construction in progress                                          225             4,365
                                                              -----------       -----------
                                                                  24,442            32,736
                                                             
DEFERRED TAX ASSET                                                    --               280
                                                             
OTHER ASSETS                                                       1,258             1,276
                                                              -----------       -----------
                                                             
                                                             $    65,311       $    86,486
                                                              ===========       ===========













The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>




                                      -39-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                    (In Thousands, Except Share Information)


                                                                        APRIL 30,
                                                             ------------------------------
                                                                 1998              1997
                                                             ------------      ------------
<S>                                                         <C>               <C>
CURRENT LIABILITIES
   Accounts payable                                         $      8,992      $      9,709
   Accrued expenses                                                6,568             9,644
   Timber contracts payable                                          323               246
   Current maturities of long-term debt                            8,467             2,367
                                                             ------------      ------------
      Total current liabilities                                   24,350            21,966

LONG-TERM DEBT, less current maturities                           36,868            46,086

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, 10,000,000 shares authorized
     Series A, 270,079 shares outstanding                         20,688            20,688
     Series B, 6,111 shares outstanding                              333               333
  Common stock, no par value, 40,000,000 shares authorized,
     11,154,374 issued and outstanding (11,083,474 in 1997)       28,752            28,647
  Additional paid-in capital                                          15                15
  Retained deficit                                               (45,695)          (31,249)
                                                             ------------      ------------
                                                                   4,093            18,434
                                                             ------------      ------------

                                                            $     65,311      $     86,486
                                                             ============      ============















The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>



                                      -40-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)



                                                                           YEAR ENDED APRIL 30,
                                                              --------------------------------------------

                                                                  1998             1997            1996
                                                              -----------      -----------      ----------
<S>                                                          <C>              <C>              <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
  Net income (loss)                                          $   (12,150)     $     8,970      $   (6,044)
  Adjustments to reconcile net income (loss) to
     cash provided by operating activities:
    Depreciation, depletion and amortization                       5,571            6,353           4,903
    Deferred income tax                                              913            2,837            (222)
    Impairment loss                                                4,168               --              --
    Reorganization credits                                            --               --            (409)
    Accounts receivable                                            6,366           (6,640)          1,214
    Inventories                                                    3,755           (3,869)          4,213
    Prepaid expenses                                                 622             (249)          2,456
    Timber, timberlands and timber-related assets - current         (392)           2,031           3,198
    Payables and accruals                                         (3,645)           5,399            (587)
    Income taxes                                                   1,145              990          (1,632)
                                                              -----------      -----------      ----------
     Cash provided by operating activities                         6,353           15,822           7,090
                                                              -----------      -----------      ----------

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
  Notes and accounts receivables                                      21               40             (75)
  Net reductions of  timber and timberlands                          629               50              26
  Acquisition of property, plant and equipment                    (7,807)          (7,450)         (3,904)
  Net book value of disposed idle assets                             176              376             145
  Other investing activities                                          51              142             102
                                                              -----------      -----------      ----------
     Cash used for investing activities                           (6,930)          (6,842)         (3,706)
                                                              -----------      -----------      ----------

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
  Proceeds from long-term borrowings                                  --              265              --
  Principal payments on long-term debt                            (3,190)          (3,321)         (2,379)
  Other assets                                                       (94)             (69)           (106)
  Dividends paid on preferred stock                               (2,296)          (2,228)         (2,346)
  Issuance of common stock                                           105                6              --
                                                              -----------      -----------      ----------
     Cash used for financing activities                           (5,475)          (5,347)         (4,831)
                                                              -----------      -----------      ----------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                  (6,052)           3,633          (1,447)

CASH BALANCE AT BEGINNING OF YEAR                                  8,209            4,576           6,023
                                                              -----------      -----------      ----------
CASH BALANCE AT END OF YEAR                                  $     2,157      $     8,209      $    4,576
                                                              ===========      ===========      ==========

CASH PAID (REFUNDED) DURING THE YEAR FOR:
  Interest                                                        $4,696           $4,940          $3,095
  Income taxes                                                      $305            ($711)          ($598)






The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      -41-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In Thousands)




                               SERIES A          SERIES B
                            PREFERRED STOCK   PREFERRED STOCK     COMMON STOCK                 RETAINED    STOCK
                           ----------------- ----------------- ------------------   PAID-IN    EARNINGS   HOLDERS'
                           SHARES   AMOUNT   SHARES   AMOUNT    SHARES    AMOUNT    CAPITAL    (DEFICIT)   EQUITY
                           ------ ---------- ------ ---------- ------- ---------- ---------- ---------- ----------
<S>                        <C>    <C>        <C>    <C>        <C>     <C>        <C>        <C>        <C>
Balance at April 30, 1995     270   $20,688       6      $333   11,077   $28,641        $15   ($29,601)   $20,076

Dividends paid                 --        --      --        --       --        --         --     (2,346)    (2,346)

Net loss                       --        --      --        --       --        --         --     (6,044)    (6,044)
                           ------ ---------- ------ ---------- ------- ---------- ---------- ---------- ----------
Balance at April 30, 1996     270    20,688       6       333   11,077    28,641         15    (37,991)    11,686

Stock options exercised        --        --      --        --        6         6         --         --          6

Dividends paid                 --        --      --        --       --        --         --     (2,228)    (2,228)

Net income                     --        --      --        --       --        --         --      8,970      8,970
                           ------ ---------- ------ ---------- ------- ---------- ---------- ---------- ----------
Balance at April 30, 1997     270    20,688       6       333   11,083    28,647         15    (31,249)    18,434

Stock options exercised        --        --      --        --       71       105         --         --        105

Dividends paid                 --        --      --        --       --        --         --     (2,296)    (2,296)

Net income                     --        --      --        --       --        --         --    (12,150)   (12,150)
                           ------ ---------- ------ ---------- ------- ---------- ---------- ---------- ----------
Balance at April 30, 1998     270   $20,688       6      $333   11,154   $28,752        $15   ($45,695)    $4,093
                           ====== ========== ====== ========== ======= ========== ========== ========== ==========





















The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      -42-
<PAGE>
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of consolidation and operations - The consolidated financial
statements  include the  accounts of WTD  Industries,  Inc. and its wholly owned
subsidiaries  (hereinafter "WTD" or "the Company"). All significant intercompany
accounts and transactions have been eliminated.

         The Company operates in one industry segment,  the manufacture and sale
of softwood and hardwood lumber products, wood chips and other by-products. Most
lumber  products  are sold to  distributors,  wholesalers  or  directly to large
retailers.  The  Company's  products  are used in many  applications,  including
residential and commercial construction, packaging and industrial uses.

         Lumber  market  conditions  deteriorated  during the second  quarter of
fiscal  year  1998  and  remained  weak  through  the  fourth   quarter,   after
approximately  16 months of good  conditions.  The Company  responded to certain
lumber  price  adjustments  by altering  product mix and reducing log costs when
possible. During much of the year, there was an oversupply of lumber in the U.S.
market.  This was the result of traditional  export producers  manufacturing for
the  U.S.  lumber  market  as  exports  weakened.   Additionally,   demand  from
California, a major segment of the Company's market, was lower than usual due to
the extraordinarily wet weather which delayed construction projects. In response
to the generally weak market  conditions,  the Company  curtailed  production at
selected  mills and reduced the level of  operations at various times during the
year.

         The  fiscal  year 1998  results  were such  that  management  initiated
amendments to its primary debt agreement.  This debt agreement was amended as of
October  1,  1997,  January  1, 1998 and April 1, 1998 with  respect  to certain
financial  performance  covenants.   These  amendments  follow  similar  earlier
amendments,  the most recent as of May 1, 1996.  Improved  operating  conditions
from  those in  existence  during  fiscal  year 1998 will be  necessary  for the
Company to remain in compliance with its primary debt  agreement.  See Note 5 to
Consolidated Financial Statements.

         The Company's  sales are  predominately  in the United  States;  export
sales are not material. During the year ended April 30, 1998, the Company had no
customers  that  accounted  for 10% or more of net  sales.  The  loss of any one
customer would not, in the opinion of management, have a material adverse impact
on the financial results of the Company.

         Temporary cash investments and trade  receivables  potentially  subject
the Company to  concentrations  of credit risk. The Company places its temporary
cash investments with high credit-quality financial institutions,  and by policy
limits the amount of credit exposure to any one institution. The Company reviews
a customer's  credit history before extending credit and continuously  evaluates
its accounts receivable for

                                      -43-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

collectability.  Concentrations  of credit risk on trade receivables are limited
due to the  Company's  large  number  of  customers  and  their  widely  varying
locations.  Generally, the Company does not require collateral or other security
to support its trade receivables.

         WTD has from time to time  utilized  futures  contracts  to reduce  the
Company's  exposure to adverse  movements  in the log and lumber  markets.  This
activity has not been  significant  in the past, and the Company had no material
futures position at April 30, 1998.

         Cash and cash  equivalents - Financial  instruments  with a maturity of
three months or less are considered to be cash equivalents.

         Accounts  receivable  - Trade  accounts  receivable  are  shown  net of
allowances for doubtful accounts and discounts of $128,000 and $195,000 at April
30, 1998 and 1997, respectively.

         Inventories  -  Inventories  are valued at the lower of cost or market.
Cost is  determined  using  the  average  cost and  first-in,  first-out  (FIFO)
methods. A summary of inventory by principal product  classification follows (in
thousands):

                                             APRIL 30,
                                      ----------------------
                                         1998         1997
                                      ---------   ----------
         Logs                         $   3,791   $    9,054
         Lumber                           8,635        7,379
         Supplies and other               1,579        1,327
                                      ---------   ----------

                                      $  14,005   $   17,760
                                      =========   ==========

         At April 30, 1998 and 1997, $642,000 and $179,000, respectively, of log
inventory  was valued at market,  which  approximated  cost.  At April 30, 1998,
$7,787,000  of lumber  inventory  was  valued at  market,  which  represented  a
$1,272,000  reduction  from  cost.  At April  30,  1997,  $2,667,000  of  lumber
inventory was valued at market,  which  represented a reduction of $297,000 from
cost.

         Property,  plant and  equipment - Property,  plant and equipment of the
Company's  facilities are stated at cost. For financial reporting purposes,  the
Company uses the units-of-production  method for computing depreciation over the
estimated useful lives of assets, ranging from ten to thirty years for buildings
and  improvements,  and three to ten years for  machinery  and  equipment.  When
assets  are  retired or  disposed  of,  cost and  accumulated  depreciation  are
reversed  from the  related  accounts  and any gain or loss is  included  in the
consolidated statement of operations.

         Timber and timberlands - Timber and timberlands are stated at the lower
of aggregate cost or estimated disposal value, less the amortized cost of timber
harvested.  The portion of the cost  attributable  to standing timber is charged
against income as timber

                                      -44-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

is cut,  at rates  determined  periodically  based on the  relationship  between
unamortized  timber value and the estimated  volume of recoverable  timber.  The
costs of roads and land  improvements  are  capitalized and amortized over their
economic lives.  The carrying costs of timber,  timberlands  and  timber-related
assets  are   expensed  as   incurred.   The  Company   classifies   timber  and
timber-related  assets as current or long-term  based upon expected  harvest and
disposal plans.

         Timber-cutting  contracts - The Company  purchases timber under various
types of contracts.  Certain  contracts,  for which the total  purchase price is
fixed,  are  recorded  as assets  along with the related  liability  at the date
acquired. The remaining contracts, for which the total purchase price depends on
the volume of timber  removed,  are  considered  to be  commitments  and are not
recorded  until the timber is  removed.  See Note 10 to  Consolidated  Financial
Statements.

         Income taxes - Income taxes are provided for  transactions  in the year
in which they are  reflected in  earnings,  even though they may be reported for
tax purposes in a different year. The resulting difference between taxes charged
to operations and taxes paid is reported as deferred  income taxes.  Tax credits
are recognized in the year utilized,  using the flow-through  method. See Note 6
to Consolidated Financial Statements.

         Accrued  expenses - The  following  is a summary of the  components  of
accrued expenses (in thousands):

                                             APRIL 30,
                                      ----------------------
                                         1998         1997
                                      ---------   ----------

         Payroll and related items    $   4,145   $    5,226
         Freight payable                    934        1,622
         Other                            1,489        2,796
                                      ---------   -----------

                                      $   6,568   $    9,644
                                      =========   ==========

         Reserves  for  self-insurance  -  workers'  compensation  -  Under  its
self-insurance  plan,  the  Company  accrues  the  estimated  cost  of  workers'
compensation  claims  based on prior  years'  open  claims.  An  accrual of $1.6
million and $2.3  million is included in the  accompanying  fiscal year 1998 and
1997 financial  statements,  respectively.  Payments based on actual fiscal year
1998 claims ultimately filed could differ materially from these statements.

         Use of  estimates - The  preparation  of the  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying  notes.  Actual results could differ  materially
from those estimates.


                                      -45-
<PAGE>
NOTE  2 - IMPAIRMENT  CHARGES

         The  Company  has  classified  certain  property,  plant and  equipment
related to two facilities as Assets Held for Sale. In accordance  with Statement
of Financial  Accounting  Standards No. 121,  "Accounting  for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  of," the Company
recorded an  impairment  loss  associated  with these two mills.  The  resulting
adjustment  of  approximately  $4.2  million  to reduce  the book value of these
assets was  recorded in the fourth  quarter  ended April 30,  1998.  The Company
considers  continued  operating losses and significant and long-term  changes in
industry  conditions to be its primary  indicators of potential  impairment.  An
impairment  was  recognized  when the  future  undiscounted  cash  flows of each
facility were  estimated to be  insufficient  to recover their related  carrying
values.  As such,  the carrying  values of these assets were written down to the
Company's  estimates  of fair value.  Fair value was based on current  appraisal
values,  or other estimates of fair value such as discounted  future cash flows.
Accordingly,  actual results could vary  significantly  from such estimates.  At
April 30, 1998,  these assets have a remaining  carrying amount of $6.5 million.
The  Company  intends  to  operate  one  of  these   facilities  while  pursuing
alternatives for its sale. The other facility has been shut down and the Company
intends to sell it. Together,  these two facilities  recorded net sales of $24.8
million,  $36.9 million, and $22.6 million, and contributed net operating losses
of $3.1  million,  $.1  million,  and $2.4 million for the years ended April 30,
1998,  1997,  and 1996,  respectively,  excluding the  impairment  charge in the
fourth quarter of fiscal 1998.

         The  Company  continually   considers  market  conditions  and  changes
occurring  in the  forest  products  industry  to  evaluate  the  status  of its
individual  mill  facilities,   and  management   believes  that  all  necessary
impairment  adjustments  have been made at April 30,  1998.  However,  given the
volatility  of the market  over the past nine  months  and the  losses  incurred
during that  fiscal  period,  management  will  continue to evaluate  impairment
issues.

















