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<SEC-DOCUMENT>0000931763-02-000717.txt : 20020415
<SEC-HEADER>0000931763-02-000717.hdr.sgml : 20020415
ACCESSION NUMBER:		0000931763-02-000717
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		12
CONFORMED PERIOD OF REPORT:	20011231
FILED AS OF DATE:		20020320

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			RAYONIER INC
		CENTRAL INDEX KEY:			0000052827
		STANDARD INDUSTRIAL CLASSIFICATION:	LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400]
		IRS NUMBER:				132607329
		STATE OF INCORPORATION:			NC
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K405
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-06780
		FILM NUMBER:		02580106

	BUSINESS ADDRESS:	
		STREET 1:		50 NORTH LAURA ST
		CITY:			JACKSONVILLE
		STATE:			FL
		ZIP:			32202
		BUSINESS PHONE:		9043579100

	MAIL ADDRESS:	
		STREET 1:		50 NORTH LAURA ST
		CITY:			JACKSONVILLE
		STATE:			FL
		ZIP:			32202

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ITT RAYONIER INC
		DATE OF NAME CHANGE:	19920703

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ITT RAYONIER INC /CT/
		DATE OF NAME CHANGE:	19940422
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>

================================================================================

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

   For the year ended December 31, 2001

                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

   For the transition period from                      to

                         Commission File Number 1-6780

                                 RAYONIER INC.
                  Incorporated in the State of North Carolina

                 I.R.S. Employer Identification No. 13-2607329

                            50 NORTH LAURA STREET,
                            JACKSONVILLE, FL 32202
                         (Principal Executive Office)

                       Telephone Number: (904) 357-9100

          Securities registered pursuant to Section 12(b) of the Act,
          all of which are registered on the New York Stock Exchange:

                                 Common Shares
                       7.5% Notes, due October 15, 2002
                          Medium-Term Notes, due 2004
       Securities registered pursuant to Section 12(g) of the Act: None

   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 12 months and (2) has been subject to such filing
requirements for the past 90 days.     YES [X]       NO [_]

   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 the Form 10-K or any
amendment to this Form 10-K.    [X]

   The aggregate market value of the Common Shares of the registrant held by
non-affiliates of the Registrant on March 1, 2002, was approximately
$1,388,000,000.

   As of March 1, 2002, there were outstanding 27,547,521 Common Shares of the
Registrant.

   The registrant's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A involving the
election of directors at the annual meeting of the shareholders of the
registrant scheduled to be held on May 16, 2002, is incorporated by reference
in Part III of the Form 10-K.

================================================================================

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                                       Page
- ----                                                                                       ----
                                            PART I
<C>  <S>                                                                                   <C>
1.   Business.............................................................................   1
2.   Properties...........................................................................   8
3.   Legal Proceedings....................................................................   8
4.   Submission of Matters to a Vote of Security Holders..................................   8
*    Executive Officers of Rayonier.......................................................   9
                                            PART II
5.   Market for the Registrant's Common Equity and Related Stockholder Matters............  11
6.   Selected Financial Data..............................................................  12
7.   Management's Discussion and Analysis of Financial Condition and Results of Operations  16
8.   Financial Statements and Supplementary Data..........................................  26
9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.  27
                                           PART III
10.  Directors and Executive Officers of the Registrant...................................  27
11.  Executive Compensation...............................................................  27
12.  Security Ownership of Certain Beneficial Owners and Management.......................  27
13.  Certain Relationships and Related Transactions.......................................  27
                                            PART IV
14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K......................  28
</TABLE>
- --------
* Included pursuant to Instruction 3 to Item 401 (b) of Regulation S-K

                                       i

<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                            <C>
Report of Management.......................................................................... F-1
Report of Independent Certified Public Accountants............................................ F-1
Statements of Consolidated Income for the Three Years Ended December 31, 2001................. F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................. F-3 to F-4

Statements of Consolidated Cash Flows for the Three Years Ended December 31, 2001............. F-5

Notes to Consolidated Financial Statements.................................................... F-6 to F-24
                                  INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts................................................ F-25
All other financial statement schedules have been omitted because they are not applicable, the
required matter is not present, or the required information has been otherwise supplied in the
financial statements or the notes thereto.
Signatures.................................................................................... A
Exhibit Index................................................................................. B to E
</TABLE>


                                      ii

<PAGE>

                                    PART I

Item 1.  BUSINESS

General

   Rayonier Inc. (Rayonier or the Company), including its subsidiaries, is a
leading international forest products company primarily engaged in the
production and sale of high value-added performance cellulose fibers and
activities associated with timber and land management, including the sale of
timber and land. Rayonier owns and operates two performance fibers mills in the
United States and owns, leases or controls approximately 2.3 million acres of
timberland located primarily in the United States and New Zealand. In addition,
the Company engages in the trading, merchandising and manufacturing of logs and
wood products, and has lumber manufacturing facilities in the United States and
a medium-density fiberboard plant in New Zealand. In November 2000, the Company
announced that it would focus its corporate strategy on two core business
segments--Performance Fibers and Timber and Land (previously Timberland
Management).

   Rayonier traces its origins to the Rainier Pulp & Paper Company founded in
Shelton, WA, in 1926. In 1937, it became "Rayonier Incorporated," a public
company traded on the New York Stock Exchange (NYSE), until 1968, when it
became a wholly-owned subsidiary of ITT Corporation, now known as ITT
Industries, Inc. (ITT). On February 28, 1994, Rayonier again became an
independent public company when ITT distributed all of Rayonier's Common Shares
to ITT stockholders. Rayonier shares are publicly traded on the NYSE under the
symbol RYN. Rayonier is a North Carolina corporation with its executive offices
located at 50 North Laura Street, Jacksonville, FL, 32202. Its telephone number
is (904) 357-9100.

   Rayonier operates in three reportable business segments as defined by
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures About
Segments of an Enterprise and Related Information: Performance Fibers, Timber
and Land, and Wood Products and Trading. Performance Fibers includes two
business units, Cellulose Specialties and Absorbent Materials. The Timber and
Land segment includes two business units, Timber and Land. For information on
sales, operating income and identifiable assets by segment, See Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 3 of the Notes to Consolidated Financial
Statements--Segment and Geographical Information.

Sales

   Rayonier's sales (as reclassified) for the three years ended December 31,
2001, were as follows (in millions):

<TABLE>
<CAPTION>
                                         Year Ended December 31
                                         ----------------------
                                          2001    2000    1999
                                         ------  ------  ------
               <S>                       <C>     <C>     <C>
               Performance Fibers
                  Cellulose Specialties. $  369  $  348  $  331
                  Absorbent Materials...    178     228     160
                                         ------  ------  ------
               Total Performance Fibers.    547     576     491
                                         ------  ------  ------
               Timber and Land
                  Timber................    197     210     156
                  Land..................     84      70      21
                                         ------  ------  ------
               Total Timber and Land....    281     280     177
                                         ------  ------  ------
               Wood Products and Trading    358     401     462
               Intersegment Eliminations    (21)    (30)    (22)
                                         ------  ------  ------
                  Total sales........... $1,165  $1,227  $1,108
                                         ======  ======  ======
</TABLE>

   Rayonier has customers in 56 countries and 44 percent of the Company's 2001
sales of $1.2 billion were made to customers outside the United States.

                                      1

<PAGE>

Performance Fibers

   Rayonier is a leading manufacturer of high performance cellulose fibers. The
Company owns and operates fiber production facilities in Jesup, GA, and
Fernandina Beach, FL, with a combined annual capacity of approximately 720,000
metric tons. These facilities are able to manufacture more than 25 different
grades of performance fibers to meet customers' needs. The Jesup facility can
produce approximately 570,000 metric tons of performance fibers, or 79 percent
of Rayonier's total capacity. The Fernandina Beach facility can produce
approximately 150,000 metric tons of Performance Fibers, or 21 percent of
Rayonier's total capacity.

   Rayonier produces and sells these performance fibers primarily to meet
specific customer orders and specifications throughout the world. The customers
then produce a wide variety of consumer and industrial products. Approximately
two-thirds of Rayonier's Performance Fibers sales are exported to customers,
primarily in Asia, Europe and Latin America. Approximately 85 percent of
Performance Fibers sales are made directly by Rayonier sales personnel, with
the remainder made through independent sales agents primarily to export
locations.

   This segment includes two business units - Cellulose Specialties and
Absorbent Materials.

   Cellulose Specialties--Rayonier is one of the world's leading producers of
specialty cellulose products; most of which are used in dissolving chemical
applications that require a highly purified form of cellulose. Cellulose
Specialties products are used in a wide variety of end uses such as: acetate
textile fibers, rigid packaging, photographic film, impact-resistant plastics,
high-tenacity rayon yarn for tires and industrial hoses, pharmaceuticals,
cosmetics, detergents, sausage casings, food products, thickeners for oil well
drilling muds, cigarette filters, lacquers, paints, printing inks, explosives
and LCD screens. In addition, Cellulose Specialties include high value
specialty paper applications used for decorative laminates for counter tops,
automotive air and oil filters, shoe innersoles, battery separators, circuit
boards and filter media for the food industry. Rayonier concentrates on and is
a leading producer of the most highly valued, technologically demanding forms
of Cellulose Specialty products, such as cellulose acetate and high-purity
cellulose ethers.

   Absorbent Materials--Rayonier is a supplier of Performance Fibers for
absorbent hygiene products. These fibers are typically referred to as fluff
fibers and are used as an absorbent medium in products such as disposable baby
diapers, feminine hygiene products, incontinence pads, convalescent bed pads,
industrial towels and wipes and non-woven fabrics.

   The Absorbent Materials product line also includes paper applications that
are made as a secondary product to fluff fibers to help match inconsistencies
in demand to capacity. These paper applications represent approximately 5
percent of total Performance Fibers production. These fibers are used in the
manufacture of bond, book and printing paper.

   Rayonier also produces and markets an engineered absorbent core material
that goes into thin super-absorbent sanitary napkins and diaper products. A new
12,000 ton per year manufacturing facility in Jesup, GA, was completed in 2001
to bring manufacturing in-house and aid in the continued development of these
products. Although this is a developing business that is currently a very small
percentage of the product line, it is expected to increase its contribution to
segment results.

Timber and Land

   Rayonier manages timberlands, sells standing timber to third parties and
sells land for both future harvesting and real estate development. This segment
includes two business units: Timber and Land. In the U.S., the Company manages
the business segment through Rayonier Timberlands Operating Company (RTOC), a
wholly-owned limited partnership.

                                      2

<PAGE>

   Timber--Rayonier owns, leases or controls approximately 2.3 million acres of
timberlands as of December 31, 2001, as follows (in thousands of acres):

<TABLE>
<CAPTION>
                                                         Long-Term
                               Total                      Leased
                Region         Acres  %  Fee-Owned Acres   Acres
                ------         ----- --- --------------- ---------
             <S>               <C>   <C> <C>             <C>
             Southeast U.S.... 1,682  74      1,430         252
             Northwest U.S....   378  17        378          --
             New Zealand......   207   9         78         129
                               ----- ---      -----         ---
                Total......... 2,267 100      1,886         381
                               ===== ===      =====         ===
</TABLE>

   Excluded above are 103,000 acres managed by Rayonier in Australia, 7,000
acres managed in New Zealand and approximately 67,000 acres of non-productive,
non-harvestable or native vegetation land in New Zealand.

   The Company's Southeastern U.S. timberlands consist of approximately 1.7
million acres located primarily in Georgia, Florida and Alabama, and their
proximity to pulp, paper and lumber mills results in significant competition
for the purchase of the timber. Approximately 40-50 percent of the timber
harvest represents high-value wood sold primarily to plywood and lumber mills.
The balance is pulpwood destined for pulp and paper mills. Softwoods are the
predominant species on the Southeastern U. S. timberlands and include loblolly
and slash pine, while hardwoods, the minor species, include red oak, sweet gum,
black gum, red maple, cypress and green ash. On October 25, 1999, Rayonier
acquired approximately 968,000 owned and leased acres of timberland in Georgia,
Florida and Alabama in a business combination accounted for by the purchase
method of accounting.

   Through advanced silvicultural practices, the Company has increased volume
per acre of timber available for harvest from its Southeastern U. S.
timberlands. This is a primary factor behind an increasing pine harvest trend
over the past fifteen years that has, on average, increased approximately
35,000 tons each year. These practices are also being utilized by the Company
in the management of the 968,000 acres of timberland acquired in 1999, with an
increasing trend of similar magnitude anticipated.

   Northwestern U.S. timberlands consist of approximately 378,000 acres
primarily on the Olympic Peninsula in Western Washington State. All are owned
in fee and consist almost entirely of second growth trees. These timberlands
are primarily softwood stands, with approximately 60-70 percent hemlock and the
remainder Douglas fir, Western red cedar and spruce. Hardwood timber stands
consist principally of alder and maple.

   The Company's New Zealand forest assets consist of 78,000 acres of fee-owned
timberland, plus Crown Forest Licenses that provide the right to grow and
harvest timber on approximately 129,000 acres of government owned timberland
for a minimum period of 35 years. Approximately 80-90 percent of these
timberlands consist of radiata pine, well suited for high-quality lumber and
panel products. The balance is Douglas fir and other species. Timber is grown
and sold for both domestic New Zealand uses and for export, primarily to the
Pacific Rim markets. In addition, the Company manages timberlands for others in
New Zealand and Australia.

   Rayonier manages timberlands, endeavoring to scientifically develop forests
to their maximum economic value. The average rotation age for timber from the
Southeastern U.S. (primarily Southern pine) is 21 years. The average rotation
age for timber destined for domestic and export markets from the Northwestern
U.S. (primarily hemlock and Douglas fir) is 45 to 50 years. The average
rotation age for timber grown in New Zealand (primarily radiata pine) is
approximately 25 to 28 years.

   Rayonier sells timber through a public auction process, predominantly to
third parties. By requiring the Company's other operating units to
competitively bid for their timber and wood requirements, the Company believes
it can maximize the true economic return on its investments. In 2001,
approximately 89 percent of the Company's standing timber sales were made to
third parties. Rayonier's third party timber sales are made on either a
lump-sum or pay-as-cut basis. On a lump-sum basis, a minimum 15% initial
payment is required, title and risk of loss are transferred and installment
payments are made in advance for the volume to be cut. On a pay-

                                      3

<PAGE>

as-cut basis, a 10% deposit and 10% performance bond are required. Payments are
made as the timber is cut. In the Northwestern U.S., the majority of sales are
lump sum sales due to large, financially stable customers and market practices.
In the Southeastern U.S., where the majority of customers are smaller,
family-owned businesses, the majority of sales are pay-as-cut sales.

   The Company manages its timberlands in conformity with best forest industry
practices. A key to success is the extensive application of Rayonier's
silvicultural expertise to species selection for plantations, soil preparation,
thinning of timber stands, pruning of selected species, fertilization and
careful timing of the harvest, all designed to maximize value, while responding
to environmental needs. The following table sets forth timberland acres (in
thousands) as of December 31, 2001, by region and by timber classification.
Excluded are 7,000 acres managed in New Zealand, 103,000 acres managed by
Rayonier in Australia, and approximately 67,000 acres of unproductive or native
vegetation land in New Zealand that is not harvestable.

<TABLE>
<CAPTION>
                              Softwood  Hardwood
                 Region      Plantation  Lands   Non-Forest Total
                 ------      ---------- -------- ---------- -----
              <S>            <C>        <C>      <C>        <C>
              Southeast U.S.   1,131      516        35     1,682
              Northwest U.S.     310       17        51       378
              New Zealand...     186       21        --       207
                               -----      ---        --     -----
                 Total......   1,627      554        86     2,267
                               =====      ===        ==     =====
</TABLE>

   Merchantable timber inventory is an estimate of the amount of standing
timber at the earliest age that it could be economically harvested. Estimates
are based on an inventory system that continually involves periodic statistical
sampling of the timberlands. Adjustments are made on the basis of growth
estimates, harvest information and market conditions.

   The following table sets forth the estimated volumes of merchantable timber
by location and type, as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                          Equivalent total,
                                                                           in thousands of
                     Region                      Softwood Hardwood Total    cubic meters     %
                     ------                      -------- -------- ------ ----------------- ---
<S>                                              <C>      <C>      <C>    <C>               <C>
Southeast U.S., in thousands of short green tons  22,911   20,053  42,964      31,448        51
Northwest U.S., in millions of board feet.......   1,746      222   1,968      15,747        25
New Zealand, in thousands of cubic meters.......  13,875    1,045  14,920      14,920        24
                                                                               ------       ---
                                                                               62,115       100
                                                                               ======       ===
</TABLE>

   Land--Rayonier invests in timberlands seeking to maximize its returns from a
full cycle of ownership. The end cycle includes selling portions of its land
base to capture the appreciated value of the underlying asset. This program
includes selling general timberland for others to manage and harvest, and
selling higher and better use (HBU) real estate properties more valuable for
commercial development, residential development and conservation purposes.

                                      4

<PAGE>

   In November 2000, the Company announced that it would routinely sell 2
percent to 4 percent of its land base each year in order to capture its
appreciated value on a more regular basis. Land will be replaced
opportunistically when it can be acquired at a discount to long-term market
trends. Quarterly land sales for the three years ended December 31, 2001, are
summarized in the following table:

<TABLE>
<CAPTION>
                                      Quarter Ended
                        -----------------------------------------  Total
                        March 31 June 30 September 30 December 31  Year
                        -------- ------- ------------ -----------
                            (Thousands of dollars, except acres sold)
       <S>              <C>      <C>     <C>          <C>         <C>
       2001
       Land Sales...... $ 1,234  $62,223    $7,404      $12,996   $83,857
       Operating Income     844   34,343     5,571       10,760    51,518
       Acres Sold......     415   57,858     2,678        6,466    67,417

       2000
       Land Sales...... $53,079  $ 3,859    $4,925      $ 8,338   $70,201
       Operating Income  26,017    3,091     3,876        5,232    38,216
       Acres Sold......  57,823    1,334     1,339        2,725    63,221

       1999
       Land Sales...... $ 2,007  $ 1,560    $5,311      $11,987   $20,865
       Operating Income   1,343      916     4,175        8,890    15,324
       Acres Sold......     333      262     2,478        4,057     7,130
</TABLE>

   Sales associated with transactions in which title to the land was not
transferred (for example, relinquishing lease rights) were $4,823, $393, and
$104, in 2001, 2000, and 1999, respectively.

Wood Products and Trading

   The Wood Products and Trading business segment manufactures and sells
dimension and specialty lumber and medium-density-fiberboard (MDF), purchases
and harvests timber primarily from third parties, and sells logs and wood panel
products.

   Rayonier operates three lumber manufacturing facilities in the U.S. that
produce Southern pine and specialty lumber for residential construction and
industrial uses. The mills located at Baxley, Eatonton, and Swainsboro, GA,
have a combined annual capacity of approximately 360 million board feet of
lumber, while also producing approximately 715,000 tons of wood chips for
pulping. Lumber sales are primarily to customers in the Southeastern U. S. and
Caribbean markets. Most of the lumber is sold by Rayonier sales personnel,
however sales to certain export locations are made through independent agents.
Substantially all of the wood chip production is sold (at spot market prices)
to Rayonier's Jesup, GA, performance fibers facility, accounting for
approximately 19 percent of that facility's 2001 total wood consumption.

   The Company operates a 160,000 cubic meter per year facility in New Zealand
that produces premium grade MDF. The Company's MDF is marketed worldwide by
Rayonier personnel, independent sales agents and a domestic distributor.

   Rayonier is a leading exporter and trader of softwood logs, lumber and wood
panel products. Rayonier purchases and harvests timber and purchases lumber and
wood panel products for sale in domestic and export markets. Timber is
purchased from both internal and external sources. In 2001, approximately 64
percent of New Zealand log trading sales volume was sourced from Company
timberlands. In North America, approximately 31 percent of log trading sales
volume was sourced directly from Rayonier's timberlands. Logs were also
purchased from independent local dealers who had, in some cases, purchased
cutting rights to Company timberlands.

                                      5

<PAGE>

Dispositions and Discontinued Operations

   Dispositions and discontinued operations include Rayonier's Port Angeles,
WA, performance fibers mill, that was closed on February 28, 1997; its interest
in the Grays Harbor, WA, performance fibers and paper complex, which was closed
in 1992; its wholly-owned subsidiary, Southern Wood Piedmont Company (SWP),
which ceased operations in 1986; its Eastern Research Division, which ceased
operations in 1981; and other miscellaneous assets held for disposition. See
Note 12 of the Notes to Consolidated Financial Statements--Dispositions and
Discontinued Operations.

Foreign Sales and Operations

   Rayonier's sales for the three years ended December 31, 2001, by
geographical destination are as follows (millions):

<TABLE>
<CAPTION>
                                     Sales by Destination
                               --------------------------------
                                2001   %   2000   %   1999   %
                               ------ --- ------ --- ------ ---
                 <S>           <C>    <C> <C>    <C> <C>    <C>
                 United States $  656  56 $  662  54 $  590  54
                 Europe.......    126  11    107   9    101   9
                 Japan........    116  10    135  11    135  12
                 China........     81   7     86   7     56   5
                 Other Asia...     97   8    124  10    125  11
                 Latin America     45   4     66   5     66   6
                 Canada.......     34   3     34   3     21   2
                 All other....     10   1     13   1     14   1
                               ------ --- ------ --- ------ ---
                    Total..... $1,165 100 $1,227 100 $1,108 100
                               ====== === ====== === ====== ===
</TABLE>

   Overseas assets, primarily in New Zealand, were approximately 15 percent of
total assets at the end of 2001 and Rayonier's sales from non-U.S. operations
were approximately 13 percent of total sales. See Note 3 of the Notes to
Consolidated Financial Statements--Segment and Geographical Information.

Patents

   Rayonier has a number of patents and pending patent applications that relate
to its proprietary products and processes. The Company intends to take such
steps as are necessary to protect its patents and file applications for future
inventions that are deemed important to its business operations.

Competition and Customers

   Performance fibers are marketed worldwide against strong competition from
domestic and foreign producers. Rayonier's major competitors include
International Paper, Weyerhaeuser, Georgia-Pacific and Buckeye Technologies.
Several foreign, low-cost manufacturers of lower-grade pulps are attempting to
produce high-grade acetate pulps. If successful, supply of these performance
fibers grades may increase in the future, and with the overall demand growth
being fairly modest, cellulose specialty margins may be affected. On the other
hand, the Company is developing new products and improving existing products
and processes that could add additional value to the Performance Fibers
business. Pricing, product performance and technical service are principal
methods of competition.

   The Company's U.S. timberlands are located in two major timber growing
regions (the Southeast and the Northwest), where timber markets are fragmented
and very competitive. In the Northwest U.S., John Hancock Mutual Life Insurance
Co. and Washington State (Department of Natural Resources) are significant
competitors. In both the Northwest U.S. and Southeast U.S., smaller companies
and private landowners compete with the Company. Price is the principal method
of competition.

                                      6

<PAGE>

   Export log markets are highly competitive. Logs are available from several
countries and numerous suppliers. In New Zealand, major competitors include
Carter Holt Harvey and Fletcher Challenge. In North America, Weyerhaeuser, Sea
Alaska, and Timber West (Canada) are principal competitors. Price and customer
relationships are important methods of competition.

   Rayonier's lumber and MDF wood products compete with alternative
construction materials and the products of numerous companies, some of which
are larger and have greater resources than Rayonier. Due to continual
improvement in operations and a shift in focus from weak Australian and
oversupplied European markets to the U.S., Japan and China, the MDF facility's
performance, both operationally and financially, has made steady gains in
2001.

Environmental Matters

   See "Environmental Regulation" in Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 17 of the
Notes to Consolidated Financial Statements--Contingencies.

Raw Materials

   In the U.S., timber availability continues to be restricted by legislation,
litigation and pressure from various preservationist groups. Availability is
also subject to cyclical swings in wood products and pulp and paper markets.
Rayonier has pursued, and is continuing to pursue, reductions in usage and
costs of key raw materials, supplies and contract services at its Performance
Fibers and lumber mills. Management foresees no significant constraints from
pricing or availability of its key raw materials.

Research and Development

   Rayonier believes it maintains one of the preeminent Performance Fibers
staff and research facilities in the forest products industry. Research and
development efforts are directed primarily at the development of new and
improved cellulose fiber grades and related products, improved manufacturing
efficiency, reduction of energy needs, product quality and development of
improved environmental controls. The research center is adjacent to the
Performance Fibers mill in Jesup, GA.

   Research activities related to timber operations include genetic tree
improvement programs as well as applied silviculture programs to identify
management practices that improve financial returns from timber assets.

   Research and development annual expenditures were approximately $9 million
in 2001, and $10 million for 2000 and 1999.

Employee Relations

   Rayonier currently employs approximately 2,300 people. Of this number,
approximately 2,090 are employees in the United States, of whom 46 percent are
covered by labor contracts. Most hourly employees are represented by one of
several labor unions. Labor relations are maintained in a normal and
satisfactory manner.

   In August 2001 and December 2001, Jesup's labor agreements covering
approximately 700 employees, were extended through June 30, 2008. In April
2001, Fernandina's labor contracts covering approximately 250 employees, were
extended through April 30, 2006.

   Rayonier has in effect various benefit plans for its employees and retirees,
providing certain group medical, dental and life insurance coverage, pension
and other benefits. The cost of these plans is borne primarily by Rayonier.

                                      7

<PAGE>

Item 2.  PROPERTIES

   Rayonier owns, leases or controls approximately 2.1 million acres of
timberlands in the United States. Rayonier manages these properties and sells
timber to other Company operating units, as well as unaffiliated parties.
Rayonier's New Zealand subsidiary owns or manages the forest assets on
approximately 0.3 million acres of plantation forests in New Zealand and
Australia. Rayonier and its wholly-owned subsidiaries own or lease various
other properties used in their operations. These include two Performance Fibers
mills, three lumber manufacturing facilities, an MDF plant, a research facility
and Rayonier's corporate headquarters. These facilities are located in the
Northwestern and Southeastern portions of the U. S. and in New Zealand.
Additional information on mill volumes is disclosed in Item 6--Selected
Financial Data.

Item 3.  LEGAL PROCEEDINGS

   Rayonier is engaged in various legal actions, including certain
environmental proceedings that are discussed more fully in Note 17 of the Notes
to Consolidated Financial Statements--Contingencies.

   On February 22, 2001, the Company received a notice of proposed disallowance
from the Internal Revenue Service for $28.3 million in tax deficiency and
related penalties for an issue in dispute regarding the Company's 1996 and 1997
Federal tax returns. The Company has been discussing this issue with the IRS
since 1999. As a result, the notice of proposed disallowance was not
unanticipated and the Company has provided adequate book reserves. The Company
has contested this matter and believes that the ultimate outcome will not have
a material adverse impact on the Company's financial position, liquidity, or
results of operations.

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

   No matter was submitted to a vote of security holders of Rayonier during the
fourth quarter of 2001.

                                      8

<PAGE>

                        EXECUTIVE OFFICERS OF RAYONIER

   W. Lee Nutter, 58, Chairman, President and Chief Executive Officer--Mr.
Nutter joined Rayonier in 1967 in the Northwest Forest Operations and was named
Vice President, Timber and Wood in 1984, Vice President, Forest Products in
1985, Senior Vice President, Operations in 1986 and Executive Vice President in
1987. He was elected President and Chief Operating Officer and a director of
Rayonier in July 1996 and to his current position effective January 1999. Mr.
Nutter serves on the Board of Directors and the Executive Committee of the
American Forest and Paper Association and on the Board of Directors of the
National Council for Air and Stream Improvement. He holds a B.A. degree in
Business Administration from the University of Washington and graduated from
the Harvard University Graduate School of Business Administration Advanced
Management Program.

   William S. Berry, 60, Executive Vice President, Forest Resources and Wood
Products--Mr. Berry joined Rayonier in 1980 as Director of Wood Products
Management. He was elected Vice President and Director of Forest Products
Management in 1981, Senior Vice President, Land and Forest Resources in 1986,
Senior Vice President, Forest Resources and Corporate Development in 1994, and
to his current position effective October 1996. He serves on the External
Advisory Board of the Warnell School of Forest Resources, University of Georgia
and is chairman of the National Tree Farm Operating Committee. He holds a B.S.
degree in Forestry from the University of California at Berkeley and an M.S.
degree in Forestry from the University of Michigan. Mr. Berry has announced his
retirement from Rayonier effective March 31, 2002.

   Gerald J. Pollack, 60, Senior Vice President and Chief Financial
Officer--Mr. Pollack joined Rayonier in 1982 as Vice President and Controller.
He was elected to the position of Vice President and Chief Financial Officer in
1986 and to his current position in May 1992. He is a member of the New York
Advisory Board of FM Global Insurance Co., the Board of Directors and Finance
Committee of the Jacksonville Symphony Orchestra, and the Board of Directors of
the Northern Florida Chapter of Financial Executives International. Mr. Pollack
has a B.S. degree in Physics from Rensselaer Polytechnic Institute and an
M.B.A. degree in Accounting and Finance from the Amos Tuck School at Dartmouth.

   John P. O'Grady, 56, Senior Vice President, Administration--Mr. O'Grady
joined Rayonier in 1991 as Vice President, Administration. He was elected
Senior Vice President, Human Resources in January 1994 and to his current
position effective January 1996. From December 1975 to July 1991, he held a
number of human resources positions at ITT Corporation and its subsidiaries.
Mr. O'Grady serves on the American Forest and Paper Association's employee and
labor relations committee, as a Management Trustee for the Paper,
Allied-Industrial, Chemical and Energy Workers International Union Health and
Welfare Trust, as a member of the Board of Trustees for the Jacksonville museum
of Science and History and as a director for Florida's First Coast YMCA. From
1994 to 1997, he served on the board of advisors of the Business and Industry
Council of the College of New Jersey (formerly Trenton State College). He holds
a B.S. degree in Labor Economics from the University of Akron, an M.S. degree
in Industrial Relations from Rutgers University and a Ph.D. in Management from
California Western University.

   William A. Kindler, 59, Senior Vice President, Performance Fibers--Mr.
Kindler joined Rayonier in August 1996. He was elected Vice President,
Performance Fibers, in October 1996 and Senior Vice President, Performance
Fibers in March 1998. Prior to coming to Rayonier, he held a number of senior
management positions with James River Corporation (paper and tissue products
manufacturing), most recently as Vice President, Product Supply, Consumer
Products (March 1994 until August 1996). He holds a B.A. degree in Chemistry
from Western Washington University and an M.S. degree and Ph.D. degree in Pulp
and Paper Technology from the Institute of Paper Chemistry. Mr. Kindler retired
from Rayonier effective December 31, 2001.

   Timothy H. Brannon, 54, Senior Vice President, Forest Resources and Wood
Products--Mr. Brannon joined Rayonier in 1972 at its Southern Wood Piedmont
subsidiary (SWP). He was named Vice President and Chief Operating Officer of
SWP in 1983 and President of SWP in 1992. Mr. Brannon was elected Rayonier's

                                      9

<PAGE>

Vice President and Director, Performance Fibers Marketing and Sales in 1994,
Vice President, Asia Pacific, and Managing Director, Rayonier New Zealand in
1998 and to his current position effective March 1, 2002. He holds a B.A.
degree in psychology from Tulane University and is a graduate of Harvard
University Graduate School of Business Advanced Management Program.

   Jill Witter, 47, Vice President and General Counsel--Ms. Witter joined
Rayonier in January 2001 as General Counsel and was elected to her current
position in February 2001. Prior to joining Rayonier, she served as Vice
President, General Counsel and Secretary of Sunglass Hut International (sales
and marketing of sunglasses, watches and accessories), Coral Gables, Florida,
from 1999 to January 2001. She was previously with Angelica Corporation (career
apparel, retail and textile services), St. Louis, Missouri, from 1985 to 1999,
most recently as Vice President, Legal, Human Resources, General Counsel and
Secretary. She holds a B.A. degree and J.D. degree from the University of
Missouri.

   Paul G. Boynton, 37, Vice President, Performance Fibers--Mr. Boynton joined
Rayonier in April 1999 as Director of Specialty Pulp Marketing and Sales. He
was elected Vice President, Performance Fibers, Marketing and Sales, in October
1999 and to his current position effective January 2002. Prior to joining
Rayonier, he held positions with 3M Corporation's Home Care Division (global
manufacturer and marketer of cleaning tool products) from 1990 to 1999, most
recently as Global Brand Manager. He holds a B.S. degree in mechanical
engineering from Iowa State University, an M.B.A. degree from the University of
Iowa, and graduated from the Harvard University Graduate School of Business
Advanced Management Program.

   Hans E. Vanden Noort, 43, Vice President and Corporate Controller--Mr.
Vanden Noort joined Rayonier as Corporate Controller in November 2001, and was
elected to his current position in December 2001. Prior to coming to Rayonier,
he held a number of senior management positions with Baker Process, a division
of Baker Hughes, Inc. (manufacturer of petroleum-related equipment and
supplies), Houston, Texas, most recently as Vice President of Finance and
Administration. Mr. Vanden Noort holds a B.B.A. in accounting from the
University of Cincinnati, an M.B.A. from the University of Michigan and is a
Certified Public Accountant.

                                      10

<PAGE>

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
 STOCKHOLDER MATTERS

   The table below reflects the range of market prices of Rayonier Common
Shares as reported in the consolidated transaction reporting system of the New
York Stock Exchange, the only exchange on which this security is listed, under
the trading symbol RYN.

Rayonier Common Shares--Market Prices, Volume and Dividends

<TABLE>
<CAPTION>
                                                     Composite
                                        High   Low    Volume   Dividend
                                       ------ ------ --------- --------
         <S>                           <C>    <C>    <C>       <C>
         2001
           Fourth Quarter............. $50.98 $38.30 5,308,900   $.36
           Third Quarter..............  47.70  35.80 4,737,100    .36
           Second Quarter.............  46.72  38.80 5,198,200    .36
           First Quarter..............  44.00  37.30 6,137,900    .36

         2000
           Fourth Quarter............. $41.19 $31.25 7,032,700   $.36
           Third Quarter..............  43.50  35.00 4,601,700    .36
           Second Quarter.............  48.88  35.38 6,816,200    .36
           First Quarter..............  48.75  35.56 6,042,100    .36
</TABLE>

   On February 15, 2002, Rayonier announced a first quarter dividend of 36
cents per share payable March 29, 2002, to shareholders of record on March 8,
2002.

   There were approximately 15,426 shareholders of record of Rayonier Common
Shares on February 28, 2002.


                                      11

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

   The following summary of historical financial data for each of the five
years in the period ended December 31, 2001, is derived from the consolidated
financial statements of the Company. The data should be read in conjunction
with the consolidated financial statements. Effective December 31, 2000, the
Company changed its method of reporting freight revenue and costs in compliance
with Emerging Issues Task Force (EITF) Issue 00-10, "Accounting for Shipping
and Handling Fees and Costs." The financial statements have been reclassified
to reflect the increase in sales and cost of sales (in millions) of $76, $72,
$64 and $91 in 2000, 1999, 1998 and 1997, respectively. Additionally, the sale
of land in the first quarter of 2000 has been reclassified from gain on sale of
assets ($23) to Land sales ($50) and cost of sales ($27). These changes had no
effect on net income or earnings per share. See Note 7 of the Notes to
Consolidated Financial Statements--Major Timberland Acquisition that helps
support fluctuations within the five-year summary below.

<TABLE>
<CAPTION>
                                                                 Year Ended December 31
                                                   ---------------------------------------------------
                                                      2001      2000       1999      1998      1997
                                                   ---------  ---------  --------- --------- ---------
                                                   (dollar amounts in millions, except per share data)
<S>                                                <C>        <C>        <C>       <C>       <C>
Operations:
Sales............................................. $   1,165  $   1,227  $   1,108 $   1,073 $   1,196
Operating income before provision for dispositions       150        205        136       124       166
Provision for dispositions(1).....................        --        (15)        --        --        --
Operating income..................................       150        190        136       124       166
Income from continuing operations.................        58         78         69        64        87
Net income........................................        58         78         69        64        87

Per Common Share:
Income from continuing operations................. $    2.09  $    2.82  $    2.44 $    2.22 $    2.97
Net income--Diluted...............................      2.09       2.82       2.44      2.22      2.97
          --Basic.................................      2.12       2.87       2.48      2.26      3.03
EBITDA(2).........................................     12.27      14.19       8.98      8.21      8.14
Free Cash Flow(5).................................      5.02       7.39       4.30      2.31      4.15
Dividends paid....................................      1.44       1.44       1.29      1.24      1.20
Book value........................................     25.92      25.09      23.94     23.01     22.37

Financial Condition:
Total assets...................................... $   2,025  $   2,162  $   2,280 $   1,601 $   1,596
Total debt........................................       850        973      1,136       490       426
Book value........................................       709        680        656       639       633

Cash Flow:
Cash flow from operations......................... $     241  $     279  $     213 $     154 $     238
Custodial capital spending(3).....................        64         70         69        58        72
Total capital expenditures........................        77         90         95        95       137
Depreciation, depletion and amortization..........       177        177        105       101        99
EBITDA(2).........................................       339        393        253       235       240
EBIT(4)...........................................       152        202        141       125       138
Free Cash Flow(5).................................       139        205        121        66       122
Dividends paid....................................        39         39         36        35        35
Share repurchases.................................         2         18         24        27        48

Performance Ratios (%):
Operating income to sales(6)......................        13         17         12        12        14
Return on equity(7)...............................         8         12         11        10        14
Return on capital(7)..............................       6.3        7.7        6.5       7.8       9.8
Debt to capital...................................        55         59         63        43        40
Debt to EBITDA(2).................................  2.6 to 1   2.5 to 1   4.7 to 1  2.3 to 1  1.9 to 1

Other:
Number of employees...............................     2,300      2,300      2,300     2,300     2,500
Timberlands--in thousands of acres................     2,267      2,331      2,422     1,447     1,452
</TABLE>

                                      12

<PAGE>

<TABLE>
<CAPTION>
                                                                              Year Ended December 31
                                                                     ----------------------------------------
                                                                      2001     2000     1999    1998    1997
                                                                     -------  -------  ------  ------  ------
<S>                                                                  <C>      <C>      <C>     <C>     <C>
Selected Operating Data (unaudited):
Performance Fibers
    Sales volume
       Cellulose Specialties--in thousands of metric tons(8)........     423      396     364     369     410
       Absorbent Materials--in thousands of metric tons(9)..........     284      329     297     324     315
   Sales as a percent of capacity...................................      97%     101%     95%     97%    100%

Timber and Land
    Timber volume
       Northwest U.S.--in millions of board feet....................     251      239     204     212     190
       Southeast U.S.--in thousands of short green tons(10).........   5,395    4,920   2,574   2,360   2,421
       New Zealand--in thousands of cubic meters....................   1,412    1,320   1,249   1,003   1,111

    Intercompany Timber volume......................................
       Northwest U.S.--in millions of board feet....................      48       59      24      12      14
       Southeast U.S.--in thousands of short green tons.............      43       41      40      70      92
       New Zealand--in thousands of cubic meters....................     704      634     580     385     589
    Land--acreage...................................................  67,417   63,221   7,130   3,376   2,837

Wood Products and Trading
    Lumber sales volume--in millions of board feet(11)..............     279      235     255     310     325
    Medium-density fiberboard sales volume--in thousands of cubic
     meters.........................................................     161      157     129      91      16
Log trading sales volume
    North America--in millions of board feet........................     151      220     205     173     224
    New Zealand--in thousands of cubic meters.......................     999    1,254   1,246     851   1,113
    Other--in thousands of cubic meters.............................     331      335     611     206     277

Selected Supplemental Financial Data
Financial Results Excluding Impact of Special Items(12)
   Sales............................................................ $ 1,165  $ 1,227  $1,101  $1,080  $1,183
   Operating income.................................................     150      205     135     134     166
   Net income.......................................................      58       83      65      70      82
   Net income per diluted Common Share..............................    2.09     3.00    2.32    2.44    2.78
   EBITDA(4)........................................................     339      393     250     244     240
   Return on equity (%).............................................       8       12      10      11      13

Geographical Data (Non-U.S.)
    Sales
       New Zealand.................................................. $   113  $   115  $  106  $   79  $  111
       Other........................................................      40       49      56      25      34
                                                                     -------  -------  ------  ------  ------
          Total..................................................... $   153  $   164  $  162  $  104  $  145
                                                                     =======  =======  ======  ======  ======
    Operating Income (Loss)
       New Zealand.................................................. $     5  $    (1) $   (7) $  (14) $    8
       Other........................................................      --        2      (1)     (3)     (5)
                                                                     -------  -------  ------  ------  ------
          Total..................................................... $     5  $     1  $   (8) $  (17) $    3
                                                                     =======  =======  ======  ======  ======
</TABLE>

                                      13

<PAGE>

<TABLE>
<CAPTION>
                                              Year Ended December 31
                                      --------------------------------------
                                       2001    2000    1999    1998    1997
                                      ------  ------  ------  ------  ------
   <S>                                <C>     <C>     <C>     <C>     <C>
   EBITDA per Share..................
       Performance Fibers............ $ 4.04  $ 5.75  $ 3.78  $ 3.51  $ 4.20
       Timber and Land...............   8.80    9.05    5.25    5.19    4.91
       Wood Products and Trading.....   0.14    0.02    0.42    0.05    0.45
       Corporate and other...........  (0.71)  (0.63)  (0.47)  (0.55)  (1.42)
                                      ------  ------  ------  ------  ------
        Total Rayonier............... $12.27  $14.19  $ 8.98  $ 8.20  $ 8.14
                                      ======  ======  ======  ======  ======
   Timber and Land...................
       Sales.........................
        Northwest U.S................ $   68  $   82  $   73  $   81  $   81
        Southeast U.S................    181     173      79      77      70
        New Zealand..................     32      25      25      24      33
                                      ------  ------  ------  ------  ------
          Total...................... $  281  $  280  $  177  $  182  $  184
                                      ======  ======  ======  ======  ======
       Operating Income..............
        Northwest U.S................ $   49  $   65  $   52  $   59  $   58
        Southeast U.S................     89      81      58      54      51
        New Zealand..................      7       6       6       8       8
                                      ------  ------  ------  ------  ------
          Total...................... $  145  $  152  $  116  $  121  $  117
                                      ======  ======  ======  ======  ======
</TABLE>
- --------
 (1) Primarily related to closure reserves for the Port Angeles Performance
     Fibers mill.
 (2) EBITDA is defined as earnings from continuing operations before
     significant non-recurring items, provision for dispositions, interest
     expense, income taxes, depreciation, depletion, amortization and the
     non-cash cost of land sales. See table in Item 7-Management's Discussion
     and Analysis, reconciling EBITDA to Net Income.
 (3) Custodial capital spending is defined as capital expenditures to maintain
     current earnings level over the cycle and to keep facilities and equipment
     in safe and reliable condition, and in compliance with regulatory
     requirements.
 (4) EBIT is defined as earnings from continuing operations before significant
     non-recurring items, provision for dispositions, interest expense and
     income taxes.
 (5) Free Cash Flow is defined as EBITDA plus or minus significant
     non-recurring items, changes in working capital and long-term assets and
     liabilities, plus proceeds from the exercise of employee stock options,
     less income taxes, interest expense, custodial capital spending,
     prior-year dividend levels and the non-cash cost of land sales. See table
     in Item 7 - Management's Discussion and Analysis, reconciling Free Cash
     Flow to Cash Provided by Operating Activities.
 (6) Based on operating income before provision for dispositions.
 (7) Based on income from continuing operations.
 (8) Excludes sales volumes of the Port Angeles, WA, Performance Fibers mill,
     which ceased operations on February 28, 1997, of 35,000 metric tons for
     the year 1997.
 (9) Excludes sales volumes of the Port Angeles, WA, Performance Fibers mill of
     7,000 metric tons for 1997.
(10) Includes salvage timber sales in 1998 of $2.3 million on volume of 279
     thousand short green tons resulting from the Southeast U.S. forest fires.
(11) Includes sales volumes of the Plummer, ID, lumber mill, which closed in
     July 1998 after fire damaged the facility, of 51 and 77 million board feet
     for the years 1998 and 1997, respectively.

                                      14

<PAGE>

(12) The following table identifies special items for the years 1997 through
     2001:

<TABLE>
<CAPTION>
                                         2001  2000   1999   1998  1997
                                         ----- -----  -----  ----- -----
                                                  (in millions)
      <S>                                <C>   <C>    <C>    <C>   <C>

      Net income as reported............ $57.6 $78.2  $68.7  $63.6 $87.3
         Disposition reserve............    --   9.4     --     --    --
         Southeast land sale............    --    --   (3.2)    --    --
         Restructuring/relocation.......    --    --    2.6     --    --
         Contract dispute...............    --    --    2.9     --    --
         Asset sale.....................    --    --   (5.8)    --    --
         Southeast U.S. forest fires....    --    --     --    6.2    --
         New Zealand Joint Venture sale.    --  (4.5)    --     --    --
         Non-strategic land sale........    --     *     --     --  (5.6)
                                         ----- -----  -----  ----- -----
      Net income excluding special items $57.6 $83.1  $65.2  $69.8 $81.7
                                         ===== =====  =====  ===== =====
</TABLE>
- --------
*  Reported as a special item in 2000 ($14.4 million). Subsequently,
   reclassified as an operating activity consistent with the Company's strategy
   to annually sell 2 to 4 percent of its timberland holdings.

                                      15

<PAGE>

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

Segment Information (in millions)

<TABLE>
<CAPTION>
                                               Year Ended December 31
                                               ----------------------
                                                2001    2000    1999
                                               ------  ------  ------
          <S>                                  <C>     <C>     <C>
          Sales
          Performance Fibers
             Cellulose Specialties............ $  369  $  348  $  331
             Absorbent Materials..............    178     228     160
                                               ------  ------  ------
                 Total Performance Fibers.....    547     576     491
                                               ------  ------  ------
          Timber and Land
             Timber...........................    197     210     156
             Land.............................     84      70      21
                                               ------  ------  ------
                 Total Timber and Land........    281     280     177
                                               ------  ------  ------
          Wood Products and Trading...........    358     401     462
          Intersegment Eliminations...........    (21)    (30)    (22)
                                               ------  ------  ------
                 Total sales.................. $1,165  $1,227  $1,108
                                               ======  ======  ======
          Operating Income (Loss)
          Performance Fibers.................. $   35  $   83  $   40

          Timber and Land
             Timber...........................     93     114     100
             Land.............................     52      38      16
                                               ------  ------  ------
                 Total Timber and Land........    145     152     116
                                               ------  ------  ------
          Wood Products and Trading...........    (11)    (17)     (3)
          Provision for dispositions..........     --     (15)     --
          Corporate and other.................    (19)    (13)    (17)
                                               ------  ------  ------
                 Total operating income....... $  150  $  190  $  136
                                               ======  ======  ======
</TABLE>

Summary of Business Conditions

   Rayonier's net income in 2001 was $58 million or $2.09 per share, compared
to $78 million or $2.82 per share in 2000. Excluding the effect of two special
items in 2000, net income was $83 million or $3.00 per share (See Item 6,
Selected Financial Data, footnote 12). During 2000, the Company sold its
interest in a New Zealand timberland joint venture that contributed a gain of
$7.6 million or 16 cents per share after tax, and it increased a disposition
reserve that resulted in a charge of $15.0 million or 34 cents per share after
tax.

   Lower demand for many of Rayonier's products, which began in the second half
of 2000, continued into 2001. The reduced demand was attributable to a
considerably weak global economy and a strong U.S. dollar. In the Performance
Fibers segment, the Absorbent Materials business, which principally consists of
commodity fluff pulp, had lower demand and prices. Fluff pulp prices declined
steadily during the year but now appear to have stabilized. Conversely, the
high-value Cellulose Specialties business had stronger demand and steady prices.

   In Rayonier's Timber and Land segment (previously Timberland Management),
timber volumes increased in the Northwest and Southeast U.S., and New Zealand,
while prices declined. The segment's lower operating income in 2001 compared to
2000 resulted from lower timber prices partly offset by higher timber volume
and stronger land sales. Land sales provided strong income contributions in
both 2001 and 2000. The Company sold a

                                      16

<PAGE>

large tract of land in the second quarter of 2001 for $60 million following
another large tract of land in the first quarter of 2000 for $50 million. These
sales were part of the Company's ongoing strategic land sales program to
realize the appreciation of its timberland values on a more regular basis and
to lower debt levels.

   In Rayonier's Wood Products and Trading segment, lumber results improved in
2001 principally due to lower manufacturing costs. At the Company's
medium-density fiberboard (MDF) plant in New Zealand, results also improved in
2001 compared to 2000 due to higher volume and prices and lower costs.

   In 2001, Rayonier continued to focus its capital spending on cost reduction,
quality and productivity improvements in its Performance Fibers segment, and on
investment in reforestation of its timberlands. These investments are expected
to help moderate the cyclical effects of the Performance Fibers business,
improve bottom-of-the-cycle earnings and add value to existing assets. See also
Liquidity and Capital Resources.

   Rayonier's results continue to be adversely affected by the recessionary
global economy, a strong U.S. dollar and generally low, but stable, product
prices. The Company continues to experience strength in its high-value
Cellulose Specialties business and its land sales program. First quarter 2002
earnings are expected to be lower than fourth quarter 2001 earnings due to the
weaker global economy, although there is some potential improvement in first
quarter 2002 earnings if one or two major land sales close; however, the timing
of these sales is difficult to predict. Meaningful earnings improvement over
current levels is not expected until the economy begins to recover.

Results of Operations, 2001 vs. 2000

  Sales and Operating Income

   Sales of $1.165 billion in 2001 were $62 million below 2000 sales, while
operating income declined $40 million to $150 million from $190 million in
2000. Lower sales and operating income in 2001 were a result of lower absorbent
materials volume and prices, weaker timber and lumber prices, and lower trading
activity. These negative items were partially offset by higher cellulose
specialties, lumber and timber volumes.

  Performance Fibers

   Performance Fibers sales of $547 million were $29 million below the prior
year, principally due to lower absorbent materials prices and volume, and
slightly lower cellulose specialties prices partly offset by higher cellulose
specialties volume. Average fluff pulp prices declined 25 percent and 14
percent for the fourth quarter and full year, respectively, compared to the
same periods in 2000. Average absorbent materials prices, which include fluff
pulp prices, declined 9 percent compared to 2000. Average cellulose specialties
prices were 1 percent lower in 2001, while volumes increased 7 percent. Fluff
pulp prices are significantly impacted by the cyclical nature of commodity
market paper pulp prices, which declined during 2001, as the sluggish economy
caused demand to fall in that market. However, due to the Company's high-value
product mix, prices for the Performance Fibers segment tend to lag commodity
paper pulp prices and its upturns and downturns are not as pronounced. Since
1999, the Company has improved its mix of cellulose specialties/absorbent
materials from a 55/45 ratio to 60/40 in 2001. Operating income of $35 million
for the segment was $48 million below 2000, as a result of the lower prices and
higher manufacturing costs, partially offset by the higher cellulose
specialties volume.

  Timber and Land (previously Timberland Management)

   Timber and Land sales of $281 million were $1 million above prior year,
while operating income of $145 million was below the prior year by $7 million.

                                      17

<PAGE>

   Timber (previously Timber Harvest)

   Timber sales of $197 million and operating income of $93 million in 2001,
were $13 million and $21 million below prior year, respectively. Sales declined
due to lower timber prices in all of the Company's operating regions. In the
Northwest U.S., average prices declined 23 percent compared to 2000, while in
the Southeast U.S. average prices declined 13 percent, and in New Zealand,
average prices declined 5 percent. These price declines were partly offset by
higher volumes.

   Land (previously Timberland and Real Estate)

   Land sales of $84 million and operating income of $52 million were above
2000 results by $14 million in both sales and operating income. The operating
income improvement essentially results from a higher margin on a major land
sale in the second quarter of 2001 compared to a first quarter 2000 major land
sale, as well as an additional significant land sale in the fourth quarter of
2001. In 2000, Rayonier announced a program to routinely sell between 2 percent
to 4 percent of its land base each year in order to capture the appreciated
value of its timberlands on a more regular basis. In 2001, the Company sold
approximately 67,000 acres, or 2.9 percent of its timberland base. In 2000, it
sold approximately 63,000 acres, or 2.6 percent of its timberland base.

  Wood Products and Trading

   Sales of $358 million were $43 million below the prior year while an
operating loss of $11 million was favorable to 2000 by $6 million. Lumber
results improved from the prior year due to lower manufacturing costs and a 19
percent increase in volume. These improvements were partly offset by lower
average lumber prices, which declined 11 percent. Poor lumber market
conditions, which deteriorated significantly during 2000, carried over into
2001, causing prices to decline in 2001. In December 2001, the Company
temporarily closed its Swainsboro lumber mill for two weeks due to market
conditions. The Company does not anticipate any temporary closings in 2002. MDF
results improved in 2001 compared to the prior year due to slightly higher
prices and volume and lower manufacturing costs. Also in 2001, the Company's
log trading business results declined compared to 2000, due to lower volume and
slightly lower prices.

  Corporate and other

   Corporate and other costs of $19 million for 2001 were $6 million higher
than 2000 principally due to higher stock-price based incentive compensation
and reorganization costs associated with the retirement of two senior
executives.

  Other Income/Expense

   Interest expense of $69 million was $17 million below the prior year
principally due to lower debt. During 2001, Rayonier reduced debt by $123
million.

   Other income in 2001, primarily interest income, was $2 million compared to
$5 million in 2000. The prior year amount includes a pre-tax gain of $7.6
million due to the sale of the Company's interest in a New Zealand joint
venture partially offset by a negative impact from the mark-to-market loss on
foreign currency forward contracts.

   Rayonier purchases foreign currency forward contracts to offset the impact
of New Zealand/U.S. dollar exchange fluctuations on operating results. On
September 1, 2001, the Company designated its New Zealand dollar forward
contracts as cash flow hedges of certain forecasted New Zealand
dollar-denominated cash outflows. Since that time, changes in the fair value of
the forward contracts are deferred and recorded as part of "Accumulated other
comprehensive income (loss)." When the forecasted transaction comes to fruition
and is recorded in earnings, the gains or losses on the contracts are
reclassified to the Statements of Consolidated Income on the line entitled
"Interest and miscellaneous income (expense), net." In 2001, the Company
recorded a pre-tax loss of $0.6 million relating to the contracts versus $3.2
million in 2000. In 2001, the New Zealand/U.S. dollar exchange rate declined
from 0.44 on January 1, 2001, to 0.42 on December 31, 2001.

                                      18

<PAGE>

  Income Taxes

   The effective tax rate for 2001 was 30 percent compared to 28 percent in
2000. The effective tax rates are below U.S. statutory rates, primarily due to
the lower rates in effect for foreign subsidiaries, research and development
tax credits and a 2001 year-end foreign currency related tax benefit
adjustment. The 2000 rate was below this year's rate due to the reversal of tax
provisions for items resolved as a result of the completion of several tax
audits.

Results of Operations, 2000 vs. 1999

  Sales and Operating Income

   Sales of $1.227 billion in 2000 were $119 million above 1999 sales,
reflecting higher Performance Fibers prices and volume, and higher Timber and
Land sales activity. These improvements were partially offset by lower Wood
Products and Trading activity. Operating income of $190 million was $54 million
higher than 1999, principally due to higher Performance Fibers, timber, and
land sales contributions, partly offset by lower lumber results.

  Performance Fibers

   Performance Fibers sales of $576 million were $85 million above the prior
year, principally due to higher absorbent materials prices and overall fiber
sales volume resulting from improved demand. Operating income of $83 million
was $44 million above 1999, primarily as a result of the higher absorbent
materials prices, stronger overall volume, and slightly lower manufacturing
costs. These favorable factors were partially offset by lower cellulose
specialty prices.

   Timber and Land (previously Timberland Management)

   Timber and Land sales of $280 million and operating income of $152 million
were above the prior year by $103 million and $36 million, respectively.

   Timber (previously Timber Harvest)

   Timber sales of $210 million in 2000 were $54 million above 1999, and
operating income of $114 million exceeded prior year results by $14 million.
Sales improved due to higher timber harvests in operating regions, principally
driven by volume from the major fourth quarter 1999 Southeast U.S. timberland
acquisition, along with higher volume in the Northwest U.S. and New Zealand.
The favorable impact of the higher volume was partially offset by lower timber
prices.

   Operating income improved as a result of the higher sales volume, partially
offset by higher depletion costs in the Southeast U.S. associated with the 1999
timberland acquisition.

   Land (previously Timberland and Real Estate)

   Land sales of $70 million and operating income of $38 million were above
1999 results by $49 million and $22 million, respectively. The improvement
essentially results from the first quarter 2000 land sales. In November 2000,
the Company announced that it would routinely sell between 2 percent to 4
percent of its land base each year in order to capture the appreciated value on
a more regular basis. As an example, if the 2 percent of our overall holdings
that were sold came from the Southeast U.S., using recent transaction prices
and the Company's average cost basis for Southeast properties, it is estimated
that operating income would increase by approximately $15 million, or 35 cents
in earnings per share, and EBITDA would increase by approximately $40 million.

  Wood Products and Trading

   Sales of $401 million were $61 million below the prior year, and an
operating loss of $17 million was unfavorable to 1999 by $14 million. Lumber
results declined dramatically from the prior year due to lower prices

                                      19

<PAGE>

and volume, as well as higher wood costs and expenses associated with the
start-up of the Eatonton, GA, facility. MDF results improved compared to the
prior year due to higher prices and volume and lower manufacturing costs.
Although trading volume declined, operating results reflected a slight
improvement.

  Provision for dispositions

   The provision for dispositions in 2000 increased $8 million over 1999
primarily resulting from increasing the closure reserves for the Port Angeles,
WA, Performance Fibers mill.

  Corporate and other

   Corporate and other costs of $13 million for 2000 were $3 million lower than
1999 principally due to lower incentive compensation and expenses associated
with the Company's corporate office restructuring and relocation.

  Other Income/Expense

   Interest expense of $86 million was $44 million above the prior year
principally due to financing the fourth quarter 1999 timberland acquisition and
slightly higher rates.

   Other income improved $3 million when the sale of Rayonier's interest in a
New Zealand joint venture in 2000 is compared to the effect of the 1999
contract dispute charge and the gain from the sale of a non-strategic marine
terminal and related assets in the Northwest U.S.

   Rayonier purchases foreign currency forward contracts to offset the impact
of New Zealand/U.S. dollar exchange fluctuations on operating results. The
mark-to-market loss on these contracts, included in "Interest and miscellaneous
income (expense), net," was $3.2 million compared to $0 in 1999. In 2000, the
New Zealand/U.S. dollar exchange rate declined from 0.51 on January 1, 2000, to
0.44 on December 31, 2000.

  Income Taxes

   The effective tax rate for 2000 was 28 percent compared to 30 percent in
1999. The effective tax rates are below U.S. statutory rates, primarily due to
the lower rates in effect for foreign subsidiaries, research and development
tax credits, and the reversal of tax provisions for items cleared as a result
of the completion of several tax audits.

Liquidity and Capital Resources

   Cash flow from operating activities of $241 million in 2001 declined $38
million from $279 million in 2000. The decline was principally a result of
lower income. Rayonier used this operating cash flow to finance capital
expenditures of $77 million, pay dividends of $39 million, repurchase $2
million of its outstanding common shares and reduce debt by $123 million.
Year-end debt-to-capital ratio of 55 percent was 4 percentage points lower than
2000. The percentage of debt with fixed interest rates was 77 percent as of
December 31, 2001, and 68 percent as of December 31, 2000.

   Cash flow from operating activities of $279 million in 2000 increased $66
million from 1999 principally as a result of higher income partly offset by
higher working capital requirements. The Company used this operating cash flow
to help finance capital expenditures of $90 million, reduce debt by $163
million, pay dividends of $39 million, and repurchase $18 million of its
outstanding common shares.

   In addition to using cash flow from operations, the Company finances its
operations through the issuance of debt, and by entering into leases. These
financial obligations are recorded in accordance with accounting rules
applicable to the underlying transaction, with the result that some are
recorded as liabilities on the balance sheet,

                                      20

<PAGE>

while others are required to be disclosed only in the Notes to Consolidated
Financial Statements. The following table aggregates the Company's contractual
financial obligations:

<TABLE>
<CAPTION>
                                                      Payments Due by Period
                                          -----------------------------------------------
Contractual Financial Obligations (000's)  Total    2002   2003-2004 2005-2006 Thereafter
- ----------------------------------------- -------- ------- --------- --------- ----------
<S>                                       <C>      <C>     <C>       <C>       <C>
  Short-term bank loans.................. $  5,000 $ 5,000 $     --   $    --   $     --
  Current maturities of long-term debt...    2,600   2,600       --        --         --
  Long-term debt.........................  842,205      --  288,230*    3,610    550,365
  Operating leases--timberland...........   95,508   4,599    8,883     8,409     73,617
  Operating leases--PP&E, offices........   27,725   5,555   12,111     3,495      6,564
                                          -------- ------- --------   -------   --------
  Total contractual cash obligations..... $973,038 $17,754 $309,224   $15,514   $630,546
                                          ======== ======= ========   =======   ========
</TABLE>
- --------
*  Includes $77,550 of 7.5% debentures due 2002, which the Company has the
   intent and ability to refinance using its available long-term credit
   facilities. See also Note 11-Debt.

   As part of its ongoing operations, the Company periodically issues
guarantees or financial instruments such as letters of credit and surety bonds.
The following table aggregates the Company's Financial Commitments as of
December 31, 2001:

<TABLE>
<CAPTION>
                                                    Total
                                                   Amounts
                    Financial Commitments (000's) Committed
                    ----------------------------- ---------
                    <S>                           <C>
                    Standby letters of credit (1)  $49,424
                    Guarantees (2)...............   12,900
                    Surety bonds (3).............   15,090
                                                   -------
                    Total financial commitments..  $77,414
</TABLE>
- --------
(1) Approximately $39 million of standby letters of credit serve as credit
    support for the Company's debt obligations in case of default. The
    remaining letters of credit serve as support for various insurance
    coverages. These standby letters of credit expire at various dates in 2002
    and 2003 and are typically rolled over as required.
(2) Represents a Company guarantee of 85 percent of certain loans outstanding
    for four chip mill facilities that provide chips to the Company's Jesup, GA
    mill.
(3) Approximately $12 million of this amount is for bonds posted by the Company
    to secure timber in the State of Washington. The remainder serves as
    collateral for the Company's Worker's Compensation self-insurance program.

   The discussion below is presented to enhance the reader's understanding of
Rayonier's ability to generate cash, its liquidity and its ability to satisfy
rating agency and creditor requirements. This information includes two measures
of financial results: Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA), and Free Cash Flow. These measures are not defined by
Generally Accepted Accounting Principles (GAAP). The discussion of EBITDA and
Free Cash Flow is not intended to conflict with or change any of the GAAP
disclosures described above, but to provide supplementary information that
management deems to be relevant to analysts, investors and creditors. EBITDA
and Free Cash Flow as defined may not be comparable to similarly titled
measures reported by other companies.

   EBITDA is defined as earnings from continuing operations before significant
non-recurring items, provision for dispositions, interest expense, income
taxes, depreciation, depletion, amortization and the non-cash cost of land
sales. In 2001, EBITDA was $339 million or $12.27 per share, a decrease of $54
million or $1.92 per share from 2000. The decrease was primarily due to lower
cash operating income generated in the Performance Fibers segment and to a
lesser degree in the Timber and Land segment. In 2000, EBITDA was $393 million
or $14.19 per share, an increase of $140 million or $5.21 per share from 1999.
The increase was primarily due to higher

                                      21

<PAGE>

income, resulting from Timber sales related to the 1999 timberland acquisition,
stronger Land sales, as well as higher Performance Fibers income.

   Below is a reconciliation of Net income to EBITDA for the three-year period
ended December 31, 2001 (in millions except per share amounts):

<TABLE>
<CAPTION>
                                                        Per            Per            Per
                                                 2001  Share   2000   Share    1999  Share
                                                ------ ------ ------  ------  ------ -----
<S>                                             <C>    <C>    <C>     <C>     <C>    <C>
Net income.....................................  $ 57.6 $ 2.09 $ 78.2  $ 2.82  $ 68.7 $2.44
Add: Income tax expense........................    25.0   0.90   30.5    1.10    29.5  1.05
     Interest expense..........................    69.1   2.50   85.8    3.10    42.2  1.50
     Depreciation, depletion & amortization....   177.1   6.42  176.9    6.38   105.4  3.73
     Non-cash cost of land sales...............    10.0   0.36   14.3    0.52     7.4  0.26
     Gain on sale of joint venture.............      --     --   (7.6)  (0.27)     --    --
     Provision for dispositions................      --     --   15.0    0.54      --    --
                                                 ------ ------ ------  ------  ------ -----
EBITDA.........................................  $338.8 $12.27 $393.1  $14.19  $253.2 $8.98
                                                 ====== ====== ======  ======  ====== =====
</TABLE>

   The most restrictive long-term debt covenants in effect for Rayonier at
December 31, 2001, provided that the ratio of total debt to EBITDA not exceed
4.0 to 1 and EBITDA to consolidated interest expense not be less than 2.5 to 1
at the end of 2001. As of December 31, 2001, the ratios were 2.5 to 1 and 4.9
to 1, respectively. The most restrictive long-term debt covenants in effect for
Rayonier Timberlands Operating Company (RTOC) provided that the ratio of
consolidated cash flow available for fixed charges to consolidated fixed
charges not be less than 1.6 to 1 through December 31, 2001, and not less than
1.65 to 1 thereafter. Additionally, the ratio of consolidated total debt to
consolidated cash flow available for fixed charges may not exceed 4.5 to 1
through December 31, 2001, and may not exceed 4.25 to 1 each quarter end
thereafter. As of December 31, 2001, the ratios were 2.6 to 1 and 2.9 to 1,
respectively. In addition to the covenants listed above, the revolving credit
agreements include customary covenants that limit the incurrence of debt, the
disposition of assets and the making of restricted payments between RTOC and
Rayonier. The Company is currently in compliance with all of these covenants.

   Free Cash Flow is defined as EBITDA plus or minus significant non-recurring
items, changes in working capital and long-term assets and liabilities, plus
proceeds from exercise of employee stock options, less income taxes, interest
expense, custodial capital spending, prior year dividend levels and the
non-cash costs of land sales. Rayonier defines custodial capital spending as
capital expenditures required to maintain our current earnings level over the
cycle and to keep facilities and equipment in safe and reliable condition as
well as in compliance with regulatory requirements. Free Cash Flow decreased
$66 million to $139 million in 2001 primarily as a result of lower EBITDA and
unfavorable working capital changes partly offset by lower interest expense.

   Below is a reconciliation of Cash Provided by Operating Activities to Free
Cash Flow for the three-year period ended December 31, 2001 (in millions except
per share amounts):

<TABLE>
<CAPTION>
                                                                        2001    2000    1999
                                                                       ------  ------  ------
<S>                                                                    <C>     <C>     <C>
Cash provided by operating activities................................. $241.3  $278.9  $213.4
   Decrease/(increase) in timber purchase agreements and other assets.   (7.1)    9.8     9.3
   Custodial capital spending, net....................................  (63.7)  (68.4)  (67.2)
   Proceeds from sale of joint venture................................     --    14.6      --
   Dividends at prior year level......................................  (39.2)  (35.1)  (34.3)
   Exercise of employee stock options.................................   11.6     2.6     5.5
   Decrease/(increase) in cash and short-term investments.............   (4.3)    2.4    (5.6)
                                                                       ------  ------  ------
Free Cash Flow........................................................ $138.6  $204.8  $121.1
                                                                       ======  ======  ======
Free Cash Flow per share.............................................. $ 5.02  $ 7.39  $ 4.30
                                                                       ======  ======  ======
</TABLE>

                                      22

<PAGE>

   Free Cash Flow is available to invest in discretionary capital spending, pay
dividends above the prior year level, repurchase the Company's common shares
and reduce debt.

   In 2001, capital expenditures of $77 million included $64 million of
custodial capital spending, of which $4 million was for environmental spending.
The remaining 2001 spending of $13 million was for discretionary capital
spending principally for our NovaThin(R) line of engineered absorbent products.
Rayonier expects to invest approximately $90 million in capital projects for
each of the two years ended 2002 and 2003. Capital projects include profit
improvement, custodial capital, timberlands reforestation and various projects
to comply with new environmental laws and requirements. As new environmental
regulations are promulgated, additional capital spending may be required to
ensure continued compliance. See also Environmental Regulation.

   In 1996, Rayonier began a Common Share repurchase program to minimize the
dilutive effect on earnings per share of its employee incentive stock plans.
This program limits the number of shares that may be repurchased each year to
the greater of 1.5 percent of our outstanding shares or the number of incentive
shares actually issued to employees during the year. In October 1998, the Board
authorized the repurchase of an additional one million shares through December
31, 2000. In October 2000, the Board authorized the repurchase of an additional
one million shares. These share repurchases were authorized in addition to the
1.5 percent of outstanding shares normally repurchased each year. Below is a
table of share repurchases for the past three years:

<TABLE>
<CAPTION>
                                                 2001     2000     1999
                                                ------- -------- --------
      <S>                                       <C>     <C>      <C>
      Shares repurchased.......................  52,900  433,000  551,867
      Cost of repurchased shares (in thousands) $ 2,031 $ 17,624 $ 23,791
      Average cost per share................... $ 38.39 $  40.70 $  43.11
</TABLE>

   Rayonier has revolving credit agreements with a group of banks that provide
unsecured credit facilities totaling $225 million. In November of 2002, $55
million of the facility expires, and the remaining $170 million expires in
November of 2004. The revolving credit facilities are used for direct
borrowings. In the past, these facilities were also used as support for the
Company's commercial paper program. As of December 31, 2001, Rayonier had $225
million of available borrowings under its revolving credit facilities.
Approximately $83 million of the borrowings is expected to be available to
refinance 7.5% debentures and short-term bank loans that are due in 2002. In
connection with the financing of the 1999 major timberland acquisition, RTOC
entered into an agreement with a group of banks that provided RTOC with
revolving credit facilities totaling $75 million that expire in 2004. As of
December 31, 2001, RTOC had $70 million of available borrowings under its
revolving credit facilities. In addition, Rayonier has on file with the
Securities and Exchange Commission shelf registration statements to offer $150
million of new public debt securities. Management believes that internally
generated funds, combined with available external financing as described above,
will enable Rayonier to fund capital expenditures, dividends, share
repurchases, working capital, and other liquidity needs for the foreseeable
future.

   In February 2002, Standard & Poor's revised its outlook on the Company to
stable from negative and re-affirmed their triple-'B'-minus rating on the
Company's long-term debt. In addition, they withdrew their 'A-3' short-term
debt rating on the Company's commercial paper program at the Company's request,
as the program is currently inactive due to the focus on debt reduction.

Critical Accounting Policies

   The preparation of Rayonier's financial statements requires the Company to
make estimates, assumptions and judgements that affect the assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities
reported in this Annual Report on Form 10-K. The Company bases these estimates
and assumptions on historical data and trends, current fact patterns,
expectations and other sources of information it believes are reasonable.
Actual results may differ from these estimates under different conditions.

   In response to the Securities and Exchange Commission's encouragement to
discuss the Company's most critical accounting policies, those that are "both
very important to the portrayal of the Company's financial condition and
results, and requires management's most difficult, subjective or complex
judgements," we offer the

                                      23

<PAGE>

following. This analysis is deemed preliminary as specific guidelines,
regulations or framework have not been published or identified.

  Merchantable inventory and depletion costs as determined by forestry timber
  harvest models

   Significant assumptions and estimations are used in the recording of
timberland inventory cost and depletion. Rayonier employs a forestry technical
services group at each of its timberland management locations. Merchantable
standing timber inventory is estimated annually, using industry-standard
computer software. The inventory calculation takes into account growth,
in-growth (annual transfer of oldest pre-merchantable age class into the
merchantable inventory), timberland sales and the annual harvest specific to
each business unit. An annual business unit depletion rate is established by
dividing merchantable inventory book cost by standing merchantable inventory.
Pre-merchantable records are maintained for each planted year age class,
recording acres planted, stems per acre, and costs of planting and tending.
Changes in the assumptions and/or estimations used in these calculations may
affect the Company's results, in particular, timber inventory and depletion
costs.

  Depreciation of long-lived assets as specifically affected by economic
  obsolescence

   The Company depreciates its assets using the units of production and the
straight-line methods over the useful economic lives of the assets involved.
Management believes these depreciation methods are appropriate in the
circumstances and more closely match revenues with expenses versus other
generally accepted accounting methods. Long-lived assets are periodically
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The physical life of
equipment, however, may be shortened by economic obsolescence caused by
environmental regulation, competition and other causes.

  Environmental costs associated with discontinued operations

   Rayonier has significant liabilities recorded for environmental costs
relating to past dispositions and discontinued operations that span
approximately 25 years into the future. Significant estimates are used in
determining the proper value of these obligations at a given point in time,
especially due to the long-term nature of the obligations. Factors affecting
these estimates include, but are not limited to, technological and regulatory
changes, results from on-going work and management's judgement. Management
periodically reviews its environmental liabilities for technological and
regulatory changes. A material change in an estimate in any given period could
have a favorable or unfavorable effect on the results of the Company's
operations.

  Determining the adequacy of pension assets and liabilities

   Numerous estimates and assumptions are required to determine the proper
amount of pension and postretirement liabilities to record in the Company's
financial statements. These include discount rate, return on assets, salary
increases, health care cost trends, longevity and service lives of employees.
Although there is authoritative guidance on how to select these assumptions,
the Company's management and its actuary exercise some degree of judgement when
selecting these assumptions. Selecting different assumptions, as well as actual
versus expected results, would change the net periodic benefit cost and funded
status of the benefit plans recognized in the financial statements.

  Realizability of both recorded and unrecorded tax assets and liabilities

   The Company has recorded certain deferred tax assets that management
believes will be realized in future periods. These assets are reviewed
periodically in order to assess their realizability. This review requires
management to make assumptions and estimates about future profitability
affecting the realization of these tax benefits. If the review indicated that
the realizability may be less than likely, a valuation allowance would be made
at that time.

   In addition, the Company has not provided taxes on approximately $69 million
of undistributed foreign earnings as the Company intends to reinvest such
earnings in the future. This assumption is reviewed periodically to ensure that
any changes in the Company's ability to reinvest these earnings will be
properly disclosed and accounted for.

                                      24

<PAGE>

New Accounting Standards

   In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires entities to record a legal obligation
associated with the retirement of a tangible long-lived asset in the period in
which it is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company will adopt the standard effective January 1,
2003, and is currently assessing the impact on its operations.

Environmental Regulation

   Rayonier is subject to stringent environmental laws and regulations
concerning air emissions, water discharges and water disposal. Such
environmental laws and regulations include the Federal Clean Air Act, the Clean
Water Act, the Resource Conservation and Recovery Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Management closely
monitors all of its environmental responsibilities, together with trends in
environmental laws and believes that the Company is in substantial compliance
with current environmental requirements. It is the opinion of management that
substantial expenditures over the next 10 years will be required in the area of
environmental compliance. During 2001, 2000, and 1999, Rayonier spent
approximately $4 million, $4 million and $3 million, respectively, for capital
projects related to environmental compliance for ongoing operations. During the
two-year period 2002-2003, Rayonier expects to spend approximately $17 million
on such capital projects.

   During 1997, the Environmental Protection Agency (EPA) finalized its Cluster
Rules governing air emissions but, due to the specialty nature of Rayonier's
Performance Fibers products and operations, the agency postponed finalizing
water discharge rules and certain air emissions rules governing the Company's
mills. Rayonier continues to work with the EPA to establish such rules for its
mills, but the timing and costs associated with such rulemaking are uncertain.
In the opinion of management, capital costs to be incurred over the next three
to five years associated with environmental regulations will not exceed $30
million at the Performance Fibers mills.

   Federal, state and local laws and regulations intended to protect threatened
and endangered species, as well as wetlands and waterways, limit and may
prevent timber harvesting, road building and other activities on private lands.
A portion of the Company's timberlands is subject to some level of harvest
restrictions. Over the past several years, the harvest of timber from the
Company's timberlands in the state of Washington has been restricted as a
result of the listing of the northern spotted owl, the marbled murrelet and
several species of salmon and trout as threatened species under the Endangered
Species Act. In 1999, the timber industry and federal, state, local and tribal
governments, entered into an agreement, known as the Forests and Fish Report.
The Washington Forest Practices Board has adopted rules implementing the
Forests and Fish Report which further restrict timber harvest within buffers
along streams with fish habitat. All of these restrictions have caused Rayonier
to restructure and reschedule some of its harvest plans and have reduced the
total acreage and volume of timber available for harvest. These restrictions
have not had a material impact on Rayonier's annual harvest volumes, and
Rayonier has made changes to its long-term harvest plan to compensate for these
restrictions.

   Rayonier currently estimates that expenditures during 2002-2003 for
environmental remediation and monitoring costs for all dispositions and
discontinued operations will total approximately $26 million. Such costs,
including monitoring and remediation costs, will be charged against our
reserves for estimated environmental obligations that we believe are sufficient
for costs expected to be incurred over the next 25-30 years with respect to
dispositions and discontinued operations. At December 31, 2001, these reserves
totaled approximately $169 million. The actual future environmental costs are
dependent on the outcome of negotiations with federal and state agencies and
may also be affected by new laws, regulations and administrative
interpretations, and changes in environmental remediation technology. Based on
information currently available, management does not believe that any future
changes in estimates would materially affect Rayonier's consolidated financial
position or results of operations.

