Document:

Global Claims Release and Insurer Settlement AgreementEX-10.5

GLOBAL CLAIMS RELEASE AND INSURER SETTLEMENT AGREEMENT

THIS GLOBAL CLAIMS RELEASE AND INSURER SETTLEMENT AGREEMENT (hereinafter, the “Agreement”) is made, effective as of the latest date written at the end hereof, between John Rudey, Aubrey L. Cole, George R. Hornig, Robert F. Wright, Alan B. Abramson and William A. Wyman (hereinafter, collectively, the “Insured Individuals”), U.S. Timberlands Klamath Falls, LLC n/k/a Inland Fiber Group, L.L.C. (“Klamath” or “the Company”), U.S. Timberlands Finance Corp. n/k/a Fiber Finance Corp. (“FFC”), U.S. Timberlands Yakima, LLC n/k/a American Forest Resources, L.L.C. (“Yakima”), and U.S. Timberlands Services Company, LLC n/k/a Timber Resource Services, LLC (hereinafter, collectively, the “Insured Entities”), and AIG Domestic Claims, Inc., on behalf of American International Specialty Lines Insurance Company (hereinafter, “AISLIC”) and The Travelers Indemnity Company, as successor in interest by merger to Gulf Insurance Company (hereinafter, “Gulf”).  (Gulf and AISLIC are collectively referred to herein as “the Insurers”). 

RECITALS

WHEREAS, AISLIC has issued on behalf of Klamath a Directors, Officers and Corporate Liability/General Partners & Limited Partnership Liability Insurance Policy Number 518-70-63, with a policy period of September 29, 2003 to October 1, 2004, with a coverage limit of $10,000,000.00 (hereinafter, the “AISLIC Primary Policy”); 

WHEREAS, Gulf has issued on behalf of Klamath an Excess Directors, Officers and Corporate Liability/General Partners & Limited Partnership Liability Insurance Policy Number GA8578509, with a policy period of September 29, 2003 to October 8, 2004, with a coverage limit of $10,000,000.00, which Policy is excess of the AISLIC Primary Policy (hereinafter, the “Gulf Excess Policy”); 

WHEREAS, Gulf continues to reserve its position that Yakima is not an insured under the Gulf Excess Policy;

	

	

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WHEREAS, the Indenture Trustee (the “Trustee”) for the $225,000,000 Senior Notes issued by Klamath (the “Senior Notes”) filed an action styled U.S. Bank National Assoc., in its capacity as Indenture Trustee and not in its individual capacity v. U. S. Timberlands Klamath Falls, LLC n/k/a Inland Fiber Group, L.L.C., et al., C. A. No. 112-N (hereinafter, the “Action”),  in the Court of Chancery of the State of Delaware in and for New Castle County (the “Chancery Court”) on or about December 12, 2003 against, among others, the Individual Insureds and the Insured Entities (collectively, the “Insured Defendants”); 

 

WHEREAS, AISLIC and Gulf have received notice of the Action on behalf of the Insured Defendants under the AISLIC Primary Policy and under the Gulf Excess Policy, respectively; 

WHEREAS, the Insured Defendants have made claims under the AISLIC Primary Policy for reimbursement, or payment, of their “Loss” (as such term is defined in the Policy) resulting from the Action, and the Insured Defendants anticipate claims under the Gulf Excess Policy upon exhaustion of the AISLIC Primary Policy; 

WHEREAS,
	Alan B. Abramson, Aubrey L. Cole, George R. Hornig, Robert F. Wright and William
	A. Wyman (hereinafter, collectively, the “Outside Directors”) and the Trustee
	have entered into a memorandum of understanding dated December 12, 2005, with the
	consent of AISLIC, Gulf and the remaining Insured Defendants, and have negotiated
	definitive settlement documentation related thereto (the “Chancery Court Settlement”),
	but have chosen not to present such definitive settlement documentation to the Court
	of Chancery at this time in order to further the potential consummation of a global
	settlement among all parties to the Action;

WHEREAS,
	the Insured Defendants have negotiated and intend to enter into on or about August
	14, 2006 a Settlement Agreement with the Trustee in the form attached hereto as Exhibit
	“A,” for a Global Settlement of the Action against all of the Insured Defendants
	(the “Global Settlement Agreement”); 

	

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WHEREAS, the Outside Directors have negotiated and intend to enter into on or about August 14, 2006 a Settlement Agreement with the Trustee, Klamath and FFC in the form attached hereto as Exhibit “B,” providing for a settlement of the Action against all the Outside Directors (the “Outside Director Settlement Agreement”);

WHEREAS, pursuant to the terms of the attached Global Settlement Agreement, subject to certain conditions, the parties to the Global Settlement Agreement shall file with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”):  (i) the Joint Plan of Reorganization of Debtors Inland Fiber Group, LLC, and Fiber Finance Corp. (the “Plan,” a copy of which is annexed to the Global Settlement Agreement as Exhibit A); and (ii) a motion seeking conditional approval of the Outside Director Settlement Agreement under Rule 9019 of the Federal Rules of Bankruptcy Procedure;

WHEREAS, the terms “Confirmation Date” and “Effective Date” as used herein shall have the meanings set forth in Article I, Definitions, of the Plan, provided, however, that solely for purposes of this Agreement, neither the Confirmation Date nor the Effective Date shall be deemed to have occurred unless the Plan that is confirmed by the Bankruptcy Court contains release language with respect to the Outside Directors that is not materially different from that contained in the form of the Plan attached as Exhibit A to the Global Settlement Agreement and adverse to the Outside Directors, unless such modification to the release language is consented to in writing by the Outside Directors; 

WHEREAS, the term “Scheduling Date” means the date on which C. Barr Flinn provides written notice to AISLIC and Gulf of the scheduled Effective Date, which notice shall be provided four (4) business days in advance of the scheduled Effective Date, and which notice shall specify the scheduled date of the Effective Date and provide instructions for distribution of the AISLIC Settlement Payment and the Gulf Settlement Payment, and shall also provide AISLIC and Gulf with a copy of the stipulation of discontinuance of the Action with prejudice provided by counsel for the Trustee as well as the stipulation of discontinuance of the Related Action with prejudice;   

WHEREAS,
	the Insured Defendants will provide AISLIC and Gulf on the Effective Date with
	confirmation of the receipt of funding from other sources for the Global Settlement
	prior to the transfer of any funds of AISLIC or Gulf being made to the Trustee on
	the Effective Date;

	

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WHEREAS, AISLIC, subject to reservation of rights letters issued on March 24, 2004 and July 9, 2004, has made payments through July 18, 2006 of approximately $4,393,950.87 for Defense Costs (as defined in the AISLIC Primary Policy) incurred in the defense of the Insured Defendants in the Action;