                                      -46-
<PAGE>
NOTE 3 - NET INCOME (LOSS) PER  SHARE

         This computation is based on net income (loss) less preferred dividends
for the period, divided by the weighted average number of shares of Common Stock
and  equivalents  assumed to be  outstanding  during the  period.  Anti-dilutive
common  stock  equivalents  consisting  of certain  employee  stock  options and
certain convertible preferred stock, are excluded from the calculation.

         The  calculations  of net income  (loss) per share for the years  ended
April  30,  1998,  1997 and 1996 are  summarized  below  (in  thousands,  except
per-share data):
<TABLE>
<CAPTION>
                                                                      Year Ended April 30,
                                                        ------------------------------------------
                                                            1998           1997            1996
                                                        -------------  ------------  -------------
<S>                                                     <C>            <C>           <C>
Net income (loss)                                       $    (12,150)  $     8,970   $     (6,044)
Preferred dividends                                            2,290         2,228          2,364
                                                        -------------  ------------  -------------

Net income (loss) applicable to common shareholders     $    (14,440)  $     6,742   $     (8,408)
                                                        =============  ============  =============

Weighted average shares outstanding
         - Basic                                              11,130        11,078         11,077

Additional shares assumed from:
         - Conversion of Series B preferred stock                --            213            --
         - Exercise of stock options                             --             94            --
                                                        -------------  ------------  -------------

Average number of shares and equivalents outstanding
         - Diluted                                            11,130        11,385         11,077
                                                        =============  ============  =============


Net income (loss) per common share
         - Basic                                        $      (1.30)  $       0.61   $      (0.76)
                                                        =============  =============  =============

         - Diluted                                      $      (1.30)  $       0.59   $      (0.76)
                                                        =============  =============  =============

         Earnings  (loss) per share have been  recomputed  and  restated for the
effects of implementing  Statement of Financial  Accounting Standard Number 128,
"Earnings per Share" as of December 31, 1997.
</TABLE>








                                      -47-
<PAGE>
NOTE 4 - TIMBER, TIMBERLANDS AND TIMBER-RELATED ASSETS

         The following  summarizes  the  components of timber,  timberlands  and
timber-related assets (in thousands):

                                                               APRIL 30,
                                                       ------------------------
                                                          1998          1997
                                                       ----------    ----------

         Timber held under contract                    $    1,270    $    1,164
         Timber, timberlands and timber deposits            2,754         2,531
         Logging roads (at amortized cost)                    228           241
                                                       ----------    ----------

                                                       $    4,252    $    3,936
                                                       ==========    ==========

         Timber and timberlands, long-term             $        0    $      629
                                                       ==========    ==========

         Timber held under contract is comprised of various public and
private  timber  contracts  representing  approximately  10.0 million board feet
(MMBF)  at  April  30,  1998  and  10.9  MMBF at  April  30,  1997.  Outstanding
obligations  relating  to these  contracts  at April  30,  1998 and  1997,  were
$323,000 and $246,000, respectively.


























                                      -48-
<PAGE>
NOTE 5 - LONG-TERM DEBT

         Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
                                                                                  APRIL 30,
                                                                          -----------------------
                                                                             1998          1997
                                                                          ----------    ----------
            <S>                                                          <C>           <C>

            Senior  secured debt,  bearing  interest at 10%;  principal
            payable in quarterly  installments of $225 through December
            15,  1997  then  quarterly  installments  of  $400  through
            December 15, 1998,  then quarterly  installments  of $1,000
            beginning  March 15, 1999,  and a final payment in December
            2004; secured by substantially all assets of the
            Company.                                                      $  43,744     $  46,630

            Secured notes, interest at 9% and 10%; payable on
            various dates; secured by various assets.                           373           388

            Priority notes, balance payable in fiscal 1998, plus interest
            at 8.3%; senior to all other unsecured obligations.                 --             17

            Unsecured  senior  subordinated  notes,  net of discount of
            $305  ($329  at  April  30,  1997);  8%  coupon,  effective
            interest rate of 13.3%;  semi-annual  interest payments due
            each June 30 and December 31; principal due in full June
            30, 2005.                                                           967           943

            Other  unsecured debt, net of discount of $20 ($66 at April
            30, 1997);  payable in equal annual  installments  of $270;
            non-interest bearing; effective interest rate of 12.3%.             251           475
                                                                          ----------    ----------

                                                                             45,335        48,453

            Less current maturities                                          (8,467)       (2,367)
                                                                          ----------    ----------

                                                                          $  36,868     $  46,086
                                                                          ==========    ==========
</TABLE>

         The Company has classified $6 million of debt as current related to the
assets  held  for  sale as  described  in Note 2.  The  Company's  primary  debt
agreement calls for proceeds  received from the sale of facilities to be used to
pay down long-term debt.

         The  Company's  primary  debt  agreement  includes  certain  covenants,
including the maintenance of specified levels of adjusted  cumulative  operating
income (as defined),  tangible net worth,  working  capital,  total  liabilities
ratio (as defined),  and collateral  coverage (as defined).  This agreement also
imposes  certain   restrictions   and   limitations  on  capital   expenditures,
investments,   dividend  payments,  new  indebtedness,   and  transactions  with
officers,  directors,  stockholders and affiliates. This debt agreement was most
recently  amended as of April 1,  1998,  with  respect  to  certain  affirmative
financial performance covenants.



                                      -49-
<PAGE>
NOTE 5 - LONG-TERM DEBT  (Continued)

         At April 30, 1998 the  Company's  tangible net worth was $3.9  million,
compared to a negative $1.0 million required by the covenant. At that same date,
the  Company's  working  capital was $15.2  million,  compared  to $9.0  million
required by the  covenant.  Also,  at April 30,  1998,  the  Company's  adjusted
cumulative  operating  income  was  $34.1  million,  compared  to $27.5  million
required. The collateral coverage ratio at April 30, 1998 was 66.3%, compared to
a 50% minimum required level. The total liabilities ratio was 93.7% at April 30,
1998,  compared to a maximum allowed of 105%. The required level of tangible net
worth increases to $0 on January 1, 1999, $2.0 million at July 1, 1999, and $4.0
million at July 1, 2000.  The  required  level of working  capital  increases to
$11.5  million at July 1, 1999,  $14.0 million at July 1, 2000 and $16.5 million
at July 1, 2002.  The required  level of adjusted  cumulative  operating  income
increases to $30.0 million at August 1, 1998, $34.0 million at November 1, 1998,
$37.5  million at July 1, 1999,  $42.5 million at July 1, 2000 and $47.5 million
at July 1, 2001. The minimum required collateral coverage ratio increases to 63%
at July 1, 1999. The maximum  allowed total  liabilities  ratio drops to 100% on
August 1, 1998,  95% at July 1, 1999,  and 85% at July 1, 2000.  During the year
ended  April 30,  1998,  the  Company's  adjusted  cumulative  operating  income
decreased by $2.7 while showing a loss before taxes of $9.8 million. The Company
continues to be in compliance with all covenants contained in this agreement.

         In accordance  with the Company's  primary debt  agreement,  additional
prepayments are required if the Company's  cumulative  operating  income exceeds
certain  specified  amounts.  No such  prepayment  will be required for the year
ended April 30, 1998. In connection with the May 1, 1996 amendment,  the Company
agreed to an  additional  prepayment  computed at 30% of  quarterly  net income.
Payments  made during the year ended April 30, 1998  pursuant to this  provision
totaled $1.6 million.

         Future minimum  repayments,  including  anticipated payment of proceeds
from  production  facility  sales but exclusive of any mandatory  prepayments if
certain earnings thresholds are reached, under the terms of all of the Company's
debt are as follows (in thousands):

         Fiscal year ending April 30, 1999         $     8,467
         Fiscal year ending April 30, 2000               4,017
         Fiscal year ending April 30, 2001               4,017
         Fiscal year ending April 30, 2002               4,229
         Fiscal year ending April 30, 2003               4,094
         Thereafter                                     20,511
                                                        ------
                                                   $    45,335







                                      -50-
<PAGE>
NOTE 6 - PROVISION FOR INCOME TAXES

         The federal and state income tax  provision  consists of the  following
(in thousands):
<TABLE>
<CAPTION>
                                                          Year Ended April 30,
                                           ------------------------------------------------
                                                1998             1997             1996
                                           --------------   --------------   --------------
<S>                                        <C>              <C>              <C>         
Income (loss) before income taxes          $    (9,786)     $    12,090      $    (8,498)
                                           ==============   ==============   ==============

Provision for income taxes (benefit):
    Federal                                $     2,115      $     2,636      $    (2,114)
    State                                          249              484             (340)
                                           --------------   --------------   --------------

                                           $     2,364      $      3,120     $    (2,454)
                                           ==============   ==============   ==============

    Current                                $     1,451      $       283      $    (2,232)
    Deferred                                       913            2,837             (222)
                                           --------------   --------------   --------------

                                           $     2,364      $     3,120      $    (2,454)
                                           ==============   ==============   ==============
</TABLE>

         The  difference  between the actual income tax provision  (benefit) and
the tax provision  (benefit) computed by applying the statutory federal tax rate
to income (loss) before taxes is attributable to the following (in thousands):
<TABLE>
<CAPTION>
                                                                   Year Ended April 30,
                                                ----------------------------------------------------------
                                                       1998                1997                1996
                                                ------------------  ------------------  ------------------
                                                  Amount      %       Amount      %       Amount      %
                                                ---------  -------  ---------  -------  ---------  -------
<S>                                             <C>        <C>      <C>        <C>      <C>        <C>
Federal statutory income tax
   provision (benefit)                          $ (3,327)    (34%)  $  4,111      34%    $(2,889)    (34%)

State statutory income tax
   provision (benefit)                              (391)     (4)        484       4        (340)     (4)

Change in valuation allowance for
   deferred tax assets                             7,282      74        (414)     (3)        (32)     --

Carryback (establishment) of
   net operating losses (NOL) in  years
   with rates different than statutory rates      (1,200)    (12)      (1,061)    (9)        807       9
                                                ---------  -------  ---------  -------  ---------  -------

Actual income tax provision (benefit)           $  2,364      24%    $  3,120     26%   $ (2,454)    (29%)
                                                ===========================================================

</TABLE>






                                      -51-
<PAGE>
NOTE 6 - PROVISION FOR INCOME TAXES (Continued)         

         At April 30, 1998 and 1997,  deferred tax assets and  liabilities  were
comprised of the following (in thousands):

                                                        Year Ended April 30,
                                                   ----------------------------
                                                        1998             1997
                                                   ------------    ------------
Deferred tax assets:
    Vacation accruals                              $       248     $       265
    Insurance accruals                                     860             901
    Professional fee amortization and accruals             113             114
    Asset impairments not deductible for tax
           until realized                                1,584              --
    Tax benefit of NOL carryforward and
           tax credits carryforward                      9,862           5,032
    Bad debts,  discounts and other                         73             103
                                                   ------------    ------------
                                                        12,740           6,415

Deferred tax liabilities:
    Depreciation and capitalization differences
           between financial and tax accounting         (2,846)         (3,020)
    Professional fee amortization and accruals             711             812
    Other                                                  (73)            (44)
                                                   ------------    ------------
                                                        (2,208)         (2,252)
                                                   ------------    ------------

Net deferred tax assets                                 10,532           4,163

Valuation allowance                                     (9,782)         (2,500)
                                                   ------------    ------------

Net deferred tax asset reported                    $       750     $      1,663
                                                   ============    ============

         During the current year, the Company has sustained significant
operating losses.  Because of the difficult operating environment and the likely
delayed or decreased use of the Company's  deferred tax assets to shelter future
income,   management   has  increased  the   Company's   valuation   reserve  to
approximately $9.8 million,  resulting in a charge of $7.3 million in additional
income tax expense in the year ended  April 30,  1998.  Management  periodically
reviews the above  factors and may change the amount of  valuation  allowance as
facts and circumstances dictate.

         In the quarter ended April 30, 1996, the Company,  utilizing  available
ten-year  carryback  provisions of the Internal  Revenue Code,  carried back its
fiscal  year 1995 loss to prior  years and also  amended  and  carried  back its
fiscal year 1993 tax return loss to fiscal year 1987. These carrybacks  resulted
in the Company  recording an income tax refund  receivable of $2.1 million as of
April 30,  1996,  and  reducing  the  available  NOL at April  30,  1996 by $7.9
million. As of April 30, 1997, the Company had received $1.1 million of this tax
refund receivable.




                                      -52-
<PAGE>
NOTE 6 - PROVISION FOR INCOME TAXES (Continued)

         During the current  year,  the Company was notified  that these amended
tax  returns and  carryback  claims were under  review by the  Internal  Revenue
Service  (IRS).  During the  examination,  the IRS and the  Company  settled the
amount of the claims to  approximately  $1  million.  This has  resulted  in the
Company  removing the remaining  receivable from the books as additional  income
tax  expense  during the  current  year.  As part of the IRS's  settlement  of a
portion of the claim, approximately $4.6 million of NOL that had been previously
utilized in the amended tax returns and carryback  claims  became  available for
future  carryforward  to offset future taxable income.  The Company's  remaining
adjusted NOL at April 30, 1998 is  approximately  $22 million for federal income
tax and $20 million for state income tax purposes. These carryforwards expire in
2007 and 2012.

NOTE 7 - STOCKHOLDERS' EQUITY

Stockholders' equity at April 30, 1998 consists of the following:

         Series A  preferred  stock,  $100  per  share  liquidation  preference;
500,000 shares authorized; 270,079 shares issued and outstanding, limited voting
rights;  cumulative  dividends  payable  quarterly in advance at the prime rate,
with a minimum  rate of 6% and a maximum  rate of 9%;  convertible  into  Common
Stock at $7.50 per share  after April 30,  1999;  redeemable  at original  issue
price plus any accrued dividends at the option of the Board of Directors, in the
form of cash or in  exchange  for senior  unsecured  debt with 12%  coupon.  The
holders of the Series A preferred  stock will be granted  voting  control of the
Company's  Board of Directors in the event the Company misses three  consecutive
quarterly dividend payments, four quarterly dividend payments within twenty-four
months or a total of eight  quarterly  dividend  payments.  The  Company has not
missed any dividend payments on the Series A preferred stock.

         Series B  preferred  stock,  $100  per  share  liquidation  preference;
500,000 shares authorized;  6,111 shares issued and outstanding;  limited voting
rights;  convertible into 212,693 shares of Common Stock; dividends payable only
if paid on the Company's  Common Stock;  redeemable at original issue price plus
accrued  dividends  at the option of the Board of  Directors  after all Series A
preferred stock has been redeemed.

         Series  C  junior   participating   preferred  stock,  $100  per  share
liquidation  preference;   400,000  shares  authorized;   no  shares  issued  or
outstanding;  each share has 100  votes,  voting  together  with  Common  Stock;
dividends  payable only if paid on the  Company's  Common Stock at 100 times the
Common Stock  dividend  rate.  This class of preferred  stock was  authorized in
connection with the  shareholder  rights plan adopted by the Company on March 4,
1998.