                                      25

<PAGE>

Market and Other Economic Risks

   Rayonier is exposed to various market risks, including changes in commodity
prices, interest rates and foreign currency exchange rates. Our intent is to
minimize the economic impact of these market risks. Derivatives are used, as
noted below, in accordance with policies and procedures approved by the Board
of Directors and are managed by a senior executive committee whose
responsibilities include initiating, managing and monitoring resulting
exposures. Rayonier does not enter into financial instruments for trading
purposes.

   Most of Rayonier's revenues and expenses are U.S. dollar-denominated.
However, the Company does have some risk within its New Zealand operation
related to foreign currency pricing and costs. Periodically, the Company enters
into foreign currency forward contracts to hedge the risks of foreign currency
fluctuations and commodity forward contracts to fix certain energy costs. At
December 31, 2001, the Company held foreign currency contracts maturing through
May 2002 totaling $4.6 million and natural gas forward contracts maturing
through February 2002, totaling $0.5 million. The fair value of outstanding
foreign currency contracts, at year-end, was an asset of approximately $0.1
million. Market risk resulting from a hypothetical 4-cent change in the New
Zealand dollar/U.S. dollar exchange rate amounts to an approximate change of
$0.4 million pre-tax income/loss.

   Cyclical pricing of commodity market paper pulp ultimately influences
Performance Fibers prices, particularly in the Company's Absorbent Materials
business unit. However, since Rayonier is a non-integrated producer of
specialized Performance Fibers for non-papermaking end uses, its high-value
product mix tends to lag (on both the upturn and downturn) commodity paper pulp
prices and its peaks and valleys are less severe.

   Rayonier periodically enters into interest rate swap agreements to manage
its exposure to interest rate changes, or in back-to-back arrangements at the
time debt is issued in order to cost effectively place the debt. These swaps
involve the exchange of fixed and variable interest rate payments without
exchanging principal amounts. At December 31, 2001, there were no interest rate
swap agreements outstanding.

   The fair market value of long-term fixed interest rate debt is subject to
interest rate risk; however, Rayonier intends to hold most of its debt until
maturity. Occasionally, callable bonds will be refinanced at the Company's
option if favorable economic conditions exist. Generally, the fair market value
of fixed-interest-rate debt will increase as interest rates fall and decrease
as interest rates rise. The estimated fair value of our fixed-rate debt at
December 31, 2001, was $675 million compared to $651 million in carrying value.
A one-percentage point decrease in prevailing interest rates at December 31,
2001, would result in an increase in the fair value of our fixed-rate debt of
approximately $0.7 million.

Safe Harbor

   Comments about market trends, anticipated earnings, expected pricing levels,
projected capital spending levels and the Company's ability to meet future
capital needs, sufficiency of reserves, availability of tax deductions and
future activities, such as land sales, timberland purchases, timber harvests
and manufacturing production levels, are forward-looking and are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The following important factors, among others, could cause actual
results to differ materially from those expressed in the forward-looking
statements: changes in global market trends and world events that could impact
customer demand; interest rate and currency movements; fluctuations in demand
for cellulose specialties, absorbent materials, timber and wood products;
adverse weather conditions; changes in production costs for wood products and
performance fibers, particularly for raw materials such as wood, energy and
chemicals; unexpected delays in the closing of land sale transactions; and
implementation or revision of governmental policies and regulations affecting
the environment, import and export controls and taxes.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   See Index to Financial Statements on page ii.

                                      26

<PAGE>

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

   On March 15, 2002, the Board of Directors of Rayonier Inc., upon the
recommendation of the Audit Committee, rescinded the appointment of Arthur
Andersen LLP ("Andersen") as independent auditors for 2002, given the current
circumstances surrounding Andersen. The Audit Committee is currently evaluating
the appointment of an independent auditor for 2002 and will act expeditiously
in making a recommendation to the Board of Directors. In the interim, the Board
of Directors has authorized management to engage Andersen as needed on a
special appointment basis to continue to provide independent auditing services.

   Andersen's reports on the Company's consolidated financial statements for
each of the years ended 2001, 2000 and 1999 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.

   During the years ended December 31, 2001, 2000, 1999 and through the date of
this filing, there were no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement(s), if not resolved to the satisfaction
of Andersen, would have caused them to make reference to the subject matter of
the disagreement(s) in connection with their report.

   None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within Rayonier's three most recent fiscal years and
the subsequent interim period through March 20, 2002.

   The Company provided Andersen with a copy of the above disclosures. Filed
herewith as Exhibit 16 is a copy of Andersen's letter, dated March 20, 2002,
stating its agreement with such statements. Also filed herewith as Exhibit 99
is a letter dated March 20, 2002, from the Company to the Securities and
Exchange Commission detailing certain quality assurances that Andersen provided
to the Company in a letter dated March 15, 2002.

                                   PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information called for by Item 10 with respect to directors is
incorporated herein by reference to the definitive proxy statement involving
the election of directors filed or to be filed by Rayonier with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days after the
end of the fiscal year covered by this Form 10-K.

   The information called for by Item 10 with respect to executive officers is
set forth above in Part I under the caption Executive Officers of Rayonier.

Item 11.  EXECUTIVE COMPENSATION

   The information called for by Item 11 is incorporated herein by reference to
the definitive proxy statement referred to above in Item 10.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information called for by Item 12 is incorporated herein by reference to
the definitive proxy statement referred to above in Item 10.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   None

                                      27

<PAGE>

                                    PART IV

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

   (a) Documents filed as a part of this report:

       1. See Index to Financial Statements on page ii for a list of the
          financial statements filed as part of this report.
       2. See Schedule II--Valuation and Qualifying Accounts. All other
          financial statement schedules have been omitted because they are not
          applicable, the required matter is not present or the required
          information has been otherwise supplied in the financial statements
          or the notes thereto.
       3. See Exhibit Index on pages B, C, D, and E for a list of the exhibits
          filed or incorporated herein as part of this report.

   (b) Reports on Form 8-K:

      None

                                      28

<PAGE>

                             REPORT OF MANAGEMENT

To Our Shareholders:

   Rayonier management is responsible for the preparation and integrity of the
information contained in the accompanying financial statements. The statements
were prepared in accordance with accounting principles generally accepted in
the United States and, where necessary, include information that is based on
management's best judgments. Rayonier's system of internal controls includes
accounting controls and an internal audit program. This system is designed to
provide reasonable assurance that Rayonier's assets are safeguarded,
transactions are properly recorded and executed in accordance with management's
authorization, and fraudulent financial reporting is prevented or detected.

   Rayonier's internal controls provide for the careful selection and training
of personnel and for appropriate divisions of responsibility. The controls are
documented in policies, procedures and a written code of conduct that are
communicated to Rayonier's employees. Management continually monitors the
system of internal controls for compliance. Rayonier's independent certified
public accountants, Arthur Andersen LLP, evaluate and test internal controls as
part of their annual audit and make recommendations for improving internal
controls. Management takes appropriate action in response to each
recommendation. The Board of Directors and the officers of Rayonier monitor the
administration of Rayonier's policies and procedures and the preparation of
financial reports.

                                          W. L. NUTTER
                                          Chairman, President and
                                            Chief Executive Officer

                                          GERALD J. POLLACK
                                          Senior Vice President and
                                            Chief Financial Officer

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders of Rayonier Inc:

   We have audited the accompanying consolidated financial statements of
Rayonier Inc. (a North Carolina corporation) and subsidiaries as of December
31, 2001 and 2000 and for each of the three years in the period ended December
31, 2001, as described in the Index to Financial Statements. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 financial statements referred to above present fairly,
in all material respects, the financial position of Rayonier Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

   Schedule II--Valuation and Qualifying Accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

Arthur Andersen LLP

Jacksonville, Florida
January 18, 2002

                                      F-1

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                       STATEMENTS OF CONSOLIDATED INCOME

                       For the Years Ended December 31,

                 (Thousands of dollars, except per share data)

<TABLE>
<CAPTION>
                                                                 2001        2000        1999
                                                              ----------  ----------  ----------
<S>                                                           <C>         <C>         <C>
SALES........................................................ $1,164,913  $1,226,878  $1,108,035
                                                              ----------  ----------  ----------
Costs and Expenses
   Cost of sales.............................................    982,550     991,817     939,260
   Selling and general expenses..............................     36,298      31,213      39,644
   Other operating income, net...............................     (3,709)       (707)     (6,599)
   Provision for dispositions................................         --      15,044          --
                                                              ----------  ----------  ----------
                                                               1,015,139   1,037,367     972,305
                                                              ----------  ----------  ----------
OPERATING INCOME.............................................    149,774     189,511     135,730
Interest expense.............................................    (69,083)    (85,753)    (42,193)
Interest and miscellaneous income (expense), net.............      1,871      (2,687)     (3,163)
Gains from sales of assets...................................         --       7,574       7,746
                                                              ----------  ----------  ----------
INCOME BEFORE PROVISION FOR INCOME TAXES.....................     82,562     108,645      98,120
   Provision for income taxes................................    (24,964)    (30,458)    (29,467)
                                                              ----------  ----------  ----------
NET INCOME...................................................     57,598      78,187      68,653
OTHER COMPREHENSIVE INCOME (LOSS)
   Unrealized gain on hedged transactions, net of income tax
     expense of $4...........................................          7          --          --
   Minimum pension liability adjustments, net of income tax
     benefit of $416.........................................       (709)         --          --
                                                              ----------  ----------  ----------
COMPREHENSIVE INCOME......................................... $   56,896  $   78,187  $   68,653
                                                              ==========  ==========  ==========
NET INCOME PER COMMON SHARE
   BASIC EPS................................................. $     2.12  $     2.87  $     2.48
                                                              ==========  ==========  ==========
   DILUTED EPS............................................... $     2.09  $     2.82  $     2.44
                                                              ==========  ==========  ==========
</TABLE>


      The accompanying Notes to Consolidated Financial Statements are an
                integral part of these consolidated statements.

                                      F-2

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                              As of December 31,

                            (Thousands of dollars)

                                    ASSETS

<TABLE>
<CAPTION>
                                                       2001       2000
                                                    ---------- ----------
      <S>                                           <C>        <C>
      CURRENT ASSETS
         Cash and short-term investments........... $   14,123 $    9,824
         Accounts receivable, less allowance for
           doubtful accounts of $3,392 and $3,969..    101,480    117,114
         Inventory.................................     91,010     97,106
         Timber purchase agreements................     18,996     33,775
         Other current assets......................      9,451     12,779
                                                    ---------- ----------
             Total current assets..................    235,060    270,598
                                                    ---------- ----------
      OTHER ASSETS.................................     72,328     63,129
      TIMBER PURCHASE AGREEMENTS...................      5,120      6,335
      TIMBER, TIMBERLANDS AND LOGGING ROADS, NET
        OF DEPLETION AND AMORTIZATION..............  1,131,723  1,192,388
      PROPERTY, PLANT AND EQUIPMENT
         Land, buildings, machinery and equipment..  1,371,550  1,360,296
         Less--accumulated depreciation............    790,769    730,472
                                                    ---------- ----------
                                                       580,781    629,824
                                                    ---------- ----------
                                                    $2,025,012 $2,162,274
                                                    ========== ==========
</TABLE>

  The accompanying Notes to Consolidated Financial Statements are an integral
                    part of these consolidated statements.

                                      F-3

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                              As of December 31,

                            (Thousands of dollars)

                     LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                              2001        2000
                                                                           ----------  ----------
<S>                                                                        <C>         <C>
CURRENT LIABILITIES
   Accounts payable....................................................... $   65,247  $   87,401
   Bank loans and current maturities......................................      7,600       2,565
   Accrued taxes..........................................................     13,606      10,314
   Accrued payroll and benefits...........................................     14,471      27,756
   Accrued interest.......................................................      6,391      11,745
   Accrued customer incentives............................................     12,935      18,163
   Other current liabilities..............................................     17,360      22,389
   Current reserves for dispositions and discontinued operations..........     15,310      15,434
                                                                           ----------  ----------
       Total current liabilities..........................................    152,920     195,767
                                                                           ----------  ----------
DEFERRED INCOME TAXES.....................................................    131,723     130,333
LONG-TERM DEBT............................................................    842,205     970,415
NON-CURRENT RESERVES FOR DISPOSITIONS AND DISCONTINUED
  OPERATIONS..............................................................    153,394     161,465
OTHER NON-CURRENT LIABILITIES.............................................     35,976      24,193
SHAREHOLDERS' EQUITY
   Common Shares, 60,000,000 shares authorized, 27,345,395 and 27,104,462
     shares issued and outstanding........................................     59,721      48,717
   Retained earnings......................................................    649,775     631,384
   Accumulated other comprehensive income (loss)..........................       (702)         --
                                                                           ----------  ----------
                                                                              708,794     680,101
                                                                           ----------  ----------
                                                                           $2,025,012  $2,162,274
                                                                           ==========  ==========
</TABLE>




      The accompanying Notes to Consolidated Financial Statements are an
                integral part of these consolidated statements

                                      F-4

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                     STATEMENTS OF CONSOLIDATED CASH FLOWS

                       For the Years Ended December 31,

                            (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                                    2001       2000       1999
                                                                                  ---------  ---------  ---------
<S>                                                                               <C>        <C>        <C>
OPERATING ACTIVITIES
Net income....................................................................... $  57,598  $  78,187  $  68,653
Non-cash items included in income
   Depreciation, depletion and amortization......................................   177,124    176,913    105,425
   Deferred income taxes.........................................................    (1,227)    12,674      2,768
   Gain on sale of joint venture.................................................        --     (7,574)        --
   Non-cash cost of land sales...................................................    10,013     14,316      7,359
   Reserves for dispositions.....................................................        --     15,044         --
Increase (decrease) in other non-current liabilities.............................     8,874       (133)    (1,894)
Change in accounts receivable, inventory and accounts payable....................      (755)     5,055     14,926
Decrease (increase) in current timber purchase agreements........................    14,779     (3,298)     5,299
Decrease (increase) in other current assets......................................     3,328     (1,672)     2,086
(Decrease) increase in accrued liabilities.......................................   (23,310)    (4,951)    16,959
Expenditures for dispositions and discontinued operations, net of tax benefits of
 $3,033, $3,344 and $4,701.......................................................    (5,162)    (5,622)    (8,133)
                                                                                  ---------  ---------  ---------
      CASH PROVIDED BY OPERATING ACTIVITIES......................................   241,262    278,939    213,448
                                                                                  ---------  ---------  ---------
INVESTING ACTIVITIES
Capital expenditures, net of sales and retirements
of $491, $1,124 and $1,624.......................................................   (76,964)   (88,387)   (92,969)
Acquisition of Smurfit timberlands...............................................        --         --   (231,436)
Proceeds from the sale of joint venture, net of cash costs.......................        --     14,550         --
Change in timber purchase agreements and other assets............................    (7,147)     9,832      9,344
                                                                                  ---------  ---------  ---------
      CASH USED FOR INVESTING ACTIVITIES.........................................   (84,111)   (64,005)  (315,061)
                                                                                  ---------  ---------  ---------
FINANCING ACTIVITIES
Issuance of debt.................................................................   159,000    266,172    352,971
Repayment of debt................................................................  (282,175)  (429,370)  (191,737)
Dividends paid...................................................................   (39,207)   (39,185)   (35,669)
Repurchase of Common Shares......................................................    (2,031)   (17,624)   (23,791)
Issuance of Common Shares........................................................    11,561      2,632      5,469
                                                                                  ---------  ---------  ---------
      CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES...........................  (152,852)  (217,375)   107,243
                                                                                  ---------  ---------  ---------
CASH AND SHORT TERM INVESTMENTS
Increase (decrease) in cash and short-term investments...........................     4,299     (2,441)     5,630
Balance, beginning of year.......................................................     9,824     12,265      6,635
                                                                                  ---------  ---------  ---------
Balance, end of year............................................................. $  14,123  $   9,824  $  12,265
                                                                                  =========  =========  =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
   Interest...................................................................... $  72,637  $  85,167  $  37,529
                                                                                  =========  =========  =========
   Income taxes.................................................................. $  19,299  $  18,802  $  17,152
                                                                                  =========  =========  =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Smurfit timberlands...............................................        --         --  $ 485,000
Issuance of installment notes....................................................        --         --  $ 485,000
</TABLE>

  The accompanying Notes to Consolidated Financial Statements are an integral
                    part of these consolidated statements.

                                      F-5

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             (Dollar amounts in thousands unless otherwise stated)



1.  NATURE OF BUSINESS OPERATIONS

   Rayonier Inc. (Rayonier or the Company) operates in three reportable
segments under Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information,
Performance Fibers, Timber and Land, and Wood Products and Trading. The
Performance Fibers segment includes two business units: Cellulose Specialties
and Absorbent Materials. The Timber and Land segment includes two business
units, Timber and Land.

  Performance Fibers

   Rayonier is a leading manufacturer of high-performance cellulose fibers. The
Company owns and operates fiber production facilities at Jesup, GA, and
Fernandina Beach, FL, with a combined annual capacity of approximately 720,000
metric tons. These fiber products are sold throughout the world to industrial
companies that produce a wide variety of products. Approximately two-thirds of
Rayonier's performance fiber sales are to export customers, primarily in Asia,
Europe and Latin America. The Performance Fibers segment includes two business
units: Cellulose Specialties and Absorbent Materials.

      Cellulose Specialties--Rayonier is one of the world's leading producers
   of specialty cellulose products, most of which are used in dissolving
   chemical applications that require a highly purified form of cellulose
   fiber. Rayonier concentrates on producing the most highly valued,
   technologically demanding forms of cellulose specialty products, such as
   cellulose acetate and high-purity cellulose ethers, and is a leading
   supplier of these products.

      Absorbent Materials--Rayonier is a major supplier of performance fibers
   for absorbent hygiene products. These fibers are typically referred to as
   fluff fibers and are used as an absorbent medium in products such as
   disposable baby diapers, feminine hygiene products, incontinence pads,
   convalescent bed pads, industrial towels and wipes and non-woven fabrics.

  Timber and Land

   The Timber and Land segment includes two business units: Timber and Land.

      Timber--Rayonier owns, leases or controls approximately 2.3 million acres
   of timberlands in the U.S. and New Zealand. The Company manages timberlands
   and sells standing timber to third parties.

      Land--Rayonier invests in timberlands seeking to maximize its returns
   from a full cycle of ownership. The end cycle includes selling portions of
   its land base to capture the appreciated value of the underlying asset. This
   program includes selling general timberland for others to manage and
   harvest, and selling higher and better use (HBU) real estate properties more
   valuable for commercial development, residential development and
   conservation purposes.

  Wood Products and Trading

   Rayonier is a leading exporter, trader and manufacturer of softwood logs,
lumber and wood panel products. The Company manufactures and sells dimension
and specialty lumber and medium-density-fiberboard (MDF) products. Rayonier
operates three lumber manufacturing facilities in the U.S. and an MDF facility
in New Zealand. The Company purchases and harvests timber, sells logs and
purchases wood products for resale.

                                      F-6

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

   The consolidated financial statements include the accounts of Rayonier and
its subsidiaries. All significant intercompany balances and transactions are
eliminated. All subsidiaries are consolidated for financial reporting purposes.
For income tax purposes, several foreign subsidiaries are taxed in foreign
jurisdictions and are not included in the consolidated tax return filed in the
United States.

  Use of Estimates

   The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires the use of certain estimates
by management (e.g., useful economic lives of assets) in determining the amount
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. There
are risks inherent in estimating, and therefore, actual results could differ
from those estimates. See also - Critical Accounting Policies in Part II, Item
7, of the Management's Discussion and Analysis.

  New Accounting Standards

   In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement requires entities to record a legal obligation
associated with the retirement of a tangible long-lived asset in the period in
which it is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The Company will adopt the standard effective January 1,
2003, and is currently assessing the impact on its operations.

  Cash and Short-Term Investments

   Cash and short-term investments include time deposits and readily marketable
debt securities with maturities at date of acquisition of three months or less.

  Inventory

   Inventories are valued at the lower of cost or market. The cost of
manufactured performance fibers and MDF products are determined on the
first-in, first-out (FIFO) basis. Other products are valued on an average cost
basis. Inventory costs include material, labor and manufacturing overhead.
Physical counts of inventories are taken at least annually. The provision for
potential losses from obsolete, excess or slow-moving inventories is reviewed
periodically.

   HBU real estate properties that are expected to be sold within one year are
included in inventory. HBU real estate properties that are expected to be sold
after one year are included in "Other Assets."

  Timber Purchase Agreements and Timber-Cutting Contracts

   Rayonier purchases timber for use in its Performance Fibers and Wood
Products and Trading businesses. Timber that will be harvested within one year
of the balance sheet date is classified as a current asset with the remainder
classified as a non-current asset. Rayonier evaluates the realizability of
timber purchases and timber-cutting contracts based on the estimated aggregate
purchase price and harvesting cost of such timber and the sales values to be
realized. Losses are recorded in the period that a determination is made that
the aggregate costs in a major operating area will not be fully recoverable.

                                      F-7

<PAGE>

  Timber and Land

   The acquisition cost of timber and land and real estate taxes, lease rental
payments, site preparation, and other costs relating to the planting and
growing of timber are capitalized. Such accumulated costs attributed to
merchantable timber are charged to cost of goods sold at the time the timber is
harvested or land is sold, based on the relationship of harvested timber to the
estimated volume of currently merchantable timber. Timber and land are stated
at the lower of cost, or market value.

  Property, Plant, Equipment and Depreciation

   Property, plant and equipment additions are recorded at cost, including
applicable freight, taxes, interest, construction and installation costs.
Interest capitalized in connection with major construction projects was $0 for
2001 and 2000 and $314 for 1999. Pulp mill assets are accounted for using the
composite method. Upon ordinary retirement or sale of property, accumulated
depreciation is charged with the cost of the property removed, and credited
with the proceeds of salvage value, with no gain or loss recognized. Gains and
losses with respect to any significant and unusual retirements of assets and
all other assets not accounted for under the composite method are included in
operating income.

   Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by net
undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying value exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell.

   The Company depreciates its assets using units of production and
straight-line depreciation methods. At its Performance Fibers and MDF
manufacturing facilities, the units of production method is used for all assets
except office, lab, and transportation equipment. These assets are depreciated
using the straight-line method over their useful economic lives. In addition,
all of the assets at the Company's sawmills are depreciated using the
straight-line method over the useful economic lives of the assets involved.
Rayonier normally claims the maximum depreciation deduction allowable for tax
purposes.

   Routine repair and maintenance costs are expensed as incurred. Costs
associated with planned major maintenance activities, generally requiring a
plant shutdown, are accrued pro rata in the year of the shutdown.

  Revenue Recognition

   Revenue from domestic sales of Performance Fibers products is recorded when
goods are shipped and title passes. Foreign sales are recorded when the
customer or agent receives the goods and title passes. Sale of timber is
recorded when title passes to the buyer. Timber sales are sold either
"lump-sum" with title passing immediately or "pay-as-cut" with title passing
when the purchaser harvests the timber. Revenues from "pay-as-cut" sales are
based on actual harvest volumes multiplied by contractually agreed upon prices.
Land sales are recorded when title passes and when payment or substantial down
payment is received.

  Environmental Costs

   Rayonier expenses environmental costs related to on-going businesses
resulting from current operations. Expenditures that meaningfully extend the
life or increase the efficiency of operating assets are capitalized. The
Company accrues environmental obligations related to past activities or
discontinued operations from which no current or future benefit is discernible.
These obligations span 25 years into the future and require significant
estimates to determine the proper value at any given point in time. Management
periodically reviews and adjusts these estimates based on technological,
regulatory or other changes that may affect them.

                                      F-8

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



  Research and Development

   Research and development efforts are directed primarily at the development
of new and improved cellulose fiber grades and related products, improved
manufacturing efficiency, reduction of energy needs, improved product quality
and development, and improved environmental controls. Research activities
related to timberland operations include genetic tree improvement programs as
well as applied silviculture programs to identify management practices that
improve financial returns from timberland assets.

  Foreign Currency Translation

   Foreign operations, including Rayonier's New Zealand-based operations, use
the U.S. dollar as the functional currency. Monetary assets and liabilities of
foreign subsidiaries are translated into U.S. dollars at current exchange
rates. Non-monetary assets, such as inventories, timber, and property, plant
and equipment, are translated at historical exchange rates. Income and expense
items are translated at average exchange rates prevailing during the year,
except that inventories, depletion and depreciation charged to operations are
translated at historical rates. Exchange gains and losses arising from
translation are recognized currently in "Other operating income, net."

  Income Taxes

   Deferred income taxes are provided using the liability method under the
provisions of SFAS No. 109, Accounting for Income Taxes. Income taxes on
foreign operations are provided based upon the statutory tax rates of the
applicable foreign country. U.S. income taxes have not been provided on
earnings that the Company intends to permanently reinvest overseas.

  Pension and Postretirement Benefits

   Rayonier records pension and postretirement costs and liabilities, including
an additional minimum liability in accordance with SFAS No. 87, Employers'
Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. Numerous estimates and assumptions
are required to record these costs and liabilities, including discount rate,
return on assets, salary increases, health care cost trends, longevity and
service lives of employees. Management reviews and updates these assumptions
periodically. In addition, in the Notes to Financial Statements, the Company
provides the disclosures required by SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits.

  Reclassifications

   Certain 2000 and 1999 amounts have been reclassified to agree with the
current year presentation. These changes had no effect on net income or
earnings per share (EPS).

3.  SEGMENT AND GEOGRAPHICAL INFORMATION

   Rayonier operates in three reportable segments under SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information:
Performance Fibers, Timber and Land (previously titled Timberland Management),
and Wood Products and Trading. The 1999 segment information has been
reclassified to agree with the segment presentation changes made in 2000 and
2001.

   The accounting policies of all operating segments are the same as those
described in the Summary of Significant Accounting Policies. Sales between
operating segments are made based on fair market value and intercompany profit
or loss is eliminated in consolidation. The Company evaluates financial
performance based on the operating income of the segments.

                                      F-9

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   Operating income (loss) as stated in the following table and as presented in
the Statements of Consolidated Income is equal to segment income (loss). The
income (loss) items below "Operating income" in the Statements of Consolidated
Income are not allocated to segments. These items, which include interest and
miscellaneous income (expense), and income tax (expense) benefit, are not
considered by Company management to be part of segment operations.

   Segment information for each of the three years ended December 31, 2001,
follows (in millions of dollars):

<TABLE>
<CAPTION>
                                                Sales           Operating Income (Loss)
                                       ----------------------  -------------------------
                                        2001    2000    1999    2001     2000     1999
                                       ------  ------  ------  -------  -------  -------
<S>                                    <C>     <C>     <C>     <C>      <C>      <C>
Performance Fibers.................... $  547  $  576  $  491  $    35  $    83  $    40
Timber and Land.......................    281     280     177      145      152      116
Wood Products and Trading.............    358     401     462      (11)     (17)      (3)
Corporate, other, and eliminations (a)    (21)    (30)    (22)     (19)     (28)     (17)
                                       ------  ------  ------  -------  -------  -------
   Total.............................. $1,165  $1,227  $1,108  $   150  $   190  $   136
                                       ======  ======  ======  =======  =======  =======
</TABLE>
- --------
(a) Includes unallocated corporate expenses and intersegment eliminations.

<TABLE>
<CAPTION>
                                                           Depreciation
                          Gross Plant Additions (a) Depletion and Amortization    Identifiable Assets
                          ------------------------- -------------------------- --------------------------
                            2001     2000    1999     2001     2000     1999     2001     2000     1999
                          -------  -------  ------  -------  -------  -------  -------- -------- --------
<S>                       <C>      <C>      <C>     <C>      <C>      <C>      <C>      <C>      <C>
Performance Fibers....... $    38  $    32  $   51  $    75  $    74  $    65  $    576 $    643 $    670
Timber and Land..........      37       47      29       89       89       29     1,183    1,243    1,409
Wood Products and Trading       2        9      14       13       13       10       206      234      163
Corporate and other......      --        2       1       --        1        1        50       32       23
Dispositions.............      --       --      --       --       --       --        10       10       15
                          -------  -------  ------  -------  -------  -------  -------- -------- --------
   Total................. $    77  $    90  $   95  $   177  $   177  $   105  $  2,025 $  2,162 $  2,280
                          =======  =======  ======  =======  =======  =======  ======== ======== ========
</TABLE>
- --------
(a) Custodial capital spending was $64 million, $70 million and $69 million in
    2001, 2000 and 1999, respectively. Custodial capital spending is defined as
    capital expenditures to maintain current earnings level over the cycle and
    to keep facilities and equipment in safe and reliable condition and to
    comply with regulatory requirements.

  Geographical Operating Information

   Information by geographical operating area for each of the three years ended
December 31, 2001, is as follows (in millions of dollars):

<TABLE>
<CAPTION>
                                          Operating
                         Sales          Income/(Loss)   Identifiable Assets
                  -------------------- ---------------  --------------------
                   2001   2000   1999  2001 2000  1999   2001   2000   1999
                  ------ ------ ------ ---- ----  ----  ------ ------ ------
    <S>           <C>    <C>    <C>    <C>  <C>   <C>   <C>    <C>    <C>
    United States $1,012 $1,063 $  946 $145 $189  $144  $1,717 $1,852 $1,940
    New Zealand..    113    115    106    5   (1)   (7)    282    300    326
    All other....     40     49     56   --    2    (1)     26     10     14
                  ------ ------ ------ ---- ----  ----  ------ ------ ------
       Total..... $1,165 $1,227 $1,108 $150 $190  $136  $2,025 $2,162 $2,280
                  ====== ====== ====== ==== ====  ====  ====== ====== ======
</TABLE>

                                     F-10

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   Rayonier's sales for the three years ended December 31, 2001, are as follows
(in millions of dollars):

<TABLE>
<CAPTION>
                                    Sales by Destination
                             ----------------------------------
                                2001        2000        1999
                             ----------  ----------  ----------
               <S>           <C>    <C>  <C>    <C>  <C>    <C>
               United States $  656  56% $  662  54% $  590  54%
               Europe.......    126  11%    107   9%    101   9%
               Japan........    116  10%    135  11%    135  12%
               China........     81   7%     86   7%     56   5%
               Other Asia...     97   8%    124  10%    125  11%
               Latin America     45   4%     66   5%     66   6%
               Canada.......     34   3%     34   3%     21   2%
               All other....     10   1%     13   1%     14   1%
                             ------ ---  ------ ---  ------ ---
                  Total..... $1,165 100% $1,227 100% $1,108 100%
                             ====== ===  ====== ===  ====== ===
</TABLE>

   The majority of sales to foreign countries are denominated in U. S. dollars.

4.  FINANCIAL INSTRUMENTS

   The Company is exposed to various market risks, including changes in
commodity prices, interest rates and foreign exchange rates. The Company's
objective is to minimize the economic impact of these market risks. Derivatives
are used, as noted below, in accordance with policies and procedures approved
by the Board of Directors and are managed by a senior executive committee,
whose responsibilities include initiating, managing and monitoring resulting
exposures. The Company does not enter into such financial instruments for
trading purposes.

   The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, on January 1, 2001. SFAS No. 133 requires that
all derivative financial instruments such as interest rate swap contracts and
foreign exchange contracts be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
The adoption did not have a material impact on the Company's consolidated
financial position or results of operations. Transactions that provide for the
forward purchase or sale of raw materials are not included in the financial
statements until physical delivery of the product, as these transactions are
done in the normal course of business and qualify for treatment as normal
purchases and sales under SFAS No. 133.

  Foreign Currency Forward Contracts

   In the Company's New Zealand timber operations and at the New Zealand MDF
manufacturing facility, normal operating expenses include contractor and
license fees, care and maintenance of timberlands, salaries and wages, wood
purchases and other production costs incurred. Rayonier hedges U.S./New Zealand
dollar currency rate risk with respect to these New Zealand dollar operating
expenditures (cash flow hedging).

   On September 1, 2001, the Company designated its New Zealand dollar forward
contracts as cash flow hedges of certain forecasted New Zealand dollar cash
outflows. Prior to this date, the Company marked the contracts to market and
recorded the resulting gain or loss in the Statements of Consolidated Income.
After the designation on September 1, 2001, changes in the fair value of the
forward contracts were deferred and recorded as part of "Accumulated other
comprehensive income (loss) (AOCI)." When the forecasted transaction comes to
fruition and is recorded, amounts in AOCI are reclassified to the Statements of
Consolidated Income. The change in the forward instruments' overall fair value
attributable to time value is excluded from the measurement of the

                                     F-11

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)


derivatives' effectiveness, and those changes are recognized in earnings
throughout the life of the contract. These amounts are recorded on the line
entitled "Interest and miscellaneous income (expense), net" in the Statements
of Consolidated Income.

   At September 30, 2001 quarter end, the Company recorded an increase to
current liabilities and a charge to accumulated other comprehensive income
(loss) of $209 after tax reflecting unrealized losses on the forward contracts.
At December 31, 2001, changes in the fair value of the forward contracts
resulted in net after-tax gains of $216 and an unrealized after-tax gain of $7
was recorded in accumulated other comprehensive income (loss). In 2001, the
gains and losses representing the change in the forward contracts' time value,
which is ignored for purposes of measuring the contracts' effectiveness, were
insignificant.

   The maximum foreign currency forward contracts outstanding at any point in
time during 2001 and 2000 totaled $17.7 million. At December 31, 2001, the
Company held New Zealand foreign currency contracts maturing through May of
2002, totaling $4.6 million.

  Interest Rate Swap Agreements

   Rayonier periodically uses interest rate swap agreements to manage exposure
to interest rate fluctuations. Such agreements involve the exchange of fixed
rate interest payments for floating rate interest payments over the life of the
agreement without the exchange of any underlying principal amounts. Rayonier's
credit exposure is limited to the fair value of the agreements, and the Company
enters into agreements only with counterparties having a long-term bond rating
of "A" or higher. The Company does not enter into interest rate swap agreements
for trading or speculative purposes and matches the terms and contract notional
amounts to existing debt or debt expected to be refinanced. At December 31,
2000, the Company had an interest rate swap agreement with a total notional
value of $5 million, which expired on February 23, 2001. There were no interest
rate swap agreements outstanding at December 31, 2001.

  Fair Value of Financial Instruments

   At December 31, 2001, and 2000, the estimated fair values of Rayonier's
financial instruments were as follows:

<TABLE>
<CAPTION>
                                           2001                   2000
                                   --------------------  ----------------------
                                   Carrying              Carrying
                                    Amount    Fair Value  Amount    Fair Value
                                   ---------  ---------- ---------  -----------
<S>                                <C>        <C>        <C>        <C>
Asset (liability).................
Cash and short-term investments... $  14,123  $  14,123  $   9,824  $     9,824
Debt..............................  (849,805)  (873,662)  (972,980)  (1,067,485)
Foreign currency forward contracts        59         59       (392)        (392)
Interest rate swap agreements.....        --         --         --          (59)
</TABLE>

   Rayonier uses the following methods and assumptions in estimating the fair
value of its financial instruments:

      Cash and short-term investments--The carrying amount is equal to fair
   market value.

      Debt--The Company's short-term bank loans and floating rate debt
   approximate fair value. The fair value of fixed rate long-term debt is based
   upon quoted market prices for these or similar issues or rates currently
   available to the Company for debt with similar terms and maturities.

      Foreign currency forward contracts--The fair value of foreign currency
   forward contracts is based on dealer-quoted market prices of comparable
   instruments.

                                     F-12

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



      Interest rate swap agreements--The fair value of interest rate swap
   agreements is based upon the estimated cost to terminate the agreements,
   taking into account current interest rates and creditworthiness of the
   counterparties.

5.  GAINS FROM SALES OF ASSETS

   In December 2000, Rayonier sold its 25 percent interest in a New Zealand
timberland joint venture for $14.6 million, resulting in a gain of $7.6
million. In October 1999, Rayonier sold a marine terminal and associated
properties in Hoquiam, WA, to the Port of Grays Harbor for $9.5 million,
resulting in a gain of $7.7 million.

6.  CURRENT AND DEFERRED COSTS

   Unamortized debt issuance costs of approximately $6,707 and $7,438 at
December 31, 2001, and 2000, respectively, are included in "Other Assets."
Approximately $4,697 and $5,862 of the year 2001 and 2000 balances,
respectively, relate to the 1999 major timberland acquisition. Such costs are
amortized to interest expense over the respective term of the debt instruments
and totaled $1,800, $2,184 and $529 in 2001, 2000 and 1999, respectively.

   Software costs are capitalized and amortized over a period not exceeding 60
months. Deferred software costs included in "Other Assets," net of accumulated
amortization, totaled $7,732 and $11,428 as of December 31, 2001, and 2000,
respectively. Amortization expense was $4,833, $5,323 and $4,248 in 2001, 2000
and 1999, respectively.

   Research and development costs are expensed as incurred and aggregated
$9,309, $10,252 and $10,179 in 2001, 2000 and 1999, respectively.

7.  MAJOR TIMBERLAND ACQUISITION

   On October 25, 1999, Rayonier, through its subsidiary, Rayonier Timberlands
Operating Company (RTOC), acquired approximately 968,000 owned and leased acres
of timberland in Georgia, Florida and Alabama from Jefferson Smurfit
Corporation (U.S.) (JSC) in a business combination accounted for by the
purchase method. Under a Timber Cutting Agreement, the Company agreed to sell
JSC 1.4 million tons of timber at prevailing market prices for 2000 and 2001.
In late 2000, the Company and JSC amended the Agreement, whereby the volume
sold was limited to the timber designated prior to September 5, 2000. The
acquisition cost of $716 million, allocated to timberlands and land held for
resale, was financed by $485 million in notes issued to JSC and $231 million in
cash borrowed under a bank credit facility. RTOC manages the timberlands and
sells standing timber on an open-market basis.

                                     F-13

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



8.  INCOME TAXES

   The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                    2001     2000     1999
                                   -------  -------  -------
                   <S>             <C>      <C>      <C>
                   Current
                   U.S. federal... $16,974  $14,516  $20,200
                   State and local     759      636    1,004
                   Foreign........   2,359    1,450    1,372
                                   -------  -------  -------
                                    20,092   16,602   22,576
                                   -------  -------  -------
                   Deferred
                   U.S. federal...   4,877   13,987   10,582
                   State and local     376    1,272      902
                   Foreign........    (381)  (1,403)  (4,593)
                                   -------  -------  -------
                                     4,872   13,856    6,891
                                   -------  -------  -------
                      Total....... $24,964  $30,458  $29,467
                                   =======  =======  =======
</TABLE>

   Deferred income taxes represent the tax effects related to recording
revenues and expenses in different periods for financial reporting and tax
return purposes. Deferred tax assets (liabilities) at December 31, 2001 and
2000 were related to the following principal temporary differences:

<TABLE>
<CAPTION>
                                                          2001       2000
                                                        ---------  ---------
  <S>                                                   <C>        <C>
  Accelerated depreciation and depletion............... $(150,600) $(154,990)
  Reserves for dispositions and discontinued operations    41,811     35,837
  Deferred gain on land sale...........................   (11,678)        --
  All other, net.......................................   (13,874)   (11,180)
                                                        ---------  ---------
                                                        $(134,341) $(130,333)
                                                        =========  =========
</TABLE>

   At December 31, 2001, the Company had New Zealand net operating loss
carryforwards of $24 million. In addition, $1.4 million of foreign tax credit
carryforwards and $7.3 million in deferred tax assets were available to reduce
future income taxes. Management believes that it will obtain the full benefit
of the deferred tax assets based on its evaluation of the Company's anticipated
profitability over the period of years that the temporary differences are
expected to be tax deductible. The current portion of the deferred tax
liability of $2.6 million at December 31, 2001, is included in "Accrued taxes"
in the accompanying Consolidated Balance Sheet.

   The Company has not provided taxes on approximately $69 million of
undistributed foreign earnings, as the Company expects to reinvest such
earnings in the future.

   In 2001, the tax benefit of $1.5 million related to the exercise of stock
options was credited directly to shareholders' equity and is not included in
the consolidated tax provision.

                                     F-14

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   A reconciliation of the income tax provision at the U.S. statutory rate to
the reported provision for income taxes follows:

<TABLE>
<CAPTION>
                                                                   2001     2000     1999
                                                                  -------  -------  -------
<S>                                                               <C>      <C>      <C>
Income tax provision at U.S. statutory rate...................... $28,897  $38,026  $34,342
State and local taxes, net of federal tax benefit................     746    1,240    1,239
Foreign operations...............................................  (4,016)   1,438   (2,509)
Foreign sales corporations.......................................  (2,137)  (4,464)  (2,100)
Permanent differences............................................   2,727      385   (1,465)
Reduction in tax reserves resulting from completion of tax audits      --   (4,979)      --
Research and development tax credits and other, net..............  (1,253)  (1,188)     (40)
                                                                  -------  -------  -------
   Provision for income taxes--reported.......................... $24,964  $30,458  $29,467
                                                                  =======  =======  =======
Effective tax rate...............................................      30%      28%      30%
                                                                  =======  =======  =======
</TABLE>

9.  NET INCOME PER COMMON SHARE

   Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding adjusted to include the potentially
dilutive effect of outstanding stock options. In 2001, 604,970 exercisable
stock options were excluded from the computation of diluted earnings per share
due to their anti-dilutive effect. In 2000, 1,051,472 stock options were
similarly excluded.

   The following table provides details of the calculation of basic and diluted
EPS for 2001, 2000, and 1999:

<TABLE>
<CAPTION>
                                             2001        2000        1999
                                          ----------- ----------- -----------
  <S>                                     <C>         <C>         <C>
  Net income............................. $    57,598 $    78,187 $    68,653
                                          =========== =========== ===========
  Shares used for determining basic EPS..  27,210,802  27,236,377  27,681,845
  Dilutive effect of:
     Stock options.......................     215,391     153,358     253,580
     Contingent shares...................     175,705     313,126     240,000
                                          ----------- ----------- -----------
  Shares used for determining diluted EPS  27,601,898  27,702,861  28,175,425
                                          =========== =========== ===========
</TABLE>

10.  INVENTORY

   Rayonier's inventories included the following at December 31, 2001, and 2000:

<TABLE>
<CAPTION>
                                                     2001    2000
                                                    ------- -------
             <S>                                    <C>     <C>
             Finished goods........................ $55,530 $60,627
             Work in progress......................   8,570   9,076
             Raw materials.........................   9,636  11,044
             Manufacturing and maintenance supplies  17,274  16,359
                                                    ------- -------
             Total inventory....................... $91,010 $97,106
                                                    ======= =======
</TABLE>

                                     F-15

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



11.  DEBT

   Rayonier's debt included the following at December 31, 2001, and 2000:

<TABLE>
<CAPTION>
                                                                           2001     2000
                                                                         -------- --------
<S>                                                                      <C>      <C>
Short-term bank loans at weighted average interest rates of 2.97% at
  December 31, 2001, and 8.01% at December 31, 2000..................... $ 10,000 $ 39,500
Commercial paper at discount rates of 7.75%.............................       --   20,000
Medium-term notes due 2001 at an average interest rate of 7.35%.........       --   16,000
Medium-term notes due 2004 at fixed interest rates of 6.00% to 6.15%....   50,000   55,000
Debentures at 7.5% coupon due 2002......................................   77,550   77,550
Pollution control and industrial revenue bonds due
  2002-2015 at variable interest rates of 1.55% to 6.50%................   77,255   79,930
RTOC installment notes due 2007-2014 at fixed interest rates of 8.29% to
  8.64%.................................................................  485,000  485,000
RTOC term loan due 2004 at a weighted average interest rate of 3.64% at
  December 31, 2001, and 8.26% at December 31, 2000.....................  150,000  200,000
                                                                         -------- --------
Total debt..............................................................  849,805  972,980
   Less: Short-term bank loans..........................................    5,000       --
   Current maturities...................................................    2,600    2,565
                                                                         -------- --------
Long-term debt.......................................................... $842,205 $970,415
                                                                         ======== ========
</TABLE>

   During 2001, the Company reduced its long-term debt by $123.2 million. The
$77,550 of 7.5% debentures due 2002 and $5,000 of short-term bank loans are
classified as long-term debt maturing in 2004, because the Company has the
ability and intent to refinance the notes using its available long-term credit
facilities.

   Principal payments due during the next five years and thereafter are as
follows:

<TABLE>
                               <S>       <C>
                               2002..... $  7,600
                               2003.....    2,760
                               2004.....  285,470
                               2005.....    3,095
                               2006.....      515
                               2007-2015  550,365
                                         --------
                                         $849,805
                                         ========
</TABLE>

   Rayonier has revolving credit agreements with a group of banks that provide
the Company with unsecured credit facilities totaling $225 million. The
revolving credit facilities are used for direct borrowings and in the past, as
credit support for a commercial paper program. As of December 31, 2001, the
Company had $225 million of available borrowings under this facility. In
November 2002, $55 million of the facility expires and in November 2004, the
remaining $170 million of the facility expires. In addition, in connection with
the financing of the Smurfit timberland acquisition, RTOC entered into an
agreement with a group of banks that provided RTOC with revolving credit
facilities totaling $75 million and a term loan of $200 million, of which $150
million is outstanding at December 31, 2001. As of December 31, 2001, RTOC had
$70 million of available borrowings under the revolving credit portion, which
expires in 2004. Also due in 2004 are $50 million of medium-term notes. In
addition, the Company has on file with the Securities and Exchange Commission,
shelf registration statements to offer $150 million of new public debt
securities.

                                     F-16

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   Rayonier has debt covenants based on earnings before interest, taxes,
depreciation, and amortization (EBITDA). EBITDA is defined as earnings from
continuing operations before significant non-recurring items, provision for
dispositions, interest expense, income taxes, depreciation, depletion,
amortization and the non-cash cost of land sales. This measure is not defined
by generally accepted accounting principles. The most restrictive long-term
debt covenants provide that the ratio of total debt to EBITDA not exceed 4.0 to
1 and EBITDA to consolidated interest expense not be less than 2.5 to 1. The
ratio of consolidated cash flow available for fixed charges to consolidated
fixed charges, as defined, should not be less than 1.6 to 1 through December
31, 2001, and should not be less than 1.65 to 1 thereafter. Additionally, the
ratio of consolidated total debt to consolidated cash flow available for fixed
charges should not exceed 4.5 to 1 through December 31, 2001, and should not
exceed 4.25 to 1 thereafter. As of December 31, 2001, the Company was in
compliance with all its covenants.

12.  DISPOSITIONS AND DISCONTINUED OPERATIONS

   Dispositions and discontinued operations include Rayonier's Port Angeles,
WA, mill, which was closed on February 28, 1997; its wholly owned subsidiary,
Southern Wood Piedmont Company (SWP), which ceased operations in 1986; its
Eastern Research Division, which ceased operations in 1981; and other
miscellaneous assets held for disposition.

   As of December 31, 2001, and 2000, Rayonier had $6.9 million of receivables,
net of reserves, from insurance claims included in "Other Assets." Such
receivables represent the Company's claim for reimbursements in connection with
property damage settlements relating to SWP's discontinued wood preserving
operations.

   An analysis of activity in the reserves for dispositions and discontinued
operations for each of the three years ended December 31, 2001, follows:

<TABLE>
<CAPTION>
                                                            2001      2000      1999
                                                          --------  --------  --------
<S>                                                       <C>       <C>       <C>
Balance, January 1....................................... $176,899  $168,531  $181,365
Benefit reserves related to dispositions and discontinued
  operations reclassified from other liabilities.........       --     2,290        --
Expenditures charged to reserves.........................   (8,195)   (8,966)  (12,834)
Additions to reserves....................................       --    15,044        --
                                                          --------  --------  --------
Balance, December 31..................................... $168,704  $176,899  $168,531
                                                          ========  ========  ========
</TABLE>

   In the fourth quarter of 2000, the Company increased its closure reserve by
approximately $16 million for the Port Angeles, WA, mill to cover future site
maintenance costs and environmental remediation obligations. Other reserves
were reduced in 2000 by approximately $1 million based on current evaluations.
Charges to the reserve in 1999 relate primarily to the dismantling and
demolition of the Port Angeles mill that was completed in 1999. Environmental
remediation at the mill site commenced in 2000 with completion expected by
2005.

   Rayonier currently estimates that expenditures for environmental remediation
and monitoring costs for all dispositions and discontinued operations in 2002
and 2003 will total approximately $13.1 million and $13.6 million,
respectively. Such costs will be charged against Rayonier's reserves for
estimated environmental obligations, which include monitoring and remediation
costs. The Company believes such reserves are sufficient for costs expected to
be incurred over the next 25-30 years with respect to dispositions and
discontinued operations. The amount of actual future environmental costs is
dependent on the outcome of negotiations with federal and state agencies and
also may be affected by new laws, regulations and administrative
interpretations,

                                     F-17

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)


and changes in environmental remediation technology. Based on information
currently available, the Company does not believe that any future changes in
estimates, if necessary, would materially affect its consolidated financial
position or results of operations.

13.  SHAREHOLDERS' EQUITY

   An analysis of shareholders' equity for each of the three years ended
December 31, 2001, follows:

<TABLE>
<CAPTION>
                                                                Accumulated
                                             Common Shares         Other
                                         --------------------  Comprehensive Retained  Shareholders'
                                           Shares     Amount   Income/(Loss) Earnings     Equity
                                         ----------  --------  ------------- --------  -------------
<S>                                      <C>         <C>       <C>           <C>       <C>
Balance, January 1, 1999................ 27,767,309  $ 82,031     $   --     $559,398    $641,429
Net income..............................         --        --         --       68,653      68,653
Dividends paid ($1.29 per share)........         --        --         --      (35,669)    (35,669)
Issuance of shares under incentive stock
  plans.................................    191,652     5,469         --           --       5,469
Repurchase of common shares.............   (551,867)  (23,791)                     --     (23,791)
                                         ----------  --------     ------     --------    --------
Balance, December 31, 1999.............. 27,407,094  $ 63,709     $   --     $592,382    $656,091

Net income..............................         --        --         --       78,187      78,187
Dividends paid ($1.44 per share)........         --        --         --      (39,185)    (39,185)
Issuance of shares under incentive stock
  plans.................................    130,368     2,632         --           --       2,632
Repurchase of common shares.............   (433,000)  (17,624)        --           --     (17,624)
                                         ----------  --------     ------     --------    --------
Balance, December 31, 2000.............. 27,104,462  $ 48,717     $   --     $631,384    $680,101

Net income..............................         --        --         --       57,598      57,598
Dividends paid ($1.44 per share)........         --        --         --      (39,207)    (39,207)
Issuance of shares under incentive stock
  plans.................................    293,833    11,561         --           --      11,561
Unrealized gain on hedged transactions..         --        --          7           --           7
Minimum pension liability adjustments...         --        --       (709)          --        (709)
Repurchase of common shares.............    (52,900)   (2,031)        --           --      (2,031)
Tax benefit on exercise of stock options         --     1,474         --           --       1,474
                                         ----------  --------     ------     --------    --------
Balance, December 31, 2001.............. 27,345,395  $ 59,721     $ (702)    $649,775    $708,794
                                         ==========  ========     ======     ========    ========
</TABLE>

14.  INCENTIVE STOCK PLANS

   The 1994 Rayonier Incentive Stock Plan (the 1994 Plan) provides for the
grant of incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares and restricted stock, subject to
certain limitations. Under the 1994 Plan, the Company may grant options to its
employees up to 4.5 million Common Shares. The exercise price of each option
equals the market price of the Company's stock on the date of grant. An
option's maximum term is 10 years. Options vest in one-third increments over a
three-year period starting on the date of grant.

   Restricted stock granted under the 1994 Plan vests after three years. No
restricted shares were granted in 2001 or 2000. During 1999, 5,000 restricted
shares were granted at a price of $45.56 per share.

                                     F-18

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   In 2001, 2000 and 1999, 103,500, 120,000 and 55,500 Common Shares,
respectively, were reserved for contingent performance shares. The actual
number of performance shares to be issued is contingent upon the Company's
total shareholder return, compared with either the Standard and Poor's 1500
Paper and Forest Product Index (2001 class), or a competitive peer group of 12
companies within the forest products industry (2000 and 1999 classes) over a
three-year period. The grant-date fair values of the 2001, 2000 and 1999
performance shares were $38.31, $46.75 and $45.56, respectively. The Company
applies APB Opinion No. 25, Accounting for Stock Issued to Employees, to
account for its stock plans. The compensation cost recognized was $3,156, $433
and $1,252 in 2001, 2000 and 1999, respectively.

   The Company adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock Based Compensation. Under SFAS No. 123, net income and
basic and diluted earnings per share would have been reduced by $2,284 or 8
cents per share, $3,259 or 12 cents per share and $2,343 or 8 cents per share
for 2001, 2000 and 1999, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model.
The following weighted average assumptions were used for grants in 2001, 2000
and 1999, respectively: dividend yield of 3.7 percent, 3.6 percent and 3.4
percent; expected volatility of 28.7 percent, 44.0 percent and 25.7 percent;
risk-free interest rates of 4.8 percent, 6.5 percent and 4.7 percent, and an
expected life of 7.5 years for all three years. The weighted average fair value
of options granted during 2001, 2000 and 1999 was $9.69, $18.04 and $10.91,
respectively.

   A summary of the status of the Company's stock option plans as of December
31, 2001, 2000 and 1999, and changes during the years then ended is presented
below:

<TABLE>
<CAPTION>
                                     2001                2000                1999
                              ------------------- ------------------- -------------------
                                         Weighted            Weighted            Weighted
                                         Average             Average             Average
                              Number of  Exercise Number of  Exercise Number of  Exercise
                               Shares     Price    Shares     Price    Shares     Price
                              ---------  -------- ---------  -------- ---------  --------
<S>                           <C>        <C>      <C>        <C>      <C>        <C>
Options outstanding at
  beginning of year.......... 2,192,410   $37.78  1,911,642   $36.01  1,843,496   $34.20
Granted......................   368,050   $38.56    373,250   $46.24    255,500   $45.43
Exercised....................  (291,333)  $31.52    (64,318)  $31.81   (160,349)  $29.14
Canceled.....................   (45,667)  $43.49    (28,164)  $43.47    (27,005)  $42.34
                              ---------           ---------           ---------
Outstanding at end of year... 2,223,460   $38.61  2,192,410   $37.78  1,911,642   $36.01
                              =========           =========           =========
Exercisable at end of year... 1,461,100   $36.77  1,335,181   $33.66  1,317,190   $32.85
                              =========           =========           =========
</TABLE>

   The following table summarizes information about stock options outstanding
and exercisable:

<TABLE>
<CAPTION>
                         Options Outstanding at          Options Exercisable at
                            December 31, 2001              December 31, 2001
                 --------------------------------------- ----------------------
                 Number     Weighted    Weighted Average Number     Weighted
    Range of       of       Average        Remaining       of       Average
 Exercise Prices Shares  Exercise Price Contractual Life Shares  Exercise Price
 --------------- ------- -------------- ---------------- ------- --------------
 <S>             <C>     <C>            <C>              <C>     <C>
 $28.88-$33.50   709,677     $31.13           3.1        709,677     $31.13
 $36.25-$43.78   961,866     $39.71           6.9        495,380     $40.01
 $44.00-$50.75   551,917     $46.32           7.6        256,043     $46.17
</TABLE>

                                     F-19

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



15.  EMPLOYEE BENEFIT PLANS

   Employee benefit plan liabilities are estimated using actuarial estimates
and management assumptions. These estimates are based on historical
information, along with certain assumptions about future events. Changes in
assumptions, as well as changes in actual experience, could cause these
estimates to change. Rayonier has pension plans covering substantially all of
its employees. Certain plans are subject to union negotiation. The pension
plans are non-contributory. The following tables set forth net periodic benefit
cost of Rayonier plans, and total pension and postretirement benefit expense
for the three years ended December 31, 2001:

<TABLE>
<CAPTION>
                                                           Pension                Postretirement
                                                ----------------------------  ----------------------
                                                  2001      2000      1999     2001    2000    1999
                                                --------  --------  --------  ------  ------  ------
<S>                                             <C>       <C>       <C>       <C>     <C>     <C>
Components of Net Periodic Benefit Cost
   Service cost................................ $  5,314  $  4,772  $  5,312  $  411  $  394  $  438
   Interest cost...............................    9,772     8,980     8,147   1,777   1,449   1,341
   Expected return on plan assets..............  (12,356)  (11,334)  (10,269)     --      --      --
   Amortization of prior service cost..........    1,285     1,088     1,088     (53)   (434)   (434)
   Amortization of transition amount...........     (661)     (661)     (661)     --      --      --
   Amortization of losses......................       81        89       142     463     461     618
                                                --------  --------  --------  ------  ------  ------
   Net periodic benefit cost of Rayonier plans.    3,435     2,934     3,759   2,598   1,870   1,963
   Defined contribution plans..................    2,362     2,318     2,222      --      --      --
   Multi-employer plans........................       --        --        --      --     565     525
                                                --------  --------  --------  ------  ------  ------
   Total pension/postretirement
     benefit expense........................... $  5,797  $  5,252  $  5,981  $2,598  $2,435  $2,488
                                                ========  ========  ========  ======  ======  ======
</TABLE>

                                     F-20

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   The following tables set forth the funded status of the Rayonier pension and
post-retirement benefit plans, the amounts recognized in the balance sheets of
the Company at December 31, 2001 and 2000, and the principal weighted average
assumptions inherent in their determination:

<TABLE>
<CAPTION>
                                                             Pension          Postretirement
                                                      -------------------- ------------------
                                                         2001      2000      2001      2000
                                                       --------  --------  --------  --------
<S>                                                   <C>        <C>       <C>       <C>
Change in Benefit Obligation
   Benefit obligation at beginning of year..........  $125,267   $115,661  $ 19,955  $ 19,370
   Service cost.....................................     5,314      4,772       411       394
   Interest cost....................................     9,772      8,980     1,777     1,449
   Actuarial loss...................................     7,397      3,342     1,984       443
   Plan amendments..................................     7,213         --     6,894        --
   Benefits paid....................................    (8,102)    (7,488)   (2,685)   (1,701)
                                                       --------  --------  --------  --------
   Benefit obligation at end of year................  $146,861   $125,267  $ 28,336  $ 19,955
                                                       --------  --------  --------  --------

Change in Plan Assets
   Fair value of plan assets at beginning of year...  $119,951   $129,746  $     --  $     --
   Actual return on plan assets.....................    (1,284)    (3,261)       --        --
   Employer contributions...........................    20,753      1,660     2,685     1,701
   Other expense....................................      (878)      (706)       --        --
   Benefits paid....................................    (8,102)    (7,488)   (2,685)   (1,701)
                                                       --------  --------  --------  --------
   Fair value of plan assets at end of year.........  $130,440   $119,951  $     --  $     --
                                                       --------  --------  --------  --------

Reconciliation of Funded Status at End of Year
   Funded status....................................  $(16,421)  $ (5,316) $(28,336) $(19,955)
   Unrecognized prior service cost..................    14,333      8,405     4,298    (2,649)
   Unrecognized actuarial net loss (gain)...........    15,024     (7,215)    8,895     7,374
   Unrecognized net transition obligation...........      (861)    (1,522)       --        --
                                                       --------  --------  --------  --------
   Prepaid/(accrued) benefit cost...................  $ 12,075   $ (5,648) $(15,143) $(15,230)
                                                       --------  --------  --------  --------

Amounts Recognized in the Consolidated Balance Sheet Consist of:
   Prepaid benefit cost.............................. $ 18,661   $  7,817  $     --  $     --
   Accrued benefit liabilty..........................   (9,506)   (13,465)  (15,143)  (15,230)
   Intangible asset..................................    1,793         --        --        --
   Accumulated other comprehensive loss..............    1,127         --        --        --
                                                       --------  --------  --------  --------
   Prepaid/(accrued) benefit cost.................... $ 12,075   $ (5,648) $(15,143) $(15,230)
                                                       --------  --------  --------  --------

Weighted Average Assumptions as of December 31:
   Discount rate.....................................     7.40%      7.75%     7.40%     7.75%
   Return on plan assets.............................     9.75%      9.75%       --        --
   Rate of compensation increase.....................     5.00%      5.00%       --        --
   Ultimate health care trend rate...................       --         --      5.00%     5.50%
</TABLE>

                                     F-21

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   As of December 31, 2001, Rayonier decreased its plans' weighted average
discount rate from 7.75 percent to 7.4 percent to more closely approximate
interest rates on high quality, long-term obligations. In 2001, the assumed
ultimate health care trend rate used to determine cost was 7.5 percent
gradually decreasing to an ultimate rate of 5.5 percent in 2005. The rate to
determine cost in 2002 will be 10.0 percent gradually decreasing to an ultimate
rate of 5.0 percent in 2007.

   The following table shows the effect of a one-percentage point change in
assumed health care cost trends:

<TABLE>
<CAPTION>
                                                           1 Percent
                                                       ----------------
                      Effect on:                       Increase Decrease
                      ----------                       -------- --------
        <S>                                            <C>      <C>
        Total of service and interest
         cost components..............................   $ 54    $ (49)
        Accumulated post-retirement benefit obligation   $809    $(750)
</TABLE>

   The sum of the projected benefit obligations and the sum of the fair value
of Plan assets for those pension plans with projected benefit obligations in
excess of Plan assets were $70.5 million and $50.9 million, respectively at
December 31, 2001, and $59.9 million and $44.5 million, respectively, as of
December 31, 2000. The sum of the accumulated benefit obligations and the sum
of the fair value of Plan assets for those pension Plans with accumulated
benefit obligations in excess of Plan assets were $60.4 million and $50.9
million, respectively, as of December 31, 2001, and $51.3 million and $44.5
million, respectively, as of December 31, 2000.

   The provisions of SFAS No. 87, Employers' Accounting for Pensions, required
Rayonier to record an additional minimum liability of $2.9 million at December
31, 2001. This liability represents the amount by which the accumulated benefit
obligation exceeds the fair market value of Plan assets and accrued amounts
previously recorded. The additional liability may be offset by an intangible
asset to the extent of previously unrecognized prior service cost. An
intangible asset of $1.8 million was recorded on December 31, 2001, and is
included on the line titled "Other assets" in the Consolidated Balance Sheet.
The remaining amount of $1.1 million, net of related tax benefits, is recorded
as a component of shareholders' equity on the line titled "Accumulated other
comprehensive income (loss)" in the Consolidated Balance Sheet at December 31,
2001.

   Rayonier Hourly and Salaried Defined Contribution Plans include Rayonier
common shares with a fair market value of $43,972 and $38,027 at December 31,
2001 and 2000, respectively.

16.  COMMITMENTS

   The Company leases certain buildings, machinery and equipment under various
operating leases. Total rental expense for operating leases amounted to $7,203,
$7,490 and $7,265 in 2001, 2000 and 1999, respectively. Additionally, the
Company has indirectly guaranteed approximately $12.9 million of debt that is
secured by equipment used by its vendors to provide products to the Company.
The Company also has long-term leases on certain timberlands in the
Southeastern U.S. These leases typically have initial terms of approximately 30
to 65 years, with renewal provisions in some cases. Such leases are generally
non-cancelable and require minimum annual rental payments.

                                     F-22

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)



   At December 31, 2001, the future minimum rental payments under operating and
timberland leases were as follows:

<TABLE>
<CAPTION>
                                          Operating Timberland
                                           Leases     Leases
                                          --------- ----------
                  <S>                     <C>       <C>
                  2002...................  $ 5,555   $ 4,599
                  2003...................   10,106     4,475
                  2004...................    2,005     4,408
                  2005...................    1,768     4,222
                  2006...................    1,727     4,187
                  Thereafter through 2036    6,564    73,617
                                           -------   -------
                                           $27,725   $95,508
                                           =======   =======
</TABLE>

17.  CONTINGENCIES

   From time to time, Rayonier may become liable with respect to pending and
threatened litigation and environmental and other matters.

  Legal Proceedings

   The Company is involved in various legal actions, including those involving
environmental matters. Some of the actions include claims for substantial
amounts. While the ultimate results of these legal actions and related claims
cannot be determined, the Company does not expect that they will have a
material adverse effect on the Company's consolidated financial position or
results of operations.

   Rayonier has been designated a potentially responsible party (PRP), or has
had other claims made against it, under the U.S. Comprehensive Environmental
Response, Compensation and Liability Act and/or comparable state statutes at
ten sites, all of which relate to operations classified under "Dispositions and
Discontinued Operations." Cost recovery actions against Rayonier and other PRPs
are pending with respect to four of these sites. Rayonier has entered into or
is in the process of negotiating consent orders for environmental remediation
at five of these sites. Rayonier believes that an appropriate provision for
remediation costs is included in its reserves for estimated environmental
obligations, including the reserves for dispositions and discontinued
operations. See Note 12, Dispositions and Discontinued Operations. In addition,
there are various lawsuits pending against or affecting Rayonier and its
subsidiaries, some of which involve claims for substantial sums, but whose
outcomes are not expected to materially impact the Company's consolidated
financial position or results of operations.

   On February 22, 2001, the Company received a notice of proposed disallowance
from the Internal Revenue Service (IRS) for $28.3 million in tax deficiency and
related penalties for an issue in dispute regarding the Company's 1996 and 1997
federal tax returns. The Company has been discussing this issue with the IRS
since 1999. As a result, the notice of proposed disallowance was not
unanticipated and the Company has provided adequate book reserves. The Company
is contesting this matter and believes that the ultimate outcome will not have
a material adverse impact on the Company's financial position, liquidity or
results of operations.

  Environmental Matters

   Rayonier is subject to stringent environmental laws and regulations
concerning air emissions, water discharges and waste disposal. Such
environmental laws and regulations include the Federal Clean Air Act, the

                                     F-23

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

             (Dollar amounts in thousands unless otherwise stated)


Clean Water Act, the Resource Conservation and Recovery Act, and the
Comprehensive Environmental Response, Compensation and Liability Act. The
Company closely monitors all of its environmental responsibilities, together
with trends in environmental laws and believes that the Company is in
substantial compliance with current environmental requirements. It is the
opinion of management that substantial expenditures over the next 10 years will
be required in the area of environmental compliance. During 1997, the
Environmental Protection Agency (EPA) finalized its Cluster Rules governing air
emissions but, due to the specialty nature of Rayonier's Performance Fibers
products and operations, the agency postponed finalizing water discharge rules
and certain air emissions rules governing the Company's Performance Fibers
mills. The Company continues to work with the EPA to establish such rules for
these mills, but the timing and costs associated with such rulemaking are
uncertain. In the opinion of management, future capital costs associated with
existing environmental rules will not have a material impact on the Company's
consolidated financial position or results of operations.

   Federal, state and local laws and regulations intended to protect threatened
and endangered species, as well as wetlands and waterways, limit and may
prevent timber harvesting, road building and other activities on the Company's
timberlands. Over the past several years, the harvest of timber on private
lands in the state of Washington has been restricted as a result of the listing
of several species of birds and fish under the Endangered Species Act. The
Company, through industry groups, has worked with the state of Washington to
implement workable protective measures with respect to several endangered
species. The effect has been to restrict harvesting on portions of the
Company's Washington timberlands. The Company has taken account of these
restrictions in its harvest plans. Such efforts are ongoing and, in the opinion
of management, will not have a material impact on the Company's consolidated
financial position or results of operations. Additionally, a number of
environmental groups have filed suit in both federal and state courts
challenging various aspects of existing and proposed state and federal
regulations. This litigation is not expected to have a material impact on
Rayonier's annual harvest volume.

18.  QUARTERLY RESULTS FOR 2001 AND 2000 (UNAUDITED)


<TABLE>
<CAPTION>
                                      Quarter Ended
                     ------------------------------------------------   Total
                       March 31     June 30    Sept. 30     Dec. 31     Year
                     --------      --------   --------     --------   ----------
                     (Thousands of dollars, except per share amounts)
<S>                  <C>          <C>         <C>         <C>         <C>
2001
   Sales............ $276,487     $346,362    $274,961    $267,103    $1,164,913
   Operating income.   37,878       64,522      22,065      25,309       149,774
   Net income.......   12,252       31,463       6,025       7,858        57,598
   Basic EPS........      .45         1.16         .22         .29          2.12
   Diluted EPS......      .45         1.14         .22         .28          2.09
2000
   Sales............ $354,597     $303,911    $269,502    $298,868    $1,226,878
   Operating income.   74,653       47,266      33,565      34,027       189,511
   Net income.......   35,473       17,431      12,105      13,178        78,187
   Basic EPS........     1.30          .64         .45         .48          2.87
   Diluted EPS......     1.27          .63         .44         .48          2.82
</TABLE>


                                     F-24

<PAGE>

                        RAYONIER INC. AND SUBSIDIARIES

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                 Years Ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                     Balance
                                       at     Charged to
                                    Beginning  Cost and                            Balance at
                                     of Year   Expenses  Additions/(1)/ Write-Offs End of Year
                                    --------- ---------- -------------  ---------- -----------
(In thousands)
<S>                                 <C>       <C>        <C>            <C>        <C>
Year ended December 31, 2001
   Allowance for doubtful accounts.  $3,969       --           --           (577)    $3,392
                                     ======      ===          ===         ======     ======
Year ended December 31, 2000
   Allowance for doubtful accounts.  $4,859      114           --         (1,004)    $3,969
                                     ======      ===          ===         ======     ======
Year ended December 31, 1999
   Allowance for doubtful accounts.  $4,843      125          280           (389)    $4,859
                                     ======      ===          ===         ======     ======
</TABLE>
- --------
(1) Includes collected amounts previously charged to the reserve.

   All other required information is included in the accompanying Notes to
Consolidated Financial Statements.


                                     F-25

<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 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.

                                      RAYONIER INC.


                                                   By: /S/  HANS E. VANDEN NOORT
                                                       -------------------------
                                                         Hans E. Vanden Noort
                                                          Vice President and
                                                         Corporate Controller

March 20, 2002

   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 and on the dates indicated.

          Signature                        Title                   Date
          ---------                        -----                   ----

              *                  Chairman of the Board,
- ------------------------------    President, Chief Executive
        W. L. Nutter              Officer and Director
(Principal Executive Officer)
   /S/  GERALD J. POLLACK        Senior Vice President and    March 20, 2002
- ------------------------------    Chief Financial Officer
      Gerald J. Pollack
(Principal Financial Officer)
  /S/  HANS E. VANDEN NOORT      Vice President and           March 20, 2002
- ------------------------------    Corporate Controller
    Hans E. Vanden Noort
(Principal Accounting Officer)
              *                  Director
- ------------------------------
       Rand V. Araskog
              *                  Director
- ------------------------------
       Ronald M. Gross
              *                  Director
- ------------------------------
      Paul G. Kirk, Jr.
              *                  Director
- ------------------------------
     Katherine D. Ortega
              *                  Director
- ------------------------------
     Burnell R. Roberts
              *                  Director
- ------------------------------
       Carl S. Sloane
              *                  Director
- ------------------------------
       Ronald Townsend
              *                  Director
- ------------------------------
       Gordon I. Ulmer

*By:   /S/  HANS E. VANDEN NOORT                              March 20, 2002
     ---------------------------
           Hans E. Vanden Noort
             Attorney-In-Fact

                                       A

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                     Description                                         Location
- -----------                     -----------                                         --------
<C>         <S>                                                 <C>

    2.1     Purchase and Sale Agreement dated July 28,          Incorporated by reference to Exhibit 2.1 to the
            1999 between Rayonier Inc. and Jefferson            Registrant's November 12, 1999 Form 8-K/A,
            Smurfit Corporation (U.S.)                          Amendment No. 1

    2.2     First Amendment to the Purchase and Sale            Incorporated by reference to Exhibit 2.2 to the
            Agreement dated October 25, 1999 between            Registrant's November 12, 1999 Form 8-K/A,
            Rayonier Inc. and Jefferson Smurfit Corporation     Amendment No. 1
            (U.S.)

    2.3     Assignment and Assumption Agreement dated           Incorporated by reference to Exhibit 2.3 to the
            October 25, 1999 between Jefferson Smurfit          Registrant's November 12, 1999 Form 8-K/A,
            Corporation (U.S.) and Timber Capital Holdings      Amendment No. 1
            LLC

    2.4     Assignment Agreement dated October 25, 1999         Incorporated by reference to Exhibit 2.4 to the
            between Rayonier Inc. and Rayonier                  Registrant's November 12, 1999 Form 8-K/A,
            Timberlands Operating Company, L.P.                 Amendment No. 1

    3.1     Amended and Restated Articles of Incorporation      Incorporated by reference to Exhibit 4(a) to the
                                                                Registrant's Registration Statement on
                                                                Form S-8 (Registration No. 33-52437)

    3.2     By-Laws                                             Incorporated by reference to Exhibit 3.2 to the
                                                                Registrant's December 31, 1995 Form 10-K

    4.1     Indenture dated as of September 1, 1992 between     Incorporated by reference to Exhibit 4.1 to the
            the Company and Bankers Trust Company, as           Registrant's December 31, 1993 Form 10-K
            Trustee, with respect to certain debt securities of
            the Company

    4.2     First Supplemental Indenture dated as of            Incorporated by reference to Exhibit 4.2 to the
            December 13, 1993                                   Registrant's December 31, 1993 Form 10-K

    4.3     364-Day Credit Agreement dated as of                Filed herewith
            November 19, 2001 among Rayonier Inc. as
            Borrower, the banks named therein as the Initial
            Lenders and Citibank, N.A. as Agent for the
            Lenders.

    4.4     Three Year Credit Agreement dated effective         Filed herewith
            November 19, 2001 among Rayonier Inc. as
            Borrower, the banks named therein as Initial
            Lenders, and Citibank, N.A. as Agent for the
            Lenders.

    4.5     Credit Agreement dated as of October 25, 1999       Incorporated by reference to Exhibit 4.1 to the
            between Rayonier Timberlands Operating              Registrant's September 30, 1999 Form 10-Q
            Company, L.P. and Credit Suisse First Boston,
            Morgan Stanley Senior Funding, Inc. and
            Citibank, N.A.

    4.6     Note Purchase Agreement dated as of                 Incorporated by reference to Exhibit 4.2 to the
            October 25, 1999 between Rayonier Timberlands       Registrant's September 30, 1999 Form 10-Q
            Operating Company, L.P. and Timber Capital
            Holdings LLC.
</TABLE>

                                       B

<PAGE>

<TABLE>
<CAPTION>
Exhibit No.                    Description                                        Location
- -----------                    -----------                                        --------
<C>         <S>                                               <C>

    4.7     Other instruments defining the rights of security Not required to be filed. The Registrant hereby
            holders, including indentures                     agrees to file with the Commission a copy of
                                                              any other instrument defining the rights of
                                                              holders of the Registrant's long-term debt upon
                                                              request of the Commission

     9      Voting trust agreement                            None

   10.1     Rayonier 1994 Incentive Stock Plan, as amended    Incorporated by reference to Exhibit 10.1 to the
                                                              Registrant's September 30, 1998 Form 10-Q.

   10.2     Rayonier Supplemental Senior Executive            Incorporated by reference to Exhibit 10.2 to the
            Severance Pay Plan                                Registrant's December 31, 1997 Form 10-K.

   10.3     Rayonier Investment and Savings Plan for          Incorporated by reference to Exhibit 10.3 to the
            Salaried Employees                                Registrant's December 31, 1997 Form 10-K.

   10.4     Retirement Plan for Salaried Employees of         Filed herewith
            Rayonier Inc. effective as of March 1, 1994,
            Amended and Restated January 1, 2000 and
            Further Amended Through October 19, 2001.