WHEREAS, Gulf has issued reservation of rights letters dated June 8, 2005, January 12, 2006 and January 31, 2006 with respect to its obligations under the Gulf Excess Policy for the claims asserted in the Action;  

WHEREAS, AISLIC has previously entered into a Claims Release and Settlement Agreement with the Outside Directors, with the consent of Gulf and the remaining Insured Defendants, pursuant to which AISLIC committed to pay $5,200,000.00 from the proceeds of the AISLIC Primary Policy to fund a settlement respecting the Outside Directors; 

WHEREAS, all parties desire to proceed with the Global Settlement Agreement of the claims asserted against all Insured Defendants in the Action;  

WHEREAS, the term “Outside Director Settlement Trigger Date” as used herein shall mean the first date on which both of the following have occurred:  (a) an order of the Bankruptcy Court approving the Outside Director Settlement Agreement has become final and non-appealable; and (b) either (i) the Bankruptcy Court has confirmed a Plan that contains release language with respect to the Outside Directors that is materially different from that contained in the form of the Plan attached as Exhibit A to the Global Settlement Agreement and adverse to the Outside Directors, and such modifications to the release language are not consented to in writing by the Outside Directors, or (ii) the Global Settlement Agreement is terminated;  

WHEREAS,
	the term “Chancery Settlement Submission Trigger Date” as used herein
	shall mean the first date on which both of the following have occurred:  (a)
	the Outside Director Settlement Agreement is terminated; and (b) either (i) the Bankruptcy
	Court has confirmed a Plan that contains release language with respect to the Outside
	Directors that 

	

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is
	materially different from that contained in the form of the Plan attached as Exhibit
	A to the Global Settlement Agreement and adverse to the Outside Directors, and such
	modifications to the release language are not consented to in writing by the Outside
	Directors, or (ii) the Global Settlement Agreement is terminated:

WHEREAS, the term “Chancery Settlement Effective Date” shall mean the date on which an Order of the Chancery Court approving the Chancery Court Settlement has become final and non-appealable;

WHEREAS, AISLIC, Gulf and the Insured Defendants are desirous, if the Outside Director Settlement Trigger Date occurs, of resolving all of the claims asserted against the Outside Directors in the Action, and whereas the Outside Directors have reached agreements with AISLIC and Gulf on the payments to be made by AISLIC toward funding of the Outside Director Settlement Agreement;

WHEREAS, AISLIC, Gulf and the Insured Defendants are desirous of resolving all of the claims asserted against all of the Insured Defendants in the Action, and whereas the Insured Defendants have reached agreements with AISLIC and Gulf on the payments to be made by AISLIC and Gulf toward funding of the proposed Global Settlement of the Action;  

WHEREAS, AISLIC and the Insured Defendants desire a complete resolution of all existing and potential claims and questions that have arisen or that may arise between and among them with respect to the Action and with respect to AISLIC’s obligations under the AISLIC Primary Policy; 

WHEREAS, Gulf and the Insured Defendants desire a complete resolution of all existing and potential claims and questions that have arisen or that may arise between and among them with respect to the Action and with respect to Gulf’s obligations under the Gulf Excess Policy; and

WHEREAS,
	to facilitate the complete resolution of all such existing and potential claims and
	questions, counsel for the Insured Defendants will provide notice to AISLIC and to
	Gulf of:  i) the Confirmation Hearing Date scheduled

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	by the Bankruptcy Court as soon as practicable, but in no event later than three (3)
	business days from the receipt of notice of scheduling of  the Confirmation Hearing
	Date;  ii) the Scheduling Date, which shall be at least four (4) business days
	in advance of the scheduled Effective Date, which notice shall specify the scheduled
	date of the Effective Date and provide instructions for distribution on the scheduled
	Effective Date of the AISLIC Settlement Payment and the Gulf Settlement Payment, and
	shall also provide AISLIC and Gulf with a copy of the stipulation of discontinuance
	with prejudice of the Action provided by counsel for the Trustee and a copy of the
	stipulation of discontinuance with prejudice of the Related Action; or iii) the termination
	of the Global Settlement Agreement as soon as practicable, but in no event later than
	three (3) business days from the date of such termination.   

AGREEMENT

NOW, THEREFORE, in consideration of the respective representations, covenants, undertakings, terms and conditions hereinafter set forth, as well as other good and valuable consideration, the receipt of which is hereby acknowledged, the Insured Defendants, AISLIC and Gulf hereby agree as follows: 

1.  Confidentiality:  The existence and terms of this Agreement are confidential, and the parties hereto agree to maintain the confidentiality of the Agreement and each of its provisions, except as otherwise required by law or legal process and except that AISLIC, Gulf and the Insured Defendants:  (i) may notify the Bankruptcy Court and Chancery Court, as well as excess insurers and reinsurers, of the existence and terms of this Agreement; (ii) upon the request of any other court, may inform such court of the existence and terms of this Agreement; and (iii) may provide information contained in this Agreement to their respective accountants, attorneys, auditors and regulators. 

2.
	 Payment by AISLIC:  Following AISLIC’s receipt of advance notice
	of the Confirmation Hearing Date scheduled by the Bankruptcy Court as set forth above,
	and in consideration of the Release given by the Insured Defendants pursuant to Paragraph
	5 below, within two (2) business days following the Confirmation Date, AISLIC will
	deposit in an escrow account maintained by its counsel, D’Amato & Lynch (“D&L”)
	at the offices of D’Amato & 

	

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Lynch
	located at 70 Pine Street, New York, New York, the balance of the proceeds of the
	AISLIC Primary Policy (the “AISLIC Settlement Payment”).  D&L shall
	hold in the AISLIC Escrow Account the AISLIC Settlement Payment until AISLIC and D&L
	receive notice of the scheduled Effective Date (which notice shall state the scheduled
	Effective Date and provide instructions for disbursement of the AISLIC Settlement
	Payment).  Provided that AISLIC has received notice of the scheduled Effective
	Date, AISLIC shall cause D&L to make all reasonable arrangements to ensure that
	the AISLIC Settlement Payment is disbursed on the scheduled Effective Date, pursuant
	to the written instructions of C. Barr Flinn, as approved in writing by Srinivas M.
	Raju and Joel Friedlander, in compromise and final settlement of all claims that the
	Insured Defendants may have under the AISLIC Primary Policy, as further set forth
	in the Release at Paragraph 5 hereof.  

In the event the Outside Director Settlement Trigger Date occurs, then the AISLIC Settlement Payment shall continue to be held either by AISLIC or by D&L for funding the Outside Director Settlement Agreement annexed hereto as Exhibit B pursuant to the terms of Paragraph 14 hereof.  

In the event that the Effective Date does not occur and the Outside Director Settlement Agreement is terminated, then the AISLIC Settlement Payment shall continue to be held by AISLIC or D&L for funding the Chancery Court Settlement annexed hereto as Exhibit C pursuant to the terms of paragraph 14 hereof.