         Common Stock, no par value;  40,000,000 shares  authorized;  11,154,374
shares issued and outstanding  (11,083,474 as of April 30, 1997).  Before giving
effect to any shares that might be issued  pursuant to the management  incentive
stock option


                                      -53-
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)

plan or conversion of any Series A preferred  stock,  the total number of common
shares would increase to 11,367,067 shares if the remaining outstanding Series B
preferred stock is converted to Common Stock.

         On March 4, 1998, the Board of Directors  adopted a Shareholder  Rights
Plan (Plan).  Under the Plan, the Board declared a distribution of one Preferred
Share Purchase Right (Right) for each  outstanding  common share of the Company.
The  distribution  was payable on March 4, 1998 to the shareholders of record on
that day.  The Rights  are  attached  to,  and  automatically  trade  with,  the
outstanding shares of the Company's common stock.

         The  rights  will  become  exercisable  in the event that any person or
group of  affiliated  persons  becomes a holder of 15% or more of the  Company's
outstanding common shares or any person or group of affiliated  persons,  at the
date of the  Rights  Agreement,  beneficially  owning  15% or  more of the  then
outstanding  common shares has acquired  beneficial  ownership of 31% or more of
the outstanding  common shares. In addition,  the rights will become exercisable
in the  event of the  commencement  of a tender  or  exchange  offer  which,  if
consummated,  would result in that person or group of affiliated persons meeting
the above  listed  requirements  as to ownership  of the  Company's  outstanding
common  shares.  Once the  rights  become  exercisable  they  entitle  all other
shareholders  to  purchase,   by  payment  of  a  $7.50  exercise   price,   one
one-hundredth  of a share  of  Series C Junior  Participating  Preferred  Stock,
subject  to  adjustment.  In  addition,  at any time  after the above  mentioned
criteria have been met and prior to the acquisition of a 50% position, the Board
of Directors  may require,  in whole or in part,  each  outstanding  Right to be
exchanged  for one  share of  common  stock or one  one-hundredth  of a share of
Series C Junior Participating  Preferred Stock. In general, none of the benefits
of the Rights  will be  available  to a holder of the common  stock  meeting the
above mentioned  criteria.  The Rights may be redeemed by the Company at a price
of $0.01 per Right at any time prior to their expiration of March 4, 2008.

NOTE 8 - REORGANIZATION CHARGES (CREDITS)

         In fiscal 1993, the Company reorganized under Chapter 11 of the Federal
Bankruptcy Code. In conjunction with the  restructuring,  management reduced the
value of assets  associated  with  certain  facilities  to their  estimated  net
realizable  value and established  certain  reserves for expenses related to the
cost of holding and  disposing  of such  facilities.  In fiscal  year 1996,  the
reorganization  credits  related  to the  Company's  sale  of  idle  assets  and
settlement of obligations at amounts which varied from their original estimates.
In fiscal  years  1997 and 1998,  no  reorganization  credits  or  charges  were
recognized.





                                      -54-
<PAGE>
NOTE 9 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS

         Effective  December  30,  1992,  the  Company's  1986 Stock Option Plan
("Option  Plan") was amended and restated,  and new options were  granted.  This
Option Plan  terminated  on July 11, 1996. At the  Company's  Annual  Meeting of
Shareholders  held on October 21, 1996, the  stockholders  approved a 1996 Stock
Option Plan ("1996 Option Plan").  Non-qualified stock options may be granted to
directors,  independent contractors,  consultants and employees to acquire up to
525,000 shares of Common Stock.  Options may be granted for a term not to exceed
10 years and are not transferable  other than by will or the laws of descent and
distribution.  The 1996 Option Plan provides for incremental  vesting based upon
the optionee's  period of service with the Company,  and is  administered by the
Board of Directors.  Stock options  outstanding at April 30, 1998, 1997 and 1996
related only to employees and directors.
                                                           Stock Options  
                                                      -----------------------
                                                                    Weighted
                                                                     Average
                                                       Number of    Exercise 
                                                         Shares      Price
                                                      -----------  ----------
         Shares under option at April 30, 1996           741,600      $1.92


               Options granted                           453,000       1.51


               Options exercised                          (6,400)      0.96


               Options canceled                          (23,600)      3.00
                                                      -----------


         Shares under option at April 30, 1997         1,164,600       1.74


               Options exercised                         (70,900)      1.48


               Options canceled                          (28,400)      2.04
                                                      -----------


         Shares under option at April 30, 1998         1,065,300      $1.75
                                                      ===========


         Shares exercisable at April 30, 1998            822,790      $1.82
                                                      ===========


         Exercise  prices for  options  outstanding  as of April 30, 1998 ranged
from $.95625 to $3.00. The weighted average remaining  contractual life of those
options is 6.5 years.





                                      -55-
<PAGE>
NOTE 9 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (Continued)
<TABLE>
<CAPTION>
                     Employee Options Outstanding                        Options Exercisable
  ---------------------------------------------------------------  ------------------------------
                                     Weighted-Avg  
                         Number        Remaining                       Number
     Range of        Outstanding at   Contractual  Weighted-Avg    Exercisable at  Weighted-Avg
  Exercise Prices       4/30/98          Life      Exercise Price      4/30/98     Exercise Price
  -----------------  --------------  ------------  --------------  --------------  --------------
<S>                  <C>             <C>           <C>             <C>             <C> 
      $0.95625              56,200        4.7         $0.95625          56,200        $0.95625
       1.50000             378,850        4.9          1.50000         370,100         1.50000
       1.51500             434,600        8.5          1.51500         200,840         1.51500
       3.00000             195,650        5.4          3.00000         195,650         3.00000
                      ------------                                  ------------

  $.95625 - $3.00        1,065,300        6.5          1.75292         822,790        $1.82320
                      ============                                  ============
</TABLE>

         Options for 90,400  shares remain  available  for grant.  These options
will have an exercise  price of an amount per share  determined by the Company's
Board of Directors, but not less than 85 percent of the fair market value of the
Company's Common Stock on the date of grant.

         The Company maintains a weekly discretionary bonus program for its mill
workers based on the performance of each production  shift at individual  mills.
The bonus  program for mill workers is designed to reward  productivity,  safety
and regular attendance. This bonus program is open-ended but designed to attract
good  production  workers by giving  them the  reasonable  opportunity  to reach
high-end pay levels for similar work in the  industry  when average  bonuses are
added to base wages. It is also designed so that manufacturing  labor costs, per
unit of lumber produced, go down as the average bonus level goes up.

         The Company also has a monthly profit sharing  discretionary bonus plan
for all  levels of  salaried  employees,  based  upon  pre-tax  profits  at each
operating  unit.  This bonus program,  which  automatically  moves the Company's
total  general  and  administrative  expense  up or  down in  cyclical  earnings
periods,  is  vital to the  Company's  ability  to  attract  desirable  salaried
employees  at lower than  industry  average  rates and to retain such  employees
through cyclical down earnings periods.

         The  following  summarizes  the amounts paid  pursuant to the Company's
bonus programs (in thousands):

                                            Year Ended April 30,
                                       ----------------------------
                                         1998      1997      1996
                                       --------  --------  --------
         Hourly employee bonus         $  5,200  $  4,700  $  3,800
         Salaried employee bonus          1,200     3,600       700
                                       --------  --------  --------
                                       $  6,400  $  8,300  $  4,500
                                       ========  ========  ========


         The Company maintains a 401(k) Retirement Savings Plan. Under the plan,
eligible participants may contribute 2 to 20 percent of their compensation.  The
Company   matches    contributions    of   employees    participating   in   the
Production/Safety/Attendance  Bonus  program on a monthly  basis in an amount as
determined from time to time by the Board of Directors.  Salaried  employees are
not generally entitled to matching


                                      -56-
<PAGE>
NOTE 9 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (Continued)

contributions. During the years ended April 30, 1998, 1997 and 1996, the Company
incurred  expenses  for  matching   contributions  and  plan  administration  of
$289,000;  $235,000; and $214,000;  respectively.  Company contributions to this
plan are funded on a current basis.

NOTE 10 -  COMMITMENTS AND CONTINGENCIES

         (a) Timber  commitments - At April 30, 1998,  the Company had contracts
to purchase  approximately  22.6 MMBF of timber from the Oregon State Department
of Forestry and others for an estimated  stumpage cost of  $5,812,000.  Deposits
were made on these  contracts and additional  payments are required as timber is
removed.  Because of the volatility of product prices,  the long-term  nature of
these contracts and the options of selling logs, or processing them into lumber,
it is not possible to estimate  potential losses, if any, that might be incurred
under these  contracts at April 30, 1998. The expiration  dates of the contracts
are as follows:

                                      Footage         Stumpage
         Year Ending April 30,          MMBF            Cost
         ---------------------        -------      --------------
                 1999                   6.6        $    1,569,000
                 2000                   3.4               751,000
                 2001                  12.6             3,492,000
                                       ----        --------------

                                       22.6        $    5,812,000
                                       ====        ==============

         (b) Leases - At April 30, 1998,  the Company had future  minimum rental
commitments  for  operating  leases  as  follows:  1999  -  $1,397,000;  2000  -
$1,170,000;  2001 - $1,096,000;  2002 - $517,000; 2003 - $351,000;  thereafter -
$108,000.

         Total  rental  expense for all leases was  $1,348,000,  $1,136,000  and
$1,124,000  for the years ended  April 30,  1998,  1997 and 1996,  respectively.
Actual rental expense  includes  short-term  rentals and leases shorter than one
year, which are not included in the commitments.

         (c)  Litigation  -  The  Company  is  involved  in  certain  litigation
primarily  arising  in the  normal  course of its  business.  In the  opinion of
management,  the Company's liability, if any, under such pending litigation will
not have a material impact upon the Company's  consolidated  financial condition
or results of operations.

         (d)  Environmental  compliance  - The  Company  is  subject  to various
federal,  state and local  regulations  regarding  waste  disposal and pollution
control.  Various  governmental  agencies  have  enacted,  or  are  considering,
regulations  regarding log yard  management  and disposal of log yard waste that
may require material  expenditures in the future.  Management  believes that the
Company will be able to comply with any final regulations in this area without a
material  adverse impact on its consolidated  financial  condition or results of
operations.


                                      -57-
<PAGE>
NOTE 10 - COMMITMENTS  AND  CONTINGENCIES  (Continued)

         (e) Year 2000  compliance  - The Company is  conducting a review of its
computer and other systems to identify those areas that could be affected by the
"Year 2000" issue and is developing an implementation plan to resolve the issue.
The Company  presently  believes,  with  modification  to existing  software and
converting  to new  software and  hardware,  the Year 2000 problem will not pose
significant  operational  problems and is not  anticipated to be material to its
financial position or results of operations in any given year.

NOTE 11 -  UNAUDITED QUARTERLY FINANCIAL INFORMATION

         The following quarterly  information for the years ended April 30, 1998
and 1997 is unaudited,  but includes all  adjustments  (which  consist of normal
recurring   adjustments)  which  management   considers  necessary  for  a  fair
presentation of such information (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
                                                     YEAR ENDED APRIL 30, 1998
                                 ---------------------------------------------------------------
                                                         QUARTER
                                 --------------------------------------------------
                                    FIRST       SECOND       THIRD         FOURTH        TOTAL
                                 -----------  -----------  -----------  -----------  -----------
<S>                              <C>          <C>          <C>          <C>          <C>       
Net sales                        $   68,881   $   67,387   $   55,951   $   49,832   $  242,051

Gross profit (loss)              $    7,040   $    3,533   $   (1,007)  $    1,182   $   10,748

Net Income (loss)                $    1,944   $     (198)  $   (3,645)  $  (10,251)  $  (12,150)

Net income (loss) per diluted
     common share                $     0.12   $    (0.07)  $    (0.38)  $    (0.97)  $    (1.30)


                                                     YEAR ENDED APRIL 30, 1997
                                 ---------------------------------------------------------------
                                                         QUARTER
                                 --------------------------------------------------
                                    FIRST       SECOND       THIRD         FOURTH        TOTAL
                                 -----------  -----------  -----------  -----------  -----------
Net sales                        $   66,973   $   79,206   $   64,469   $   73,438   $  284,086

Gross profit                     $    7,662   $    9,454   $    4,487   $    7,415   $   29,018

Net Income                       $    2,094   $    3,001   $      449   $    3,426   $    8,970

Net income (loss) per diluted
     common share                $     0.14   $     0.21   $    (0.01)  $     0.25   $     0.59
</TABLE>

         Earnings  (loss) per share have been  recomputed  and  restated for the
effects of implementing  Statement of Financial  Accounting Standard Number 128,
"Earnings per Share" as of December 31, 1997.



                                      -58-
<PAGE>
NOTE 12 - VALUATION AND QUALIFYING RESERVES

         The  following  table  summarized  the  activity  associated  with  the
Company's  allowance  for doubtful  accounts and allowance for discounts for the
years ended April 30, 1998, 1997 and 1996 (in thousands):

Allowance for doubtful accounts -
           deducted from accounts receivable in the
           balance sheet
                                                  Year Ended April 30,
                                           -------------------------------
                                             1998        1997        1996
                                           -------     -------     -------

Balance at beginning of year               $   49      $   24      $  115

Charged (credited) to costs and expenses        5          29         (82)

Deductions (1)                                (15)         (4)         (9)
                                           -------     -------     -------

Balance at end of year                     $   39      $   49      $   24
                                           =======     =======     =======



Allowance for discounts -
           deducted from accounts receivable in the
           balance sheet
                                                  Year Ended April 30,
                                           -------------------------------
                                             1998        1997        1996
                                           -------     -------     -------

Balance at beginning of year               $  146      $   88      $   84

Charged to costs and expenses               2,296       2,696       1,688

Deductions (2)                             (2,353)     (2,638)     (1,684)
                                           -------     -------     -------

Balance at end of year                     $   89      $  146      $   88
                                           =======     =======     =======



(1) Uncollected receivables written off, net of recoveries.
(2) Discounts taken by customers.








                                      -59-
<PAGE>
                                                                     Exhibit 3.1
                    FOURTH RESTATED ARTICLES OF INCORPORATION
                                       OF
                              WTD INDUSTRIES, INC.

         These Fourth Restated Articles of Incorporation of WTD Industries, Inc.
are adopted  pursuant to the Oregon  Business  Corporation Act and supersede any
previous Articles of Incorporation or amendments thereto.

                                 ARTICLE 1. NAME

         The name of the corporation is WTD Industries, Inc.

                               ARTICLE 2. DURATION

         The period of the corporation's duration shall be perpetual.

                         ARTICLE 3. PURPOSES AND POWERS

         The purpose for which the  corporation is organized is to engage in any
business,  trade or activity  which may  lawfully be  conducted  by  corporation
organized under the Oregon Business Corporation Act.

         The corporation  shall have the authority to engage in any and all such
activities as are  incidental or conducive to the  attainment of the purposes of
the corporation and to exercise any and all powers authorized or permitted under
any  laws  that  may  be  now  or  hereafter  applicable  or  available  to  the
corporation.