   10.5     Form of Indemnification Agreement between         Incorporated by reference to Exhibit 10.9 to the
            Rayonier Inc. and its Directors and Officers      Registrant's December 31, 1993 Form 10-K

   10.6     Rayonier Inc. Excess Benefit Plan                 Incorporated by reference to Exhibit 10.10 to
                                                              the Registrant's December 31, 1993 Form 10-K

   10.7     Amendment to Rayonier Inc. Excess Benefit         Incorporated by reference to Exhibit 10.7 to the
            Plan dated August 18, 1997                        Registrant's December 31, 1997 Form 10-K

   10.8     Rayonier Inc. Excess Savings and Deferred         Incorporated by reference to Exhibit 10.8 to the
            Compensation Plan                                 Registrant's December 31, 1997 Form 10-K

   10.9     Form of Rayonier Inc. Excess Savings and          Incorporated by reference to Exhibit 10.13 to
            Deferred Compensation Plan Agreements             the Registrant's December 31, 1995 Form 10-K

   10.10    Form of Indemnification Agreement between         Incorporated by reference to Exhibit 10.1 to the
            Registrant and directors of Rayonier Forest       Registrant's March 31, 1994 Form 10-Q
            Resources Company, its wholly owned
            subsidiary which is Managing General Partner of
            Rayonier Timberlands, L.P., who are not also
            directors of Registrant

   10.11    Description of Rayonier 1994 Incentive Stock      Incorporated by reference to Exhibit 10.1 to the
            Plan Contingent Performance Share Awards          Registrant's June 30, 1994 Form 10-Q

   10.12    Form of Rayonier 1994 Incentive Stock Plan        Incorporated by reference to Exhibit 10.1 to the
            Contingent Performance Share Award                Registrant's June 30, 1994 Form 10-Q
            Agreement
</TABLE>

                                       C

<PAGE>

<TABLE>
<CAPTION>
Exhibit No.                  Description                                       Location
- -----------                  -----------                                       --------
<C>         <S>                                            <C>

   10.13    Form of Rayonier 1994 Incentive Stock Plan     Incorporated by reference to Exhibit 10.17 to
            Restricted Share Award Agreement               the Registrant's December 31, 1995 Form 10-K

   10.14    Form of Rayonier 1994 Incentive Stock Non-     Incorporated by reference to Exhibit 10.18 to
            qualified Stock Option Award Agreement         the Registrant's December 31, 1995 Form 10-K

   10.15    Rayonier Substitute Stock Option Plan          Incorporated by reference to Exhibit 4(c) to the
                                                           Registrant's Registration Statement on Form
                                                           S-8 (File No. 33-52891)

   10.16    Form of Rayonier Substitute Stock Option       Incorporated by reference to Exhibit 10.20 to
            Award Agreements                               the Registrant's December 31, 1995 Form 10-K

   10.17    Split-Dollar Life Insurance Agreement dated    Incorporated by reference to Exhibit 10.2 to the
            June 22, 1994 between Rayonier Inc. and Ronald Registrant's June 30, 1994 Form 10-Q
            M. Gross

   10.18    Amendment to Split-Dollar Life Insurance       Incorporated by reference to Exhibit 10.18 to
            Agreement, dated July 22, 1997                 the Registrant's December 31, 1997 Form 10-K

   10.19    Deferred Compensation / Supplemental           Incorporated by reference to Exhibit 10.3 to the
            Retirement Agreement dated June 28, 1994       Registrant's June 30, 1994 Form 10-Q
            between Rayonier Inc. and Ronald M. Gross

   10.20    Amendment to Deferred Compensation /           Incorporated by reference to Exhibit 10.20 to
            Supplemental Retirement Agreement, dated       the Registrant's December 31, 1997 Form 10-K
            July 22, 1997

   10.21    Consulting Agreement dated October 19, 1998    Incorporated by reference to Exhibit 10.21 to
            between Rayonier Inc. and Ronald M. Gross      the Registrant's December 31, 1998 Form 10-K

   10.22    Form of Rayonier Outside Directors             Incorporated by reference to Exhibit 10.22 to
            Compensation Program/Cash Deferral Option      the Registrant's December 31, 1999 Form 10-K
            Agreement

   10.23    Description of Rayonier Split-Dollar Life      Incorporated by reference to Exhibit 10.23 to
            Insurance/Deferred Compensation Retention      the Registrant's December 31, 2000 Form 10-K
            Benefit Program

   10.24    Change in Control Agreement for W. Lee Nutter. Incorporated by reference to Exhibit 10.23 to
                                                           the Registrant's September 30, 2001,
                                                           Form 10-Q.

   10.25    Trust Agreement for the Rayonier Inc. Legal    Filed herewith
            Resources Trust

   10.26    Trust Agreement for the Rayonier Inc.          Filed herewith
            Supplemental Senior Executive Severance Pay
            Plan and the Change in Control Agreement for
            W. Lee Nutter Executive Severance Trust
</TABLE>

                                       D

<PAGE>

<TABLE>
<CAPTION>
Exhibit No.                   Description                           Location
- -----------                   -----------                           --------
<C>         <S>                                             <C>

   10.27    Other material contracts                        None

    11      Statement re computation of per share earnings  Not required to be filed

    12      Statements re computation of ratios             Filed herewith

    13      Annual report to security holders, Form 10-Q or Not applicable
            quarterly report to security holders

    16      Letter re change in certifying accountant       Filed herewith

    18      Letter re change in accounting principles       Not applicable

    21      Subsidiaries of the Registrant                  Filed herewith

    22      Published report regarding matters submitted to None
            vote of security holders

    23      Consents of experts and counsel                 Filed herewith

    24      Powers of attorney                              Filed herewith

    28      Information from reports furnished to state     Not applicable
            insurance regulatory authorities

    99      Letter re Andersen assurances                   Filed herewith
</TABLE>


                                       E

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>3
<FILENAME>dex43.txt
<DESCRIPTION>364-DAY CREDIT AGREEMENT
<TEXT>
<PAGE>


                                                                     EXHIBIT 4.3

                                U.S. $55,000,000

                            364-DAY CREDIT AGREEMENT

                          Dated as of November 19, 2001

                                      Among

                                  RAYONIER INC.
                                   as Borrower
                                   -- --------

                                       and

                        THE INITIAL LENDERS NAMED HEREIN

                               as Initial Lenders
                               -- ------- -------

                                       and

                                 CITIBANK, N.A.

                             as Administrative Agent
                             -- -------------- -----

                                       and

                              BANK OF AMERICA, N.A.
                              THE BANK OF NEW YORK
                                  SUNTRUST BANK

                              as Syndication Agents
                              -- ----------- ------

                            SALOMON SMITH BARNEY INC.
                         BANC OF AMERICA SECURITIES INC.

                                  as Arrangers
                                  -- ---------

<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                                    <C>
ARTICLE I

         SECTION 1.01.   Certain Defined Terms                                                          1
                         ---------------------

         SECTION 1.02.   Computation of Time Periods                                                   11
                         ---------------------------

         SECTION 1.03.   Accounting Terms                                                              11
                         ----------------

ARTICLE II

         SECTION 2.01.   The Revolving Credit Advances                                                 11
                         -----------------------------

         SECTION 2.02.   Making the Revolving Credit Advances                                          11
                         ------------------------------------

         SECTION 2.03.   The Competitive Bid Advances                                                  13
                         ----------------------------

         SECTION 2.04.   Fees                                                                          15
                         ----

         SECTION 2.05.   Termination or Reduction of the Commitments                                   15
                         -------------------------------------------

         SECTION 2.06.   Repayment of Revolving Credit Advances                                        15
                         --------------------------------------

         SECTION 2.07.   Interest on Revolving Credit Advances                                         16
                         -------------------------------------

         SECTION 2.08.   Interest Rate Determination                                                   16
                         ---------------------------

         SECTION 2.09.   Optional Conversion of Revolving Credit Advances                              17
                         ------------------------------------------------

         SECTION 2.10.   Prepayments of Revolving Credit Advances                                      17
                         ----------------------------------------

         SECTION 2.11.   Increased Costs                                                               17
                         ---------------

         SECTION 2.12.   Illegality                                                                    18
                         ----------

         SECTION 2.13.   Payments and Computations                                                     18
                         -------------------------

         SECTION 2.14.   Taxes                                                                         19
                         -----

         SECTION 2.15.   Sharing of Payments, Etc.                                                     21
                         ------------------------

         SECTION 2.16.   Evidence of Debt                                                              21
                         ----------------

         SECTION 2.17.   Use of Proceeds                                                               22
                         ---------------

         SECTION 2.18.   Extension of Termination Date                                                 22
                         -----------------------------
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                    <C>
ARTICLE III

         SECTION 3.01.   Conditions Precedent to Effectiveness of Sections 2.01 and 2.03               23

         SECTION 3.02.   Conditions Precedent to Each Revolving Credit Borrowing and Extension Date.   25
                         --------------------------------------------------------------------------

         SECTION 3.03.   Conditions Precedent to Each Competitive Bid Borrowing                        25
                         ------------------------------------------------------

         SECTION 3.04.   Determinations Under Section 3.01                                             25
                         ---------------------------------

ARTICLE IV

         SECTION 4.01.   Representations and Warranties of the Borrower                                26

ARTICLE V

         SECTION 5.01.   Affirmative Covenants                                                         28
                         ---------------------

         SECTION 5.02.   Negative Covenants                                                            31
                         ------------------

         SECTION 5.03.   Financial Covenant                                                            33
                         ------------------

ARTICLE VI

         SECTION 6.01.   Events of Default                                                             33
                         -----------------

ARTICLE VII

         SECTION 7.01.   Authorization and Action                                                      35
                         ------------------------

         SECTION 7.02.   Agent's Reliance, Etc.                                                        36
                         ---------------------

         SECTION 7.03.   Citibank and Affiliates                                                       36
                         -----------------------

         SECTION 7.04.   Lender Credit Decision                                                        36
                         ----------------------

         SECTION 7.05.   Indemnification                                                               36
                         ---------------

         SECTION 7.06.   Successor Agent                                                               37
                         ---------------

         SECTION 7.07.   Other Agents.                                                                 37
                         ------------

ARTICLE VIII

         SECTION 8.01.   Amendments, Etc.                                                              37
                         ---------------

         SECTION 8.02.   Notices, Etc.                                                                 37
                         ------------

         SECTION 8.03.   No Waiver; Remedies                                                           38
                         -------------------
</TABLE>

                                       ii

<PAGE>

<TABLE>
         <S>                                                                                           <C>
         SECTION 8.04.   Costs and Expenses                                                            38
                         ------------------

         SECTION 8.05.   Right of Set-off                                                              39
                         ----------------

         SECTION 8.06.   Binding Effect                                                                39
                         --------------

         SECTION 8.07.   Assignments and Participations                                                39
                         ------------------------------

         SECTION 8.08.   Confidentiality                                                               41
                         ---------------

         SECTION 8.09.   Governing Law                                                                 41
                         -------------

         SECTION 8.10.   Execution in Counterparts                                                     41
                         -------------------------

         SECTION 8.11.   Jurisdiction, Etc.                                                            42
                         -----------------

         SECTION 8.12.   Waiver of Jury Trial                                                          43
                         --------------------
</TABLE>

                                       iii

<PAGE>

Schedules
- ---------

Schedule I                 -        List of Applicable Lending Offices

Schedule 3.01(b)           -        Disclosed Litigation

Schedule 4.01(i)           -        Environmental Matters

Schedule 4.01(o)           -        Post Retirement Benefit Obligations

Schedule 5.02(a)           -        Existing Liens

Schedule 5.02(d)           -        Existing Subsidiary Debt

Exhibits
- --------

Exhibit A-1                -        Form of Revolving Credit Note

Exhibit A-2                -        Form of Competitive Bid Note

Exhibit B-1                -        Form of Notice of Revolving Credit Borrowing

Exhibit B-2                -        Form of Notice of Competitive Bid Borrowing

Exhibit C                  -        Form of Assignment and Acceptance

Exhibit D                  -        Form of Opinion of Counsel for the Borrower

                                       iv

<PAGE>



                            364-DAY CREDIT AGREEMENT

                          Dated as of November 19, 2001

          RAYONIER INC., a North Carolina corporation (the "Borrower"), the
                                                            --------
banks, financial institutions and other institutional lenders (the "Initial
                                                                    -------
Lenders") listed on the signature pages hereof, and CITIBANK, N.A. ("Citibank"),
- -------                                                              --------
as agent (the "Agent") for the Lenders (as hereinafter defined), agree as
               -----
follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

          SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
                        ---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

          "Advance" means a Revolving Credit Advance or a Competitive Bid
           -------
Advance.

          "Affiliate" means, as to any Person, any other Person that, directly
           ---------
     or indirectly, controls, is controlled by or is under common control with
     such Person or is a director or officer of such Person. For purposes of
     this definition, the term "control" (including the terms "controlling",
     "controlled by" and "under common control with") of a Person means the
     possession, direct or indirect, of the power to vote 5% or more of the
     Voting Stock of such Person or to direct or cause the direction of the
     management and policies of such Person, whether through the ownership of
     Voting Stock, by contract or otherwise.

          "Agent's Account" means the account of the Agent maintained by the
           ---------------
     Agent at Citibank at its office at 388 Greenwich Street, New York, New York
     10013, Account No. 36852248, Attention: Bank Loan Syndications.

          "Applicable Lending Office" means, with respect to each Lender, such
           -------------------------
     Lender's Domestic Lending Office in the case of a Base Rate Advance and
     such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
     Advance and, in the case of a Competitive Bid Advance, the office of such
     Lender notified by such Lender to the Agent as its Applicable Lending
     Office with respect to such Competitive Bid Advance.

          "Applicable Margin" means (a) for Base Rate Advances, 0% per annum and
           -----------------
     (b) for Eurodollar Rate Advances, as of any date, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

    Public Debt Rating         Applicable Margin for
       S&P/Moody's           Eurodollar Rate Advances
- -------------------------    ------------------------
Level 1
BBB+ or Baa1 or above                0.475%

Level 2
Lower than Level 1 but at            0.700%
least BBB or Baa2

Level 3
Lower than Level 2 but at            0.900%
least BBB- and Baa3

<PAGE>

Level 4
Lower than Level 3 but at            0.975%
least BBB- or Baa3

Level 5
Lower than Level 4 but at            1.150%
least BB+ and Ba1

Level 6
Lower than Level 5                   1.400%

          "Applicable Percentage" means, as of any date, a percentage per annum
           ---------------------
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

    Public Debt Rating       Applicable
       S&P/Moody's           Percentage
- -------------------------    ----------
Level 1
- -------
BBB+ or Baa1 or                0.150%
above

Level 2
- -------
Lower than Level 1 but at      0.175%
least BBB or Baa2

Level 3
- -------
Lower than Level 2 but at      0.225%
least BBB- and Baa3

Level 4
- -------
Lower than Level 3 but at      0.275%
least BBB- or Baa3

Level 5
- -------
Lower than Level 4 but at      0.350%
least BB+ and Ba1

Level 6
- -------
Lower than Level 5             0.475%

          "Applicable Utilization Fee" means, as of any date that the aggregate
           --------------------------
     Advances exceed 33% of the aggregate Commitments, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

    Public Debt Rating         Applicable
      S&P/Moody's            Utilization Fee
- -------------------------    ---------------
Level 1
- -------
BBB+ or Baa1 or above            0.125%

Level 2
- -------
Lower than Level 1 but at        0.125%
least BBB or Baa2

Level 3
- -------
Lower than Level 2 but at        0.250%
least BBB- and Baa3

Level 4
- -------
Lower than Level 3 but at        0.250%
least BBB- or Baa3

Level 5
- -------
Lower than Level 4 but at        0.250%
least BB+ and Ba1

                                       2

<PAGE>

Level 6
- -------
Lower than Level 5               0.375%

          "Arrangers" means Salomon Smith Barney Inc. and Banc of America
           ---------
     Securities LLC.

          "Assignment and Acceptance" means an assignment and acceptance entered
           -------------------------
     into by a Lender and an Eligible Assignee, and accepted by the Agent, in
     substantially the form of Exhibit C hereto.

          "Assuming Lender" has the meaning specified in Section 2.18(c).
           ---------------

          "Assumption Agreement" has the meaning specified in Section 2.18(c).
           --------------------

          "Base Rate" means a fluctuating interest rate per annum in effect from
           ---------
     time to time, which rate per annum shall at all times be equal to the
     higher of:

               (a) the rate of interest announced publicly by Citibank in New
          York, New York, from time to time, as Citibank's base rate; and

               (b) 1/2 of one percent per annum above the Federal Funds Rate.

          "Base Rate Advance" means a Revolving Credit Advance that bears
           -----------------
     interest as provided in Section 2.07(a)(i).

          "Borrower's Form 10-K for 2000" has the meaning specified in Section
           -----------------------------
     4.01(f).

          "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
           ---------
     Borrowing.

          "Business Day" means a day of the year on which banks are not required
           ------------
     or authorized by law to close in New York City and, if the applicable
     Business Day relates to any Eurodollar Rate Advances, on which dealings are
     carried on in the London interbank market.

          "CERCLA" means the Comprehensive Environmental Response, Compensation
           ------
     and Liability Act of 1980, as amended.

          "CERCLIS" has the meaning specified in Section 4.01(k).
           -------

          "Commitment" means, with respect to any Lender at any time (a) the
           ----------
     amount set forth opposite such Lender's name on the signature pages hereof,
     (b) if such Lender has become a Lender hereunder pursuant to an Assumption
     Agreement, the amount set forth in such Assumption Agreement or (c) if such
     Lender has entered into any Assignment and Acceptance, the amount set forth
     for such Lender in the Register maintained by the Agent pursuant to Section
     8.07(d), as such amount may be reduced pursuant to Section 2.05.

          "Competitive Bid Advance" means an advance by a Lender to the Borrower
           -----------------------
     as part of a Competitive Bid Borrowing resulting from the competitive
     bidding procedure described in Section 2.03.

          "Competitive Bid Borrowing" means a borrowing consisting of
           -------------------------
     simultaneous Competitive Bid Advances from each of the Lenders whose offer
     to make one or more Competitive Bid Advances as part of such borrowing has
     been accepted under the competitive bidding procedure described in Section
     2.03.

          "Competitive Bid Note" means a promissory note of the Borrower payable
           --------------------
     to the order of any Lender, in substantially the form of Exhibit A-2
     hereto, evidencing the indebtedness of the Borrower to such Lender
     resulting from a Competitive Bid Advance made by such Lender.

                                       3

<PAGE>

          "Competitive Bid Reduction" has the meaning specified in Section 2.01.
           -------------------------

          "Confidential Information" means information that the Borrower
           ------------------------
     furnishes to the Agent or any Lender in a writing designated as
     confidential, but does not include any such information that is or becomes
     generally available to the public or that is or becomes available to the
     Agent or such Lender from a source other than the Borrower, that is not
     acting in violation of a confidentiality agreement with the Borrower.

          "Consenting Lender" has the meaning specified in Section 2.18(b).
           -----------------

          "Consolidated" refers to the consolidation of accounts in accordance
           ------------
     with GAAP.

          "Consolidated Assets" means on any date of determination, all amounts
           -------------------
     that are or should, in accordance with GAAP be included under assets on a
     Consolidated balance sheet of the Borrower and its Subsidiaries determined
     in accordance with GAAP as at such date.

          "Convert", "Conversion" and "Converted" each refers to a conversion of
           -------    ----------       ---------
     Revolving Credit Advances of one Type into Revolving Credit Advances of the
     other Type pursuant to Section 2.08 or 2.09.

          "Debt" of any Person means, without duplication, (a) all indebtedness
           ----
     of such Person for borrowed money, (b) all obligations of such Person for
     the deferred purchase price of property or services (other than trade
     payables incurred in the ordinary course of such Person's business and that
     are not overdue for a period that is not consistent with the ordinary
     course of business of such Person), (c) all obligations of such Person
     evidenced by notes, bonds, debentures or other similar instruments, (d) all
     obligations of such Person created or arising under any conditional sale or
     other title retention agreement with respect to property acquired by such
     Person (even though the rights and remedies of the seller or lender under
     such agreement in the event of default are limited to repossession or sale
     of such property), (e) all obligations of such Person as lessee under
     leases that have been or should be, in accordance with GAAP, recorded as
     capital leases, (f) all obligations, contingent or otherwise, of such
     Person in respect of acceptance, letter of credit or similar facilities
     (other than obligations under (i) Trade Letters of Credit, (ii) performance
     bonds or letters of credit issued in connection with the purchase of
     inventory, including prepaid timber stumpage, by the Borrower or any of its
     Subsidiaries in the ordinary course of business, (iii) performance bonds or
     letters of credit to secure obligations under workers' compensation laws or
     similar legislation, (iv) performance bonds or letters of credit issued for
     the account of the Borrower or any of its Subsidiaries to secure
     obligations under self-insurance programs to the extent permitted by the
     terms of this Agreement and in an aggregate maximum available amount with
     respect to all such performance bonds and letters of credit not to exceed
     at any one time $20,000,000 and (v) performance bonds or letters of credit
     issued for the account of the Borrower or any of its Subsidiaries not
     otherwise excluded from this definition in an aggregate maximum available
     amount with respect to all such performance bonds and letters of credit not
     to exceed at any one time $2,000,000, provided that in each case such
                                           --------
     performance bond or letter of credit (including, without limitation, any
     Trade Letters of Credit but excluding performance bonds or letters of
     credit described in clause (f)(v) above) does not secure Debt, (g) all
     Guarantees issued by such Person and (h) all Debt referred to in clauses
     (a) through (g) above secured by (or for which the holder of such Debt has
     an existing right, contingent or otherwise, to be secured by) any Lien on
     property (including, without limitation, accounts and contract rights)
     owned by such Person, even though such Person has not assumed or become
     liable for the payment of such Debt. The Debt of any Person shall include
     the Debt of any partnership in which such Person is a general partner, but
     shall not include obligations under a financial assurance statement that a
     Person is required to provide under Environmental Law in support of the
     closure and post-closure obligations of one or more of its Subsidiaries.

          "Default" means any Event of Default or any event that would
           -------
     constitute an Event of Default but for the requirement that notice be given
     or time elapse or both.

          "Disclosed Litigation" has the meaning specified in Section 3.01(b).
           --------------------

                                       4

<PAGE>

          "Domestic Lending Office" means, with respect to any Lender, the
           -----------------------
     office of such Lender specified as its "Domestic Lending Office" opposite
     its name on Schedule I hereto or in the Assumption Agreement or the
     Assignment and Acceptance pursuant to which it became a Lender, or such
     other office of such Lender as such Lender may from time to time specify to
     the Borrower and the Agent.

          "EBITDA" means, for any Person during any period, earnings (income)
           ------
     from continuing operations before the cumulative effect of accounting
     changes and any provision for dispositions, income taxes, interest expense
     and depreciation, depletion and amortization and the non-cash cost of
     timberland and real estate sales, provided, that for purposes of
     calculating compliance with Section 5.03(a), the EBITDA attributable to any
     Person or business unit acquired by the Borrower or any of its Subsidiaries
     during any period of four full fiscal quarters shall be included on a pro
     forma basis for such period of four full fiscal quarters (assuming the
     consummation of each such acquisition occurred on the first day of such
     period of four full fiscal quarters).

          "Effective Date" has the meaning specified in Section 3.01.
           --------------

          "Eligible Assignee" means (a) any Lender; (b) an Affiliate of a
           -----------------
     Lender; (c) a commercial bank organized under the laws of the United
     States, or any State thereof, and having total assets in excess of
     $10,000,000,000; (d) a commercial bank organized under the laws of any
     other country that is a member of the Organization for Economic Cooperation
     and Development or has concluded special lending arrangements with the
     International Monetary Fund associated with its General Arrangements to
     Borrow or of the Cayman Islands, or a political subdivision of any such
     country, and having total assets in excess of $10,000,000,000, so long as
     such bank is acting through a branch or agency located in the country in
     which it is organized or another country that is described in this clause
     (d); (e) the central bank of any country that is a member of the
     Organization for Economic Cooperation and Development; and (f) any other
     Person approved by the Agent; provided, however, that (x) each Eligible
                                   --------  -------
     Assignee shall maintain a branch or representative office or similar
     presence in the United States and (y) neither the Borrower nor an Affiliate
     of the Borrower shall qualify as an Eligible Assignee.

          "Environmental Action" means any (a) administrative, regulatory or
           --------------------
     judicial action, suit, written demand, demand letter, written claim, notice
     of noncompliance or violation, notice of liability or potential liability,
     investigation, proceeding, consent order or consent agreement relating in
     any way to any Environmental Law, Environmental Permit or Hazardous
     Materials or arising from alleged injury or threat of injury to health,
     safety or the environment including, without limitation, (i) by any
     governmental or regulatory authority for enforcement, cleanup, removal,
     response, remedial or other actions or damages and (ii) by any governmental
     or regulatory authority for damages, contribution, indemnification, cost
     recovery, compensatory or injunctive relief; and (b) any administrative,
     regulatory or judicial action, suit or proceeding brought by any third
     party properly before a forum of competent jurisdiction relating in any way
     to any Environmental Law, Environmental Permit or Hazardous Materials or
     arising from alleged injury or threat of injury to health, safety or the
     environment.

          "Environmental Law" means any federal, state, local or foreign
           -----------------
     statute, law, ordinance, rule, regulation, code, order, judgment, decree or
     judicial or agency interpretation, policy or guidance relating to pollution
     or protection of the environment, health, safety or natural resources,
     including, without limitation, those relating to the use, handling,
     transportation, treatment, storage, disposal, release or discharge of
     Hazardous Materials all as amended or hereafter amended.

          "Environmental Permit" means any permit, approval, identification
           --------------------
     number, license or other authorization required under any Environmental
     Law.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
           -----
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

                                       5

<PAGE>

          "ERISA Affiliate" means any Person that for purposes of Title IV of
           ---------------
     ERISA is a member of the Borrower's controlled group, or under common
     control with the Borrower, within the meaning of Section 414 of the
     Internal Revenue Code.

          "ERISA Event" means (a) (i) the occurrence of a reportable event,
           -----------
     within the meaning of Section 4043 of ERISA, with respect to any Plan
     unless the 30-day notice requirement with respect to such event has been
     waived by the PBGC, or (ii) the requirements of subsection (1) of Section
     4043(b) of ERISA (without regard to subsection (2) of such Section) are met
     with respect to a contributing sponsor, as defined in Section 4001(a)(13)
     of ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
     (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
     with respect to such Plan within the following 30 days; (b) the application
     for a minimum funding waiver with respect to a Plan; (c) the provision by
     the administrator of any Plan of a notice of intent to terminate such Plan
     pursuant to Section 4041(a)(2) of ERISA (including any such notice with
     respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
     the cessation of operations at a facility of the Borrower or any of its
     ERISA Affiliates in the circumstances described in Section 4062(e) of
     ERISA; (e) the withdrawal by the Borrower or any of its ERISA Affiliates
     from a Multiple Employer Plan during a plan year for which it was a
     substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
     conditions for the imposition of a lien under Section 302(f) of ERISA shall
     have been met with respect to any Plan; (g) the adoption of an amendment to
     a Plan requiring the provision of security to such Plan pursuant to Section
     307 of ERISA; or (h) the institution by the PBGC of proceedings to
     terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of
     any event or condition described in Section 4042 of ERISA that could
     constitute grounds for the termination of, or the appointment of a trustee
     to administer, a Plan.

          "Eurocurrency Liabilities" has the meaning assigned to that term in
           ------------------------
     Regulation D of the Board of Governors of the Federal Reserve System, as in
     effect from time to time.

          "Eurodollar Lending Office" means, with respect to any Lender, the
           -------------------------
     office of such Lender specified as its "Eurodollar Lending Office" opposite
     its name on Schedule I hereto or in the Assumption Agreement or the
     Assignment and Acceptance pursuant to which it became a Lender (or, if no
     such office is specified, its Domestic Lending Office), or such other
     office of such Lender as such Lender may from time to time specify to the
     Borrower and the Agent.

          "Eurodollar Rate" means, for any Interest Period for each Eurodollar
           ---------------
     Rate Advance comprising part of the same Revolving Credit Borrowing, an
     interest rate per annum equal to the rate per annum obtained by dividing
     (a) the rate per annum (rounded upward to the nearest whole multiple of
     1/16 of 1% per annum) appearing on Telerate Markets Page 3750 (or any
     successor page) as the London interbank offered rate for deposits in U.S.
     dollars at approximately 11:00 A.M. (London time) two Business Days prior
     to the first day of such Interest Period for a term comparable to such
     Interest Period or, if for any reason such rate is not available, the
     average (rounded upward to the nearest whole multiple of 1/16 of 1% per
     annum, if such average is not such a multiple) of the rate per annum at
     which deposits in U.S. dollars are offered by the principal office of each
     of the Reference Banks in London, England to prime banks in the London
     interbank market at 11:00 A.M. (London time) two Business Days before the
     first day of such Interest Period in an amount substantially equal to such
     Reference Bank's Eurodollar Rate Advance comprising part of such Revolving
     Credit Borrowing to be outstanding during such Interest Period and for a
     period equal to such Interest Period by (b) a percentage equal to 100%
     minus the Eurodollar Rate Reserve Percentage for such Interest Period. If
     the Telerate Markets Page 3750 (or any successor page) is unavailable, the
     Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance
     comprising part of the same Revolving Credit Borrowing shall be determined
     by the Agent on the basis of applicable rates furnished to and received by
     the Agent from the Reference Banks two Business Days before the first day
     of such Interest Period, subject, however, to the provisions of Section
                              -------  -------
     2.08.

          "Eurodollar Rate Advance" means a Revolving Credit Advance that bears
           -----------------------
     interest as provided in Section 2.07(a)(ii).

                                       6

<PAGE>

          "Eurodollar Rate Reserve Percentage" for any Interest Period for all
           ----------------------------------
     Eurodollar Rate Advances comprising part of the same Borrowing means the
     reserve percentage applicable two Business Days before the first day of
     such Interest Period under regulations issued from time to time by the
     Board of Governors of the Federal Reserve System (or any successor) for
     determining the maximum reserve requirement (including, without limitation,
     any emergency, supplemental or other marginal reserve requirement) for a
     member bank of the Federal Reserve System in New York City with respect to
     liabilities or assets consisting of or including Eurocurrency Liabilities
     (or with respect to any other category of liabilities that includes
     deposits by reference to which the interest rate on Eurodollar Rate
     Advances is determined) having a term equal to such Interest Period.

          "Events of Default" has the meaning specified in Section 6.01.
           -----------------

          "Existing Subsidiary Debt" has the meaning specified in Section
           ------------------------
     5.02(d)(ii).

          "Extension Date" has the meaning specified in Section 2.18(b).
           --------------

          "Federal Funds Rate" means, for any period, a fluctuating interest
           ------------------
     rate per annum equal for each day during such period to the weighted
     average of the rates on overnight Federal funds transactions with members
     of the Federal Reserve System arranged by Federal funds brokers, as
     published for such day (or, if such day is not a Business Day, for the next
     preceding Business Day) by the Federal Reserve Bank of New York, or, if
     such rate is not so published for any day that is a Business Day, the
     average of the quotations for such day on such transactions received by the
     Agent from three Federal funds brokers of recognized standing selected by
     it.

          "Fiscal Quarter" means each consecutive three calendar month period
           --------------
     ending March 31, June 30, September 30 or December 31 of any fiscal year.

          "GAAP" has the meaning specified in Section 1.03.
           ----

          "Guarantee" by any Person, means any obligation, contingent or
           ---------
     otherwise, of such Person guaranteeing directly or indirectly in any manner
     the Debt of any other Person, or in effect guaranteeing directly or
     indirectly the Debt of any other Person through an agreement (i) to pay or
     purchase such Debt or to advance or supply funds for the payment or
     purchase of such Debt, (ii) to purchase, sell or lease (as lessee or
     lessor) property, or to purchase or sell services, primarily for the
     purpose of enabling the debtor to make payment of such Debt or to assure
     the holder of such Debt against loss, (iii) to supply funds to or in any
     other manner invest in the debtor (including any agreement to pay for
     property or services irrespective of whether such property is received or
     such services are rendered) or (iv) otherwise to assure a creditor against
     loss.

          "Hazardous Materials" means petroleum and petroleum products,
           -------------------
     byproducts or breakdown products, radioactive materials,
     asbestos-containing materials, polychlorinated biphenyls and radon gas and
     any other chemicals, materials or substances designated, classified or
     regulated as being "hazardous" or "toxic" or words of similar import, under
     any applicable Environmental Law.

          "Indemnified Liabilities" has the meaning specified in Section
           -----------------------
     8.04(b).

          "Indemnified Party" has the meaning specified in Section 8.04(b).
           -----------------

          "Insufficiency" means, with respect to any Plan, the amount, if any,
           -------------
     of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
     ERISA.

          "Interest Period" means, for each Eurodollar Rate Advance comprising
           ---------------
     part of the same Revolving Credit Borrowing, the period commencing on the
     date of such Eurodollar Rate Advance or the date of the Conversion of any
     Base Rate Advance into such Eurodollar Rate Advance and ending on the last
     day of the

                                       7

<PAGE>

     period selected by the Borrower pursuant to the provisions below and,
     thereafter, each subsequent period commencing on the last day of the
     immediately preceding Interest Period and ending on the last day of the
     period selected by the Borrower pursuant to the provisions below. The
     duration of each such Interest Period shall be one, two, three or six
     months, and subject to clause (c) of this definition, nine months, as the
     Borrower may, upon notice received by the Agent not later than 12:00 Noon
     (New York City time) on the third Business Day prior to the first day of
     such Interest Period, select; provided, however, that:
                                   --------  -------

               (a) the Borrower may not select any Interest Period that ends
          after the Termination Date;

               (b) Interest Periods commencing on the same date for Eurodollar
          Rate Advances comprising part of the same Revolving Credit Borrowing
          shall be of the same duration;

               (c) in the case of any such Revolving Credit Borrowing, the
          Borrower shall not be entitled to select an Interest Period having
          duration of nine months unless, by 2:00 P.M. (New York City time) on
          the third Business Day prior to the first day of such Interest Period,
          each Lender notifies the Agent that such Lender will be providing
          funding for such Revolving Credit Borrowing with such Interest Period
          (the failure of any Lender to so respond by such time being deemed for
          all purposes of this Agreement as an objection by such Lender to the
          requested duration of such Interest Period); provided that, if any or
                                                       --------
          all of the Lenders object to the requested duration of such Interest
          Period, the duration of the Interest Period for such Revolving Credit
          Borrowing shall be one, two, three or six months, as specified by the
          Borrower in the applicable Notice of Revolving Credit Borrowing as the
          desired alternative to an Interest Period of nine months;

               (d) whenever the last day of any Interest Period would otherwise
          occur on a day other than a Business Day, the last day of such
          Interest Period shall be extended to occur on the next succeeding
          Business Day, provided, however, that, if such extension would cause
                        --------  -------
          the last day of such Interest Period to occur in the next following
          calendar month, the last day of such Interest Period shall occur on
          the next preceding Business Day; and

               (e) whenever the first day of any Interest Period occurs on a day
          of an initial calendar month for which there is no numerically
          corresponding day in the calendar month that succeeds such initial
          calendar month by the number of months equal to the number of months
          in such Interest Period, such Interest Period shall end on the last
          Business Day of such succeeding calendar month.

          "Internal Revenue Code" means the Internal Revenue Code of 1986, as
           ---------------------
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

          "Lenders" means the Initial Lenders, each Assuming Lender that shall
           -------
     become a party hereto pursuant to Section 2.18 and each Person that shall
     become a party hereto pursuant to Section 8.07.

          "Lien" means any lien, security interest or other charge or
           ----
     encumbrance of any kind, or any other type of preferential arrangement,
     including, without limitation, the lien or retained security title of a
     conditional vendor and any easement, right of way or other encumbrance on
     title to real property.

          "Material Adverse Change" means any material adverse change in the
           -----------------------
     business, condition (financial or otherwise), operations, performance or
     properties of the Borrower and its Subsidiaries taken as a whole.

          "Material Adverse Effect" means a material adverse effect on (a) the
           -----------------------
     business, condition (financial or otherwise), operations, performance or
     properties of the Borrower and its Subsidiaries taken as a whole,

                                       8

<PAGE>

     (b) the rights and remedies of the Agent or any Lender under this Agreement
     or any Note or (c) the ability of the Borrower to perform its obligations
     under this Agreement or any Note.

          "Moody's" means Moody's Investors Service, Inc.
           -------

          "Multiemployer Plan" means a multiemployer plan, as defined in Section
           ------------------
     4001(a)(3) of ERISA, to which the Borrower or any of its ERISA Affiliates
     is making or accruing an obligation to make contributions, or has within
     any of the preceding five plan years made or accrued an obligation to make
     contributions.

          "Multiple Employer Plan" means a single employer plan, as defined in
           ----------------------
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any ERISA Affiliate and at least one Person other than the
     Borrower and its ERISA Affiliates or (b) was so maintained and in respect
     of which the Borrower or any of its ERISA Affiliates could have liability
     under Section 4064 or 4069 of ERISA in the event such plan has been or were
     to be terminated.

          "Non-Consenting Lender" has the meaning specified in Section 2.18(b).
           ---------------------

          "Note" means a Revolving Credit Note or a Competitive Bid Note.
           ----

          "Notice of Competitive Bid Borrowing" has the meaning specified in
           -----------------------------------
     Section 2.03(a).

          "Notice of Revolving Credit Borrowing" has the meaning specified in
           ------------------------------------
     Section 2.02(a).

          "NPL" has the meaning specified in Section 4.01(k).
           ---

          "Other Taxes" has the meaning specified in Section 2.15(b).
           -----------

          "PBGC" means the Pension Benefit Guaranty Corporation (or any
           ----
     successor).

          "Permitted Liens" means such of the following as to which no
           ---------------
     enforcement, collection, execution, levy or foreclosure proceeding shall
     have been commenced: (a) Liens for taxes, assessments and governmental
     charges or levies to the extent not required to be paid under Section
     5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
     mechanics', carriers', workmen's and repairmen's Liens and other similar
     Liens arising in the ordinary course of business securing obligations that
     are not overdue for a reasonable period and which, individually or when
     aggregated with all other Permitted Liens outstanding on any date, do not
     materially affect the use of the property to which they relate; (c) pledges
     or deposits to secure obligations under workers' compensation laws or
     similar legislation or to secure public or statutory obligations; and (d)
     easements, rights of way, encumbrances and minor defects or irregularities
     in title to real property not interfering in any material respect with the
     ordinary conduct of the business of the Borrower or any of its
     Subsidiaries.

          "Person" means an individual, partnership, corporation (including a
           ------
     business trust), limited liability company, joint stock company, trust,
     unincorporated association, joint venture or other entity, or a government
     or any political subdivision or agency thereof.

          "Plan" means a Single Employer Plan or a Multiple Employer Plan.
           ----

          "Public Debt Rating" means, as of any date, the highest rating that
           ------------------
     has been most recently announced by either S&P or Moody's, as the case may
     be, for any class of non-credit enhanced long-term senior unsecured debt
     issued by the Borrower. For purposes of the foregoing, (a) if only one of
     S&P and Moody's shall have in effect a Public Debt Rating, the Applicable
     Margin, the Applicable Percentage and the Applicable Utilization Fee shall
     be determined by reference to the available rating; (b) if neither S&P nor
     Moody's shall have in effect a Public Debt Rating, the Applicable Margin,
     the Applicable Percentage

                                       9

<PAGE>

     and the Applicable Utilization Fee will be set in accordance with Level 6
     under the definition of "Applicable Margin", "Applicable Percentage" or
                              -----------------    ---------------------
     "Applicable Utilization Fee", as the case may be; (c) if any rating
      --------------------------
     established by S&P or Moody's shall be changed, such change shall be
     effective as of the date on which such change is first announced publicly
     by the rating agency making such change; and (d) if S&P or Moody's shall
     change the basis on which ratings are established, each reference to the
     Public Debt Rating announced by S&P or Moody's, as the case may be, shall
     refer to the then equivalent rating by S&P or Moody's, as the case may be.

          "Reference Banks" means Citibank, Bank of America, N.A.,
           ---------------                                         ----------
     and           .
         ----------

          "Register" has the meaning specified in Section 8.07(d).
           --------

          "Required Lenders" means at any time Lenders owed at least a majority
           ----------------
     in interest of the then aggregate unpaid principal amount of the Revolving
     Credit Advances owing to Lenders, or, if no such principal amount is then
     outstanding, Lenders having at least a majority in interest of the
     Commitments.

          "Revolving Credit Advance" means an advance by a Lender to the
           ------------------------
     Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate
     Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of
                                                                     ----
     Revolving Credit Advance).

          "Revolving Credit Borrowing" means a borrowing consisting of
           --------------------------
     simultaneous Revolving Credit Advances of the same Type made by each of the
     Lenders pursuant to Section 2.01.

          "Revolving Credit Note" means a promissory note of the Borrower
           ---------------------
     payable to the order of any Lender, delivered pursuant to a request made
     under Section 2.16 in substantially the form of Exhibit A-1 hereto,
     evidencing the aggregate indebtedness of the Borrower to such Lender
     resulting from the Revolving Credit Advances made by such Lender.

          "S&P" means Standard & Poor's, a division of The McGraw-Hill
           ---
     Companies, Inc.

          "Significant Subsidiary" means, at any time, a Subsidiary of the
           ----------------------
     Borrower having (a) at least 10% of the total Consolidated Assets of the
     Borrower and its Subsidiaries (determined as of the last day of the most
     recent Fiscal Quarter of the Borrower ended on or prior to such date) or
     (b) at least 5% of the Consolidated revenues of the Borrower and its
     Subsidiaries for the four most recent Fiscal Quarters of the Borrower ended
     on or prior to such date.

          "Single Employer Plan" means a single employer plan, as defined in
           --------------------
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any of its ERISA Affiliates and no Person other than the
     Borrower and its ERISA Affiliates or (b) was so maintained and in respect
     of which the Borrower or any of its ERISA Affiliates could have liability
     under Section 4069 of ERISA in the event such plan has been or were to be
     terminated.

          "Subsidiary" of any Person means any corporation, partnership, joint
           ----------
     venture, limited liability company, trust or estate of which (or in which)
     more than 50% of (a) the issued and outstanding capital stock having
     ordinary voting power to elect a majority of the Board of Directors of such
     corporation (irrespective of whether, at the time, capital stock of any
     other class or classes of such corporation shall or might have voting power
     upon the occurrence of any contingency), (b) the interest in the capital or
     profits of such partnership, joint venture or limited liability company or
     (c) the beneficial interest in such trust or estate is at the time directly
     or indirectly owned or controlled by such Person, by such Person and one or
     more of its other Subsidiaries or by one or more of such Person's other
     Subsidiaries.

          "Tangible Net Worth" means, with respect to any Person as of any date
           ------------------
     of determination, the excess of total assets over total liabilities, total
     assets and total liabilities each to be determined in accordance with GAAP,
     excluding, however, from the determination of total assets, (a) goodwill,
     ---------  -------

                                       10

<PAGE>

     experimental or organizational expenses, research and development expenses,
     franchises, trademarks, service marks, trade names, copyrights, patents,
     patent applications, licenses and rights in any thereof, and other similar
     intangibles, (b) all unamortized debt discount and expense, (c) treasury
     stock and capital stock, obligations or other securities of, or capital
     contributions to, or investments in, any Subsidiary, and (d) any items not
     included in clauses (a) through (c) above which are treated as intangibles
     in conformity with GAAP, in each case, determined on a Consolidated basis
     and in accordance with GAAP.

          "Taxes" has the meaning specified in Section 2.14(a).
           -----

          "Termination Date" means the earlier of (a) November 18, 2002, subject
           ----------------
     to the extension thereof pursuant to Section 2.18 and (b) the date of
     termination in whole of the Commitments pursuant to Section 2.05 or 6.01;
     provided, however, that the Termination Date of any Lender that is a
     --------  -------
     Non-Consenting Lender to any requested extension pursuant to Section 2.18
     shall be the Termination Date in effect immediately prior to the applicable
     Extension Date for all purposes of this Agreement.

          "Trade Letter of Credit" means any letter of credit that is issued for
           ----------------------
     the benefit of a supplier of inventory or provider of a service necessary
     for the conduct of the business of the Borrower or any of its Subsidiaries
     (other than any financial services) to the Borrower or any of its
     Subsidiaries to effect payment for such inventory or service.

          "Voting Stock" means capital stock issued by a corporation, or
           ------------
     equivalent interests in any other Person, the holders of which are
     ordinarily, in the absence of contingencies, entitled to vote for the
     election of directors (or persons performing similar functions) of such
     Person, even though the right so to vote has been suspended by the
     happening of such a contingency.

          "Withdrawal Liability" has the meaning specified in Part 1 of Subtitle
           --------------------
     E of Title IV of ERISA.

          SECTION 1.02. Computation of Time Periods. In this Agreement in the
                        ---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".

          SECTION 1.03. Accounting Terms. All accounting terms not specifically
                        ----------------
defined herein shall be construed in accordance with United States generally
accepted accounting principles as in effect from time to time ("GAAP").
                                                                ----

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

          SECTION 2.01. The Revolving Credit Advances. Each Lender severally
                        -----------------------------
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to the Borrower from time to time on any Business Day during the
period from the Effective Date until the Termination Date in an aggregate amount
not to exceed at any time outstanding such Lender's Commitment provided that the
                                                               --------
aggregate amount of the Commitments of the Lenders shall be deemed used from
time to time to the extent of the aggregate amount of the Competitive Bid
Advances then outstanding and such deemed use of the aggregate amount of the
Commitments shall be allocated among the Lenders ratably according to their
respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "Competitive Bid Reduction"). Each Revolving Credit
                     -------------------------
Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances
of the same Type made on the same day by the Lenders ratably according to their
respective Commitments. Within the limits of each Lender's Commitment, the
Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10 and
reborrow under this Section 2.01.

          SECTION 2.02. Making the Revolving Credit Advances. (a) Each Revolving
                        ------------------------------------
Credit Borrowing shall be made on notice, given not later than (x) 12:00 Noon
(New York City time) on the third Business Day prior

                                       11

<PAGE>

to the date of the proposed Revolving Credit Borrowing in the case of a
Revolving Credit Borrowing to be comprised of Eurodollar Rate Advances or (y)
11:00 A.M. (New York City time) on the Business Day of the proposed Revolving
Credit Borrowing in the case of a Revolving Credit Borrowing to be comprised of
Base Rate Advances, by the Borrower to the Agent, which shall give to each
Lender prompt notice thereof by telecopier or by telex. Each such notice of a
Revolving Credit Borrowing (a "Notice of Revolving Credit Borrowing") shall be
                               ------------------------------------
by telephone, confirmed immediately in writing, or telecopier or telex in
substantially the form of Exhibit B-1 hereto, specifying therein the requested
(i) date of such Revolving Credit Borrowing, (ii) Type of Revolving Credit
Advances comprising such Revolving Credit Borrowing, (iii) aggregate amount of
such Revolving Credit Borrowing, and (iv) in the case of a Revolving Credit
Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for
each such Revolving Credit Advance. Each Lender shall on the date of such
Revolving Credit Borrowing, before 11:00 A.M. (New York City time) , in the case
of a Revolving Credit Borrowing to be comprised of Eurodollar Rate Advances, and
before 1:00 P.M. (New York City time), in the case of a Revolving Credit
Borrowing to be comprised of Base Rate Advances, make available for the account
of its Applicable Lending Office to the Agent at the Agent's Account, in same
day funds, such Lender's ratable portion of such Revolving Credit Borrowing.
After the Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Section 3.02, the Agent will make such funds available
to the Borrower at the Agent's address referred to in Section 8.02.

          (b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for any Revolving
Credit Borrowing if the obligation of the Lenders to make Eurodollar Rate
Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the
Eurodollar Rate Advances may not be outstanding as part of more than eight
separate Revolving Credit Borrowings.

          (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Borrower. In the case of any Revolving Credit Borrowing that the
related Notice of Revolving Credit Borrowing specifies is to be comprised of
Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in such Notice of Revolving Credit
Borrowing for such Revolving Credit Borrowing the applicable conditions set
forth in Section 3.02, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the Revolving Credit Advance to be made by such
Lender as part of such Revolving Credit Borrowing when such Revolving Credit
Advance, as a result of such failure, is not made on such date.

          (d) Unless the Agent shall have received notice from a Lender prior to
the date of any Revolving Credit Borrowing (in the case of a Revolving Credit
Borrowing to be comprised of Eurodollar Rate Advances) and not later than 12:00
Noon (New York City time) on the Business Day of the proposed Revolving Credit
Borrowing (in the case of a Revolving Credit Borrowing to be comprised of Base
Rate Advances) that such Lender will not make available to the Agent such
Lender's ratable portion of such Revolving Credit Borrowing, the Agent may
assume that such Lender has made such portion available to the Agent on the date
of such Revolving Credit Borrowing in accordance with subsection (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the Agent,
such Lender and the Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at such time to Revolving Credit Advances comprising such
Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal
Funds Rate. If such Lender shall repay to the Agent such corresponding amount,
such amount so repaid shall constitute such Lender's Revolving Credit Advance as
part of such Revolving Credit Borrowing for purposes of this Agreement.

          (e) The failure of any Lender to make the Revolving Credit Advance to
be made by it as part of any Revolving Credit Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Revolving Credit
Advance on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.

                                       12

<PAGE>

          SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally
                        ----------------------------
agrees that the Borrower may make Competitive Bid Borrowings under this Section
2.03 from time to time on any Business Day during the period from the Effective
Date until the date occurring 7 days prior to the Termination Date in the manner
set forth below; provided that (x) each Competitive Bid Borrowing shall be in an
                 --------
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof and (y) following the making of each Competitive Bid Borrowing, the
aggregate amount of the Advances then outstanding shall not exceed the aggregate
amount of the Commitments of the Lenders.

          (i) The Borrower may request a Competitive Bid Borrowing under this
     Section 2.03 by delivering to the Agent, by telecopier or telex, a notice
     of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"),
                                        -----------------------------------
     in substantially the form of Exhibit B-2 hereto, specifying the date and
     aggregate amount of the proposed Competitive Bid Borrowing, the maturity
     date for repayment of each Competitive Bid Advance to be made as part of
     such Competitive Bid Borrowing (which maturity date may not be earlier than
     the date occurring 7 days after the date of such Competitive Bid Borrowing
     or later than the earlier of (x) 180 days after the date of such
     Competitive Bid Borrowing and (y) the Termination Date), the interest
     payment date or dates relating thereto, and any other terms to be
     applicable to such Competitive Bid Borrowing, not later than 10:00 A.M.
     (New York City time) (A) at least one Business Day prior to the date of the
     proposed Competitive Bid Borrowing, if the Borrower shall specify in the
     Notice of Competitive Bid Borrowing that the rates of interest to be
     offered by the Lenders shall be fixed rates per annum and (B) at least four
     Business Days prior to the date of the proposed Competitive Bid Borrowing,
     if the Borrower shall instead specify in the Notice of Competitive Bid
     Borrowing the basis to be used by the Lenders in determining the rates of
     interest to be offered by them. The Agent shall in turn promptly notify
     each Lender of each request for a Competitive Bid Borrowing received by it
     from the Borrower by sending such Lender a copy of the applicable Notice of
     Competitive Bid Borrowing.

          (ii) Each Lender may, if, in its sole discretion, it elects to do so,
     irrevocably offer to make one or more Competitive Bid Advances to the
     Borrower as part of such proposed Competitive Bid Borrowing at a rate or
     rates of interest specified by such Lender in its sole discretion, by
     notifying the Agent (which shall give prompt notice thereof to the
     Borrower), before 10:00 A.M. (New York City time) (x) on the date of such
     proposed Competitive Bid Borrowing, in the case of a Notice of Competitive
     Bid Borrowing delivered pursuant to clause (A) of paragraph (i) above and
     (y) three Business Days before the date of such proposed Competitive Bid
     Borrowing, in the case of a Notice of Competitive Bid Borrowing delivered
     pursuant to clause (B) of paragraph (i) above of the minimum amount and
     maximum amount of each Competitive Bid Advance that such Lender would be
     willing to make as part of such proposed Competitive Bid Borrowing (which
     amounts may, subject to the proviso to the first sentence of Section
     2.03(a), exceed such Lender's Commitment, if any), the rate or rates of
     interest therefor and such Lender's Applicable Lending Office with respect
     to such Competitive Bid Advance, provided that if the Agent in its capacity
                                      --------
     as a Lender shall, in its sole discretion, elect to make any such offer, it
     shall notify the Borrower of such offer before 9:00 A.M. (New York City
     time) on the date on which notice of such election is to be given to the
     Agent, by the other Lenders. If any Lender shall elect not to make such an
     offer, such Lender shall so notify the Agent before 10:00 A.M. (New York
     City time) on the date on which notice of such election is to be given to
     the Agent by the other Lenders, and such Lender shall not be obligated to,
     and shall not, make any Competitive Bid Advance as part of such Competitive
     Bid Borrowing; provided that the failure by any Lender to give such notice
                    --------
     shall not cause such Lender to be obligated to make any Competitive Bid
     Advance as part of such proposed Competitive Bid Borrowing.

          (iii) The Borrower shall, in turn, (x) before 11:00 A.M. (New York
     City time) on the date of such proposed Competitive Bid Borrowing, in the
     case of a Notice of Competitive Bid Borrowing delivered pursuant to clause
     (A) of paragraph (i) above and (y) before 11:00 A.M. (New York City time)
     three Business Days before the date of such proposed Competitive Bid
     Borrowing, in the case of a Notice of Competitive Bid Borrowing delivered
     pursuant to clause (B) of paragraph (i) above, either:

               (A) cancel such Competitive Bid Borrowing by giving the Agent
          notice to that effect, or

                                       13

<PAGE>

               (B) accept one or more of the offers made by any Lender or
          Lenders pursuant to paragraph (ii) above, in order of the lowest to
          the highest rates of interest or margins (or if two or more Lenders
          bid at the same rate of interest, and the amount of accepted offers is
          less than the aggregate amount of such offers, the amount to be
          borrowed from such Lenders as part of such Competitive Bid Borrowing
          shall be allocated among such Lenders pro rata on the basis of the
                                                --- ----
          maximum amount offered by such Lenders at such rates or margin in
          connection with such Competitive Bid Borrowing), by giving notice to
          the Agent of the amount of each Competitive Bid Advance (which amount
          shall be equal to or greater than the minimum amount, and equal to or
          less than the maximum amount, notified to the Borrower by the Agent on
          behalf of such Lender for such Competitive Bid Advance pursuant to
          paragraph (ii) above) to be made by each Lender as part of such
          Competitive Bid Borrowing, and reject any remaining offers made by
          Lenders pursuant to paragraph (ii) above by giving the Agent notice to
          that effect.

          (iv) If the Borrower notifies the Agent that such Competitive Bid
     Borrowing is cancelled pursuant to subsection (iii)(A) above, the Agent
     shall give prompt notice thereof to the Lenders and such Competitive Bid
     Borrowing shall not be made.

          (v) If the Borrower accepts one or more of the offers made by any
     Lender or Lenders pursuant to paragraph (iii)(B) above, the Agent shall in
     turn promptly notify (A) each Lender that has made an offer as described in
     paragraph (ii) above, of the date and aggregate amount of such Competitive
     Bid Borrowing and whether or not any offer or offers made by such Lender
     pursuant to paragraph (ii) above have been accepted by the Borrower, (B)
     each Lender that is to make a Competitive Bid Advance as part of such
     Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to
     be made by such Lender as part of such Competitive Bid Borrowing, and (C)
     each Lender that is to make a Competitive Bid Advance as part of such
     Competitive Bid Borrowing, upon receipt, that the Agent has received forms
     of documents appearing to fulfill the applicable conditions set forth in
     Section 3.03. Each Lender that is to make a Competitive Bid Advance as part
     of such Competitive Bid Borrowing shall, before 12:00 Noon (New York City
     time) on the date of such Competitive Bid Borrowing specified in the notice
     received from the Agent pursuant to clause (A) of the preceding sentence or
     any later time when such Lender shall have received notice from the Agent
     pursuant to clause (C) of the preceding sentence, make available for the
     account of its Applicable Lending Office to the Agent at the Agent's
     Account, in same day funds, such Lender's portion of such Competitive Bid
     Borrowing. Upon fulfillment of the applicable conditions set forth in
     Section 3.03 and after receipt by the Agent of such funds, the Agent will
     make such funds available to the Borrower at the Agent's address referred
     to in Section 8.02. Promptly after each Competitive Bid Borrowing the Agent
     will notify each Lender of the amount of the Competitive Bid Borrowing, the
     consequent Competitive Bid Reduction and the dates upon which such
     Competitive Bid Reduction commenced and will terminate and the range of
     interest rates with respect to the Competitive Bid Advances made as part of
     such Competitive Bid Borrowing.

          (vi) If the Borrower notifies the Agent that it accepts one or more of
     the offers made by any Lender or Lenders pursuant to paragraph (iii)(y)
     above, such notice of acceptance shall be irrevocable and binding on the
     Borrower. The Borrower shall indemnify each Lender against any loss, cost
     or expense incurred by such Lender as a result of any failure to fulfill on
     or before the date specified in the related Notice of Competitive Bid
     Borrowing for such Competitive Bid Borrowing the applicable conditions set
     forth in Section 3.03, including, without limitation, any loss, cost or
     expense incurred by reason of the liquidation or reemployment of deposits
     or other funds acquired by such Lender to fund the Competitive Bid Advance
     to be made by such Lender as part of such Competitive Bid Borrowing when
     such Competitive Bid Advance, as a result of such failure, is not made on
     such date.

          (b) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (c) below and reborrow under this Section 2.03, provided
                                                                       --------
that a Competitive Bid Borrowing shall not be made within three Business Days of
the date of any other Competitive Bid Borrowing.

                                       14

<PAGE>

          (c) The Borrower shall repay to the Agent for the account of each
Lender that has made a Competitive Bid Advance, on the maturity date of such
Competitive Bid Advance (such maturity date being that specified by the Borrower
for repayment of such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and
provided in the Competitive Bid Note evidencing such Competitive Bid Advance),
the then unpaid principal amount of such Competitive Bid Advance. The Borrower
shall have the right to prepay any Competitive Bid Advance only upon the terms
agreed to in connection with such Competitive Bid Advance.

          (d) The Borrower shall pay interest on the unpaid principal amount of
each Competitive Bid Advance from the date of such Competitive Bid Advance until
the date the principal amount of such Competitive Bid Advance is paid in full at
the rate of interest for such Competitive Bid Advance specified by the Lender
making such Competitive Bid Advance in the notice delivered pursuant to
subsection (a)(ii) above, payable on the interest payment date or dates
specified by the Borrower for such Competitive Bid Advance in the related Notice
of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as
provided in the Competitive Bid Note evidencing such Competitive Bid Advance. At
any time during which the Borrower shall fail (x) to pay any principal of any
Advance, any interest on any Advance or make any other payment in connection
with this Agreement when the same becomes due and payable or (y) to perform or
observe any term, covenant or agreement contained in Section 5.03, the Borrower
shall pay interest on the amount of unpaid principal of and interest on each
Competitive Bid Advance owing to a Lender, payable in arrears on the date or
dates interest is payable thereon, at a rate per annum equal at all times to 2%
per annum above the rate per annum required to be paid on such Competitive Bid
Advance under the terms of the Competitive Bid Note evidencing such Competitive
Bid Advance unless otherwise agreed in such Competitive Bid Note.

          (e) The indebtedness of the Borrower resulting from each Competitive
Bid Advance made to the Borrower as part of a Competitive Bid Borrowing shall be
evidenced by a separate Competitive Bid Note of the Borrower payable to the
order of the Lender making such Competitive Bid Advance.

          (f) Following the making of each Competitive Bid Borrowing, the
Borrower shall be in compliance with the limitation set forth in clause (y) of
the proviso to the first sentence of Section 2.03(a).

          (g) The Borrower shall pay to the Agent for its own account such fees
as may be agreed between the Borrower and the Agent in connection with each
request for a Competitive Bid Borrowing whether or not any Competitive Bid
Borrowing is in fact made.

          SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to pay to
                        ----      ------------
the Agent for the ratable account of each Lender a facility fee on the aggregate
amount of such Lender's Commitment from the date hereof until the Termination
Date at a rate per annum equal to the Applicable Percentage in effect from time
to time, payable in arrears quarterly on the last day of each March, June,
September and December, commencing December 31, 2001, and on the Termination
Date.

          (b) Agent's Fees. The Borrower shall pay to the Agent for its own
              ------------
account such fees as may from time to time be agreed between the Borrower and
the Agent.

          SECTION 2.05. Termination or Reduction of the Commitments. The
                        -------------------------------------------
Borrower shall have the right, upon at least three Business Days' notice to the
Agent, to terminate in whole or permanently reduce ratably in part the unused
portions of the respective Commitments of the Lenders, provided that the
                                                       --------
aggregate amount of the Commitments of the Lenders shall not be reduced to an
amount that is less than the aggregate principal amount of the Competitive Bid
Advances then outstanding, and provided further that each partial reduction
                               -------- -------
shall be in the aggregate amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof.

          SECTION 2.06. Repayment of Revolving Credit Advances. The Borrower
                        --------------------------------------
shall repay to the Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of the Revolving Credit Advances
then outstanding.

                                       15

<PAGE>

          SECTION 2.07. Interest on Revolving Credit Advances. (a) Scheduled
                        -------------------------------------      ---------
Interest. The Borrower shall pay interest on the unpaid principal amount of each
- --------
Revolving Credit Advance owing to each Lender from the date of such Revolving
Credit Advance until such principal amount shall be paid in full, at the
following rates per annum:

          (i) Base Rate Advances. During such periods as such Revolving Credit
              ------------------
     Advance is a Base Rate Advance, a rate per annum equal at all times to the
     sum of (x) the Base Rate in effect from time to time plus (y) the
                                                          ----
     Applicable Margin in effect from time to time plus (z) the Applicable
                                                   ----
     Utilization Fee in effect from time to time, payable in arrears quarterly
     on the last day of each March, June, September and December during such
     periods and on the date such Base Rate Advance shall be Converted or paid
     in full.

          (ii) Eurodollar Rate Advances. During such periods as such Revolving
               ------------------------
     Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all
     times during each Interest Period for such Revolving Credit Advance to the
     sum of (x) the Eurodollar Rate for such Interest Period for such Revolving
     Credit Advance plus (y) the Applicable Margin in effect from time to time
                    ----
     plus (z) the Applicable Utilization Fee in effect from time to time,
     ----
     payable in arrears on the last day of such Interest Period and, if such
     Interest Period has a duration of more than three months, on each day that
     occurs during such Interest Period every three months from the first day of
     such Interest Period and on the date such Eurodollar Rate Advance shall be
     Converted or paid in full.

          (b) Default Interest. At any time during which the Borrower shall fail
              ----------------
(i) to pay any principal of any Advance, any interest on any Advance or make any
other payment in connection with this Agreement when the same becomes due and
payable or (ii) to perform or observe any term, covenant or agreement contained
in Section 5.03, the Agent may, and upon the request of the Required Lenders
shall, require the Borrower to pay interest ("Default Interest") on (i) the
                                              ----------------
unpaid principal amount of each Revolving Credit Advance owing to each Lender,
payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Revolving Credit Advance pursuant to clause (a)(i)
or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of
any interest, fee or other amount payable hereunder that is not paid when due,
from the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Base Rate Advances pursuant to clause (a)(i) above,
provided, however, that following acceleration of the Advances pursuant to
- --------  -------
Section 6.01, Default Interest shall accrue and be payable hereunder whether or
not previously required by the Agent.

          SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank
                        ---------------------------
agrees to furnish to the Agent timely information for the purpose of determining
each Eurodollar Rate. If any one or more of the Reference Banks shall not
furnish such timely information to the Agent for the purpose of determining such
interest rate, the Agent shall determine such interest rate on the basis of
timely information furnished by the remaining Reference Banks.

          (b) The Agent shall give prompt notice to the Borrower and the Lenders
of the applicable interest rate determined by the Agent for purposes of Section
2.07(a)(i) or (ii), and the applicable rate, if any, furnished by each Reference
Bank for the purpose of determining the applicable interest rate under Section
2.07(a)(ii).

          (c) If Telerate Markets Page 3750 is unavailable and fewer than two
Reference Banks furnish timely information to the Agent for determining the
Eurodollar Rate for any Eurodollar Rate Advances,

          (i) the Agent shall forthwith notify the Borrower and the Lenders that
     the interest rate cannot be determined for such Eurodollar Rate Advances,

          (ii) each such Advance will automatically, on the last day of the then
     existing Interest Period therefor, Convert into a Base Rate Advance (or if
     such Advance is then a Base Rate Advance, will continue as a Base Rate
     Advance), and

                                       16

<PAGE>

          (iii) the obligation of the Lenders to make, or to Convert Revolving
     Credit Advances into, Eurodollar Rate Advances shall be suspended until the
     Agent shall notify the Borrower and the Lenders that the circumstances
     causing such suspension no longer exist.

          (d) If, with respect to any Eurodollar Rate Advances, the Required
Lenders notify the Agent that the Eurodollar Rate for any Interest Period for
such Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving
Credit Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.

          (e) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Eurodollar Rate Advances having an Interest Period of one month.

          (f) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.

          (g) Upon the occurrence and during the continuance of any Event of
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.

          SECTION 2.09. Optional Conversion of Revolving Credit Advances. The
                        ------------------------------------------------
Borrower may on any Business Day, upon notice given to the Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12,
Convert all Revolving Credit Advances of one Type comprising the same Borrowing
into Revolving Credit Advances of the other Type; provided, however, that any
                                                  --------  -------
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified for Revolving Credit
Borrowings in Section 2.01 and no Conversion of any Revolving Credit Advances
shall result in more separate Revolving Credit Borrowings than permitted under
Section 2.02(b). Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Revolving
Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for each such
Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower.

          SECTION 2.10. Prepayments of Revolving Credit Advances. The Borrower
                        ----------------------------------------
may, upon notice to the Agent no later than 11:00 A.M. (New York City time) on
the proposed date of the prepayment in the case of Base Rate Advances and on the
second Business Day prior to the proposed date of the prepayment in the case of
Eurodollar Rate Advances, in each case stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the Revolving Credit Advances
comprising part of the same Revolving Credit Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that (x) each partial prepayment
                          --------  -------
shall be in an aggregate principal amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof and (y) in the event of any
such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to Section 8.04(c).

          SECTION 2.11. Increased Costs. (a) If, due to either (i) the
                        ---------------
introduction of or any change in or in the interpretation of any law or
regulation after the date hereof or (ii) the compliance with any guideline or

                                       17

<PAGE>

request from any central bank or other governmental authority (whether or not
having the force of law) issued after the date hereof, there shall be any
increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances (excluding for purposes of this Section
2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to
which Section 2.14 shall govern) and (ii) changes in the basis of taxation of
overall net income or overall gross income by the United States or by the
foreign jurisdiction or state under the laws of which such Lender is organized
or has its Applicable Lending Office or any political subdivision thereof), then
the Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to the Agent), pay to the Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for such increased cost
provided, however, that, any Lender claiming additional amounts under this
- --------  -------
Section 2.12 shall use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Applicable
Lending Office if such change would avoid the need for, or reduce the amount of,
such increased cost that may thereafter accrue and would not, in the reasonable
judgment of such Lender, be otherwise disadvantageous to such Lender. A
certificate as to the amount of such increased cost, submitted to the Borrower
and the Agent by such Lender, shall be conclusive and binding for all purposes,
absent manifest error.

          (b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority enacted or made after the date hereof (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender or any corporation controlling such
Lender and that the amount of such capital is increased by or based upon the
existence of such Lender's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Lender (with a copy of such demand to the
Agent), the Borrower shall pay to the Agent for the account of such Lender, from
time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender or such corporation in the light of such circumstances,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to the Borrower and the Agent by such
Lender shall be conclusive and binding for all purposes, absent manifest error.

          (c) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section 2.11 shall not constitute a waiver of such Lender's
right to demand such compensation; provided that the Borrower shall not be
                                   --------
required to compensate a Lender pursuant to this Section 2.11 for any increased
costs or reductions incurred more than four months prior to the date that such
Lender notifies the Borrower of the change giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the change giving rise to such increased costs or
- -------- -------
reductions is retroactive, than the four-month period referred to above shall be
included to include the period of retroactive effect thereof.

          SECTION 2.12. Illegality. Notwithstanding any other provision of this
                        ----------
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) the obligation of the Lenders to make, or to
Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist and (ii) the Borrower
shall forthwith prepay in full all Eurodollar Rate Advances of all Lenders then
outstanding, together with interest accrued thereon, unless the Borrower, within
five Business Days of notice from the Agent, Converts all Eurodollar Rate
Advances of all Lenders then outstanding into Base Rate Advances in accordance
with Section 2.09.

          SECTION 2.13. Payments and Computations. (a) The Borrower shall make
                        -------------------------
each payment hereunder, irrespective of any right of counterclaim or set-off,
not later than 12:00 Noon (New York City time) on the day when due in U.S.
dollars to the Agent at the Agent's Account in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or facility fees ratably (other than amounts payable
pursuant to Section 2.03, 2.11, 2.14 or 8.04(c)) to the Lenders for the account
of their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender to such Lender for the account
of its Applicable Lending Office, in each case to be applied in accordance with
the terms of this Agreement. Upon any Assuming Lender becoming a Lender
hereunder as a result of an extension of the Termination Date pursuant to
Section 2.18, and upon the Agent's receipt of such Lender's Assumption Agreement
and recording of the information contained therein in the Register, from and
after the

                                       18

<PAGE>

applicable Extension Date, the Agent shall make all payments hereunder and under
any Notes issued in connection therewith in respect of the interest assumed
thereby to the Assuming Lender. Upon its acceptance of an Assignment and
Acceptance and recording of the information contained therein in the Register
pursuant to Section 8.07(c), from and after the effective date specified in such
Assignment and Acceptance, the Agent shall make all payments hereunder and under
the Notes in respect of the interest assigned thereby to the Lender assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.

          (b) All computations of interest based on the Base Rate shall be made
by the Agent on the basis of a year of 365 or 366 days, as the case may be, and
all computations of interest based on the Eurodollar Rate or the Federal Funds
Rate and of facility fees shall be made by the Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest or
facility fees are payable. Each determination by the Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.

          (c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, that, if such extension would cause payment of
        --------  -------
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.

          (d) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.

          SECTION 2.14. Taxes. (a) Any and all payments by the Borrower to or
                        -----
for the account of any Lender or the Agent hereunder or under the Notes or any
other documents to be delivered hereunder shall be made, in accordance with
Section 2.13 or the applicable provisions of such other documents, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, taxes imposed on
         ---------
its overall net income, minimum taxes, alternative minimum taxes, doing business
taxes, franchise taxes and value added taxes imposed on it in lieu of net income
taxes, by the jurisdiction under the laws of which such Lender or the Agent (as
the case may be) is organized (federal or state) or doing business or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, minimum taxes, alternative minimum taxes, doing business
taxes, franchise taxes and value added taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office (federal
or state) or in which such Lender is doing business or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities in respect of payments hereunder or under the Notes
being hereinafter referred to as "Taxes"). If the Borrower shall be required by
                                  -----
law to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note or any other documents to be delivered hereunder to any Lender or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Lender or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.

          (b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Notes or
any other documents to be delivered hereunder or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Notes or any other documents to be delivered

                                       19

<PAGE>

hereunder imposed by the jurisdiction under the laws of which the Borrower is
organized or any political subdivision thereof, or by the jurisdiction in which
the Borrower's principal office is located or from which any payments hereunder
are made (hereinafter referred to as "Other Taxes").
                                      -----------

          (c) The Borrower will indemnify each Lender and the Agent for and hold
it harmless against the full amount of Taxes or Other Taxes (including, without
limitation, taxes of any kind imposed or asserted by any jurisdiction on amounts
payable under this Section 2.14) imposed on or paid by such Lender or the Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Agent (as the case may
be) makes written demand therefor; provided, however, that in no event shall any
                                   --------  -------
such indemnification be due earlier than five Business Days after such Lender or
the Agent (as the case may be) has paid such Taxes or Other Taxes; provided,
                                                                   --------
further, that any such demand shall be accompanied by copies of all
- -------
correspondence to and from the applicable taxing authority and a copy of the
calculation of such Taxes or Other Taxes.

          (d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Agent, at its address referred to in Section 8.02,
the original or a certified copy of a receipt evidencing such payment to the
extent such a receipt is issued therefor, or other written proof of payment
thereof that is reasonably satisfactory to the Agent. In the case of any payment
hereunder or under the Notes or any other documents to be delivered hereunder by
or on behalf of the Borrower through an account or branch outside the United
States or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect thereof,
the Borrower shall furnish, or shall cause such payor to furnish, to the Agent,
at such address, an opinion of counsel reasonably acceptable to the Agent
stating that such payment is exempt from Taxes. For purposes of this subsection
(d) and subsection (e), the terms "United States" and "United States person"
                                   -------------       --------------------
shall have the meanings specified in Section 7701 of the Internal Revenue Code.

          (e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assumption
Agreement or the Assignment and Acceptance pursuant to which it becomes a Lender
in the case of each other Lender, and from time to time thereafter as reasonably
requested in writing by the Borrower (but only so long as such Lender remains
lawfully able to do so), shall provide each of the Agent and the Borrower with
two original Internal Revenue Service forms W-8BEN or W-8ECI, as appropriate, or
any successor or other form prescribed by the Internal Revenue Service,
certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the form provided by a Lender at the time such Lender first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from Taxes unless and until such Lender provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
      --------  -------
pursuant to which a Lender assignee becomes a party to this Agreement, the
Lender assignor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent, the term Taxes shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) United States withholding tax, if any, applicable with respect to the
Lender assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service form W-8BEN or W-8ECI, that the Lender reasonably
considers to be confidential, the Lender shall give notice thereof to the
Borrower and shall not be obligated to include in such form or document such
confidential information.

          (f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form, certificate or other document
described in Section 2.14(e) (other than if such failure is due to a change in
                              ----- ----
law, or in the interpretation or application thereof, occurring subsequent to
the date on which a form, certificate or other document originally was required
to be provided, or if such form, certificate or other document otherwise is not
required under subsection (e) above), such Lender shall not be entitled to
indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
                                             --------  -------
Lender become subject to Taxes because of its failure to deliver a form,
certificate or other document required hereunder, the Borrower shall take such
steps as such Lender shall reasonably request to assist

                                       20

<PAGE>

the Lender to recover such Taxes (and such Lender reimburse the Borrower for
reasonable out-of-pocket costs and expenses of the Borrower in connection
therewith).

          (g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.14 shall use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender, provided, that should the Borrower be required
                                --------
to pay any amounts under Section 2.14(a) or (c), and the Borrower delivers to
each Lender that received such amounts an opinion of counsel that payments to
the Lender or the Agent were not in fact subject to Taxes, each Lender shall use
reasonable efforts to cooperate with the Borrower, including, but not limited to
filing and pursuing a claim of refund in its own name (provided that the
Borrower agrees in writing to indemnify and reimburse such Lender for its actual
out-of-pocket expenses in connection with such claim for refund), in obtaining a
refund of Taxes, and if such Lender receives a refund of Taxes shall promptly
pay such Taxes over to the Borrower.

          (h) If any Lender determines, in its sole discretion, that it has
actually and finally realized, by reason of a refund, deduction or credit of any
Taxes paid or reimbursed by the Borrower pursuant to subjection (a) or (c) above
in respect of payments under the Credit Agreement or the Notes, a current
monetary benefit that it would otherwise not have obtained, and that would
result in the total payments under this Section 2.14 exceeding the amount needed
to make such Lender whole, such Lender shall pay to the Borrower, with
reasonable promptness following the date on which it actually realized such
benefit, an amount equal to the lesser of the amount of such benefit or the
amount of such excess, in each case net of all out-of-pocket expenses in
securing such refund, deduction or credit.

          SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain any
                        ------------------------
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Credit Advances owing to it
(other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable
share of payments on account of the Revolving Credit Advances obtained by all
the Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
                   --------  -------
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.15 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

          SECTION 2.16. Evidence of Debt. (a) Each Lender shall maintain in
                        ----------------
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Revolving Credit
Advance owing to such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder in respect of Revolving Credit Advances. The Borrower agrees that upon
notice by any Lender to the Borrower (with a copy of such notice to the Agent)
to the effect that a Revolving Credit Note is required or appropriate in order
for such Lender to evidence (whether for purposes of pledge, enforcement or
otherwise) the Revolving Credit Advances owing to, or to be made by, such
Lender, the Borrower shall promptly execute and deliver to such Lender a
Revolving Credit Note payable to the order of such Lender in a principal amount
up to the Commitment of such Lender.

          (b) The Register maintained by the Agent pursuant to Section 8.07(d)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, the Type of Advances comprising such Borrowing
and, if appropriate, the Interest Period applicable thereto, (ii) the terms of
each Assumption Agreement and each Assignment and Acceptance delivered to and
accepted by it, (iii) the amount of any principal or interest due and

                                       21

<PAGE>

payable or to become due and payable from the Borrower to each Lender hereunder
and (iv) the amount of any sum received by the Agent from the Borrower hereunder
and each Lender's share thereof.

          (c) Entries made in good faith by the Agent in the Register pursuant
to subsection (b) above, and by each Lender in its account or accounts pursuant
to subsection (a) above, shall be prima facie evidence of the amount of
                                  ----- -----
principal and interest due and payable or to become due and payable from the
Borrower to, in the case of the Register, each Lender and, in the case of such
account or accounts, such Lender, under this Agreement, absent manifest error;
provided, however, that the failure of the Agent or such Lender to make an
- --------  -------
entry, or any finding that an entry is incorrect, in the Register or such
account or accounts shall not limit or otherwise affect the obligations of the
Borrower under this Agreement.

          SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be
                        ---------------
available (and the Borrower agrees that it shall use such proceeds) solely for
working capital and general corporate purposes of the Borrower and its
Subsidiaries (including, without limitation, acquisitions, repayment of debt and
repurchase of stock).

          SECTION 2.18. Extension of Termination Date. (a) At least 30 days but
                        -----------------------------
not more than 45 days prior to the Termination Date, the Borrower, by written
notice to the Agent, may request an extension of the Termination Date in effect
at such time by 364 days from its then scheduled expiration. The Agent shall
promptly notify each Lender of such request, and each Lender shall in turn, in
its sole discretion, not later than 20 days prior to the Termination Date,
notify the Borrower and the Agent in writing as to whether such Lender will
consent to such extension. If any Lender shall fail to notify the Agent and the
Borrower in writing of its consent to any such request for extension of the
Termination Date at least 20 days prior to the Termination Date, such Lender
shall be deemed to be a Non-Consenting Lender with respect to such request. The
Agent shall notify the Borrower not later than 15 days prior to the Termination
Date of the decision of the Lenders regarding the Borrower's request for an
extension of the Termination Date.