Any interest earned on the AISLIC Settlement Payment while such funds are held in escrow at D&L shall revert to AISLIC.

3.
	 Disbursements from the AISLIC Primary Policy for Legal Fees of the Insured Defendants:
	 The parties hereto acknowledge that disbursements from the AISLIC Primary Policy
	may be required to be paid prior to the Confirmation Date for reimbursement of reasonable
	Defense Costs incurred by the Insured Defendants.  Invoices for Defense Costs
	incurred by the Insured Defendants subsequent to the date of this Agreement shall
	be provided promptly to AISLIC and Gulf, and Gulf shall review any such invoices and
	advise the Insured Defendants to the extent that Gulf agrees that the billed amounts
	constitute reasonable Defense Costs.  The Insured Defendants agree that, for
	so long as they have or may have incurred such reasonable Defense Costs, all such
	future payments may be made under the

	

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	AISLIC Primary Policy, but only with the written consent of Gulf and of all Insured
	Defendants, which consent shall not unreasonably be withheld, and only to the extent
	that the earmarked amount of $5,200,000.00 (the “Earmarked Amount”) for
	either the Outside Director Settlement Agreement or the Chancery Court Settlement
	is not used for reimbursement of Defense Costs. 

4.  Advancement of Outside Directors’ Legal Fees:  Gulf acknowledges that the limits of liability under the AISLIC Primary Policy shall be exhausted when AISLIC makes payments totaling $10,000,000.00 under the AISLIC Primary Policy, regardless of whether those payments are made as reimbursement of Defense Costs, contribution to the Global Settlement, or contribution to the Outside Director Settlement Agreement or the Chancery Court Settlement.  In the event that AISLIC makes payment of Defense Costs under the AISLIC Primary Policy of $4,800,000.00 in the aggregate prior to the Confirmation Date, and in the event the Outside Directors or Mr. Rudey and the Insured Entities incur reasonable Defense Costs in connection with the consummation of the Global Settlement, the Outside Director Settlement Agreement, the Chancery Court Settlement, or the Action following AISLIC making payment of in the aggregate of $4,800,000.00 in Defense Costs, the invoices respecting further Defense Costs of the Outside Directors, and Mr. Rudey and the Insured Entities will be provided promptly to counsel for Gulf.  Gulf will review any such invoices, and will advise counsel for the Outside Directors and Mr. Rudey and the Insured Entities to the extent Gulf agrees that the billed amounts constitute reasonable Defense Costs under the Gulf policy.  Mr. Rudey will make payment, without prejudice with respect to Gulf or any of the Insureds’ rights under the Gulf Excess Policy, of reasonable attorneys’ fees and expenses of the Outside Directors and reasonable attorneys’ fees and expenses of Mr. Rudey and the Insured Entities, which shall not be less than the amount of Defense Costs determined to be reasonable by Gulf.  

In
	the event the Effective Date occurs and the Global Settlement Agreement is consummated
	and neither the Outside Director Settlement Agreement nor the Chancery Court Settlement
	is consummated, Gulf will pay to Mr. Rudey on the scheduled Effective Date (by payment
	made pursuant to written instructions provided to Gulf on the Scheduling Date by C.
	Barr Flinn), the amounts paid by Mr. Rudey under this Paragraph 4 to the extent Gulf
	has previously advised that such amounts constitute reasonable Defense Costs.  The
	amounts reimbursed by Gulf to Mr. Rudey under this Paragraph 4 will be deducted from
	the $3.1 Million Gulf Settlement Payment.

	

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In the event that the Outside Director Settlement Agreement or the Chancery Court Settlement is consummated and such settlement is funded by AISLIC with the Earmarked Amount such that AISLIC has made payment of the aggregate sum of $10 Million under the AISLIC Primary Policy, Gulf will pay to Mr. Rudey any amounts paid by Mr. Rudey for Defense Costs under this Paragraph 4 within ten (10) business days of Gulf receiving notice from C. Barr Flinn of the termination of the Global Settlement Agreement and the funding by AISLIC of the Outside Director Settlement Agreement or the Chancery Court Settlement, but only to the extent Gulf has previously advised that such amounts constitute reasonable defense costs, and the AISLIC Primary Policy limit will be deemed exhausted by Gulf and by the Insured Defendants. 

Gulf expressly agrees that the failure of any Insured Defendant to submit Defense Costs for reimbursement under the Gulf Excess Policy during the term this Agreement remains in effect (with the exception for the procedure for advancement of Defense Costs detailed in Paragraph 4 hereof), shall not constitute a waiver, and shall not prejudice the rights of the Insured Defendants to submit such Defense Costs under the Gulf Excess Policy following the termination of this Agreement.  

5.
	 Release by the Insured Defendants of AISLIC:  Subject to AISLIC’s
	performance of its obligations under Paragraphs 2 and 3 hereof, or under Paragraphs
	3 and 14.C hereof the Insured Defendants, on behalf of themselves, and their respective
	successors in business or interest, assigns, agents, heirs, administrators, attorneys,
	employees, executors, liquidators, trustees, insurers, reinsurers, subrogees and representatives
	of all of the foregoing, and each of them, and all persons able to claim through any
	of the foregoing (hereinafter, collectively the “Insured Defendant Releasors”)
	do hereby and forever release, and absolutely and forever discharge AISLIC, its respective
	affiliates, divisions, parents, subsidiaries, predecessors, successors in business
	or interest, assigns, agents, administrators, attorneys, employees, executors, directors,
	officers, controlling persons, shareholders, insurers, reinsurers, liquidators, subrogees
	and representatives of all of the foregoing, and each of them, and all persons able
	to claim through any of the foregoing (hereinafter, collectively the “AISLIC
	Releasees”) from and against any and all claims, controversies, agreements, contracts,
	costs, damages, judgments, manners of action, causes of action, actions,

	

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	demands, declaratory judgments or suits arising out of the Action or the AISLIC Primary
	Policy, whether known or unknown;provided, however, that this release by the Insured
	Defendant Releasors does not include a release of any claims to enforce the terms
	of this Agreement.  This Agreement shall further constitute a covenant by the
	Insured Defendant Releasors not to sue any of the AISLIC Releasees on any of the claims
	released by the Insured Defendant Releasors under this Paragraph 5. 