                                ARTICLE 4. SHARES

4.1      Authorized Capital.

         The  corporation  is  authorized  to issue two  classes  of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares of stock which the corporation  shall have authority to issue shall be
fifty million  (50,000,000),  consisting of forty million (40,000,000) shares of
Common  Stock,  having no par  value,  and ten  million  (10,000,000)  shares of
Preferred Stock, having no par value.

4.2      Common Stock.

         Subject to any  preferential  or other rights  granted to any series of
Preferred  Stock, the holders of shares of the Common Stock shall be entitled to
receive dividends out of funds of the corporation legally available therefor, at
the rate and at the time or times as may be provided  by the Board of  Directors
and shall be entitled to receive  distributions  legally payable to shareholders
on  the  liquidation  of  the  corporation.  Unless  otherwise  provided  by the
corporation's  articles  of  incorporation  or  by  the  corporation's  Plan  of
Reorganization  (together with the documents  attached as Exhibits thereto,  the
"Plan"), as

                                      -60-
<PAGE>
approved by order of the United States Bankruptcy Court for the Western District
of Washington,  the holders of shares of Common Stock,  on the basis of one vote
per share, shall have the right to vote for the election of members of the Board
of  Directors  of the  corporation  and the right to vote on all other  matters,
except where a separate class or series of the  corporation's  shareholders vote
by class or series.

4.3      Preferred Stock.

         4.3.1        Issuance of Preferred Stock in Series.

         The Preferred  Stock  authorized by these Fourth  Restated  Articles of
Incorporation  shall be issued  from time to time in  series.  The  initial  two
series of Preferred  Stock shall be  designated  "Series A Preferred  Stock" and
"Series B Preferred Stock." The rights,  preferences,  privileges,  restrictions
granted to and  imposed on the Series A  Preferred  Stock,  which  series  shall
consist of five hundred thousand  (500,000)  shares,  and the Series B Preferred
Stock, which series shall consist of five hundred thousand (500,000) shares, are
as set forth below in this Article 4 and in the Plan.  Except as to the Series A
and  Series  B  Preferred  Stock  and  except  as  otherwise   provided  in  the
corporation's  articles  of  incorporation,  the  Board  of  Directors  of  this
corporation is hereby authorized to fix the number of shares,  and determine the
designation  of each series of  Preferred  Stock and may  determine or alter the
rights,  preferences,  privileges and restrictions  granted to or imposed on any
wholly unissued series of Preferred  Stock.  The Series A and Series B Preferred
Stock  are  sometimes  hereinafter  referred  to  collectively  as  the  "Series
Preferred Stock."

         4.3.2        Dividends.

         The  holders of shares of Series  Preferred  Stock shall be entitled to
receive dividends,  out of any assets legally available  therefor,  prior and in
preference to any declaration or payment of any dividend  (payable other than in
Common Stock of this corporation) on the Common Stock of this  corporation.  The
holders  of shares of Series A  Preferred  Stock  shall be  entitled  to receive
dividends, out of any assets legally available therefor, prior and in preference
to any  declaration  or payment of any dividend on shares of any other series of
Preferred Stock, including, without limitation, shares of the Series B Preferred
Stock of this  corporation.  Holders of shares of Series A Preferred Stock shall
be  entitled  to  receive  dividends  at a rate equal to the  Dividend  Rate (as
hereinafter  defined)  multiplied  by the  Series A  Original  Issue  Price  (as
hereinafter defined) per share of the Series A Preferred Stock then outstanding,
payable in cash out of the assets of the corporation legally available therefor,
quarterly in advance  beginning on November 30, 1992 (each such  quarterly  date
being a "Dividend  Date").  "Dividend  Rate"  shall mean a rate of interest  per
annum equal to the "base" or "prime" rate of Bank (as hereinafter defined) which
rate is in effect on the date that is five  business  days prior to the Dividend
Date and which  serves as the basis upon which  effective  rates of interest are
calculated   for  those  loans  making   reference   thereto;   provided   that,
notwithstanding the foregoing,  in no event shall the Dividend Rate be less than
6% per annum,  nor more than 9% per annum.  "Bank"  shall mean Bank of  America,
N.A., or in the event that such bank shall no longer publicly  announce a "base"
or "Prime" rate, Wells Fargo Bank, N.A. Notwithstanding the foregoing,  from the
date the corporation  receives any payment

                                      -61-
<PAGE>
blockage notice  described in Section 3.2(g) of the Plan (a "Blockage  Notice"),
which  Blockage  Notice  remains  in effect  (such  effective  period  being the
"Blockage Period"),  the corporation shall cease to pay dividends to the holders
of  shares  of  Series A  Preferred  Stock.  During  the  Blockage  Period,  the
corporation  shall deposit the dividends that would  otherwise be payable to the
holders of Series A Preferred  Stock (the "Escrowed  Dividends")  with any bank,
trust company or other financial institution that provides trust services in the
regular course of its business, in any case having aggregate capital and surplus
in excess of $100,000,000,  as escrow agent (the "Escrow Agent"), upon the terms
described in the Plan.  Subject to the provisions of the Plan, and provided that
the Escrowed  Dividends  have not previously  been applied to the  corporation's
obligations  to any other party  pursuant to the Plan, the Escrow Agent shall be
required,  under the terms of the escrow,  to pay the Escrowed  Dividends to the
record holders of Series A Stock to which the dividends  would have been paid if
timely,  upon the  expiration  or  termination  of all Blockage  Periods then in
effect.

         4.3.3        Liquidation Preference

         (a) In the event of any  liquidation,  dissolution or winding up of the
corporation,  either  voluntary or  involuntary,  the assets of the  corporation
available for  distribution  shall be  distributed  in the  following  order and
amount:

                   (i) First,  the holders of the Series A Preferred  Stock then
         outstanding  shall be entitled  to receive an amount  equal to $100 for
         each outstanding share of such Series A Preferred Stock,  appropriately
         adjusted  for  any  stock  dividend,   split,  combination  or  similar
         recapitalization  of such  Series A  Preferred  Stock  (the  "Series  A
         Original  Issue  Price")  and,  in  addition,  an  amount  equal to any
         dividends  accrued  but  not  paid  on  each  such  share,  subject  to
         subsection 4.3.3(b) hereof.

                  (ii) Second,  the holders of the Series B Preferred Stock then
         outstanding  shall be entitled  to receive an amount  equal to $100 for
         each outstanding share of such Series B Preferred Stock,  appropriately
         adjusted  for  any  stock  dividend,   split,  combination  or  similar
         recapitalization  of such  Series B  Preferred  Stock  (the  "Series  B
         Original  Issue  Price")  and,  in  addition,  an  amount  equal to any
         dividends  accrued  but  not  paid  on  each  such  share,  subject  to
         subsection 4.3.3(c) hereof.

                 (iii) After  setting  apart or paying in full the  preferential
         amounts due the holders of the Series A Preferred  Stock and the Series
         B  Preferred   Stock,  as  provided  above,  if  assets  available  for
         distribution   remain  in  the   corporation,   the   holders   of  the
         corporation's  Common  Stock shall be entitled to share  ratably in the
         remaining assets of the corporation.

         (b) If, upon the occurrence of any liquidation,  dissolution or winding
up of the corporation and the distribution of the corporation's  assets pursuant
to  subsection  4.3.3(a)(i),  such assets  available for  distribution  shall be
insufficient  to permit  the  payment to the  holders of the Series A  Preferred
Stock of the full preferential  amounts to which they may be entitled,  then the
entire assets of the corporation  legally  available for  distribution  shall be
distributed ratably among the holders of shares of the Series A Preferred Stock.

                                      -62-
<PAGE>
         (c) If, upon the occurrence of any liquidation,  dissolution or winding
up of the corporation and the distribution of the corporation's  assets pursuant
to subsection  4.3.3(a)(ii),  such assets  available for  distribution  shall be
insufficient  to permit  the  payment to the  holders of the Series B  Preferred
Stock of the full preferential  amounts to which they may be entitled,  then the
entire  assets of the  corporation  legally  available for  distribution  to the
holders of the Series B Preferred  Stock shall be distributed  ratably among the
holders of shares of the Series B Preferred Stock.

         (d)  Whenever a  distribution  of assets  provided  for in this Section
4.3.3  shall  be  payable  in  property  other  then  cash,  the  value  of such
distribution  shall be the fair market value of such  property as  determined in
good faith by the Board of Directors of the corporation.

         4.3.4        Redemption.

         (a) The  corporation  may,  at any time it may  lawfully  do so, at the
option  of the  Board of  Directors,  redeem  in whole or in part the  shares of
Series A Preferred Stock by paying therefor a sum equal to the Series A Original
Issue  Price  for each  such  share to be  redeemed  plus the sum of all  unpaid
dividends  accrued with respect  thereto,  as adjusted for stock  splits,  stock
dividends or similar  recapitalizations  (the "Series A Redemption Price").  The
corporation  may,  at the  option of the Board of  Directors,  pay the  Series A
Redemption Price in cash or in the form of senior unsecured indebtedness, on the
terms described in Section 4.3.5. Unless otherwise provided by the Plan, if less
than all shares of the Series A Preferred  Stock are to be redeemed,  the shares
of Series A Preferred  Stock shall be redeemed  pro rata from the holders of the
Series A Preferred Stock. The corporation may at any time it may lawfully do so,
(i) after all shares of Series A Preferred Stock have been redeemed  pursuant to
this  subsection  4.3.4(a),  and (ii) if any shares of Series A Preferred  Stock
have been redeemed  pursuant to this subsection  4.3.4(a) in exchange for senior
unsecured  indebtedness  on the terms  described  in Section  4.3.5,  after such
senior unsecured  indebtedness has been paid in full, at the option of the Board
of Directors,  redeem in whole or in part the shares of Series B Preferred Stock
by paying  therefor a cash sum equal to the Series B  Original  Issue  Price for
each such share to be redeemed plus the sum of all unpaid dividends accrued with
respect  thereto,  as adjusted  for stock  splits,  stock  dividends  or similar
recapitalizations  (the "Series B Redemption Price"). If less than all shares of
the  Series B  Preferred  Stock  are to be  redeemed,  the  shares  of  Series B
Preferred  Stock  shall be  redeemed  pro rata from the  holders of the Series B
Preferred Stock.

         (b) (i) At least 30 but no more  than 60 days  prior to the date  fixed
         for any redemption of Series  Preferred  Stock (the "Series  Redemption
         Date"), written notice shall be mailed, postage prepaid, to each holder
         of record (at the close of business on the business day next  preceding
         the day onwhich  notice is given) of the Series  Preferred  Stock to be
         redeemed,  at the address last shown on the records of this corporation
         for such  holder  or given by the  holder to this  corporation  for the
         purpose  of  notice,  notifying  such  holder of the  redemption  to be
         effected,  specifying the series Redemption Date, the Series Redemption
         Price, the form of payment,  the place at which payment may be obtained
         and the date on which such 


                                      -63-
<PAGE>
         holder's  conversion  rights (as set forth in Section 4.3.6) as to such
         shares  terminate  and calling  upon such holder to  surrender  to this
         corporation,  in the manner and at the place designated,  such holder's
         certificate or certificates representing the shares to be redeemed (the
         "Series  Redemption  Notice").   Except  as  provided  in  subparagraph
         4.3.4(b)(ii),  on or after the Series  Redemption  Date, each holder of
         Series   Preferred  Stock  to  be  redeemed  shall  surrender  to  this
         corporation the certificate or certificates  representing  such shares,
         in the  manner  and at the place  designated  in the Series  Redemption
         Notice,  and thereupon the Series Redemption Price of such shares shall
         be payable in the form determined by the Board of Directors pursuant to
         subsection  4.3.4(a),   to  the  person  whose  name  appears  on  such
         certificate or certificates  as the owner thereof and each  surrendered
         certificate  shall be cancelled.  In the event less than all the shares
         represented by any such  certificate  are redeemed,  a new  certificate
         shall be issued representing the unredeemed shares.

                  (ii) From and after the Series  Redemption Date, all dividends
         on the Series  Preferred Stock  designated for redemption in the Series
         Redemption  Notice shall cease to accrue,  all rights of the holders of
         such shares as holders of Series  Preferred  Stock (except the right to
         receive the series Redemption Price in the form determined by the Board
         of Directors pursuant to subsection  4.3.4(a),  upon surrender of their
         certificate or  certificates)  shall cease with respect to such shares,
         and such shares shall not  thereafter  be  transferred  on the books of
         this  corporation  or be  deemed  to be  outstanding  for  any  purpose
         whatsoever.

                 (iii)  In  the  event  that  the  Series  Redemption  Price  is
         determined by the Board of Directors pursuant to subsection 4.3.4(a) to
         be  paid  in  cash,  the  following   provisions  of  this   subsection
         4.3.4(b)(iii)  shall apply:  Three days prior to the Series  Redemption
         Date, this corporation shall deposit the Series Redemption Price of all
         outstanding  shares of Series Preferred Stock designated for redemption
         in the Series  Redemption  Notice,  and not yet redeemed or  converted,
         with a bank or trust company  having  aggregate  capital and surplus in
         excess of $50,000,000 as a trust fund for the benefit of the respective
         holders of the shares  designated  for redemption and not yet redeemed.
         Simultaneously, this corporation shall deposit irrevocable instructions
         and  authority  to such bank or trust  company to publish the notice of
         redemption  thereof (or to complete  such  publication  if  theretofore
         commenced)  and to pay, on and after the date fixed for  redemption  or
         prior thereto, the Series Redemption Price of each share to the holders
         thereof upon surrender of their  certificates.  Any monies deposited by
         this corporation pursuant hereto for the redemption of shares which are
         thereafter  converted  into shares of Common Stock  pursuant to Section
         4.3.6 hereof no later than the Series Redemption Date shall be returned
         to this corporation forthwith upon such conversion.  The balance of any
         monies  deposited  by  this   corporation   pursuant  hereto  remaining
         unclaimed at the expiration of one year following the Series Redemption
         Date shall  thereafter be returned to this corporation upon its request
         expressed in a resolution of its Board of Directors,  provided that the
         shareholder  to which such monies would be payable  hereunder  shall be
         entitled, upon proof of its ownership of the Series Preferred Stock and
         payment of any bond  requested  by the  corporation,  to  receive  such
         monies but without interest from the Series Redemption Date.

                                      -64-
<PAGE>
                  (iv)  The  rights  contained  in  this  Section  4.3.4  are in
         addition  to  any  other  rights  of  this  corporation  under  law  to
         repurchase part or all of the Series Preferred Stock.