          (b) If all the Lenders consent in writing to any such request in
accordance with subsection (a) of this Section 2.18, the Termination Date in
effect at such time shall, effective as at the Termination Date (the "Extension
                                                                      ---------
Date"), be extended for 364 days; provided that on each Extension Date the
- ----                              --------
applicable conditions set forth in Section 3.02 shall be satisfied. If less than
all of the Lenders consent in writing to any such request in accordance with
subsection (a) of this Section 2.18, the Termination Date in effect at such time
shall, effective as at the applicable Extension Date and subject to subsection
(d) of this Section 2.18, be extended as to those Lenders that so consented
(each a "Consenting Lender") but shall not be extended as to any other Lender
         -----------------
(each a "Non-Consenting Lender"). To the extent that the Termination Date is not
         ---------------------
extended as to any Lender pursuant to this Section 2.18 and the Commitment of
such Lender is not assumed in accordance with subsection (c) of this Section
2.18 on or prior to the applicable Extension Date, the Commitment of such
Non-Consenting Lender shall automatically terminate in whole on such unextended
Termination Date without any further notice or other action by the Borrower,
such Lender or any other Person; provided that such Non-Consenting Lender's
                                 --------
rights under Sections 2.11, 2.14 and 8.04, and its obligations under Section
7.05, shall survive the Termination Date for such Lender as to matters occurring
prior to such date. It is understood and agreed that no Lender shall have any
obligation whatsoever to agree to any request made by the Borrower for any
requested extension of the Termination Date.

          (c) If less than all of the Lenders consent to any such request
pursuant to subsection (a) of this Section 2.18, the Agent shall promptly so
notify the Consenting Lenders, and each Consenting Lender may, in its sole
discretion, give written notice to the Agent not later than 10 days prior to the
Termination Date of the amount of the Non-Consenting Lenders' Commitments for
which it is willing to accept an assignment. If the Consenting Lenders notify
the Agent that they are willing to accept assignments of Commitments in an
aggregate amount that exceeds the amount of the Commitments of the
Non-Consenting Lenders, such Commitments shall be allocated among the Consenting
Lenders willing to accept such assignments in such amounts as are agreed between
the Borrower and the Agent. If after giving effect to the assignments of
Commitments described above there remains any Commitments of Non-Consenting
Lenders, the Borrower may arrange for one or more Consenting Lenders or other
Eligible Assignees (each, an "Assuming Lender") to assume, effective as of the
                              ---------------
Extension Date and by execution and delivery of an agreement in form and
substance satisfactory to the Agent and the Borrower (an "Assumption
                                                          ----------
Agreement"), any Non-Consenting Lender's Commitment and all of the obligations
- ---------
of such Non-Consenting Lender under this Agreement thereafter arising, without
recourse to or warranty by, or expense to, such

                                       22

<PAGE>

Non-Consenting Lender; provided, however, that the amount of the Commitment of
                       --------  -------
any such Assuming Lender as a result of such substitution shall in no event be
less than $5,000,000 unless the amount of the Commitment of such Non-Consenting
Lender is less than $5,000,000, in which case such Assuming Lender shall assume
all of such lesser amount; and provided further that:
                               -------- -------

          (i) any such Consenting Lender or Assuming Lender shall have paid to
     such Non-Consenting Lender (A) the aggregate principal amount of, and any
     interest accrued and unpaid to the effective date of the assignment on, the
     outstanding Advances, if any, of such Non-Consenting Lender plus (B) any
                                                                 ----
     accrued but unpaid facility fees owing to such Non-Consenting Lender as of
     the effective date of such assignment;

          (ii) all additional costs reimbursements, expense reimbursements and
     indemnities payable to such Non-Consenting Lender, and all other accrued
     and unpaid amounts owing to such Non-Consenting Lender hereunder, as of the
     effective date of such assignment shall have been paid to such
     Non-Consenting Lender; and

          (iii) with respect to any such Assuming Lender, the applicable
     processing and recordation fee required under Section 8.07(a) for such
     assignment shall have been paid;

provided further that such Non-Consenting Lender's rights under Sections 2.11,
- -------- -------
2.14 and 8.04, and its obligations under Section 7.05, shall survive such
substitution as to matters occurring prior to the date of substitution. At least
three Business Days prior to any Extension Date, (A) each such Assuming Lender,
if any, shall have delivered to the Borrower and the Agent an Assumption
Agreement, duly executed by such Assuming Lender, such Non-Consenting Lender,
the Borrower and the Agent, (B) any such Consenting Lender shall have delivered
confirmation in writing satisfactory to the Borrower and the Agent as to the
increase in the amount of its Commitment and (C) each Non-Consenting Lender
being replaced pursuant to this Section 2.18 shall have delivered to the Agent
any Note or Notes held by such Non-Consenting Lender. Upon the payment or
prepayment of all amounts referred to in clauses (i), (ii) and (iii) of the
immediately preceding sentence, each such Consenting Lender or Assuming Lender,
as of the Extension Date, will be substituted for such Non-Consenting Lender
under this Agreement and shall be a Lender for all purposes of this Agreement,
without any further acknowledgment by or the consent of the other Lenders, and
the obligations of each such Non-Consenting Lender hereunder shall, by the
provisions hereof, be released and discharged.

          (d) If (after giving effect to any assignments or assumptions pursuant
to subsection (c) of this Section 2.18) Lenders having Commitments equal to at
least 50% of the Commitments in effect immediately prior to the Extension Date
consent in writing to a requested extension (whether by execution or delivery of
an Assumption Agreement or otherwise) not later than one Business Day prior to
such Extension Date, the Agent shall so notify the Borrower, and, subject to the
satisfaction to the applicable conditions in Section 3.02, the Termination Date
then in effect shall be extended for the additional 364-day period as described
in subsection (a) of this Section 2.18, and all references in this Agreement,
and in the Notes, if any, to the "Termination Date" shall, with respect to each
                                  ----------------
Consenting Lender and each Assuming Lender for such Extension Date, refer to the
Termination Date as so extended. Promptly following each Extension Date, the
Agent shall notify the Lenders (including, without limitation, each Assuming
Lender) of the extension of the scheduled Termination Date in effect immediately
prior thereto and shall thereupon record in the Register the relevant
information with respect to each such Consenting Lender and each such Assuming
Lender.

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

          SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01
                        ------------------------------------------------------
and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and
- --------
as of the first date (the "Effective Date") on which the following conditions
                           --------------
precedent have been satisfied:

          (a) There shall have occurred no Material Adverse Change since
     December 31, 2000.

                                       23

<PAGE>

          (b) There shall exist no action, suit, investigation, litigation or
     proceeding affecting the Borrower or any of its Subsidiaries pending or, to
     the best knowledge of the Borrower, threatened before any court,
     governmental agency or arbitrator that (i) could be reasonably likely to
     have a Material Adverse Effect, except as set forth in Schedule 3.01(b)
     (the "Disclosed Litigation") or i) purports to affect the legality,
           --------------------
     validity or enforceability of this Agreement or any Note or the
     consummation of the transactions contemplated hereby, and there shall have
     been no material adverse change in the status or financial effect on the
     Borrower or any of its Subsidiaries, of the Disclosed Litigation from that
     described on Schedule 3.01(b).

          (c) All governmental and third party consents and approvals necessary
     in connection with the transactions contemplated hereby shall have been
     obtained (without the imposition of any conditions that are not reasonably
     acceptable to the Lenders) and shall remain in effect, and no law or
     regulation shall be applicable in the reasonable judgment of the Lenders
     that restrains, prevents or imposes materially adverse conditions upon the
     transactions contemplated hereby.

          (d) The Borrower shall have notified each Lender and the Agent in
     writing as to the proposed Effective Date.

          (e) The Borrower shall have paid all accrued fees and expenses of the
     Agent and the Arrangers (including the accrued fees and expenses of counsel
     to the Agent and the Arrangers then due and payable).

          (f) On the Effective Date, the following statements shall be true and
     the Agent shall have received for the account of each Lender a certificate
     signed by a duly authorized officer of the Borrower, dated the Effective
     Date, stating that:

               (i) the representations and warranties contained in Section 4.01
          are correct on and as of the Effective Date; and

               (ii) no event has occurred and is continuing that constitutes a
          Default.

          (g) The Agent shall have received on or before the Effective Date the
     following, each dated such day, in form and substance satisfactory to the
     Agent and (except for the Revolving Credit Notes) in sufficient copies for
     each Lender:

               (i) The Revolving Credit Notes to the order of the Lenders to the
          extent requested by any Lender pursuant to Section 2.16.

               (ii) Certified copies of the resolutions of the Board of
          Directors of the Borrower approving this Agreement and the Notes, and
          of all documents evidencing other necessary corporate action and
          governmental approvals, if any, with respect to this Agreement and the
          Notes.

               (iii) A certificate of the Secretary or an Assistant Secretary of
          the Borrower certifying the names and true signatures of the officers
          of the Borrower authorized to sign this Agreement and the Notes and
          the other documents to be delivered hereunder.

               (iv) A favorable opinion of Womble Carlyle Sandridge & Rice,
          PLLC, special counsel for the Borrower, substantially in the form of
          Exhibit E hereto and as to such other matters as any Lender through
          the Agent may reasonably request.

               (v) A favorable opinion of Shearman & Sterling, counsel for the
          Agent, in form and substance satisfactory to the Agent.

                                       24

<PAGE>

          (h) The Borrower shall have terminated the commitments, and paid in
     full all Debt, interest, fees and other amounts outstanding under the
     Amended and Restated Revolving Credit Agreement dated as of April 11, 1997,
     as amended, among the Borrower, the lenders parties thereto and Citibank,
     as administrative agent, and each of the Lenders that is a party to such
     Amended and Restated Revolving Credit Agreement hereby waives the
     requirement of three Business Days' prior notice to the termination of
     their commitments thereunder as provided in Section 2.06 of said agreement.

          SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing
                        -------------------------------------------------------
and Extension Date. The obligation of each Lender to make a Revolving Credit
- ------------------
Advance on the occasion of each Revolving Credit Borrowing and each extension of
Commitments pursuant to Section 2.18 shall be subject to the conditions
precedent that the Effective Date shall have occurred and on the date of such
Revolving Credit Borrowing or the applicable Extension Date (a) the following
statements shall be true (and each of the giving of the applicable Notice of
Revolving Credit Borrowing request for Commitment Extension and the acceptance
by the Borrower of the proceeds of such Revolving Credit Borrowing shall
constitute a representation and warranty by the Borrower that on the date of
such Borrowing or such Extension Date such statements are true):

          (i) the representations and warranties contained in Section 4.01
     (except, in the case of Revolving Credit Borrowings, the representations
     set forth in subsection (e) and subsection (f)(i) thereof) are correct on
     and as of such date, before and after giving effect to such Revolving
     Credit Borrowing or such Extension Date and to the application of the
     proceeds therefrom, as though made on and as of such date, and

          (ii) no event has occurred and is continuing, or would result from
     such Revolving Credit Borrowing or such Extension Date or from the
     application of the proceeds therefrom, that constitutes a Default;

and (b) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.

          SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.
                        ------------------------------------------------------
The obligation of each Lender that is to make a Competitive Bid Advance on the
occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as
part of such Competitive Bid Borrowing is subject to the conditions precedent
that the Effective Date shall have occurred and (a) the Agent shall have
received the written confirmatory Notice of Competitive Bid Borrowing with
respect thereto, (b) on or before the date of such Competitive Bid Borrowing,
but prior to such Competitive Bid Borrowing, the Agent shall have received a
Competitive Bid Note payable to the order of such Lender for each of the one or
more Competitive Bid Advances to be made by such Lender as part of such
Competitive Bid Borrowing, in a principal amount equal to the principal amount
of the Competitive Bid Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Competitive Bid Advance in accordance with
Section 2.03, and (iii) on the date of such Competitive Bid Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the
proceeds of such Competitive Bid Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Competitive Bid Borrowing such
statements are true):

          (i) the representations and warranties contained in Section 4.01
     (except the representations set forth in subsection (e) and subsection
     (f)(i) thereof) are correct on and as of the date of such Competitive Bid
     Borrowing, before and after giving effect to such Competitive Bid Borrowing
     and to the application of the proceeds therefrom, as though made on and as
     of such date, and

          (ii) no event has occurred and is continuing, or would result from
     such Competitive Bid Borrowing or from the application of the proceeds
     therefrom, that constitutes a Default.

          SECTION 3.04. Determinations Under Section 3.01. For purposes of
                        ---------------------------------
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions

                                       25

<PAGE>

contemplated by this Agreement shall have received notice from such Lender prior
to the date that the Borrower, by notice to the Lenders, designates as the
proposed Effective Date, specifying its objection thereto. The Agent shall
promptly notify the Lenders, with a copy to the Borrower, of the occurrence of
the Effective Date.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          SECTION 4.01. Representations and Warranties of the Borrower. The
                        ----------------------------------------------
Borrower represents and warrants as follows:

          (a) The Borrower is a corporation duly organized, validly existing and
     in good standing under the laws of the State of North Carolina.

          (b) The execution, delivery and performance by the Borrower of this
     Agreement and the Notes to be delivered by it, and the consummation of the
     transactions contemplated hereby, are within the Borrower's corporate
     powers, have been duly authorized by all necessary corporate action, and do
     not contravene (i) the Borrower's charter or by-laws or (ii) law or any
     material contractual restriction binding on or affecting the Borrower or,
     to the actual knowledge of a responsible officer of the Borrower, any other
     contractual restriction binding on or affecting the Borrower.

          (c) No authorization or approval or other action by, and no notice to
     or filing with, any governmental authority, regulatory body or any other
     third party is required for the due execution, delivery and performance by
     the Borrower of this Agreement or the Notes to be delivered by it.

          (d) This Agreement has been, and each of the Notes to be delivered by
     it when delivered hereunder will have been, duly executed and delivered by
     the Borrower. This Agreement is, and each of the Notes when delivered
     hereunder will be, the legal, valid and binding obligation of the Borrower
     enforceable against the Borrower in accordance with their respective terms;
     provided that the enforceability hereof and thereof is subject in each case
     --------
     to general principles of equity and to bankruptcy, insolvency and similar
     laws affecting the enforcement of creditors' rights generally.

          (e) The Consolidated balance sheet of the Borrower and its
     Subsidiaries as at December 31, 2000, and the related Consolidated
     statements of income and cash flows of the Borrower and its Subsidiaries
     for the fiscal year then ended, accompanied by an opinion of Arthur
     Andersen L.L.P., independent public accountants, and the Consolidated
     balance sheet of the Borrower and its Subsidiaries as at June 30, 2001, and
     the related Consolidated statements of income and cash flows of the
     Borrower and its Subsidiaries for the six months then ended, duly certified
     by the chief financial officer of the Borrower, copies of which have been
     furnished to each Lender, fairly present, subject, in the case of said
     balance sheet as at June 30, 2001, and said statements of income and cash
     flows for the six months then ended, to year-end audit adjustments, the
     Consolidated financial condition of the Borrower and its Subsidiaries as at
     such dates and the Consolidated results of the operations of the Borrower
     and its Subsidiaries for the periods ended on such dates, all in accordance
     with generally accepted accounting principles consistently applied. Since
     December 31, 2000, there has been no Material Adverse Change.

          (f) There is no pending or, to the knowledge of the Borrower,
     threatened action or proceeding, including, without limitation, any
     Environmental Action, affecting the Borrower or any of its Subsidiaries
     before any court, governmental agency or arbitrator that (i) could be
     reasonably likely to have a Material Adverse Effect (other than the
     Disclosed Litigation), and since the date of Schedule 3.01(b) was prepared
     there has been no material adverse change in the status, or financial
     effect on the Borrower or any of its Subsidiaries, of the Disclosed
     Litigation from that described in Schedule 3.01(b) or (ii) purports to
     affect the legality, validity or enforceability of this Agreement or any
     Note or the consummation of the transactions contemplated hereby.

                                       26

<PAGE>

          (g) No written information, report, financial statement, exhibit or
     schedule furnished by or on behalf of the Borrower to the Agent or any
     Lender in connection with the negotiation of this Agreement or included
     herein or delivered pursuant hereto contained or contains any material
     misstatement of fact or omitted or omits to state any material fact
     necessary to make the statements therein, in the light of the circumstances
     under which they were or are made, not misleading.

          (h) The Borrower is not engaged in the business of extending credit
     for the purpose of purchasing or carrying margin stock (within the meaning
     of Regulation U issued by the Board of Governors of the Federal Reserve
     System).

          (i) (A) Except as set forth in Schedule 4.01(i), the operations and
     properties of the Borrower and each of its Subsidiaries comply in all
     material respects with all Environmental Laws, all material and necessary
     Environmental Permits have been obtained and are in effect for the
     operations and properties of the Borrower and each of its Subsidiaries, and
     the Borrower and each of its Subsidiaries are in compliance in all material
     respects with all such Environmental Permits.

          (B) Except as set forth in the Borrower's Form 10-K for 2000 and in
     Schedule 4.01(i), to the knowledge of the Borrower, there are no
     circumstances that are reasonably likely to form the basis of an
     Environmental Action against the Borrower or any of its Subsidiaries that
     could be reasonably likely to have a Material Adverse Effect.

          (j) Except as set forth in Schedule 4.01(i), none of the properties
     currently or formerly owned or operated by the Borrower or any of its
     Subsidiaries is listed or, to the knowledge of the Borrower, proposed for
     listing on the National Priorities List under CERCLA (the "NPL") or on the
                                                                ---
     Comprehensive Environmental Response, Compensation and Liability
     Information System maintained by the U.S. Environmental Protection Agency
     ("CERCLIS") or any analogous state list if such listing or proposed listing
       -------
     could reasonably be likely to have a Material Adverse Effect.

          (k) Except as set forth in Schedule 4.01(i), to the knowledge of the
     Borrower, neither the Borrower nor any of its Subsidiaries has transported
     or arranged for the transportation of any Hazardous Materials to any
     location that is listed or proposed for listing on the NPL or on the
     CERCLIS, which could reasonably be likely to lead to claims against the
     Borrower or such Subsidiary for any remedial work, damage to natural
     resources or personal injury that have, or could reasonably be likely to
     have, a Material Adverse Effect.

          (l) No ERISA Event has occurred or is reasonably expected to occur
     with respect to any Plan.

          (m) Neither the Borrower nor any of its ERISA Affiliates has incurred
     or is reasonably expected to incur any Withdrawal Liability to any
     Multiemployer Plan.

          (n) Neither the Borrower nor any of its ERISA Affiliates has been
     notified by the sponsor of a Multiemployer Plan that such Multiemployer
     Plan is in reorganization or has been terminated, within the meaning of
     Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to
     be in reorganization or to be terminated, within the meaning of Title IV of
     ERISA.

          (o) Except as set forth in Schedule 4.01(o), as of the date indicated
     on Schedule 4.01(o) the Borrower and its Subsidiaries have no material
     liability with respect to "accumulated post-retirement benefit obligations"
     within the meaning of Statement of Financial Accounting Standards No. 106.

          (p) Schedule B (Actuarial Information) to the most recent annual
     report (Form 5500 Series) for each Plan, copies of which have been filed
     with the Internal Revenue Service and, if requested, furnished to the Agent
     pursuant to Section 5.01(l)(ix) hereof, is complete and accurate in all
     material

                                       27

<PAGE>

     respects and fairly presents the funding status of such Plan, and since the
     date of such Schedule B there has been no material adverse change in such
     funding status.

          (q) The Borrower is not an "investment company", or a company
     "controlled" by an "investment company", within the meaning of the
     Investment Company Act of 1940, as amended.

                                    ARTICLE V

                            COVENANTS OF THE BORROWER

          SECTION 5.01. Affirmative Covenants. So long as any Advance shall
                        ---------------------
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:

          (a) Compliance with Laws, Etc. Comply, and cause each of its
              -------------------------
     Subsidiaries to comply in all material respects, with all applicable laws,
     rules, regulations and orders, such compliance to include, without
     limitation, compliance with (i) ERISA and (ii) Environmental Laws to the
     extent set forth in Section 5.01(d).

          (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
              ---------------------
     Subsidiaries to pay and discharge, before the same shall become delinquent,
     (i) all federal and other material taxes, assessments and governmental
     charges or levies imposed upon it or upon its property and (ii) all lawful
     claims that, if unpaid, might by law become a Lien upon its property;
     provided, however, that neither the Borrower nor any of its Subsidiaries
     --------  -------
     shall be required to pay or discharge any such tax, assessment, charge or
     claim that is being contested in good faith and by proper proceedings and
     as to which appropriate reserves, if any, to the extent required in
     accordance with GAAP, are being maintained.

          (c) Payment of Obligations. Pay, discharge or otherwise satisfy at or
              ----------------------
     before maturity or before they become delinquent, as the case may be, all
     its material obligations of whatever nature, or in the case of any trade
     payable before such trade payable becomes Debt, except where the amount or
     validity thereof is currently being contested in good faith and by
     appropriate proceedings and as to which appropriate reserves, if any, to
     the extent required in accordance with GAAP, are being maintained.

          (d) Compliance with Environmental Laws. (i) Comply and cause each of
              ----------------------------------
     its Subsidiaries to comply, in all material respects, with all
     Environmental Laws and Environmental Permits that are material to the
     conduct of the business of the Borrower or any of its Subsidiaries or
     necessary for their operations and properties, and (ii) obtain and renew,
     and cause each of its Subsidiaries to obtain and renew, all Environmental
     Permits that are material to the conduct of the business of the Borrower or
     any of its Subsidiaries or necessary for their operations and properties;
     except, with respect to (i) and (ii) above, to the extent that any such
     Environmental Law or the terms of any Environmental Permit are being
     contested in good faith and by proper proceedings and as to which
     appropriate reserves, if any, to the extent required in accordance with
     GAAP, are being maintained.

          (e) Maintenance of Insurance. Maintain, and cause each of its
              ------------------------
     Subsidiaries to maintain, insurance (including self-insurance, in amounts
     consistent with industry practice and custom) with responsible insurance
     companies or associations in such amounts and covering such risks as is
     usually carried by companies engaged in similar businesses and owning
     similar properties in the same general areas in which the Borrower or such
     Subsidiary operates.

          (f) Preservation of Corporate Existence, Etc. Preserve and maintain,
              ----------------------------------------
     and cause each of its Subsidiaries to preserve and maintain, its corporate
     existence, rights (charter and statutory) and franchises; provided,
                                                               --------
     however, that the Borrower and its Subsidiaries may consummate any merger
     -------
     or consolidation permitted under Section 5.02(b) and provided further that
                                                          -------- -------
     neither the Borrower nor any of its Subsidiaries shall be required to
     preserve any right or franchise or the corporate existence of any
     Subsidiary of the

                                       28

<PAGE>

     Borrower if the Board of Directors of the Borrower or such Subsidiary shall
     determine that the preservation thereof is no longer desirable in the
     conduct of the business of the Borrower or such Subsidiary, as the case may
     be, and that the loss thereof is not disadvantageous in any material
     respect to the Borrower and its Subsidiaries taken as a whole or the
     Lenders.

          (g) Visitation Rights. At any reasonable time and from time to time,
              -----------------
     upon reasonable prior notice, permit the Agent or, subject to the proviso
     hereto, any of the Lenders or any agents or representatives thereof to
     examine and make copies of and abstracts from the records and books of
     account of, and visit the properties of the Borrower and any of its
     Subsidiaries, as shall be reasonably requested, and to discuss the affairs,
     finances and accounts of the Borrower and any of its Subsidiaries with any
     of their officers and with their independent certified public accountants,
     provided, that unless (x) an Event of Default has occurred and is
     --------
     continuing or (y) the Public Debt Rating assigned by S&P is lower than BBB-
     and the Public Debt Rating assigned by Moody's is lower than Baa3, the
     Borrower shall not be required to comply with this subsection (g) with
     respect to any of the Lenders or any agents or representatives thereof
     (other than the Agent).

          (h) Keeping of Books. Keep, and cause each of its Subsidiaries to
              ----------------
     keep, proper books of record and account, in which appropriate entries that
     are correct in all material respects shall be made, of all financial
     transactions and the assets and business of the Borrower and each such
     Subsidiary so as to permit preparation of their Consolidated financial
     statements in accordance with GAAP.

          (i) Maintenance of Properties, Etc. Maintain and preserve, and cause
              ------------------------------
     each of its Subsidiaries to maintain and preserve, all of its properties
     that are necessary or, in the reasonable judgment of the Borrower or such
     Subsidiary, useful in the conduct of its business in good working order and
     condition, ordinary wear and tear excepted.

          (j) Transactions with Affiliates. Conduct, and cause each of its
              ----------------------------
     Subsidiaries to conduct, all transactions otherwise permitted under this
     Agreement with any of their Affiliates on terms that are fair and
     reasonable and no less favorable to the Borrower or such Subsidiary than it
     would obtain in a comparable arm's-length transaction with a Person not an
     Affiliate other than:

               (i) transactions among the Borrower and any of its wholly owned
          Subsidiaries; and

               (ii) transactions among wholly owned Subsidiaries of the
          Borrower.

          (k) Reporting Requirements. Furnish to the Lenders:
              ----------------------

               (i) as soon as aviailable and in any event within 60 days after
          the end of each of the first three quarters of each fiscal year of the
          Borrower, Consolidated balance sheets of the Borrower and its
          Subsidiaries as of the end of such quarter and Consolidated statements
          of income and cash flows of the Borrower and its Subsidiaries for the
          period commencing at the end of the previous fiscal year and ending
          with the end of such quarter, duly certified (subject to year-end
          audit adjustments) by the chief financial officer of the Borrower as
          having been prepared in accordance with GAAP;

               (ii) as soon as available and in any event within 90 days after
          the end of each fiscal year of the Borrower, a copy of the annual
          audit report for such year for the Borrower and its Subsidiaries,
          containing Consolidated balance sheets of the Borrower and its
          Subsidiaries as of the end of such fiscal year and Consolidated
          statements of income and cash flows of the Borrower and its
          Subsidiaries for such fiscal year, in each case accompanied by an
          opinion reasonably acceptable to the Required Lenders by Arthur
          Andersen L.L.P. or other independent public accountants acceptable to
          the Required Lenders;

                                       29

<PAGE>

               (iii) together with the financial statements required to be
          delivered in accordance with clauses (i) and (ii) above, (A) a
          certificate of the chief financial officer of the Borrower stating
          that no Default has occurred and is continuing or, if a Default has
          occurred and is continuing, a statement as to the nature thereof and
          the action that the Borrower has taken and proposes to take with
          respect thereto and (B) a schedule in form and substance satisfactory
          to the Agent of the computations used by the Borrower in determining
          compliance with the covenants contained in Section 5.03;

               (iv) promptly after the Borrower becomes aware of and in any
          event within five Business Days after becoming aware of each Default,
          continuing on the date of such statement, a statement of the chief
          financial officer of the Borrower setting forth details of such
          Default and the action that the Borrower has taken and proposes to
          take with respect thereto;

               (v) promptly after the sending or filing thereof, copies of all
          reports that the Borrower sends to any of its securityholders, and
          copies of all reports and registration statements that the Borrower or
          any Subsidiary files with the Securities and Exchange Commission or
          any national securities exchange;

               (vi) promptly after the Borrower becomes aware of the
          commencement thereof, notice of all actions and proceedings before any
          court, governmental agency or arbitrator affecting the Borrower or any
          of its Subsidiaries of the type described in the first sentence of
          Section 4.01(f);

               (vii) promptly and in any event within 10 days after the Borrower
          or any of its ERISA Affiliates knows that any ERISA Event has
          occurred, a statement of the chief financial officer of the Borrower
          describing such ERISA Event and the action, if any, that the Borrower
          or such ERISA Affiliate has taken and proposes to take with respect
          thereto;

               (viii) promptly and in any event within three Business Days after
          receipt thereof by the Borrower or any of its ERISA Affiliates, copies
          of each notice from the PBGC stating its intention to terminate any
          Plan or to have a trustee appointed to administer any such Plan;

               (ix) upon the request of the Agent after the filing thereof with
          the Internal Revenue Service, copies of each Schedule B (Actuarial
          Information) to the annual report (Form 5500 Series) with respect to
          each Plan;

               (x) promptly and in any event within five Business Days after
          receipt thereof by the Borrower or any of its ERISA Affiliates from
          the sponsor of a Multiemployer Plan, copies of each notice concerning
          (x) the imposition of Withdrawal Liability by any such Multiemployer
          Plan, (y) the reorganization or termination, within the meaning of
          Title IV of ERISA, of any such Multiemployer Plan or (z) the amount of
          liability incurred, or that may be incurred, by the Borrower or any of
          its ERISA Affiliates in connection with any event described in clause
          (x) or (y);

               (xi) as soon as practical and in any event promptly after the
          receipt thereof by the Borrower, copies of all written claims,
          complaints, notices or inquiries relating to compliance by the
          Borrower or any of its Subsidiaries with any Environmental Law or
          Environmental Permit that could reasonably be likely to have a
          Material Adverse Effect or could reasonably be likely to (x) form the
          basis of an Environmental Action against the Borrower or any of its
          Subsidiaries or such property that could reasonably be likely to have
          a Material Adverse Effect or (y) cause any such property to be subject
          to any restrictions on ownership, occupancy, use or transferability
          under any Environmental Law that could reasonably be likely to have a
          Material Adverse Effect; and

                                       30

<PAGE>

               (xii) such other information respecting the condition or
          operations, financial or otherwise, of the Borrower or any of its
          Subsidiaries as any Lender through the Agent may from time to time
          reasonably request.

          Notwithstanding any of the foregoing, at any time when the Borrower is
subject to the reporting requirements of Section 13(a)(2) of the Securities
Exchange Act of 1934, the Borrower shall be deemed to have complied with the
requirements of clauses (i), (ii) and (v) above, if the Borrower shall include
such information in timely filings made with the Securities and Exchange
Commission by the Borrower.

          SECTION 5.02. Negative Covenants. So long as any Advance shall remain
                        ------------------
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:

          (a) Liens, Etc. Create or suffer to exist, or permit any of its
              ----------
     Subsidiaries to create or suffer to exist, any Lien on or with respect to
     any of its properties, whether now owned or hereafter acquired, or assign,
     or permit any of its Subsidiaries to assign, any right to receive income,
     other than:

               (i) Permitted Liens,

               (ii) purchase money Liens upon or in any property acquired or
          held by the Borrower or any Subsidiary in the ordinary course of
          business to secure the purchase price of such property or to secure
          Debt incurred solely for the purpose of financing the acquisition of
          such property, or Liens existing on such property at the time of its
          acquisition (other than any such Lien created in contemplation of such
          acquisition) or extensions, renewals or replacements of any of the
          foregoing for the same or a lesser amount; provided, however, that no
                                                     --------  -------
          such Lien shall extend to or cover any property other than the
          property being acquired, and no such extension, renewal or replacement
          shall extend to or cover any property not theretofore subject to the
          Lien being extended, renewed or replaced,

               (iii) Liens on property of a Person existing at the time such
          Person is merged into or consolidated with the Borrower or any
          Subsidiary of the Borrower or becomes a Subsidiary of the Borrower;
          provided that such Liens were not created in contemplation of such
          --------
          merger, consolidation or acquisition and do not extend to any assets
          other than those of the Person so merged into or consolidated with the
          Borrower or such Subsidiary or acquired by the Borrower or such
          Subsidiary,

               (iv) the Liens described on Schedule 5.02(a),

               (v) the replacement, extension or renewal of any Lien permitted
          by clauses (ii), (iii) and (iv) above upon or in the same property
          theretofore subject thereto or the replacement, extension or renewal
          (without increase in the amount or change in any direct or contingent
          obligor) of the Debt secured thereby,

               (vi) Liens on margin stock (as defined in Regulation U issued by
          the Board of Governors of the Federal Reserve Bank) to the extent that
          such margin stock exceeds 25% of the value of all assets subject to
          this Section 5.02(a); and

               (vii) other Liens securing Debt; provided that the principal
                                                --------
          amount of Debt secured pursuant to this clause (vii), together with
          the principal amount of Debt permitted to be outstanding in accordance
          with Section 5.02(d)(vi), shall not in the aggregate at any time
          outstanding exceed 15% of the Consolidated Tangible Net Worth of the
          Borrower and its Subsidiaries.

          (b) Mergers, Etc. Merge or consolidate with or into, or convey,
              ------------
     transfer, lease or otherwise dispose of (whether in one transaction or in a
     series of transactions) all or substantially all of its assets

                                       31

<PAGE>

     (whether now owned or hereafter acquired) to, any Person, or permit any of
     its Subsidiaries to do so, except that (i) any wholly owned Subsidiary of
     the Borrower may merge or consolidate with or into, or dispose of all or
     substantially all of its assets to, any other wholly owned Subsidiary of
     the Borrower, (ii) any wholly owned Subsidiary of the Borrower may merge
     into or dispose of all or substantially all of its assets to the Borrower,
     and (iii) the Borrower may merge with any other Person, provided in each
                                                             --------
     case that no Default shall have occurred and be continuing at the time of
     such proposed transaction or would result therefrom and, in the case of any
     merger to which the Borrower is a party, (A) the Borrower is the surviving
     corporation, (B) after giving effect to the consummation of such merger,
     the Borrower shall be in compliance with the covenants set forth in Section
     5.03 (calculated on a pro forma basis, as of the date of the consummation
     of such merger) and (C) the Borrower shall be in the same line of business
     as conducted by it immediately prior to such merger.

          (c) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
              ---------------------
     of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
     dispose of, any assets, or grant any option or other right to purchase,
     lease or otherwise acquire any assets, except (i) as permitted by Section
     5.02(b), (ii) any such sale, lease, transfer or disposition that is made in
     the ordinary course of its business, (iii) any such sale, lease, transfer
     or disposition by a Subsidiary of the Borrower to the Borrower or to
     another wholly owned Subsidiary of the Borrower (whether by dissolution,
     liquidation or otherwise), (iv) any such sale, lease transfer or
     disposition to the extent the net book value of any single asset sold,
     leased, transferred or disposed of from and after the date hereof in any
     given calendar year pursuant to this clause (iv) is less than $2,000,000,
     and the aggregate of all such single assets sold, leased, transferred or
     disposed of from and after the date hereof in any given calendar year
     pursuant to this clause (iv) is less than $10,000,000 and (v) any such
     sale, lease, transfer or disposition to the extent the net book value of
     all assets sold, leased, transferred or disposed of from and after the date
     hereof pursuant to this clause (v) does not exceed the greater of (x) in
     any calendar year an amount equal to the greater of an amount equal to 10%
     of the Borrower's Consolidated Assets or $160,000,000 or (y) in the
     aggregate from and after the date hereof the greater of an amount equal to
     25% of the Borrower's Consolidated Assets or $400,000,000, in each case
     measured as of the last day of the most recent Fiscal Quarter of the
     Borrower ended on or prior to such date of determination.

          (d) Subsidiary Debt. Permit any of its Subsidiaries to create or
              ---------------
     suffer to exist, any Debt other than:

               (i) Debt owed to the Borrower or to a wholly owned Subsidiary of
          the Borrower,

               (ii) Debt existing on the Effective Date and described on
          Schedule 5.02(d) (including as Debt permitted under this subsection
          any credit facilities or credit lines of any Subsidiary listed on such
          Schedule 5.02(d), whether or not such facilities or lines have been
          drawn upon by such Subsidiary) (the "Existing Subsidiary Debt"), and
                                               ------------------------
          any Debt extending the maturity of, or refunding or refinancing, in
          whole or in part, the Existing Subsidiary Debt, provided that the
                                                          --------
          terms of any such extending, refunding or refinancing Debt, and of any
          agreement entered into and of any instrument issued in connection
          therewith, are otherwise permitted by this Agreement and provided
                                                                   --------
          further that the principal amount of such Existing Subsidiary Debt
          -------
          shall not be increased above the principal amount thereof outstanding
          immediately prior to such extension, refunding or refinancing, and the
          direct and contingent obligors therefor shall not be changed, as a
          result of or in connection with such extension, refunding or
          refinancing,

               (iii) Debt secured by Liens permitted by Section 5.02(a)(ii) or
          (iii),

               (iv) Debt permitted to be outstanding in accordance with Section
          5.03(c),

               (v) endorsement of negotiable instruments for deposit or
          collection or similar transactions in the ordinary course of business,
          and

                                       32

<PAGE>

               (vi) Debt other than Debt described in clauses (i) through (v) of
          this Section 5.02(d); provided that the principal amount of Debt
                                --------
          permitted to be outstanding pursuant to this clause (vi), together
          with the principal amount of Debt permitted to be secured pursuant to
          Section 5.02(a)(vii), shall not in the aggregate at any time
          outstanding exceed 15% of the Consolidated Tangible Net Worth of the
          Borrower and its Subsidiaries.

          (e) Change in Nature of Business. Make, or permit any of its
              ----------------------------
     Subsidiaries to make, any material change in the nature of the business of
     the Borrower and its Subsidiaries taken as a whole as carried on at the
     date hereof.

          (f) Accounting Changes. Make or permit, or permit any of its
              ------------------
     Subsidiaries to make or permit, any change in accounting policies or
     reporting practices that would prevent the Borrower from preparing its
     Consolidated financial statements in accordance with GAAP.

          SECTION 5.03. Financial Covenants. So long as any Advance shall remain
                        -------------------
unpaid or any Lender shall have any Commitment hereunder, the Borrower will:

          (a) Leverage Ratio. Cause, on the last day of each Fiscal Quarter of
              --------------
     the Borrower, the ratio of (i) Consolidated Debt of the Borrower and its
     Subsidiaries on such date of determination to (ii) Consolidated EBITDA of
     the Borrower and its Subsidiaries for the four Fiscal Quarters ended on
     such date not to exceed 4.0 to 1.

          (b) Interest Coverage Ratio. Cause, on the last day of each Fiscal
              -----------------------
     Quarter of the Borrower, the ratio of (i) Consolidated EBITDA of the
     Borrower and its Subsidiaries for the four Fiscal Quarters ended on such
     date of determination to (ii) Consolidated interest expense of the Borrower
     and its Subsidiaries to the four Fiscal Quarters ended on such date not to
     be less than 2.5 to 1.

          (c) Certain Subsidiary Debt. Cause the aggregate outstanding principal
              -----------------------
     amount of all Debt of Rayonier Timberlands Operating Company not to exceed
     $800,000,000 at any time outstanding.

                                   ARTICLE VI

                                EVENTS OF DEFAULT

          SECTION 6.01. Events of Default. If any of the following events
                        -----------------
("Events of Default") shall occur and be continuing:
  -----------------

          (a) The Borrower shall fail to pay any principal of any Advance when
     the same becomes due and payable or the Borrower shall fail to pay any
     interest on any Advance or make any other payment due in connection with
     this Agreement or any Note within five days after the same becomes due and
     payable; or

          (b) Any representation or warranty made or deemed made by or on behalf
     of the Borrower herein or in any notice, report, certificate, financial
     statement, instrument, agreement or other writing delivered or prepared in
     connection with this Agreement, shall prove to have been incorrect in any
     material respect when made; or

          (c) (i) The Borrower shall fail to perform or observe any term,
     covenant or agreement contained in Section 5.01(f), (g) or (k), Section
     5.02(a), (b), (c), (d) or (e) or Section 5.03, or (ii) the Borrower shall
     fail to perform or observe any other term, covenant or agreement contained
     in this Agreement on its part to be performed or observed if such failure
     shall remain unremedied for 30 days after written notice thereof shall have
     been given to the Borrower by the Agent or any Lender; or

                                       33

<PAGE>

          (d) (i) The Borrower or any of its Subsidiaries shall fail to pay any
     principal of or premium, interest or other amount payable with respect to
     any Debt that is outstanding in a principal amount of at least $10,000,000
     in the aggregate (but excluding Debt outstanding hereunder) of the Borrower
     or such Subsidiary (as the case may be), when the same becomes due and
     payable (whether by scheduled maturity, required prepayment, acceleration,
     demand or otherwise), and such failure shall continue after the applicable
     grace period, if any, specified in the agreement or instrument relating to
     such Debt; or (ii) any event shall occur or condition shall exist
     (including, without limitation, any event of the type described in clause
     (i) above) under any agreement or instrument relating to any Debt that is
     outstanding in a principal amount of at least $25,000,000 in the aggregate
     (but excluding Debt outstanding hereunder) of the Borrower or any of its
     Subsidiaries (as the case may be) and shall continue after the applicable
     grace period, if any, specified in such agreement or instrument, if the
     effect of such event or condition is to accelerate the maturity of such
     Debt, or any such Debt shall be accelerated, declared to be due and
     payable, or required to be prepaid or redeemed (other than by a regularly
     scheduled required prepayment or redemption), purchased or defeased, or an
     offer to prepay, redeem, purchase or defease such Debt shall be required to
     be made, in each case prior to the stated maturity thereof; or

          (e) The Borrower or any of its Significant Subsidiaries shall
     generally not pay its debts as such debts become due, or shall admit in
     writing its inability to pay its debts generally, or shall make a general
     assignment for the benefit of creditors; or any proceeding shall be
     instituted by or against the Borrower or any of its Significant
     Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
     liquidation, winding up, reorganization, arrangement, adjustment,
     protection, relief, or composition of it or its debts, in each such case,
     under any law relating to bankruptcy, insolvency or reorganization or
     relief of debtors, or seeking the entry of an order for relief or the
     appointment of a receiver, trustee, custodian or other similar official for
     it or for any substantial part of its property and, in the case of any such
     proceeding instituted against it (but not instituted by it), either such
     proceeding shall remain undismissed or unstayed for a period of 60 days, or
     any of the actions sought in such proceeding (including, without
     limitation, the entry of an order for relief against, or the appointment of
     a receiver, trustee, custodian or other similar official for, it or for any
     substantial part of its property) shall occur; or the Borrower or any of
     its Significant Subsidiaries shall take any corporate action to authorize
     any of the actions set forth above in this subsection (e); or

          (f) Any judgment or order for the payment of money in excess of
     $10,000,000 shall be rendered against the Borrower or any of its
     Subsidiaries and either (i) enforcement proceedings shall have been
     commenced by any creditor upon such judgment or order or (ii) there shall
     be any period of 30 consecutive days during which a stay of enforcement of
     such judgment or order, by reason of a pending appeal or otherwise, shall
     not be in effect; or

          (g) Any non-monetary judgment or order shall be rendered against the
     Borrower or any of its Subsidiaries that could be reasonably expected to
     have a Material Adverse Effect, and there shall be any period of 30
     consecutive days during which a stay of enforcement of such judgment or
     order, by reason of a pending appeal or otherwise, shall not be in effect;
     or

          (h) (i) Any Person or two or more Persons acting in concert shall have
     acquired beneficial ownership (within the meaning of Rule 13d-3 of the
     Securities and Exchange Commission under the Securities Exchange Act of
     1934), directly or indirectly, of Voting Stock of the Borrower (or other
     securities convertible into such Voting Stock) representing 30% or more of
     the combined voting power of all Voting Stock of the Borrower; or (ii)
     during any period of up to 24 consecutive months, commencing after the date
     of this Agreement, individuals who at the beginning of such 24-month period
     were directors of the Borrower shall cease for any reason (other than due
     to death or disability) to constitute a majority of the board of directors
     of the Borrower (except to the extent that individuals who at the beginning
     of such 24-month period were replaced by individuals (x) elected by 66-2/3%
     of the remaining members of the board of directors of the Borrower or (y)
     nominated for election by a majority of the remaining members of the board
     of directors of the Borrower and thereafter elected as directors by the
     shareholders of the Borrower); or (iii) any Person or two or more Persons
     acting in concert shall have acquired by contract or

                                       34

<PAGE>

     otherwise, or shall have entered into a contract or arrangement that, upon
     consummation, will result in its or their acquisition of, the power to
     exercise, directly or indirectly, a controlling influence over the
     management or policies of the Borrower; or (iv) the Borrower or an
     Affiliate of the Borrower shall cease to be the managing partner of
     Rayonier Timberlands Operating Company, L.P. ("RTOC") or the Borrower
                                                    ----
     ceases to consolidate RTOC in its consolidated financial statements; or

          (i) Any ERISA Event shall have occurred and the sum (determined as of
     the date of occurrence of such ERISA Event) of the Insufficiency of the
     Plan with respect to which such ERISA Event shall have occurred and the
     Insufficiency of any and all other Plans with respect to which an ERISA
     Event shall have occurred and then exist (or the liability of the Borrower
     and its ERISA Affiliates related to any such ERISA Event) exceeds
     $10,000,000; or

          (j) The Borrower or any of its ERISA Affiliates shall have been
     notified by the sponsor of a Multiemployer Plan that it has incurred
     Withdrawal Liability to such Multiemployer Plan in an amount that, when
     aggregated with all other amounts required to be paid to Multiemployer
     Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability
     (determined as of the date of such notification), exceeds $10,000,000 or
     requires payments exceeding $5,000,000 per annum; or

          (k) The Borrower or any of its ERISA Affiliates shall have been
     notified by the sponsor of a Multiemployer Plan that such Multiemployer
     Plan is in reorganization or is being terminated, within the meaning of
     Title IV of ERISA, and as a result of such reorganization or termination
     the aggregate annual contributions of the Borrower and its ERISA Affiliates
     to all Multiemployer Plans that are then in reorganization or being
     terminated have been or will be increased over the amounts contributed to
     such Multiemployer Plans for the plan years of such Multiemployer Plans
     immediately preceding the plan year in which such reorganization or
     termination occurs by an amount exceeding $10,000,000;

then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
Advances, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
                                             --------  -------
event of an actual or deemed entry of an order for relief with respect to the
Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to
make Advances shall automatically be terminated and (B) the Advances, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Borrower.

                                   ARTICLE VII

                                    THE AGENT

          SECTION 7.01. Authorization and Action. Each Lender hereby appoints
                        ------------------------
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
                          --------  -------
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.

                                       35

<PAGE>

          SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
                        ---------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
Lender that made any Advance as the holder of the Debt resulting therefrom until
the Agent receives and accepts an Assumption Agreement entered into by an
Assuming Lender as provided in Section 2.18 or an Assignment and Acceptance
entered into by such Lender, as assignor, and an Eligible Assignee, as assignee,
as provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance, observance or satisfaction of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or the existence at any
time of any Default or to inspect the property (including the books and records)
of the Borrower; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (vi) shall incur no liability under or in respect of this Agreement by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram or telex) believed by it to be genuine and
signed or sent by the proper party or parties.

          SECTION 7.03. Citibank and Affiliates. With respect to its Commitment,
                        -----------------------
the Advances made by it and the Note issued to it, Citibank shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include Citibank in its individual
capacity. Citibank and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if Citibank were not the Agent and
without any duty to account therefor to the Lenders. The Agent shall have no
duty to disclose information obtained or received by it or any of its Affiliates
relating to the Borrower or its Subsidiaries to the extent such information was
obtained or received in any capacity other than as Agent.

          SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
                        ----------------------
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

          SECTION 7.05. Indemnification. The Lenders agree to indemnify the
                        ---------------
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Revolving Credit Advances then owed to each
of them (or if no Revolving Credit Advances are at the time outstanding, ratably
according to the respective amounts of their Commitments), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the Agent in
any way relating to or arising out of this Agreement or any action taken or
omitted by the Agent under this Agreement (collectively, the "Indemnified
                                                              -----------
Costs"), provided that no Lender shall be liable for any portion of the
- -----    --------
Indemnified Costs resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to reimburse
the Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Agent is not reimbursed for such expenses by the
Borrower. In the case of any investigation, litigation or proceeding giving rise
to any Indemnified Costs, this Section 7.05 applies whether any such
investigation, litigation or proceeding is brought by the Agent, any Lender or a
third party.

                                       36

<PAGE>

          SECTION 7.06. Successor Agent. The Agent may resign at any time by
                        ---------------
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent, with the consent of the Borrower (which consent shall not be
unreasonably withheld or delayed) if no Event of Default has occurred and is
continuing. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

          SECTION 7.07. Other Agents. Each Lender hereby acknowledges that
                        ------------
neither the documentation agent nor any other Lender designated as any "Agent"
on the signature pages hereof has any liability hereunder other than in its
capacity as a Lender.

                                  ARTICLE VIII

                                  MISCELLANEOUS

          SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
                        ---------------
of this Agreement or the Revolving Credit Notes, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
                 --------  -------
unless in writing and signed by each of the Lenders directly affected thereby,
do any of the following: (a) waive any of the conditions specified in Section
3.01, (b) increase the Commitments of such Lenders or subject such Lenders to
any additional obligations, (c) reduce the principal of, or interest on, the
Revolving Credit Advances or any fees or other amounts payable hereunder, (d)
postpone any date fixed for any payment of principal of, or interest on, the
Revolving Credit Advances (other than pursuant to Section 2.18) or any fees or
other amounts payable hereunder, (e) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Revolving Credit Advances that
shall be required for the Lenders or any of them to take any action hereunder or
(f) amend this Section 8.01; and provided further that no amendment, waiver or
                                 -------- -------
consent shall, unless in writing and signed by the Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Agent under this Agreement or any Note.

          SECTION 8.02. Notices, Etc. All notices and other communications
                        ------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
if to the Borrower, at its address at 50 North Laura Street, Suite 1900,
Jacksonville, Florida 32202, Attention: Treasurer, with a copy to: Corporate
Secretary; if to any Initial Lender, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assumption Agreement or the Assignment and
Acceptance pursuant to which it became a Lender; and if to the Agent, at its
address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan
Syndications Department; or, as to the Borrower or the Agent, at such other
address as shall be designated by such party in a written notice to the other
parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the Agent. All
such notices and communications shall, when mailed, telecopied, telegraphed or
telexed, be effective when deposited in the mails, telecopied, delivered to the
telegraph company or confirmed by telex answerback, respectively, except that
notices and communications to the Agent pursuant to Article II, III or VII shall
not be effective until received by the Agent. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.

                                       37

<PAGE>

          SECTION 8.03. No Waiver; Remedies. No failure on the part of any
                        -------------------
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

          SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on
                        ------------------
demand all out-of-pocket costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of counsel for the Agent with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under this
Agreement, provided that all such costs and expenses of the Agent (other than
           --------
(i) fees and expenses of counsel for the Agent, (ii) printing costs of the
Arrangers incurred in connection with the syndication of the Commitments and
(iii) expenses arising under Section 5.01(h)) in excess of $1,000 shall be
subject to the prior consent of the Borrower, such consent not to be
unreasonably withheld. The Borrower further agrees to pay on demand all costs
and expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).

          (b) The Borrower agrees to indemnify, exonerate and hold harmless the
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents, advisors, representatives and controlling persons
(each, an "Indemnified Party") from and against any and all claims, damages,
           -----------------
losses, liabilities and expenses (including, without limitation, reasonable fees
and expenses of counsel) incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
(i) the Notes, this Agreement, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Advances or (ii) the actual or
alleged presence of Hazardous Materials on any property currently or formerly
owned or operated by the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, equityholders or creditors
or an Indemnified Party or any other Person, whether or not any Indemnified
Party is otherwise a party thereto and whether or not the transactions
contemplated hereby are consummated. The Borrower also agrees not to assert any
claim for special, indirect, consequential or punitive damages against the
Agent, any Lender, any of their Affiliates, or any of their respective officers,
directors, employees, agents, advisors, representatives and controlling persons,
on any theory of liability, arising out of or otherwise relating to (i) the
Notes, this Agreement, any of the transactions contemplated herein or the actual
or proposed use of the proceeds of the Advances or (ii) the actual or alleged
presence of Hazardous Materials on an property of the Borrower or any of its
Subsidiaries or any Environmental Action relating in any way to the Borrower or
any of its Subsidiaries.

          (c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion pursuant to Section 2.08(f) or (g), 2.09, 2.10 or 2.12,
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, or by an Eligible Assignee to a Lender other than on the last day
of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 8.07 as a result of a
demand by the Borrower pursuant to Section 8.07(a), the Borrower shall, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.

                                       38

<PAGE>

          (d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.

          SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
                        ----------------
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, whether or not such Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such set-off and application, provided that the failure to give such
                                        --------
notice shall not affect the validity of such set-off and application. The rights
of each Lender and its Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender and its Affiliates may have.

          SECTION 8.06. Binding Effect. This Agreement shall become effective
                        --------------
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Agent and when the Agent shall
have been notified by each Initial Lender that such Initial Lender has executed
it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent and each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lenders.

          SECTION 8.07. Assignments and Participations. (a) Each Lender may and,
                        ------------------------------
if demanded by the Borrower (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least five Business Days' notice to such Lender
and the Agent, will assign to one or more Persons all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Revolving Credit Advances owing to it and the
Revolving Credit Note or Notes held by it); provided, however, that (i) other
                                            --------  -------
than in the case of an assignment to an Affiliate of such Lender, another
Lender, or assignments of the type described in subsection (g) below, such
Lender shall have obtained the prior written consent of the Agent and, unless an
Event of Default has occurred and is continuing, the Borrower, such consent not
to be unreasonably withheld, (ii) each such assignment shall be of a constant,
and not a varying, percentage of all rights and obligations under this Agreement
(other than any right to make Competitive Bid Advances, Competitive Bid Advances
owing to it and Competitive Bid Notes), (iii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000 and shall be an integral multiple of $1,000,000 unless the Borrower
and the Agent otherwise agree, and if the assigning Lender is assigning less
than all of its Commitments after giving effect to such assignment, the amount
of the commitment of the assigning Lender shall be equal to or greater than
$5,000,000, (iv) each such assignment shall be to an Eligible Assignee, (v) each
such assignment made as a result of a demand by the Borrower pursuant to this
Section 8.07(a) shall be arranged by the Borrower after consultation with the
Agent and shall be either an assignment of all of the rights and obligations of
the assigning Lender under this Agreement or an assignment of a portion of such
rights and obligations made concurrently with another such assignment or other
such assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (vi) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrower pursuant to this
Section 8.07(a) unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Revolving Credit Note
subject to such assignment and a processing and recordation fee of $3,500 (such
fee payable by the assignor or assignee, as agreed by the parties). Upon such

                                       39

<PAGE>

execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (y) the Lender assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (other than
its rights under Section 2.11, 2.14 and 8.04 to the extent any claim thereunder
relates to an event arising prior to such assignment) and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).

          (b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.

          (c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower.

          (d) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assumption Agreement and each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of each of the Lenders and the Commitment of, and principal amount
of the Advances owing to, each Lender from time to time (the "Register"). The
                                                              --------
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.

          (e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and any
Note or Notes held by it); provided, however, that (i) such Lender's obligations
                           --------  -------
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on,

                                       40

<PAGE>

the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation.

          (f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
              --------
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrower
received by it from such Lender.

          (g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest (or any other similar
interest) in all or any portion of its rights under this Agreement (including,
without limitation, the Advances owing to it and any Note or Notes held by it)
in favor of any Federal Reserve Bank in accordance with Regulation A of the
Board of Governors of the Federal Reserve System.

          (h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (a
           -------------
"SPC"), identified as such in writing from time to time by the Granting Bank to
 ---
the Agent and the Borrower, the option to provide to the Borrower all or any
part of any Advance that such Granting Bank would otherwise be obligated to make
to the Borrower pursuant to this Agreement; provided that (i) nothing herein
                                            -------- ----
shall constitute a commitment by any SPC to make any Advance, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Advance, the Granting Bank shall be obligated to make such Advance
pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall
utilize the Commitment of the Granting Bank to the same extent, and as if, such
Advance were made by such Granting Bank. Each party hereto hereby agrees that no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Bank). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding commercial
paper or other senior indebtedness of any SPC, it will not institute against, or
join any other person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under the
laws of the United States or any State thereof. In addition, notwithstanding
anything to the contrary contained in this Section, any SPC may (i) with notice
to, but without the prior written consent of, the Borrower and the Agent and
without paying any processing fee therefor, assign all or a portion of its
interests in any Advances to the Granting Bank or to any financial institutions
(consented to by the Borrower and Agent) providing liquidity and/or credit
support to or for the account of such SPC to support the funding or maintenance
of Advances and (ii) disclose on a confidential basis any non-public information
relating to its Advances to any rating agency, commercial paper dealer or
provider of any surety, guarantee or credit or liquidity enhancement to such
SPC. This section may not be amended without the written consent of the SPC.

          SECTION 8.08. Confidentiality. Neither the Agent nor any Lender shall
                        ---------------
disclose any Confidential Information to any other Person without the consent of
the Borrower other than (a) to the Agent's or such Lender's Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 8.07(f), to actual or prospective assignees and participants, and then
only on a confidential basis, (b) as required by any law, rule or regulation or
judicial process and (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking.

          SECTION 8.09. Governing Law. This Agreement and the Notes shall be
                        -------------
governed by, and construed in accordance with, the laws of the State of New
York.

          SECTION 8.10. Execution in Counterparts. This Agreement may be
                        -------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

                                       41

<PAGE>

          SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby
                        -----------------
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement or
the Notes in the courts of any jurisdiction.

          (b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

                                       42

<PAGE>

          SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the Agent
                        --------------------
and the Lenders hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the Notes or the
actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                                     RAYONIER INC.


                                                     By
                                                        ------------------------
                                                         Title:


                                                     CITIBANK, N.A.,
                                                         as Agent


                                                     By
                                                        ------------------------
                                                         Title:

                                 Initial Lenders
                                 ---------------

Commitment
- ----------

                              Administrative Agent
                              --------------------

$8,555,555                                           CITIBANK, N.A.


                                                     By
                                                        ------------------------
                                                         Title:

                               Syndication Agents
                               ------------------

$8,555,555                                           BANK OF AMERICA, N.A.


                                                     By
                                                        ------------------------
                                                         Title:


$7,333,333                                           THE BANK OF NEW YORK


                                                     By
                                                        ------------------------
                                                         Title:

                                       43

<PAGE>

$7,333,333                                           SUNTRUST BANK


                                                     By
                                                        ------------------------
                                                         Title:

                                     Lenders
                                     -------

$3,666,667                                           COMPASS BANK


                                                     By
                                                        ------------------------
                                                         Title:


$3,666,667                                           CREDIT SUISSE FIRST BOSTON


                                                     By
                                                        ------------------------
                                                         Title:


$6,111,111                                           JPMORGAN CHASE BANK


                                                     By
                                                        ------------------------
                                                         Title:


$3,666,667                                           THE NORTHERN TRUST COMPANY


                                                     By
                                                        ------------------------
                                                         Title:


$6,111,111                                           WACHOVIA BANK N.A.


                                                     By
                                                        ------------------------
                                                         Title:

$55,000,000       Total of the Commitments

                                       44

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>4
<FILENAME>dex44.txt
<DESCRIPTION>THREE YEAR CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                     EXHIBIT 4.4

                                U.S. $170,000,000

                           THREE YEAR CREDIT AGREEMENT

                          Dated as of November 19, 2001

                                      Among

                                  RAYONIER INC.
                                   as Borrower
                                   -- --------

                                       and

                        THE INITIAL LENDERS NAMED HEREIN

                               as Initial Lenders
                               -- ------- -------

                                       and

                                 CITIBANK, N.A.

                             as Administrative Agent
                             -- -------------- -----

                                       and

                              BANK OF AMERICA, N.A.
                              THE BANK OF NEW YORK
                                  SUNTRUST BANK

                              as Syndication Agents
                              -- ----------- ------

                            SALOMON SMITH BARNEY INC.
                         BANC OF AMERICA SECURITIES INC.

                                  as Arrangers
                                  -- ---------

<PAGE>



                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                                              <C>
ARTICLE I

         SECTION 1.01.  Certain Defined Terms                                                                     1
                        ---------------------

         SECTION 1.02.  Computation of Time Periods                                                              11
                        ---------------------------

         SECTION 1.03.  Accounting Terms                                                                         11
                        ----------------

ARTICLE II

         SECTION 2.01.  The Revolving Credit Advances                                                            11
                        -----------------------------

         SECTION 2.02.  Making the Revolving Credit Advances                                                     11
                        ------------------------------------

         SECTION 2.03.  The Competitive Bid Advances                                                             12
                        ----------------------------

         SECTION 2.04.  Fees                                                                                     15
                        ----

         SECTION 2.05.  Termination or Reduction of the Commitments                                              15
                        -------------------------------------------

         SECTION 2.06.  Repayment of Revolving Credit Advances                                                   15
                        --------------------------------------

         SECTION 2.07.  Interest on Revolving Credit Advances                                                    15
                        -------------------------------------

         SECTION 2.08.  Interest Rate Determination                                                              16
                        ---------------------------

         SECTION 2.09.  Optional Conversion of Revolving Credit Advances                                         17
                        ------------------------------------------------

         SECTION 2.10.  Prepayments of Revolving Credit Advances                                                 17
                        ----------------------------------------

         SECTION 2.11.  Increased Costs                                                                          17
                        ---------------

         SECTION 2.12.  Illegality                                                                               18
                        ----------

         SECTION 2.13.  Payments and Computations                                                                18
                        -------------------------

         SECTION 2.14.  Taxes                                                                                    19
                        -----

         SECTION 2.15.  Sharing of Payments, Etc.                                                                21
                        ------------------------

         SECTION 2.16.  Evidence of Debt                                                                         21
                        ----------------

         SECTION 2.17.  Use of Proceeds                                                                          22
                        ---------------

         SECTION 2.18.  Increase in the Aggregate Commitments                                                    22
                        -------------------------------------
</TABLE>


<PAGE>


<TABLE>
<S>                                                                                                              <C>
ARTICLE III

         SECTION 3.01.  Conditions Precedent to Effectiveness of Sections 2.01 and 2.03                          23

         SECTION 3.02.  Conditions Precedent to Each Revolving Credit Borrowing and Commitment Increase.         24
                        -------------------------------------------------------------------------------

         SECTION 3.03.  Conditions Precedent to Each Competitive Bid Borrowing                                   24
                        ------------------------------------------------------

         SECTION 3.04.  Determinations Under Section 3.01                                                        25
                        ---------------------------------

ARTICLE IV

         SECTION 4.01.  Representations and Warranties of the Borrower                                           25

ARTICLE V

         SECTION 5.01.  Affirmative Covenants                                                                    27
                        ---------------------

         SECTION 5.02.  Negative Covenants                                                                       30
                        ------------------

         SECTION 5.03.  Financial Covenant                                                                       32
                        ------------------

ARTICLE VI

         SECTION 6.01.  Events of Default                                                                        33
                        -----------------

ARTICLE VII

         SECTION 7.01.  Authorization and Action                                                                 35
                        ------------------------

         SECTION 7.02.  Agent's Reliance, Etc.                                                                   35
                        ---------------------

         SECTION 7.03.  Citibank and Affiliates                                                                  35
                        -----------------------

         SECTION 7.04.  Lender Credit Decision                                                                   35
                        ----------------------

         SECTION 7.05.  Indemnification                                                                          36
                        ---------------

         SECTION 7.06.  Successor Agent                                                                          36
                        ---------------

         SECTION 7.07.  Other Agents.                                                                            36
                        -------------

ARTICLE VIII

         SECTION 8.01.  Amendments, Etc.                                                                         36
                        ---------------

         SECTION 8.02.  Notices, Etc.                                                                            37
                        ------------

         SECTION 8.03.  No Waiver; Remedies                                                                      37
                        -------------------
</TABLE>

                                       ii

<PAGE>



<TABLE>
         <S>                                                                                                     <C>
         SECTION 8.04.  Costs and Expenses                                                                       37
                        ------------------

         SECTION 8.05.  Right of Set-off                                                                         38
                        ----------------

         SECTION 8.06.  Binding Effect                                                                           38
                        --------------

         SECTION 8.07.  Assignments and Participations                                                           38
                        ------------------------------

         SECTION 8.08.  Confidentiality                                                                          41
                        ---------------

         SECTION 8.09.  Governing Law                                                                            41
                        -------------

         SECTION 8.10.  Execution in Counterparts                                                                41
                        -------------------------

         SECTION 8.11.  Jurisdiction, Etc.                                                                       41
                        -----------------

         SECTION 8.12.  Waiver of Jury Trial                                                                     42
                        --------------------
</TABLE>

                                      iii


<PAGE>


Schedules
- ---------

Schedule I                 -        List of Applicable Lending Offices

Schedule 3.01(b)           -        Disclosed Litigation

Schedule 4.01(i)           -        Environmental Matters

Schedule 4.01(o)           -        Post Retirement Benefit Obligations

Schedule 5.02(a)           -        Existing Liens

Schedule 5.02(d)           -        Existing Subsidiary Debt

Exhibits
- --------

Exhibit A-1                -        Form of Revolving Credit Note

Exhibit A-2                -        Form of Competitive Bid Note

Exhibit B-1                -        Form of Notice of Revolving Credit Borrowing

Exhibit B-2                -        Form of Notice of Competitive Bid Borrowing

Exhibit C                  -        Form of Assignment and Acceptance

Exhibit D                  -        Form of Opinion of Counsel for the Borrower

                                       iv

<PAGE>



                           THREE YEAR CREDIT AGREEMENT

                          Dated as of November 19, 2001

          RAYONIER INC., a North Carolina corporation (the "Borrower"), the
                                                            --------
banks, financial institutions and other institutional lenders (the "Initial
                                                                    -------
Lenders") listed on the signature pages hereof, and CITIBANK, N.A. ("Citibank"),
- -------                                                              --------
as agent (the "Agent") for the Lenders (as hereinafter defined), agree as
               -----
follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

          SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
                        ---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

          "Advance" means a Revolving Credit Advance or a Competitive Bid
           -------
     Advance.

          "Affiliate" means, as to any Person, any other Person that, directly
           ---------
     or indirectly, controls, is controlled by or is under common control with
     such Person or is a director or officer of such Person. For purposes of
     this definition, the term "control" (including the terms "controlling",
     "controlled by" and "under common control with") of a Person means the
     possession, direct or indirect, of the power to vote 5% or more of the
     Voting Stock of such Person or to direct or cause the direction of the
     management and policies of such Person, whether through the ownership of
     Voting Stock, by contract or otherwise.

          "Agent's Account" means the account of the Agent maintained by the
           ---------------
     Agent at Citibank at its office at 388 Greenwich Street, New York, New York
     10013, Account No. 36852248, Attention: Bank Loan Syndications.

          "Applicable Lending Office" means, with respect to each Lender, such
           -------------------------
     Lender's Domestic Lending Office in the case of a Base Rate Advance and
     such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
     Advance and, in the case of a Competitive Bid Advance, the office of such
     Lender notified by such Lender to the Agent as its Applicable Lending
     Office with respect to such Competitive Bid Advance.

          "Applicable Margin" means (a) for Base Rate Advances, 0% per annum and
           -----------------
     (b) for Eurodollar Rate Advances, as of any date, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

    Public Debt Rating         Applicable Margin for
       S&P/Moody's           Eurodollar Rate Advances
- -------------------------    ------------------------
Level 1
- -------
BBB+ or Baa1 or above                 0.450%

Level 2
- -------
Lower than Level 1 but at             0.675%
least BBB or Baa2

Level 3
- -------
Lower than Level 2 but at             0.875%
least BBB- and Baa3

<PAGE>

Level 4
- -------
Lower than Level 3 but at             0.950%
least BBB- or Baa3

Level 5
- -------
Lower than Level 4 but at             1.125%
least BB+ and Ba1

Level 6
- -------
Lower than Level 5                    1.375%

          "Applicable Percentage" means, as of any date, a percentage per annum
           ---------------------
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

   Public Debt Rating        Applicable
      S&P/Moody's            Percentage
- -------------------------    ----------
Level 1
- -------
BBB+ or Baa1 or above          0.175%

Level 2
- -------
Lower than Level 1 but at      0.200%
least BBB or Baa2

Level 3
- -------
Lower than Level 2 but at      0.250%
least BBB- and Baa3

Level 4
- -------
Lower than Level 3 but at      0.300%
least BBB- or Baa3

Level 5
- -------
Lower than Level 4 but at      0.375%
least BB+ and Ba1

Level 6
- -------
Lower than Level 5             0.500%

          "Applicable Utilization Fee" means, as of any date that the aggregate
           --------------------------
     Advances exceed 33% of the aggregate Commitments, a percentage per annum
     determined by reference to the Public Debt Rating in effect on such date as
     set forth below:

   Public Debt Rating          Applicable
      S&P/Moody's            Utilization Fee
- -------------------------    ----------------
Level 1
- -------
BBB+ or Baa1 or above            0.125%

Level 2
- -------
Lower than Level 1 but at        0.125%
least BBB or Baa2

Level 3
- -------
Lower than Level 2 but at        0.250%
least BBB- and Baa3

Level 4
- -------
Lower than Level 3 but at        0.250%
least BBB- or Baa3

Level 5
- -------
Lower than Level 4 but at        0.250%
least BB+ and Ba1

                                        2

<PAGE>

Level 6
- -------
Lower than Level 5               0.375%

          "Arrangers" means Salomon Smith Barney Inc. and Banc of America
           ---------
     Securities LLC.

          "Assignment and Acceptance" means an assignment and acceptance entered
           -------------------------
     into by a Lender and an Eligible Assignee, and accepted by the Agent, in
     substantially the form of Exhibit C hereto.

          "Assuming Lender" has the meaning specified in Section 2.18(d).
           --------------

          "Assumption Agreement" has the meaning specified in Section
           --------------------
     2.18(d)(ii).

          "Base Rate" means a fluctuating interest rate per annum in effect from
           ---------
     time to time, which rate per annum shall at all times be equal to the
     higher of:

               (a) the rate of interest announced publicly by Citibank in New
          York, New York, from time to time, as Citibank's base rate; and

               (b) 1/2 of one percent per annum above the Federal Funds Rate.

          "Base Rate Advance" means a Revolving Credit Advance that bears
           -----------------
     interest as provided in Section 2.07(a)(i).

          "Borrower's Form 10-K for 2000" has the meaning specified in Section
           -----------------------------
     4.01(f).

          "Borrowing" means a Revolving Credit Borrowing or a Competitive Bid
           ---------
     Borrowing.

          "Business Day" means a day of the year on which banks are not required
           ------------
     or authorized by law to close in New York City and, if the applicable
     Business Day relates to any Eurodollar Rate Advances, on which dealings are
     carried on in the London interbank market.

          "CERCLA" means the Comprehensive Environmental Response, Compensation
           ------
     and Liability Act of 1980, as amended.

          "CERCLIS" has the meaning specified in Section 4.01(k).
           -------

          "Commitment" means, with respect to any Lender at any time (a) the
           ----------
     amount set forth opposite such Lender's name on the signature pages hereof,
     (b) if such Lender has become a Lender hereunder pursuant to an Assumption
     Agreement, the amount set forth in such Assumption Agreement or (c) if such
     Lender has entered into any Assignment and Acceptance, the amount set forth
     for such Lender in the Register maintained by the Agent pursuant to Section
     8.07(d), as such amount may be reduced pursuant to Section 2. 05 or
     increased pursuant to Section 2.18.

          "Commitment Date" has the meaning specified in Section 2.18(b).
           ---------------

          "Commitment Increase" has the meaning specified in Section 2.18(a).
           -------------------

          "Competitive Bid Advance" means an advance by a Lender to the Borrower
           -----------------------
     as part of a Competitive Bid Borrowing resulting from the competitive
     bidding procedure described in Section 2.03.

          "Competitive Bid Borrowing" means a borrowing consisting of
           -------------------------
     simultaneous Competitive Bid Advances from each of the Lenders whose offer
     to make one or more Competitive Bid Advances as part of such borrowing has
     been accepted under the competitive bidding procedure described in Section
     2.03.

                                       3

<PAGE>

          "Competitive Bid Note" means a promissory note of the Borrower payable
           --------------------
     to the order of any Lender, in substantially the form of Exhibit A-2
     hereto, evidencing the indebtedness of the Borrower to such Lender
     resulting from a Competitive Bid Advance made by such Lender.

          "Competitive Bid Reduction" has the meaning specified in Section 2.01.
           -------------------------

          "Confidential Information" means information that the Borrower
           ------------------------
     furnishes to the Agent or any Lender in a writing designated as
     confidential, but does not include any such information that is or becomes
     generally available to the public or that is or becomes available to the
     Agent or such Lender from a source other than the Borrower, that is not
     acting in violation of a confidentiality agreement with the Borrower.

          "Consolidated" refers to the consolidation of accounts in accordance
           ------------
     with GAAP.

          "Consolidated Assets" means on any date of determination, all amounts
           -------------------
     that are or should, in accordance with GAAP be included under assets on a
     Consolidated balance sheet of the Borrower and its Subsidiaries determined
     in accordance with GAAP as at such date.

          "Convert", "Conversion" and "Converted" each refers to a conversion of
           -------    ----------       ---------
     Revolving Credit Advances of one Type into Revolving Credit Advances of the
     other Type pursuant to Section 2.08 or 2.09.

          "Debt" of any Person means, without duplication, (a) all indebtedness
           ----
     of such Person for borrowed money, (b) all obligations of such Person for
     the deferred purchase price of property or services (other than trade
     payables incurred in the ordinary course of such Person's business and that
     are not overdue for a period that is not consistent with the ordinary
     course of business of such Person), (c) all obligations of such Person
     evidenced by notes, bonds, debentures or other similar instruments, (d) all
     obligations of such Person created or arising under any conditional sale or
     other title retention agreement with respect to property acquired by such
     Person (even though the rights and remedies of the seller or lender under
     such agreement in the event of default are limited to repossession or sale
     of such property), (e) all obligations of such Person as lessee under
     leases that have been or should be, in accordance with GAAP, recorded as
     capital leases, (f) all obligations, contingent or otherwise, of such
     Person in respect of acceptance, letter of credit or similar facilities
     (other than obligations under (i) Trade Letters of Credit, (ii) performance
     bonds or letters of credit issued in connection with the purchase of
     inventory, including prepaid timber stumpage, by the Borrower or any of its
     Subsidiaries in the ordinary course of business, (iii) performance bonds or
     letters of credit to secure obligations under workers' compensation laws or
     similar legislation, (iv) performance bonds or letters of credit issued for
     the account of the Borrower or any of its Subsidiaries to secure
     obligations under self-insurance programs to the extent permitted by the
     terms of this Agreement and in an aggregate maximum available amount with
     respect to all such performance bonds and letters of credit not to exceed
     at any one time $20,000,000 and (v) performance bonds or letters of credit
     issued for the account of the Borrower or any of its Subsidiaries not
     otherwise excluded from this definition in an aggregate maximum available
     amount with respect to all such performance bonds and letters of credit not
     to exceed at any one time $2,000,000, provided that in each case such
                                           --------
     performance bond or letter of credit (including, without limitation, any
     Trade Letters of Credit but excluding performance bonds or letters of
     credit described in clause (f)(v) above) does not secure Debt, (g) all
     Guarantees issued by such Person and (h) all Debt referred to in clauses
     (a) through (g) above secured by (or for which the holder of such Debt has
     an existing right, contingent or otherwise, to be secured by) any Lien on
     property (including, without limitation, accounts and contract rights)
     owned by such Person, even though such Person has not assumed or become
     liable for the payment of such Debt. The Debt of any Person shall include
     the Debt of any partnership in which such Person is a general partner, but
     shall not include obligations under a financial assurance statement that a
     Person is required to provide under Environmental Law in support of the
     closure and post-closure obligations of one or more of its Subsidiaries.

          "Default" means any Event of Default or any event that would
           -------
     constitute an Event of Default but for the requirement that notice be given
     or time elapse or both.

                                       4

<PAGE>

          "Disclosed Litigation" has the meaning specified in Section 3.01(b).
           --------------------

          "Domestic Lending Office" means, with respect to any Lender, the
           -----------------------
     office of such Lender specified as its "Domestic Lending Office" opposite
     its name on Schedule I hereto or in the Assumption Agreement or the
     Assignment and Acceptance pursuant to which it became a Lender, or such
     other office of such Lender as such Lender may from time to time specify to
     the Borrower and the Agent.

          "EBITDA" means, for any Person during any period, earnings (income)
           ------
     from continuing operations before the cumulative effect of accounting
     changes and any provision for dispositions, income taxes, interest expense
     and depreciation, depletion and amortization and the non-cash cost of
     timberland and real estate sales, provided, that for purposes of
     calculating compliance with Section 5.03(a), the EBITDA attributable to any
     Person or business unit acquired by the Borrower or any of its Subsidiaries
     during any period of four full fiscal quarters shall be included on a pro
     forma basis for such period of four full fiscal quarters (assuming the
     consummation of each such acquisition occurred on the first day of such
     period of four full fiscal quarters).

          "Effective Date" has the meaning specified in Section 3.01.
           --------------

          "Eligible Assignee" means (a) any Lender; (b) an Affiliate of a
           -----------------
     Lender; (c) a commercial bank organized under the laws of the United
     States, or any State thereof, and having total assets in excess of
     $10,000,000,000; (d) a commercial bank organized under the laws of any
     other country that is a member of the Organization for Economic Cooperation
     and Development or has concluded special lending arrangements with the
     International Monetary Fund associated with its General Arrangements to
     Borrow or of the Cayman Islands, or a political subdivision of any such
     country, and having total assets in excess of $10,000,000,000, so long as
     such bank is acting through a branch or agency located in the country in
     which it is organized or another country that is described in this clause
     (d); (e) the central bank of any country that is a member of the
     Organization for Economic Cooperation and Development; and (f) any other
     Person approved by the Agent; provided, however, that (x) each Eligible
                                   --------  -------
     Assignee shall maintain a branch or representative office or similar
     presence in the United States and (y) neither the Borrower nor an Affiliate
     of the Borrower shall qualify as an Eligible Assignee.