6.  AISLIC Release of the Insured Defendants:  In consideration of the Release provided in Paragraph 5 hereof, AISLIC, on behalf of itself and its affiliates, divisions, parents, subsidiaries, predecessors, successors in business or interest, assigns, agents, administrators, attorneys, employees, executors, directors, officers, controlling persons, shareholders, insurers, reinsurers, liquidators, subrogees and representatives of all of the foregoing, and each of them, and all persons able to claim through any of the foregoing (hereinafter, collectively the “AISLIC Releasors”) do hereby and forever release, and absolutely and forever discharge the Insured Defendants, and their respective successors in business or interest, assigns, agents, heirs, administrators, attorneys, employees, executors, liquidators, trustees, insurers, reinsurers, subrogees and representatives of all of the foregoing, and each of them, and all persons able to claim through any of the foregoing (hereinafter, the “Insured Defendant Releasees”) from and against any and all claims, controversies, agreements, contracts, costs, damages, judgments, manners of action, causes of action, actions, demands, declaratory judgments or suits arising out of the Action or the AISLIC Primary Policy, whether known or unknown; provided, however, that this release by the AISLIC Releasors does not include a release of any claims to enforce the terms of this Agreement.  This Agreement shall further constitute a covenant by the AISLIC Releasors not to sue any of the Insured Defendant Releasees on any claims released hereunder this Paragraph 6. 

7.
	 Payment by Gulf:  Following Gulf’s receipt of advance notice of
	the Confirmation Hearing Date scheduled by the Bankruptcy Court as set forth above,
	and in consideration of the Release given by the Insured Defendants pursuant to Paragraph
	8 below, within two (2) business days following the Confirmation Date, Gulf will deposit
	into an escrow account maintained at the Bank of New York, or such other facility
	as may be agreed by Gulf and the Insured Defendants, the total sum of Three Million
	One Hundred Thousand Dollars and No Cents ($3,100,000.00) (hereinafter,

	

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	the “Gulf Settlement Payment”).  The Gulf Settlement Payment shall
	be maintained in escrow until Gulf and the escrow agent shall receive notice of the
	scheduled Effective Date (which notice shall state the scheduled Effective Date and
	provide instructions for disbursement of the Gulf Settlement Payment).  In consideration
	of:  (a) the payment by AISLIC of the amount set forth in Paragraph 2 hereof,
	and (b) the Release given by the Insured Defendants pursuant to Paragraph 8 below,
	the escrow agent for Gulf shall make payment on the scheduled Effective Date of the
	Gulf Settlement Payment, together with interest accruing thereon, less any escrow
	fees, in compromise and full settlement of all claims that the Insured Defendants
	may have under the Gulf Excess Policy, as further set forth in the Release at Paragraph
	8 hereof.  

In the event that Mr. Rudey has advanced payments for reimbursement of Defense Costs pursuant to paragraph 4 hereof, the escrow agent for Gulf shall make payment on the scheduled Effective Date (pursuant to written instructions provided to the escrow agent for Gulf on the Scheduling Date by C. Barr Flinn), of the amounts advanced by Mr. Rudey for the Defense Costs under paragraph 4 hereof, but only to the extent Gulf has previously advised that such amounts constitute reasonable defense costs, and the escrow agent for Gulf shall pay the balance of the Gulf Settlement Payment on the scheduled Effective Date pursuant to the written instructions provided on the Scheduling Date by C. Barr Flinn, as approved in writing by Srinivas M. Raju and Joel Friedlander, with the aggregate of Gulf’s payments on the Effective Date being Three Million One Hundred Thousand Dollars and No Cents ($3,100,000.00).  

In
	the event the Global Settlement is consummated, the Insured Individuals and the Insured
	Entities shall confer and agree upon an allocation from the Gulf Settlement Payment
	for payment of attorneys’ fees and expenses incurred on behalf of the Insured
	Individuals and the Insured Entities with respect to the Global Settlement Agreement,
	the Action, the Outside Director Settlement Agreement, or the Chancery Court Settlement,
	to the extent such attorneys’ fees have not previously been reimbursed by AISLIC
	or paid by Mr. Rudey under paragraph 4 hereof, provided that this procedure will in
	no way increase the amount of the Gulf Settlement Payment.

	

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In the event the Global Settlement is not consummated, the Gulf Settlement Payment, together with any interest accruing thereon, less any escrow fees, shall be returned to Gulf.

8.  Release by the Insured Defendants of Gulf:  Subject to Gulf’s performance of its obligations under Paragraphs 4 and 7 hereof, the Insured Defendant Releasors (as that term is defined in Paragraph 5 hereof), do hereby and forever release, and absolutely and forever discharge Gulf, its respective affiliates, divisions, parents, subsidiaries, predecessors, successors in business or interest, assigns, agents, administrators, attorneys, employees, executors, directors, officers, controlling persons, shareholders, insurers, reinsurers, liquidators, subrogees and representatives of all of the foregoing, and each of them, and all persons able to claim through any of the foregoing (hereinafter, collectively the “Gulf Releasees”) from and against any and all claims, controversies, agreements, contracts, costs, damages, judgments, manners of action, causes of action, actions, demands, declaratory judgments, or suits arising out of the Action or the Gulf Excess Policy, whether known or unknown; provided, however, that this release by the Insured Defendant Releasors does not include a release of any claims to enforce the terms of this Agreement.  .  This Agreement shall further constitute a covenant by the Insured Defendant Releasors not to sue any of the Gulf Releasees on any claims released by the Insured Defendants under this Paragraph 8. 

9.
	 Gulf Release of the Insured Defendants:  In consideration of the
	Release provided for in Paragraph 8 hereof, Gulf, on behalf of itself and its affiliates,
	divisions, parents, subsidiaries, predecessors, successors in business or interest,
	assigns, agents, administrators, attorneys, employees, executors, directors, officers,
	controlling persons, shareholders, insurers, reinsurers, liquidators, subrogees and
	representatives of all of the foregoing, and each of them, and all persons able to
	claim through any of the foregoing (hereinafter, collectively the “Gulf Releasors”)
	do hereby and forever release, and absolutely and forever discharge the Insured Defendant
	Releasees (as that term is defined in Paragraph 6 hereof), from and against any and
	all claims, controversies, agreements, contracts, costs, damages, judgments, manners
	of action, causes of action, actions, demands, declaratory judgments or suits arising
	out of the Action or the Gulf Excess Policy, whether known or unknown;
	provided, however, that this release by the Gulf Releasors does not include
	a release of any claims to enforce the terms of this Agreement.  This Agreement
	shall further constitute a covenant by the Gulf Releasors not to sue any of the Insured
	Defendant Releasees on any claims released under this Paragraph 9. 

	

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10.  Representation and Warranty on Assignment:  The Insured Defendants hereby represent and warrant that they own the rights released herein and that they have not assigned or transferred or purported to assign or transfer any such rights to any other person or entity. 

11.  Release of Unknown Claims:  The parties waive the benefits of any provision of the laws of the United States or of any state which provides that the foregoing releases and this Agreement do not extend to released claims which a party does not know or expect to exist in its favor at the time of executing the release, which if known to the party may have materially affected the settlement.  It is the intention of the parties to forever discharge and release known and unknown, present and future released claims. 