         4.3.5        Exchange.

         The terms of the senior unsecured indebtedness shall be as set forth in
a Senior Indebtedness  Agreement which shall include, but not be limited to, the
following terms:  Such  indebtedness will bear interest at 12 percent per annum,
be payable  quarterly in arrears in cash, and will mature on the date that is 10
years after the exchange was effected.  The indebtedness shall be required to be
repaid prior to maturity in installments of 20 percent of the original principal
amount per year,  beginning  at the end of the sixth year after the exchange has
been effected. Such Senior Indebtedness Agreement shall be the obligation of the
corporation  and each of its  subsidiaries  (as defined in the Plan) and contain
affirmative  and negative  covenants  (excluding  financial  covenants) and such
terms of default and default  remedies as are  customary in  commercial  lending
transactions  involving borrowers of financial position and condition comparable
to that of the  corporation  at the time of such  redemption.  Unless  and until
agreement  is  reached on all terms of the Senior  Indebtedness  Agreement,  the
corporation  shall not redeem the Series A Preferred  Stock other than for cash,
and if such  agreement is not reached  prior to a Series  Redemption  Date,  the
corporation will withdraw any Series A Redemption  Notice  immediately  prior to
the Series A Redemption  Date specified  therein to the extent the redemption is
to be made other than for cash.

         4.3.6        Conversion.

         The holders of the Series Preferred Stock shall have conversion  rights
as follows (the "Conversion Rights"):

         (a) (i) Each share of Series A Preferred  Stock shall be convertible at
         the option of the holder  thereof at any time after April 30, 1999, and
         prior to the close of  business  on any Series  Redemption  Date as may
         have been fixed in any series  Redemption  Notice with  respect to such
         share,  into such  number  of fully  paid and  nonassessable  shares of
         Common Stock as are equal to the product  obtained by  multiplying  the
         number of shares of Series A  Preferred  Stock being  converted  by the
         Series A Conversion Rate (determined under subsection  4.3.6(c)).  Each
         share of Series B Preferred Stock shall be convertible at the option of
         the holder  thereof at any time prior to the close of  business  on any
         Series  Redemption Date as may have been fixed in any Series Redemption
         Notice with  respect to such share,  into such number of fully paid and
         nonassessable  shares  of  Common  Stock as are  equal  to the  product
         obtained  by  multiplying  the  number of shares of Series B  Preferred
         Stock being converted by the Series B Conversion Rate (determined under
         subsection 4.3.6(c)).

                  (ii) In the event of a call for  redemption  of any  shares of
         Series Preferred Stock pursuant to Section 4.3.4 hereof, the Conversion
         Rights shall  terminate as to the shares  designated  for redemption at
         the close of business on the Series


                                      -65-
<PAGE>
         Redemption  Date,  unless  default  is made in  payment  of the  Series
         Redemption Price.

         (iii) Each share of Series A Preferred  Stock may, at the option of the
         corporation's  Board of Directors,  automatically be converted into the
         number of shares of Common  Stock  (determined  pursuant to  subsection
         4.3.6(a)(i))   into  which  such  Series  A  Preferred  Stock  is  then
         convertible  if,  at any  time,  the  Common  Stock is then  listed  or
         admitted  to  unlisted  trading  privileges  on a  national  securities
         exchange or is admitted for quotation under the National Association of
         Securities  Dealers  Automated  Quotations System ("NASDAQ") or similar
         automated quotation system and the average market price (as hereinafter
         defined) over a period of 20 consecutive trading days is 120 percent of
         the Series A Conversion Price (determined  under subsection  4.3.6(c));
         provided,  that all accrued but unpaid  dividends  with respect to each
         share of Series A Preferred Stock, as adjusted for stock splits,  stock
         dividends  or  similar  recapitalizations,   shall  be  paid  upon  the
         effective  date  of the  conversion  of  such  shares,  to the  persons
         entitled to receive shares of Common Stock upon such  conversion.  Each
         share  of  Series  B  Preferred   Stock  may,  at  the  option  of  the
         corporation's  Board of Directors,  automatically be converted into the
         number of shares of Common  Stock  (determined  pursuant to  subsection
         4.3.6(a)(i))   into  which  such  Series  B  Preferred  Stock  is  then
         convertible  if,  at any  time,  the  Common  Stock is then  listed  or
         admitted  to  unlisted  trading  privileges  on a  national  securities
         exchange  or is  admitted  for  quotation  under the  NASDAQ or similar
         automated quotation system and the average market price (as hereinafter
         defined) over a period of 20 consecutive trading days is 120 percent of
         the Series B Conversion Price (determined  under subsection  4.3.6(c)).
         The  "market  price"  for each  trading  day shall be (A) if the Common
         Stock  shall at the time be  listed or  admitted  to  unlisted  trading
         privileges on the New York Stock Exchange, the last reported sale price
         regular way of the Common Stock on the composite tape (or if the Common
         Stock at the time be not so  listed or  admitted  to  unlisted  trading
         privileges on the New York Stock  Exchange but be listed or admitted to
         unlisted trading privileges on another national securities exchange, on
         the basis of the last reported sale price regular way on the securities
         exchange on which the Common Stock is at the time listed or admitted to
         unlisted trading privileges) on each such trading day upon which such a
         sale shall have been  effected  (or if no sale takes  place on any such
         day on such exchange, the mean between the closing bid and asked prices
         on such  day as  officially  quoted  on such  exchange),  or (B) if the
         Common  Stock is not at the time so  listed  or  admitted  to  unlisted
         trading privileges on a national securities  exchange,  the last quoted
         sales price or, if not so quoted, the mean between the highest reported
         bid and  lowest  reported  asked  prices  of the  Common  Stock  in the
         over-the-counter  market on each such business day, each as reported by
         NASDAQ or similar  organization  if NASDAQ is no longer  reporting such
         information.

         (b) Before any holder of Series  Preferred  Stock  shall be entitled to
convert the same into shares of Common  Stock,  such holder shall  surrender the
certificate  or  certificates  therefor,  duly  endorsed,  at the office of this
corporation  or of any  transfer  agent for such stock,  and shall give  written
notice by mail, postage prepaid,  to this corporation at its principal corporate
office,  of the election to convert the same and shall state therein the 


                                      -66-
<PAGE>
name or names in which the  certificate  or  certificates  for  shares of Common
Stock are to be issued;  provided,  however,  that in the event of an  automatic
conversion  pursuant to  subsection  4.3.6(a)(iii),  the  outstanding  shares of
Series A Preferred Stock or Series B Preferred  Stock,  as applicable,  shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates  representing such shares are surrendered to
the corporation or its transfer agent, and provided further that the corporation
shall not be obligated  to issue  certificates  evidencing  the shares of Common
Stock issuable upon such automatic conversion unless the certificate  evidencing
such  shares  of  Series A  Preferred  Stock or  Series B  Preferred  Stock,  as
applicable,  are either  delivered to the  corporation or its transfer agent, or
the holder notifies the corporation or its transfer agent that such certificates
have been lost,  stolen or destroyed and executes an agreement  satisfactory  to
the  corporation  to indemnify the  corporation  from any loss incurred by it in
connection  with  such  certificates.  In the  case of any  conversion  provided
herein, (i) the corporation shall, as soon as practicable thereafter,  issue and
deliver at such  office to such  holder,  or to the  nominee or nominees of such
holder,  a certificate or certificates  for the number of shares of Common Stock
to which such holder shall be entitled as  aforesaid,  and (ii) such  conversion
shall be deemed to have been made immediately  prior to the close of business on
the date of such  surrender  of the  shares to be  converted,  and the person or
persons  entitled  to receive  the  shares of Common  Stock  issuable  upon such
conversion  shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date.

         (c) The conversion  rate for the Series A Preferred  Stock in effect at
any time (the  "Series A  Conversion  Rate")  shall  equal the Series A original
Issue Price divided by the Series A Conversion  Price,  as defined  herein.  The
conversion  rate for the  Series B  Preferred  Stock in  effect at any time (the
"Series B  Conversion  Rate")  shall  equal the  Series B original  issue  Price
divided by the Series B Conversion  Price,  as defined  herein.  The  conversion
price for the Series A Preferred  Stock in effect  from time to time,  except as
adjusted in accordance with subsection  4.3.6(d),  shall be $7.50 (the "Series A
Conversion  Price").  The conversion  price for the Series B Preferred  Stock in
effect  from time to time,  except as  adjusted in  accordance  with  subsection
4.3.6(d), shall be $2.873 (the "Series B Conversion Price").

         (d) The Series A  Conversion  Price and the Series B  conversion  Price
shall be subject to adjustment from time to time as follows:

                  (i) In the  event the  corporation  should at any time or from
         time to  time  after  the  earliest  date on  which  shares  of  Series
         Preferred Stock are issued (the "Purchase  Date") fix a record date for
         the effectuation of a split or subdivision of the outstanding shares of
         Common Stock or the  determination  of holders of Common Stock entitled
         to  receive a dividend  or other  distribution  payable  in  additional
         shares of Common Stock or other securities or rights  convertible into,
         or  entitling  the holder  thereof to receive  directly or  indirectly,
         additional shares of Common Stock  (hereinafter  referred to as "Common
         Stock Rights") without payment of any  consideration by such holder for
         the  additional  shares  of Common  Stock or the  Common  Stock  Rights
         (including  the  additional   shares  of  Common  Stock  issuable  upon
         conversion or exercise  thereof),  then, as of such record date (or the
         date of such dividend,  distribution, split or subdivision if no record
         date is fixed), the Series


                                      -67-
<PAGE>
         A  Conversion  Price  and  the  Series  B  Conversion  Price  shall  be
         appropriately  decreased  so that the number of shares of Common  Stock
         issuable on  conversion of each share of such series shall be increased
         in proportion to such increase of outstanding shares.

                  (ii) If the number of shares of Common  Stock  outstanding  at
         any time after the Purchase Date is decreased by a  combination  of the
         outstanding shares of Common Stock, then,  following the record date of
         such  combination,  the  Series A  Conversion  Price  and the  Series B
         Conversion Price shall be appropriately increased so that the number of
         shares of Common  Stock  issuable on  conversion  of each share of such
         series shall be decreased in proportion to such decrease in outstanding
         shares.

         (e) In the event this corporation shall declare a distribution  payable
in  securities  of other  persons,  evidences  of  indebtedness  issued  by this
corporation or other persons,  assets  (excluding  cash dividends) or options or
rights not referred to in Section 4.3.2 or subsection  4.3.6(d)(i) hereof, then,
in each such case for the purpose of this  subsection  4.3.6(e),  the holders of
the Series A Preferred  Stock and the Series B Preferred Stock shall be entitled
to a  proportionate  share of any such  distribution  as  though  they  were the
holders of the number of shares of Common  Stock of the  corporation  into which
their  shares of such  Series A  Preferred  Stock or Series B  Preferred  Stock,
respectively,  are convertible as of the record date fixed for the determination
of the  holders of Common  Stock of the  corporation  entitled  to receive  such
distribution.

         (f)  If  at  any  time  or  from  time  to  time   there   shall  be  a
recapitalization  of the Common Stock (other than a subdivision,  combination or
merger or sale of assets transaction provided for elsewhere in Sections 4.3.3 or
4.3.6),  provision  shall be made so that the  holders of the Series A Preferred
Stock and the Series B Preferred  Stock shall  thereafter be entitled to receive
upon  conversion  of the Series A  Preferred  Stock and the  Series B  Preferred
Stock,  respectively,  the  number  of shares  of stock or other  securities  or
property  of the  Company  or  otherwise,  to which a  holder  of  Common  Stock
deliverable upon conversion  would have been entitled on such  recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions  of this  Section  4.3.6 with respect to the rights of the holders of
the  Series A  Preferred  Stock  and the  Series B  Preferred  Stock  after  the
recapitalization to the end that the provisions of this Section 4.3.6 (including
adjustment  of the Series A Conversion  Price and the Series B Conversion  Price
then in effect  and the  number of shares  purchasable  upon  conversion  of the
Series A Preferred  Stock and the Series B Preferred  Stock) shall be applicable
after that event as nearly equivalent as may be practicable.

         (g) This  corporation  will not,  by  amendment  of these  Articles  of
Incorporation  or through  any  reorganization,  recapitalization,  transfer  of
assets, consolidation,  merger, dissolution,  issue or sale of securities or any
other voluntary action,  avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this corporation,  but
will at all times in good faith assist in the carrying out of all the provisions
of this  Section  4.3.6 and in the taking of all such action as may be necessary
or appropriate in order to protect the conversion  rights as provided  herein of
the holders of the Series Preferred Stock against impairment.

                                      -68-
<PAGE>
         (h) (i) No  fractional  shares shall be issued upon  conversion  of the
         Series A  Preferred  Stock  and the  Series B  Preferred  Stock and the
         number of shares of Common  Stock to be issued  shall be rounded to the
         nearest  whole  share,  determined  on the basis of the total number of
         shares  of the  Series A  Preferred  Stock and the  Series B  Preferred
         Stock,  respectively,  the holder is at the time converting into Common
         Stock and the  number of shares  of  Common  Stock  issuable  upon such
         aggregate conversion.

                  (ii) Upon the occurrence of each adjustment or readjustment of
         the Series A Conversion Price or the Series B Conversion Price pursuant
         to this Section 4.3.6, this corporation, at its expense, shall promptly
         compute such  adjustment or  readjustment  in accordance with the terms
         hereof and  prepare  and  furnish to each  holder of Series A Preferred
         Stock and Series B  Preferred  Stock,  as  appropriate,  a  certificate
         setting forth such adjustment or readjustment and showing in detail the
         facts  upon  which  such  adjustment  or  readjustment  is based.  This
         corporation  shall,  upon the written request at any time of any holder
         of Series A  Preferred  Stock or Series B Preferred  Stock,  furnish or
         cause to be furnished to such holder a like  certificate  setting forth
         (A) such adjustment and  readjustment,  and (B) the Series A Conversion
         Price or the Series B  Conversion  Price at the time in effect for such
         series of Series Preferred Stock.

         (i) In the event of any taking by this  corporation  of a record of the
holders of any class of securities  for the purpose of  determining  the holders
thereof who are entitled to receive any dividend (other than a cash dividend) or
other  distribution,  any right to subscribe for,  purchase or otherwise acquire
any  shares of stock of any class or any other  securities  or  property,  or to
receive any other right,  this  corporation  shall mail to each holder of Series
Preferred Stock, at least 20 days prior to the date specified  therein, a notice
specifying  the date on which any such  record is to be taken for the purpose of
such  dividend,  distribution  or right,  and the amount and  character  of such
dividend, distribution or right.

         (j) This corporation  shall at all times reserve and keep available out
of its authorized but unissued  shares of Common Stock solely for the purpose of
effecting the conversion of shares of Series Preferred Stock, such number of its
shares of Common  Stock as shall from time to time be  sufficient  to effect the
conversion of all outstanding  shares of Series  Preferred  Stock; and if at any
time the number of authorized  but unissued  shares of Common Stock shall not be
sufficient  to effect the  conversion of all then  outstanding  shares of Series
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel,  be necessary  to increase its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purposes.

         (k) Any notice  required by the  provisions of this Section 4.3.6 to be
given to the holders of shares of Series  Preferred  Stock shall be deemed given
if  deposited  in the  United  States  mail,  postage  prepaid,  return  receipt
requested and addressed to each holder of record at his address appearing on the
books of this corporation.