          "Environmental Action" means any (a) administrative, regulatory or
           --------------------
     judicial action, suit, written demand, demand letter, written claim, notice
     of noncompliance or violation, notice of liability or potential liability,
     investigation, proceeding, consent order or consent agreement relating in
     any way to any Environmental Law, Environmental Permit or Hazardous
     Materials or arising from alleged injury or threat of injury to health,
     safety or the environment including, without limitation, (i) by any
     governmental or regulatory authority for enforcement, cleanup, removal,
     response, remedial or other actions or damages and (ii) by any governmental
     or regulatory authority for damages, contribution, indemnification, cost
     recovery, compensatory or injunctive relief; and (b) any administrative,
     regulatory or judicial action, suit or proceeding brought by any third
     party properly before a forum of competent jurisdiction relating in any way
     to any Environmental Law, Environmental Permit or Hazardous Materials or
     arising from alleged injury or threat of injury to health, safety or the
     environment.

          "Environmental Law" means any federal, state, local or foreign
           -----------------
     statute, law, ordinance, rule, regulation, code, order, judgment, decree or
     judicial or agency interpretation, policy or guidance relating to pollution
     or protection of the environment, health, safety or natural resources,
     including, without limitation, those relating to the use, handling,
     transportation, treatment, storage, disposal, release or discharge of
     Hazardous Materials all as amended or hereafter amended.

          "Environmental Permit" means any permit, approval, identification
           --------------------
     number, license or other authorization required under any Environmental
     Law.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
           -----
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

                                       5

<PAGE>

          "ERISA Affiliate" means any Person that for purposes of Title IV of
           ---------------
     ERISA is a member of the Borrower's controlled group, or under common
     control with the Borrower, within the meaning of Section 414 of the
     Internal Revenue Code.

          "ERISA Event" means (a) (i) the occurrence of a reportable event,
           -----------
     within the meaning of Section 4043 of ERISA, with respect to any Plan
     unless the 30-day notice requirement with respect to such event has been
     waived by the PBGC, or (ii) the requirements of subsection (1) of Section
     4043(b) of ERISA (without regard to subsection (2) of such Section) are met
     with respect to a contributing sponsor, as defined in Section 4001(a)(13)
     of ERISA, of a Plan, and an event described in paragraph (9), (10), (11),
     (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur
     with respect to such Plan within the following 30 days; (b) the application
     for a minimum funding waiver with respect to a Plan; (c) the provision by
     the administrator of any Plan of a notice of intent to terminate such Plan
     pursuant to Section 4041(a)(2) of ERISA (including any such notice with
     respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
     the cessation of operations at a facility of the Borrower or any of its
     ERISA Affiliates in the circumstances described in Section 4062(e) of
     ERISA; (e) the withdrawal by the Borrower or any of its ERISA Affiliates
     from a Multiple Employer Plan during a plan year for which it was a
     substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
     conditions for the imposition of a lien under Section 302(f) of ERISA shall
     have been met with respect to any Plan; (g) the adoption of an amendment to
     a Plan requiring the provision of security to such Plan pursuant to Section
     307 of ERISA; or (h) the institution by the PBGC of proceedings to
     terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of
     any event or condition described in Section 4042 of ERISA that could
     constitute grounds for the termination of, or the appointment of a trustee
     to administer, a Plan.

          "Eurocurrency Liabilities" has the meaning assigned to that term in
           ------------------------
     Regulation D of the Board of Governors of the Federal Reserve System, as in
     effect from time to time.

          "Eurodollar Lending Office" means, with respect to any Lender, the
           -------------------------
     office of such Lender specified as its "Eurodollar Lending Office" opposite
     its name on Schedule I hereto or in the Assumption Agreement or the
     Assignment and Acceptance pursuant to which it became a Lender (or, if no
     such office is specified, its Domestic Lending Office), or such other
     office of such Lender as such Lender may from time to time specify to the
     Borrower and the Agent.

          "Eurodollar Rate" means, for any Interest Period for each Eurodollar
           ---------------
     Rate Advance comprising part of the same Revolving Credit Borrowing, an
     interest rate per annum equal to the rate per annum obtained by dividing
     (a) the rate per annum (rounded upward to the nearest whole multiple of
     1/16 of 1% per annum) appearing on Telerate Markets Page 3750 (or any
     successor page) as the London interbank offered rate for deposits in U.S.
     dollars at approximately 11:00 A.M. (London time) two Business Days prior
     to the first day of such Interest Period for a term comparable to such
     Interest Period or, if for any reason such rate is not available, the
     average (rounded upward to the nearest whole multiple of 1/16 of 1% per
     annum, if such average is not such a multiple) of the rate per annum at
     which deposits in U.S. dollars are offered by the principal office of each
     of the Reference Banks in London, England to prime banks in the London
     interbank market at 11:00 A.M. (London time) two Business Days before the
     first day of such Interest Period in an amount substantially equal to such
     Reference Bank's Eurodollar Rate Advance comprising part of such Revolving
     Credit Borrowing to be outstanding during such Interest Period and for a
     period equal to such Interest Period by (b) a percentage equal to 100%
     minus the Eurodollar Rate Reserve Percentage for such Interest Period. If
     the Telerate Markets Page 3750 (or any successor page) is unavailable, the
     Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance
     comprising part of the same Revolving Credit Borrowing shall be determined
     by the Agent on the basis of applicable rates furnished to and received by
     the Agent from the Reference Banks two Business Days before the first day
     of such Interest Period, subject, however, to the provisions of Section
                              -------  -------
     2.08.

          "Eurodollar Rate Advance" means a Revolving Credit Advance that bears
           -----------------------
     interest as provided in Section 2.07(a)(ii).

                                       6

<PAGE>

          "Eurodollar Rate Reserve Percentage" for any Interest Period for all
           ----------------------------------
     Eurodollar Rate Advances comprising part of the same Borrowing means the
     reserve percentage applicable two Business Days before the first day of
     such Interest Period under regulations issued from time to time by the
     Board of Governors of the Federal Reserve System (or any successor) for
     determining the maximum reserve requirement (including, without limitation,
     any emergency, supplemental or other marginal reserve requirement) for a
     member bank of the Federal Reserve System in New York City with respect to
     liabilities or assets consisting of or including Eurocurrency Liabilities
     (or with respect to any other category of liabilities that includes
     deposits by reference to which the interest rate on Eurodollar Rate
     Advances is determined) having a term equal to such Interest Period.

          "Events of Default" has the meaning specified in Section 6.01.
           -----------------

          "Existing Subsidiary Debt" has the meaning specified in Section
           ------------------------
     5.02(d)(ii).

          "Federal Funds Rate" means, for any period, a fluctuating interest
           ------------------
     rate per annum equal for each day during such period to the weighted
     average of the rates on overnight Federal funds transactions with members
     of the Federal Reserve System arranged by Federal funds brokers, as
     published for such day (or, if such day is not a Business Day, for the next
     preceding Business Day) by the Federal Reserve Bank of New York, or, if
     such rate is not so published for any day that is a Business Day, the
     average of the quotations for such day on such transactions received by the
     Agent from three Federal funds brokers of recognized standing selected by
     it.

          "Fiscal Quarter" means each consecutive three calendar month period
           --------------
     ending March 31, June 30, September 30 or December 31 of any fiscal year.

          "GAAP" has the meaning specified in Section 1.03.
           ----

          "Guarantee" by any Person, means any obligation, contingent or
           ---------
     otherwise, of such Person guaranteeing directly or indirectly in any manner
     the Debt of any other Person, or in effect guaranteeing directly or
     indirectly the Debt of any other Person through an agreement (i) to pay or
     purchase such Debt or to advance or supply funds for the payment or
     purchase of such Debt, (ii) to purchase, sell or lease (as lessee or
     lessor) property, or to purchase or sell services, primarily for the
     purpose of enabling the debtor to make payment of such Debt or to assure
     the holder of such Debt against loss, (iii) to supply funds to or in any
     other manner invest in the debtor (including any agreement to pay for
     property or services irrespective of whether such property is received or
     such services are rendered) or (iv) otherwise to assure a creditor against
     loss.

          "Hazardous Materials" means petroleum and petroleum products,
           -------------------
     byproducts or breakdown products, radioactive materials,
     asbestos-containing materials, polychlorinated biphenyls and radon gas and
     any other chemicals, materials or substances designated, classified or
     regulated as being "hazardous" or "toxic" or words of similar import, under
     any applicable Environmental Law.

          "Increase Date" has the meaning specified in Section 2.18(a).
           -------------

          "Increasing Lender" has the meaning specified in Section 2.18(b).
           -----------------

          "Indemnified Liabilities" has the meaning specified in Section
           -----------------------
     8.04(b).

          "Indemnified Party" has the meaning specified in Section 8.04(b).
           -----------------

          "Insufficiency" means, with respect to any Plan, the amount, if any,
           -------------
     of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
     ERISA.

                                       7

<PAGE>

          "Interest Period" means, for each Eurodollar Rate Advance comprising
           ---------------
     part of the same Revolving Credit Borrowing, the period commencing on the
     date of such Eurodollar Rate Advance or the date of the Conversion of any
     Base Rate Advance into such Eurodollar Rate Advance and ending on the last
     day of the period selected by the Borrower pursuant to the provisions below
     and, thereafter, each subsequent period commencing on the last day of the
     immediately preceding Interest Period and ending on the last day of the
     period selected by the Borrower pursuant to the provisions below. The
     duration of each such Interest Period shall be one, two, three or six
     months, and subject to clause (c) of this definition, nine or twelve
     months, as the Borrower may, upon notice received by the Agent not later
     than 12:00 Noon (New York City time) on the third Business Day prior to the
     first day of such Interest Period, select; provided, however, that:
                                                --------  -------

               (a) the Borrower may not select any Interest Period that ends
          after the Termination Date;

               (b) Interest Periods commencing on the same date for Eurodollar
          Rate Advances comprising part of the same Revolving Credit Borrowing
          shall be of the same duration;

               (c) in the case of any such Revolving Credit Borrowing, the
          Borrower shall not be entitled to select an Interest Period having
          duration of nine or twelve months unless, by 2:00 P.M. (New York City
          time) on the third Business Day prior to the first day of such
          Interest Period, each Lender notifies the Agent that such Lender will
          be providing funding for such Revolving Credit Borrowing with such
          Interest Period (the failure of any Lender to so respond by such time
          being deemed for all purposes of this Agreement as an objection by
          such Lender to the requested duration of such Interest Period);
          provided that, if any or all of the Lenders object to the requested
          --------
          duration of such Interest Period, the duration of the Interest Period
          for such Revolving Credit Borrowing shall be one, two, three or six
          months, as specified by the Borrower in the applicable Notice of
          Revolving Credit Borrowing as the desired alternative to an Interest
          Period of nine or twelve months;

               (d) whenever the last day of any Interest Period would otherwise
          occur on a day other than a Business Day, the last day of such
          Interest Period shall be extended to occur on the next succeeding
          Business Day, provided, however, that, if such extension would cause
                        --------  -------
          the last day of such Interest Period to occur in the next following
          calendar month, the last day of such Interest Period shall occur on
          the next preceding Business Day; and

               (e) whenever the first day of any Interest Period occurs on a day
          of an initial calendar month for which there is no numerically
          corresponding day in the calendar month that succeeds such initial
          calendar month by the number of months equal to the number of months
          in such Interest Period, such Interest Period shall end on the last
          Business Day of such succeeding calendar month.

          "Internal Revenue Code" means the Internal Revenue Code of 1986, as
           ---------------------
     amended from time to time, and the regulations promulgated and rulings
     issued thereunder.

          "Lenders" means the Initial Lenders, each Assuming Lender that shall
           -------
     become a party hereto pursuant to Section 2.18 and each Person that shall
     become a party hereto pursuant to Section 8.07.

          "Lien" means any lien, security interest or other charge or
           ----
     encumbrance of any kind, or any other type of preferential arrangement,
     including, without limitation, the lien or retained security title of a
     conditional vendor and any easement, right of way or other encumbrance on
     title to real property.

          "Material Adverse Change" means any material adverse change in the
           -----------------------
     business, condition (financial or otherwise), operations, performance or
     properties of the Borrower and its Subsidiaries taken as a whole.

                                       8

<PAGE>

          "Material Adverse Effect" means a material adverse effect on (a) the
           -----------------------
     business, condition (financial or otherwise), operations, performance or
     properties of the Borrower and its Subsidiaries taken as a whole, (b) the
     rights and remedies of the Agent or any Lender under this Agreement or any
     Note or (c) the ability of the Borrower to perform its obligations under
     this Agreement or any Note.

          "Moody's" means Moody's Investors Service, Inc.
           -------

          "Multiemployer Plan" means a multiemployer plan, as defined in Section
           ------------------
     4001(a)(3) of ERISA, to which the Borrower or any of its ERISA Affiliates
     is making or accruing an obligation to make contributions, or has within
     any of the preceding five plan years made or accrued an obligation to make
     contributions.

          "Multiple Employer Plan" means a single employer plan, as defined in
           ----------------------
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any ERISA Affiliate and at least one Person other than the
     Borrower and its ERISA Affiliates or (b) was so maintained and in respect
     of which the Borrower or any of its ERISA Affiliates could have liability
     under Section 4064 or 4069 of ERISA in the event such plan has been or were
     to be terminated.

          "Note" means a Revolving Credit Note or a Competitive Bid Note.
           ----

          "Notice of Competitive Bid Borrowing" has the meaning specified in
           -----------------------------------
     Section 2.03(a).

          "Notice of Revolving Credit Borrowing" has the meaning specified in
           ------------------------------------
     Section 2.02(a).

          "NPL" has the meaning specified in Section 4.01(k).
           ---

          "Other Taxes" has the meaning specified in Section 2.15(b).
           -----------

          "PBGC" means the Pension Benefit Guaranty Corporation (or any
           ----
     successor).

          "Permitted Liens" means such of the following as to which no
           ---------------
     enforcement, collection, execution, levy or foreclosure proceeding shall
     have been commenced: (a) Liens for taxes, assessments and governmental
     charges or levies to the extent not required to be paid under Section
     5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
     mechanics', carriers', workmen's and repairmen's Liens and other similar
     Liens arising in the ordinary course of business securing obligations that
     are not overdue for a reasonable period and which, individually or when
     aggregated with all other Permitted Liens outstanding on any date, do not
     materially affect the use of the property to which they relate; (c) pledges
     or deposits to secure obligations under workers' compensation laws or
     similar legislation or to secure public or statutory obligations; and (d)
     easements, rights of way, encumbrances and minor defects or irregularities
     in title to real property not interfering in any material respect with the
     ordinary conduct of the business of the Borrower or any of its
     Subsidiaries.

          "Person" means an individual, partnership, corporation (including a
           ------
     business trust), limited liability company, joint stock company, trust,
     unincorporated association, joint venture or other entity, or a government
     or any political subdivision or agency thereof.

          "Plan" means a Single Employer Plan or a Multiple Employer Plan.
           ----

          "Public Debt Rating" means, as of any date, the highest rating that
           ------------------
     has been most recently announced by either S&P or Moody's, as the case may
     be, for any class of non-credit enhanced long-term senior unsecured debt
     issued by the Borrower. For purposes of the foregoing, (a) if only one of
     S&P and Moody's shall have in effect a Public Debt Rating, the Applicable
     Margin, the Applicable Percentage and the Applicable Utilization Fee shall
     be determined by reference to the available rating; (b) if neither S&P nor
     Moody's shall have in effect a Public Debt Rating, the Applicable Margin,
     the Applicable Percentage

                                       9

<PAGE>

     and the Applicable Utilization Fee will be set in accordance with Level 6
     under the definition of "Applicable Margin", "Applicable Percentage" or
                              -----------------    ---------------------
     "Applicable Utilization Fee", as the case may be; (c) if any rating
      --------------------------
     established by S&P or Moody's shall be changed, such change shall be
     effective as of the date on which such change is first announced publicly
     by the rating agency making such change; and (d) if S&P or Moody's shall
     change the basis on which ratings are established, each reference to the
     Public Debt Rating announced by S&P or Moody's, as the case may be, shall
     refer to the then equivalent rating by S&P or Moody's, as the case may be.

          "Reference Banks" means Citibank, Bank of America, N.A.,
           ---------------                                         ----------
     and           .
         ----------

          "Register" has the meaning specified in Section 8.07(d).
           --------

          "Required Lenders" means at any time Lenders owed at least a majority
           ----------------
     in interest of the then aggregate unpaid principal amount of the Revolving
     Credit Advances owing to Lenders, or, if no such principal amount is then
     outstanding, Lenders having at least a majority in interest of the
     Commitments.

          "Revolving Credit Advance" means an advance by a Lender to the
           ------------------------
     Borrower as part of a Revolving Credit Borrowing and refers to a Base Rate
     Advance or a Eurodollar Rate Advance (each of which shall be a "Type" of
                                                                     ----
     Revolving Credit Advance).

          "Revolving Credit Borrowing" means a borrowing consisting of
           --------------------------
     simultaneous Revolving Credit Advances of the same Type made by each of the
     Lenders pursuant to Section 2.01.

          "Revolving Credit Note" means a promissory note of the Borrower
           ---------------------
     payable to the order of any Lender, delivered pursuant to a request made
     under Section 2.16 in substantially the form of Exhibit A-1 hereto,
     evidencing the aggregate indebtedness of the Borrower to such Lender
     resulting from the Revolving Credit Advances made by such Lender.

          "S&P" means Standard & Poor's, a division of The McGraw-Hill
           ---
     Companies, Inc.

          "Significant Subsidiary" means, at any time, a Subsidiary of the
           ----------------------
     Borrower having (a) at least 10% of the total Consolidated Assets of the
     Borrower and its Subsidiaries (determined as of the last day of the most
     recent Fiscal Quarter of the Borrower ended on or prior to such date) or
     (b) at least 5% of the Consolidated revenues of the Borrower and its
     Subsidiaries for the four most recent Fiscal Quarters of the Borrower ended
     on or prior to such date.

          "Single Employer Plan" means a single employer plan, as defined in
           --------------------
     Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
     Borrower or any of its ERISA Affiliates and no Person other than the
     Borrower and its ERISA Affiliates or (b) was so maintained and in respect
     of which the Borrower or any of its ERISA Affiliates could have liability
     under Section 4069 of ERISA in the event such plan has been or were to be
     terminated.

          "Subsidiary" of any Person means any corporation, partnership, joint
           ----------
     venture, limited liability company, trust or estate of which (or in which)
     more than 50% of (a) the issued and outstanding capital stock having
     ordinary voting power to elect a majority of the Board of Directors of such
     corporation (irrespective of whether, at the time, capital stock of any
     other class or classes of such corporation shall or might have voting power
     upon the occurrence of any contingency), (b) the interest in the capital or
     profits of such partnership, joint venture or limited liability company or
     (c) the beneficial interest in such trust or estate is at the time directly
     or indirectly owned or controlled by such Person, by such Person and one or
     more of its other Subsidiaries or by one or more of such Person's other
     Subsidiaries.

          "Tangible Net Worth" means, with respect to any Person as of any date
           ------------------
     of determination, the excess of total assets over total liabilities, total
     assets and total liabilities each to be determined in accordance with GAAP,
     excluding, however, from the determination of total assets, (a) goodwill,
     ---------  -------

                                       10

<PAGE>

     experimental or organizational expenses, research and development expenses,
     franchises, trademarks, service marks, trade names, copyrights, patents,
     patent applications, licenses and rights in any thereof, and other similar
     intangibles, (b) all unamortized debt discount and expense, (c) treasury
     stock and capital stock, obligations or other securities of, or capital
     contributions to, or investments in, any Subsidiary, and (d) any items not
     included in clauses (a) through (c) above which are treated as intangibles
     in conformity with GAAP, in each case, determined on a Consolidated basis
     and in accordance with GAAP.

          "Taxes" has the meaning specified in Section 2.14(a).
           -----

          "Termination Date" means the earlier of (a) November 19, 2004 and (b)
           ----------------
     the date of termination in whole of the Commitments pursuant to Section
     2.05 or 6.01.

          "Trade Letter of Credit" means any letter of credit that is issued for
           ----------------------
     the benefit of a supplier of inventory or provider of a service necessary
     for the conduct of the business of the Borrower or any of its Subsidiaries
     (other than any financial services) to the Borrower or any of its
     Subsidiaries to effect payment for such inventory or service.

          "Voting Stock" means capital stock issued by a corporation, or
           ------------
     equivalent interests in any other Person, the holders of which are
     ordinarily, in the absence of contingencies, entitled to vote for the
     election of directors (or persons performing similar functions) of such
     Person, even though the right so to vote has been suspended by the
     happening of such a contingency.

          "Withdrawal Liability" has the meaning specified in Part 1 of Subtitle
           --------------------
     E of Title IV of ERISA.

          SECTION 1.02. Computation of Time Periods. In this Agreement in the
                        ---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".

          SECTION 1.03. Accounting Terms. All accounting terms not specifically
                        ----------------
defined herein shall be construed in accordance with United States generally
accepted accounting principles as in effect from time to time ("GAAP").
                                                                ----

                                   ARTICLE II

                        AMOUNTS AND TERMS OF THE ADVANCES

          SECTION 2.01. The Revolving Credit Advances. Each Lender severally
                        -----------------------------
agrees, on the terms and conditions hereinafter set forth, to make Revolving
Credit Advances to the Borrower from time to time on any Business Day during the
period from the Effective Date until the Termination Date in an aggregate amount
not to exceed at any time outstanding such Lender's Commitment provided that the
                                                               --------
aggregate amount of the Commitments of the Lenders shall be deemed used from
time to time to the extent of the aggregate amount of the Competitive Bid
Advances then outstanding and such deemed use of the aggregate amount of the
Commitments shall be allocated among the Lenders ratably according to their
respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "Competitive Bid Reduction"). Each Revolving Credit
                     -------------------------
Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances
of the same Type made on the same day by the Lenders ratably according to their
respective Commitments. Within the limits of each Lender's Commitment, the
Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10 and
reborrow under this Section 2.01.

          SECTION 2.02. Making the Revolving Credit Advances. (a) Each Revolving
                        ------------------------------------
Credit Borrowing shall be made on notice, given not later than (x) 12:00 Noon
(New York City time) on the third Business Day prior to the date of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing to be
comprised of Eurodollar Rate Advances or (y) 11:00 A.M. (New York City time) on
the Business Day of the proposed Revolving Credit Borrowing in the case of a
Revolving Credit Borrowing to be comprised of Base Rate Advances, by the
Borrower to the Agent, which shall give to each Lender prompt notice thereof by
telecopier or by

                                       11

<PAGE>

telex. Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving
                                                            -------------------
Credit Borrowing") shall be by telephone, confirmed immediately in writing, or
- ----------------
telecopier or telex in substantially the form of Exhibit B-1 hereto, specifying
therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of
Revolving Credit Advances comprising such Revolving Credit Borrowing, (iii)
aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a
Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial
Interest Period for each such Revolving Credit Advance. Each Lender shall on the
date of such Revolving Credit Borrowing, before 11:00 A.M. (New York City time)
, in the case of a Revolving Credit Borrowing to be comprised of Eurodollar Rate
Advances, and before 1:00 P.M. (New York City time), in the case of a Revolving
Credit Borrowing to be comprised of Base Rate Advances, make available for the
account of its Applicable Lending Office to the Agent at the Agent's Account, in
same day funds, such Lender's ratable portion of such Revolving Credit
Borrowing. After the Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Section 3.02, the Agent will make such funds
available to the Borrower at the Agent's address referred to in Section 8.02.

          (b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for any Revolving
Credit Borrowing if the obligation of the Lenders to make Eurodollar Rate
Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the
Eurodollar Rate Advances may not be outstanding as part of more than eight
separate Revolving Credit Borrowings.

          (c) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Borrower. In the case of any Revolving Credit Borrowing that the
related Notice of Revolving Credit Borrowing specifies is to be comprised of
Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified in such Notice of Revolving Credit
Borrowing for such Revolving Credit Borrowing the applicable conditions set
forth in Section 3.02, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the Revolving Credit Advance to be made by such
Lender as part of such Revolving Credit Borrowing when such Revolving Credit
Advance, as a result of such failure, is not made on such date.

          (d) Unless the Agent shall have received notice from a Lender prior to
the date of any Revolving Credit Borrowing (in the case of a Revolving Credit
Borrowing to be comprised of Eurodollar Rate Advances) and not later than 12:00
Noon (New York City time) on the Business Day of the proposed Revolving Credit
Borrowing (in the case of a Revolving Credit Borrowing to be comprised of Base
Rate Advances) that such Lender will not make available to the Agent such
Lender's ratable portion of such Revolving Credit Borrowing, the Agent may
assume that such Lender has made such portion available to the Agent on the date
of such Revolving Credit Borrowing in accordance with subsection (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the Agent,
such Lender and the Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at such time to Revolving Credit Advances comprising such
Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal
Funds Rate. If such Lender shall repay to the Agent such corresponding amount,
such amount so repaid shall constitute such Lender's Revolving Credit Advance as
part of such Revolving Credit Borrowing for purposes of this Agreement.

          (e) The failure of any Lender to make the Revolving Credit Advance to
be made by it as part of any Revolving Credit Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Revolving Credit
Advance on the date of such Revolving Credit Borrowing, but no Lender shall be
responsible for the failure of any other Lender to make the Revolving Credit
Advance to be made by such other Lender on the date of any Revolving Credit
Borrowing.

          SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally
                        ----------------------------
agrees that the Borrower may make Competitive Bid Borrowings under this Section
2.03 from time to time on any Business Day during the period from the Effective
Date until the date occurring 7 days prior to the Termination Date in the manner
set forth below; provided that (x) each Competitive Bid Borrowing shall be in an
                 --------
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof and (y) following the making of each Competitive Bid

                                       12

<PAGE>

Borrowing, the aggregate amount of the Advances then outstanding shall not
exceed the aggregate amount of the Commitments of the Lenders.

          (i) The Borrower may request a Competitive Bid Borrowing under this
     Section 2.03 by delivering to the Agent, by telecopier or telex, a notice
     of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"),
                                        -----------------------------------
     in substantially the form of Exhibit B-2 hereto, specifying the date and
     aggregate amount of the proposed Competitive Bid Borrowing, the maturity
     date for repayment of each Competitive Bid Advance to be made as part of
     such Competitive Bid Borrowing (which maturity date may not be earlier than
     the date occurring 7 days after the date of such Competitive Bid Borrowing
     or later than the earlier of (x) 180 days after the date of such
     Competitive Bid Borrowing and (y) the Termination Date), the interest
     payment date or dates relating thereto, and any other terms to be
     applicable to such Competitive Bid Borrowing, not later than 10:00 A.M.
     (New York City time) (A) at least one Business Day prior to the date of the
     proposed Competitive Bid Borrowing, if the Borrower shall specify in the
     Notice of Competitive Bid Borrowing that the rates of interest to be
     offered by the Lenders shall be fixed rates per annum and (B) at least four
     Business Days prior to the date of the proposed Competitive Bid Borrowing,
     if the Borrower shall instead specify in the Notice of Competitive Bid
     Borrowing the basis to be used by the Lenders in determining the rates of
     interest to be offered by them. The Agent shall in turn promptly notify
     each Lender of each request for a Competitive Bid Borrowing received by it
     from the Borrower by sending such Lender a copy of the applicable Notice of
     Competitive Bid Borrowing.

          (ii) Each Lender may, if, in its sole discretion, it elects to do so,
     irrevocably offer to make one or more Competitive Bid Advances to the
     Borrower as part of such proposed Competitive Bid Borrowing at a rate or
     rates of interest specified by such Lender in its sole discretion, by
     notifying the Agent (which shall give prompt notice thereof to the
     Borrower), before 10:00 A.M. (New York City time) (x) on the date of such
     proposed Competitive Bid Borrowing, in the case of a Notice of Competitive
     Bid Borrowing delivered pursuant to clause (A) of paragraph (i) above and
     (y) three Business Days before the date of such proposed Competitive Bid
     Borrowing, in the case of a Notice of Competitive Bid Borrowing delivered
     pursuant to clause (B) of paragraph (i) above of the minimum amount and
     maximum amount of each Competitive Bid Advance that such Lender would be
     willing to make as part of such proposed Competitive Bid Borrowing (which
     amounts may, subject to the proviso to the first sentence of Section
     2.03(a), exceed such Lender's Commitment, if any), the rate or rates of
     interest therefor and such Lender's Applicable Lending Office with respect
     to such Competitive Bid Advance, provided that if the Agent in its capacity
                                      --------
     as a Lender shall, in its sole discretion, elect to make any such offer, it
     shall notify the Borrower of such offer before 9:00 A.M. (New York City
     time) on the date on which notice of such election is to be given to the
     Agent, by the other Lenders. If any Lender shall elect not to make such an
     offer, such Lender shall so notify the Agent before 10:00 A.M. (New York
     City time) on the date on which notice of such election is to be given to
     the Agent by the other Lenders, and such Lender shall not be obligated to,
     and shall not, make any Competitive Bid Advance as part of such Competitive
     Bid Borrowing; provided that the failure by any Lender to give such notice
                    --------
     shall not cause such Lender to be obligated to make any Competitive Bid
     Advance as part of such proposed Competitive Bid Borrowing.

          (iii) The Borrower shall, in turn, (x) before 11:00 A.M. (New York
     City time) on the date of such proposed Competitive Bid Borrowing, in the
     case of a Notice of Competitive Bid Borrowing delivered pursuant to clause
     (A) of paragraph (i) above and (y) before 11:00 A.M. (New York City time)
     three Business Days before the date of such proposed Competitive Bid
     Borrowing, in the case of a Notice of Competitive Bid Borrowing delivered
     pursuant to clause (B) of paragraph (i) above, either:

               (A) cancel such Competitive Bid Borrowing by giving the Agent
          notice to that effect, or

               (B) accept one or more of the offers made by any Lender or
          Lenders pursuant to paragraph (ii) above, in order of the lowest to
          the highest rates of interest or margins (or if two or more Lenders
          bid at the same rate of interest, and the amount of accepted offers is
          less than the aggregate amount of such offers, the amount to be
          borrowed from such Lenders as part of such

                                       13

<PAGE>

          Competitive Bid Borrowing shall be allocated among such Lenders pro
                                                                          ---
          rata on the basis of the maximum amount offered by such Lenders at
          ----
          such rates or margin in connection with such Competitive Bid
          Borrowing), by giving notice to the Agent of the amount of each
          Competitive Bid Advance (which amount shall be equal to or greater
          than the minimum amount, and equal to or less than the maximum amount,
          notified to the Borrower by the Agent on behalf of such Lender for
          such Competitive Bid Advance pursuant to paragraph (ii) above) to be
          made by each Lender as part of such Competitive Bid Borrowing, and
          reject any remaining offers made by Lenders pursuant to paragraph (ii)
          above by giving the Agent notice to that effect.

          (iv) If the Borrower notifies the Agent that such Competitive Bid
     Borrowing is cancelled pursuant to subsection (iii)(A) above, the Agent
     shall give prompt notice thereof to the Lenders and such Competitive Bid
     Borrowing shall not be made.

          (v) If the Borrower accepts one or more of the offers made by any
     Lender or Lenders pursuant to paragraph (iii)(B) above, the Agent shall in
     turn promptly notify (A) each Lender that has made an offer as described in
     paragraph (ii) above, of the date and aggregate amount of such Competitive
     Bid Borrowing and whether or not any offer or offers made by such Lender
     pursuant to paragraph (ii) above have been accepted by the Borrower, (B)
     each Lender that is to make a Competitive Bid Advance as part of such
     Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to
     be made by such Lender as part of such Competitive Bid Borrowing, and (C)
     each Lender that is to make a Competitive Bid Advance as part of such
     Competitive Bid Borrowing, upon receipt, that the Agent has received forms
     of documents appearing to fulfill the applicable conditions set forth in
     Section 3.03. Each Lender that is to make a Competitive Bid Advance as part
     of such Competitive Bid Borrowing shall, before 12:00 Noon (New York City
     time) on the date of such Competitive Bid Borrowing specified in the notice
     received from the Agent pursuant to clause (A) of the preceding sentence or
     any later time when such Lender shall have received notice from the Agent
     pursuant to clause (C) of the preceding sentence, make available for the
     account of its Applicable Lending Office to the Agent at the Agent's
     Account, in same day funds, such Lender's portion of such Competitive Bid
     Borrowing. Upon fulfillment of the applicable conditions set forth in
     Section 3.03 and after receipt by the Agent of such funds, the Agent will
     make such funds available to the Borrower at the Agent's address referred
     to in Section 8.02. Promptly after each Competitive Bid Borrowing the Agent
     will notify each Lender of the amount of the Competitive Bid Borrowing, the
     consequent Competitive Bid Reduction and the dates upon which such
     Competitive Bid Reduction commenced and will terminate and the range of
     interest rates with respect to the Competitive Bid Advances made as part of
     such Competitive Bid Borrowing.

          (vi) If the Borrower notifies the Agent that it accepts one or more of
     the offers made by any Lender or Lenders pursuant to paragraph (iii)(y)
     above, such notice of acceptance shall be irrevocable and binding on the
     Borrower. The Borrower shall indemnify each Lender against any loss, cost
     or expense incurred by such Lender as a result of any failure to fulfill on
     or before the date specified in the related Notice of Competitive Bid
     Borrowing for such Competitive Bid Borrowing the applicable conditions set
     forth in Section 3.03, including, without limitation, any loss, cost or
     expense incurred by reason of the liquidation or reemployment of deposits
     or other funds acquired by such Lender to fund the Competitive Bid Advance
     to be made by such Lender as part of such Competitive Bid Borrowing when
     such Competitive Bid Advance, as a result of such failure, is not made on
     such date.

          (b) Within the limits and on the conditions set forth in this Section
2.03, the Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (c) below and reborrow under this Section 2.03, provided
                                                                       --------
that a Competitive Bid Borrowing shall not be made within three Business Days of
the date of any other Competitive Bid Borrowing.

          (c) The Borrower shall repay to the Agent for the account of each
Lender that has made a Competitive Bid Advance, on the maturity date of such
Competitive Bid Advance (such maturity date being that specified by the Borrower
for repayment of such Competitive Bid Advance in the related Notice of
Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above and
provided in the Competitive Bid Note evidencing such

                                       14

<PAGE>

Competitive Bid Advance), the then unpaid principal amount of such Competitive
Bid Advance. The Borrower shall have the right to prepay any Competitive Bid
Advance only upon the terms agreed to in connection with such Competitive Bid
Advance.

          (d) The Borrower shall pay interest on the unpaid principal amount of
each Competitive Bid Advance from the date of such Competitive Bid Advance until
the date the principal amount of such Competitive Bid Advance is paid in full at
the rate of interest for such Competitive Bid Advance specified by the Lender
making such Competitive Bid Advance in the notice delivered pursuant to
subsection (a)(ii) above, payable on the interest payment date or dates
specified by the Borrower for such Competitive Bid Advance in the related Notice
of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, as
provided in the Competitive Bid Note evidencing such Competitive Bid Advance. At
any time during which the Borrower shall fail (x) to pay any principal of any
Advance, any interest on any Advance or make any other payment in connection
with this Agreement when the same becomes due and payable or (y) to perform or
observe any term, covenant or agreement contained in Section 5.03, the Borrower
shall pay interest on the amount of unpaid principal of and interest on each
Competitive Bid Advance owing to a Lender, payable in arrears on the date or
dates interest is payable thereon, at a rate per annum equal at all times to 2%
per annum above the rate per annum required to be paid on such Competitive Bid
Advance under the terms of the Competitive Bid Note evidencing such Competitive
Bid Advance unless otherwise agreed in such Competitive Bid Note.

          (e) The indebtedness of the Borrower resulting from each Competitive
Bid Advance made to the Borrower as part of a Competitive Bid Borrowing shall be
evidenced by a separate Competitive Bid Note of the Borrower payable to the
order of the Lender making such Competitive Bid Advance.

          (f) Following the making of each Competitive Bid Borrowing, the
Borrower shall be in compliance with the limitation set forth in clause (y) of
the proviso to the first sentence of Section 2.03(a).

          (g) The Borrower shall pay to the Agent for its own account such fees
as may be agreed between the Borrower and the Agent in connection with each
request for a Competitive Bid Borrowing whether or not any Competitive Bid
Borrowing is in fact made.

          SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to pay to
                        ----      ------------
the Agent for the ratable account of each Lender a facility fee on the aggregate
amount of such Lender's Commitment from the date hereof until the Termination
Date at a rate per annum equal to the Applicable Percentage in effect from time
to time, payable in arrears quarterly on the last day of each March, June,
September and December, commencing December 31, 2001, and on the Termination
Date.

          (b) Agent's Fees. The Borrower shall pay to the Agent for its own
              ------------
account such fees as may from time to time be agreed between the Borrower and
the Agent.

          SECTION 2.05. Termination or Reduction of the Commitments. The
                        -------------------------------------------
Borrower shall have the right, upon at least three Business Days' notice to the
Agent, to terminate in whole or permanently reduce ratably in part the unused
portions of the respective Commitments of the Lenders, provided that the
                                                       --------
aggregate amount of the Commitments of the Lenders shall not be reduced to an
amount that is less than the aggregate principal amount of the Competitive Bid
Advances then outstanding, and provided further that each partial reduction
                               -------- -------
shall be in the aggregate amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof.

          SECTION 2.06. Repayment of Revolving Credit Advances. The Borrower
                        --------------------------------------
shall repay to the Agent for the ratable account of the Lenders on the
Termination Date the aggregate principal amount of the Revolving Credit Advances
then outstanding.

          SECTION 2.07. Interest on Revolving Credit Advances. (a) Scheduled
                        -------------------------------------      ---------
Interest. The Borrower shall pay interest on the unpaid principal amount of each
- --------
Revolving Credit Advance owing to each Lender from the date of such Revolving
Credit Advance until such principal amount shall be paid in full, at the
following rates per annum:

                                       15

<PAGE>

          (i) Base Rate Advances. During such periods as such Revolving Credit
              ------------------
     Advance is a Base Rate Advance, a rate per annum equal at all times to the
     sum of (x) the Base Rate in effect from time to time plus (y) the
     Applicable Margin in effect from time to time plus (z) the Applicable
                                                   ----
     Utilization Fee in effect from time to time, payable in arrears quarterly
     on the last day of each March, June, September and December during such
     periods and on the date such Base Rate Advance shall be Converted or paid
     in full.

          (ii) Eurodollar Rate Advances. During such periods as such Revolving
               ------------------------
     Credit Advance is a Eurodollar Rate Advance, a rate per annum equal at all
     times during each Interest Period for such Revolving Credit Advance to the
     sum of (x) the Eurodollar Rate for such Interest Period for such Revolving
     Credit Advance plus (y) the Applicable Margin in effect from time to time
                    ----
     plus (z) the Applicable Utilization Fee in effect from time to time,
     ----
     payable in arrears on the last day of such Interest Period and, if such
     Interest Period has a duration of more than three months, on each day that
     occurs during such Interest Period every three months from the first day of
     such Interest Period and on the date such Eurodollar Rate Advance shall be
     Converted or paid in full.

          (b) Default Interest. At any time during which the Borrower shall fail
              ----------------
(i) to pay any principal of any Advance, any interest on any Advance or make any
other payment in connection with this Agreement when the same becomes due and
payable or (ii) to perform or observe any term, covenant or agreement contained
in Section 5.03, the Agent may, and upon the request of the Required Lenders
shall, require the Borrower to pay interest ("Default Interest") on (i) the
                                              ----------------
unpaid principal amount of each Revolving Credit Advance owing to each Lender,
payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Revolving Credit Advance pursuant to clause (a)(i)
or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of
any interest, fee or other amount payable hereunder that is not paid when due,
from the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Base Rate Advances pursuant to clause (a)(i) above,
provided, however, that following acceleration of the Advances pursuant to
- --------  -------
Section 6.01, Default Interest shall accrue and be payable hereunder whether or
not previously required by the Agent.

          SECTION 2.08. Interest Rate Determination. (a) Each Reference Bank
                        ---------------------------
agrees to furnish to the Agent timely information for the purpose of determining
each Eurodollar Rate. If any one or more of the Reference Banks shall not
furnish such timely information to the Agent for the purpose of determining such
interest rate, the Agent shall determine such interest rate on the basis of
timely information furnished by the remaining Reference Banks.

          (b) The Agent shall give prompt notice to the Borrower and the Lenders
of the applicable interest rate determined by the Agent for purposes of Section
2.07(a)(i) or (ii), and the applicable rate, if any, furnished by each Reference
Bank for the purpose of determining the applicable interest rate under Section
2.07(a)(ii).

          (c) If Telerate Markets Page 3750 is unavailable and fewer than two
Reference Banks furnish timely information to the Agent for determining the
Eurodollar Rate for any Eurodollar Rate Advances,

          (i) the Agent shall forthwith notify the Borrower and the Lenders that
     the interest rate cannot be determined for such Eurodollar Rate Advances,

          (ii) each such Advance will automatically, on the last day of the then
     existing Interest Period therefor, Convert into a Base Rate Advance (or if
     such Advance is then a Base Rate Advance, will continue as a Base Rate
     Advance), and

          (iii) the obligation of the Lenders to make, or to Convert Revolving
     Credit Advances into, Eurodollar Rate Advances shall be suspended until the
     Agent shall notify the Borrower and the Lenders that the circumstances
     causing such suspension no longer exist.

                                       16

<PAGE>

          (d) If, with respect to any Eurodollar Rate Advances, the Required
Lenders notify the Agent that the Eurodollar Rate for any Interest Period for
such Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Eurodollar Rate Advances for
such Interest Period, the Agent shall forthwith so notify the Borrower and the
Lenders, whereupon (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance, and (ii) the obligation of the Lenders to make, or to Convert Revolving
Credit Advances into, Eurodollar Rate Advances shall be suspended until the
Agent shall notify the Borrower and the Lenders that the circumstances causing
such suspension no longer exist.

          (e) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Eurodollar Rate Advances having an Interest Period of one month.

          (f) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.

          (g) Upon the occurrence and during the continuance of any Event of
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.

          SECTION 2.09. Optional Conversion of Revolving Credit Advances. The
                        ------------------------------------------------
Borrower may on any Business Day, upon notice given to the Agent not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12,
Convert all Revolving Credit Advances of one Type comprising the same Borrowing
into Revolving Credit Advances of the other Type; provided, however, that any
                                                  --------  -------
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified for Revolving Credit
Borrowings in Section 2.01 and no Conversion of any Revolving Credit Advances
shall result in more separate Revolving Credit Borrowings than permitted under
Section 2.02(b). Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Revolving
Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for each such
Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower.

          SECTION 2.10. Prepayments of Revolving Credit Advances. The Borrower
                        ----------------------------------------
may, upon notice to the Agent no later than 11:00 A.M. (New York City time) on
the proposed date of the prepayment in the case of Base Rate Advances and on the
second Business Day prior to the proposed date of the prepayment in the case of
Eurodollar Rate Advances, in each case stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the Revolving Credit Advances
comprising part of the same Revolving Credit Borrowing in whole or ratably in
part, together with accrued interest to the date of such prepayment on the
principal amount prepaid; provided, however, that (x) each partial prepayment
                          --------  -------
shall be in an aggregate principal amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof and (y) in the event of any
such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to Section 8.04(c).

          SECTION 2.11. Increased Costs. (a) If, due to either (i) the
                        ---------------
introduction of or any change in or in the interpretation of any law or
regulation after the date hereof or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued after the date hereof, there shall be any
increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances (excluding for purposes of this Section
2.11 any such increased costs resulting from (i) Taxes or Other Taxes (as to
which Section 2.14 shall govern) and (ii) changes in the basis of taxation of
overall net income or overall gross income by the United States or by the
foreign jurisdiction or state

                                       17

<PAGE>

under the laws of which such Lender is organized or has its Applicable Lending
Office or any political subdivision thereof), then the Borrower shall from time
to time, upon demand by such Lender (with a copy of such demand to the Agent),
pay to the Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost provided, however, that, any
                                               --------  -------
Lender claiming additional amounts under this Section 2.12 shall use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Applicable Lending Office if such change
would avoid the need for, or reduce the amount of, such increased cost that may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate as to the amount of such
increased cost, submitted to the Borrower and the Agent by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.

          (b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority enacted or made after the date hereof (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender or any corporation controlling such
Lender and that the amount of such capital is increased by or based upon the
existence of such Lender's commitment to lend hereunder and other commitments of
this type, then, upon demand by such Lender (with a copy of such demand to the
Agent), the Borrower shall pay to the Agent for the account of such Lender, from
time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender or such corporation in the light of such circumstances,
to the extent that such Lender reasonably determines such increase in capital to
be allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to the Borrower and the Agent by such
Lender shall be conclusive and binding for all purposes, absent manifest error.

          (c) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section 2.11 shall not constitute a waiver of such Lender's
right to demand such compensation; provided that the Borrower shall not be
                                   --------
required to compensate a Lender pursuant to this Section 2.11 for any increased
costs or reductions incurred more than four months prior to the date that such
Lender notifies the Borrower of the change giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the change giving rise to such increased costs or
- -------- -------
reductions is retroactive, than the four-month period referred to above shall be
included to include the period of retroactive effect thereof.

          SECTION 2.12. Illegality. Notwithstanding any other provision of this
                        ----------
Agreement, if any Lender shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) the obligation of the Lenders to make, or to
Convert Revolving Credit Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist and (ii) the Borrower
shall forthwith prepay in full all Eurodollar Rate Advances of all Lenders then
outstanding, together with interest accrued thereon, unless the Borrower, within
five Business Days of notice from the Agent, Converts all Eurodollar Rate
Advances of all Lenders then outstanding into Base Rate Advances in accordance
with Section 2.09.

          SECTION 2.13. Payments and Computations. (a) The Borrower shall make
                        -------------------------
each payment hereunder, irrespective of any right of counterclaim or set-off,
not later than 12:00 Noon (New York City time) on the day when due in U.S.
dollars to the Agent at the Agent's Account in same day funds. The Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or facility fees ratably (other than amounts payable
pursuant to Section 2.03, 2.11, 2.14 or 8.04(c)) to the Lenders for the account
of their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any Lender to such Lender for the account
of its Applicable Lending Office, in each case to be applied in accordance with
the terms of this Agreement. Upon any Assuming Lender becoming a Lender
hereunder as a result of a Commitment Increase pursuant to Section 2.18, and
upon the Agent's receipt of such Lender's Assumption Agreement and recording of
the information contained therein in the Register, from and after the applicable
Increase Date, the Agent shall make all payments hereunder and under any Notes
issued in connection therewith in respect of the interest assumed thereby to the
Assuming Lender. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such

                                       18

<PAGE>

Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.

          (b) All computations of interest based on the Base Rate shall be made
by the Agent on the basis of a year of 365 or 366 days, as the case may be, and
all computations of interest based on the Eurodollar Rate or the Federal Funds
Rate and of facility fees shall be made by the Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest or
facility fees are payable. Each determination by the Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.

          (c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, that, if such extension would cause payment of
        --------  -------
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.

          (d) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the Agent,
each Lender shall repay to the Agent forthwith on demand such amount distributed
to such Lender together with interest thereon, for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Federal Funds Rate.

          SECTION 2.14. Taxes. (a) Any and all payments by the Borrower to or
                        -----
for the account of any Lender or the Agent hereunder or under the Notes or any
other documents to be delivered hereunder shall be made, in accordance with
Section 2.13 or the applicable provisions of such other documents, free and
clear of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, taxes imposed on
         ---------
its overall net income, minimum taxes, alternative minimum taxes, doing business
taxes, franchise taxes and value added taxes imposed on it in lieu of net income
taxes, by the jurisdiction under the laws of which such Lender or the Agent (as
the case may be) is organized (federal or state) or doing business or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, minimum taxes, alternative minimum taxes, doing business
taxes, franchise taxes and value added taxes imposed on it in lieu of net income
taxes, by the jurisdiction of such Lender's Applicable Lending Office (federal
or state) or in which such Lender is doing business or any political subdivision
thereof (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities in respect of payments hereunder or under the Notes
being hereinafter referred to as "Taxes"). If the Borrower shall be required by
                                  -----
law to deduct any Taxes from or in respect of any sum payable hereunder or under
any Note or any other documents to be delivered hereunder to any Lender or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Lender or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.

          (b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or under the Notes or
any other documents to be delivered hereunder or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Notes or any other documents to be delivered hereunder imposed by the
jurisdiction under the laws of which the Borrower is organized or any political
subdivision thereof, or by the jurisdiction in which the Borrower's principal
office is located or from which any payments hereunder are made (hereinafter
referred to as "Other Taxes").
                -----------

                                       19

<PAGE>

          (c) The Borrower will indemnify each Lender and the Agent for and hold
it harmless against the full amount of Taxes or Other Taxes (including, without
limitation, taxes of any kind imposed or asserted by any jurisdiction on amounts
payable under this Section 2.14) imposed on or paid by such Lender or the Agent
(as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be made within 30 days from the date such Lender or the Agent (as the case may
be) makes written demand therefor; provided, however, that in no event shall any
                                   --------  -------
such indemnification be due earlier than five Business Days after such Lender or
the Agent (as the case may be) has paid such Taxes or Other Taxes; provided,
                                                                   --------
further, that any such demand shall be accompanied by copies of all
- -------
correspondence to and from the applicable taxing authority and a copy of the
calculation of such Taxes or Other Taxes.

          (d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Agent, at its address referred to in Section 8.02,
the original or a certified copy of a receipt evidencing such payment to the
extent such a receipt is issued therefor, or other written proof of payment
thereof that is reasonably satisfactory to the Agent. In the case of any payment
hereunder or under the Notes or any other documents to be delivered hereunder by
or on behalf of the Borrower through an account or branch outside the United
States or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect thereof,
the Borrower shall furnish, or shall cause such payor to furnish, to the Agent,
at such address, an opinion of counsel reasonably acceptable to the Agent
stating that such payment is exempt from Taxes. For purposes of this subsection
(d) and subsection (e), the terms "United States" and "United States person"
                                   -------------       --------------------
shall have the meanings specified in Section 7701 of the Internal Revenue Code.

          (e) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender and on the date of the Assumption
Agreement or the Assignment and Acceptance pursuant to which it becomes a Lender
in the case of each other Lender, and from time to time thereafter as reasonably
requested in writing by the Borrower (but only so long as such Lender remains
lawfully able to do so), shall provide each of the Agent and the Borrower with
two original Internal Revenue Service forms W-8BEN or W-8ECI, as appropriate, or
any successor or other form prescribed by the Internal Revenue Service,
certifying that such Lender is exempt from or entitled to a reduced rate of
United States withholding tax on payments pursuant to this Agreement or the
Notes. If the form provided by a Lender at the time such Lender first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from Taxes unless and until such Lender provides the appropriate forms
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
      --------  -------
pursuant to which a Lender assignee becomes a party to this Agreement, the
Lender assignor was entitled to payments under subsection (a) in respect of
United States withholding tax with respect to interest paid at such date, then,
to such extent, the term Taxes shall include (in addition to withholding taxes
that may be imposed in the future or other amounts otherwise includable in
Taxes) United States withholding tax, if any, applicable with respect to the
Lender assignee on such date. If any form or document referred to in this
subsection (e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service form W-8BEN or W-8ECI, that the Lender reasonably
considers to be confidential, the Lender shall give notice thereof to the
Borrower and shall not be obligated to include in such form or document such
confidential information.

          (f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form, certificate or other document
described in Section 2.14(e) (other than if such failure is due to a change in
                              ----- ----
law, or in the interpretation or application thereof, occurring subsequent to
the date on which a form, certificate or other document originally was required
to be provided, or if such form, certificate or other document otherwise is not
required under subsection (e) above), such Lender shall not be entitled to
indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
                                             --------  -------
Lender become subject to Taxes because of its failure to deliver a form,
certificate or other document required hereunder, the Borrower shall take such
steps as such Lender shall reasonably request to assist the Lender to recover
such Taxes (and such Lender reimburse the Borrower for reasonable out-of-pocket
costs and expenses of the Borrower in connection therewith).

                                       20

<PAGE>

          (g) Any Lender claiming any additional amounts payable pursuant to
this Section 2.14 shall use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Eurodollar Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender, provided, that should the Borrower be required
                                --------
to pay any amounts under Section 2.14(a) or (c), and the Borrower delivers to
each Lender that received such amounts an opinion of counsel that payments to
the Lender or the Agent were not in fact subject to Taxes, each Lender shall use
reasonable efforts to cooperate with the Borrower, including, but not limited to
filing and pursuing a claim of refund in its own name (provided that the
Borrower agrees in writing to indemnify and reimburse such Lender for its actual
out-of-pocket expenses in connection with such claim for refund), in obtaining a
refund of Taxes, and if such Lender receives a refund of Taxes shall promptly
pay such Taxes over to the Borrower.

          (h) If any Lender determines, in its sole discretion, that it has
actually and finally realized, by reason of a refund, deduction or credit of any
Taxes paid or reimbursed by the Borrower pursuant to subjection (a) or (c) above
in respect of payments under the Credit Agreement or the Notes, a current
monetary benefit that it would otherwise not have obtained, and that would
result in the total payments under this Section 2.14 exceeding the amount needed
to make such Lender whole, such Lender shall pay to the Borrower, with
reasonable promptness following the date on which it actually realized such
benefit, an amount equal to the lesser of the amount of such benefit or the
amount of such excess, in each case net of all out-of-pocket expenses in
securing such refund, deduction or credit.

          SECTION 2.15. Sharing of Payments, Etc. If any Lender shall obtain any
                        ------------------------
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Credit Advances owing to it
(other than pursuant to Section 2.11, 2.14 or 8.04(c)) in excess of its ratable
share of payments on account of the Revolving Credit Advances obtained by all
the Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
                   --------  -------
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 2.15 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with respect
to such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

          SECTION 2.16. Evidence of Debt. (a) Each Lender shall maintain in
                        ----------------
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Revolving Credit
Advance owing to such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder in respect of Revolving Credit Advances. The Borrower agrees that upon
notice by any Lender to the Borrower (with a copy of such notice to the Agent)
to the effect that a Revolving Credit Note is required or appropriate in order
for such Lender to evidence (whether for purposes of pledge, enforcement or
otherwise) the Revolving Credit Advances owing to, or to be made by, such
Lender, the Borrower shall promptly execute and deliver to such Lender a
Revolving Credit Note payable to the order of such Lender in a principal amount
up to the Commitment of such Lender.

          (b) The Register maintained by the Agent pursuant to Section 8.07(d)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, the Type of Advances comprising such Borrowing
and, if appropriate, the Interest Period applicable thereto, (ii) the terms of
each Assumption Agreement and each Assignment and Acceptance delivered to and
accepted by it, (iii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender hereunder and (iv)
the amount of any sum received by the Agent from the Borrower hereunder and each
Lender's share thereof.

                                       21

<PAGE>

          (c) Entries made in good faith by the Agent in the Register pursuant
to subsection (b) above, and by each Lender in its account or accounts pursuant
to subsection (a) above, shall be prima facie evidence of the amount of
                                  ----- -----
principal and interest due and payable or to become due and payable from the
Borrower to, in the case of the Register, each Lender and, in the case of such
account or accounts, such Lender, under this Agreement, absent manifest error;
provided, however, that the failure of the Agent or such Lender to make an
- --------  -------
entry, or any finding that an entry is incorrect, in the Register or such
account or accounts shall not limit or otherwise affect the obligations of the
Borrower under this Agreement.

          SECTION 2.17. Use of Proceeds. The proceeds of the Advances shall be
                        ---------------
available (and the Borrower agrees that it shall use such proceeds) solely for
working capital and general corporate purposes of the Borrower and its
Subsidiaries (including, without limitation, acquisitions, repayment of debt and
repurchase of stock).

          SECTION 2.18. Increase in the Aggregate Commitments. (a) The Borrower
                        -------------------------------------
may, at any time but in any event not more than once in any calendar year prior
to the Termination Date, by notice to the Agent, request that the aggregate
amount of the Commitment be increased by an amount of $25,000,000 or an integral
multiple of $25,000,000 in excess thereof (each a "Commitment Increase") to be
                                                   -------------------
effective as of a date that is at least 90 days prior to the scheduled
Termination Date then in effect (the "Increase Date") as specified in the
                                      -------------
related notice to the Agent; provided, however that (i) in no event shall the
                             --------  -------
aggregate amount of the Commitments at any time exceed $245,000,000 and (ii) on
the date of any request by the Borrower for a Commitment Increase and on the
related Increase Date, no Default shall have occurred and be continuing.

          (b) The Agent shall promptly notify the Lenders of a request by the
Borrower for a Commitment Increase, which notice shall include (i) the proposed
amount of such requested Commitment Increase, (ii) the proposed Increase Date
and (iii) the date by which Lenders wishing to participate in the Commitment
Increase must commit to an increase in the amount of their respective
Commitments (the "Commitment Date"). Each Lender that is willing to participate
                  ---------------
in such requested Commitment Increase (each an "Increasing Lender") shall, in
                                                -----------------
its sole discretion, give written notice to the Agent on or prior to the
Commitment Date of the amount by which it is willing to increase its Commitment.
If the Lenders notify the Agent that they are willing to increase the amount of
their respective Commitments by an aggregate amount that exceeds the amount of
the requested Commitment Increase, the requested Commitment Increase shall be
allocated among the Lenders willing to participate therein in such amounts as
are agreed between the Borrower and the Agent.

          (c) Promptly following each Commitment Date, the Agent shall notify
the Borrower as to the amount, if any, by which the Lenders are willing to
participate in the requested Commitment Increase. If the aggregate amount by
which the Lenders are willing to participate in any requested Commitment
Increase on any such Commitment Date is less than the requested Commitment
Increase, then the Borrower may extend offers to one or more Eligible Assignees
to participate in any portion of the requested Commitment Increase that has not
been committed to by the Lenders as of the applicable Commitment Date; provided,
                                                                       --------
however, that the Commitment of each such Eligible Assignee shall be in an
- -------
amount of not less than $10,000,000.

          (d) On each Increase Date, each Eligible Assignee that accepts an
offer to participate in a requested Commitment Increase in accordance with
Section 2.18(b) (each such Eligible Assignee, an "Assuming Lender") shall become
                                                  ---------------
a Lender party to this Agreement as of such Increase Date and the Commitment of
each Increasing Lender for such requested Commitment Increase shall be so
increased by such amount (or by the amount allocated to such Lender pursuant to
the last sentence of Section 2.18(b)) as of such Increase Date; provided,
                                                                --------
however, that the Agent shall have received on or before such Increase Date the
- -------
following, each dated such date:

          (i) (A) certified copies of resolutions of the Board of Directors of
     the Borrower or the Executive Committee of such Board approving the
     Commitment Increase and the corresponding modifications to this Agreement
     and (B) an opinion of counsel for the Borrower (which may be in-house
     counsel), in substantially the form of Exhibit E hereto;

                                       22

<PAGE>

          (ii) an assumption agreement from each Assuming Lender, if any, in
     form and substance satisfactory to the Borrower and the Agent (each an
     "Assumption Agreement"), duly executed by such Eligible Assignee, the Agent
      --------------------
     and the Borrower; and

          (iii) confirmation from each Increasing Lender of the increase in the
     amount of its Commitment in a writing satisfactory to the Borrower and the
     Agent.

On each Increase Date, upon fulfillment of the conditions set forth in the
immediately preceding sentence of this Section 2.18(d), the Agent shall notify
the Lenders (including, without limitation, each Assuming Lender) and the
Borrower, on or before 1:00 P.M. (New York City time), by telecopier or telex,
of the occurrence of the Commitment Increase to be effected on such Increase
Date and shall record in the Register the relevant information with respect to
each Increasing Lender and each Assuming Lender on such date.

                                   ARTICLE III

                     CONDITIONS TO EFFECTIVENESS AND LENDING

          SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01
                        ------------------------------------------------------
and 2.03. Sections 2.01 and 2.03 of this Agreement shall become effective on and
- --------
as of the first date (the "Effective Date") on which the following conditions
                           --------------
precedent have been satisfied:

          (a) There shall have occurred no Material Adverse Change since
     December 31, 2000.

          (b) There shall exist no action, suit, investigation, litigation or
     proceeding affecting the Borrower or any of its Subsidiaries pending or, to
     the best knowledge of the Borrower, threatened before any court,
     governmental agency or arbitrator that (i) could be reasonably likely to
     have a Material Adverse Effect, except as set forth in Schedule 3.01(b)
     (the "Disclosed Litigation") or (ii) purports to affect the legality,
           --------------------
     validity or enforceability of this Agreement or any Note or the
     consummation of the transactions contemplated hereby, and there shall have
     been no material adverse change in the status or financial effect on the
     Borrower or any of its Subsidiaries, of the Disclosed Litigation from that
     described on Schedule 3.01(b).

          (c) All governmental and third party consents and approvals necessary
     in connection with the transactions contemplated hereby shall have been
     obtained (without the imposition of any conditions that are not reasonably
     acceptable to the Lenders) and shall remain in effect, and no law or
     regulation shall be applicable in the reasonable judgment of the Lenders
     that restrains, prevents or imposes materially adverse conditions upon the
     transactions contemplated hereby.

          (d) The Borrower shall have notified each Lender and the Agent in
     writing as to the proposed Effective Date.

          (e) The Borrower shall have paid all accrued fees and expenses of the
     Agent and the Arrangers (including the accrued fees and expenses of counsel
     to the Agent and the Arrangers then due and payable).

          (f) On the Effective Date, the following statements shall be true and
     the Agent shall have received for the account of each Lender a certificate
     signed by a duly authorized officer of the Borrower, dated the Effective
     Date, stating that:

               (i) the representations and warranties contained in Section 4.01
          are correct on and as of the Effective Date; and

               (ii) no event has occurred and is continuing that constitutes a
          Default.

                                       23

<PAGE>

          (g) The Agent shall have received on or before the Effective Date the
     following, each dated such day, in form and substance satisfactory to the
     Agent and (except for the Revolving Credit Notes) in sufficient copies for
     each Lender:

               (i) The Revolving Credit Notes to the order of the Lenders to the
          extent requested by any Lender pursuant to Section 2.16.

               (ii) Certified copies of the resolutions of the Board of
          Directors of the Borrower approving this Agreement and the Notes, and
          of all documents evidencing other necessary corporate action and
          governmental approvals, if any, with respect to this Agreement and the
          Notes.

               (iii) A certificate of the Secretary or an Assistant Secretary of
          the Borrower certifying the names and true signatures of the officers
          of the Borrower authorized to sign this Agreement and the Notes and
          the other documents to be delivered hereunder.

               (iv) A favorable opinion of Womble Carlyle Sandridge & Rice,
          PLLC, special counsel for the Borrower, substantially in the form of
          Exhibit E hereto and as to such other matters as any Lender through
          the Agent may reasonably request.

               (v) A favorable opinion of Shearman & Sterling, counsel for the
          Agent, in form and substance satisfactory to the Agent.

          (h) The Borrower shall have terminated the commitments, and paid in
     full all Debt, interest, fees and other amounts outstanding under the
     Amended and Restated Revolving Credit Agreement dated as of April 11, 1997,
     as amended, among the Borrower, the lenders parties thereto and Citibank,
     as administrative agent, and each of the Lenders that is a party to such
     Amended and Restated Revolving Credit Agreement hereby waives the
     requirement of three Business Days' prior notice to the termination of
     their commitments thereunder as provided in Section 2.06 of said agreement.

          SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing.
                        --------------------------------------------------------
The obligation of each Lender to make a Revolving Credit Advance on the occasion
of each Revolving Credit Borrowing shall be subject to the conditions precedent
that the Effective Date shall have occurred and on the date of such Revolving
Credit Borrowing (a) the following statements shall be true (and each of the
giving of the applicable Notice of Revolving Credit Borrowing and the acceptance
by the Borrower of the proceeds of such Revolving Credit Borrowing shall
constitute a representation and warranty by the Borrower that on the date of
such Borrowing such statements are true):

          (i) the representations and warranties contained in Section 4.01
     (except the representations set forth in subsection (e) and in subsection
     (f)(i) thereof) are correct on and as of such date, before and after giving
     effect to such Revolving Credit Borrowing and to the application of the
     proceeds therefrom, as though made on and as of such date, and

          (ii) no event has occurred and is continuing, or would result from
     such Revolving Credit Borrowing or from the application of the proceeds
     therefrom, that constitutes a Default;

and (b) the Agent shall have received such other approvals, opinions or
documents as any Lender through the Agent may reasonably request.

          SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.
                        ------------------------------------------------------
The obligation of each Lender that is to make a Competitive Bid Advance on the
occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as
part of such Competitive Bid Borrowing is subject to the conditions precedent
that the Effective Date shall have occurred and (a) the Agent shall have
received the written confirmatory Notice of Competitive Bid Borrowing with
respect thereto, (b) on or before the date of such Competitive Bid Borrowing,
but

                                       24

<PAGE>

prior to such Competitive Bid Borrowing, the Agent shall have received a
Competitive Bid Note payable to the order of such Lender for each of the one or
more Competitive Bid Advances to be made by such Lender as part of such
Competitive Bid Borrowing, in a principal amount equal to the principal amount
of the Competitive Bid Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Competitive Bid Advance in accordance with
Section 2.03, and (iii) on the date of such Competitive Bid Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the
proceeds of such Competitive Bid Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Competitive Bid Borrowing such
statements are true):

          (i) the representations and warranties contained in Section 4.01
     (except the representations set forth in subsection (e) and subsection
     (f)(i) thereof) are correct on and as of the date of such Competitive Bid
     Borrowing, before and after giving effect to such Competitive Bid Borrowing
     and to the application of the proceeds therefrom, as though made on and as
     of such date, and

          (ii) no event has occurred and is continuing, or would result from
     such Competitive Bid Borrowing or from the application of the proceeds
     therefrom, that constitutes a Default.

          SECTION 3.04. Determinations Under Section 3.01. For purposes of
                        ---------------------------------
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders, with a copy
to the Borrower, of the occurrence of the Effective Date.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          SECTION 4.01. Representations and Warranties of the Borrower. The
                        ----------------------------------------------
Borrower represents and warrants as follows:

          (a) The Borrower is a corporation duly organized, validly existing and
     in good standing under the laws of the State of North Carolina.

          (b) The execution, delivery and performance by the Borrower of this
     Agreement and the Notes to be delivered by it, and the consummation of the
     transactions contemplated hereby, are within the Borrower's corporate
     powers, have been duly authorized by all necessary corporate action, and do
     not contravene (i) the Borrower's charter or by-laws or (ii) law or any
     material contractual restriction binding on or affecting the Borrower or,
     to the actual knowledge of a responsible officer of the Borrower, any other
     contractual restriction binding on or affecting the Borrower.

          (c) No authorization or approval or other action by, and no notice to
     or filing with, any governmental authority, regulatory body or any other
     third party is required for the due execution, delivery and performance by
     the Borrower of this Agreement or the Notes to be delivered by it.

          (d) This Agreement has been, and each of the Notes to be delivered by
     it when delivered hereunder will have been, duly executed and delivered by
     the Borrower. This Agreement is, and each of the Notes when delivered
     hereunder will be, the legal, valid and binding obligation of the Borrower
     enforceable against the Borrower in accordance with their respective terms;
     provided that the enforceability hereof and thereof is subject in each case
     to general principles of equity and to bankruptcy, insolvency and similar
     laws affecting the enforcement of creditors' rights generally.

                                       25

<PAGE>

          (e) The Consolidated balance sheet of the Borrower and its
     Subsidiaries as at December 31, 2000, and the related Consolidated
     statements of income and cash flows of the Borrower and its Subsidiaries
     for the fiscal year then ended, accompanied by an opinion of Arthur
     Andersen L.L.P., independent public accountants, and the Consolidated
     balance sheet of the Borrower and its Subsidiaries as at June 30, 2001, and
     the related Consolidated statements of income and cash flows of the
     Borrower and its Subsidiaries for the six months then ended, duly certified
     by the chief financial officer of the Borrower, copies of which have been
     furnished to each Lender, fairly present, subject, in the case of said
     balance sheet as at June 30, 2001, and said statements of income and cash
     flows for the six months then ended, to year-end audit adjustments, the
     Consolidated financial condition of the Borrower and its Subsidiaries as at
     such dates and the Consolidated results of the operations of the Borrower
     and its Subsidiaries for the periods ended on such dates, all in accordance
     with generally accepted accounting principles consistently applied. Since
     December 31, 2000, there has been no Material Adverse Change.

          (f) There is no pending or, to the knowledge of the Borrower,
     threatened action or proceeding, including, without limitation, any
     Environmental Action, affecting the Borrower or any of its Subsidiaries
     before any court, governmental agency or arbitrator that (i) could be
     reasonably likely to have a Material Adverse Effect (other than the
     Disclosed Litigation), and since the date of Schedule 3.01(b) was prepared
     there has been no material adverse change in the status, or financial
     effect on the Borrower or any of its Subsidiaries, of the Disclosed
     Litigation from that described in Schedule 3.01(b) or (ii) purports to
     affect the legality, validity or enforceability of this Agreement or any
     Note or the consummation of the transactions contemplated hereby.

          (g) No written information, report, financial statement, exhibit or
     schedule furnished by or on behalf of the Borrower to the Agent or any
     Lender in connection with the negotiation of this Agreement or included
     herein or delivered pursuant hereto contained or contains any material
     misstatement of fact or omitted or omits to state any material fact
     necessary to make the statements therein, in the light of the circumstances
     under which they were or are made, not misleading.

          (h) The Borrower is not engaged in the business of extending credit
     for the purpose of purchasing or carrying margin stock (within the meaning
     of Regulation U issued by the Board of Governors of the Federal Reserve
     System).

          (i) (A) Except as set forth in Schedule 4.01(i), the operations and
     properties of the Borrower and each of its Subsidiaries comply in all
     material respects with all Environmental Laws, all material and necessary
     Environmental Permits have been obtained and are in effect for the
     operations and properties of the Borrower and each of its Subsidiaries, and
     the Borrower and each of its Subsidiaries are in compliance in all material
     respects with all such Environmental Permits.

          (B) Except as set forth in the Borrower's Form 10-K for 2000 and in
     Schedule 4.01(i), to the knowledge of the Borrower, there are no
     circumstances that are reasonably likely to form the basis of an
     Environmental Action against the Borrower or any of its Subsidiaries that
     could be reasonably likely to have a Material Adverse Effect.

          (j) Except as set forth in Schedule 4.01(i), none of the properties
     currently or formerly owned or operated by the Borrower or any of its
     Subsidiaries is listed or, to the knowledge of the Borrower, proposed for
     listing on the National Priorities List under CERCLA (the "NPL") or on the
                                                                ---
     Comprehensive Environmental Response, Compensation and Liability
     Information System maintained by the U.S. Environmental Protection Agency
     ("CERCLIS") or any analogous state list if such listing or proposed listing
       -------
     could reasonably be likely to have a Material Adverse Effect.

          (k) Except as set forth in Schedule 4.01(i), to the knowledge of the
     Borrower, neither the Borrower nor any of its Subsidiaries has transported
     or arranged for the transportation of any Hazardous Materials to any
     location that is listed or proposed for listing on the NPL or on the
     CERCLIS, which could reasonably be likely to lead to claims against the
     Borrower or such Subsidiary for any remedial work,

                                       26

<PAGE>

     damage to natural resources or personal injury that have, or could
     reasonably be likely to have, a Material Adverse Effect.

          (l) No ERISA Event has occurred or is reasonably expected to occur
     with respect to any Plan.

          (m) Neither the Borrower nor any of its ERISA Affiliates has incurred
     or is reasonably expected to incur any Withdrawal Liability to any
     Multiemployer Plan.

          (n) Neither the Borrower nor any of its ERISA Affiliates has been
     notified by the sponsor of a Multiemployer Plan that such Multiemployer
     Plan is in reorganization or has been terminated, within the meaning of
     Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to
     be in reorganization or to be terminated, within the meaning of Title IV of
     ERISA.

          (o) Except as set forth in Schedule 4.01(o), as of the date indicated
     on Schedule 4.01(o) the Borrower and its Subsidiaries have no material
     liability with respect to "accumulated post-retirement benefit obligations"
     within the meaning of Statement of Financial Accounting Standards No. 106.

          (p) Schedule B (Actuarial Information) to the most recent annual
     report (Form 5500 Series) for each Plan, copies of which have been filed
     with the Internal Revenue Service and, if requested, furnished to the Agent
     pursuant to Section 5.01(l)(ix) hereof, is complete and accurate in all
     material respects and fairly presents the funding status of such Plan, and
     since the date of such Schedule B there has been no material adverse change
     in such funding status.

          (q) The Borrower is not an "investment company", or a company
     "controlled" by an "investment company", within the meaning of the
     Investment Company Act of 1940, as amended.

                                    ARTICLE V

                            COVENANTS OF THE BORROWER

          SECTION 5.01. Affirmative Covenants. So long as any Advance shall
                        ---------------------
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will:

          (a) Compliance with Laws, Etc. Comply, and cause each of its
              -------------------------
     Subsidiaries to comply in all material respects, with all applicable laws,
     rules, regulations and orders, such compliance to include, without
     limitation, compliance with (i) ERISA and (ii) Environmental Laws to the
     extent set forth in Section 5.01(d).

          (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
              ---------------------
     Subsidiaries to pay and discharge, before the same shall become delinquent,
     (i) all federal and other material taxes, assessments and governmental
     charges or levies imposed upon it or upon its property and (ii) all lawful
     claims that, if unpaid, might by law become a Lien upon its property;
     provided, however, that neither the Borrower nor any of its Subsidiaries
     --------- --------
     shall be required to pay or discharge any such tax, assessment, charge or
     claim that is being contested in good faith and by proper proceedings and
     as to which appropriate reserves, if any, to the extent required in
     accordance with GAAP, are being maintained.

          (c) Payment of Obligations. Pay, discharge or otherwise satisfy at or
              ----------------------
     before maturity or before they become delinquent, as the case may be, all
     its material obligations of whatever nature, or in the case of any trade
     payable before such trade payable becomes Debt, except where the amount or
     validity thereof is currently being contested in good faith and by
     appropriate proceedings and as to which appropriate reserves, if any, to
     the extent required in accordance with GAAP, are being maintained.

                                       27

<PAGE>

          (d) Compliance with Environmental Laws. (i) Comply and cause each of
              ----------------------------------
     its Subsidiaries to comply, in all material respects, with all
     Environmental Laws and Environmental Permits that are material to the
     conduct of the business of the Borrower or any of its Subsidiaries or
     necessary for their operations and properties, and (ii) obtain and renew,
     and cause each of its Subsidiaries to obtain and renew, all Environmental
     Permits that are material to the conduct of the business of the Borrower or
     any of its Subsidiaries or necessary for their operations and properties;
     except, with respect to (i) and (ii) above, to the extent that any such
     Environmental Law or the terms of any Environmental Permit are being
     contested in good faith and by proper proceedings and as to which
     appropriate reserves, if any, to the extent required in accordance with
     GAAP, are being maintained.

          (e) Maintenance of Insurance. Maintain, and cause each of its
              ------------------------
     Subsidiaries to maintain, insurance (including self-insurance, in amounts
     consistent with industry practice and custom) with responsible insurance
     companies or associations in such amounts and covering such risks as is
     usually carried by companies engaged in similar businesses and owning
     similar properties in the same general areas in which the Borrower or such
     Subsidiary operates.

          (f) Preservation of Corporate Existence, Etc. Preserve and maintain,
              -----------------------------------------
     and cause each of its Subsidiaries to preserve and maintain, its corporate
     existence, rights (charter and statutory) and franchises; provided,
                                                               ---------
     however, that the Borrower and its Subsidiaries may consummate any merger
     -------
     or consolidation permitted under Section 5.02(b) and provided further that
                                                          -------- -------
     neither the Borrower nor any of its Subsidiaries shall be required to
     preserve any right or franchise or the corporate existence of any
     Subsidiary of the Borrower if the Board of Directors of the Borrower or
     such Subsidiary shall determine that the preservation thereof is no longer
     desirable in the conduct of the business of the Borrower or such
     Subsidiary, as the case may be, and that the loss thereof is not
     disadvantageous in any material respect to the Borrower and its
     Subsidiaries taken as a whole or the Lenders.

          (g) Visitation Rights. At any reasonable time and from time to time,
              -----------------
     upon reasonable prior notice, permit the Agent or, subject to the proviso
     hereto, any of the Lenders or any agents or representatives thereof to
     examine and make copies of and abstracts from the records and books of
     account of, and visit the properties of the Borrower and any of its
     Subsidiaries, as shall be reasonably requested, and to discuss the affairs,
     finances and accounts of the Borrower and any of its Subsidiaries with any
     of their officers and with their independent certified public accountants,
     provided, that unless (x) an Event of Default has occurred and is
     --------
     continuing or (y) the Public Debt Rating assigned by S&P is lower than BBB-
     and the Public Debt Rating assigned by Moody's is lower than Baa3, the
     Borrower shall not be required to comply with this subsection (g) with
     respect to any of the Lenders or any agents or representatives thereof
     (other than the Agent).