12.  No Admission or Waiver:  AISLIC, Gulf and the Insured Defendants agree that this Agreement shall not constitute, nor be construed as:  (i) an admission by AISLIC, Gulf or the Insured Defendants of any liability by any of the Insured Defendants in connection with the Action; (ii) an admission by AISLIC that it has any liability for coverage under the AISLIC Primary Policy; or (iii) an admission by Gulf that it has any liability for coverage under the Gulf Excess Policy.  The parties hereto agree that this Agreement was entered to avoid the uncertainties of further litigation.  No part of this Agreement or any statement by any party hereto may be used in any action, suit or proceeding as evidence of the respective rights, duties or obligations of the parties hereto, except to enforce the terms of this Agreement.  The parties hereto further acknowledge that all agreements contained in the Agreement have been agreed to solely for the purpose of effectuating a compromise of disputed claims and shall not be deemed to constitute an admission or concession by any party or constitute a waiver of any legal position which any party might otherwise assert.  This Agreement is without prejudice or value as precedent and shall not be used in any proceeding or hearing to create, prove or interpret the obligations under, or the terms and conditions of, any other policy of insurance issued by AISLIC or Gulf.  

The
	parties to this Agreement understand, acknowledge and agree that the negotiation,
	execution and performance of this Agreement shall not constitute, nor be construed
	as, an admission of any liability or infirmity of defense or claim whatsoever by any
	party.  

	

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13.  Construction:  No provision in this Agreement is to be interpreted for or against any party because that party or its legal representative drafted such provision.  This Agreement is not to be construed in favor of any particular party hereto, but is to be construed as if drafted by all of the parties.  

14.  Deferral of Outside Director Settlement Agreement and Chancery Court Settlement, and Reservation Respecting Such Settlements :  The parties agree that approval of the Outside Director Settlement Agreement reflected in Exhibit “B” hereto shall be sought so that the Outside Director Settlement Agreement shall become effective and be consummated in the event the Outside Director Settlement Trigger Date occurs.  The parties agree that submission of the Chancery Court Settlement reflected in Exhibit “C” hereto is and hereby shall be deferred, in order to permit the parties to proceed with the Global Settlement and/or the Outside Director Settlement Agreement.  AISLIC, Gulf and the Insured Defendants hereby expressly consent and agree that the Chancery Court Settlement shall not be consummated or submitted for approval by the Chancery Court prior to the Chancery Settlement Submission Trigger Date.  AISLIC, Gulf and the Insured Defendants hereby expressly consent and agree that the Earmarked Amount shall be used to fund: (i) the Outside Director Settlement Agreement in the event the Outside Director Settlement Trigger Date occurs, or (ii) the Chancery Court Settlement, in the event  the Chancery Settlement Effective Date occurs.  

In the event the Effective Date does occur, neither the Outside Director Settlement Agreement nor the Chancery Court Settlement shall be consummated.  

With respect to the consummation of the Outside Director Settlement Agreement or the Chancery Court Settlement, the following provisions shall apply:

A.

In
	the event the Outside Director Settlement Trigger Date shall occur, Srinivas M. Raju
	or Joel Friedlander, on behalf of the Outside Directors, shall, as approved in writing
	by C. Barr Flinn, provide written notice to AISLIC and Gulf of the Outside Director
	Settlement Trigger Date and, within seven business days thereafter, shall also provide
	AISLIC and Gulf with copies of the Stipulation and Order of Dismissal With Prejudice
	of the Action as against the Outside Directors. 

	

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B.

In the event the Chancery Settlement Effective Date shall occur, Srinivas M. Raju or Joel Friedlander, on behalf of the Outside Directors, shall, as approved in writing by C. Barr Flinn, provide written notice to AISLIC and Gulf of the Chancery Settlement Effective Date along with copies of the final order and judgment of the Chancery Court approving the Chancery Court Settlement.  

C.

Within five (5) business days from the date of receipt of the notice referenced in paragraph 14.A or the notice referenced in paragraph 14.B hereof, AISLIC will pay, or cause to be paid, to the escrow account of Richards, Layton & Finger, P.A., the Earmarked Amount on behalf of the Outside Directors.

D.

Subject to AISLIC’s performance of its obligations under paragraphs 3 and 14.C hereof and further subject to AISLIC making payments in the aggregate of $10,000,000.00 under the AISLIC Primary Policy respecting the Action, the Releases in paragraphs 5 and 6 hereof shall be given effect upon the funding of the Outside Director Settlement or the Chancery Court Settlement.  

15.  Captions and Headings:  Captions and headings contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. 

16.  Representation of Authority:  Any individual signing this Agreement on behalf of any entity represents and warrants that he has full authority to do so. 

17.  Choice of Law:  This Agreement shall be construed under, and interpreted in accordance with, the laws of the State of Delaware, without regard to the conflict of law rules of the State of Delaware. 

18.  Counterparts:  This Agreement may be executed in counterparts, each of which, when so executed, shall constitute an agreement binding on the parties hereto, notwithstanding that the parties to this Agreement are not signatories to the same counterpart. 

19.
	 Entire Agreement:  This Agreement constitutes the entire agreement
	among the parties relating to the subject matter hereof.  It is expressly understood
	by the parties that this Agreement may not be assigned, altered, amended, modified
	or otherwise changed except by a writing executed by each of the parties hereto.  For
	clarity, this

	

	

15

	

	Agreement in no way supersedes or displaces the Outside Director Settlement Agreement,
	the Chancery Court Settlement, the Global Settlement Agreement, the Support and Lock-Up
	Agreement, and/or the Plan.

20.  Termination:  This Agreement shall terminate in the event that each of the following events has occurred: (a) the Global Settlement Agreement (as such agreement may be amended) is terminated, (b) the Outside Director Settlement Agreement (as such agreement may be amended) is not approved by the Bankruptcy Court or is otherwise terminated, and (c) the Chancery Court Settlement (as such agreement may be amended) is not approved by the Chancery Court or is otherwise terminated.  Apart from the foregoing, this Agreement shall not be terminated except by means of a writing executed by each of the parties hereto.  In the event this Agreement is terminated:  (a) the releases provided in Paragraphs 5, 6, 8 and 9 hereof shall be void ab initio, and shall be of no further force and effect.  In the event the Effective Date does not occur and the Outside Director Settlement Agreement or the Chancery Court Settlement is consummated and funded with the Earmarked Amount by AISLIC, then the releases provided in Paragraphs 8 and 9 hereof shall be void ab initio and shall be of no further force and effect.

21.  Notices:  All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be given as follows:

	
To
				AISLIC:

			
				Catherine L. Casavant, Esq.

				D’Amato & Lynch

				70 Pine Street

				New York, NY  10270

				Facsimile:  (212) 269-3559

				ccasavant@damato-lynch.com

			
	
To
				Gulf

			
				John W. Duchelle, Esq.