                                      -69-
<PAGE>
         (1) At any  time,  in the event of any  consolidation  or merger of the
corporation with or into another  corporation or other entity or person,  or any
other  corporate  reorganization  or other  transaction  or  series  of  related
transactions by the corporation, in any such case, in which more than 50 percent
of the voting  power of the  corporation  is  transferred,  then  holders of the
Series  Preferred  Stock  shall  receive  the number of shares of stock or other
securities or property  (including  cash) which a holder of the number of shares
of Common Stock deliverable upon conversion of such Series Preferred Stock would
have  been  entitled  on such  consolidation,  merger,  reorganization  or other
transaction.

         4.3.7        Voting Rights.

         (a) The  holders  of  outstanding  shares  of  each  series  of  Series
Preferred  Stock shall have the right to vote as a separate voting group, on the
basis of one vote for each share of Common Stock into which such holders' shares
of such  series of Series  Preferred  Stock  could then be  converted  (with any
fractional share determined on an aggregate conversion basis being rounded up to
the  next  highest  whole  share),   on  any  amendment  to  these  Articles  of
Incorporation   which  (A)  increases  or  decreases  the  aggregate  number  of
authorized  shares of such  series of Series  Preferred  Stock,  (B)  effects an
exchange  or  reclassification  of all or part of the  shares of such  series of
Series  Preferred Stock into shares of another class, (C) effects an exchange or
reclassification, or creates the right of exchange, of all or part of the shares
of another  class into  shares of such  series of Series  Preferred  Stock,  (D)
changes the  designation,  rights,  preferences or limitations of all or part of
the shares of such series of Series  Preferred  Stock, (E) changes the shares of
all or part of such series of Series  Preferred Stock into a different number of
shares of the same  class,  (F) creates a new class of shares  having  rights or
preferences  with respect to  distributions  or to  dissolution  that are prior,
superior or substantially equal to the shares of such series of Series Preferred
Stock, (G) increases the rights,  preferences or number of authorized  shares of
any class that, after giving effect to the amendment, have rights or preferences
with respect to  distributions or to dissolution  that are prior,  superior,  or
substantially  equal to the shares of such series of Series Preferred Stock, (H)
limits or denies an  existing  preemptive  right of all or part of the shares of
such  series of Series  Preferred  Stock,  or (I) cancels or  otherwise  affects
rights to  distributions  or dividends  that have  accumulated  but not yet been
declared on all or part of the shares of such series of Series  Preferred Stock,
and with respect to such vote, shall be entitled,  notwithstanding any provision
hereof, to notice of any shareholders'  meeting in accordance with the bylaws of
this corporation.

         (b)  If a  Covenant  Violation  (as  hereinafter  defined)  shall  have
occurred and be  continuing  or if  dividends  payable on the Series A Preferred
Stock  shall  have been in  arrears  and not  paid,  or deemed to have been paid
pursuant to the next sentence, in full for (i) three consecutive quarters,  (ii)
any four quarters during any consecutive  twenty-four month period, or (iii) any
eight  quarters (any such series of arrearages  described in clauses (i) through
(iii) being an "Arrearage  Event"),  the holders of the Series A Preferred Stock
shall have the  exclusive  right to elect that number of persons to the Board of
Directors of the corporation such that such number of persons shall constitute a
majority  of the  Board  of  Directors  of the  corporation,  by  replacing  the
incumbent Directors, by adding new members to the Board of Directors, or through
any combination of the above.  


                                      -70-
<PAGE>
Notwithstanding the foregoing, if a dividend has not been paid in full (a) for a
particular  quarter and the corporation makes such payment on or before the next
scheduled  dividend  payment  date,  and timely  pays the next  dividend  on its
scheduled  dividend  payment  date or (b)  during  any  Blockage  Period and the
corporation  (x) deposits the amount  payable with respect to such dividend into
escrow in accordance  with Section 4.3.2 when due or within the time provided in
clause (a) above of this subsection 4.3.7(b), and (y) makes such payment through
the  release of Escrowed  Dividends  within  five days after the  expiration  or
termination of all Blockage  Periods then in effect or as otherwise  provided by
the Plan,  then,  in either  such case,  such  nonpayment  shall be deemed to be
timely paid and shall not be counted for  purposes of clauses (i) through  (iii)
above.  The rights of the  holders of the Series A Preferred  Stock  pursuant to
this  Subsection  4.3.7(b)  shall  terminate  on the date  that (i) less than 25
percent of the originally issued Series A Preferred Stock remains outstanding or
(ii) the Covenant  Violation or Arrearage  Event is no longer  continuing or has
been  cured.  On any such  date (the  "Board  Recovery  Date"),  the term of any
Director  then in office  elected  by the  holders of Series A  Preferred  Stock
pursuant to this Section 4.3.7 shall  terminate and each such Director  shall be
replaced by a Director  that is appointed by the  corporation's  management.  As
soon as practicable,  but in any event not more than 90 days following the Board
Recovery Date, the Board of Directors shall call a meeting of the  corporation's
shareholders for the purposes of electing all members of the Board of Directors.
The Directors elected at such  shareholders'  meeting shall then remain in place
until the next annual meeting of the corporation's  shareholders or as otherwise
provided by the corporation's  bylaws or articles of incorporation.  A "Covenant
Violation"  shall be deemed to have  occurred  on the date that the  corporation
creates or incurs any liabilities resulting from borrowings,  loans or advances,
whether  secured or unsecured,  other than those permitted by Section 6.02 B. of
the Secured Loan Agreement (as such term is defined in the Plan) if on such date
or after giving effect to such creation or incurrence,  the  corporation's  long
term debt (less current maturities and deferred taxes) exceeds 40 percent of the
aggregate  of the  corporation's  long term debt (less  current  maturities  and
deferred taxes) and stockholder's equity.

         (c) Except as otherwise  provided in this Section  4.3.7 or as required
by the Oregon  Business  Corporation  Act,  the holders of the Series  Preferred
Stock shall have no right to vote on any matter coming before any meeting of the
shareholders of the corporation.

                     ARTICLE 5. REGISTERED OFFICE AND AGENT

         The name of the initial  registered  agent of the  corporation  and the
address of its registered office are as follows:

                              Lawco of Oregon, Inc.
                        111 S.W. Fifth Avenue, Suite 2500
                             Portland, Oregon 97204

         The agent has consented to the appointment.



                                      -71-
<PAGE>
                              ARTICLE 6. DIRECTORS

         From the  effective  date of the  corporation's  Plan,  the  number  of
directors constituting the Board of Directors of the corporation shall be seven,
with three  directors  (as  designated in the Plan) to stand for election at the
annual  meeting  of  shareholders  held in  calendar  year  1995 and  with  four
directors  (as  designated  in the Plan) to stand  for  election  at the  annual
meeting of shareholders  held in calendar year 1996.  Thereafter,  the number of
directors constituting the Board of Directors of the corporation, and the method
of electing such  directors,  shall be determined  pursuant to the Bylaws of the
Corporation;  provided  however,  in the  event  the  Board  sets the  number of
Directors to be six (6) or more,  the Board shall be divided into three classes,
with each class to be as nearly equal in number as possible, with the members of
each class to be determined by the Board of Directors and with the terms of such
classes to be as follows:  at least two directors shall be elected for a term of
one year, at least two directors shall be elected for a term of two years and at
least  two  directors  shall be  elected  for a term of three  years and at each
annual shareholders' meeting thereafter the term of directors whose terms expire
on that  date  shall be  elected  for a term of three  years.  Unless  otherwise
provided for in these Fourth Restated Articles of Incorporation,  any vacancy of
the Board of  Directors  to be filled by reason of an  increase in the number of
directors or otherwise may be filled only by the affirmative  vote of a majority
of the  directors  then in  office,  though  less  than a  quorum,  or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election,  or until their  successors are duly elected and qualified,  or
until their earlier resignation or removal.

                   ARTICLE 7. LIMITATION OF DIRECTOR LIABILITY

         To the fullest extent that the Oregon Business  Corporation  Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors,  a director of the corporation  shall
not be liable to the  corporation or its  shareholders for any monetary  damages
for  conduct as a  director.  Any  amendment  to or repeal of this  Article 7 or
amendment to the Oregon Business  Corporation Act shall not adversely effect any
right or protection of a director of the  corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.

                           ARTICLE 8. INDEMNIFICATION

         To the fullest extent not prohibited by law, the corporation: (i) shall
indemnify  any  person  who is made,  or  threatened  to be made,  a party to an
action,   suit  or   proceeding,   whether  civil,   criminal,   administrative,
investigative,  or otherwise  (including an action,  suit or proceeding by or in
the right of the corporation), by reason of the fact that the person is or was a
director or officer of the corporation, and (ii) may indemnify any person who is
made,  or  threatened  to be made,  a party to an  action,  suit or  proceeding,
whether civil, criminal, administrative,  investigative, or otherwise (including
an action, suit or proceeding by or in the right of the corporation),  by reason
of the fact that the person is or was an employee  or agent of the  corporation,
or a fiduciary  (within the meaning of the Employee  Retirement  Income Security
Act of 1974),  with respect to any employee benefit plan of the corporation,  or
serves or served at the request of the  corporation as a director or officer of,


                                      -72-
<PAGE>
or as a fiduciary  (as defined  above) of an employee  benefit plan of,  another
corporation, partnership, joint venture, trust or other enterprise. This Article
8 shall not be deemed exclusive of any other provisions for the  indemnification
of  directors,  officers,  employees,  or  agents  that may be  included  in any
statute, bylaw, agreement, resolution of shareholders or directors or otherwise,
both as to action in any  official  capacity  and  action in any other  capacity
while  holding  office,  or while an employee or agent of the  corporation.  For
purposes  of  this  Article  8,   "corporation"   shall  mean  the   corporation
incorporated hereunder and any successor corporation thereof.

                         ARTICLE 9. NO PREEMPTIVE RIGHTS

         No  shareholder  shall have  preemptive  rights to  acquire  additional
shares of stock which may be issued by the  corporation,  pursuant to the Oregon
Business Corporation Act.

         The name and  telephone  number of the  person to  contact  about  this
filing are:

                                    Robert J. Riecke
                                    10260 SW Greenburg Road, Suite 900
                                    Portland, OR 97223
                                    (503) 246-3440




















                                      -73-
<PAGE>
                              ARTICLES OF AMENDMENT
                                       OF
                              WTD INDUSTRIES, INC.

         Pursuant to the provisions of ORS 57.370,  the undersigned  corporation
executes the following  Articles of Amendment to its Fourth Restated Articles of
Incorporation:

         1. The name of the corporation is WTD Industries, Inc. (the "Company").

         2. Effective upon filing these Articles of Amendment with the Secretary
of State of the State of Oregon,  Article 4 of the Fourth  Restated  Articles of
Incorporation of the Company is amended to add a new Subsection 4.4 as set forth
on the amendment attached hereto.

         3. The  amendment  was duly  adopted by the Board of  Directors  of the
corporation on March 4, 1998 and shareholder approval was not required.

         4. The amendment does not provide for the exchange, reclassification or
cancellation of issued shares.

         These  Articles of  Amendment  are  executed by the Company by its duly
authorized officer.

         DATED:  March 4, 1998.


                              WTD INDUSTRIES, INC.



                              By:
                                 -----------------------------
                                 Robert J. Riecke
                                 Vice President - Administration
                                 and Secretary










                                      -74-
<PAGE>
         4.4     Designation of Rights and  Preferences of Series C Junior
                 Participating Preferred Stock

         The following  series of Preferred  Stock is hereby  designated,  which
series shall have the rights,  preferences,  privileges  and  limitations as set
forth below:

         4.4.1.   Designation of Series C Junior  Participating  Preferred Stock
and Amount.  The shares of such series shall be  designated  as "Series C Junior
Participating  Preferred Stock" (the "Series C Preferred  Stock") and the number
of shares  constituting  the Series C Preferred  Stock  shall be  400,000.  Such
number of shares may be increased or  decreased  by  resolution  of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series C  Preferred  Stock to a number  less than the  number of shares  then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding  options,   rights  or  warrants  or  upon  the  conversion  of  any
outstanding  securities  issued by the  corporation  convertible  into  Series C
Preferred Stock.

         4.4.2.   Dividends and Distributions.

                  (A)  Subject to the rights of the holders of any shares of any
series of Preferred  Stock (or any similar  stock) ranking prior and superior to
the Series C Preferred Stock with respect to dividends, the holders of shares of
Series C Preferred  Stock,  in preference to the holders of Common Stock, no par
value per share  (the  "Common  Stock"),  of the  corporation,  and of any other
junior  stock,  shall be entitled to  receive,  when,  as and if declared by the
Board of Directors  out of funds legally  available  for the purpose,  quarterly
dividends  payable  in cash on the  first  day of  March,  June,  September  and
December in each year (each such date being  referred to herein as a  "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series C Preferred
Stock,  in an amount per share  (rounded to the nearest cent) equal to 100 times
the  aggregate  per  share  amount  of all cash  dividends,  and 100  times  the
aggregate per share amount (payable in kind) of all non-cash  dividends or other
distributions,  subject to the provision for adjustment  hereinafter  set forth,
other than a dividend  payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),  declared
on the Common Stock since the immediately  preceding  Quarterly Dividend Payment
Date or, with respect to the first Quarterly  Dividend  Payment Date,  since the
first issuance of any share or fraction of a share of Series C Preferred  Stock.
In the event the  corporation  shall at any time  declare or pay any dividend on
the Common Stock payable in shares of Common Stock,  or effect a subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the amount to which holders of shares of Series C Preferred Stock were
entitled  immediately  prior to such event under  clause  (ii) of the  preceding
sentence  shall be  adjusted  by  multiplying  such  amount by a  fraction,  the
numerator  of  which  is the  number  of  shares  of  Common  Stock  outstanding
immediately  after  such  event and the  denominator  of which is the  number of
shares of Common Stock that were outstanding immediately prior to such event.

                                      -75-
<PAGE>
                  (B) The  corporation  shall declare a dividend or distribution
on the Series C Preferred  Stock as provided in  paragraph  (A) of this  Section
4.4.2  immediately  after it declares a dividend or  distribution  on the Common
Stock (other than a dividend payable in shares of Common Stock).

                  (C)  Dividends  shall  begin to accrue  and be  cumulative  on
outstanding  shares of Series C  Preferred  Stock  from the  Quarterly  Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such  shares  is  prior to the  record  date  for the  first  Quarterly
Dividend  Payment  Date,  in which case  dividends on such shares shall begin to
accrue from the date of issue of such  shares,  or unless the date of issue is a
Quarterly  Dividend  Payment  Date or is a date  after the  record  date for the
determination  of  holders of shares of Series C  Preferred  Stock  entitled  to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such  dividends  shall begin to accrue and be  cumulative
from such Quarterly  Dividend  Payment Date.  Accrued but unpaid dividends shall
not bear interest.  Dividends paid on the shares of Series C Preferred  Stock in
an amount less than the total  amount of such  dividends at the time accrued and
payable on such shares shall be  allocated  pro rata on a  share-by-share  basis
among all such shares at the time outstanding.  The Board of Directors may fix a
record  date for the  determination  of holders of shares of Series C  Preferred
Stock  entitled  to  receive  payment  of a dividend  or  distribution  declared
thereon,  which  record  date  shall be not more than 60 days  prior to the date
fixed for the payment thereof.