          (h) Keeping of Books. Keep, and cause each of its Subsidiaries to
              ----------------
     keep, proper books of record and account, in which appropriate entries that
     are correct in all material respects shall be made, of all financial
     transactions and the assets and business of the Borrower and each such
     Subsidiary so as to permit preparation of their Consolidated financial
     statements in accordance with GAAP.

          (i) Maintenance of Properties, Etc. Maintain and preserve, and cause
              ------------------------------
     each of its Subsidiaries to maintain and preserve, all of its properties
     that are necessary or, in the reasonable judgment of the Borrower or such
     Subsidiary, useful in the conduct of its business in good working order and
     condition, ordinary wear and tear excepted.

          (j) Transactions with Affiliates. Conduct, and cause each of its
              ----------------------------
     Subsidiaries to conduct, all transactions otherwise permitted under this
     Agreement with any of their Affiliates on terms that are fair and
     reasonable and no less favorable to the Borrower or such Subsidiary than it
     would obtain in a comparable arm's-length transaction with a Person not an
     Affiliate other than:

               (i) transactions among the Borrower and any of its wholly owned
          Subsidiaries; and

                                       28

<PAGE>

               (ii) transactions among wholly owned Subsidiaries of the
          Borrower.

          (k) Reporting Requirements. Furnish to the Lenders:
              ----------------------

               (i) as soon as available and in any event within 60 days after
          the end of each of the first three quarters of each fiscal year of the
          Borrower, Consolidated balance sheets of the Borrower and its
          Subsidiaries as of the end of such quarter and Consolidated statements
          of income and cash flows of the Borrower and its Subsidiaries for the
          period commencing at the end of the previous fiscal year and ending
          with the end of such quarter, duly certified (subject to year-end
          audit adjustments) by the chief financial officer of the Borrower as
          having been prepared in accordance with GAAP;

               (ii) as soon as available and in any event within 90 days after
          the end of each fiscal year of the Borrower, a copy of the annual
          audit report for such year for the Borrower and its Subsidiaries,
          containing Consolidated balance sheets of the Borrower and its
          Subsidiaries as of the end of such fiscal year and Consolidated
          statements of income and cash flows of the Borrower and its
          Subsidiaries for such fiscal year, in each case accompanied by an
          opinion reasonably acceptable to the Required Lenders by Arthur
          Andersen L.L.P. or other independent public accountants acceptable to
          the Required Lenders;

               (iii) together with the financial statements required to be
          delivered in accordance with clauses (i) and (ii) above, (A) a
          certificate of the chief financial officer of the Borrower stating
          that no Default has occurred and is continuing or, if a Default has
          occurred and is continuing, a statement as to the nature thereof and
          the action that the Borrower has taken and proposes to take with
          respect thereto and (B) a schedule in form and substance satisfactory
          to the Agent of the computations used by the Borrower in determining
          compliance with the covenants contained in Section 5.03;

               (iv) promptly after the Borrower becomes aware of and in any
          event within five Business Days after becoming aware of each Default,
          continuing on the date of such statement, a statement of the chief
          financial officer of the Borrower setting forth details of such
          Default and the action that the Borrower has taken and proposes to
          take with respect thereto;

               (v) promptly after the sending or filing thereof, copies of all
          reports that the Borrower sends to any of its securityholders, and
          copies of all reports and registration statements that the Borrower or
          any Subsidiary files with the Securities and Exchange Commission or
          any national securities exchange;

               (vi) promptly after the Borrower becomes aware of the
          commencement thereof, notice of all actions and proceedings before any
          court, governmental agency or arbitrator affecting the Borrower or any
          of its Subsidiaries of the type described in the first sentence of
          Section 4.01(f);

               (vii) promptly and in any event within 10 days after the Borrower
          or any of its ERISA Affiliates knows that any ERISA Event has
          occurred, a statement of the chief financial officer of the Borrower
          describing such ERISA Event and the action, if any, that the Borrower
          or such ERISA Affiliate has taken and proposes to take with respect
          thereto;

               (viii) promptly and in any event within three Business Days after
          receipt thereof by the Borrower or any of its ERISA Affiliates, copies
          of each notice from the PBGC stating its intention to terminate any
          Plan or to have a trustee appointed to administer any such Plan;

                                       29

<PAGE>

               (ix) upon the request of the Agent after the filing thereof with
          the Internal Revenue Service, copies of each Schedule B (Actuarial
          Information) to the annual report (Form 5500 Series) with respect to
          each Plan;

               (x) promptly and in any event within five Business Days after
          receipt thereof by the Borrower or any of its ERISA Affiliates from
          the sponsor of a Multiemployer Plan, copies of each notice concerning
          (x) the imposition of Withdrawal Liability by any such Multiemployer
          Plan, (y) the reorganization or termination, within the meaning of
          Title IV of ERISA, of any such Multiemployer Plan or (z) the amount of
          liability incurred, or that may be incurred, by the Borrower or any of
          its ERISA Affiliates in connection with any event described in clause
          (x) or (y);

               (xi) as soon as practical and in any event promptly after the
          receipt thereof by the Borrower, copies of all written claims,
          complaints, notices or inquiries relating to compliance by the
          Borrower or any of its Subsidiaries with any Environmental Law or
          Environmental Permit that could reasonably be likely to have a
          Material Adverse Effect or could reasonably be likely to (x) form the
          basis of an Environmental Action against the Borrower or any of its
          Subsidiaries or such property that could reasonably be likely to have
          a Material Adverse Effect or (y) cause any such property to be subject
          to any restrictions on ownership, occupancy, use or transferability
          under any Environmental Law that could reasonably be likely to have a
          Material Adverse Effect; and

               (xii) such other information respecting the condition or
          operations, financial or otherwise, of the Borrower or any of its
          Subsidiaries as any Lender through the Agent may from time to time
          reasonably request.

          Notwithstanding any of the foregoing, at any time when the Borrower is
subject to the reporting requirements of Section 13(a)(2) of the Securities
Exchange Act of 1934, the Borrower shall be deemed to have complied with the
requirements of clauses (i), (ii) and (vi) above, if the Borrower shall include
such information in timely filings made with the Securities and Exchange
Commission by the Borrower.

          SECTION 5.02. Negative Covenants. So long as any Advance shall remain
                        ------------------
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:

          (a) Liens, Etc. Create or suffer to exist, or permit any of its
              ----------
     Subsidiaries to create or suffer to exist, any Lien on or with respect to
     any of its properties, whether now owned or hereafter acquired, or assign,
     or permit any of its Subsidiaries to assign, any right to receive income,
     other than:

               (i) Permitted Liens,

               (ii) purchase money Liens upon or in any property acquired or
          held by the Borrower or any Subsidiary in the ordinary course of
          business to secure the purchase price of such property or to secure
          Debt incurred solely for the purpose of financing the acquisition of
          such property, or Liens existing on such property at the time of its
          acquisition (other than any such Lien created in contemplation of such
          acquisition) or extensions, renewals or replacements of any of the
          foregoing for the same or a lesser amount; provided, however, that no
                                                     --------  -------
          such Lien shall extend to or cover any property other than the
          property being acquired, and no such extension, renewal or replacement
          shall extend to or cover any property not theretofore subject to the
          Lien being extended, renewed or replaced,

               (iii) Liens on property of a Person existing at the time such
          Person is merged into or consolidated with the Borrower or any
          Subsidiary of the Borrower or becomes a Subsidiary of the Borrower;
          provided that such Liens were not created in contemplation of such
          --------
          merger, consolidation or acquisition and do not extend to any assets
          other than those of the Person so

                                       30

<PAGE>

          merged into or consolidated with the Borrower or such Subsidiary or
          acquired by the Borrower or such Subsidiary,

               (iv) the Liens described on Schedule 5.02(a),

               (v) the replacement, extension or renewal of any Lien permitted
          by clauses (ii), (iii) and (iv) above upon or in the same property
          theretofore subject thereto or the replacement, extension or renewal
          (without increase in the amount or change in any direct or contingent
          obligor) of the Debt secured thereby,

               (vi) Liens on margin stock (as defined in Regulation U issued by
          the Board of Governors of the Federal Reserve Bank) to the extent that
          such margin stock exceeds 25% of the value of all assets subject to
          this Section 5.02(a); and

               (vii) other Liens securing Debt; provided that the principal
                                                --------
          amount of Debt secured pursuant to this clause (vii), together with
          the principal amount of Debt permitted to be outstanding in accordance
          with Section 5.02(d)(vi), shall not in the aggregate at any time
          outstanding exceed 15% of the Consolidated Tangible Net Worth of the
          Borrower and its Subsidiaries.

          (b) Mergers, Etc. Merge or consolidate with or into, or convey,
              ------------
     transfer, lease or otherwise dispose of (whether in one transaction or in a
     series of transactions) all or substantially all of its assets (whether now
     owned or hereafter acquired) to, any Person, or permit any of its
     Subsidiaries to do so, except that (i) any wholly owned Subsidiary of the
     Borrower may merge or consolidate with or into, or dispose of all or
     substantially all of its assets to, any other wholly owned Subsidiary of
     the Borrower, (ii) any wholly owned Subsidiary of the Borrower may merge
     into or dispose of all or substantially all of its assets to the Borrower,
     and (iii) the Borrower may merge with any other Person, provided in each
                                                             --------
     case that no Default shall have occurred and be continuing at the time of
     such proposed transaction or would result therefrom and, in the case of any
     merger to which the Borrower is a party, (A) the Borrower is the surviving
     corporation, (B) after giving effect to the consummation of such merger,
     the Borrower shall be in compliance with the covenants set forth in Section
     5.03 (calculated on a pro forma basis, as of the date of the consummation
     of such merger) and (C) the Borrower shall be in the same line of business
     as conducted by it immediately prior to such merger.

          (c) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
              ---------------------
     of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
     dispose of, any assets, or grant any option or other right to purchase,
     lease or otherwise acquire any assets, except (i) as permitted by Section
     5.02(b), (ii) any such sale, lease, transfer or disposition that is made in
     the ordinary course of its business, (iii) any such sale, lease, transfer
     or disposition by a Subsidiary of the Borrower to the Borrower or to
     another wholly owned Subsidiary of the Borrower (whether by dissolution,
     liquidation or otherwise), (iv) any such sale, lease transfer or
     disposition to the extent the net book value of any single asset sold,
     leased, transferred or disposed of from and after the date hereof in any
     given calendar year pursuant to this clause (iv) is less than $2,000,000,
     and the aggregate of all such single assets sold, leased, transferred or
     disposed of from and after the date hereof in any given calendar year
     pursuant to this clause (iv) is less than $10,000,000 and (v) any such
     sale, lease, transfer or disposition to the extent the net book value of
     all assets sold, leased, transferred or disposed of from and after the date
     hereof pursuant to this clause (v) does not exceed the greater of (x) in
     any calendar year an amount equal to the greater of an amount equal to 10%
     of the Borrower's Consolidated Assets or $160,000,000 or (y) in the
     aggregate from and after the date hereof the greater of an amount equal to
     25% of the Borrower's Consolidated Assets or $400,000,000, in each case
     measured as of the last day of the most recent Fiscal Quarter of the
     Borrower ended on or prior to such date of determination.

          (d) Subsidiary Debt. Permit any of its Subsidiaries to create or
              ---------------
     suffer to exist, any Debt other than:

                                       31

<PAGE>

               (i) Debt owed to the Borrower or to a wholly owned Subsidiary of
          the Borrower,

               (ii) Debt existing on the Effective Date and described on
          Schedule 5.02(d) (including as Debt permitted under this subsection
          any credit facilities or credit lines of any Subsidiary listed on such
          Schedule 5.02(d), whether or not such facilities or lines have been
          drawn upon by such Subsidiary) (the "Existing Subsidiary Debt"), and
                                               ------------------------
          any Debt extending the maturity of, or refunding or refinancing, in
          whole or in part, the Existing Subsidiary Debt, provided that the
                                                          --------
          terms of any such extending, refunding or refinancing Debt, and of any
          agreement entered into and of any instrument issued in connection
          therewith, are otherwise permitted by this Agreement and provided
                                                                   --------
          further that the principal amount of such Existing Subsidiary Debt
          -------
          shall not be increased above the principal amount thereof outstanding
          immediately prior to such extension, refunding or refinancing, and the
          direct and contingent obligors therefor shall not be changed, as a
          result of or in connection with such extension, refunding or
          refinancing,

               (iii) Debt secured by Liens permitted by Section 5.02(a)(ii) or
          (iii),

               (iv) Debt permitted to be outstanding in accordance with Section
          5.03(c),

               (v) endorsement of negotiable instruments for deposit or
          collection or similar transactions in the ordinary course of business,
          and

               (vi) Debt other than Debt described in clauses (i) through (v) of
          this Section 5.02(d); provided that the principal amount of Debt
                                --------
          permitted to be outstanding pursuant to this clause (vi), together
          with the principal amount of Debt permitted to be secured pursuant to
          Section 5.02(a)(vii), shall not in the aggregate at any time
          outstanding exceed 15% of the Consolidated Tangible Net Worth of the
          Borrower and its Subsidiaries.

          (e) Change in Nature of Business. Make, or permit any of its
              ----------------------------
     Subsidiaries to make, any material change in the nature of the business of
     the Borrower and its Subsidiaries taken as a whole as carried on at the
     date hereof.

          (f) Accounting Changes. Make or permit, or permit any of its
              ------------------
     Subsidiaries to make or permit, any change in accounting policies or
     reporting practices that would prevent the Borrower from preparing its
     Consolidated financial statements in accordance with GAAP.

          SECTION 5.03. Financial Covenants. So long as any Advance shall remain
                        -------------------
unpaid or any Lender shall have any Commitment hereunder, the Borrower will:

          (a) Leverage Ratio. Cause, on the last day of each Fiscal Quarter of
              --------------
     the Borrower, the ratio of (i) Consolidated Debt of the Borrower and its
     Subsidiaries on such date of determination to (ii) Consolidated EBITDA of
     the Borrower and its Subsidiaries for the four Fiscal Quarters ended on
     such date not to exceed 4.0 to 1.

          (b) Interest Coverage Ratio. Cause, on the last day of each Fiscal
              -----------------------
     Quarter of the Borrower, the ratio of (i) Consolidated EBITDA of the
     Borrower and its Subsidiaries for the four Fiscal Quarters ended on such
     date of determination to (ii) Consolidated interest expense of the Borrower
     and its Subsidiaries to the four Fiscal Quarters ended on such date not to
     be less than 2.5 to 1.

          (c) Certain Subsidiary Debt. Cause the aggregate outstanding principal
              -----------------------
     amount of all Debt of Rayonier Timberlands Operating Company not to exceed
     $800,000,000 at any time outstanding.

                                   ARTICLE VI

                                       32

<PAGE>

                                EVENTS OF DEFAULT

          SECTION 6.01. Events of Default. If any of the following events
                        -----------------
("Events of Default") shall occur and be continuing:
  -----------------

          (a) The Borrower shall fail to pay any principal of any Advance when
     the same becomes due and payable or the Borrower shall fail to pay any
     interest on any Advance or make any other payment due in connection with
     this Agreement or any Note within five days after the same becomes due and
     payable; or

          (b) Any representation or warranty made or deemed made by or on behalf
     of the Borrower herein or in any notice, report, certificate, financial
     statement, instrument, agreement or other writing delivered or prepared in
     connection with this Agreement, shall prove to have been incorrect in any
     material respect when made; or

          (c) (i) The Borrower shall fail to perform or observe any term,
     covenant or agreement contained in Section 5.01(f), (g) or (k), Section
     5.02(a), (b), (c), (d) or (e) or Section 5.03, or (ii) the Borrower shall
     fail to perform or observe any other term, covenant or agreement contained
     in this Agreement on its part to be performed or observed if such failure
     shall remain unremedied for 30 days after written notice thereof shall have
     been given to the Borrower by the Agent or any Lender; or

          (d) (i) The Borrower or any of its Subsidiaries shall fail to pay any
     principal of or premium, interest or other amount payable with respect to
     any Debt that is outstanding in a principal amount of at least $10,000,000
     in the aggregate (but excluding Debt outstanding hereunder) of the Borrower
     or such Subsidiary (as the case may be), when the same becomes due and
     payable (whether by scheduled maturity, required prepayment, acceleration,
     demand or otherwise), and such failure shall continue after the applicable
     grace period, if any, specified in the agreement or instrument relating to
     such Debt; or (ii) any event shall occur or condition shall exist
     (including, without limitation, any event of the type described in clause
     (i) above) under any agreement or instrument relating to any Debt that is
     outstanding in a principal amount of at least $25,000,000 in the aggregate
     (but excluding Debt outstanding hereunder) of the Borrower or any of its
     Subsidiaries (as the case may be) and shall continue after the applicable
     grace period, if any, specified in such agreement or instrument, if the
     effect of such event or condition is to accelerate the maturity of such
     Debt, or any such Debt shall be accelerated, declared to be due and
     payable, or required to be prepaid or redeemed (other than by a regularly
     scheduled required prepayment or redemption), purchased or defeased, or an
     offer to prepay, redeem, purchase or defease such Debt shall be required to
     be made, in each case prior to the stated maturity thereof; or

          (e) The Borrower or any of its Significant Subsidiaries shall
     generally not pay its debts as such debts become due, or shall admit in
     writing its inability to pay its debts generally, or shall make a general
     assignment for the benefit of creditors; or any proceeding shall be
     instituted by or against the Borrower or any of its Significant
     Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
     liquidation, winding up, reorganization, arrangement, adjustment,
     protection, relief, or composition of it or its debts, in each such case,
     under any law relating to bankruptcy, insolvency or reorganization or
     relief of debtors, or seeking the entry of an order for relief or the
     appointment of a receiver, trustee, custodian or other similar official for
     it or for any substantial part of its property and, in the case of any such
     proceeding instituted against it (but not instituted by it), either such
     proceeding shall remain undismissed or unstayed for a period of 60 days, or
     any of the actions sought in such proceeding (including, without
     limitation, the entry of an order for relief against, or the appointment of
     a receiver, trustee, custodian or other similar official for, it or for any
     substantial part of its property) shall occur; or the Borrower or any of
     its Significant Subsidiaries shall take any corporate action to authorize
     any of the actions set forth above in this subsection (e); or

          (f) Any judgment or order for the payment of money in excess of
     $10,000,000 shall be rendered against the Borrower or any of its
     Subsidiaries and either (i) enforcement proceedings shall have

                                       33

<PAGE>

     been commenced by any creditor upon such judgment or order or (ii) there
     shall be any period of 30 consecutive days during which a stay of
     enforcement of such judgment or order, by reason of a pending appeal or
     otherwise, shall not be in effect; or

          (g) Any non-monetary judgment or order shall be rendered against the
     Borrower or any of its Subsidiaries that could be reasonably expected to
     have a Material Adverse Effect, and there shall be any period of 30
     consecutive days during which a stay of enforcement of such judgment or
     order, by reason of a pending appeal or otherwise, shall not be in effect;
     or

          (h) (i) Any Person or two or more Persons acting in concert shall have
     acquired beneficial ownership (within the meaning of Rule 13d-3 of the
     Securities and Exchange Commission under the Securities Exchange Act of
     1934), directly or indirectly, of Voting Stock of the Borrower (or other
     securities convertible into such Voting Stock) representing 30% or more of
     the combined voting power of all Voting Stock of the Borrower; or (ii)
     during any period of up to 24 consecutive months, commencing after the date
     of this Agreement, individuals who at the beginning of such 24-month period
     were directors of the Borrower shall cease for any reason (other than due
     to death or disability) to constitute a majority of the board of directors
     of the Borrower (except to the extent that individuals who at the beginning
     of such 24-month period were replaced by individuals (x) elected by 66-2/3%
     of the remaining members of the board of directors of the Borrower or (y)
     nominated for election by a majority of the remaining members of the board
     of directors of the Borrower and thereafter elected as directors by the
     shareholders of the Borrower); or (iii) any Person or two or more Persons
     acting in concert shall have acquired by contract or otherwise, or shall
     have entered into a contract or arrangement that, upon consummation, will
     result in its or their acquisition of, the power to exercise, directly or
     indirectly, a controlling influence over the management or policies of the
     Borrower; or (iv) the Borrower or an Affiliate of the Borrower shall cease
     to be the managing partner of Rayonier Timberlands Operating Company, L.P.
     ("RTOC") or the Borrower ceases to consolidate RTOC in its consolidated
       ----
     financial statements; or

          (i) Any ERISA Event shall have occurred and the sum (determined as of
     the date of occurrence of such ERISA Event) of the Insufficiency of the
     Plan with respect to which such ERISA Event shall have occurred and the
     Insufficiency of any and all other Plans with respect to which an ERISA
     Event shall have occurred and then exist (or the liability of the Borrower
     and its ERISA Affiliates related to any such ERISA Event) exceeds
     $10,000,000; or

          (j) The Borrower or any of its ERISA Affiliates shall have been
     notified by the sponsor of a Multiemployer Plan that it has incurred
     Withdrawal Liability to such Multiemployer Plan in an amount that, when
     aggregated with all other amounts required to be paid to Multiemployer
     Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability
     (determined as of the date of such notification), exceeds $10,000,000 or
     requires payments exceeding $5,000,000 per annum; or

          (k) The Borrower or any of its ERISA Affiliates shall have been
     notified by the sponsor of a Multiemployer Plan that such Multiemployer
     Plan is in reorganization or is being terminated, within the meaning of
     Title IV of ERISA, and as a result of such reorganization or termination
     the aggregate annual contributions of the Borrower and its ERISA Affiliates
     to all Multiemployer Plans that are then in reorganization or being
     terminated have been or will be increased over the amounts contributed to
     such Multiemployer Plans for the plan years of such Multiemployer Plans
     immediately preceding the plan year in which such reorganization or
     termination occurs by an amount exceeding $10,000,000;

then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
Advances, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
                                             --------  -------
event of an actual or deemed

                                       34

<PAGE>

entry of an order for relief with respect to the Borrower under the Federal
Bankruptcy Code, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Advances, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.

                                   ARTICLE VII

                                    THE AGENT

          SECTION 7.01. Authorization and Action. Each Lender hereby appoints
                        ------------------------
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Agent shall not be
                          --------  -------
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.

          SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
                        ---------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (i) may treat the
Lender that made any Advance as the holder of the Debt resulting therefrom until
the Agent receives and accepts an Assumption Agreement entered into by an
Assuming Lender as provided in Section 2.18 or an Assignment and Acceptance
entered into by such Lender, as assignor, and an Eligible Assignee, as assignee,
as provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance, observance or satisfaction of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or the existence at any
time of any Default or to inspect the property (including the books and records)
of the Borrower; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (vi) shall incur no liability under or in respect of this Agreement by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopier, telegram or telex) believed by it to be genuine and
signed or sent by the proper party or parties.

          SECTION 7.03. Citibank and Affiliates. With respect to its Commitment,
                        -----------------------
the Advances made by it and the Note issued to it, Citibank shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include Citibank in its individual
capacity. Citibank and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if Citibank were not the Agent and
without any duty to account therefor to the Lenders. The Agent shall have no
duty to disclose information obtained or received by it or any of its Affiliates
relating to the Borrower or its Subsidiaries to the extent such information was
obtained or received in any capacity other than as Agent.

          SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it
                        ----------------------
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem

                                       35

<PAGE>

appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

          SECTION 7.05. Indemnification. The Lenders agree to indemnify the
                        ---------------
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of the Revolving Credit Advances then owed to each
of them (or if no Revolving Credit Advances are at the time outstanding, ratably
according to the respective amounts of their Commitments), from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the Agent in
any way relating to or arising out of this Agreement or any action taken or
omitted by the Agent under this Agreement (collectively, the "Indemnified
                                                              -----------
Costs"), provided that no Lender shall be liable for any portion of the
- -----    --------
Indemnified Costs resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to reimburse
the Agent promptly upon demand for its ratable share of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Agent is not reimbursed for such expenses by the
Borrower. In the case of any investigation, litigation or proceeding giving rise
to any Indemnified Costs, this Section 7.05 applies whether any such
investigation, litigation or proceeding is brought by the Agent, any Lender or a
third party.

          SECTION 7.06. Successor Agent. The Agent may resign at any time by
                        ---------------
giving written notice thereof to the Lenders and the Borrower and may be removed
at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Agent, with the consent of the Borrower (which consent shall not be
unreasonably withheld or delayed) if no Event of Default has occurred and is
continuing. If no successor Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

          SECTION 7.07. Other Agents. Each Lender hereby acknowledges that
                        ------------
neither the documentation agent nor any other Lender designated as any "Agent"
on the signature pages hereof has any liability hereunder other than in its
capacity as a Lender.

                                  ARTICLE VIII

                                  MISCELLANEOUS

          SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision
                        ---------------
of this Agreement or the Revolving Credit Notes, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
                 --------  -------
unless in writing and signed by each of the Lenders directly affected thereby,
do any of the following: (a) waive any of the conditions specified in Section
3.01, (b) increase the Commitments of such Lenders (other than pursuant to
Section 2.18) or subject such Lenders to any additional obligations, (c) reduce
the principal of, or interest on, the Revolving Credit Advances or any fees or
other amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Revolving Credit Advances or any fees or other
amounts payable hereunder, (e) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Revolving Credit Advances that
shall be required for the Lenders or any of them to take any action hereunder or
(f) amend this Section 8.01; and provided further that no amendment, waiver or
                                 -------- -------

                                       36

<PAGE>

consent shall, unless in writing and signed by the Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Agent under this Agreement or any Note.

          SECTION 8.02. Notices, Etc. All notices and other communications
                        ------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
if to the Borrower, at its address at 50 North Laura Street, Suite 1900,
Jacksonville, Florida 32202, Attention: Treasurer, with a copy to: Corporate
Secretary; if to any Initial Lender, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assumption Agreement or the Assignment and
Acceptance pursuant to which it became a Lender; and if to the Agent, at its
address at Two Penns Way, New Castle, Delaware 19720, Attention: Bank Loan
Syndications Department; or, as to the Borrower or the Agent, at such other
address as shall be designated by such party in a written notice to the other
parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the Agent. All
such notices and communications shall, when mailed, telecopied, telegraphed or
telexed, be effective when deposited in the mails, telecopied, delivered to the
telegraph company or confirmed by telex answerback, respectively, except that
notices and communications to the Agent pursuant to Article II, III or VII shall
not be effective until received by the Agent. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.

          SECTION 8.03. No Waiver; Remedies. No failure on the part of any
                        -------------------
Lender or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

          SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on
                        ------------------
demand all out-of-pocket costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of counsel for the Agent with respect thereto and with respect
to advising the Agent as to its rights and responsibilities under this
Agreement, provided that all such costs and expenses of the Agent (other than
           --------
(i) fees and expenses of counsel for the Agent, (ii) printing costs of the
Arrangers incurred in connection with the syndication of the Commitments and
(iii) expenses arising under Section 5.01(h)) in excess of $1,000 shall be
subject to the prior consent of the Borrower, such consent not to be
unreasonably withheld. The Borrower further agrees to pay on demand all costs
and expenses of the Agent and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).

          (b) The Borrower agrees to indemnify, exonerate and hold harmless the
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents, advisors, representatives and controlling persons
(each, an "Indemnified Party") from and against any and all claims, damages,
           -----------------
losses, liabilities and expenses (including, without limitation, reasonable fees
and expenses of counsel) incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
(i) the Notes, this Agreement, any of the transactions contemplated herein or
the actual or proposed use of the proceeds of the Advances or (ii) the actual or
alleged presence of Hazardous Materials on any property currently or formerly
owned or operated by the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, equityholders or creditors
or an Indemnified Party or any other Person, whether or not any Indemnified
Party is otherwise a party thereto and

                                       37

<PAGE>

whether or not the transactions contemplated hereby are consummated. The
Borrower also agrees not to assert any claim for special, indirect,
consequential or punitive damages against the Agent, any Lender, any of their
Affiliates, or any of their respective officers, directors, employees, agents,
advisors, representatives and controlling persons, on any theory of liability,
arising out of or otherwise relating to (i) the Notes, this Agreement, any of
the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of Hazardous
Materials on an property of the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries.

          (c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion pursuant to Section 2.08(f) or (g), 2.09, 2.10 or 2.12,
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, or by an Eligible Assignee to a Lender other than on the last day
of the Interest Period for such Advance upon an assignment of rights and
obligations under this Agreement pursuant to Section 8.07 as a result of a
demand by the Borrower pursuant to Section 8.07(a), the Borrower shall, upon
demand by such Lender (with a copy of such demand to the Agent), pay to the
Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.

          (d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.

          SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
                        ----------------
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, whether or not such Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such set-off and application, provided that the failure to give such
                                        --------
notice shall not affect the validity of such set-off and application. The rights
of each Lender and its Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender and its Affiliates may have.

          SECTION 8.06. Binding Effect. This Agreement shall become effective
                        --------------
(other than Sections 2.01 and 2.03, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Agent and when the Agent shall
have been notified by each Initial Lender that such Initial Lender has executed
it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent and each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of the Lenders.

          SECTION 8.07. Assignments and Participations. (a) Each Lender may and,
                        ------------------------------
if demanded by the Borrower (following a demand by such Lender pursuant to
Section 2.11 or 2.14) upon at least five Business Days' notice to such Lender
and the Agent, will assign to one or more Persons all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Revolving Credit Advances owing to it and the
Revolving Credit Note or Notes held by it); provided, however, that (i) other
                                            --------  -------
than in the case of an assignment to an Affiliate of such Lender, another
Lender, or assignments of the type described in subsection (g) below, such
Lender shall have obtained the prior written consent of the Agent and, unless an
Event of Default has occurred and is continuing, the Borrower, such consent not
to be unreasonably withheld, (ii) each such assignment shall be of a constant,
and not a varying, percentage of all rights and obligations under this Agreement
(other than any right to make Competitive Bid Advances, Competitive Bid Advances
owing to it and Competitive

                                       38

<PAGE>

Bid Notes), (iii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 and shall
be an integral multiple of $1,000,000 unless the Borrower and the Agent
otherwise agree, and if the assigning Lender is assigning less than all of its
Commitments after giving effect to such assignment, the amount of the commitment
of the assigning Lender shall be equal to or greater than $5,000,000, (iv) each
such assignment shall be to an Eligible Assignee, (v) each such assignment made
as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall
be arranged by the Borrower after consultation with the Agent and shall be
either an assignment of all of the rights and obligations of the assigning
Lender under this Agreement or an assignment of a portion of such rights and
obligations made concurrently with another such assignment or other such
assignments that together cover all of the rights and obligations of the
assigning Lender under this Agreement, (vi) no Lender shall be obligated to make
any such assignment as a result of a demand by the Borrower pursuant to this
Section 8.07(a) unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal amount and all other amounts payable to such
Lender under this Agreement, and (vi) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Revolving Credit Note
subject to such assignment and a processing and recordation fee of $3,500 (such
fee payable by the assignor or assignee, as agreed by the parties). Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (y) the Lender assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (other than
its rights under Section 2.11, 2.14 and 8.04 to the extent any claim thereunder
relates to an event arising prior to such assignment) and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).

          (b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.

          (c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Revolving Credit Note or Notes subject to such assignment, the
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower.

                                       39

<PAGE>

          (d) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assumption Agreement and each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of each of the Lenders and the Commitment of, and principal amount
of the Advances owing to, each Lender from time to time (the "Register"). The
                                                              --------
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.

          (e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and any
Note or Notes held by it); provided, however, that (i) such Lender's obligations
                           --------  -------
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation.

          (f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
              --------
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrower
received by it from such Lender.

          (g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest (or any other similar
interest) in all or any portion of its rights under this Agreement (including,
without limitation, the Advances owing to it and any Note or Notes held by it)
in favor of any Federal Reserve Bank in accordance with Regulation A of the
Board of Governors of the Federal Reserve System.

          (h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (a
           -------- ----
"SPC"), identified as such in writing from time to time by the Granting Bank to
 ---
the Agent and the Borrower, the option to provide to the Borrower all or any
part of any Advance that such Granting Bank would otherwise be obligated to make
to the Borrower pursuant to this Agreement; provided that (i) nothing herein
                                            -------- ----
shall constitute a commitment by any SPC to make any Advance, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Advance, the Granting Bank shall be obligated to make such Advance
pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall
utilize the Commitment of the Granting Bank to the same extent, and as if, such
Advance were made by such Granting Bank. Each party hereto hereby agrees that no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Bank). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding commercial
paper or other senior indebtedness of any SPC, it will not institute against, or
join any other person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under the
laws of the United States or any State thereof. In addition, notwithstanding
anything to the contrary contained in this Section, any SPC may (i) with notice
to, but without the prior written consent of, the Borrower and the Agent and
without paying any processing fee therefor, assign all or a portion of its
interests in any Advances to the Granting Bank or to any financial institutions
(consented to by the Borrower and Agent) providing liquidity and/or credit
support to or for the account of such SPC to support the funding or maintenance
of Advances and (ii) disclose on a confidential basis any non-public information
relating to its Advances to any rating agency,

                                       40

<PAGE>

commercial paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such SPC. This section may not be amended without the
written consent of the SPC.

          SECTION 8.08. Confidentiality. Neither the Agent nor any Lender shall
                        ---------------
disclose any Confidential Information to any other Person without the consent of
the Borrower other than (a) to the Agent's or such Lender's Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 8.07(f), to actual or prospective assignees and participants, and then
only on a confidential basis, (b) as required by any law, rule or regulation or
judicial process and (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking.

          SECTION 8.09. Governing Law. This Agreement and the Notes shall be
                        -------------
governed by, and construed in accordance with, the laws of the State of New
York.

          SECTION 8.10. Execution in Counterparts. This Agreement may be
                        -------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

          SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby
                        -----------------
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement or
the Notes in the courts of any jurisdiction.

          (b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

                                       41

<PAGE>

          SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the Agent
                        --------------------
and the Lenders hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the Notes or the
actions of the Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.

                                                   RAYONIER INC.


                                                   By
                                                      --------------------------
                                                       Title:


                                                   CITIBANK, N.A.,
                                                       as Agent


                                                   By
                                                      --------------------------
                                                       Title:

                                 Initial Lenders
                                 ---------------

Commitment
- ----------

                              Administrative Agent
                              ---------------------

$26,444,445                                        CITIBANK, N.A.


                                                   By
                                                      --------------------------
                                                       Title:

                               Syndication Agents
                               ------------------

$26,444,444                                        BANK OF AMERICA, N.A.


                                                   By
                                                      --------------------------
                                                       Title:


$22,666,667                                        THE BANK OF NEW YORK


                                                   By
                                                      --------------------------
                                                       Title:

                                       42

<PAGE>

$22,666,667                                        SUNTRUST BANK


                                                   By
                                                      --------------------------
                                                       Title:

                                     Lenders
                                     -------

$11,333,333                                        COMPASS BANK


                                                   By
                                                      --------------------------
                                                       Title:


$11,333,333                                        CREDIT SUISSE FIRST BOSTON


                                                   By
                                                      --------------------------
                                                       Title:


$18,888,889                                        JPMORGAN CHASE BANK


                                                   By
                                                      --------------------------
                                                       Title:


$11,333,333                                        THE NORTHERN TRUST COMPANY


                                                   By
                                                      --------------------------
                                                       Title:


$18,888,889                                        WACHOVIA BANK N.A.


                                                   By
                                                      --------------------------
                                                       Title:

$170,000,000      Total of the Commitments

                                       43

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>dex104.txt
<DESCRIPTION>RETIREMENT PLAN FOR SALARIED EMPLOYEES
<TEXT>
<PAGE>

                                                                    Exhibit 10.4


                                 RETIREMENT PLAN

                             FOR SALARIED EMPLOYEES

                                OF RAYONIER INC.



                          Effective as of March 1, 1994
                      Amended and Restated January 1, 2000
                  And Further Amended Through October 19, 2001

<PAGE>

                                    FOREWORD
                                    --------

The Plan as set forth in this document is known as the Retirement Plan for
Salaried Employees of Rayonier Inc. (hereinafter called the Plan).

Unless otherwise expressly provided in this Plan and consistent with applicable
law, (i) the rights and benefits of any Member who retires or whose employment
is terminated, whichever first occurs, are determined in accordance with the
provisions of the Plan in effect at the time of such retirement or termination,
and (ii) no revision to the Plan shall deprive any Member who retires or whose
employment is terminated prior to such revisions, of any rights and benefits
which theretofore had accrued under the Plan.

This Plan is intended to qualify under the Internal Revenue Code of 1986.

Subject to the preceding sentence, the Plan shall be construed, regulated and
administered under the laws of the State of Florida, to the extent such laws are
not superseded by applicable federal law.

<PAGE>

                     RETIREMENT PLAN FOR SALARIED EMPLOYEES
                                OF RAYONIER INC.

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
ARTICLE 1 -- DEFINITIONS....................................................................................   1
- ------------------------


ARTICLE 2 -- SERVICE........................................................................................  14
- --------------------

         2.01     Eligibility Service.......................................................................  14
                  -------------------

         2.02     Benefit Service...........................................................................  21
                  ---------------

         2.03     Questions Relating to Service Under the Plan..............................................  25
                  --------------------------------------------


ARTICLE 3 -- MEMBERSHIP.....................................................................................  27
- -----------------------

         3.01     Persons Employed on the Effective Date....................................................  27
                  --------------------------------------

         3.02     Persons First Employed as Employees On or After the Effective Date........................  27
                  ------------------------------------------------------------------

         3.03     Reemployment After March 1, 1994 of ITT Rayonier Incorporated Salaried Employees..........  28
                  --------------------------------------------------------------------------------

         3.04     Persons Employed as a Leased Employee With the Company or an Associated Company...........  28
                  -------------------------------------------------------------------------------

         3.05     Persons Employed as Other Than Employees by the Company...................................  28
                  -------------------------------------------------------

         3.06     Reemployment of Former Employees, Former Members and Retired Members......................  29
                  --------------------------------------------------------------------

         3.07     Termination of Membership.................................................................  29
                  -------------------------

         3.08     Questions Relating to Membership in the Plan..............................................  30
                  --------------------------------------------


ARTICLE 4 -- BENEFITS.......................................................................................  31
- ---------------------

         4.01     Normal Retirement Allowance...............................................................  31
                  ---------------------------

         4.02     Postponed Retirement Allowance............................................................  33
                  ------------------------------

         4.03     Standard Early Retirement Allowance.......................................................  35
                  -----------------------------------

         4.04     Special Early Retirement Allowance........................................................  36
                  ----------------------------------

         4.05     Vested Benefit............................................................................  38
                  --------------

         4.06     Forms of Benefit Payment After Retirement.................................................  39
                  -----------------------------------------

         4.07     Survivor's Benefit Applicable Before Retirement...........................................  46
                  -----------------------------------------------

         4.08     Maximum Benefits..........................................................................  62
                  ----------------
</TABLE>

<PAGE>

                     RETIREMENT PLAN FOR SALARIED EMPLOYEES
                                OF RAYONIER INC.

                                TABLE OF CONTENTS
                                -----------------
                                    (cont'd)

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
         4.09     No Duplication..............................................................................   63
                  --------------

         4.10     Payment of Benefits.........................................................................   64
                  -------------------

         4.11     Reemployment of Former Member or Retired Member.............................................   67
                  -----------------------------------------------

         4.12     Top-heavy Provisions........................................................................   71
                  --------------------

         4.13     Payment of Medical Benefits for Benefits for Certain Members Who Retire Under the Plan......   74
                  --------------------------------------------------------------------------------------

         4.14     Transfers From Hourly Plans Maintained by the Company or an Associated Company..............   76
                  ------------------------------------------------------------------------------

         4.15     Direct Rollover of Certain Distributions....................................................   77
                  ----------------------------------------


ARTICLE 5 -- ADMINISTRATION OF PLAN...........................................................................   79
- -----------------------------------

         5.01     Appointment of Retirement Committee.........................................................   79
                  -----------------------------------

         5.02     Pension Trust Fund and Investment Committee.................................................   79
                  -------------------------------------------

         5.03     Named Fiduciaries...........................................................................   80
                  -----------------

         5.04     Meetings and Action of Majority.............................................................   80
                  -------------------------------

         5.05     Duties of Committees........................................................................   80
                  --------------------

         5.06     Management of Plan Assets...................................................................   81
                  -------------------------

         5.07     Establishment of Rules and Rights of Retirement Committee...................................   81
                  ---------------------------------------------------------

         5.09     Claims and Review Procedure.................................................................   83
                  ---------------------------


ARTICLE 6 -- CONTRIBUTIONS....................................................................................   86
- --------------------------

         6.01     Company Contributions.......................................................................   86
                  ---------------------

         6.02     Return of Contributions.....................................................................   86
                  -----------------------


ARTICLE 7 -- MANAGEMENT OF FUNDS..............................................................................   87
- --------------------------------

         7.01     Trustee.....................................................................................   87
                  -------

         7.02     Exclusive Benefit Rule......................................................................   87
                  ----------------------

         7.03     Investment in Company Securities or Real Property...........................................   88
                  -------------------------------------------------

         7.04     Appointment of Investment Managers..........................................................   88
                  ----------------------------------


ARTICLE 8 -- CERTAIN RIGHTS AND LIMITATIONS...................................................................   89
- -------------------------------------------
</TABLE>

<PAGE>

                     RETIREMENT PLAN FOR SALARIED EMPLOYEES
                                OF RAYONIER INC.

                                TABLE OF CONTENTS
                                -----------------
                                    (cont'd)

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>
         8.01     Termination of the Plan.................................................................   89
                  -----------------------

         8.02     Limitation Concerning Highly Compensated Employees or Highly Compensated Former
                  --------------------------------------------------------------------------------
                  Employees...............................................................................   90
                  ---------

         8.03     Conditions of Employment Not Affected by Plan...........................................   91
                  ---------------------------------------------

         8.04     Offsets.................................................................................   92
                  -------

         8.05     Denial of Benefits......................................................................   92
                  ------------------

         8.06     Change in Control.......................................................................   93
                  -----------------

         8.07     Prevention of Escheat...................................................................   96
                  ---------------------


ARTICLE 9 -- NONALIENATION OF BENEFITS....................................................................   98
- --------------------------------------


ARTICLE 10 -- AMENDMENTS..................................................................................  100
- ------------------------
</TABLE>


APPENDIX A
- ----------

APPENDIX B
- ----------

APPENDIX C
- ----------

APPENDIX D
- ----------

APPENDIX E
- ----------

APPENDIX F
- ----------

<PAGE>

                     RETIREMENT PLAN FOR SALARIED EMPLOYEES
                                OF RAYONIER INC.


                            ARTICLE 1 -- DEFINITIONS
                            ------------------------

1.01     Accrued Benefit shall mean, as of any date of determination, the
         ---------------
         retirement allowance computed under Section 4.01(b) on the basis of the
         Member's Benefit Service and applicable components of the Plan formula
         as of the determination date and with respect to the amount determined
         under Section 4.01(b)(i)(4), the applicable components of the Prior
         Salaried Plan as of the determination date.

1.02     Annuity Starting Date shall mean the first day of the first period for
         -----------------------
         which an amount is due on behalf of a Member or former Member as an
         annuity or any other form of payment under the Plan.

1.03     Appendix shall mean the tables of factors which are used in determining
         --------
         the amount of the various forms of benefits payable under the Plan.

1.04     Associated Company shall mean any subsidiary or affiliated company of
         ------------------
         Rayonier Inc. not participating in the Plan which is (i) a component
         member of a controlled group of corporations (as defined in Section
         414(b) of the Code), which controlled group of corporations includes as
         a component member Rayonier Inc., (ii) any trade or business under
         common control (as defined in Section 414(c) of the Code) with Rayonier
         Inc., (iii) any organization (whether or not incorporated) which is a
         member of an affiliated service group (as defined in Section 414(m) of
         the Code) which includes Rayonier Inc. or (iv) any other entity
         required to be aggregated with Rayonier Inc. pursuant to regulations
         under Section 414(o) of the Code, during the period such entity is
         described in clause (i), (ii), (iii), or (iv). Notwithstanding the
         foregoing, for purposes of the preceding

                                                                       Article 1

<PAGE>
                                                                          Page 2

         sentence and Section 4.08 of the Plan, the definitions of Section
         414(b) and (c) of the Code shall be modified as provided in Section
         415(h) of the Code.

1.05     Beneficiary shall mean any person or entity named by a Member by
         -----------
         written designation to receive certain benefits payable in the event of
         his or her death as provided under Section 4.07.

1.06     Benefit Service shall mean employment recognized as such for the
         ----------------
         purposes of computing a benefit under the Plan as provided under
         Article 2.

1.07     Board of Directors shall mean the Board of Directors of Rayonier Inc.
         ------------------
         or of any successor to Rayonier Inc. by merger, purchase or otherwise.

1.08     Change in Control shall mean the occurrence of any one or more of the
         -----------------
         following events: (i) subject to the conditions contained in the final
         paragraph of this definition, the filing of a report on Schedule 13D
         with the Securities and Exchange Commission pursuant to Section 13(d)
         of the Securities Exchange Act of 1934 (the "Act") disclosing that any
         person, other than the Corporation or any employee benefit plan
         sponsored by the Corporation, is the beneficial owner (as the term is
         defined in Rule 13d-3 under the Act) directly or indirectly, of
         securities representing twenty percent or more of the total voting
         power represented by the Corporation's then outstanding Voting
         Securities (calculated as provided in paragraph (d) of Rule 13d-3 under
         the Act in the case of rights to acquire Voting Securities); or (ii)
         the purchase by any person, other than the Corporation or any employee
         benefit plan sponsored by the Corporation, of shares pursuant to a
         tender offer or exchange offer to acquire any Voting Securities of the
         Corporation (or securities convertible into such Voting Securities) for
         cash, securities or any other consideration, provided that after
         consummation of the offer, the person in question is the beneficial
         owner, directly or indirectly, of

                                                                       Article 1

<PAGE>
                                                                          Page 3

         securities representing twenty percent or more of the total voting
         power represented by the Corporation's then outstanding Voting
         Securities (all as calculated under clause (i)); or (iii) the approval
         by the shareholders of the Corporation of (A) any consolidation or
         merger of the Corporation in which the Corporation is not the
         continuing or surviving corporation (other than a merger of the
         Corporation in which holders of Common Shares of the Corporation
         immediately prior to the merger have the same proportionate ownership
         of Common Shares of the surviving corporation immediately after the
         merger as immediately before), or pursuant to which Common Shares of
         the Corporation would be converted into cash, securities or other
         property, or (B) any sale, lease, exchange, or other transfer (in one
         transaction or a series of related transactions) of all or
         substantially all the assets of the Corporation; or (iv) a change in
         the composition of the Board of Directors of the Corporation at any
         time during any consecutive twenty-four month period such that
         "continuing directors" cease for any reason to constitute at least a
         70% majority of the Board. For purposes of this definition of "Change
         in Control," the term "Voting Securities" means any securities of the
         Corporation which vote generally in the election of members of the
         Board of Directors and the term "continuing directors" means those
         members of the Board who either were directors at the beginning of a
         consecutive twenty-four month period or were elected during such
         period by or on the nomination or recommendation of at least a 70%
         majority of the then-existing Board.

         So long as there has not been a Change in Control within the meaning of
         clause (iv) above, the Board of Directors may adopt by a majority vote
         of the "continuing directors" a resolution to the effect that the
         occurrence of an event described in clause (i) (a "Clause (i) Event")
         does not constitute a "Change in Control" (an "Excluding Resolution")
         or a resolution to the effect that the occurrence of a Clause (i) Event
         does constitute a "Change in Control" (an "Including Resolution"). The
         adoption of an Excluding Resolution with respect to any Clause (i)
         Event shall

                                                                       Article 1

<PAGE>
                                                                          Page 4

         not deprive the Board of Directors of the right to adopt an Including
         Resolution with respect to such Clause (i) Event at a later date. A
         Clause (i) Event shall not in and of itself constitute a "Change in
         Control" until the earlier of (x) the effective date of an Including
         Resolution with respect thereto or (y) the passage of a period of five
         (5) business days after the Corporation's receipt of a copy of the
         subject report on Schedule 13D in compliance with Rule 13d-7 under the
         Act without an Excluding Resolution having been adopted with respect
         thereto; notwithstanding the adoption of an Excluding Resolution
         within the five business-day period referred to in (y), an Including
         Resolution may subsequently be adopted with respect to the relevant
         Clause (i) Event while it continues to exist, in which event a "Change
         in Control" shall be deemed to have occurred for purposes of this
         definition upon the effective date of such Including Resolution. The
         provisions of this second paragraph of the definition of "Change in
         Control" relate only to situations where a Clause (i) Event has
         occurred and no Change in Control within the meaning of clause (ii),
         (iii) or (iv) of the preceding paragraph has occurred, and nothing in
         this paragraph shall derogate from the principle that the occurrence
         of an event described in clause (ii), (iii) or (iv) of the preceding
         paragraph shall be deemed an immediate Change in Control regardless of
         whether or not a Clause (i) Event has occurred and an Excluding
         Resolution or Including Resolution become effective.

1.09     Code shall mean the Internal Revenue Code of 1986, as amended from time
         ----
         to time.

1.10     Company or Corporation shall mean Rayonier Inc. (formerly known as ITT
         -------
         Rayonier Incorporated) with respect to its Employees; and any
         Participating Unit with respect to its Employees. When used herein, the
         term Company shall collectively include Rayonier Inc. and any
         Participating Unit.

1.11     Compensation shall mean the total remuneration paid to a Member
         ------------
         (whether before or after membership in the Plan) for services rendered
         on and after the Effective Date, including annual

                                                                       Article 1

<PAGE>
                                                                          Page 5

          base salary, overtime, leadman's pay, shift differential, and bonuses
          paid under the Rayonier Inc. local bonus and gain share plans as in
          effect on March 1, 1994 (determined prior to any pre-tax contributions
          under a "qualified cash or deferred arrangement," as defined under
          Section 401(k) of the Code and its applicable regulations, under a
          "cafeteria plan," as defined under Section 125 of the Code and its
          applicable regulations or under a "qualified transportation fringe,"
          as defined under Section 132(f) of the Code and its applicable
          regulations), and for Members who receive no other source of
          remuneration from the Company, commissions, but excluding, except to
          the extent specifically included above, foreign service pay,
          automobile allowance, separation pay, incentive pay or other special
          pay or allowances of similar nature, commissions for any Member who
          receives any other form of remuneration from the Company, bonuses, and
          the cost of any public or private employee benefit plan, including the
          Plan. Commencing with the Plan Year beginning in 1994, Compensation
          taken into account for any purpose under the Plan, including the
          determination of Final Average Compensation, shall not exceed $150,000
          (as adjusted from time to time by the Secretary of the Treasury in
          accordance with Section 401(a)(17)(B) of the Code). Effective January
          1, 1997, the compensation limit shall be applied without regard to the
          family aggregation provisions of Section 414(q)(6) of the Code in
          determining benefit accruals for Plan Years beginning on and after
          January 1, 1997, and to the extent permissible under the IRS rules or
          regulations, for any earlier Plan Year.

1.12      Early Retirement Date shall mean the date as determined in the manner
          ---------------------
          set forth in Section 4.03.

1.13      Effective Date of the Plan shall mean March 1, 1994.
          --------------------------

1.14      Eligibility Service shall mean any employment recognized as such for
          -------------------
          the purposes of meeting the eligibility requirements for membership in
          the Plan and for eligibility for benefits under the Plan as provided
          under Article 2.

                                                                       Article 1

<PAGE>

                                                                          Page 6

1.15     Employee shall mean any person regularly employed by the Company who is
         --------
         paid from a payroll maintained in the continental United States,
         Hawaii, Puerto Rico or the U.S. Virgin Islands and who receives regular
         and stated compensation other than a pension or retainer; provided,
         however, that except as the Board of Directors or the Retirement
         Committee, pursuant to the authority delegated to it by the Board of
         Directors, may otherwise provide on a basis uniformly applicable to all
         persons similarly situated, no person shall be an Employee for purposes
         of the Plan who is (i) engaged as a consultant, (ii) a non-resident
         alien, (iii) paid on an hourly basis and who, under the Company's
         employment classification practices, is considered as an hourly-rated
         employee for purposes of the Company's employee benefit plans, (iv)
         accruing benefits in respect of current service under any other
         pension, retirement, qualified profit-sharing or other similar plan of
         the Company (other than the Rayonier Inc. Investment and Savings Plan
         for Salaried Employees,) or of any Associated Company, (v) a Leased
         Employee, or (vi) a Non-Benefits Worker; and provided further, that no
         person shall be an Employee for purposes of the Plan whose terms and
         conditions of employment are determined by a collective bargaining
         agreement with the Company which does not make this Plan applicable to
         such person. In addition, effective January 1, 1998, any person
         considered to be an independent contractor by the Company shall not be
         considered an Employee even if he is reclassified as an employee by any
         taxing authority such as the Internal Revenue Service or any other
         authority or agency.

1.16     Equivalent Actuarial Value shall mean equivalent value of a benefit
         --------------------------
         under the Plan determined on the basis of the applicable factors set
         forth in Appendix A, except as otherwise specified in the Plan. In any
         other event, Equivalent Actuarial Value shall be determined on the same
         actuarial basis utilized to compute the factors set forth in Appendix
         A.

                                                                       Article 1

<PAGE>

                                                                          Page 7

1.17     ERISA shall mean the Employee Retirement Income Security Act of 1974,
         -----
         as amended from time to time.

1.18     Final Average Compensation shall mean the sum of:
         --------------------------
         (a)      The average of a Member's annual base salary recognized as
                  Compensation received in any five calendar years of
                  Eligibility Service in which such annual base salary was
                  highest, plus

         (b)      The average of a Member's annual Compensation in excess of
                  annual base salary received in any five calendar years of
                  Eligibility Service in which such Compensation was highest;

         provided, however, that the calendar years on which such averages are
         based shall be any five calendar years during the last 120 calendar
         months of a Member's Eligibility Service, or if the Member has less
         than five calendar years of Eligibility Service, all of his or her
         calendar years of Eligibility Service; provided, further, however, that
         (i) the annual base salary earned in any calendar year and taken into
         account for purposes of "Final Average Compensation," and (ii) the
         amount in excess of base annual salary earned in any calendar year and
         taken into account for purposes of "Final Average Compensation," and
         (iii) the sum of (i) and (ii) taken into account for any calendar year,
         each shall be subject to the provisions of Section 401(a)(17) of the
         Code. If the Member terminates employment before the last day of the
         calendar year or otherwise experiences an interruption in Eligibility
         Service, the Retirement Committee shall, in accordance with rules
         uniformly applicable to all persons similarly situated, determine the
         amount of the Member's Final Average Compensation. The term Eligibility
         Service as used in this Section shall include all service recognized as
         Eligibility Service for purposes of eligibility requirements under
         Article 2.

1.19     Hour of Service shall mean hours of employment as defined pursuant to
         ---------------
         the provisions of Section 2.01(b).

                                                                       Article 1

<PAGE>
                                                                          Page 8

1.20     IRS Interest Rate shall mean the annual rate of interest on 30-year
         -----------------
         Treasury Securities, as specified by the Commissioner of Internal
         Revenue for the second full calendar month preceding the applicable
         Stability Period.

1.21     IRS Mortality Table shall mean the mortality table prescribed by the
         -------------------
         Secretary of the Treasury under Code Section 417(e)(3)(A)(ii)(I) as in
         effect on the first day of the applicable Stability Period.

1.22     Leased Employee shall mean any person as so defined in Section 414(n)
         ---------------
         of the Code by virtue of his or her performance of services for the
         Company or an Associated Company.

1.23     Member shall mean any person included in the membership of the Plan as
         ------
         provided in Article 3.

1.24     Non-Benefits Worker shall mean any individual designated by the Company
         -------------------
         as ineligible to participate in any Company-sponsored employee benefit
         program and any individual who the Company considers to be an
         independent contractor. The designation of an individual as a
         Non-Benefits Worker by the Company shall be final and not subject to
         any redetermination of employment classification by any taxing
         authority such as the Internal Revenue Service or any other
         governmental authority or agency.

1.25     Normal Retirement Date shall mean the first day of the calendar month
         ----------------------
         coincident with or next following the date the Employee attains age 65,
         which is his or her Normal Retirement Age.

                                                                       Article 1

<PAGE>

                                                                          Page 9

1.26     Parental Leave shall mean a period in which a person is absent from
         --------------
         work because of the person's pregnancy, the birth of a person's child,
         the adoption by a person of a child, or for purposes of caring for that
         child, for a period beginning immediately following such birth or
         adoption.

1.27     Participating Unit shall mean, in addition to Rayonier Inc., any
         ------------------
         subsidiary or affiliated company of Rayonier Inc., any designated
         location(s) only of such subsidiary or affiliated company or any
         designated unit(s) only of such subsidiary, or affiliated company which
         has by appropriate action of the Board of Directors been designated as
         a Participating Unit and the board of directors of any such subsidiary
         or affiliated company shall have taken appropriate action to adopt the
         Plan. The Board of Directors shall take action (i) to designate such
         entity as a Participating Unit, (ii) to determine that such persons are
         Employees, and (iii) to establish, by written amendment of the Plan,
         the terms and conditions under which such Employees are to be included
         in the Plan.

         If a group of persons is transferred to or assigned to a Participating
         Unit or is hired by a Participating Unit as the result of the opening
         or purchase of a plant or the merger of one unit into another, such
         persons shall not be deemed to be Employees for purposes of the Plan
         until further action by the Board of Directors, by written amendment of
         the Plan, including the determination that such persons are Employees
         for purposes of the Plan, and the establishment of the terms and
         conditions under which such Employees are to be included in the Plan.

         To the extent that the Board of Directors shall have authorized and
         established the basis for recognition under the Plan of service with a
         predecessor corporation(s), if any, reference in this Plan to service
         with a Participating Unit shall include service with the predecessor
         corporation(s) of such Participating Unit, provided that all or part of
         the business and assets of any such corporation shall have been
         acquired by Rayonier Inc. or by a Participating Unit.

                                                                       Article 1

<PAGE>

                                                                         Page 10

1.28     Pension Fund Trust and Investment Committee shall mean the committee
         -------------------------------------------
         established by Rayonier Inc. for the purposes of managing the assets of
         the Plan as provided in Article 5.

1.29     Plan shall mean the Retirement Plan for Salaried Employees of Rayonier
         ----
         Inc. as set forth herein or as hereafter amended.

1.30     Plan Year shall mean the calendar year.
         ---------

1.31     Postponed Retirement Date shall mean, with respect to an Employee who
         -------------------------
         does not retire at Normal Retirement Date but who works after such
         date, the first day of the calendar month coincident with or next
         following the date on which such Employee retires from active service.
         No retirement allowance shall be paid to the Employee until his or her
         Postponed Retirement Date, except as otherwise provided in Article 4.

1.32     Prior Salaried Plan shall mean the Retirement Plan for Salaried
         -------------------
         Employees of ITT Corporation (now known as the "ITT Industries Salaried
         Retirement Plan"), as in effect on February 28, 1994 and as thereafter
         amended from time to time.

1.33     Qualified Joint and Survivor Annuity shall mean an annuity described in
         ------------------------------------
         Section 4.06(a)(i).

1.34     Retirement Committee shall mean the committee established for the
         ---------------------
         purposes of administering the Plan as provided in Article 5.

                                                                       Article 1

<PAGE>

                                                                         Page 11

1.35     Severance Date shall mean the date an Employee is considered to have
         --------------
         severed his or her employment as defined pursuant to the provisions of
         Section 2.01(a).

1.36     Social Security Benefit shall mean the amount of annual old age or
         -----------------------
         disability insurance benefit under Title II of the Federal Social
         Security Act as determined by the Retirement Committee under reasonable
         rules uniformly applied, on the basis of such Act as in effect at the
         time of retirement or termination to which a Member or former Member is
         or would upon application be entitled, even though the Member does not
         receive such benefit because of his or her failure to apply therefor or
         he or she is ineligible therefor by reason of earnings he or she may be
         receiving in excess of any limit on earnings for full entitlement to
         such benefit. In computing the Member's Social Security Benefit, no
         wage index adjustment or cost of living adjustment shall be assumed
         with respect to any period after the end of the calendar year in which
         the Member retires or terminates service. For all years prior to
         retirement or other termination of employment with the Company where
         actual earnings are not available, the Member's Social Security Benefit
         shall be determined on the basis of the Member's actual earnings in
         conjunction with a salary increase assumption based on the actual
         yearly change in national average wages as determined by the Social
         Security Administration. If, within a reasonable time after the later
         of (i) the date of retirement or other termination of employment or
         (ii) the date on which a Member is notified of the retirement allowance
         or vested benefit to which he or she is entitled, the Member provides
         documentation from the Social Security Administration as to his or her
         actual earnings history with respect to those prior years, his or her
         Social Security Benefit shall be redetermined using the actual earnings
         history. If this recalculation results in a different Social Security
         Benefit, his or her retirement allowance or vested benefit shall be
         adjusted to reflect this change. Any adjustment to his or her
         retirement allowance or vested benefit shall be made retroactive to the
         date his or her payments

                                                                       Article 1

<PAGE>

                                                                         Page 12

         commenced. The Retirement Committee shall resolve any questions
         arising under this Section on a basis uniformly applicable to all
         Employees similarly situated.

1.37     Social Security Retirement Age shall mean age 65 with respect to a
         ------------------------------
         Member who was born before January 1, 1938; age 66 with respect to a
         Member who was born after December 31, 1937 and before January 1, 1955;
         and age 67 with respect to a Member who was born after December 31,
         1954.

1.38     Special Early Retirement Date shall mean the date as determined in the
         -----------------------------
         manner set forth in Section 4.04.

1.39     Spousal Consent shall mean written consent given by a Member's or
         ---------------
         former Member's spouse to an election made by the Member or former
         Member which specifies the form of retirement allowance, vested
         benefit, Beneficiary, or contingent annuitant designated by the Member
         or former Member. The specified form or specified Beneficiary or
         contingent annuitant shall not be changed unless further Spousal
         Consent is given. Spousal Consent shall be duly witnessed by a notary
         public, or in accordance with uniform rules of the Retirement
         Committee, by a Plan representative and shall acknowledge the effect on
         the spouse of the Member's or former Member's election. The requirement
         for Spousal Consent may be waived by the Retirement Committee in
         accordance with applicable law. Spousal Consent shall be applicable
         only to the particular spouse who provides such consent.

1.40     Stability Period shall mean the Plan Year in which occurs the Annuity
         ----------------
         Starting Date for the distribution.

                                                                       Article 1

<PAGE>

                                                                         Page 13

1.41     Transferred Employee shall mean an employee of the Company on the
         --------------------
         Effective Date who is paid on an hourly basis, classified as an
         hourly-rated employee for purposes of the Company's employee benefit
         plans, and who is entitled to a benefit under the Prior Salaried Plan.

1.42     Trustee shall mean the trustee or trustees by which the funds of the
         -------
         Plan are held as provided in Article 7.

                                                                       Article 1

<PAGE>
                                                                         Page 14

                              ARTICLE 2 -- SERVICE
                              --------------------

2.01     Eligibility Service
         -------------------

(a)      Eligibility Service On and After the Effective Date. Except as
         ---------------------------------------------------
         otherwise provided in this Article 2, all uninterrupted employment with
         the Company or with an Associated Company rendered on and after (i) the
         Effective Date or (ii) date of employment, if later, and prior to such
         Member's Severance Date shall be recognized as Eligibility Service for
         all Plan purposes. "Severance Date" shall mean the earlier of (i) the
         date a Member resigns, is discharged, retires or dies or (ii) one year
         from the date the Member is continuously absent from service for any
         other reason as provided in this Article 2. Eligibility Service for any
         period of employment rendered prior to the Effective Date shall be
         determined as set forth in Section 2.01(g).

(b)      Eligibility Service for Plan Membership by Employees Hired on Other
         -------------------------------------------------------------------
         Than a Full-Time Basis. With respect to any Employee whose employment
         ----------------------
         with the Company or with an Associated Company is on a temporary or
         less than full-time basis, "one year of Eligibility Service" for
         purposes of meeting the requirements for membership in the Plan as
         provided in Article 3 shall mean a period of 12 consecutive months of
         employment and measured from the date on which he or she first
         completes an Hour of Service or from any subsequent anniversary thereof
         and during which he or she has completed at least 1,000 Hours of
         Service with the Company or with an Associated Company. After such an
         Employee has met the requirements for membership in the Plan as
         provided in Article 3, Eligibility Service for purposes of meeting the
         eligibility requirements for benefits and for vesting shall be
         determined in accordance with Sections 2.01(a) and 2.01(g).

                                                                       Article 2


<PAGE>

                                                                         Page 15

         "Hours of Service" shall include hours worked and hours for which a
         person is compensated by the Company or by an Associated Company for
         the performance of duties for the Company or an Associated Company,
         although he or she has not worked (such as: paid holidays, paid
         vacation, paid sick leave, paid time off and back pay for the period
         for which it was awarded), and each such hour shall be computed as only
         one hour, even though he or she is compensated at more than the
         straight time rate. This definition of "Hours of Service" shall be
         applied in a consistent and non-discriminatory manner in compliance
         with 29 Code of Federal Regulations, Section 2530.200b-2(b) and (c) as
         promulgated by the United States Department of Labor and as may
         hereafter be amended.

         Solely for purposes of this paragraph (b), if a temporary or less than
         full-time Employee does not complete more than 500 Hours of Service in
         the 12 month period beginning on the date on which he or she first
         completes an Hour of Service or beginning on any subsequent anniversary
         thereof (which for purposes of this paragraph (b) shall be known as the
         "computation period"), he or she shall incur a one-year break in
         service. Solely for purposes of determining whether such an Employee
         has incurred a break in service, hours shall include each Hour of
         Service for which such Employee would otherwise have been credited
         under this paragraph (b) were it not for the Employee's absence due to
         Parental Leave. Hours of Service credited under the preceding sentence
         shall not exceed the number of hours needed to avoid a break in service
         in the computation period in which the Parental Leave first began, and
         in any event shall not exceed 501 hours; if no hours are needed to
         avoid a break in service in such computation period, then the
         provisions of the preceding sentence shall apply as though the Parental
         Leave began in the immediately following computation period. If such an
         Employee has had a break in service before becoming eligible for
         membership, Eligibility Service shall begin from the date of his or her
         return

                                                                       Article 2

<PAGE>

                                                                         Page 16

         to the employ of the Company or an Associated Company. Except as
         otherwise provided in this Article 2, his or her Eligibility Service
         before the break in service shall be restored only upon completion of
         one year of Eligibility Service within the 12-month period following
         his or her break in service. If, however, the periods of consecutive
         one-year breaks in service equals or exceeds the greater of (i) five
         years or (ii) the total number of years of Eligibility Service before
         the break in service, his or her Eligibility Service prior to the
         break shall never be restored.

 (c)     Employment With the Company or an Associated Company but not as an
         ------------------------------------------------------------------
         Employee. Eligibility Service with respect to prior employment rendered
         --------
         by any person who, on or after the Effective Date and prior to the date
         on which he or she becomes an Employee, is or was in the employ of the
         Company or an Associated Company but not as an Employee shall, subject
         to the provisions of Section 2.01(e) and Section 2.01(f), be equal to:

         (i)      the number of years credited to him, if any, on the basis of
                  the "1,000 hour rule" under a pension plan maintained by the
                  Company or an Associated Company applicable to him or her for
                  the period of such prior employment ending on the last day of
                  the calendar year preceding the date on which he or she
                  becomes an Employee or the date on which such prior employment
                  terminated, plus

         (ii)     the greater of (1) the service credited to him, if any, on the
                  basis of the "1,000 hour rule" for the portion of the calendar
                  year ending on the date immediately preceding the date he or
                  she becomes an Employee or the date on which such prior
                  employment terminated, or (2) the Eligibility Service he or
                  she would be credited with under this Plan for the entire
                  calendar year in which the transfer or termination of
                  employment took place.

         Notwithstanding the foregoing provisions of this paragraph (c), in the
         event a person's prior employment was not covered by or credited under
         a pension plan which recognized employment on

                                                                       Article 2

<PAGE>

                                                                         Page 17

         the basis of the "1,000 hour rule," any such prior employment with the
         Company or an Associated Company whether rendered before or after the
         Effective Date shall be recognized in accordance with the terms of
         this Article 2.

 (d)     Certain Absences to be Recognized as Eligibility Service. Except as
         --------------------------------------------------------
         otherwise indicated in this Article 2, the following periods of
         approved absence rendered on and after the Effective Date shall be
         recognized as Eligibility Service under the Plan and shall not be
         considered as breaks in Eligibility Service:

         (i)      The period of any leave of absence granted in respect of
                  service with the armed forces of the United States on or after
                  the Effective Date provided the Employee shall have returned
                  to the service of the Company or an Associated Company in
                  accordance with reemployment rights under applicable law and
                  shall have complied with all of the requirements of such law
                  as to reemployment.

         (ii)     Except as provided by law, the period on or after the
                  Effective Date of any leave of absence granted in respect of
                  service, not exceeding two years, with any other agency or
                  department of the United States Government.

         (iii)    The period on and after the Effective Date of any total and
                  permanent disability during which an Employee becomes entitled
                  to a disability benefit under Title II of the Federal Social
                  Security Act as amended from time to time or the period on and
                  after the Effective Date of total and permanent disability as
                  determined by the Retirement Committee on the basis of such
                  medical information as it shall require.

         (iv)     The period of any leave of absence on and after the Effective
                  Date during which Company sickness or accident benefits are
                  payable.

                                                                       Article 2

<PAGE>

                                                                         Page 18

         (v)      The period on and after the Effective Date of any leave of
                  absence approved by the Company during which an Employee is
                  paid Compensation at a rate which is at least one-half of the
                  Employee's basic rate of Compensation in effect immediately
                  prior to such leave.

         (vi)     In any event, Eligibility Service shall include the period,
                  with or without Compensation, immediately preceding the
                  Employee's Severance Date but not in excess of 12 consecutive
                  months inclusive of those periods of approved absences already
                  included in subparagraphs (i) through (v) above, during which
                  an Employee is continuously absent from service.

         (vii)    The period between an Employee's Severance Date and his or her
                  reemployment if he or she returns to the employ of the Company
                  or an Associated Company before the first anniversary date of
                  his or her Severance Date; provided, however, that the
                  combined periods recognized under subparagraph (vi) above and
                  under this subparagraph (vii) shall not exceed 12 consecutive
                  months.

         (viii)   The period of any periodic salary continuation payments an
                  Employee receives under any severance pay plan of the Company.

         Except to the extent provided under subparagraph (vi), and if
         applicable, under subparagraph (vii) above, if an Employee fails to
         return to active employment upon expiration of the approved absences
         specified in subparagraphs (i), (ii), (iv) and (v) above, such periods
         of approved absence shall not be considered as Eligibility Service
         under the Plan.

 (e)     Breaks in Service. All absences from the Company or from an Associated
         -----------------
         Company, other than the absences specified in paragraph (d) above,
         shall be considered as breaks in Eligibility Service; provided,
         however, that in no event shall there be a break in Eligibility Service
         if an Employee (i) is continuously absent from service with the Company
         or with an Associated Company and returns to

                                                                       Article 2

<PAGE>

                                                                         Page 19

         the employ of the Company or an Associated Company before the first
         anniversary of his or her Severance Date or (ii) is absent from work
         because of a Parental Leave and returns to the employ of the Company
         or an Associated Company within two years of his or her Severance
         Date. If the provisions of clause (ii) above are applicable, the first
         year of such absence for Parental Leave, measured from an Employee's
         Severance Date, shall not be considered in determining the Employee's
         period of break in service for purposes of Section 2.01(f) below.

 (f)     Bridging Breaks in Service
         --------------------------

         (i)      If an Employee has a break in service and such Employee was
                  eligible for a vested benefit under Section 4.05 at the time
                  of his or her break in service, except as otherwise provided
                  in Section 4.11, employment both before and after the
                  Employee's absence shall be immediately recognized as
                  Eligibility Service, subject to the provisions of this Section
                  2.01, upon his or her return to the employ of the Company or
                  an Associated Company.

         (ii)     If an Employee has a break in service and such Employee was
                  not eligible for a vested benefit under Section 4.05 at the
                  time of his or her break in service, Eligibility Service shall
                  begin from the date of his or her return to the employ of the
                  Company or an Associated Company. If such Employee returns to
                  the employ of the Company or an Associated Company and the
                  period of the Employee's break is less than the greater of (1)
                  five years or (2) the service rendered prior to such break,
                  the service prior to such break shall be included as
                  Eligibility Service, subject to the provisions of this Section
                  2.01, only upon completion of at least 12 months of
                  Eligibility Service following his or her break in service.
                  However, if the period of the Employee's break in service
                  equals or exceeds the greater of (1) five years or (2) the
                  service rendered prior to such break, the service rendered
                  prior to such break shall be included as Eligibility Service,
                  subject to the

                                                                       Article 2

<PAGE>

                                                                         Page 20

               provisions of this Section 2.01, only upon completion of a period
               of Eligibility Service equal to the lesser of the period of his
               or her break in service or ten years.

 (g)     Eligibility Service Prior to the Effective Date
         -----------------------------------------------

         Notwithstanding any foregoing provisions to the contrary, Eligibility
         Service shall include (i) with respect to any person who becomes a
         Member of the Plan on the Effective Date pursuant to the provisions of
         Section 3.01(a) or (b) or Section 3.05, any employment rendered by such
         Member prior to the Effective Date to the extent such employment is
         recognized as Eligibility Service under the provisions of the Prior
         Salaried Plan, (ii) with respect to any person who was employed by ITT
         Rayonier Incorporated on a salaried basis as of February 28, 1994 but
         was not a member of the Prior Salaried Plan as of such date and who
         becomes a Member of the Plan on or after the Effective Date pursuant to
         the provisions of Section 3.01(c), any uninterrupted employment with
         the Company or with an Associated Company rendered by such Member prior
         to the Effective Date and prior to his or her Severance Date, and (iii)
         with respect to any person who was employed by ITT Rayonier
         Incorporated on a salaried basis on December 1, 1993 but was not
         employed by the Company on the Effective Date, any employment rendered
         by the Member prior to the Effective Date to the extent such employment
         is recognized as Eligibility Service under the provisions of the Prior
         Salaried Plan. With respect to a person not described in clause (i),
         (ii), or (iii) of the preceding sentence who becomes a Member after the
         Effective Date, Eligibility Service for the purpose of determining
         eligibility for benefits but not for the purpose of determining
         eligibility for Plan membership or Final Average Compensation shall
         include, subject to the provisions of Section 2.01(f)(ii) with respect
         to bridging breaks in service, any employment with ITT Rayonier
         Incorporated rendered by such Member prior to the Effective Date to the
         extent such employment

                                                                       Article 2

<PAGE>

                                                                         Page 21

         is recognized or would have been recognized as Eligibility Service
         under the provisions of the Prior Salaried Plan.

2.02     Benefit Service
         ---------------

 (a)     Benefit Service On and After the Effective Date. Except as hereinafter
         -----------------------------------------------
         otherwise provided, all uninterrupted employment with the Company
         rendered by a Member as an Employee on and after the Effective Date and
         prior to his or her Severance Date shall be recognized as Benefit
         Service under the Plan. Benefit Service for any period of employment
         rendered prior to the Effective Date shall be determined as set forth
         in Section 2.02(f).

(b)      Employment With an Associated Company. Except as otherwise provided in
         -------------------------------------
         an Appendix to the Plan, no employment with an Associated Company
         rendered by a Member shall be recognized as Benefit Service under the
         Plan; except, however, if a Member completes 36 months of Eligibility
         Service as an Employee, any employment rendered on and after the
         Member's date of hire with an Associated Company before classification
         as an Employee shall be recognized as Benefit Service subject to any
         limitations for the Associated Company at which the Member was employed
         set forth in writing by the Retirement Committee. If a Member ceases to
         be an Employee and is again employed at an Associated Company, such
         further employment will not be recognized as Benefit Service unless and
         until the Member again (i) becomes an Employee and (ii) completes 36
         months of Eligibility Service as an Employee.

(c)      Employment With the Company but not as an Employee. Except as otherwise
         --------------------------------------------------
         provided in Section 3.04, with respect to (i) any person who on or
         after the Effective Date and immediately prior to the date on which he
         or she becomes an Employee, is in the employ of the Company but not as
         an

                                                                       Article 2

<PAGE>

                                                                         Page 22

         Employee and (ii) any Member who completes an Hour of Service on and
         after the Effective Date, and who thereafter ceases to be an Employee
         but remains in the employ of the Company, and on or after the
         Effective Date again becomes an Employee, uninterrupted employment
         with the Company otherwise than as an Employee rendered on and after
         the Effective Date shall be recognized as Benefit Service in
         accordance with the terms of this Section 2.02, provided such person
         is a Member of the Plan, upon completion of 36 months of Eligibility
         Service as an Employee, subject to the limitations set forth in
         writing by the Board of Directors or the Retirement Committee for the
         Participating Unit at which such person was first employed.