				Ross, Dixon & Bell, LLP

				2001 K Street, N.W.

				Washington, DC  20006

				Facsimile:  (202) 662-2190

				jduchelle@rdblaw.com

			

	 	 

	
			To
				the Insured Entities and Mr. Rudey:

			C.
				Barr Flinn, Esq.

				Young Conaway Stargatt & Taylor LLP

				1000 West Street, 17th Floor

				Wilmington, DE  19801

				Facsimile:  (302) 576-3292

				bflinn@ycst.com

				

			 

				
			To
				the Outside Directors:
			

				Srinivas M. Raju, Esq. 

				Richards, Layton & Finger, P.A.

				One Rodney Square

				920 North King Street

				Wilmington, DE  19801

				Facsimile:  (302) 498-7748

				raju@rlf.com

		

16

 

 

	
			             and

			Scott
				M. Zimmerman, Esq. 

				Dechert LLP

				30 Rockefeller Plaza

				New York, NY  10112

				Facsimile:  (212) 698-3599

				scott.zimmerman@dechert.com

		
	

			            and
			

			Joel
				Friedlander

				Bouchard Margules & Friedlander, P.A.

				222 Delaware Avenue, Suite 1400

				Wilmington, DE  19801

				Facsimile:  (302) 573-3501

				jfriedlander@bmf-law.com

			

	 	 

 

22. Representations:  This Agreement is executed without reliance on any representation other than as contained herein.  Each of the undersigned has reviewed this Agreement, the Outside Director Settlement Agreement, the Chancery Court Settlement, the Global Settlement Agreement, and the agreements referenced herein and therein with his/its counsel, understands the contents of this Agreement and such other agreements and signs this Agreement freely and voluntarily. 

23.  Severability:  If any provision in this Agreement shall be adjudged void or unenforceable, the same shall not affect the validity of this Agreement as a whole. 

24.  Attorney's Fees:  If any action at law or equity is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover all costs incurred in such action or proceeding, including reasonable attorney’s fees, in addition to any other relief to which the prevailing party may be otherwise entitled. 

25.  Execution and Effective Date:  In witness whereof, the parties hereto have executed this Agreement to be effective as of the latest date written below. 

17

	

AIG DOMESTIC CLAIMS, INC. on behalf 

Of AMERICAN INTERNATIONAL SPECIALTY 

LINES INSURANCE COMPANY

By:

___________________________________

Title:

___________________________________  

Date:

___________________________________  

THE TRAVELERS INDEMNITY COMPANY, as successor

in interest by merger to GULF INSURANCE COMPANY 

  

By:

___________________________________

Title:

___________________________________  

Date:

___________________________________  

18

	

GEORGE R. HORNIG  

_________________________________________

Date:

___________________________________

 

ALAN B. ABRAMSON  

_________________________________________

Date:

___________________________________  

ROBERT F. WRIGHT

_________________________________________

Date:

___________________________________  

WILLIAM A. WYMAN

_________________________________________

Date:

___________________________________  

AUBREY L. COLE

_________________________________________

Date:

___________________________________   

	

19

	

JOHN
	RUDEY

By:
	 _________________________________________

Date:

___________________________________
	 

U.S. TIMBERLANDS KLAMATH FALLS, LLC, n/k/a Inland Fiber Group, LLC

By:  _________________________________________

Date:

___________________________________  

U.S. TIMBERLANDS FINANCE CORP., n/k/a Fiber Finance Corp. 

By:  _________________________________________

Date:

___________________________________  

U.S. TIMBERLANDS YAKIMA, LLC, n/k/a American Forest Resources, LLC 

By:  _________________________________________

Date:

___________________________________  

U.S. TIMBERLANDS SERVICE COMPANY, LLC, n/k/a Timber Resource Services, LLC 

By:  _________________________________________

Date:

___________________________________  

	

	

20Exhibit 10.1

                              EMPLOYMENT AGREEMENT
                              --------------------

This EMPLOYMENT AGREEMENT (this "Agreement") is made as of September 1, 2006, by
                                 ---------
and  between  Trinity  Learning Corporation, a Utah corporation (the "Company"),
                                                                      -------
and  Dennis  J. Cagan, an individual (the "Executive").  Certain definitions are
                                           ---------
set  forth  in  Section  4  of  this  Agreement.

In  consideration  of  the  mutual covenants contained herein and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged,  the  parties  to  this  Agreement  hereby  agree  as  follows:

1.     Employment.
       ----------

(A)     Position  and  Duties.  The  Company  agrees  to  employ  Executive  and
        ---------------------
Executive accepts such employment for the period beginning as of the date hereof
and  ending  upon  termination  pursuant to Section 1(c) hereof (the "Employment
                                                                      ----------
Period").  Executive shall serve as President and Chief Executive Officer of the
------
Company  and  shall  have  all  of  the  duties,  powers  and  responsibilities
customarily  delegated  and  assigned  therewith,  subject to the management and
control  of  the  Company's  Board  of  Directors  (the  "Board").

(B)     Compensation.
        ------------

(i)     Salary.  During  the Employment Period, the Company will pay Executive a
        ------
base  salary  (the  "Annual  Base  Salary")  of  $250,000  per  annum  (payable
                     --------------------
semi-monthly)  or  such  other  amount as the Company and Executive may agree to
from  time to time.  Executive's Annual Base Salary for any partial year will be
prorated  based  upon  the  number  of  days  elapsed  in  such  year.

(ii)     Bonus.  Executive shall be eligible to receive cash bonuses as provided
         -----
in the Bonus Plan ("Bonus Plan") attached hereto in Exhibit "A" and incorporated
                    ----------
herein  by  this  reference.  Set  bonus  to  be  paid  upon  company  achieving
profitability.  The  Bonus Plan is in lieu of any other bonus plans available to
Company  executives  or  employees.

(iii)     Benefits.  During the Employment Period, Executive will be entitled to
          --------
such  disability  insurance, health insurance, and other similar benefits as are
commensurate for similarly situated employees as determined from time to time by
the  Board.

(iv) Options to Purchase Shares.  Executive shall be awarded options ("Executive
     --------------------------                                        ---------
Options")  to  purchase  shares  of  the  Company's  common stock as provided in
-------
Exhibit  "B"  and  incorporated herein by this reference.  The Executive Options
------
shall  be governed by a stock option agreement to be executed by the parties and
in  accordance with the Company's 2002 Stock Plan, as amended (the "Stock Option
Plan").

<PAGE>
(C)     Term  and  Termination.  The  Employment  Period  will  commence  on the
        ----------------------
execution  date  hereof and continue until December 31, 2009 (the "Term") unless
earlier  terminated  pursuant  to  the  first  to  occur  of  (i)  Executive's
resignation,  death  or  Disability  (as  defined  in Section 4, below), or (ii)
termination  by  the  Company  with  or  without Cause (as defined in Section 4,
below).  The  Term may be extended upon the written agreement of the Company and
Executive.