         4.4.3.   Voting  Rights.  The  holders of shares of Series C  Preferred
Stock shall have the following voting rights:

                  (A) Subject to the provision for  adjustment  hereinafter  set
forth,  each share of Series C Preferred  Stock shall entitle the holder thereof
to 100  votes on all  matters  submitted  to a vote of the  shareholders  of the
corporation.  In the event the corporation  shall at any time declare or pay any
dividend  on the Common  Stock  payable in shares of Common  Stock,  or effect a
subdivision or combination or consolidation of the outstanding  shares of Common
Stock (by  reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the  number of votes per share to which  holders  of shares of
Series C Preferred Stock were entitled  immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock  outstanding  immediately  after such event and
the  denominator  of which is the  number of shares  of Common  Stock  that were
outstanding immediately prior to such event.

                  (B) Except as otherwise provided herein, in any other Articles
of Amendment  creating a series of Preferred  Stock or any similar stock,  or by
law, the holders of shares of Series C Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the  corporation  having  general
voting  rights  shall vote  together as one class on all matters  submitted to a
vote of shareholders of the corporation.



                                      -76-
<PAGE>
                  (C) Except as set forth  herein,  or as otherwise  provided by
law, holders of Series C Preferred Stock shall have no special voting rights and
their consent  shall not be required  (except to the extent they are entitled to
vote with holders of Common Stock as set forth  herein) for taking any corporate
action.

         4.4.4.   Certain Restrictions.

                  (A)  Whenever  quarterly   dividends  or  other  dividends  or
distributions  payable on the Series C  Preferred  Stock as  provided in Section
4.4.2 are in arrears,  thereafter and until all accrued and unpaid dividends and
distributions,  whether or not declared,  on shares of Series C Preferred  Stock
outstanding shall have been paid in full, the corporation shall not:

                   (i)   declare   or  pay   dividends,   or  make   any   other
         distributions,  on any  shares of stock  ranking  junior  (either as to
         dividends or upon liquidation, dissolution or winding up) to the Series
         C Preferred Stock;

                  (ii)   declare   or  pay   dividends,   or  make   any   other
         distributions, on any shares of stock ranking on a parity (either as to
         dividends  or upon  liquidation,  dissolution  or winding  up) with the
         Series C Preferred Stock, except dividends paid ratably on the Series C
         Preferred  Stock  and all such  parity  stock on  which  dividends  are
         payable or in arrears in  proportion  to the total amounts to which the
         holders of all such shares are then entitled;

                 (iii) redeem or purchase or otherwise acquire for consideration
         shares of any stock  ranking  junior  (either as to  dividends  or upon
         liquidation,  dissolution  or  winding  up) to the  Series C  Preferred
         Stock,  provided that the corporation may at any time redeem,  purchase
         or  otherwise  acquire  shares of any such junior stock in exchange for
         shares of any stock of the  corporation  ranking  junior  (either as to
         dividends or upon dissolution, liquidation or winding up) to the Series
         C Preferred Stock; or

                  (iv) redeem or purchase or otherwise acquire for consideration
         any shares of Series C Preferred  Stock, or any shares of stock ranking
         on a parity with the Series C  Preferred  Stock,  except in  accordance
         with a purchase offer made in writing or by publication  (as determined
         by the Board of  Directors)  to all  holders of such  shares  upon such
         terms as the Board of Directors,  after consideration of the respective
         annual  dividend rates and other relative rights and preferences of the
         respective  series  and  classes,  shall  determine  in good faith will
         result in fair and equitable  treatment among the respective  series or
         classes.

                  (B) The  corporation  shall not permit any  subsidiary  of the
corporation  to purchase or otherwise  acquire for  consideration  any shares of
stock of the corporation  unless the corporation  could,  under paragraph (A) of
this Section 4.4.4,  purchase or otherwise  acquire such shares at such time and
in such manner.

         4.4.5.   Reacquired  Shares.  Any shares  of Series C  Preferred  Stock
purchased  or otherwise  acquired by the  corporation  in any manner  whatsoever
shall be retired and 


                                      -77-
<PAGE>
cancelled  promptly after the  acquisition  thereof.  All such shares shall upon
their cancellation  become authorized but unissued shares of Preferred Stock and
may be  reissued  as part of a new  series of  Preferred  Stock  subject  to the
conditions and restrictions on issuance set forth herein, in the Fourth Restated
Articles of  Incorporation,  or in any other  Articles of  Amendment  creating a
series of Preferred Stock or any similar stock or as otherwise required by law.

         4.4.6.   Liquidation, Dissolution or Winding Up. Upon any  liquidation,
dissolution or winding up of the corporation,  no distribution shall be made (a)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation,  dissolution or winding up) to the Series C Preferred Stock unless,
prior  thereto,  the  holders of shares of Series C  Preferred  Stock shall have
received  $100 per share,  plus an amount equal to accrued and unpaid  dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided  that the  holders  of  shares  of Series C  Preferred  Stock  shall be
entitled to receive an aggregate amount per share,  subject to the provision for
adjustment  hereinafter set forth, equal to 100 times the aggregate amount to be
distributed  per share to  holders  of shares  of  Common  Stock,  or (b) to the
holders of shares of stock  ranking on a parity  (either as to dividends or upon
liquidation,  dissolution  or  winding  up) with the Series C  Preferred  Stock,
except  distributions  made ratably on the Series C Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled  upon such  liquidation,  dissolution  or winding up. In the
event the  corporation  shall at any time  declare  or pay any  dividend  on the
Common  Stock  payable in shares of Common  Stock,  or effect a  subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the aggregate  amount to which holders of shares of Series C Preferred
Stock were entitled  immediately prior to such event under the proviso in clause
(a) of the preceding  sentence shall be adjusted by multiplying such amount by a
fraction  the  numerator  of which is the  number  of  shares  of  Common  Stock
outstanding  immediately  after such event and the  denominator  of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

         4.4.7.   Consolidation,  Merger,  etc.  In case the  corporation  shall
enter into any consolidation,  merger, combination or other transaction in which
the shares of Common  Stock are  exchanged  for or changed  into other  stock or
securities,  cash and/or any other property, then in any such case each share of
Series C  Preferred  Stock  shall at the same  time be  similarly  exchanged  or
changed  into an amount  per  share,  subject to the  provision  for  adjustment
hereinafter  set  forth,  equal to 100  times  the  aggregate  amount  of stock,
securities,  cash and/or any other property  (payable in kind),  as the case may
be, into which or for which each share of Common Stock is changed or  exchanged.
In the event the  corporation  shall at any time  declare or pay any dividend on
the Common Stock payable in shares of Common Stock,  or effect a subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the amount set forth in the  preceding  sentence  with  respect to the
exchange  or change of shares of Series C  Preferred  Stock shall be adjusted by
multiplying  such amount by a fraction,  the numerator of which is the number of
shares of Common Stock outstanding immediately after such


                                      -78-
<PAGE>
event and the  denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

         4.4.8.  No Redemption. The shares of Series C Preferred Stock shall not
be redeemable.

         4.4.9.  Rank. The Series C Preferred  Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the corporation's Preferred Stock.

         4.4.10. Amendment. The Fourth Restated Articles of Incorporation of the
corporation  shall not be amended in any manner that would  materially  alter or
change the powers, preferences or special rights of the Series C Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding  shares of Series C Preferred Stock,  voting
together as a single class.



























                                      -79-
<PAGE>
                                                                   Exhibit 4.2.9
                                    AMENDMENT
                            DATED AS OF APRIL 1, 1998
                                       TO
                          CREDIT AND SECURITY AGREEMENT
                          DATED AS OF NOVEMBER 30, 1992


         Reference is hereby made to that certain Credit and Security  Agreement
("Credit  Agreement")  dated as of November 30, 1992 among Principal Mutual Life
Insurance Company,  Aetna Life Insurance Company,  The Northwestern  Mutual Life
Insurance  Company,  Chemical  Bank,  Seattle-First  National  Bank  and Bank of
America Oregon,  and WTD Industries,  Inc. and its Affiliates and the Term Notes
issued by the Borrowers in  connection  with the Credit  Agreement.  Capitalized
terms used herein  shall have the same  meaning  ascribed  thereto in the Credit
Agreement.

         The Term Notes  currently  are held by the  following  entities  in the
proportions set forth herein:

         Principal Mutual Life
           Insurance Company                         57.111632%

         The Northwestern Mutual Life
           Insurance Company                         20.450484%

         Foothill Group, Inc.                        13.532675%

         Oppenheimer & Co., Inc.                      6.911127%

         Fixed Plus Partners, beneficial owner
           of Note registered in the name of
           Bear Stearns Securities Corp.              1.994082%

         The Credit Agreement is hereby modified as follows:

         1.  Credit  Agreement  Section  6.01.C  is hereby  restated  to read as
follows:

                  C. Collateral  Coverage Ratio.  Maintain a ratio of Borrower's
         Current  Collateral  to the  outstanding  balance of the Term Loan (the
         "Collateral  Ratio"),  not less  than the  Collateral  Ratio  set forth
         below, at all times during the periods set forth below:







                                      -80-
<PAGE>
                     Period                             Collateral Ratio
                     ------                             ----------------

            Effective Date through 4/30/95              0.55 (55%)
            5/1/95 through 12/31/95                     0.60 (60%)
            1/1/96 through 2/29/96                      0.54 (54%)
            3/1/96 through 3/31/96                      0.55 (55%)
            4/1/96 through 6/30/96                      0.56 (56%)
            7/1/96 through 12/31/97                     0.60 (60%)
            1/1/98 through 3/31/98                      0.57 (57%)
            4/1/98 through 6/30/99                      0.50 (50%)
            7/1/99 and beyond                           0.63 (63%)

         As  used  herein,  "Current  Collateral"  means  for  Borrowers,  on  a
consolidated  basis,  all in accordance with GAAP, (i) all Current Assets,  less
(ii) the sum of (x) Borrower's current assets which are classified on Borrowers'
consolidated  balance  sheet as  "prepaid  expenses",  excluding  the  amount of
interest prepaid on the Term Notes, and otherwise  included in prepaid expenses,
(y)  Borrowers'   current   liabilities   which  are  classified  on  Borrowers'
consolidated  balance  sheet as "accounts  payable",  and (z) all of  Borrowers'
current  liabilities  which are  classified on Borrowers'  consolidated  balance
sheet as "timber contracts payable."

         2.  Credit  Agreement  Section  6.01.D  is hereby  restated  to read as
follows:

                  D.  Tangible  Net Worth.  Maintain a Tangible Net Worth of not
         less than the  respective  amount set forth below,  at all times during
         the periods set forth below:

                     Period                             Tangible Net Worth
                     ------                             ------------------

            Effective Date through 7/31/93              $ 6.5 Million
            8/1/93 through 4/30/94                      $ 8.0 Million
            5/1/94 through 4/30/95                      $10.0 Million
            5/1/95 through 10/31/95                     $15.0 Million
            11/1/95 through 12/31/95                    $13.5 Million
            1/1/96 through 6/30/96                      $11.0 Million
            7/1/96 through 6/30/97                      $ 9.0 Million
            7/1/97 through 3/31/98                      $10.0 Million
            4/1/98 through 12/31/98                     ($1.0)Million (Negative)
            1/1/99 through 6/30/99                               $0
            7/1/99 through 6/30/00                      $  2.0 Million
            7/1/00 and beyond                           $  4.0 Million

         3.  Credit  Agreement  Section  6.01.G  is hereby  restated  to read as
follows:

                  G.  Minimum  Cumulative  Adjusted  EBITDA.  Maintain a minimum
         EBITDA  (calculated  from and  including  the  first  day of the  first
         calendar month  following the Effective  Date) minus (a) actual Capital
         Expenditures,   minus   (b)   Timber   and   


                                      -81-
<PAGE>
         Timberlands Expenditures  Non-Current,  of not less than the respective
         amount  set forth  below,  at all times  during the  periods  set forth
         below:

                     Period                             Millions of Dollars
                     ------                             -------------------

            Effective Date through 4/30/93                       0
            5/1/93 through 7/31/93                               2
            8/1/93 through 1/31/94                               5
            2/1/94 through 7/31/94                             10
            8/1/94 through 12/31/95                            20
            1/1/96 through 6/30/96                             19
            7/1/96 through 12/31/96                            22.5
            1/1/97 through 6/30/97                             25
            7/1/97 through 7/31/98                             27.5
            8/1/98 through 10/31/98                            30
            11/1/98 through 6/30/99                            34
            7/1/99 through 6/30/00                             37.5
            7/1/00 through 6/30/01                             42.5
            7/1/01 and beyond                                  47.5

         4.  Credit  Agreement  Section  6.01.I  is hereby  restated  to read as
follows:

                  I. Total  Liabilities  Ratio.  Maintain a ratio of  Borrowers'
         Total  Liabilities  to Total  Assets  (the  "Liabilities  Ratio"),  not
         greater  than the  Liabilities  Ratios  set forth  below,  at all times
         during the periods set forth below:

                     Period                             Liabilities Ratio
                     ------                             -----------------

            Effective Date through 7/31/94              0.95 (95%)
            8/1/94 through 4/30/95                      0.90 (90%)
            5/1/95 through 12/31/95                     0.85 (85%)
            1/1/96 through 10/31/96                     0.87 (87%)
            11/1/96 through 6/30/97                     0.89 (89%)
            7/1/97 through 3/31/98                      0.87 (87%)
            4/1/98 through 7/31/98                      1.05 (105%)
            8/1/98 through 6/30/99                      1.00 (100%)
            7/1/99 through 6/30/00                      0.95 (95%)
            7/1/00 and beyond                           0.85 (85%)

         5.  Credit  Agreement  Section  6.01.J  is hereby  restated  to read as
follows:

                  J. Minimum Working Capital.  Maintain minimum working capital,
         at all times during the periods set forth below,  calculated as Current
         Assets  minus  Current  Liabilities;   provided,  for  the  purpose  of
         computing  Current  Assets  under this Section  6.01.J,  the portion of
         Current  Assets  which  consists of Timber and  Timberlands  Current or
         contract rights relating thereto shall be included only up to an amount
         equal to (x) on or before  January 31, 1993,  forty-five  percent (45%)
         and 


                                      -82-
<PAGE>
         (y)  thereafter,  forty  percent  (40%),  of the  amount of  Borrowers'
         overall Current Assets determined in accordance with GAAP:

                     Period                             Millions of Dollars
                     ------                             -------------------

            Effective Date through 12/31/95                    25
            1/1/96 through 6/30/96                             19
            7/1/96 through 6/30/97                             22.5
            7/1/97 through 9/30/97                             25
            10/1/97 through 12/31/97                           21.5
            1/1/98 through 3/31/98                             17.5
            4/1/98 through 6/30/99                              9
            7/1/99 through 6/30/00                             11.5
            7/1/00 through 6/30/02                             14
            7/1/02 and beyond                                  16.5

         6.  Credit Agreement Section 6.02.A is restated to read as follows:

                   A. Capital Expenditures. Make Capital Expenditures and Timber
         and  Timberlands  Expenditures  Non-Current  in an aggregate  amount in
         excess of the following  sums per fiscal year of Borrowers as set forth
         below:

                     Fiscal Year Ending                 Millions of Dollars
                     ------------------                 -------------------

            Effective Date through 4/30/97                     $8
            4/30/98                                            $8.5
            4/30/99                                            $3.5
            4/30/00                                            $4.0
            4/30/01                                            $4.5
            4/30/02                                            $5.0
            4/30/03 and beyond                                 $6.0

         7. In all other respects,  the Credit  Agreement shall remain unchanged
and in full force and effect.










                                      -83-
<PAGE>
EFFECTIVE DATE:   April 1, 1998


PRINCIPAL MUTUAL LIFE                       THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY                           INSURANCE COMPANY


By:                                         By:
   ---------------------------                 ---------------------------
Its:                                        Its:
   ---------------------------                 ---------------------------
                                            (pro rata interest: 20.450484%)
By:
   ---------------------------
Its:                                        FOOTHILL GROUP, INC.
   ---------------------------

(pro rata interest: 57.111632%)             By:
                                               ---------------------------
                                            Its:
OPPENHEIMER & CO., INC.                        ---------------------------
                                            (pro rata interest: 13.532675%)

By:
   ---------------------------              WTD INDUSTRIES, INC
Its:
   ---------------------------
(pro rata interest:  6.911127%)             By:
                                               ---------------------------
                                            Its:
FIXED PLUS  PARTNERS,  Beneficial              ---------------------------
Owner of Note  Registered in the Name 
of Bear Stearns Securities Corp.