 (d)     Certain Absences to be Recognized as Benefit Service. Except as
         ----------------------------------------------------
         otherwise indicated below, the following periods of approved absence
         rendered on and after the Effective Date shall be recognized as Benefit
         Service and shall not be considered as breaks in Benefit Service:

         (i)      The period of any leave of absence granted in respect of
                  service with the armed forces of the United States on and
                  after the Effective Date provided the Employee shall have
                  returned to the service of the Company or an Associated
                  Company in accordance with reemployment rights under
                  applicable law and shall have complied with all of the
                  requirements of such law as to reemployment.

         (ii)     Except as provided by law, the period on and after the
                  Effective Date of any leave of absence granted in respect of
                  service, not exceeding two years, with any other agency or
                  department of the United States Government.

         (iii)    The period on and after the Effective Date of any total and
                  permanent disability during which an Employee becomes entitled
                  to a disability benefit under Title II of the Federal Social
                  Security Act as amended from time to time; provided, however,
                  that, if such disability benefit ceases to be paid solely due
                  to the Employee's age, Benefit Service shall

                                                                       Article 2

<PAGE>

                                                                         Page 23

                  include the period of total and permanent disability during
                  which the Employee is entitled or would have been entitled if
                  he or she had participated in the Company's applicable long
                  term disability plan to receive disability benefit under such
                  long term disability plan.

         (iv)     The period on and after the Effective Date of any leave of
                  absence during which Company sickness or accident benefits are
                  payable.

         (v)      The period on and after the Effective Date of any leave of
                  absence approved by the Company during which an Employee is
                  paid Compensation at a rate which is at least one-half of the
                  Employee's basic rate of Compensation in effect immediately
                  prior to such leave.

         (vi)     In any event, Benefit Service shall include the period, with
                  or without Compensation, immediately preceding the Employee's
                  Severance Date not in excess of 12 consecutive months
                  inclusive of those periods of approved absences already
                  included in subparagraphs (i) through (v) above, during which
                  an Employee is continuously absent from service.

         (vii)    The period of any periodic salary continuation payments an
                  Employee receives under any severance pay plan of the Company.

         Except to the extent provided under subparagraph (vi) above, if an
         Employee fails to return to active employment upon expiration of the
         approved absences specified in subparagraphs (i), (ii), (iv) and (v)
         above, such periods of approved absence shall not be considered as
         Benefit Service under the Plan.

         The Compensation of a Member during the periods of absence covered by
         clause (i), (ii), (iv) or (vi) above shall be the Compensation the
         Member actually receives during such period. The Compensation of a
         Member during the period of absence covered by clause (iii) above shall
         be deemed to be the Member's Final Average Compensation based on his or
         her Eligibility Service up

                                                                       Article 2

<PAGE>

                                                                         Page 24

         to such absence. Unless the Retirement Committee determines otherwise
         on a basis uniformly applicable to all persons similarly situated, the
         Social Security Benefit of a Member covered by clause (iii) above
         shall be based on the benefit awarded by the Social Security
         Administration at the date of his or her total and permanent
         disability.

(e)      All Other Absences for Employees
         --------------------------------

         (i)      No period of absence approved by the Company other than those
                  specified in Section 2.02(d) above shall be recognized as
                  Benefit Service.

         (ii)     No other absence, other than the absence covered by the
                  exception in clause (i) above, shall be recognized as Benefit
                  Service and any such absence shall be considered as a break in
                  Benefit Service; provided, however, that in no event shall
                  there be a break in Benefit Service if an Employee is
                  continuously absent from service with the Company or with an
                  Associated Company for a period not in excess of 12 months and
                  returns as an Employee to the employ of the Company before the
                  first anniversary date of his or her Severance Date. However,
                  any period between a Severance Date and a reemployment date
                  which is counted as Eligibility Service under Section
                  2.01(d)(vii) shall not be counted as Benefit Service.

                  If the Employee was eligible for a vested benefit under
                  Section 4.05 at the time of a break in service, Benefit
                  Service both before and after the Employee's absence shall be
                  immediately recognized as Benefit Service under the Plan upon
                  his or her return to service.

                  If the Employee was not eligible for a vested benefit under
                  Section 4.05 at the time of a break in service, Benefit
                  Service shall begin from the date of the Employee's return to
                  the

                                                                       Article 2

<PAGE>

                                                                         Page 25

                  employ of the Company. However, any Benefit Service rendered
                  prior to such break in service shall be included, subject to
                  the provisions of this Section 2.02, as Benefit Service only
                  at the time that he or she bridges his or her Eligibility
                  Service in accordance with the provisions of Section
                  2.01(f).

(f)      Benefit Service Prior to the Effective Date. Notwithstanding any
         -------------------------------------------
         foregoing provisions to the contrary, Benefit Service shall include (i)
         with respect to any person who becomes a Member of the Plan on the
         Effective Date pursuant to the provisions of Section 3.01(a) or (b) or
         Section 3.05, any employment rendered by such Member prior to the
         Effective Date to the extent such employment is recognized as Benefit
         Service under the provisions of the Prior Salaried Plan, (ii) with
         respect to any person who was employed by ITT Rayonier Incorporated on
         a salaried basis as of February 28, 1994 but who was not a Member of
         the Prior Salaried Plan as of such date and who becomes a Member of the
         Plan on or after the Effective Date pursuant to the provisions of
         Section 3.01(c), any uninterrupted employment with the Company rendered
         by such Member as an Employee prior to the Effective Date and prior to
         his or her Severance Date, and (iii) with respect to any person who was
         employed by ITT Rayonier Incorporated on a salaried basis on or after
         December 1, 1993 but was not employed by the Company on the Effective
         Date, any employment rendered by the Member prior to the Effective Date
         to the extent such employment is recognized as Benefit Service under
         the provisions of the Prior Salaried Plan.

2.03     Questions Relating to Service Under the Plan
         --------------------------------------------

         If any question shall arise hereunder as to an Employee's Eligibility
         Service or Benefit Service, such question shall be resolved in writing
         by the Retirement Committee on a basis uniformly applicable to all
         Employee(s) similarly situated. The Retirement Committee may, with
         respect to

                                                                       Article 2

<PAGE>

                                                                         Page 26

         any person or any group of persons which it considers to be not
         substantial in number, determine whether the employment of such
         person(s), the Company or any Associated Company shall be recognized
         under the Plan as Eligibility Service or Benefit Service. If, in the
         judgment of the Retirement Committee, a group of persons is considered
         to be substantial in number, the employment of such persons with the
         Company or any Associated Company shall not be recognized under the
         Plan as Eligibility Service or Benefit Service until further action by
         the Board of Directors. Such further documentation is hereby
         incorporated into the Plan by reference.

                                                                       Article 2

<PAGE>
                                                                         Page 27

                             ARTICLE 3 -- MEMBERSHIP
                             -----------------------

3.01     Persons Employed on the Effective Date
         --------------------------------------

 (a)     Any person who is an Employee as defined in Section 1.15 on the
         Effective Date and who was a member of the Prior Salaried Plan on
         February 28, 1994 shall become a Member of the Plan on the Effective
         Date.

 (b)     Any person who would be classified as an Employee as defined in Section
         1.15 on the Effective Date but is absent from work at the Company by
         reason of layoff, leave of absence, short term disability or long term
         disability and who is a Member of the Prior Salaried Plan on February
         28, 1994 shall become a Member of the Plan on the Effective Date.

 (c)     Any person who is an Employee as defined in Section 1.15 on the
         Effective Date and who as of February 28, 1994 was not a member of the
         Prior Salaried Plan but was in the process of satisfying the age and
         service eligibility requirements for membership in the Prior Salaried
         Plan, shall become a Member of the Plan as of the first day of the
         calendar month coincident with or next following the date he or she
         completes the age and service requirements set forth in Section 3.02(a)
         and (b).

3.02     Persons First Employed as Employees On or After the Effective Date
         ------------------------------------------------------------------

         Every person who is first employed as an Employee on or after the
         Effective Date shall become a Member of the Plan as of the first day of
         the calendar month coincident with or next following the later of:

         (a)  the date on which he or she attains the 21st anniversary of his or
              her birth, or

                                                                       Article 3

<PAGE>

                                                                         Page 28

         (b)   the date on which he or she completes one year of Eligibility
               Service.

3.03     Reemployment After March 1, 1994 of ITT Rayonier Incorporated Salaried
         ----------------------------------------------------------------------
         Employees
         ---------

         Any person who was employed by ITT Rayonier Incorporated on a salaried
         basis on December 1, 1993 and who was a member of the Prior Salaried
         Plan but who terminated employment prior to the Effective Date shall
         become a Member of the Plan on the first day he is employed as an
         Employee.

3.04     Persons Employed as a Leased Employee With the Company or an Associated
         -----------------------------------------------------------------------
         Company
         -------

         Any person who is a Leased Employee shall not be eligible to
         participate in the Plan. However notwithstanding any other Plan
         provision to the contrary, if a Leased Employee subsequently becomes an
         Employee as defined in Section 1.15 or an Employee as defined in
         Section 1.15 subsequently becomes employed as a Leased Employee,
         uninterrupted employment with the Company or an Associated Company as a
         Leased Employee, shall be counted for the sole purpose of determining
         Eligibility Service but not for the purpose of determining Benefit
         Service; provided, however, that Eligibility Service shall not be
         counted for any Leased Employee for any period of his or her employment
         during which the requirements of Section 414(n)(5) of the Code are met.

3.05     Persons Employed as Other Than Employees by the Company
         -------------------------------------------------------

         Every person employed as other than an Employee by a Participating Unit
         shall become a Member of the Plan as of the first day of the calendar
         month coincident with or next following the date on which he or she
         first becomes an Employee, but not unless and until he or she satisfies
         the same terms and conditions which would have been applicable had he
         or she always been an Employee at

                                                                       Article 3

<PAGE>

                                                                         Page 29

         such Participating Unit. Notwithstanding the foregoing, a Transferred
         Employee shall become a Member on the Effective Date.

3.06     Reemployment of Former Employees, Former Members and Retired Members
         --------------------------------------------------------------------

         Except as provided in Section 3.03, any person reemployed by the
         Company as an Employee shall be considered a new Employee for
         membership purposes under the Plan if such Employee was not previously
         a Member of the Plan.

         The membership of any person reemployed by the Company as an Employee
         shall be immediately resumed if such Employee was previously a Member
         of the Plan.

         If a retired Member or a former Member is reemployed by the Company or
         by an Associated Company in a capacity other than as a Non-Benefits
         Worker, his or her membership in the Plan shall be immediately resumed
         and any payment of a retirement allowance with respect to his or her
         original retirement or any payment of a vested benefit with respect to
         his or her original employment shall cease in accordance with the
         provisions of Section 4.11.

3.07     Termination of Membership
         -------------------------

         Unless otherwise determined by the Retirement Committee in writing
         under rules uniformly applicable to all person(s) or Employee(s)
         similarly situated, an Employee's membership in the Plan shall
         terminate if he or she ceases to be an Employee and he or she is not
         entitled to either a retirement allowance or vested benefit under
         Sections 4.01, 4.02, 4.03, 4.04 or 4.05, except that an Employee's
         membership shall continue (a) during any period while on leave of
         absence approved by the Company, (b) while absent by reason of
         temporary disability, (c) during the period of any

                                                                       Article 3

<PAGE>

                                                                         Page 30

         total and permanent disability which continues to be recognized as
         Eligibility Service and Benefit Service as provided in Article 2, (d)
         while he or she is not an Employee as herein defined but is in the
         employ of the Company or an Associated Company, or (e) during the
         period of any periodic salary continuation payments an Employee
         receives under any severance pay plan of the Company. Employees covered
         by the Plan may not waive such coverage.

3.08     Questions Relating to Membership in the Plan
         --------------------------------------------

         If any question shall arise hereunder as to the commencement, duration
         or termination of the membership of any person(s) or Employee(s)
         employed by the Company or by an Associated Company, such question
         shall be resolved by the Retirement Committee in writing under rules
         uniformly applicable to all person(s) or Employee(s) similarly
         situated. Such further documentation is hereby incorporated into the
         Plan by reference.

                                                                       Article 3

<PAGE>
                                                                         Page 31

                              ARTICLE 4 -- BENEFITS
                              ---------------------

4.01     Normal Retirement Allowance
         ---------------------------

 (a)     The right of a Member to his or her normal retirement allowance shall
         be nonforfeitable as of his or her Normal Retirement Age. A Member may
         retire from active service on a normal retirement allowance upon
         reaching his or her Normal Retirement Date. If a Member postpones his
         or her retirement and continues in active service after his or her
         Normal Retirement Date or returns to service after his or her Normal
         Retirement Date, the provisions of Section 4.02 shall be applicable.

 (b)     Benefit. Prior to adjustment in accordance with Sections 4.06(a) and
         -------
         4.07(c), the annual normal retirement allowance payable on a lifetime
         basis upon retirement at a Member's Normal Retirement Date shall be
         equal to the sum of (i) and (ii) where:

         (i)      equals:

                  (1)      2 percent of the Member's Final Average Compensation
                           multiplied by the portion of the first 25 years of
                           his or her Benefit Service rendered prior to the
                           Effective Date;

                  (2)      plus 1 1/2 percent of the Member's Final Average
                           Compensation multiplied by the next 15 years of his
                           or her Benefit Service rendered prior to the
                           Effective Date, to a combined maximum of 40 years of
                           Benefit Service;

                  (3)      reduced by 1 1/4 percent of the Social Security
                           Benefit multiplied by the portion of his or her years
                           of Benefit Service rendered prior to the Effective
                           Date, and not in excess of 40 years;

                  (4)      reduced, but not below zero, by the annual normal
                           retirement allowance determined under the provisions
                           of Section 4.01(b) of the Prior Salaried Plan prior

                                                                       Article 4

<PAGE>

                                                                         Page 32

                         to the imposition of any limitations under Section 415
                         of the Code and the application of any offset
                         provisions of the Prior Salaried Plan, with respect to
                         the Member's period of employment rendered prior to the
                         Effective Date which has been credited as Benefit
                         Service hereunder pursuant to the provisions of Section
                         2.02(f); and

         (ii)    equals:

                 (1)     2 percent of the Member's Final Average Compensation
                         multiplied by the portion of the first 25 years of his
                         or her Benefit Service rendered on and after the
                         Effective Date;

                 (2)     plus 1 1/2 percent of the Member's Final Average
                         Compensation multiplied by the portion of the next 15
                         years of his or her Benefit Service rendered on or
                         after the Effective Date, to a combined maximum of 40
                         years of Benefit Service minus the total number of
                         years of Benefit Service rendered prior to the
                         Effective Date;

                 (3)     reduced by 1 1/4 percent of the Social Security Benefit
                         multiplied by the portion of the number of years of his
                         or her Benefit Service rendered on or after the
                         Effective Date not in excess of 40 years minus the
                         total number of years of Benefit Service rendered prior
                         to the Effective Date.

         The combined maximum years of Benefit Service used to compute the
         amounts under clauses (i) and (ii) above shall not exceed 40 years.

         The annual normal retirement allowance determined prior to reduction to
         be made on account of the Social Security Benefit shall be an amount
         not less than the greatest annual early retirement allowance which
         would have been payable to a Member had he or she retired under Section
         4.03 or Section 4.04 at any time before his or her Normal Retirement
         Date and as such early retirement

                                                                       Article 4

<PAGE>

                                                                         Page 33

         allowance would have been reduced to commence at such earlier date but
         without reduction on account of the Social Security Benefit. The
         reduction to be made on account of the Social Security Benefit shall in
         any event be based on the Federal Social Security Act in effect at the
         time of the Member's actual retirement.

4.02     Postponed Retirement Allowance
         ------------------------------

(a)      A Member who continues in active service after his or her Normal
         Retirement Date or returns to active service on or after his or her
         Normal Retirement Date shall be retired from active service on a
         postponed retirement allowance on the first day of the month following
         his or her termination of employment, which date shall be the Member's
         Postponed Retirement Date.

(b)      Benefit. Except as hereinafter provided and prior to adjustment in
         -------
         accordance with Sections 4.06(a) and 4.07(c), the annual postponed
         retirement allowance payable on a lifetime basis upon retirement at a
         Member's Postponed Retirement Date shall be equal to the greater of:

         (i)      an amount determined in accordance with Section 4.01(b) but
                  based on the Member's Benefit Service, Social Security Benefit
                  and Final Average Compensation, and with respect to the amount
                  determined under Section 4.01(b)(i)(4), any applicable
                  components under the Prior Salaried Plan as of his or her
                  Postponed Retirement Date or

         (ii)     the annual normal retirement allowance to which the Member
                  would have been entitled under Section 4.01(b) had he or she
                  retired on his or her Normal Retirement Date, increased by an
                  amount which is the Equivalent Actuarial Value of the monthly
                  payments which would have been payable with respect to each
                  month in which he or she worked fewer than eight days. Any
                  monthly payment determined under this subparagraph (ii) with
                  respect to any such month in which he or she worked fewer than
                  eight days shall be

                                                                       Article 4

<PAGE>

                                                                         Page 34

                computed as if the Member had retired on his or her Normal
                Retirement Date and shall reflect additional benefit accruals,
                if any, recomputed as of the first day of each subsequent Plan
                Year during which payment would have been made on the basis of
                his or her Final Average Compensation and Benefit Service
                accrued to such recomputation date.

 (c)     Benefit for Member in Active Service After He or She Attains Age
         ----------------------------------------------------------------
         70 1/2. In the event a Member's retirement allowance is required to
         ------
         begin under Section 4.10 while the Member is in active service, the
         January 1 immediately following the calendar year in which the Member
         attained age 70 1/2 shall be the Member's Annuity Starting Date for
         purposes of this Article 4 and the Member shall receive a postponed
         retirement allowance commencing on that January 1 in an amount
         determined as if he or she had retired on such date. As of each
         succeeding January 1 prior to the Member's actual Postponed Retirement
         Date and as of his or her actual Postponed Retirement Date, the
         Member's retirement allowance shall be:

         (i)    recomputed to reflect any additional retirement allowance
                attributable to his or her Compensation and Benefit Service
                earned during the immediately preceding calendar year and based
                on his or her age at each succeeding January 1 or actual
                Postponed Retirement Date, and

         (ii)   reduced by the Equivalent Actuarial Value of the total payments
                of his or her postponed retirement allowance made with respect
                to each month of continued employment in which he or she was
                credited with at least eight days of service and which were paid
                prior to each such recomputation;

         provided that no such reduction shall reduce the Member's postponed
         retirement allowance below the amount of postponed retirement allowance
         payable to the Member immediately prior to the recomputation of such
         retirement allowance.

                                                                       Article 4

<PAGE>

                                                                         Page 35

4.03     Standard Early Retirement Allowance
         -----------------------------------

 (a)     Eligibility. A Member, who has not reached his or her Normal Retirement
         -----------
         Date but has, prior to his or her termination of employment reached the
         55th anniversary of his or her birth and completed ten years of
         Eligibility Service, is eligible to retire on a standard early
         retirement allowance on the first day of the calendar month coincident
         with or next following termination of employment, which date shall be
         the Member's Early Retirement Date.

 (b)     Benefit. Except as hereinafter provided and prior to adjustment in
         -------
         accordance with Sections 4.06(a) and 4.07(c) the standard early
         retirement allowance shall be an allowance deferred to commence on the
         Member's Normal Retirement Date and shall be equal to the Member's
         Accrued Benefit earned up to his or her Early Retirement Date, computed
         on the basis of his or her Benefit Service, Final Average Compensation,
         Social Security Benefit and any applicable components of the Prior
         Salaried Plan as of his or her Early Retirement Date, with the Social
         Security Benefit determined on the assumption that the Member had no
         earnings after his or her Early Retirement Date.

         The Member may, however, elect to receive an early retirement allowance
         commencing on his or her Early Retirement Date or the first day of any
         calendar month before his or her Normal Retirement Date specified in
         his or her later request therefor in a reduced amount which, prior to
         adjustment in accordance with Sections 4.06(a) and 4.07(c) shall be
         equal to his or her Accrued Benefit earned up to his or her Early
         Retirement Date prior to the reduction for the Social Security Benefit,
         reduced by 1/4 of 1 percent per month for each month by which the
         commencement date of his or her retirement allowance precedes his or
         her Normal Retirement Date.

                                                                       Article 4

<PAGE>

                                                                         Page 36

         The reduction to be made on account of the Social Security Benefit,
         with respect to the retirement allowance payable to a Member retiring
         prior to his or her 62nd birthday, shall not be made until such time as
         the Member is or would upon proper application first be entitled to
         receive said Social Security Benefit. With respect to a Member who
         retires on and after said date and prior to attaining age 62, the
         reduction to be made to the retirement allowance payable to such Member
         or any benefit payable after his or her death to his or her spouse or
         to a contingent annuitant pursuant to the provisions of Section 4.06 on
         account of the Social Security Benefit shall not be made until such
         time as the Member is or would have, had he or she survived, upon
         proper application first been entitled to receive said Social Security
         Benefit.

4.04     Special Early Retirement Allowance
         ----------------------------------

(a)      Eligibility. A Member who has not reached his or her Normal Retirement
         -----------
         Date but who prior to his or her termination of employment (i) has
         reached the 55th anniversary of his or her birth and completed 15 years
         of Eligibility Service or (ii) has reached the 50th anniversary of his
         or her birth but not the 55th anniversary of his or her birth and whose
         age plus years of Eligibility Service equals 80 or more, is eligible,
         in either case, to retire on a special early retirement allowance on
         the first day of the calendar month coincident with or next following
         termination of employment, which date shall be the Member's Special
         Early Retirement Date.

(b)      Benefit. Except as hereinafter otherwise provided and prior to
         -------
         adjustment in accordance with Sections 4.06(a) and 4.07(c) the special
         early retirement allowance shall be an allowance deferred to commence
         on the Member's Normal Retirement Date and shall be equal to his or her
         Accrued Benefit earned up to the Member's Special Early Retirement
         Date, computed on the basis of his or

                                                                       Article 4

<PAGE>

                                                                         Page 37

         her Benefit Service, Final Average Compensation, Social Security
         Benefit and any applicable components of the Prior Salaried Plan as of
         his or her Special Early Retirement Date, with the Social Security
         Benefit determined on the assumption that the Member had no earnings
         after his or her Special Early Retirement Date.

         At or after his or her Special Early Retirement Date, however, the
         Member may elect to receive early payment of his or her Accrued Benefit
         commencing on the later of his or her Special Early Retirement Date or
         the first day of any later calendar month prior to his or her Normal
         Retirement Date as specified in his or her request therefor.

         In the event of early payment commencing on the first day of the month
         coincident with or following the 60th anniversary of a Member's birth,
         the special early retirement allowance, prior to any adjustment in
         accordance with Sections 4.06(a) and 4.07(c), payable prior to age 62
         shall be equal to his or her Accrued Benefit earned up to the Member's
         Special Early Retirement Date prior to the reduction for the Social
         Security Benefit; such retirement allowance shall not be increased to
         reflect a commencement date later than the 60th anniversary of the
         Member's birth.

         In the event of early payment commencing prior to the 60th anniversary
         of a Member's birth, the special early retirement allowance, prior to
         any adjustment in accordance with Sections 4.06(a) and 4.07(c), payable
         prior to age 62 shall be equal to his or her Accrued Benefit earned up
         to the Member's Special Early Retirement Date prior to the reduction
         for the Social Security Benefit but reduced by 5/12 of 1 percent per
         month for each month up to 60 months by which the commencement date of
         his or her special early retirement allowance precedes the first day of
         the calendar month coinciding with or next following the 60th
         anniversary of his or her birth.

                                                                       Article 4

<PAGE>

                                                                         Page 38

         The reduction to be made on account of the Social Security Benefit,
         with respect to the retirement allowance payable to a Member retiring
         prior to his or her 62nd birthday, shall be made at such time as the
         Member is or would upon proper application first be entitled to receive
         said Social Security Benefit. With respect to a Member who retires
         prior to attaining age 62, the reduction to be made to the retirement
         allowance payable to such Member or any benefit payable after his or
         her death to his or her spouse or to a contingent annuitant pursuant to
         the provisions of Section 4.06 on account of the Social Security
         Benefit shall not be made until such time as the Member is or would
         have, if he or she had survived, upon proper application first been
         entitled to receive said Social Security Benefit.

4.05     Vested Benefit
         --------------

(a)      Eligibility. A Member shall be vested in, and have a nonforfeitable
         -----------
         right to, his or her Accrued Benefit upon completion of five years of
         Eligibility Service. If such Member's services are subsequently
         terminated for reasons other than death or early retirement prior to
         his or her Normal Retirement Date, he or she shall be entitled to a
         vested benefit under the provisions of this Section 4.05.

(b)      Benefit. Prior to adjustment in accordance with Sections 4.06(a) and
         -------
         4.07(a), the vested benefit payable to a Member shall be a benefit
         deferred to commence on the former Member's Normal Retirement Date and
         shall be equal to his or her Accrued Benefit earned up to the date the
         Member's employment is terminated, computed on the basis of his or her
         Benefit Service, Final Average Compensation, Social Security Benefit
         and any applicable component of the Prior Salaried Plan as of his or
         her date of termination, with the Social Security Benefit determined on

                                                                       Article 4

<PAGE>

                                                                         Page 39

         the assumption that the Member continued in service to his or her
         Normal Retirement Date at his or her rate of Compensation in effect as
         of his or her date of termination. On or after the date on which the
         former Member shall have reached the 55th anniversary of his or her
         birth he or she may elect to receive a benefit commencing on the first
         day of any calendar month coincident with or next following the 55th
         anniversary of his or her birth and prior to his or her Normal
         Retirement Date as specified in his or her request therefor, after
         receipt by the Retirement Committee of written application therefor
         made by the former Member and filed with the Retirement Committee.
         Upon such earlier payment, the vested benefit otherwise payable at the
         former Member's Normal Retirement Date will be reduced by 1/180th for
         each month up to 60 months by which the commencement date of such
         payments precedes his or her Normal Retirement Date and further
         reduced by 1/360th for each such month in excess of 60 months.

4.06     Forms of Benefit Payment After Retirement
         -----------------------------------------

(a)      Automatic Forms of Payment
         --------------------------

         (i)    Automatic Joint and Survivor Annuity. If a Member or former
                ------------------------------------
                Member who is married on his or her Annuity Starting Date has
                not made an election of an optional form of payment as
                provided in Section 4.06(b), the retirement allowance or vested
                benefit payable to such Member or former Member shall
                automatically be adjusted as follows in order to provide that,
                after his or her death, a lifetime benefit as described below
                shall be payable to the spouse to whom he or she is married on
                his or her Annuity Starting Date:

                (1)  90/50 Spouse's Annuity. If such Member retires from active
                     ----------------------
                     service under Section 4.01, Section 4.02, Section 4.03 or
                     Section 4.04, the automatic joint and survivor annuity
                     payable to the Member shall provide (A) a reduced
                     retirement allowance payable to the Member during his or
                     her life equal to 90 percent of the

                                                                       Article 4

<PAGE>

                                                                         Page 40

                    retirement allowance otherwise payable without optional
                    modification to the Member under Section 4.01, 4.02, 4.03 or
                    4.04, as the case may be, further adjusted, if necessary, as
                    provided in the following sentence and (B) a benefit payable
                    after his or her death to his or her surviving spouse equal
                    to 50 percent of the retirement allowance otherwise payable
                    without optional modification to the Member under Section
                    4.01, 4.02, 4.03 or 4.04, as the case may be, and without
                    further adjustment as provided in the following sentence. If
                    such spouse is more than five years older than the Member,
                    the reduced retirement allowance payable to the Member shall
                    be increased for each such additional full year in excess of
                    five years, but for not more than 20 years, by one-half of 1
                    percent of the retirement allowance payable to the Member
                    prior to optional modification. If such spouse is more than
                    five years younger than the Member, the reduced retirement
                    allowance payable to the Member shall be further reduced for
                    each such additional full year in excess of five years by
                    one-half of 1 percent of the retirement allowance payable to
                    the Member prior to optional modification.

                    Notwithstanding the foregoing, the retirement allowance
                    payable to the Member shall not be less than the retirement
                    allowance otherwise payable without optional modification
                    to the Member at retirement under Section 4.01, 4.02, 4.03
                    or 4.04, as the case may be, multiplied by the appropriate
                    factor contained in Table 3 of Appendix A.

              (2)   Vested Spouse's Annuity. If such Member terminates service
                    -----------------------
                    and is entitled to a vested benefit under Section 4.05, the
                    joint and survivor annuity payable to the former Member
                    shall provide (A) a reduced vested benefit payable to the
                    former

                                                                       Article 4

<PAGE>

                                                                         Page 41

                    Member during his or her life equal to his or her vested
                    benefit computed in accordance with Section 4.05 multiplied
                    by the appropriate factor contained in Table 1 of Appendix A
                    and (B) a benefit payable after his or her death to his or
                    her surviving spouse equal to 50 percent of the reduced
                    vested benefit payable to the former Member.

        (ii)    Automatic Life Annuity. If a Member or former Member is not
                ----------------------
                married on his or her Annuity Starting Date, the retirement
                allowance or vested benefit computed in accordance with Section
                4.01, 4.02, 4.03, 4.04 or 4.05, as the case may be, shall be
                paid to the Member or former Member in the form of a lifetime
                benefit payable during his or her own lifetime with no further
                benefit payable to anyone after his or her death, unless the
                Member or former Member is eligible for and makes an election of
                an optional form of payment under Section 4.06(b).

(b)     Optional Forms of Payment
        -------------------------

        (i)     Life Annuity Option. Any Member or former Member who retires or
                -------------------
                terminates employment with the right to a retirement allowance
                or vested benefit may elect, in accordance with the provisions
                of Section 4.06(d), to provide that the retirement allowance
                payable to him or her under Section 4.01, 4.02, 4.03 or 4.04 or
                the vested benefit payable to him or her under Section 4.05
                shall be in the form of a lifetime benefit payable during his or
                her own lifetime with no further benefit payable to anyone after
                his or her death.

        (ii)    80/80 Spouse's Annuity Option. Any Member who retires from
                -----------------------------
                active service under Section 4.01, 4.02, 4.03 or 4.04, who is
                married on his or her Annuity Starting Date, may elect, in
                accordance with the provisions of Section 4.06(d), to convert
                the retirement allowance otherwise payable to him or her without
                optional modification under Section

                                                                       Article 4

<PAGE>

                                                                         Page 42

          4.01, 4.02, 4.03 or 4.04, as the case may be, into the following
          alternative benefit in order to provide that, after his or her death,
          a lifetime benefit shall be payable to the spouse to whom the Member
          is married on his or her Annuity Starting Date.

          The Member shall receive a reduced retirement allowance payable during
          his or her life equal to 80 percent of the retirement allowance
          otherwise payable without optional modification to the Member at
          retirement under Section 4.01, 4.02, 4.03 or 4.04, as the case may be,
          further adjusted, if necessary, as provided below. The Member's
          surviving spouse shall receive a benefit payable after the Member's
          death equal to the Member's retirement allowance as reduced in this
          Section 4.06(b)(ii).

          If such spouse is more than five years older than the Member, the
          reduced retirement allowance payable to the Member shall be increased
          for each such additional full year in excess of five years, but for
          not more than 20 years, by 1 percent of the retirement allowance
          payable to the Member prior to optional modification. If such spouse
          is more than five years younger than the Member, the reduced
          retirement allowance payable to the Member shall be further reduced
          for each such additional full year in excess of five years by 1
          percent of the retirement allowance payable to the Member prior to
          optional modification.

          Notwithstanding the foregoing, the retirement allowance payable to the
          Member and his or her surviving spouse shall not be less than the
          retirement allowance that would have been payable if the Member had
          elected Option 1 under Section 4.06(b)(iii).

                                                                       Article 4

<PAGE>

                                                                         Page 43

     (iii) Contingent Annuity Option. Any Member who retires from active service
           -------------------------
           under Section 4.01, 4.02, 4.03 or 4.04 may elect, in accordance with
           the provisions of Section 4.06(d), to convert the retirement
           allowance otherwise payable to him or her without optional
           modification under Section 4.01, 4.02, 4.03 or 4.04, as the case may
           be, into one of the following alternative options in order to provide
           that after his or her death, a lifetime benefit shall be payable to
           the person who, when the option became effective, was designated by
           him or her to be his or her contingent annuitant. The optional
           benefit elected shall be the Equivalent Actuarial Value of the
           retirement allowance otherwise payable without optional modification
           under Section 4.01, 4.02, 4.03 or 4.04.

           Option 1. A reduced retirement allowance payable during the Member's
           --------
           life with the provisions that after his or her death a benefit equal
           to 100 percent of his or her reduced retirement allowance shall be
           paid during the life of, and to, his or her surviving contingent
           annuitant.

           Option 2. A reduced retirement allowance payable during the Member's
           --------
           life with the provision that after his or her death a benefit equal
           to 50 percent of his or her reduced retirement allowance shall be
           paid during the life of, and to, his or her surviving contingent
           annuitant.

(c)  Required Notice. No less than 30 days and no more than 90 days before his
     ---------------
     or her Annuity Starting Date, the Retirement Committee shall furnish to
     each Member or former Member a written explanation in non-technical
     language of the terms and conditions of the Automatic Joint and Survivor
     Annuity and the Automatic Life Annuity as described in Section 4.06(a) and
     the optional forms of benefits described in Section 4.06(b). Such
     explanation shall include (i) a general description of the eligibility
     conditions for, the material features of and the relative values

                                                                       Article 4

<PAGE>

                                                                         Page 44

     of the optional forms of payment under the Plan, (ii) any rights the Member
     or former Member may have to defer commencement of his or her retirement
     allowance or vested benefit, (iii) the requirement for Spousal Consent as
     provided in Section 4.06(d) and (iv) the right of the Member or former
     Member, prior to his or her Annuity Starting Date to make and to revoke
     elections under Section 4.06.

(d)  Election of Options. A Member may, subject to the provisions of this
     -------------------
     Section 4.06(d), elect to receive his or her retirement allowance or vested
     benefit in the optional form of payment described in Section 4.06(b)(i), or
     in the case of a Member who retires under the provisions of Section 4.01,
     4.02, 4.03 or 4.04, one of the optional forms of payment described in
     Section 4.06(b)(ii) or 4.06(b)(iii), in lieu of the automatic forms of
     payment described in Section 4.06(a). A married Member's or a married
     former Member's election of a Life Annuity form of payment under Section
     4.06(b)(i) or any optional form of payment under Section 4.06(b)(ii) and
     Section 4.06(b)(iii), which does not provide for monthly payments to his or
     her spouse for life after the Member's or former Member's death, in an
     amount equal to at least 50 percent but not more than 100 percent of the
     monthly amount payable under that form of payment to the Member or former
     Member and which is not of Equivalent Actuarial Value to the Automatic
     Joint and Survivor Annuity described in Section 4.06(a)(i), shall be
     effective only with Spousal Consent; provided such Spousal Consent to the
     election has been received by the Retirement Committee.

     Any election made under Section 4.06(a) or Section 4.06(b) shall be made on
     a form approved by the Retirement Committee and may be made during the
     90-day period ending on the Member's Annuity Starting Date, but not prior
     to the date the Member or former Member receives the written explanation
     described in Section 4.06(c). Any such election shall become effective on
     the

                                                                       Article 4

<PAGE>

                                                                         Page 45

     Member's or former Member's Annuity Starting Date, provided the appropriate
     form is filed with and received by the Retirement Committee and may not be
     modified or revoked after his or her Annuity Starting Date. Any election
     made under Section 4.06(a) or Section 4.06(b) after having been filed, may
     be revoked or changed by the Member or former Member only by written notice
     received by the Retirement Committee before his or her election becomes
     effective on his or her Annuity Starting Date. Any subsequent elections and
     revocations may be made at any time and from time to time during the 90-day
     period ending on the Member's or former Member's Annuity Starting Date. A
     revocation shall be effective when the completed notice is received by the
     Retirement Committee. A re-election shall be effective on the Member's or
     former Member's Annuity Starting Date. If, however, the Member or the
     spouse or the contingent annuitant designated in the election dies before
     the election has become effective, the election shall thereby be revoked.

     Notwithstanding the provisions of paragraph (c) above, a Member may, after
     having received the notice, affirmatively elect to have his or her
     retirement allowance or vested benefit commence sooner than 30 days
     following his or her receipt of the notice, provided all of the following
     requirements are met:

     (i)  the Retirement Committee clearly informs the Member that he or she has
          a period of at least 30 days after receiving the notice to decide when
          to have his or her retirement allowance or vested benefit begin, and
          if applicable, to choose a particular optional form of payment;

     (ii) the Member affirmatively elects a date for his or her retirement
          allowance or vested benefit to begin, and if applicable, an optional
          form of payment, after receiving the notice;

                                                                       Article 4

<PAGE>

                                                                         Page 46

     (iii) the Member is permitted to revoke his or her election until the later
           of his or her Annuity Starting Date or seven days following the day
           he or she received the notice;

     (iv)  payment does not commence less than seven days following the day
           after the notice is received by the Member; and

     (v)   the Member's Annuity Starting Date is after the date the notice is
           provided.

     With respect to a Member who retires under the provisions of Section 4.03
     or Section 4.04, the reduction on account of the Social Security Benefit to
     be made to the benefit, if any, payable in accordance with Section 4.06(a)
     or Section 4.06(b) to his or her designated spouse or to his or her
     contingent annuitant shall not be made until such time as the Member would
     have, had he or she survived, upon proper application first been entitled
     to receive said Social Security Benefit.

     If a Member dies after his or her Annuity Starting Date, any payment
     continuing on to his or her spouse or contingent annuitant shall be
     distributed at least as rapidly as under the method of distribution being
     used as of the Member's date of death.

4.07 Survivor's Benefit Applicable Before Retirement
     -----------------------------------------------

     The term "Beneficiary" for purposes of this Section 4.07 shall mean any
     person or any trust established by the Member or the Member's estate, named
     by the Member by written designation to receive benefits payable under the
     automatic Pre-Retirement Survivor's Benefit and under the optional
     Supplemental Pre-Retirement Survivor's Benefit; provided, however, that,
     for any married Member the term "Beneficiary" shall automatically mean the
     Member's spouse and any prior designation to the contrary will be canceled,
     unless the Member, with Spousal Consent, designates otherwise. An election
     of a non-spouse Beneficiary by a married Member shall be effective only if

                                                                       Article 4

<PAGE>

                                                                         Page 47

     accompanied by Spousal Consent and such Spousal Consent has been received
     by the Retirement Committee. If the Member dies without an effective
     designation of Beneficiary, the Member's Beneficiary for purposes of this
     Section 4.07 shall automatically be the Member's spouse, if any, or his or
     her estate. If the Member elects the additional optional protection of the
     Supplemental Pre-Retirement Survivor's Benefit, the Member's Beneficiary
     thereunder shall be the same as the Beneficiary under the Automatic
     Pre-Retirement Survivor's Benefit. The Retirement Committee shall resolve
     any questions arising hereunder as to the meaning of "Beneficiary" on a
     basis uniformly applicable to all Members similarly situated.

(a)  Automatic Vested Spouse's Benefit
     ---------------------------------

     (i)  Automatic Vested Spouse's Benefit Applicable Before Termination of
          ------------------------------------------------------------------
          Employment. The surviving spouse of a Member who has completed five
          ----------
          years of Eligibility Service but who has not yet completed ten years
          of Eligibility Service and attained age 55 shall automatically receive
          a benefit payable under the Automatic Vested Spouse's Benefit of this
          Section 4.07(a)(i) in the event said Member should die after the
          effective date of coverage hereunder and before termination of
          employment. The benefit payable to the Member's spouse shall be equal
          to 50 percent of the benefit the Member would have received if he or
          she had terminated his or her employment on his or her date of death,
          survived to Normal Retirement Date, and on the day before he or she
          would have reached Normal Retirement Date had elected to begin
          receiving his or her vested benefit in the form of the Automatic Joint
          and Survivor Annuity under Section 4.06(a)(i)(2), or with respect to a
          Member who had met the eligibility requirements set forth in Section
          4.04(a)(ii) and who died in active employment prior to the 55th
          anniversary of his or her birth, his or her early retirement allowance
          accrued to his or her date of death in the form of the Automatic Joint

                                                                       Article 4

<PAGE>

                                                                         Page 48

          and Survivor Annuity under Section 4.06(a)(i)(1). Such benefit shall
          be payable for the life of the spouse commencing on what would have
          been the Member's Normal Retirement Date. However, the Member's spouse
          may elect, by written application filed with the Retirement Committee,
          to have payments begin as of the first day of any calendar month on or
          after the date the former Member would have reached the 55th
          anniversary of his or her birth provided, however, if the Member dies
          after having met the requirements set forth in Section 4.04(a)(ii) for
          a special early retirement allowance, the Member's spouse may elect to
          have payments begin under this Automatic Vested Spouse's Benefit as of
          the first day of any month following the Member's death.

          If the Member's spouse elects to commence payment of the Automatic
          Vested Spouse's Benefit prior to what would have been the Member's
          Normal Retirement Date, the amount of such benefit payable to the
          spouse shall be based on (i) the reduced vested benefit to which the
          Member would have been entitled, had the Member elected to have
          payments commence to himself on such earlier date in accordance with
          the provisions of Section 4.05(b) or (ii) in the case of a Member who
          dies after having met the requirements for a special early retirement
          allowance as set forth Section 4.04(a)(ii), the reduced early
          retirement allowance to which the Member would have been entitled had
          he or she elected to have payments commence to himself on such earlier
          date in accordance with the provisions of Section 4.04(b).

          Coverage hereunder shall be applicable to a married Member in active
          service who has satisfied the eligibility requirements for a vested
          benefit under Section 4.05 and shall become effective on the date the
          Member marries and shall cease on the earlier of (i) the

                                                                       Article 4

<PAGE>

          date such active Member reaches the 55th anniversary of his or her
          birth and completes ten years of Eligibility Service, (ii) the date
          such active Member reaches the 65th anniversary of his or her birth,
          (iii) the date such active Member's marriage is legally dissolved by a
          divorce decree, or (iv) the date such active Member's spouse dies.
          Coverage under Section 4.07(b)(i) shall commence on the date a Member
          in active service reaches the earlier of (i) the 55th anniversary of
          his or her birth, or if later, the date he or she completes ten years
          of Eligibility Service or (ii) the 65th anniversary of his or her
          birth.

     (ii) Automatic Vested Spouse's Benefit Applicable Upon Termination of
          ----------------------------------------------------------------
          Employment. In the case of a former Member who is married and entitled
          ----------
          to a vested benefit under Section 4.05, the provisions of this Section
          4.07(a)(ii) shall apply to the period between the date his or her
          services are terminated or the date, if later, the former Member is
          married and his or her Annuity Starting Date, or other cessation of
          coverage as later specified in this Section 4.07(a)(ii).

          In the event of a married former Member's death during any period in
          which these provisions have not been waived or revoked by the former
          Member and his or her spouse, the benefit payable to the former
          Member's spouse shall be equal to 50 percent of the vested benefit the
          former Member would have received on his or her Normal Retirement Date
          if he or she had elected to receive such benefit in the form of the
          Automatic Joint and Survivor Annuity under Section 4.06(a)(i).

          The spouse's benefit shall be payable for the life of the spouse
          commencing on what would have been the former Member's Normal
          Retirement Date. However, the former Member's spouse may elect, by
          written application filed with the Retirement Committee, to have

                                                                       Article 4

<PAGE>

                                                                         Page 50

          payments begin as of the first day of any calendar month on or after
          the date the former Member would have reached the 55th anniversary of
          his or her birth. If the former Member's spouse elects to commence
          payment of this Automatic Vested Spouse's Benefit prior to what would
          have been the former Member's Normal Retirement Date, the amount of
          such benefit payable to the spouse shall be based on the reduced
          vested benefit to which the former Member would have been entitled,
          had the former Member elected to have payments commence to himself on
          such earlier date in accordance with the provisions of Section
          4.05(b).

          The vested benefit payable to a former Member whose spouse is covered
          under this Section 4.07(a)(ii), or if applicable, the benefit payable
          to his or her spouse upon his or her death shall be reduced by the
          applicable percentages shown below. Such reduction shall commence on
          and after the first of the month coincident with or following the
          effective date of coverage hereunder and cease when coverage ceases;
          provided, however, no reduction shall be made with respect to any
          period before the later of (1) the date the Retirement Committee
          furnishes the Member the notice of his or her right to waive the
          Automatic Vested Spouse's Benefit or (2) the commencement of the
          election period specified below.

                     ANNUAL REDUCTION FOR SPOUSE'S COVERAGE
                         AFTER TERMINATION OF EMPLOYMENT

                       Age                             Reduction
                       ---                             ---------

                  Less than 40                    1/10 of 1% per year
               40 but prior to 50                 2/10 of 1% per year
               50 but prior to 55                 3/10 of 1% per year
               55 but prior to 60                 5/10 of 1% per year
               60 but less than 65                    1% per year

                                                                       Article 4

<PAGE>

                                                                         Page 51

          The Retirement Committee shall furnish to each former Member a written
          explanation which describes (1) the terms and conditions of the
          Automatic Vested Spouse's Benefit, (2) the former Member's right to
          make, and the effect of, an election to waive the Automatic Vested
          Spouse's Benefit, (3) the rights of the former Member's spouse, and
          (4) the right to make, and the effect of, a revocation of such a
          waiver. Such written explanation shall be furnished to each former
          Member before the first anniversary of the date he or she terminated
          service and shall be furnished to such former Member even though he or
          she is not married.

          The period during which the former Member may make an election to
          waive the Automatic Vested Spouse's Benefit provided under this
          Section 4.07(a)(ii) shall begin not later than the date his or her
          employment terminates and end on his or her Annuity Starting Date, or
          if earlier, his or her date of death. Any waiver, revocation or
          re-election of the Automatic Vested Spouse's Benefit shall be made on
          a form provided by the Retirement Committee and any waiver or
          revocation shall require Spousal Consent. If, upon termination of
          employment, the former Member waives coverage hereunder in accordance
          with administrative procedures established by the Retirement Committee
          for all Members similarly situated, such waiver shall be effective as
          of the Member's Severance Date. Any later re-election or revocation
          shall be effective on the first day of the month coincident with or
          next following the date the completed form is received by the
          Retirement Committee. If a former Member dies during the period after
          a waiver or revocation is in effect there shall be no benefits payable
          under the provisions of this Section 4.07.

                                                                       Article 4

<PAGE>

                                                                         Page 52

          Except as described above in the event of a waiver or revocation,
          coverage under this Section 4.07(a)(ii) shall cease to be effective
          upon a former Member's Annuity Starting Date, or upon the date a
          former Member's marriage is legally dissolved by a divorce decree, or
          upon the death of the spouse, whichever event shall first occur.

(b)  Automatic Pre-Retirement Survivor's Benefit
     -------------------------------------------

     (i)  Automatic Pre-Retirement Survivor's Benefit Applicable Before a Member
          ----------------------------------------------------------------------
          Retires Under the Provisions of Section 4.01, Section 4.02, Section
          -------------------------------------------------------------------
          4.03 or Section 4.04. The Beneficiary of a Member who has reached the
          --------------------
          65th anniversary of his or her birth or who has reached the 55th
          anniversary of his or her birth and completed ten years of Eligibility
          Service, shall automatically receive a Pre-Retirement Survivor's
          Benefit payable under the provisions of this Section 4.07(b)(i) in the
          event said Member should die before he or she retires under the
          provisions of Section 4.01, 4.02, 4.03 or 4.04 or reaches his or her
          Annuity Starting Date pursuant to the provisions of Section 4.02(d),
          if earlier. The benefit payable during the life of, and to, the
          Beneficiary shall be equal to one-half of the Member's Accrued
          Benefit, without optional modification in accordance with the
          provisions of Section 4.06, accrued to the date of his or her death,
          adjusted to take into account the Member's Social Security Benefit.
          The Social Security Benefit shall be determined on the assumption that
          the Member had no earnings after his or her date of death, and if his
          or her death occurs prior to the time the Member is or would upon
          proper application first be entitled to receive such Social Security
          Benefit, such adjustment shall nevertheless be made at the Member's
          date of death. If the Beneficiary is more than five years younger than
          the Member, the benefit payable to the Beneficiary shall be reduced by
          one-half of 1 percent for each full year the Beneficiary is more than
          five years younger.

                                                                       Article 4

<PAGE>

                                                                         Page 53

          Coverage hereunder shall be effective on the first day of the calendar
          month coincident with or next following the date the Member reaches
          his or her 55th birthday and completes ten years of Eligibility
          Service, or if earlier, his or her Normal Retirement Date. In the case
          of a married Member coverage under Section 4.07(a)(i) shall cease on
          the date coverage under this Section 4.07(b)(i) is effective as set
          forth in the preceding sentence.

     (ii) Automatic Pre-Retirement Survivor's Benefit Applicable Between Early
          --------------------------------------------------------------------
          Retirement Date or Special Early Retirement Date and the Member's
          -----------------------------------------------------------------
          Annuity Starting Date. In the case of a Member retired early under
          ---------------------
          Section 4.03 or Section 4.04 of the Plan with the payment of the early
          retirement allowance deferred to commence at a date later than his or
          her Early Retirement Date or Special Early Retirement Date, whichever
          is applicable, the provisions of this Section 4.07(b)(ii) shall apply
          to the period between his or her Early Retirement Date or Special
          Early Retirement Date and his or her Annuity Starting Date. The Member
          shall, at his or her Early Retirement Date or Special Early Retirement
          Date, complete such forms as are required under this Section
          4.07(b)(ii) and coverage hereunder shall be effective as of his or her
          Early Retirement Date or Special Early Retirement Date.

          In the event of the Member's death during the period in which these
          provisions are in effect, the benefit payable during the life of, and
          to, the Beneficiary shall be equal to one-half of the Member's Accrued
          Benefit, without optional modification in accordance with the
          provisions of Section 4.06, accrued to the date of his or her Early
          Retirement Date or Special Early Retirement Date, whichever is
          applicable, adjusted to take into account the Member's Social Security
          Benefit. If the Member's death occurs prior to the time the Member is
          or would upon proper application first be entitled to receive such
          Social

                                                                       Article 4

<PAGE>

                                                                         Page 54

          Security Benefit, such adjustment shall nevertheless be made at the
          Member's date of death. If the Beneficiary is more than five years
          younger than the Member, the benefit payable to the Beneficiary shall
          be reduced by one-half of 1 percent for each full year the Beneficiary
          is more than five years younger.

     The Automatic Pre-Retirement Survivor's Benefit shall be payable for the
     life of the Beneficiary commencing on what would have been the Member's
     Normal Retirement Date or date of death, if later. However, if a Member
     dies prior to his or her Normal Retirement Date, the Beneficiary of the
     Member may elect, by written application filed with the Retirement
     Committee, to have such payments begin as of the first day of any calendar
     month following the Member's date of death and prior to what would have
     been the Member's Normal Retirement Date. If the Beneficiary elects to
     commence payment of the Automatic Pre-Retirement Survivor's Benefit prior
     to what would have been the Member's Normal Retirement Date the amount of
     such benefit shall be determined in accordance with Sections 4.07(b)(i) and
     (ii) above, as applicable, and without reduction for such early
     commencement.

     Notwithstanding the foregoing, in the event the Member's Beneficiary is
     someone other than his or her spouse, payment of the automatic
     Pre-Retirement Survivor's Benefit shall commence within one year of the
     Member's date of death and in the event such commencement date is prior to
     the 55th anniversary of the Member's birth, the benefit payable to the
     Beneficiary shall be of Equivalent Actuarial Value to the benefit otherwise
     payable hereunder to the Beneficiary on the date the Member would have
     attained age 55.

                                                                       Article 4

<PAGE>

                                                                         Page 55

(c)  Optional Supplemental Pre-Retirement Survivor's Benefit
     -------------------------------------------------------

     (i)  Optional Supplemental Pre-Retirement Survivor's Benefit Applicable
          ------------------------------------------------------------------
          Before a Member Retires Under the Provisions of Section 4.01, Section
          ---------------------------------------------------------------------
          4.02, Section 4.03 or Section 4.04. A Member, who has reached the 65th
          ----------------------------------
          anniversary of his or her birth or who has reached the 55th
          anniversary of his or her birth and completed ten years of Eligibility
          Service, may elect to receive a reduced retirement allowance upon his
          or her retirement in order to provide that, if he or she should die
          after his or her election becomes effective but before he or she
          retires under the provisions of Section 4.01, Section 4.02, 4.03 or
          4.04 or reaches his or her Annuity Starting Date pursuant to the
          provisions of Section 4.02(d), a benefit shall be paid to the
          Beneficiary designated by him or her in accordance with the following
          terms and conditions.

          The Member may elect to reduce the retirement allowance to which he or
          she would otherwise be entitled at retirement under Section 4.01,
          4.02, 4.03 or 4.04 by one-half of 1 percent per year for each year
          between the date on which the election becomes effective and the
          earliest of the Member's Early Retirement Date, Special Early
          Retirement Date, Annuity Starting Date, or the date the election is
          revoked as provided in Section 4.07(i).

          If the Member makes such an election and dies before he or she retires
          under the provisions of Section 4.01, 4.02, 4.03 or 4.04, the benefit
          payable during the life of, and to, the Beneficiary shall be equal to
          25 percent of the Member's Accrued Benefit without optional
          modification in accordance with the provisions of Section 4.06,
          accrued to the date of his or her death adjusted (1) to take into
          account the Member's Social Security Benefit and (2) as provided
          below. The Social Security Benefit shall be determined on the

                                                                       Article 4

<PAGE>

                                                                         Page 56

          assumption that the Member had no earnings after his or her date of
          death, and if his or her death occurs prior to the time the Member is
          or would upon proper application first be entitled to receive such
          Social Security Benefit, such adjustment shall nevertheless be made at
          the Member's date of death. The benefit payable to the Beneficiary
          shall be reduced by one-half of 1 percent per year for each year
          between the date on which the election became effective and the date
          of the Member's death. If the Beneficiary is more than five years
          younger than the Member, the benefit payable to the Beneficiary shall
          be further reduced by one-half of 1 percent for each full year the
          Beneficiary is more than five years younger.

          If the Member makes an election under this Section 4.07(c)(i) at or
          prior to the time he or she is first eligible to do so, it shall
          become effective on the first day of the calendar month coincident
          with or next following the date the Member reaches his or her 55th
          birthday and completes ten years of Eligibility Service, or if
          earlier, his or her Normal Retirement Date. A Member will be deemed to
          have waived coverage under this Section 4.07(c)(i) if he or she does
          not file the appropriate forms with the Retirement Committee when
          first eligible to do so. If the Member does not make such election
          until after he or she is first eligible to do so, it shall become
          effective one year after the first day of the calendar month
          coincident with or next following (1) the date the notice is received
          by the Retirement Committee or (2) the date specified in such notice,
          if later.

     (ii) Optional Supplemental Pre-Retirement Survivor's Benefit Applicable
          ------------------------------------------------------------------
          Between Early Retirement Date or Special Early Retirement Date and the
          ----------------------------------------------------------------------
          Member's Annuity Starting Date. In the case of a Member retired early
          ------------------------------
          under the provisions of Section 4.03 or Section 4.04 of the Plan with
          the payment of the early retirement allowance deferred to commence at
          a date later than his or her Early Retirement Date or Special Early

                                                                       Article 4

<PAGE>

                                                                         Page 57

          Retirement Date, the provisions of this Section 4.07(c)(ii) shall
          apply to the period between his or her Early Retirement Date or
          Special Early Retirement Date and his or her Annuity Starting Date.

          The Member may elect to reduce the early retirement allowance to which
          he or she would otherwise be entitled under Section 4.03 or Section
          4.04 by one-half of 1 percent per year for each year between his or
          her Early Retirement Date or Special Early Retirement Date and the
          earlier of the date the election is revoked pursuant to Section
          4.07(i) or his or her Annuity Starting Date.

          If the Member makes such an election and dies during the period the
          election is in effect, the benefit payable during the life of, and to,
          his or her Beneficiary shall be equal to 25 percent of the Member's
          Accrued Benefit, without optional modification in accordance with the
          provisions of Section 4.06, accrued to his or her Early Retirement
          Date or Special Early Retirement Date, adjusted (1) to take into
          account the Member's Social Security Benefit and (2) as provided
          below. If the Member's death occurs prior to the time the Member is or
          would upon proper application first be entitled to receive such Social
          Security Benefit, such adjustment shall nevertheless be made at the
          Member's date of death. The benefit payable to the Beneficiary shall
          be reduced by one-half of 1 percent per year for each year between the
          date on which the election became effective and the date of the
          Member's death. If the Beneficiary is more than five years younger
          than the Member, the benefit payable to the Beneficiary shall be
          further reduced by one-half of 1 percent for each full year the
          Beneficiary is more than five years younger.

                                                                       Article 4

<PAGE>

                                                                         Page 58

          The Member shall, at his or her Early Retirement Date or Special Early
          Retirement Date, complete such forms as are required under this
          Section 4.07(c)(ii), and if he or she so elects, coverage hereunder
          shall be effective as of his or her Early Retirement Date or Special
          Early Retirement Date. A Member will be deemed to have waived coverage
          under this Section 4.07(c)(ii) if he or she does not file the
          appropriate forms with the Retirement Committee at his or her Early
          Retirement Date or Special Early Retirement Date. If the Member
          subsequently makes an election hereunder, it shall become effective
          one year after the first day of the calendar month coincident with or
          next following (1) the date the notice is received by the Retirement
          Committee or (2) the date specified in such notice, if later.

     The optional Supplemental Pre-Retirement Survivor's Benefit shall be
     payable for the life of the Beneficiary commencing on what would have been
     the Member's Normal Retirement Date or date of death, if later. However, if
     a Member dies prior to his or her Normal Retirement Date, the Beneficiary
     may elect, by written application filed with the Retirement Committee, to
     have such payments begin as of the first day of any calendar month
     coincident with or next following the Member's date of death and prior to
     what would have been the Member's Normal Retirement Date. If the
     Beneficiary elects to commence payment of the optional Supplemental
     Pre-Retirement Survivor's Benefit prior to what would have been the
     Member's Normal Retirement Date and after what would have been the 55th
     anniversary of the Member's birth, the amount of such benefit shall be
     determined in accordance with Section 4.07(c)(i) and (ii) above, as
     applicable and without reduction for such early commencement. If the
     Beneficiary elects to commence payment of the optional Supplemental
     Pre-Retirement Survivor's Benefit prior to what would have been the 55th
     anniversary of the Member's birth, the benefit payable to the Beneficiary
     shall be of Equivalent Actuarial Value to the benefit otherwise payable to
     Beneficiary on the date the Member would have

                                                                       Article 4

<PAGE>

                                                                         Page 59

     attained age 55. Notwithstanding any foregoing provision to the contrary,
     payment of the optional Supplemental Pre-Retirement Survivor Benefit must
     commence as of the same date payment of the Automatic Pre-Retirement
     Survivor Benefit commences.

     Notwithstanding the foregoing, in the event the Member's Beneficiary is
     someone other than his or her spouse, payment of the optional Supplemental
     Pre-Retirement Survivor's Benefit shall commence within one year of the
     Member's date of death and in the event such commencement date is prior to
     the 55th anniversary of the Member's birth, the benefit payment to the
     Beneficiary shall be of Equivalent Actuarial Value to the benefit otherwise
     payable hereunder to the Beneficiary on the date the Member would have
     attained age 55.

(d)  Notwithstanding any provision of Section 4.07(b) or Section 4.07(c) to the
     contrary, in no event shall the sum of the Automatic Pre-Retirement
     Survivor's Benefit payable under the provisions of Section 4.07(b) and the
     optional Supplemental Pre-Retirement Survivor's Benefit payable under the
     provisions of Section 4.07(c) to a Beneficiary be less than the amount of
     benefit the spouse would have received if the retirement allowance to which
     the Member was entitled at his or her date of death (i) had commenced on
     the date the spouse elects to have such Pre-Retirement Survivor's Benefit
     payments commence, (ii) in the form of an Automatic Joint and Survivor
     Annuity under Section 4.06(a)(i), and (iii) the Member had died immediately
     thereafter. However, in lieu of the Automatic Joint and Survivor Annuity
     referred to in the preceding sentence, the 80/80 Spouse's Annuity Option
     described in Section 4.06(b)(ii) shall be used to compute the amount
     payable to the spouse if, within the 90-day period prior to his or her
     Annuity Starting Date, the Member had elected such optional form of
     payment.

                                                                       Article 4

<PAGE>

                                                                         Page 60

(e)  Benefits Payable to an Estate or Trust. If a Member's Beneficiary under
     --------------------------------------
     this Section 4.07 is his or her estate or a trust, the benefits otherwise
     payable under Section 4.07(b), and if elected, under Section 4.07(c) shall
     be commuted into a single lump sum amount, which amount shall be determined
     by multiplying the benefits otherwise payable by the appropriate factor in
     Tables 4 or 5 of Appendix A and calculated by assuming the Beneficiary had
     been a person of the same age as the Member at the Member's date of death.
     In no event shall the amount of the lump sum be less than the amount
     required by applicable law. The payment of such single lump sum amount
     shall represent the full and total payment of all benefits due under the
     Plan. The Retirement Committee shall resolve any questions arising
     hereunder on a basis uniformly applicable to all Members similarly
     situated.

(f)  If the Member's Beneficiary dies during the period coverage is effective
     under Sections 4.07(b) and Section 4.07(c), the Beneficiary designation
     shall thereby be canceled. However, coverage under Section 4.07(b), and if
     elected, under Section 4.07(c) shall nevertheless continue in full effect.
     The Member's Beneficiary thereafter shall be in accordance with his or her
     subsequent designation of a new Beneficiary or in accordance with the term
     "Beneficiary" as defined herein.

     If the Member's Beneficiary is his or her spouse and if the Member's
     marriage to said spouse is legally dissolved by a divorce decree, the
     Beneficiary designation under Sections 4.07(b) and 4.07(c) shall remain in
     effect until a subsequent Beneficiary designation is submitted by the
     Member to the Retirement Committee or until the Member remarries. Coverage
     under Section 4.07(b), and if elected, under Section 4.07(c) shall continue
     in full effect.

                                                                       Article 4

<PAGE>

                                                                         Page 61

     A Member may change his or her Beneficiary designation at any time after
     receiving the written explanation described in Section 4.07(g), subject to
     Spousal Consent. Any such change shall become effective on the first day of
     the calendar month coincident with or next following the (i) date the
     notice of change is received by the Retirement Committee or (ii) the date
     specified in such notice, if later, and the original designation shall
     remain in effect until such date.

(g)  The Retirement Committee shall furnish to each Member a written explanation
     in non-technical language which describes (i) the terms and conditions of
     the Automatic Pre-Retirement Survivor's Benefit and the Optional
     Supplemental Pre-Retirement Survivor's Benefit, (ii) the Member's right to
     make an election to designate a Beneficiary other than his or her spouse
     and the effect of such election, (iii) the right to revoke, prior to the
     Annuity Starting Date, such designation and the effect of such revocation,
     and (iv) the rights of the Member's spouse, if any. The Retirement
     Committee shall furnish this written explanation to each Member during the
     period beginning one year prior to the earlier of (i) the date the Member
     retires pursuant to the provision of Section 4.04(a)(ii), (ii) the date the
     Member reaches the 55th anniversary of his or her birth and completes ten
     years of Eligibility Service, or (iii) in the Member's Normal Retirement
     Date, and ending within one year after such date.

(h)  A Member may revoke an election made under Section 4.07(c) at any time
     prior to his or her Annuity Starting Date. There shall be no further
     reduction to the Member's retirement allowance for any period during which
     an election under Section 4.07(c) is not in effect. The Member may make a
     new election at any time thereafter and any subsequent election shall
     become effective one year after the first day of the calendar month
     coincident with or next following the (i) date the notice is received by
     the Retirement Committee or (ii) the date specified in such notice, if
     later.

                                                                       Article 4

<PAGE>

                                                                         Page 62

     If the Member dies prior to the time an election under Section 4.07(c)
     becomes effective, the election shall thereby be canceled.

     Any designation of a Beneficiary and any election made under Section 4.07
     (including any waiver or revocation of either of them) shall be made on a
     form approved by and filed with the Retirement Committee and in accordance
     with the term "Beneficiary" as defined in this Section 4.07.

4.08 Maximum Benefits
     ----------------

(a)  Notwithstanding any provision of the Plan to the contrary, the maximum
     annual retirement allowance payable to a Member under the Plan shall be
     subject to the limitations set forth in Section 415 of the Code and any
     regulations or rulings issued thereunder. If the retirement allowance
     begins before the Member's 62nd birthday, the dollar limitation described
     in Section 415(b)(1)(A) of the Code shall be of Equivalent Actuarial Value
     to the maximum benefit payable at age 62. If the retirement allowance
     begins after the Member's Social Security Retirement Age, such dollar
     limitation shall be of Equivalent Actuarial Value to the maximum benefit
     payable at the Member's Social Security Retirement Age. If the retirement
     allowance is payable neither as a life annuity nor as a qualified joint and
     survivor annuity with the Member's spouse as beneficiary, the maximum
     limitation shall be of Equivalent Actuarial Value to the maximum limitation
     otherwise applicable. Effective on September 1, 1995, Equivalent Actuarial
     Value for purposes of this Section 4.08 shall be determined in accordance
     with Section 415(b) of the Code and the regulations or rulings issued
     thereunder and using the Plan's early retirement, late retirement, or
     optional benefit factors as appropriate, or if less, using factors
     calculated from the IRS Mortality Table, if applicable, and 5 percent.

                                                                       Article 4

<PAGE>

                                                                         Page 63

(b)  Notwithstanding paragraph (a) above, no Member shall be subject to the
     provisions of Code Section 415(e) on or after January 1, 2000. If a
     Member's retirement allowance, death in service benefit, or vested benefit
     commenced prior to January 1, 2000 and was limited by the provisions of
     Code Section 415(e), such retirement allowance, death in service benefit,
     or vested benefit shall be redetermined as of January 1, 2000 without
     regard to the provisions of Section 415(e) and such recomputed retirement
     allowance, death in service benefit, or vested benefit shall be payable on
     and after said date, but only if the Retirement Committee finds that doing
     so will not result in the duplication of benefits payable from this Plan
     and any other qualified or non-qualified plans sponsored by the Company.

(c)  For purposes of Section 4.08(a), "remuneration" with respect to any
     Employee shall mean the wages, salaries, and other amounts paid in respect
     of such Employee by the Company or an Associated Company for personal
     services actually rendered, determined before any pre-tax contributions
     under a "qualified cash or deferred arrangement" (as defined under Section
     401(k) of the Code and its applicable regulations) or under a "cafeteria
     plan" (as defined under Section 125 of the Code and its applicable
     regulations), or under a "qualified transportation fringe" (as defined
     under Section 132(f) of the Code and its applicable regulations), and shall
     include, but not by way of limitation, bonuses, overtime payments, and
     commissions; and shall exclude deferred compensation, stock options, and
     other distributions which receive special tax benefits under the Code.

4.09 No Duplication
     --------------

     Except as hereinafter provided, there shall be deducted from any retirement
     allowance or vested benefit payable under this Plan the part of any pension
     or comparable benefit, including any lump

                                                                       Article 4

<PAGE>

                                                                         Page 64

     sum payment, provided by employer contributions which Rayonier Inc., any
     Participating Unit, (including any former Participating Unit divested by
     Rayonier Inc.), any Associated Company or any affiliate of the Company is
     obligated to pay or has paid to or under any defined benefit plan or other
     agreement which provides for benefits comparable to those benefits paid
     under a defined benefit plan (except for any pension plan or other
     agreement which provides for the payment of that portion of any benefits
     accrued under the Plan but not payable from the Plan on account of Section
     401(a)(17)(B) of the Code or Section 4.08) with respect to any service
     rendered on or after March 1, 1994 which is Benefit Service for purposes of
     computation of benefits under this Plan.

4.10 Payment of Benefits
     -------------------

(a)  Unless otherwise provided under an optional benefit elected pursuant to
     Section 4.06, the survivor's benefits available under Section 4.07, or the
     provisions of Section 4.10(e)(ii), all retirement allowances, vested
     benefits or other benefits payable under the Plan will be paid in monthly
     installments as of the end of each month beginning with (i) the month in
     which a Member has reached his or her Normal Retirement Date and has
     retired from active service, (ii) the month in which a Member has reached
     his or her Postponed Retirement Date and has retired from active service,
     (iii) the month in which a Member, upon proper application, has requested
     commencement of his or her vested benefit or early retirement allowance, or
     (iv) the month in which benefits under an optional benefit under Section
     4.06 or the survivor's benefits under Section 4.07 become payable,
     whichever is applicable. Such monthly installments shall cease with the
     payment for the month in which the recipient dies. In no event shall a
     retirement allowance or vested benefit be payable to a Member who continues
     in or resumes active service with the Company or an Associated Company for
     any period between his or her Normal Retirement Date and Postponed
     Retirement Date, except as provided in Sections 4.02(d), and 4.10(e).

                                                                       Article 4

<PAGE>

                                                                         Page 65

(b)  In any case, a lump sum payment equal to the vested benefit payable under
     Section 4.05 or the vested spouse's benefit payable under Section 4.07(a)
     multiplied by the appropriate factor contained in Table 4, 5 or 6 of
     Appendix A shall be made in lieu of any vested benefit payable to a former
     Member or any vested spouse's benefit payable to a spouse of a Member or a
     former Member, if the lump sum present value of such benefit amounts to
     $3,500 ($5,000 effective January 1, 1998) or less. In no event, however,
     with respect to any Member who terminates employment prior to September 1,
     1995, shall that adjustment factor produce a lump sum that is less than the
     amount determined by using the interest rate assumption used by the Pension
     Benefit Guaranty Corporation for valuing benefits for determining lump sum
     payments under single employer plans that terminate on January 1 of the
     Plan Year in which the Annuity Starting Date occurs. With respect to any
     Member who terminates employment on or after September 1, 1995, the lump
     sum present value shall be based on the IRS Mortality Table and the IRS
     Interest Rate. The lump sum payment may be made at any time on or after the
     date the Member has terminated employment or died, but in any event prior
     to the date his or her benefit payment would have otherwise commenced.

     In the event a Member is not entitled to any retirement allowance or vested
     benefit upon his or her termination of employment, he or she shall be
     deemed "cashed-out" under the provisions of this paragraph (b) as of the
     date he or she terminated service.

(c)  In the event that the Retirement Committee shall find that a person to whom
     benefits are payable is unable to care for his or her affairs because of
     illness or accident or is a minor or has died, then, unless claim shall
     have been made therefor by a legal representative, duly appointed by a
     court of

                                                                       Article 4

<PAGE>

                                                                         Page 66

     competent jurisdiction, the Retirement Committee may direct that any
     benefit payment due him or her be paid to his or her spouse, a child, a
     parent or other blood relative, or to a person with whom he or she resides,
     and any such payment made shall be a complete discharge of the liabilities
     of the Plan therefor.

(d)  Before any benefit shall be payable to a Member, a former Member, or other
     person who is or may become entitled to a benefit hereunder, such Member,
     former Member, or other person shall file with the Retirement Committee
     such information as it shall require to establish his or her rights and
     benefits under the Plan.

(e)  (i)  Except as otherwise provided in this Article 4, payment of a Member's
          retirement allowance or a former Member's vested benefit shall begin
          as soon as administratively practicable following the latest of (1)
          the Member's Normal Retirement Age or (2) the date he or she
          terminates service with the Company and all Associated Companies (but
          not more than 60 days after the close of the Plan Year in which the
          latest of (1) or (2) occurs).

     (ii) Notwithstanding anything contained in the Plan to the contrary, in the
          case of a Member who owns either (1) more than 5 percent of the
          outstanding stock of the Company or (2) stock possessing more than 5
          percent of the total combined voting power of all stock of the
          Company, the Member's retirement allowance shall begin not later than
          the April 1 following the calendar year in which he or she attains age
          70 1/2.

          Effective January 1, 2000, payment of any other Member's retirement
          allowance or vested benefit shall begin not later than April 1 of the
          calendar year following the calendar year in which the later of the
          Member's retirement or attainment of age 70 1/2 occurs. Before

                                                                       Article 4

<PAGE>

                                                                         Page 67

               January 1, 2000, the payment of a retirement allowance or vested
               benefit for a Member in active service who is not a 5-percent
               owner as described above shall begin not later than April 1 of
               the calendar year following the calendar year in which he or she
               attains age 70 1/2. A Member who attained age 70 1/2 prior to
               January 1, 1988 and who is not a 5-percent owner as described
               above shall not receive payment while in active service under the
               provisions of this paragraph.

(f)      Notwithstanding any other provision of this Article 4, all
         distributions from this Plan shall conform to the regulations issued
         under Section 401(a)(9) of the Code, including the incidental death
         benefit provisions of Section 401(a)(9)(G) of the Code. Further, such
         regulations shall override any plan provision that is inconsistent with
         Section 401(a)(9) of the Code.

4.11     Reemployment of Former Member or Retired Member
         -----------------------------------------------

(a)      Cessation of Benefit Payments. If a former Member or a retired Member
         -----------------------------
         entitled to or in receipt of a vested benefit or retirement allowance
         is reemployed by the Company or by an Associated Company in a capacity
         other than as a Non-Benefits Worker, any benefit payments he or she is
         receiving shall cease, except as otherwise provided in Section 4.02(c)
         and Section 4.10(e). If a former Member or a retired Member returns to
         the Company or an Associated Company as a Non-Benefits Worker, benefit
         payments shall continue and paragraphs (b) and (c) shall not apply.

(b)      Optional Forms of Pension Benefits
         ----------------------------------

         (i)      If the Member is reemployed in a capacity other than as a
                  Non-Benefits Worker any previous election of an optional
                  benefit under Section 4.06 or a survivor's benefit under

                                                                       Article 4

<PAGE>

                                                                         Page 68

          Section 4.07 shall be revoked and the terms and conditions of
          subparagraph (ii) of this paragraph (b) shall apply.

     (ii) Any Member who is at least age 55 with ten or more years of
          Eligibility Service when he or she is reemployed in a capacity other
          than as a Non-Benefits Worker shall, with respect to the vested
          benefit or retirement allowance earned prior to his or her
          reemployment and with respect to any additional benefits earned during
          reemployment, be covered by the provisions of Section 4.07(b) -
          Pre-Retirement Survivor's Benefit - and be eligible to elect coverage
          under Section 4.07(c) Supplemental Pre-Retirement Survivor's Benefit.
          Coverage under Section 4.07(b) shall be effective on the first day of
          the calendar month coincident with or next following the date of his
          or her reemployment and any previous election shall remain in effect
          until such date. If, within 30 days after reemployment, the Member
          elects coverage under Section 4.07(c), such coverage shall be
          effective as of the first day of the calendar month coincident with or
          next following the date of his or her reemployment. If the Member does
          not make an election under Section 4.07(c) within 30 days after his or
          her reemployment or he or she waives such coverage, any later election
          shall become effective one year after the first day of the calendar
          month coincident with or next following the date notice is received by
          the Retirement Committee or on the date specified in such notice, if
          later.

          Any Member or former Member with five or more years of Eligibility
          Service who is less than age 55 when he or she is reemployed shall be
          covered by the provisions of Section 4.07(a)(i) - Automatic Vested
          Spouse's Benefit - until he or she attains age 55 and such coverage
          shall be effective on the first day of the calendar month coincident
          with or next following the date of his or her reemployment and any
          previous election shall remain in

                                                                       Article 4

<PAGE>

                                                                         Page 69

          effect until such date. Such former Member and any other Member or
          former Member shall be covered by the provisions of Section 4.07(b) -
          Pre-Retirement Survivor's Benefit - and shall be eligible to elect
          coverage under Section 4.07(c) Supplemental Pre-Retirement Survivor's
          Benefit upon the later of the date he or she attains age 55, the date
          he or she completes ten years of Eligibility Service, or his or her
          Normal Retirement Date, and such coverage shall be in accordance with
          the provisions of such Sections and shall apply with respect to his or
          her retirement allowance or vested benefit earned prior to his or her
          reemployment, as well as any additional benefits earned during
          reemployment.

(c)  Benefit Payments at Subsequent Termination or Retirement
     --------------------------------------------------------

     (i)  In accordance with the procedure established by the Retirement
          Committee on a basis uniformly applicable to all Members similarly
          situated, upon the subsequent retirement of a Member in service after
          his or her Normal Retirement Date, payment of such Member's retirement
          allowance shall resume no later than the third month after the final
          month during the reemployment period in which he or she is credited
          with at least eight days of service.