(D)     Severance.
        ---------

(i)     Termination  Without  Cause, or for Death or Disability.  If Executive's
        -------------------------------------------------------
employment  is  terminated  by  the  Company  without  Cause,  or  for  death or
                                                                        -----
Disability  prior  to  the end of the Term, then the Company shall pay Executive
each  month  a  payment,  equal  to his monthly salary (based on his Annual Base
Salary),  for  a  twelve  (12) month period with the first payment beginning one
month  after  the  date of termination of employment (the "Severance Payments").
                                                           ------------------
The  Company  shall also allow Executive to continue participating in all of the
Company's  medical,  disability and life insurance plans on the same basis as he
was  participating  prior  to termination (e.g., if his participation was at the
Company's  sole  expense  prior to termination, it will be at the Company's sole
expense  during  the  severance period), but only to the extent permitted by the
Company's insurance carriers at a cost not materially in excess of the Company's
cost  for  such  insurance  immediately  prior  to  the date of termination.  In
addition,  Executive shall be eligible for payment of any bonuses as provided in
the  Bonus  Plan and be entitled to exercise his Executive Options in accordance
with  Exhibit "B" and the Stock Option Plan.  Any Advisory Agreement between the
Company  and  Executive  shall  remain  in  effect in accordance with its terms.

(ii)     Resignation.  If  Executive's  employment  is  terminated  due  to
         -----------
Executive's  resignation, then Executive shall be entitled to receive his Annual
         -
Base  Salary  plus  any  accrued  leave through the date of termination.  All of
Executive's  rights to Annual Base Salary and benefits hereunder which accrue or
become payable after the date of such termination of the Employment Period shall
cease  upon  such  termination.  In  addition,  Executive  shall be eligible for
payment  of  any  bonuses (earned prior to termination) as provided in the Bonus
Plan  and  be  entitled  to  exercise  his  Executive Options in accordance with
Exhibit  "B"  and  the  Stock  Option  Plan.  Any Advisory Agreement between the
Company  and  Executive  shall  remain  in  effect in accordance with its terms.

(iii)     Termination  With  Cause.  If  Executive's employment is terminated by
          ------------------------
the  Company  with Cause, then Executive shall be entitled to receive his Annual
Base  Salary  through  the  date  of  termination.  All of Executive's rights to
receive  any  other compensation or benefits from the Company shall cease on the
date  of  termination, including but not limited to any payments under the Bonus
Plan  or  the  exercise  of Executive Options or other options granted under the
Stock  Option  Plan.

2.     Confidential  Information.  Executive  acknowledges that the confidential
       -------------------------
or proprietary information, observations and data of the Company obtained by him
during  the  course  of  his  performance  under  this  Agreement concerning the
business  and  affairs  of  the

<PAGE>
Company  and  its  Affiliates  are  the  property  of  the  Company,  including
information concerning acquisition opportunities in or reasonably related to the
Company's  business  or  industry  of  which  Executive becomes aware during the
Employment Period.  Therefore, Executive agrees that he will not disclose to any
unauthorized  person  outside the ordinary course of business or use for his own
account  any  of  such  information,  observations  or  data without the Board's
written consent, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's  acts  or  omissions  to  act.  Executive  agrees  to deliver to the
Company  at  the  termination of the Employment Period, or at any other time the
Company may reasonably request in writing, all memoranda, notes, plans, records,
reports and other documents (and copies thereof) relating to the business of the
Company  and  its  Affiliates  (including,  without  limitation, all acquisition
prospects,  lists  and  contact  information)  which he may then possess or have
under  his  control.

3.     Noncompetition  and  Nonsolicitation.
       -------------------------------------

(A)     Noncompetition.  Executive  acknowledges  that  in  the  course  of  his
        --------------
employment  with  the  Company  he will become familiar with the Company's trade
secrets  and with other confidential information concerning the Company and that
his  services  will  be  of special and unique value to the Company.  Therefore,
Executive agrees that, during the Employment Period and for six months after the
payment  by  the Company of any Severance Payments (the "Noncompete Period"), he
                                                         -----------------
shall  not  directly or indirectly own, manage, control, participate in, consult
with, render services for, or in any manner engage in any business that provides
products  or  services  similar or identical to those provided by the Company or
any  of  its  Affiliates  at  the  time  of  such  termination.

(B)     Nonsolicitation.  During  the  term  of  the  Employment  Period and the
        ---------------
Noncompete  Period,  Executive  shall not directly or indirectly through another
entity (i) induce or attempt to induce any employee of the Company or any of its
Affiliates  to  leave  the employ of the Company or any of its Affiliates, or in
any  way  interfere  with  the  relationship  between  the Company or any of its
Affiliates  and any such employee thereof, (ii) hire or engage, or offer to hire
or engage, any employee of the Company or any of its Affiliates, or (iii) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company or any of its Affiliates to cease doing business with the Company
or  such  Affiliate,  or  in any way interfere with the relationship between any
such customer, supplier, licensee or business relation and the Company or any of
its  Affiliates.

(C)     Enforcement.  If,  at  the time of enforcement of Section 2 or 3 of this
        -----------
Agreement,  a  court  holds that the restrictions stated herein are unreasonable
under  circumstances  then  existing,  the parties hereto agree that the maximum
duration,  scope  or geographical area reasonable under such circumstances shall
be  substituted for the stated period, scope or area and that the court shall be
allowed  to  revise  the  restrictions  contained  herein  to  cover the maximum
duration,  scope  and  area  permitted by law.  Because Executive's services are
unique and because Executive has access to confidential information, the parties
hereto  agree that money damages would be an inadequate remedy for any breach of
this  Agreement.  Therefore,  in the event a breach or threatened breach of this
Agreement,  the  Company  or its successors or assigns may, in addition to other
rights  and  remedies  existing  in their favor, apply to any court of competent

<PAGE>
jurisdiction for specific performance and/or injunctive or other relief in order
to enforce, or prevent any violations of, the provisions hereof (without posting
a  bond  or  other  security).

4.     Definitions.
       -----------

"Affiliate"  of any particular person or entity means any other person or entity
 ---------
controlling,  controlled  by or under common control with such particular person
or  entity.  For  purposes of this Agreement, Affiliates of the Company include,
without  limitation,  all  subsidiaries of the Company and any companies that it
shall  hereafter  acquire.

"Cause"  means  (i)  the  conviction  of  a  felony  or  a crime involving moral
 -----
turpitude  or  the  commission of any act constituting intentional dishonesty or
fraud  with  respect  to  the  Company  or any of its Affiliates or any of their
customers or suppliers, (ii) intentional conduct tending to bring the Company or
any  of  its  Affiliates  into  substantial  public disgrace or disrepute, (iii)
substantial  and  repeated material failure to perform duties of the office held
by  Executive as reasonably directed by the Board, and such failure is not cured
within  30  days after Executive receives written notice thereof from the Board,
(iv)  recklessness  or  willful misconduct with respect to the Company or any of
its  Affiliates, or (v) any material breach of Section 2 or 3 of this Agreement.