By:
   ---------------------------
Its:
   ---------------------------
(pro rata interest: 1.994082%)






                                      -84-
<PAGE>
                                                                    Exhibit 10.9
                              EMPLOYMENT AGREEMENT


      THIS EMPLOYMENT AGREEMENT ("Agreement") dated as of May 27, 1998, is
between WTD INDUSTRIES, INC. ("Employer") and Robert J. Riecke ("Employee").

                                    RECITALS:

      Employer desires to retain Employee as a key senior manager and needs
Employee to stay during what is expected to be a difficult management transition
period.

      Employee desires to remain with Employer under the terms set forth below.

      NOW, THEREFORE, in consideration of the mutual promises, agreements and
conditions hereinafter set forth, it is agreed as follows.

                                    AGREEMENT

      1.   Term.

           Subject to the termination provisions in this Agreement, Employer
agrees to employ Employee in his present position, and Employee agrees to
continue employment in that position for a one-year term beginning June 1, 1998,
and ending May 31,1999.

      2.   Compensation and Benefits.

           a.    Base Salary.

           During the term of this Agreement Employee's base salary shall be the
greater of (a) Employee's current base salary or (b) any salary increase made to
Employee after the date of this Agreement. This same base salary shall be used
for the purposes of any payments provided elsewhere in this Agreement.

           b.    Bonus Programs.

           In addition to base salary the Employee will receive the benefit of
all bonus programs offered by the Employer on the same basis as other senior
managers of the Employer.

           c.    Other Employee Benefits.

           Employer agrees to allow Employee to participate in all benefit plans
and programs in accordance with the terms of such plans and programs as Employer
may have in effect from time to time during the period of this Agreement. Such
benefit plans and programs may include, without limitation, health insurance,
life insurance, disability insurance, and retirement plans.



                                      -85-
<PAGE>
      3.   Termination.

           a.    For Cause.

           Employer may terminate Employee at any time for cause with immediate
effect upon delivering written notice thereof to Employee. For purposes of this
Agreement, "for cause" shall mean:

           i.    Repeated incompetence in the performance of Employee's duties,
                 after written warning by Employer, gross negligence, or willful
                 misconduct;

           ii.   Embezzlement, theft, larceny, material fraud, or other acts of
                 dishonesty (including the unauthorized disclosure of
                 confidential information);

           iii.  The continued failure of Employee to render services under this
                 Agreement (including unreasonable absenteeism). Absenteeism
                 shall not be considered unreasonable if provided for by Federal
                 Family Medical Leave or similar statutes. In the event of such
                 failure of Employee to render services, Employer's remedy is
                 limited to termination;

           iv.   Aiding an existing or would-be competitor of Employer;

           v.    Conviction of or entrance of a plea of guilty or nolo
                 contendere to a felony or other crime that has a material
                 adverse effect on Employee's ability to carry out his duties
                 under this Agreement or upon the reputation of Employer;

           vi.   Conduct involving moral turpitude; or

           vii.  Repeated material insubordination after written warning by
                 Employer.

           Upon termination for cause, Employer shall pay Employee his base
salary and bonus compensation earned through the date of termination, plus any
employee benefits earned through the date of termination in accordance with
applicable plans. Employee's rights under existing stock option or
indemnification agreements shall be determined by the terms of said agreements.

           b.    Without Cause.

           Employer may terminate Employee at any time without cause upon
written notice. Upon termination without cause, Employer shall pay Employee a
lump sum payment equal to the sum of 12 times Employee's last monthly base
salary plus the total amount of any bonus compensation awarded to Employee in
the last 12 months.


                                      -86-
<PAGE>
Additionally,  Employer  shall enter into  amendments  of existing  stock option
agreements  to extend the exercise of all stock  options held by Employee on the
date of termination  to the first annual  anniversary  date of  termination  and
shall pay Employee's  COBRA premiums to continue  health  benefits for 12 months
following termination of employment.

           c.    Upon Death.

           In the event of Employee's death during the term of this Agreement,
Employer shall pay Employee's estate Employee's base salary and bonus
compensation through the last day of the month in which his death occurs, plus
any employee benefits payable in accordance with applicable plans.

           d.    Upon Disability.

           In the event of disability of Employee during the term of this
Agreement, Employee's salary continuation rights shall be determined by
Employer's short and long term disability plans.

           4.    Notice.

           All requests, demands and other communications required or permitted
hereunder shall be given in writing and shall be sufficient if personally
delivered or mailed to Employee in care of WTD Industries, Inc., Suite 900,
10260 S.W. Greenburg Road, Portland, Oregon 97223, or at the last residence
address set forth in Employee's personnel records maintained by Employer.

           5.    Successor Liability.

           This Agreement automatically shall be binding upon all successors and
assigns of the Employer, including, without limitations, any corporation or
other entity which may hereafter acquire or succeed to all or substantially all
of the business or assets of the Employer by any means whether direct or
indirect, by purchase, merger, consolidation or otherwise.

           6.    Other Provisions.

           a.    Attorney Fees.

           If any suit or action is filed by any party to enforce this Agreement
or otherwise with respect to the subject matter of this Agreement, the
prevailing party shall be entitled to recover reasonable attorney fees incurred
in preparation or in prosecution or defense of such suit or action as fixed by
the trial court or appellate court.







                                      -87-
<PAGE>
           b.    Amendments.

           This Agreement may be amended only be an instrument in writing
executed by all the parties.

           c.    Headings.

           The headings used in this Agreement are solely for convenience of
reference, are not part of this Agreement, and are not to be considered in
construing or interpreting this Agreement.

           d.    Entire Agreement.

           This Agreement (including the exhibits) sets forth the entire
understanding of the parties with respect to the subject matter of this
Agreement and supersedes any and all prior understandings and agreements,
whether written or oral, between the parties with respect to such subject
matter.

           e.    Counterparts.

           This Agreement may be executed by the parties in separate
counterparts, each of which when executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.

           f.    Severability.

           If any provision of this Agreement shall be invalid or unenforceable
in any respect, for any reason, the validity and enforceability of any such
provision in any other respect and of the remaining provisions of this Agreement
shall not be in any way impaired.

           g.    Governing Law and Venue.

           This Agreement shall be governed by and construed in accordance with
the laws of the State of Oregon.

           If any suit or action is filed by any party to enforce this Agreement
or otherwise with respect to the subject matter of this Agreement, venue shall
be in the federal or state courts in Multnomah County, Oregon.









                                      -88-
<PAGE>
           IN WITNESS WHEREOF, this Agreement has been signed by Employer and
Employee.

           EMPLOYER:                     WTD INDUSTRIES, INC.



                                         By
                                            --------------------------------

                                         Its
                                            --------------------------------
           EMPLOYEE:



                                         -----------------------------------
                                         Signature
                                         Print Name:
























                                      -89-
<PAGE>
                            Schedule to Exhibit 10.9


         Employment Agreements dated May 27, 1998 between Registrant and each of
the following:

         David J. Loftus
         K. Stanley Martin
         John C. Stembridge
         James R. Wilson




























                                      -90-
<PAGE>
                                                                    Exhibit 12.2
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                  COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
                             TO AVERAGE TOTAL ASSETS
                          (In Thousands, Except Ratios)



                                                               YEAR ENDED APRIL 30,
                                 ---------------------------------------------------------------------------------

                                     1998             1997             1996              1995             1994
                                 ------------     ------------     ------------      ------------     ------------
<S>                            <C>              <C>              <C>               <C>              <C>          
NET INCOME (LOSS)              $     (12,150)   $       8,970    $      (6,044)    $       3,700    $       6,300
                                 ============     ============     ============      ============     ============

AVERAGE TOTAL ASSETS
 Beginning of period           $      86,486    $      77,396    $      88,944     $      97,100    $     100,039
 End of period                        65,311           86,486           77,396            88,944           97,100

   Average                     $      75,899    $      81,941    $      83,170     $      93,022    $      98,570
                                 ============     ============     ============      ============     ============


RATIO OF NET INCOME (LOSS) TO
 AVERAGE TOTAL ASSETS                  (16.0) %          10.9 %           (7.3)%             4.0 %            6.4 %
</TABLE>
















                                      -91-
<PAGE>
                                                                    Exhibit 12.3
                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                  COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
                         TO AVERAGE STOCKHOLDERS' EQUITY
                          (In Thousands, Except Ratios)



                                                                YEAR ENDED APRIL 30,
                                 ---------------------------------------------------------------------------------

                                     1998             1997             1996              1995             1994
                                 ------------     ------------     ------------      ------------     ------------
<S>                            <C>              <C>              <C>               <C>              <C>          
NET INCOME (LOSS)              $     (12,150)   $       8,970    $      (6,044)    $       3,700    $       6,300
                                 ============     ============     ============      ============     ============

AVERAGE STOCKHOLDERS' EQUITY
 Beginning of period           $      18,434    $      11,686    $      20,076     $      18,512    $      13,684
 End of period                         4,093           18,434           11,686            20,076           18,512

   Average                     $      11,264    $      15,060    $      15,881     $      19,294    $      16,098
                                 ============     ============     ============      ============     ============

RATIO OF NET INCOME (LOSS) TO
 AVERAGE STOCKHOLDERS'
 EQUITY                               (107.9) %          59.6 %          (38.1) %           19.2 %           39.1 %


</TABLE>





























                                      -92-
<PAGE>
                                                                    Exhibit 12.4

                      WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
                COMPUTATION OF REGISTRANT'S AVERAGE STOCKHOLDERS'
                         EQUITY TO AVERAGE TOTAL ASSETS
                          (In Thousands, Except Ratios)




                                                                 YEAR ENDED APRIL 30,
                                 ---------------------------------------------------------------------------------

                                     1998             1997             1996              1995             1994
                                 ------------     ------------     ------------      ------------     ------------
<S>                            <C>              <C>              <C>               <C>              <C>
AVERAGE STOCKHOLDERS' EQUITY
 Beginning of period           $      18,434    $      11,686    $      20,076     $      18,512    $      13,684
 End of period                         4,093           18,434           11,686            20,076           18,512

   Average                     $      11,264    $      15,060    $      15,881     $      19,294    $      16,098
                                 ============     ============     ============      ============     ============



AVERAGE TOTAL ASSETS
 Beginning of period           $      86,486    $      77,396    $      88,944     $      97,100    $     100,039
 End of period                        65,311           86,486           77,396            88,944           97,100

   Average                     $      75,899    $      81,941    $      83,170     $      93,022    $      98,570
                                 ============     ============     ============      ============     ============


RATIO OF AVERAGE STOCKHOLDERS'
 EQUITY  TO AVERAGE
 TOTAL ASSETS                           14.8 %           18.4 %           19.1 %            20.7 %           16.3 % 


</TABLE>



























                                      -93-
<PAGE>

                                                                    Exhibit 21.1
WTD Industries, Inc.

Subsidiaries of the Registrant
As of July 2, 1998
Grouped by State/Country of Incorporation

Oregon
------
Alturas Lumber Co.
Burke Lumber Co.
Central Point Lumber Co.
Cottage Grove Lumber Co.
Crater Lake Lumber Co.
Custer Lumber Co.
Eugene Wood Products Co.
Glide Lumber Products Co.
Goshen Veneer Co.
Greenweld North America Co.
Halsey Veneer Co.
Judith Gap Lumber Co.
Junction City Lumber Co.
Midway Engineered Wood Products, Inc.
North Powder Lumber Co.
Pacific Softwoods Co.
Philomath Forest Products Co.
Port Westward Pulp Co.
Riverside Lumber Co.
Silverton Forest Products Co.
Trask River Lumber Co.
TreeSource, Inc.
Union Forest Products Co.
Union Rail Enterprises, Inc.
Western Timber Co.
Whitehall Plywood, Inc.

Washington
----------
Cle Elum Lake Veneer Co.
Graham Plywood Co.
Morton Forest Products Co.
Olympia Forest Products Co.
Orient Lumber Co.
Pacific Hardwoods-Aberdeen Co.
Pacific Hardwoods-South Bend Co.
Sedro-Woolley Lumber Co.
Spanaway Lumber Co.
Tumwater Lumber Co.
Valley Wood Products Co.

Montana
-------
Columbia Falls Forest Products, Inc.

Guam
----
TreeSource International, Inc.





                                      -94-
<PAGE>
                                                                    Exhibit 23.1

[MOSS ADAMS LETTERHEAD]





               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



         We  consent  to the  incorporation  by  reference  in the  Registration
Statement on Form S-8 pertaining to WTD Industries,  Inc. 1996 Stock Option Plan
with respect to the financial statements of WTD Industries, Inc. which appear in
the WTD Industries, Inc. Annual Report on Form 10-K for the year ended April 30,
1998, filed with the Securities and Exchange Commission.



                                                              /s/ Moss Adams LLP
                                                              ------------------
                                                              MOSS ADAMS


Beaverton, Oregon
June 4, 1998



                                      -95-