"Disability"  means the inability, due to illness, accident, injury, physical or
 ----------
mental incapacity or other disability, of Executive to carry out effectively his
duties and obligations to the Company or to participate effectively and actively
in  the  management  of the Company for a period of at least 90 days (whether or
not  consecutive)  during  any  180-day  period, as determined in the reasonable
judgment  of  the  Board  after  receipt  of  competent  medical  advice.

"Person"  means  an  individual,  a  partnership, a limited liability company, a
 ------
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated  organization and a governmental entity or any department, agency
or  political  subdivision  thereof.

5.     Notices.  All  notices  and  other  communications given or made pursuant
       -------
hereto  shall  be in writing and shall be deemed to have been duly given or made
as  of  the  date  delivered if delivered personally or by telecopy or seven (7)
days after being mailed by registered or certified mail (postage prepaid, return
receipt  requested)  to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice, except that notices of
changes  of  address  shall  be  effective  upon  receipt):

If  to  the  Company:
--------------------

Trinity  Learning  Corporation
4101  International  Parkway
Carrollton,  TX  75007
Attention:  Board  of  Directors
Telephone:  972  309  4210
Facsimile:  312  329  4350

<PAGE>

If  to  Executive:
-----------------

Dennis  J.  Cagan
8605  Forest  Glen  Drive
Irving,  Texas  75063

or  to  such  other  address  or  to  the  attention of such other person as the
recipient  party  has  specified  by  prior written notice to the sending party.

6.     General  Provisions.
       -------------------

(A)     Severability.  Whenever  possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but  if  any  provision  of  this  Agreement  is  held to be invalid, illegal or
unenforceable  in  any  respect  under  any  applicable  law  or  rule  in  any
jurisdiction,  such  invalidity,  illegality or unenforceability will not affect
any  other  provision  or  any  other  jurisdiction,  but this Agreement will be
reformed,  construed  and  enforced  in  such  jurisdiction  as if such invalid,
illegal  or  unenforceable  provision  had  never  been  contained  herein.

(B)     Complete Agreement.  This Agreement, the exhibits attached hereto, those
documents  expressly  referred  to  herein  and  other documents executed by the
Company  and  Executive  of even date herewith embody the complete agreement and
understanding  among  the  parties  and  supersede  and  preempt  any  prior
understandings,  agreements  or representations by or among the parties, written
or  oral,  which  may  have  related  to  the  subject matter hereof in any way.

(C)     Counterparts.  This  Agreement may be executed in separate counterparts,
each  of  which  is  deemed  to  be  an original and all of which taken together
constitute  one  and  the  same  agreement.

(D)     Successors  and  Assigns.  Except  as  otherwise  provided  herein, this
Agreement  shall  bind  and  inure  to  the  benefit  of  and  be enforceable by
Executive,  the  Company,  and their respective successors and assigns; provided
that  the  rights and obligations of Executive under this Agreement shall not be
assignable.

(E)     Choice  of Law.  All questions concerning the construction, validity and
interpretation of this Agreement and any exhibits hereto will be governed by and
construed  in  accordance  with the internal laws of the State of Texas, without
giving effect to any choice of law or conflict of law provision or rule (whether
of  the  State  of  Texas  or  any  other  jurisdiction)  that  would  cause the
application  of the laws of any jurisdiction other than the State of Texas.  Any
suit  or  action  brought by the Company or by Executive shall be brought in the
State  of  Texas.

(F)     Remedies.  Each  of  the  parties  to this Agreement will be entitled to
enforce  its  rights  under  this Agreement specifically, to recover damages and
costs  (including attorney's fees) caused by any breach of any provision of this
Agreement  and  to exercise all other rights existing in its favor.  The parties
hereto  agree  and  acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in its
sole  discretion  apply  to any court of law or equity of competent jurisdiction
(without  posting  any  bond  or  deposit) for specific performance and/or other
injunctive  relief  in  order  to  enforce  or  prevent  any  violations  of the
provisions  of  this  Agreement.

(G)     Amendment  and  Waiver.  The provisions of this Agreement may be amended
and  waived  only  with  the prior written consent of the Company and Executive.

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

TRINITY  LEARNING  CORPORATION
     DENNIS  J.  CAGAN

By:  Douglas  Cole

Its:  Vice  Chairman     Employee:

<PAGE>

                                   EXHIBIT "A"

                                   BONUS PLAN

BONUS A: Positive cash flow - $50,000.  Earned when monthly cash receipts exceed
operating expenses, not including any reduction in past due vendor balances, for
any  three consecutive months.  Payable when company achieves cash flow positive
for  a  three month period, calculation shall include the payment of this bonus.

BONUS  B:  Financing  -  $50,000.  Earned  upon  the completion of any financing
transaction which yields the Company the availability of a minimum of $5M in new
capital  in  excess of any reduction or replacement of the current obligation to
Palisades.  This  is  not  limited  by  any  draw-down  restrictions.

BONUS  C:  Revenue growth - One percent (1%) of all profitable revenues received
in  excess  of  $7,500,000  in  any  given  quarter.  Earned  at the end of each
calendar  quarter where revenues exceed $7,500,000. Payable when company reaches
operating  profitability  and  cash  flow  positive  (for a three month period),
including  payment  of  this  bonus.

<PAGE>

                                   EXHIBIT "B"

                                EXECUTIVE OPTIONS

A  grant  of  options,  at  market price on the day of grant, equal to 3% of the
total  fully-diluted  equity  outstanding  on  the  grant date.  Grant should be
approved and take effect as soon as reasonably practicable of the closing of the
anticipated  Laurus  financing  transaction.

Fully-diluted  includes  shares  outstanding,  restricted  shares,  convertible
preferred  shares,  total  warrants  outstanding,  and  total  stock  options
outstanding including all granted options (regardless of vesting) and the entire
un-granted  option  pool  (including  any  increase authorized by the board post
closing  of  any  financing  transactions completed within the fourth quarter of
calendar  2006.  (For  example,  under the proposed Laurus transaction there are
166,976,670  total shares outstanding fully-diluted.  If the Company were to add
to  this  a new option pool increase of 42Million or about 20% of the new total,
to  accommodate  new  grants  to  all  employees, the new total would then total
208,976,670.  3%  of  that  would  be  6,269,300  options.

Options  to  vest  as  follows:  1/3  to  vest immediately, and with 1/36 of the
balance  to vest each month over a 36 month period.  There would be 100% vesting
of all unvested options on any change of control.  In the event that Executive's
employment  is  terminated  pursuant to Section 4(d)(i), then Executive shall be
entitled  to an acceleration of vesting of 1/2 of the remaining unvested options

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