     (ii) Upon the subsequent retirement or termination of employment of a
          retired or former Member, the Retirement Committee shall, in
          accordance with rules uniformly applicable to all Members similarly
          situated, determine the amount of vested benefit or retirement
          allowance which shall be payable to such Member at such subsequent
          retirement or termination. Such vested benefit or retirement allowance
          shall not be less than the sum of (1) the original amount of vested
          benefit or retirement allowance previously earned by such Member in
          accordance with the terms of the Plan in effect during such previous
          employment adjusted to reflect the election of any survivor's benefits
          pursuant to Section

                                                                       Article 4

<PAGE>

                                                                         Page 70

               4.07(a)(ii) or 4.07(c) and reduced by an amount of equivalent
               value to the benefits, if any, he or she received before the
               earlier of the date of his or her restoration to service or his
               or her Normal Retirement Date and (2) any additional vested
               benefit or retirement allowance earned during his or her period
               of reemployment, such amounts to be adjusted to reflect the
               election during reemployment of any survivor's benefits pursuant
               to Section 4.07(a)(ii) or 4.07(c). Notwithstanding anything to
               the contrary contained in this Plan, with respect to an Employee
               who has incurred a break in service, the vested benefit or
               retirement allowance for Benefit Service credited prior to the
               date of reemployment shall not be recalculated or increased until
               the Member, regardless of his or her vested status, has completed
               at least 12 months of Eligibility Service following his or her
               reemployment, and in such event, the recalculated vested benefit
               or retirement allowance, prior to any optional modification in
               accordance with the provisions of Section 4.06, shall be reduced
               by an amount of equivalent value to any payments previously
               received by the former Member or retired Member before the
               earlier of his or her restoration to service or his or her Normal
               Retirement Date; provided that no such reduction shall reduce
               such retirement allowance or vested benefit below the amount
               determined pursuant to clause (1) of the preceding sentence.

     (d)  Questions Relating to Reemployment of Former Members or Retired
          ---------------------------------------------------------------
          Members. If, at subsequent termination of employment or retirement,
          -------
          any question shall arise under this Section 4.11 as to the calculation
          or recalculation of a reemployed former Member's or retired Member's
          vested benefit or retirement allowance or election of an optional form
          of benefit under the Plan, such question shall be resolved by the
          Retirement Committee on a basis uniformly applicable to all Members
          similarly situated.

                                                                       Article 4

<PAGE>

                                                                         Page 71

4.12     Top-heavy Provisions
         --------------------

 (a)     The following definitions apply to the terms used in this Section:

         (i)   "applicable determination date" means the last day of the
               preceding Plan Year;

         (ii)  "top-heavy ratio" means the ratio of (A) the present value of the
               cumulative Accrued Benefits under the Plan for key employees to
               (B) the present value of the cumulative Accrued Benefits under
               the Plan for all key employees and non-key employees; provided,
               however, that if a key employee has not performed services for
               the Company at any time during the five-year period ending on the
               applicable determination date, any Accrued Benefit for such
               individual (and any account balances of such individual) shall
               not be taken into account;

         (iii) "applicable valuation date" means the date within the preceding
               Plan Year as of which annual Plan costs are or would be computed
               for minimum funding purposes;

         (iv)  "key employee" means an Employee determined to be a "key
               employee" in accordance with the provisions of Section 416(i)(1)
               and (5) of the Code and any regulations thereunder, and where
               applicable, on the basis of the Employee's compensation as
               reported on Form W-2 for the applicable Plan Year;

         (v)   "non-key employee" means any employee who is not a key employee;

         (vi)  "average remuneration" means the average annual remuneration of a
               Member for the five consecutive years of his or her Eligibility
               Service during which he or she received the greatest aggregate
               remuneration, as limited by Section 401(a)(17) of the Code, from
               the Company or Associated Company, excluding any remuneration for
               service after the last Plan Year with respect to which the Plan
               is top-heavy;

                                                                       Article 4

<PAGE>

                                                                         Page 72

         (vii)    "required aggregation group" means each other qualified plan
                  of the Company or an Associated Company (including plans that
                  terminated within the five-year period ending on the
                  determination date) in which there are members who are key
                  employees or which enables the Plan to meet the requirements
                  of Section 401(a)(4) or 410 of the Code; and

         (viii)   "permissive aggregation group" means each plan in the required
                  aggregation group and any other qualified plan(s) of the
                  Company or an Associated Company in which all members are
                  non-key employees, if the resulting aggregation group
                  continues to meet the requirements of Sections 401(a)(4) and
                  410 of the Code.

(b)      For purposes of this Section 4.12, the Plan shall be "top-heavy" with
         respect to any Plan Year if, as of the applicable determination date,
         the top-heavy ratio exceeds 60 percent. The top-heavy ratio shall be
         determined as of the applicable valuation date in accordance with
         Section 416(g)(3) and (4)(B) of the Code on the basis of the same
         mortality and interest rate assumptions used to value the Plan. For
         purposes of determining whether the Plan is top-heavy, the present
         value of Accrued Benefits under the Plan will be combined with the
         present value of accrued benefits or account balances under each other
         plan in the required aggregation group, and in the Company's
         discretion, may be combined with the present value of accrued benefits
         or account balances under any other qualified plan(s) in the permissive
         aggregation group. The Accrued Benefit of a non-key employee under the
         Plan or any other defined benefit plan in the aggregation group shall
         be (i) determined under the method, if any, that uniformly applies for
         accrual purposes under all plans maintained by the Company or an
         Associated Company or (ii) if there is no such method, as if such
         benefit accrued not more rapidly than the slowest accrual rate
         permitted under the fractional rule described in Section 411(b)(i)(C)
         of the Code.

                                                                       Article 4




<PAGE>

                                                                         Page 73

(c)  The following provisions shall be applicable to Members for any Plan
     Year with respect to which the Plan is top-heavy:

     (i)   In lieu of the vesting requirements specified in Section 4.05, the
           following vesting schedule shall apply:

                 Years of Eligibility Service         Percentage Vested
                 ----------------------------         -----------------

                       Less than 2 years                      0%
                            2 years                          20
                            3 years                          40
                            4 years                          60
                        5 or more years                     100

     (ii)  The Accrued Benefit of a Member who is a non-key employee shall not
           be less than 2 percent of his or her "average remuneration"
           multiplied by the number of years of his or her Eligibility Service,
           not in excess of 10, during the Plan Years for which the Plan is
           top-heavy. Such minimum benefit shall be payable at a Member's Normal
           Retirement Date. If payments commence at a time other than the
           Member's Normal Retirement Date, the minimum Accrued Benefit shall be
           of Equivalent Actuarial Value to such minimum benefit, as determined
           on the basis of the actuarial assumptions stated in Section 4.14(b)
           above.

     (iii) The multiplier "1.25" in Sections 415(e)(2)(B)(i) and (3)(B)(i) of
           the Code shall be reduced to "1.0", and the dollar amount "$51,875"
           in Section 415(e)(7)(B)(i)(I) of the Code shall be reduced to
           "$41,500".

(d)  If the Plan is top-heavy with respect to a Plan Year and ceases to be
     top-heavy for a subsequent Plan Year, the following provisions shall be
     applicable:

                                                                       Article 4

<PAGE>

                                                                         Page 74

     (i)   The Accrued Benefit in any such subsequent Plan Year shall not be
           less than the minimum Accrued Benefit provided in Section 4.12(c)
           (ii) above, computed as of the end of the most recent Plan Year for
           which the Plan was top-heavy.

     (ii)  If a Member has completed three years of Eligibility Service on or
           before the last day of the most recent Plan Year for which the Plan
           was top-heavy, the vesting schedule set forth in Section 4.12(c)(i)
           above shall continue to be applicable.

     (iii) If a Member has completed at least two, but less than three years of
           Eligibility Service on or before the last day of the most recent Plan
           Year for which the Plan is top-heavy, the vesting provisions of
           Section 4.05 shall again be applicable; provided, however, that in no
           event shall the vested percentage of a Member's accrued benefit be
           less than the percentage determined under Section 4.12(c)(i) above as
           of the last day of the most recent Plan Year for which the Plan was
           top-heavy.

4.13 Payment of Medical Benefits for Benefits for Certain Members Who Retire
     -----------------------------------------------------------------------
     Under the Plan
     --------------

     This Section 4.13 defines the basis of providing medical benefits to
     eligible Members or their eligible dependents as defined below for those
     expenses incurred by such Members or their eligible dependents on or after
     the date specified by the Board of Directors.

(a)  In order to be eligible for the benefits provided hereunder, a person must
     be a Plan Member who retired under the Plan provisions during the period
     designated by the Retirement Committee and be currently eligible for
     post-retirement medical benefits under a plan maintained by the Company and
     hereinafter referred to as the "Medical Plan" or be an eligible dependent
     of such a Member. To the extent they are not otherwise reimbursed from
     Company assets, covered medical expenses incurred

                                                                       Article 4

<PAGE>

                                                                         Page 75

     during the applicable period shown below by such a Member or his or her
     eligible dependents shall be reimbursed hereunder.

(b)  The level of medical benefits covered under the provisions of this Section
     4.13 shall be the medical coverage in effect under the terms of the Medical
     Plan. Except as provided in Article 10, such medical coverage or benefit
     plan may be withdrawn or amended from time to time as the Company shall
     determine.

(c)  Except as provided in Section 4.13(e), all contributions made to the trust
     to provide medical benefits under this Section 4.13 shall be maintained in
     a separate account and such assets may not be used for or diverted to any
     purpose other than to provide said medical benefits; provided, however,
     none of the assets so set aside may be used to provide medical benefits for
     a Member, former Member or their dependents if the Member or former Member
     is a "key employee" as determined in accordance with the provisions of
     Section 416(i)(1) and (5) of the Internal Revenue Code. Similarly, none of
     the assets accumulated to provide the retirement allowances or vested
     benefits set forth in the foregoing provisions of this Article 4 may, prior
     to the termination of the Plan and satisfaction of all the liabilities for
     such retirement allowances or vested benefits, be used or diverted to
     provide medical benefits under this Section 4.13. The assets, if any,
     accumulated to provide medical benefits under this Section 4.13 may be
     invested pursuant to the provisions of Article 7.

(d)  It is the intention of the Company to continue providing medical benefits
     under this Section 4.13 and to make contributions to the Trustee to fund
     such medical benefits in such amounts as the Company shall deem necessary
     or appropriate. The aggregate contributions made to fund the

                                                                       Article 4

<PAGE>

                                                                         Page 76


     medical benefits provided under this Section, when added to the actual
     contributions for any life insurance protection provided under the Plan,
     shall not exceed 25 percent of the total actual contributions made to the
     Plan (other than contributions to fund past service credits) after the
     later of the adoption or effective date of this Section. Any forfeitures of
     a Member's interest in the medical benefit accounts as provided hereunder
     prior to any discontinuance of medical benefits by the Board of Directors
     shall be applied to reduce any subsequent Company contributions made
     pursuant to this Section 4.13.

(e)  Except as provided in Article 10, the Board of Directors may discontinue
     providing medical benefits under this Section 4.13 for any reason at any
     time, in which event the assets allocated to provide medical benefits
     hereunder, if any remain, shall, to the extent they are not otherwise
     reimbursed from Company assets, be used to continue medical benefits to
     Members who are eligible for them prior to the discontinuance date as long
     as any assets remain. However, if, after the satisfaction of all medical
     benefits provided hereunder, there remain any assets, the program shall be
     deemed to be terminated and such remainder shall be returned to the
     Company, in accordance with Section 401(h)(5) of the Code.

4.14 Transfers From Hourly Plans Maintained by the Company or an Associated
     ----------------------------------------------------------------------
     Company
     -------

     At the discretion and direction of the Retirement Committee, the Plan may
     accept from a hourly pension plan maintained by the Company or an
     Associated Company which is qualified under Section 401(a) of the Code a
     transfer of (i) liabilities with respect to the accrued benefit under such
     hourly plan of a Member who has employment with the Company rendered
     otherwise than as an Employee recognized as Benefit Service pursuant to the
     provisions of Section 2.02(c) of the Plan and (ii) with respect to such
     liabilities, any assets determined by the Company to be applicable.

                                                                       Article 4

<PAGE>

                                                                         Page 77

         All such transfers shall be made in accordance with the provisions of
         the Code and ERISA.

4.15     Direct Rollover of Certain Distributions
         ----------------------------------------

         Notwithstanding any other provision of this Plan, with respect to any
         distribution from this Plan which is (a) payable to a "distributee" and
         (b) determined by the Retirement Committee to be an "eligible rollover
         distribution," such distributee may elect, at the time and in the
         manner prescribed by the Retirement Committee, to have the Plan make a
         "direct rollover" of all or part of such distribution to an "eligible
         retirement plan" which accepts such rollover. The following definitions
         apply to the terms used in this Section:

          (a)  a "distributee" means a Member or former Member. In addition, the
               Member's or former Member's surviving spouse and the Member's or
               former Member's spouse or former spouse who is the alternate
               payee under a qualified domestic relations order as defined in
               Section 414(p) of the Code, are distributees with regard to the
               interest of the spouse or former spouse;

         (b)   an "eligible rollover distribution" is any distribution of all or
               any portion of the retirement allowance or vested benefit owing
               to the credit of a distributee, except that the following
               distributions shall not be eligible rollover distributions: (i)
               any distribution that is one of a series of substantially equal
               periodic payments (not less frequently than annually) made for
               the life or life expectancy of the distributee or the joint lives
               or joint life expectancies of the distributee and the
               distributee's designated beneficiary, or for a specified period
               of ten years or more, (ii) any distribution to the extent such
               distribution is required under Section 401(a)(9) of the Code,
               (iii) the portion of a distribution not includible in gross
               income, and (iv) any distribution where all otherwise eligible
               distributions are expected to total less than $200;

                                                                       Article 4

<PAGE>

                                                                         Page 78

     (c)  an "eligible retirement plan" is an individual retirement account
          described in Section 408(a) of the Code, an individual retirement
          annuity described in Section 408(b) of the Code, an annuity plan
          described in Section 403(a) of the Code or a qualified trust described
          in Section 401(a) of the Code that accepts the eligible rollover
          distribution; however, in the case of an eligible rollover
          distribution to the Member's surviving spouse, an eligible retirement
          plan is an individual retirement account or individual retirement
          annuity only; and

     (d)  "direct rollover" means a payment by the Plan directly to the eligible
          retirement plan specified by the distributee.

     In the event that the provisions of this Section 4.15 or any part thereof
     cease to be required by law as a result of subsequent legislation or
     otherwise, this Section 4.15 or applicable part thereof shall be
     ineffective without necessity of further amendment of the Plan.

                                                                       Article 4

<PAGE>
                                                                         Page 79

                       ARTICLE 5 -- ADMINISTRATION OF PLAN
                       -----------------------------------

5.01     Appointment of Retirement Committee
         -----------------------------------

         The responsibility for carrying out all phases of the administration of
         the Plan except those phases connected with the management of assets,
         shall be placed in a Retirement Committee of not less than three
         persons appointed from time to time by the Board of Directors to serve
         at the pleasure of the Board of Directors. The Board of Directors may
         also designate alternate members to act in the absence of the regular
         members. The Board of Directors shall designate a Chairman of the
         Retirement Committee from among the regular members and a Secretary who
         may be, but need not be, one of its members. Any member of the
         Retirement Committee may resign by delivering his or her written
         resignation to the Board of Directors and the Secretary of the
         Retirement Committee.

5.02     Pension Trust Fund and Investment Committee
         -------------------------------------------

         The responsibility for the management of the assets of the Plan shall
         be placed in a Pension Fund Trust and Investment Committee of not less
         than three persons appointed from time to time by the Board of
         Directors to serve at the pleasure of the Board of Directors. The Board
         of Directors may also designate alternate members to act in the absence
         of the regular members. The Board of Directors shall designate a
         Chairman of the Pension Fund Trust and Investment Committee from among
         the regular members and a Secretary who may be, but need not be, one of
         the members of the Pension Fund Trust and Investment Committee. Any
         member of the Pension Fund Trust and Investment Committee may resign by
         delivering his or her written resignation to the Board of Directors and
         the Secretary of the Pension Fund Trust and Investment Committee.

                                                                       Article 5

<PAGE>

                                                                         Page 80

5.03     Named Fiduciaries
         -----------------

         The Retirement Committee and the Pension Fund Trust and Investment
         Committee (hereinafter collectively referred to as the ("Committees")
         are designated as named fiduciaries within the meaning of Section
         402(a) of ERISA. In addition, the Company and any officer of the
         Company appointed as a named fiduciary by the Retirement Committee
         shall also be "named fiduciaries" within the meaning of Section 402(a)
         of ERISA.

5.04     Meetings and Action of Majority
         -------------------------------

         The Committees shall hold meetings upon such notice, at such place or
         places, and at such time or times as each may respectively determine.
         The action of at least a majority of the members, or alternate members,
         of a Committee expressed from time to time by a vote at a meeting or in
         writing without a meeting shall constitute the action of that Committee
         and shall have the same effect for all purposes as if assented to by
         all members of such Committee at the time in office. No member of
         either Committee shall receive any compensation for his or her service
         as such.

5.05     Duties of Committees
         --------------------

         Each Committee may authorize one or more of its number or any agent to
         execute or deliver any instrument or make any payment on its behalf;
         may retain counsel, employ agents and such clerical, accounting and
         actuarial services as it may require in carrying out the provisions of
         the Plan for which it has responsibility; may allocate among its
         members or to other persons all or such portion of its duties hereunder
         as it, in its sole discretion, shall decide.

                                                                       Article 5

<PAGE>

                                                                         Page 81

5.06     Management of Plan Assets
         -------------------------

         The Pension Fund Trust and Investment Committee shall be responsible
         for managing the assets under the Plan. If it deems such action to be
         advisable, the Committee, subject to the provisions of the trust
         instrument(s) adopted for use in implementing the Plan pursuant to
         Section 7.01 hereof, may:

         (a)   provide direction to the trustee(s) thereunder, including, but
               not by way of limitation, the direction of investment of all or
               part of the Plan assets and the establishment of investment
               criteria, and

         (b)   appoint and provide for use of investment advisors and investment
               managers.

         In discharging its responsibility, the Committee shall evaluate and
         monitor the investment performance of the trustee(s) and investment
         manager, if any.

5.07     Establishment of Rules and Rights of Retirement Committee
         ---------------------------------------------------------

         Subject to the limitations of the Plan, the Retirement Committee from
         time to time shall establish rules or regulations for the
         administration of the Plan and the transaction of its business. The
         Retirement Committee shall have full discretionary authority, except as
         to matters which the Board of Directors from time to time may reserve
         to itself, to interpret the Plan and to make factual determinations
         regarding any and all matters arising hereunder, including but not
         limited to, the right to determine eligibility for benefits and to
         construe the terms of the Plan including the right to remedy possible
         ambiguities, inequities, inconsistencies or omissions. The Retirement
         Committee shall also have the right to exercise powers otherwise
         exercisable by the Board of Directors hereunder to the extent that the
         exercise of such powers does not involve the management of Plan assets.
         In addition, the Retirement Committee shall have the further right to
         exercise such powers

                                                                       Article 5

<PAGE>

                                                                         Page 82

     as may be delegated to the Retirement Committee by the Board of Directors.
     The Retirement Committee may delegate to any duly authorized officer, in
     writing, any or all of its authority and its right to exercise powers
     otherwise exercised or delegated by the Board of Directors.

     Subject to applicable Federal and State Law, all interpretations,
     determinations and decisions of a duly authorized officer, the Retirement
     Committee or the Board of Directors in respect of any matter hereunder
     shall be final, conclusive and binding on all parties affected thereby.

5.08 Prudent Conduct and Limitation of Liability
     -------------------------------------------

     The members of the Committees and any officer appointed pursuant to Section
     5.03 shall use that degree of care, skill, prudence and diligence in
     carrying out their duties that a prudent man, acting in a like capacity and
     familiar with such matters, would use in the conduct of an enterprise of a
     like character and with like aims. A member of either Committee and any
     officer appointed pursuant to Section 5.03 shall not be liable for the
     breach of fiduciary responsibility of another fiduciary unless:

     (a)  the person participates knowingly in, or knowingly undertakes to
          conceal, an act or omission of such other fiduciary, knowing such act
          or omission is a breach; or

     (b)  by the person's failure to discharge such person's duties solely in
          the interest of the Members and other persons entitled to benefits
          under the Plan, for the exclusive purpose of providing benefits and
          defraying reasonable expenses of administering the Plan not met by the
          Company, the person has enabled such other fiduciary to commit a
          breach; or

     (c)  the person has knowledge of a breach by such other fiduciary and does
          not make reasonable efforts to remedy the breach; or

                                                                       Article 5

<PAGE>

                                                                         Page 83

     (d)  in the case of a member of either Committee, if the Committee of which
          the person is a member improperly allocates responsibilities among its
          members or to others and the person fails to review prudently such
          allocation.

5.09 Claims and Review Procedure
     ---------------------------

(a)  Applications for benefits and inquiries concerning the Plan (or concerning
     present or future rights to benefits under the Plan) shall be submitted to
     the Company in writing. An application for benefits shall be submitted on
     the prescribed form and shall be signed by the Member, or in the case of a
     benefit payable after his death, by his Beneficiary.

(b)  In the event that an application for benefits is denied in whole or in
     part, the Company shall notify the applicant in writing of the denial and
     of the right to review of the denial. The written notice shall set forth,
     in a manner calculated to be understood by the applicant, specific reasons
     for the denial, specific references to the provisions of the Plan on which
     the denial is based, a description of any information or material necessary
     for the applicant to perfect the application, an explanation of why the
     material is necessary, and an explanation of the review procedure under the
     Plan.

     The written notice shall be given to the applicant within a reasonable
     period of time (not more than 90 days) after the Company received the
     application, unless special circumstances require further time for
     processing and the applicant is advised of the extension. In no event shall
     the notice be given more than 180 days after the Company received the
     application.

(c)  An applicant whose application for benefits was denied in whole or in part,
     or the applicant's duly authorized representative, may appeal the denial by
     submitting to the Retirement Committee a

                                                                       Article 5

<PAGE>

                                                                         Page 84

     request for a review of the application within 60 days after receiving
     written notice of the denial from the Company. The Company shall give the
     applicant or his representative an opportunity to review pertinent
     materials, other than legally privileged documents, in preparing the
     request for review. The request for a review shall be in writing and
     addressed to the Retirement Committee. The request for a review shall set
     forth all of the grounds on which it is based, all facts in support of the
     request and any other matters that the applicant deems pertinent. The
     Retirement Committee may require the applicant to submit such additional
     facts, documents, or other materials as it may deem necessary or
     appropriate in making its review.

(d)  The Retirement Committee shall act on each request for a review within 60
     days after receipt, unless special circumstances require further time for
     processing and the applicant is advised of the extension. In no event shall
     the decision on review be rendered more than 120 days after the Retirement
     Committee received the request for a review. The Retirement Committee shall
     give prompt written notice of its decision to the applicant and or the
     Company. In the event that the Retirement Committee confirms the denial of
     the application for benefits in whole or in part, the notice shall set
     forth, in a manner calculated to be understood by the applicant, the
     specific reasons for the decision and specific references to the provisions
     of the Plan on which the decision is based.

(e)  The Retirement Committee shall adopt such rules, procedures, and
     interpretations of the Plan as it deems necessary or appropriate in
     carrying out its responsibilities under this Section 5.09.

(f)  No legal action for benefits under the Plan shall be brought unless and
     until the claimant (i) has submitted a written application for benefits in
     accordance with paragraph (a), (ii) has been notified by the Company that
     the application is denied, (iii) has filed a written request for a review
     of the

                                                                       Article 5

<PAGE>

                                                                         Page 85

     application in accordance with paragraph (c), and (iv) has been notified in
     writing that the Retirement Committee has affirmed the denial of the
     application; provided, however, that legal action may be brought after the
     Company or the Retirement Committee has failed to take any action on the
     claim within the time by paragraphs (b) and (d) above.

                                                                       Article 5

<PAGE>
                                                                         Page 86

                           ARTICLE 6 -- CONTRIBUTIONS
                           --------------------------

6.01 Company Contributions
     ---------------------

     It is the intention of the Company to continue the Plan and make regular
     contributions to the Trustee each year in such amounts as are necessary to
     maintain the Plan on a sound actuarial basis and to meet minimum funding
     standards as prescribed by any applicable law. However, subject to the
     provisions of Article 8, the Company may reduce or suspend its
     contributions for any reason at any time. Any forfeitures shall be used to
     reduce the Company contributions otherwise payable, and will not be applied
     to increase the benefits any Member or other person would otherwise receive
     under the Plan.

6.02 Return of Contributions
     -----------------------

(a)  The Company's contributions to the Plan are conditioned upon their
     deductibility under Section 404 of the Code. In the event that all or part
     of the Company's deductions under Section 404 of the Code for contributions
     to the Plan are disallowed by the Internal Revenue Service, the portion of
     the contributions to which such disallowance applies shall be returned to
     the Company without interest, but reduced by any investment loss
     attributable to those contributions. Such return shall be made within one
     year after the disallowance of deduction.

(b)  The Company may recover without interest the amount of its contributions to
     the Plan made on account of a mistake in fact, reduced by any investment
     loss attributable to those contributions if recovery is made within one
     year after the date of those contributions.

                                                                       Article 5

<PAGE>

                                                                         Page 87

                        ARTICLE 7 -- MANAGEMENT OF FUNDS
                        --------------------------------

7.01  Trustee
      -------

      All the funds of the Plan shall be held by a Trustee or Trustees including
      any member(s) of the Rayonier Inc. Pension Fund Trust and Investment
      Committee, appointed from time to time by said Committee or Rayonier, in
      one or more trusts under a trust instrument or instruments approved or
      authorized by said Committee or Rayonier Inc. for use in providing the
      benefits of the Plan and paying any expenses of the Plan not paid directly
      by the Company; provided, however, that the Pension Fund Trust and
      Investment Committee may, in its discretion, also enter into any type of
      contract with any insurance company or companies selected by it for
      providing benefits under the Plan.

7.02  Exclusive Benefit Rule
      ----------------------

      Prior to the satisfaction of all liabilities with respect to persons
      entitled to benefits, except for the payment of expenses, no part of the
      corpus or income of the funds shall be used for, or diverted to, purposes
      other than for the exclusive benefit of Members and other persons who are
      or may become entitled to benefits hereunder, under the Prior Salaried
      Plan, or under any trust instrument or under any insurance contract made
      pursuant to this Plan. Subject to applicable Federal and State law, no
      person shall have any interest in or right to any part of the corpus or
      income of the funds, except as and to the extent expressly provided in the
      Plan and in any trust instrument or under any insurance contract made
      pursuant to this Plan. Subject to applicable Federal and State law, the
      Company shall have no liability for the payment of benefits under the Plan
      nor for the administration of the funds paid over to the Trustee(s) or
      insurer(s) except as expressly provided under this Plan.

                                                                       Article 7

<PAGE>

                                                                         Page 88

7.03  Investment in Company Securities or Real Property
      -------------------------------------------------

      Except as permitted by applicable Federal law, no part of the corpus or
      income of the trust shall be invested in securities of the Company or of
      any Associated Company or in real property and related personal property
      which is leased to the Company or any Associated Company or in the
      securities of the Trust or Trustees or their subsidiary companies, if any.

7.04  Appointment of Investment Managers
      ----------------------------------

      The Pension Fund Trust and Investment Committee may, in its discretion,
      appoint one or more investment managers (within the meaning of Section
      3(38) of ERISA) to manage (including the power to acquire and dispose of)
      all or part of the assets of the Plan, as the Investment Committee shall
      designate. In that event, authority over and responsibility for the
      management of the assets so designated shall be the sole responsibility of
      that investment manager.

                                                                    Article 7

<PAGE>
                                                                         Page 89

                   ARTICLE 8 -- CERTAIN RIGHTS AND LIMITATIONS
                   -------------------------------------------

The following provisions shall apply in all cases whenever a Member or any other
person is affected thereby.

8.01     Termination of the Plan
         -----------------------

(a)      The Board of Directors may terminate the Plan for any reason at any
         time. In case of termination of the Plan, the rights of Members to the
         benefits accrued under the Plan to the date of the termination, to the
         extent then funded or protected by law, if greater, shall be
         nonforfeitable. The funds of the Plan shall be used for the exclusive
         benefit of persons entitled to benefits under the Plan as of the date
         of termination, except as provided in Section 6.02. However, any funds
         not required to satisfy all liabilities of the Plan for benefits
         because of erroneous actuarial computation shall be returned to the
         Company except as otherwise provided in Section 8.06. The Retirement
         Committee shall determine on the basis of an actuarial valuation the
         share of the funds of the Plan allocable to each person entitled to
         benefits under the Plan in accordance with Section 4044 of ERISA or
         corresponding provision of any applicable law in effect at the time. In
         the event of a partial termination of the Plan, the provisions of this
         Section shall be applicable only to the Members affected by that
         partial termination.

(b)      Plan Merger or Consolidation. The Board of Directors may, in its sole
         ----------------------------
         discretion, merge this Plan with another qualified plan, subject to any
         applicable legal requirements. However, the Plan may not be merged or
         consolidated with, nor may its assets or liabilities be transferred to,
         any other plan unless each Member or other person entitled to a benefit
         under the Plan would, if the resulting plan were then terminated,
         receive a benefit immediately after the merger, consolidation, or
         transfer

                                                                       Article 8

<PAGE>

                                                                         Page 90

         which is equal to or greater than the benefit he or she would have been
         entitled to receive immediately before the merger, consolidation, or
         transfer, if the Plan had then terminated; provided that, subject to
         the provisions of Article 10 on or after the date of the first
         occurrence of a Change in Control (i) no transfer of assets or
         liabilities, except as specifically permitted under Section 8.01(a),
         between the Plan and any Employee Benefit Plan, as hereinafter
         defined, (ii) no spin-off of Plan assets or Plan liabilities to any
         Employee Benefit Plan, (iii) no withdrawal of Plan assets, in the event
         such withdrawal is permitted under applicable law or (iv) no merger or
         consolidation of the Plan with any Employee Benefit Plan shall be
         permitted.

         For purposes of this Section 8.01(b), Employee Benefit Plan has the
         same meaning as the term "employee benefit plan" has under Section 3(3)
         of ERISA.

8.02     Limitation Concerning Highly Compensated Employees or Highly
         ------------------------------------------------------------
         Compensated Former Employees
         ----------------------------

(a)      The provisions of this Section shall apply (i) in the event the Plan is
         terminated, to any Member who is a highly compensated employee or
         highly compensated former employee (as those terms are defined in
         Section 414(q) of the Code) of the Company or an Associated Company and
         (ii) in any other event, to any Member or former Member who is one of
         the 25 highly compensated employees or highly compensated former
         employees of the Company or Associated Company with the greatest
         compensation in any Plan Year. The amount of the annual payments to any
         one of the Members or former Member to whom this Section applies shall
         not be greater than an amount equal to the payments that would be made
         on behalf of the Member or former Member under a single life annuity
         that is of Equivalent Actuarial Value to the sum of the Member's or
         former Member's Accrued Benefit and any other benefits payable to the
         Member and former Member under the Plan.


                                                                       Article 8

<PAGE>

                                                                         Page 91

(b)      If, (i) after payment of an Accrued Benefit or other benefits to any
         one of the Members or to whom this Section applies, the value of Plan
         assets equals or exceeds 110 percent of the value of current
         liabilities (as that term is defined in Section 412(1)(7) of the Code)
         of the Plan, (ii) the value of the Accrued Benefit and other benefits
         of any one of the Members or former Members to whom this Section
         applies is less than 1 percent of the value of current liabilities of
         the Plan, or (iii) the value of the Accrued Benefit and other benefits
         of any one of the Members or former Members to whom this Section
         applies does not exceed $3,500 ($5,000 effective January 1, 1998), the
         provisions of paragraph (a) above will not be applicable to the payment
         of benefits to the Member or former Member.

(c)      Notwithstanding paragraph (a) of this Section, in the event the Plan is
         terminated, the restriction of this Section shall not be applicable if
         the benefits payable to any highly compensated employee and any highly
         compensated former employee is limited to a benefit that is
         nondiscriminatory under Section 401(a)(4) of the Code.

(d)      If it should subsequently be determined by statute, court decision
         acquiesced in by the Commissioner of Internal Revenue, or ruling by the
         Commissioner of Internal Revenue, that the provisions of this Section
         are no longer necessary to qualify the Plan under the Code, this
         Section shall be ineffective without the necessity of further amendment
         to the Plan.

8.03     Conditions of Employment Not Affected by Plan
         ---------------------------------------------

         The establishment of the Plan shall not be construed as conferring any
         legal rights upon any Employee or other person for a continuation of
         employment, nor shall it interfere with the rights of the Company to
         discharge any Employee or other person and to treat him or her without
         regard to the effect which such treatment might have upon him or her
         under the Plan.

                                                                       Article 8

<PAGE>

                                                                         Page 92

8.04     Offsets
         -------

         Unless the Board of Directors otherwise provides under written rules
         uniformly applicable to all Employees similarly situated, the
         Retirement Committee shall deduct from the amount of any retirement
         allowance or vested benefit under the Plan, any amount paid or payable
         to or on account of any Member under the provisions of any present or
         future law, pension or benefit scheme of any sovereign government, or
         any political subdivision thereof or any fund or organization or
         government agency or department on account of which contributions have
         been made or premiums or taxes paid by the Company, any Participating
         Unit, or any Associated Company with respect to any service which is
         Benefit Service for purposes of computation of benefits under the Plan;
         provided, however, that pensions payable for government service or
         benefits under Title II of the Social Security Act are not to be used
         to reduce the benefits otherwise provided under this Plan except as
         specifically provided herein.

8.05     Denial of Benefits
         ------------------

         The Retirement Committee may prescribe rules on a basis uniformly
         applicable to all Employees similarly situated under which an Employee
         whose employment is terminated because of dishonesty, conviction of a
         felony or other conduct prejudicial to the Company may be denied any
         benefit or benefits for which he or she would otherwise be eligible
         under the Plan, except his or her retirement allowance pursuant to
         Section 4.01 or his or her vested benefit pursuant to Section 4.05;
         provided, however, that such denial is not contrary to applicable law.

                                                                       Article 8

<PAGE>

                                                                         Page 93

8.06     Change in Control
         -----------------

         In the event of a Change in Control the following restrictions shall
         apply:

         (a)   Notwithstanding any other provision of the plan, in the event of
               a Change in Control, neither the Board of Directors, its
               designee, the Retirement Committee nor the Trustee may merge or
               consolidate the Plan with any other plan, transfer any Plan
               assets to any other retirement or welfare benefit plan, transfer
               any other welfare or retirement benefit plan's liabilities to the
               Plan, spin-off or split-off any part of the Plan or group of
               Members in the Plan, or reduce future Plan benefits, or cause or
               permit the Plan to acquire any security or real or personal
               property of the Company or any Associated Company, during the
               five-year period commencing on the date on which the Change in
               Control occurs.

         (b)   Notwithstanding any other provision of the Plan, in the event of
               a Change in Control, neither the Board of Directors nor its
               designee may, during the five-year period commencing on the date
               on which the Change in Control occurs, designate any new
               Participating Units or designate any new groups of Employees as
               eligible to participate in the Plan.

         (c)   Notwithstanding any other provision of the Plan, if at any time
               during the five-year period commencing on the date on which a
               Change in Control occurs, the Plan is terminated, any Member who
               was an Employee on the date of the Change in Control shall, if
               not previously vested, become fully vested in all Plan benefits.
               If the Plan has surplus assets, all of the surplus assets shall
               be allocated to Plan Members who were Members as of the date on
               which a Change in Control occurs (including Members who
               terminated employment with entitlement to a retirement allowance
               and Members who are, on the date on which a Change in Control
               occurs, receiving a retirement allowance) on pro rata basis, in
               relation to the benefits accrued prior to the date of Change in
               Control and none of this

                                                                       Article 8

<PAGE>

                                                                         Page 94

               surplus may be recovered by the Company, any successor or any
               Associated Company. For purposes of this Section 8.06(c) the
               amount of surplus assets will be determined as part of the
               process of purchasing non-participating group annuity contracts
               in connection with the termination of the Plan. In purchasing
               such annuities, the Plan shall seek competitive bids from at
               least three unrelated insurance companies. In no event shall the
               increase in the Retirement Allowance payable pursuant to this
               paragraph cause the retirement allowance to exceed the
               limitations in Section 4.08 of the Plan.

         (d)   Notwithstanding any other provision of the Plan, if at any time
               during the five-year period commencing on the date on which a
               Change in Control occurs (i) a Substantial Reduction in Force (as
               hereinafter defined) occurs or (ii) any action prohibited by
               paragraph (a) or (b) of this Section 8.06 is taken, then any
               Member who was an Employee on the date of the Change in Control
               shall, if not previously vested, become fully vested in all Plan
               benefits. Furthermore, if, as of the date either of the events
               described in (i) or (ii) above occurs, the fair market value of
               the Plan's assets exceeds the Plan's current liability pursuant
               to Section 412(l)(7) of the Code (based on the Plan's actuarial
               assumptions on the date the Change in Control occurs except that
               the interest rate shall be the maximum rate permitted under
               Section 412 of the Code) the amount of such excess assets shall
               be applied to increase, as described below, the Accrued Benefit
               of all Plan Members who were Members as of the date on which a
               Change in Control occurs. For purposes of determining the
               increase in Accrued Benefit under this Section 8.06(d), Plan
               Member includes both Members who are Employees as well as former
               Employees, or Beneficiaries of former Employees either entitled
               to future benefits or currently in receipt of Plan benefits. The
               Equivalent Actuarial Value of each Plan Member's Accrued Benefit
               shall be increased by the amount determined by multiplying (a)
               the Plan's excess assets as defined

                                                                       Article 8

<PAGE>

                                                                         Page 95

               in this Section 8.06(d) by (b) the ratio that the Current
               Liability of each Plan Member bears to the sum of the Current
               Liability of all Plan Members. Such increased present value will
               be converted into an enhanced Accrued Benefit for each Plan
               Member. In no event, however, shall such increase cause a Plan
               Member's Accrued Benefit to exceed the limitation of Section 4.08
               of the Plan.

               For purposes of this Section 8.06,

               (i)   a "Substantial Reduction in Force" shall mean the
                     Involuntary Separation from employment, following a Change
                     in Control, of the percentage of Members set forth below
                     who were Employees when the Change in Control occurred:

                     (1)  10 percent or more within any consecutive 12-month
                          period.

                     (2)  15 percent or more within any consecutive 24-month
                          period.

                     (3)  20 percent or more within any consecutive 36-month
                          period.

                     (4)  25 percent or more within any consecutive 48-month
                          period.

                     (5)  30 percent or more within a 60-month period; and

               (ii)  "Involuntary Separation" shall mean the termination of a
                     Member's employment with the Company as a result of Company
                     action such as a discharge, a resignation after a reduction
                     in pay, position or responsibilities, a retirement after
                     the Company has requested such Member to resign or retire,
                     a layoff, or any relocation of the work location of a
                     Member to a place more than 35 miles from such Member's
                     principal residence; provided, however, that an Involuntary
                     Separation shall not be deemed to have occurred if a Member
                     resigns or retires other than in response to a Company
                     request, or is terminated for serious misconduct in
                     connection with such Member's work.

                                                                       Article 8

<PAGE>

                                                                         Page 96

         (e)   In the event the Internal Revenue Service makes a final
               determination that the utilization of surplus assets of the Plan
               (or any portion thereof) in accordance with paragraph (c) or (d)
               of this Section 8.06 cannot be accomplished in any manner without
               disqualifying the Plan, the Company shall utilize such assets
               which cannot be so utilized to provide benefits to those Members
               who were Employees on the date of the Change in Control in any
               manner that the Company deems to be in the best interests of such
               Members and which would not disqualify the Plan. Such utilization
               may include the transfer of such assets to another employee
               benefit plan of the Company, including a voluntary employees'
               beneficiary association as described in Section 501(c)(9) of the
               Code; provided, however, that in no event shall any such assets
               be transferred to any entity other than a trust devoted
               exclusively to providing benefits to employees and retirees who
               were Plan Members as of the date of the Change in Control.

8.07     Prevention of Escheat
         ---------------------

         If the Retirement Committee cannot ascertain the whereabouts of any
         person to whom a payment is due under the Plan, the Retirement
         Committee may, no later than two years from the date such payment is
         due, mail a notice of such due and owing payment to the last known
         address of such person as shown on the records of the Retirement
         Committee or the Company. If such person has not made written claim
         therefor within three months of the date of the mailing, the Retirement
         Committee may, if it so elects and upon receiving advice from counsel
         to the Plan, direct that such payment and all remaining payments
         otherwise due such person be canceled on the records of the Plan and
         the amount thereof applied to reduce the contributions of the Company.
         Upon such cancellation, the Plan shall have no further liability
         therefor except that, in the event such person or his or her
         beneficiary later notifies the Retirement Committee of his or her
         whereabouts and

                                                                       Article 8

<PAGE>

                                                                         Page 97

         requests the payment or payments due to him or her under the Plan, the
         amount so applied shall be paid to him or her in accordance with the
         provisions of the Plan.

                                                                       Article 8

<PAGE>

                                                                         Page 98

                     ARTICLE 9 -- NONALIENATION OF BENEFITS
                     --------------------------------------

(a)   Except as required by any applicable law or by paragraph (e), no benefit
      under the Plan shall be subject in any manner to anticipation, alienation,
      sale, transfer, assignment, pledge, encumbrance or charge except any
      election to make a contribution necessary to provide post-retirement
      medical benefits under any Plan maintained by the Company, and any attempt
      so to do shall be void, except as specifically provided in the Plan, nor
      shall any such benefit be in any manner liable for or subject to
      garnishment, attachment, execution or levy or liable for or subject to the
      debts, contracts, liabilities, engagements or torts of the person entitled
      to such benefit.

(b)   Subject to applicable Federal and State law, in the event that the
      Retirement Committee shall find that any Member or other person who is or
      may become entitled to benefits hereunder has become bankrupt or that any
      attempt has been made to anticipate, alienate, sell, transfer, assign,
      pledge, encumber or charge any of his or her benefits under the Plan,
      except as specifically provided in the Plan, or if any garnishment,
      attachment, execution, levy or court order for payment of money has been
      issued against any of his or her benefits under the Plan, then such
      benefit shall cease and terminate. In such event the Retirement Committee
      shall hold or apply the payments to or for the benefit of such Member or
      other person who is or may become entitled to benefits hereunder, his or
      her spouse, children, parents or other blood relatives, or any of them.

(c)   Notwithstanding the foregoing provisions of the Plan, payment shall be
      made in accordance with the provisions of any judgment, decree, or
      domestic relations order which:

      (i)  creates for, or assigns to, a spouse, former spouse, child or other
           dependent of a Member the right to receive all or a portion of the
           Member's benefits under the Plan for the purpose

                                                                       Article 9

<PAGE>

                                                                         Page 99

            of providing child support, alimony payments or marital property
            rights to that spouse, child or dependent,

      (ii)  is made pursuant to the domestic relations law of any State (as such
            term is defined in Section 3(10) of ERISA,

      (iii) does not require the Plan to provide any type of benefit, or any
            option, not otherwise provided under the Plan, and

      (iv)  otherwise meets the requirements of Section 206(d) of ERISA to be a
            "qualified domestic relations order" as determined by the Retirement
            Committee.

      If the lump sum present value of any series of payments made under the
      criteria set forth in paragraphs (i) through (iv) above amounts to $3,500
      ($5,000 effective January 1, 1998) or less, then a lump sum payment of
      Equivalent Actuarial Value (determined in the manner described in Section
      4.10) shall be made in lieu of the series of payments.

(d)   The Retirement Committee shall resolve any questions arising under this
      Article 9 on a basis uniformly applicable to all persons similarly
      situated.

(e)   A Member's benefits under the Plan shall be offset by the amount the
      Member is required to pay to the Plan under the circumstances set forth in
      Section 401(a)(13) of the Code.

                                                                       Article 9

<PAGE>
                                                                        Page 100

                            ARTICLE 10 -- AMENDMENTS
                            ------------------------

10.01   Subject to Section 10.02, the Board of Directors or its delegate
        reserves the right at any time and from time to time, and retroactively
        if deemed necessary or appropriate to conform with governmental
        regulations or other policies, to modify or amend in whole or in part
        any or all of the provisions of the Plan; provided that no such
        modification or amendment shall make it possible for any part of the
        funds of the Plan to be used for, or diverted to, purposes other than
        for the exclusive benefit of Members, spouses, or contingent annuitants
        or other persons who are or may become entitled to benefits hereunder
        prior to the satisfaction of all liabilities with respect to them; and
        that no modification or amendment shall be made which has the effect of
        decreasing the Accrued Benefit of any Member or of reducing the
        nonforfeitable percentage of the Accrued Benefit of a Member
        attributable to Company contributions below that nonforfeitable
        percentage thereof computed under the Plan as in effect on the later of
        the date on which the amendment is adopted or becomes effective. Any
        action to amend the Plan by the Board of Directors shall be taken in
        such manner as may be permitted under the by-laws of the Company and any
        action to amend the Plan by a delegate of the Board of Director shall be
        in writing.

10.02   Notwithstanding the above, on or after the date a Change in Control
        first occurs, Section 8.01, Section 8.06 and this Article 10, as they
        pertain to events occurring on or after the date such Change in Control
        occurs, may not be further amended by the Board of Directors without
        written consent of not less than three-quarters of the Members and other
        persons then receiving benefits under the Plan.

                                                                      Article 10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>6
<FILENAME>dex1025.txt
<DESCRIPTION>TRUST AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.25


                                 TRUST AGREEMENT

                                     FOR THE

                                  RAYONIER INC.

                              LEGAL RESOURCES TRUST

<PAGE>

         This Agreement is made this ___ day of _______________, by and between
Rayonier Inc. (the "Company") and Wachovia Bank, N.A., a national banking
association, as trustee hereunder ("Trustee").

         WHEREAS, the Company has adopted the nonqualified deferred compensation
plans and entered into the other benefits agreements (collectively, the
"Benefits Arrangements") listed on Appendix A, including the Supplemental Senior
Executive Severance Pay Plan (the "Supplemental Severance Plan"), and, for this
purpose, the right to have had deposited with the trustee under the Trust
Agreement for Rayonier Inc. Supplemental Senior Executive Plan and the Change in
Control Agreement for W. Lee Nutter (the "Executive Severance Trust") amounts in
respect thereof and in respect of the Change in Control Agreement for Lee
Nutter;

         WHEREAS, the Company has incurred or expects to incur liability under
the terms of the Benefits Arrangements with respect to the executives and key
employees and participating in the Benefits Arrangements and identified at any
time on Tier I and Tier II under the Supplemental Severance Plan and on Schedule
1 hereto as amended and updated from time to time (herein each, an "Executive"
and together, the "Executives");

         WHEREAS, the Company wishes to establish a Legal Resources Trust
(hereinafter called this "Trust") and to contribute to it assets that shall be
held therein, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until paid to or for the benefit of
the Executives and their beneficiaries to pay certain litigation and similar
expenses as may be incurred in connection with the collection of any amounts due
to them under the Benefits Arrangements or the enforcement of any rights they
may have thereunder (as hereinafter defined, "Contest Payments"); and

         WHEREAS, it is the intention of the Company to make contributions to
this Trust to provide itself with a source of funds to provide Contest Payments
as herein provided.

                                      -1-

<PAGE>

         WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of each of
the Benefits Arrangements as an unfunded arrangement maintained for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974.

         NOW, THEREFORE, the parties do hereby establish this Trust and agree
that this Trust shall be comprised, held and disposed of as follows:

         Section 1.   Establishment of Trust.
                      ----------------------

         (a)   The Company hereby deposits with Trustee in trust the amounts
listed in Appendix B, which together with the additional amounts to be deposited
as provided below, shall become the principal of this Trust to be held,
administered and disposed of by Trustee as provided in this Agreement.

         (b)   The Trust hereby established shall be irrevocable.

         (c)   This Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be construed accordingly.

         (d)   The principal of this Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and, subject to Section
8 below, shall be used exclusively for the uses and purposes of the Executives
and general creditors, as herein set forth. The Executives and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of this Trust. Any rights created under the Benefits
Arrangements and this Agreement shall be mere unsecured contractual rights of
the Executives and their beneficiaries against the Company. Any assets held by
this Trust will be subject to the claims of the Company's general creditors
under federal and state law in the event of Insolvency, as defined in Section 5
below.

                                      -2-

<PAGE>

         (e)   Without limiting the mandatory contribution provision of Section
2, the Company, in its sole discretion, may at any time, or from time to time,
make additional deposits of cash or other property in trust with Trustee to
augment the principal to be held, administered and disposed of by Trustee as
provided in this Agreement. Neither Trustee nor any Executive or beneficiary
shall have any right to compel such additional deposits.

         (f)   Of the amounts deposited with Trustee, upon a Change in Control
an amount equal to $375,000 shall be set aside as a reserve, $250,000 shall be
released upon receipt of the written notice provided for in Section 4(c) or
applied as provided therein following a Change in Control, and $125,000 of which
shall be set aside as a reserve for expenses of Trustee under Sections 10(d) and
11(a) incurred following a Change in Control.

         Section 2.  Additional Contributions/Addition or Removal of Executives.
                     ----------------------------------------------------------

         (a)   Upon any addition of the name of any executive or key employee to
the Tier I or Tier II list under the Supplemental Severance Plan, the Company
shall not later than the dates provided for on Appendix B hereto, make a deposit
in trust with the Trustee an amount equal to $250,000 for each Executive, and a
like amount of $250,000 in respect of each new Executive added to Schedule 1
hereto from time to time, as soon as practicable after the identification of
such Executive but in no event later than fifteen (15) days thereafter; provided
that, if a Change in Control has not occurred, the Company may offset its
obligations by the amount, if any, previously contributed in respect of an
Executive who has died or retired and whose beneficiaries have been fully paid
all amounts to which they may become entitled under any of the Benefits
Arrangements. For all purposes of this Agreement, "Change in Control" has the
meaning specified in the Retirement Plan for Salaried Employees of Rayonier,
Inc. as amended effective July 18, 1997, and as the same may be thereafter
amended from time to time prior to the occurrence of a Change in Control. The
amounts set aside with the Trustee shall be a pool of funds to be applied as
provided for herein and shall not constitute a separate entitlement of an
Executive to any particular amount hereunder.

                                      -3-

<PAGE>

         (b)   At any time prior to a Change in Control, the Company may remove
individuals or include additional individuals as Executives hereunder upon
written notice to Trustee together with an amended Schedule 1 incorporating, in
the case of an additional Executive, the required information in respect of such
additional Executive; provided that, removal of the name of an Executive from
the Supplemental Severance Plan shall not alone operate to remove the individual
as a participant hereunder. Subject to the provisions of Section 13(c) below,
the Company has agreed that from and after a Change in Control it shall not be
entitled to remove the name of any Executive covered hereunder prior to the time
that all amounts due in respect of such Executive under the applicable Benefits
Arrangement shall have been fully paid to such Executive or his or her
beneficiaries.

         Section 3.   Covered Payments.
                      ----------------

         (a)   On the effective date hereof, no less frequently than annually
thereafter, at the time of any additional contribution hereunder, and at the
time of a Change in Control, the Company shall deliver to Trustee a payment
schedule (the "Payment Schedule") that indicates the amounts payable in respect
of each Executive (and his or her beneficiaries), that provides a formula or
other instructions acceptable to Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Benefits Arrangements), and the time of commencement for payment of such
amounts.

         (b)   Prior to a Change in Control (and following a Change in Control,
absent obvious mistake), the entitlement of an Executive or his or her
beneficiaries to benefits under the Benefits Arrangements shall be determined by
the Company or such party as it shall designate under the Benefits Arrangements,
and, in any event, any claim for benefits shall be considered and reviewed under
the procedures set out in the Benefits Arrangements.

         (c)   The Company shall make payment of benefits directly to an
Executive as they become due under the terms of the Benefits Arrangements. The
Company shall notify Trustee of its payment of benefits at the time amounts are
payable to participants or their beneficiaries. Upon any such payment, the
Company shall provide Trustee with a new Payment Schedule reflecting the
payments made by the Company.

                                      -4-

<PAGE>

         (d)   Nothing in this Agreement shall serve to relieve the obligations
of the Company to make payments under the Benefits Arrangements in respect of an
Executive prior to the time that any payment has been made to an Executive or
his or her beneficiary. The Company shall make each such payment as it falls
due.

         Section 4.   Payment of Legal and Related Expenses.
                      -------------------------------------

         (a)   Company's Obligation to Pay Legal and Related Expenses. The
Company agrees to pay, to the full extent permitted by law, all legal fees and
expenses that the Executive or his or her beneficiaries may reasonably incur in
pursuing in good faith payment of any amount due to the Executive or such
beneficiaries under any Benefit Arrangement, or as a result of any contest by
the Company or others of the validity or enforceability of, or liability under,
any provision of any Benefits Arrangement or any guarantee of performance
thereof (collectively, "Contest Payments"), plus in each case such interest as
may be provided for under the applicable Benefits Arrangement but not less than
the highest applicable Federal long-term rate in effect as of the date of the
Change in Control determined as provided for in Sections 7872(f)(2)(B) and
1274(d)(1)(A) of the Internal Revenue Code of 1986, as amended, without regard
to whether or not the Executive or such beneficiaries prevail, in full or in
part, in any such matter and without regard to the duration of the delay in time
of payment.

         (b)   Trustee's Disbursement of Contest Payments. Provided that this
Agreement has not been earlier terminated pursuant to Section 11 hereo, the
pursuant to the Claims Procedure specified on Schedule 3 hereto, as amended from
time to time as hereinafter provided (the "Claims Procedure"), Trustee shall
advance Contest Payments on behalf of any individual up to the amount
contributed on behalf of the Executive in respect of whom the benefits under a
Benefit Arrangement are sought, up to the amount of such contribution or, if
less, up to the balance remaining in trust exclusive of reserves; provided that,
if Contest Payments are sought on behalf of three or more Executives arising
from substantially the same circumstances, the Trustee shall aggregate the
Contest Payments for the benefit of all participants hereunder. The timing and
manner of payment of Contest Payments shall be made in the sole and reasonable
discretion of the Trustee in accordance with the Claims

                                      -5-

<PAGE>

Procedure. The Claims Procedures may be modified by the Company, with the
reasonable agreement of Trustee prior to a Change in Control, and may be
reasonably amended by the Trustee thereafter; provided that, no such Claims
Procedure shall be inconsistent with making the full resources in Trust
available to expedite payment of benefits to the Executives and their
beneficiaries under the Benefits Arrangements and to avoid Executives being
required to advance any amounts whatsoever for the payment of legal fees in
connection therewith. A written copy of the Claims Procedure, as it may be
amended from time to time, shall be provided to each Executive.

         (c)   Trustee's Written Notification Requirements. If within 15 days of
a Change in Control the Trustee has not received written notice from the trustee
under the Executive Severance Trust of the receipt by such trustee of the
amounts required to be deposited with such trustee upon a Change in Control in
respect of each Executive (other than an Executive who shall have received not
less than the full Cash Portion to which such Executive is entitled under the
Severance Arrangements, as such term is defined in the Executive Severance
Trust), together with a copy of the current payment schedule provided for under
the Executive Severance Trust, there shall be presumed to be a claim under the
Claims Procedure and the Trustee shall transfer an amount of not less than
$250,000 as a retainer to the law firm designated pursuant to the Claims
Procedure within five business days thereafter.

         Section 5.   Trustee Responsibility Regarding Payments to Trust
                      --------------------------------------------------
                      Beneficiary When The Company Is Insolvent.
                      -----------------------------------------

         (a)   Trustee shall cease payments hereunder if the Company is
Insolvent. The Company shall be considered "Insolvent" for purposes of this
Agreement if (i) the Company is unable to pay its debts as they become due, or
(ii) the Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.

         (b)   At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of this Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.

                                      -6-

<PAGE>

         (1)   The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to Trustee that the Company has become Insolvent, Trustee shall
determine whether the Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to Executives or their
beneficiaries.

         (2)   Unless Trustee has actual knowledge of the Company's Insolvency,
or has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, Trustee shall have no duty to inquire
whether the Company is Insolvent. Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning the Company's solvency.

         (3)   If at any time Trustee has determined that the Company is
Insolvent, Trustee shall discontinue payments hereunder and shall hold the
assets of this Trust for the benefit of the Company's general creditors. Nothing
in this Agreement shall in any way diminish any rights of Executives or their
beneficiaries to pursue their rights as general creditors of the Company with
respect to benefits due under the Benefits Arrangements or otherwise.

         (4)   Trustee shall resume the payments in accordance with Section 4 of
this Agreement only after Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).

     (c) Provided that there are sufficient assets, if Trustee discontinues the
payment from this Trust pursuant to Section 5 hereof and subsequently resumes
such payments, the first payment following such discontinuance shall include the
aggregate amount of all payments due under the terms hereof for the period of
such discontinuance, less the aggregate amount, if any, paid directly to
Executives or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.

     Section 6.   Payments to the Company.
                  -----------------------

                                       -7-

<PAGE>

     Except as provided in Section 5 hereof, after a Change in Control, the
Company shall have no right or power to direct Trustee to return to the Company
or to divert to others any of this Trust assets before all payment of benefits
have been made to Executives and their beneficiaries pursuant to the terms of
the Benefits Arrangements.

     Section 7.   Investment Authority.
                  --------------------

     (a)  In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of this Trust shall be exercised by Trustee or the
person designated by Trustee and shall in no event be exercisable by or rest
with the Executives.

     (b)  The Trustee shall invest the principal of this Trust and any earnings
thereon in such short term readily marketable investments designed to preserve
capital as chosen by the Trustee in the prudent exercise of its fiduciary duty
hereunder and in such a manner as directed by the Pension Fund Trust and
Investment Committee, and prior to a Change in Control.

     (c)  The Company shall have the right, at anytime, and from time to time in
its sole discretion, to substitute marketable securities of equal fair market
value for any asset held by this Trust; provided that, following a Change in
Control, such substitution of assets shall be subject to the acceptance of
Trustee.

     Section 8.   Disposition of Income.
                  ---------------------

     During the term of this Trust prior to a Change in Control, all
Distributable Income received by this Trust, net of expenses and taxes, shall be
distributed to the Company no less frequently than semi-annually, unless
otherwise directed by the Company, and from and after a Change in Control shall
be accumulated and reinvested. "Distributable Income" shall mean gain or income
actually realized on the amounts held in Trust but only to the extent that the

                                      -8-

<PAGE>

aggegregate fair market value of the assets held in Trust following the
distribution of such amounts and payment of all expenses of this Trust paid or
accrued as of the distribution date not otherwise satisfied by the Company,
would equal or exceed the principal amounts deposited by the Company with
Trustee under Section 2(a).

     Section 9.   Accounting by Trustee.
                  ---------------------

     Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and Trustee. Within 30 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to the Company a written account of its administration of this Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in this Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.

     Section 10.  Responsibility of Trustee.
                  -------------------------

     (a)  Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by the Company which is contemplated by, and in conformity
with, the terms of the Benefits Arrangements or this Trust and is given in

                                      -9-

<PAGE>

writing by the Company. In the event of a dispute between the Company and a
party, Trustee may apply to a court of competent jurisdiction to resolve the
dispute.

     (b)   The Company hereby indemnifies Trustee against losses, liabilities,
claims, costs and expenses in connection with the administration of this Trust,
unless resulting from the gross negligence or willful misconduct of Trustee. To
the extent the Company fails to make any payment on account of an indemnity
provided in this Section 10(b), in a reasonably timely manner, Trustee may
obtain payment from this Trust. If Trustee undertakes or defends any litigation
arising in connection with this Trust or to protect an Executive's or a
beneficiary's rights under the Benefits Arrangements, the Company agrees to
advance to Trustee, and to indemnify Trustee against Trustee's costs, reasonable
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If the
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from this Trust.

     (c)   Trustee may consult with legal counsel (who may also be counsel for
the Company generally) with respect to any of its duties or obligations
hereunder. Following a Change in Control, Trustee may select independent legal
counsel (which can include its in-house counsel) and may consult with counsel or
other experts with respect to its duties and with respect to the rights of
Executives and their beneficiaries under the Benefits Arrangements.

     (d)   Trustee may hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder and in good faith may rely on any
determinations made by such agents and information provided to it by the
Company.

     (e)   Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein.

     (f)   Notwithstanding any powers granted to Trustee pursuant to this
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section

                                      -10-

<PAGE>

301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant
to the Code.

     Section 11. Compensation and Expenses of Trustee Resignation and Removal of
                 ---------------------------------------------------------------
Trustee.
- -------

     (a)  The Company shall timely pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from this Trust.

     (b)  Prior to a Change in Control, Trustee may resign at any time by
written notice to the Company, which shall be effective sixty (60) days after
receipt of such notice unless the Company and Trustee agree otherwise. Following
a Change in Control, Trustee may resign only after the appointment of a
successor Trustee reasonably acceptable to a majority of the Executives
hereunder. If Trustee resigns within two years after a Change in Control or if
the Company fails to act within a reasonable period of time following such
resignation, Trustee shall apply, at the expense of the Company, to a court of
competent jurisdiction for the appointment of a successor Trustee or for
instructions.

     (c)  Trustee may be removed by the Company on sixty (60) days notice or
upon shorter notice accepted by Trustee prior to a Change in Control. Following
a Change in Control, Trustee may only be removed by the Company with the consent
of a majority of the Executives hereunder and upon appointment of a qualified
successor Trustee hereunder reasonably acceptable to the majority of the
Executives hereunder.

     (d)  Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed with sixty (60) days after receipt of acceptance
of an appointment as trustee by a successor trustee, unless the Company extends
the time limit.

     (e)  If Trustee resigns or is removed, a successor shall be appointed by

the Company, in accordance with Section 12 hereof, by the effective date of
                                ----------
resignation or removal under this Section 11. If no such appointment has been
made, Trustee may apply to a court of competent jurisdiction for appointment of
a successor or for instructions. All

                                      -11-

<PAGE>

expenses of Trustee in connection with the proceeding shall be allowed as
administrative expenses of this Trust.

     (f)  Any Trustee of any trust created hereunder shall be an institution
having total assets under management of at least five hundred million dollars
($500,000,000) at the time of appointment and at all times thereafter (the
"Minimum Assets Requirement"). Should Trustee cease to have total assets of at
least five hundred million dollars ($500,000,000) under management or cease to
be so selected, Trustee shall be removed and a successor Trustee appointed in
accordance with the provisions of Sections 10 and 11 hereof.

     Section 12.   Appointment of Successor.
                   ------------------------

     (a)  If Trustee resigns or is removed in accordance with Section 11 hereof,
the Company may appoint any bank trust department or other party that may be
granted corporate trustee powers under state law who meets the Minimum Assets
Requirement, as a successor to replace Trustee upon resignation or removal (a
"Qualified Trustee"); provided that, following a Change in Control, if Trustee
resigns or is removed in accordance with Section 11 the successeor trustee shall
be reasonably acceptable to a majority of the Executives hereunder at the time.
In any such event, the appointment shall be effective when accepted in writing
by the new Trustee, who shall have all of the rights and powers of the former
Trustee, including ownership rights in this Trust . The former Trustee shall
execute any instrument necessary or reasonably requested by the Company or the
successor Trustee to evidence the transfer.

     (b)  The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 9 and 10 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.

                                      -12-

<PAGE>

     (c)  The Company shall provide the name of the successor Trustee to each
Executive, or if applicable, his or her beneficiaries receiving benefits at the
time of the appointment of Trustee.

     (d)  The Company shall execute such indemnification or other agreement with
Trustee as may be reasonably requested and customary for trustees performing
services of this kind.

     Section 13.   Amendment or Termination.
                   ------------------------

     (a)  This Agreement may be amended by a written instrument executed by
Trustee and the Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Benefits Arrangements or shall make this Trust
revocable after it has become irrevocable in acordance with Section 1 hereof.

     (b)  Except as provided in Section 13(c), this Trust shall not terminate
until the date on which each Executive and their beneficiaries are no longer
entitled to benefits pursuant to the terms of the Benefits Arrangements and all
fees and expenses of this Trust have been paid.

     (c)  Upon written approval of all Executives and beneficiaries entitled to
payment of benefits pursuant to the terms of the Benefits Arrangements, the
Company may terminate this Trust prior to the time all benefit payments under
the Benefits Arrangements have been made.

     (d)  This Agreement may not be amended or terminated by the Company for two
(2) years following a Change in Control without the written consent of a
majority of the Executives then covered by this Agreement except, if in the
opinion of Review Counsel (as such term is defined in Schedule 3 hereto), such
amendment is necessary to maintain the tax status of this Trust, the deferred
compensation status of the Benefits Arrangements, or status of this Trust under
the Employee Retirement Income Security Act of 1974 as amended to this Trust.

                                      -13-

<PAGE>

     (e)  Upon termination of this Trust any assets remaining in this Trust,
after payment of all expenses of this Trust, shall be returned to the Company.

     Section 14.   Miscellaneous.
                   -------------

     (a)  Any provision of this Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating the remaining
provisions hereof.

     (b)  Benefits payable to any Executive and his or her beneficiaries under
this Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.

     (c)  This Agreement shall be governed by and construed in accordance with
the laws of the State of [North Carolina], to the extent not preempted by
applicable federal law.

     Section 15.   Effective Date.
                   --------------

     The effective date of this Agreement shall be the date and year first above
written.

                                            RAYONIER INC.



                                            By:  _______________________________
                                                 John P. O'Grady
                                            Its: Senior Vice President
                                                 Administration




                                                 _______________________________
                                                                    , as Trustee

                                      -14-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>7
<FILENAME>dex1026.txt
<DESCRIPTION>TRUST AGREEMENT FOR RAYONIER
<TEXT>
<PAGE>

                                                                   Exhibit 10.26



                                 TRUST AGREEMENT

                                     FOR THE

                                  RAYONIER INC.

                          SUPPLEMENTAL SENIOR EXECUTIVE
                               SEVERANCE PAY PLAN

                                       AND

                       THE CHANGE IN CONTROL AGREEMENT FOR

                                  W. LEE NUTTER

                            EXECUTIVE SEVERANCE TRUST

<PAGE>

         This Agreement is made this ___ day of _______________, 2001, by and
between Rayonier Inc., a North Carolina corporation (the "Company"), and
Wachovia Bank, N.A., a national banking association, as trustee hereunder
("Trustee").


         WHEREAS, the Company adopted the Rayonier Inc. Supplemental Senior
Executive Severance Pay Plan effective March 1, 1994 (the "Supplemental
Severance Plan"), and on or about August 16, 2001, entered into the Change in
Control Agreement for W. Lee Nutter (the "Change in Control Agreement")
(Supplemental Severance Plan and Change in Control Agreement are each sometimes
referred to herein as a "Severance Arrangement" and, together, as the "Severance
Arrangements");

         WHEREAS, the Company has incurred or expects to incur liability under
the terms of the Supplemental Severance Plan with respect to the Tier I and Tier
II executives participating in the Supplemental Severance Plan as identified on
Schedule 1 thereto from time to time (a current copy of which is attached
hereto), and also under the terms of the Change in Control Agreement with
respect to W. Lee Nutter (herein each, an "Executive" and together, the
"Executives");

         WHEREAS, the Company wishes to establish a Executive Severance Trust
(hereinafter called this "Trust") and to contribute to it assets that shall be
held therein, subject to the claims of the Company's creditors in the event of
the Company's Insolvency, as herein defined, until paid to or for the benefit of
the Executives and their beneficiaries to pay any amounts due to them under the
Severance Arrangements (as hereinafter defined, "Severance Payments");

         WHEREAS, it is the intention of the Company to make contributions to
this Trust to provide itself with a source of funds to provide Severance
Payments as herein provided; and

                                       1

<PAGE>

         WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of each of
the Severance Arrangements as an unfunded arrangement maintained for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974.

         NOW, THEREFORE, the parties do hereby establish this Trust and agree
that this Trust shall be comprised, held and disposed of as follows:

         Section 1.   Establishment of Trust.
                      ----------------------

         (a)   The Company hereby deposits with Trustee in trust the amount of
one million dollars ($1,000,000), which together with the additional amounts to
be deposited as provided below, shall become the principal of this Trust to be
held, administered and disposed of by Trustee as provided in this Agreement.
Terms not otherwise defined herein shall have the meaning set forth in the
Supplemental Severance Plan and, in the case of W. Lee Nutter, the Change in
Control Agreement.

         (b)   The Trust hereby established shall be irrevocable.

         (c)   This Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended (the
"Code"), and shall be construed accordingly.

         (d)   The principal of this Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and, subject to Section
8 below, shall be used exclusively for the uses and purposes of the Executives
and general creditors, as herein set forth. The Executives and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of this Trust. Any rights created under the Supplemental
Severance Plan, Change in Control Agreement and

                                       2

<PAGE>

this Agreement shall be mere unsecured contractual rights of the Executives and
their beneficiaries against the Company. Any assets held by this Trust will be
subject to the claims of the Company's general creditors under federal and state
law in the event of Insolvency, as defined in Section 5 below.

         (e)   Without limiting the mandatory contribution provision of Section
3, the Company, in its sole discretion, may at any time, or from time to time,
make additional deposits of cash or other property in trust with Trustee to
augment the principal to be held, administered and disposed of by Trustee as
provided in this Agreement. Neither Trustee nor any Executive or beneficiary
shall have any right to compel such additional deposits.

         Section 2.   Addition or Removal of Executives.
                      ---------------------------------

         (a)   At any time prior to a Change in Control, the Company may remove
individuals, other than W. Lee Nutter, or include additional individuals as
Executives hereunder upon written notice to Trustee together with an amended
copy of Schedule 1 to the Supplemental Severance Plan; provided that, removal of
the name of an Executive from the Supplemental Severance Plan shall not alone
operate to remove the individual as a participant hereunder. Subject to the
provisions of Section 13(c) below, the Company has agreed that from and after a
Change in Control it shall not be entitled to remove the name of any Executive
covered hereunder prior to the time that all amounts due in respect of such
Executive under the applicable Severance Arrangement shall have been fully paid
to such Executive or his or her beneficiaries.

         Section 3.   Covered Payments/Additional Contributions.
                      -----------------------------------------

         (a)   On the effective date hereof, and no less frequently than
annually on or before January 15 of each year thereafter, and at the time of any
additional contribution hereunder, the Company shall deliver to Trustee a
payment schedule (the "Payment Schedule") that indicates the "Cash Portion"
payable in respect of each Executive (and his or her beneficiaries) under the
applicable Severance Arrangement and that provides a

                                       3

<PAGE>

formula or other instructions acceptable to Trustee for determining the
amounts so payable, the form in which such amount is to be paid (as provided for
or available under the applicable Severance Arrangement), and the time of
commencement for payment of such amounts. Upon the effective date hereof, and as
necessary or appropriate thereafter, the Company shall deliver to the Trustee a
full and complete copy of the Severance Arrangements as they may be in effect
from time to time for each Executive.

         (b)   Not later than the effective time of a Change in Control pursuant
to the terms of the applicable Severance Arrangement, the Company shall make
additional deposits with the Trustee under this Trust in immediately available
funds, in an amount equal to the full maximum amount of the Cash Portion to
which each Executive may become entitled in the event of a termination of
employment under the applicable Severance Arrangement, together with all the
additional payments in respect of tax gross up provided for under the applicable
Severance Arrangement, computed on the assumption that all amounts when payable
thereunder are parachute payments under Sections 280G and 4999 of the Code. For
this purpose, the maximum amount of the Cash Portion shall be computed on the
assumption that the bonus payments for the current year will become payable at
the 100% rate and that a like amount is earned as a bonus in each subsequent
year, as applicable under the particular Severance Arrangement.

         (c)   Prior to a Change in Control (and following a Change in Control,
absent obvious mistake), the entitlement of an Executive or his or her
beneficiaries to benefits under the applicable Severance Arrangement shall be
determined by the Company or such party as it shall designate under the
applicable Severance Arrangement, and, in any event, any claim for benefits
shall be considered and reviewed under the procedures set out in the applicable
Severance Arrangement.

         (d)   The Company may make payment of benefits directly to an Executive
as they become due under the terms of the Severance Arrangements. The Company
shall notify Trustee of its payment of benefits at the time amounts are payable
to participants

                                       4

<PAGE>

or their beneficiaries. Upon any such payment, the Company shall provide Trustee
with a new Payment Schedule reflecting the payments made by the Company.

         (e)   Nothing in this Agreement shall serve to relieve the obligations
of the Company to make payments under the Severance Arrangements in respect of
an Executive prior to the time that any payment has been made to an Executive or
his or her beneficiary. If the principal of this Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Severance Arrangements, the company shall make the balance of each
such payment as it falls due. Trustee shall notify the Company where principal
and earnings are not sufficient.

         (f)   Immediately upon receipt of deposits hereunder, the Trustee shall
send written notice thereof to the trustee under the Rayonier Inc. Legal
Resources Trust of such deposit, together with a copy of the then current
Payment Schedule in respect of each Executive. The Trustee shall advise the
trustee of the Rayonier Inc. Legal Resources Trust as amounts are paid under
this Trust and as notice is received from the Company of payments made to
Executives covered by this Trust of amounts that could otherwise be payable from
this Trust.

         Section 4. Payment of Severance Payments to Executives.
                    -------------------------------------------

         Pursuant to the terms of the payment schedules delivered to the Trustee
in respect of the Supplemental Severance Plan and the Change in Control
Agreement, the Trustee shall direct payment of any Cash Portion due to an
Executive or his or her beneficiaries from the assets held in this Trust. Such
payments shall be reduced by any payments made directly to an Executive by the
Company as provided in Section 3 (c) hereof. The termination of the employment
of an Executive following the effective time of a change in control and, in the
case of any Executive other than W. Lee Nutter, within two years thereafter
shall be deemed conclusive evidence of entitlement of such Executive to the Cash
Portion of the Severance Payment.

                                       5

<PAGE>

         Section 5.   Trustee Responsibility Regarding Payments to Trust
                      --------------------------------------------------
                      Beneficiary When The Company Is Insolvent.
                      -----------------------------------------

         (a)   Trustee shall cease payments hereunder if the Company is
Insolvent. The Company shall be considered "Insolvent" for purposes of this
Agreement if (i) the Company is unable to pay its debts as they become due, or
(ii) the Company is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.

         (b)   At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of this Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.

               (1)  The Board of Directors and the Chief Executive Officer of
the Company shall have the duty to inform Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to Trustee that the Company has become Insolvent, Trustee shall
determine whether the Company is Insolvent and, pending such determination,
Trustee shall discontinue Severance Payments to Executives or their
beneficiaries.

               (2)  Unless Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, Trustee shall have no duty to
inquire whether the Company is Insolvent. Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning the Company's solvency.

               (3)  If at any time Trustee has determined that the Company is
Insolvent, Trustee shall discontinue payments hereunder and shall hold the
assets of this Trust for the benefit of the Company's general creditors. Nothing
in this Agreement shall in any way diminish any rights of Executives or their
beneficiaries to pursue their rights

                                       6

<PAGE>

as general creditors of the Company with respect to severance payments due under
the Severance Arrangements or otherwise.

               (4)  Trustee shall resume the payments in accordance with
Section 3 of this Agreement only after Trustee has determined that the Company
is not Insolvent (or is no longer Insolvent).

         (c)   Provided that there are sufficient assets, if Trustee
discontinues the payment from this Trust pursuant to this Section 5 and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due under the
terms hereof for the period of such discontinuance, less the aggregate amount,
if any, paid directly to Executives or their beneficiaries by the Company in
lieu of the payments provided for hereunder during any such period of
discontinuance.

         Section 6.   Payments to the Company.
                      -----------------------

         Except as provided in Section 5 hereof, after a Change in Control, the
Company shall have no right or power to direct Trustee to return to the Company
or to divert to others any of this Trust assets before all payment of benefits
have been made to Executives and their beneficiaries pursuant to the terms of
the Severance Arrangements.

         Notwithstanding the preceding sentence, in the event of a deposit by
the Company with the Trustee under Section 3 as a result of a Change-in-Control
based upon a change in the ownership of voting securities of the Company, where
a Change-in-Control as a result of a change in the composition of the Board of
Directors has not occurred within two years thereafter (or such longer time
period during which Severance Payments could become payable under the Severance
Arrangements following a Change-in-Control), the Trustee shall return to the
Company any amounts deposited with the Trustee in respect of the
Change-in-Control; provided that, no one shall have become entitled to any
Severance Payment under Section 4 during such time period. Upon any such return
of funds to the Company, the Company shall again be obligated to deposit funds
under Section 3 upon the occurrence of a subsequent Change-in-Control.

                                       7

<PAGE>

         Section 7.   Investment Authority.
                      --------------------

         (a)   In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests. All
rights associated with assets of this Trust shall be exercised by Trustee or the
person designated by Trustee and shall in no event be exercisable by or rest
with the Executives.

         (b)   The Trustee shall invest the principal of this Trust and any
earnings thereon in such short-term investments designed to preserve capital as
chosen by the Trustee in the prudent exercise of its fiduciary duty hereunder;
provided that, with respect to any deposits made prior to a Change in Control,
the Trustee shall invest the Trust principal and earnings in such a manner as
directed by the Pension Fund Trust and Investment Committee.

         (c)   The Company shall have the right, at anytime, and from time to
time in its sole discretion, to substitute marketable securities of equal fair
market value for any asset held by this Trust; provided that, following a Change
in Control, such substitution of assets shall be subject to the acceptance of
Trustee.

         Section 8.   Disposition of Income.
                      ---------------------

         During the term of this Trust prior to a Change in Control, all
Distributable Income received by this Trust, net of expenses and taxes, shall be
distributed to the Company no less frequently than semi-annually, unless
otherwise directed by the Company, and from and after a Change in Control shall
be accumulated and reinvested. "Distributable Income" shall mean gain or income
actually realized on the amounts held in Trust but only to the extent that the
aggegregate fair market value of the assets held in Trust following the
distribution of such amounts and payment of all expenses of this Trust paid or
accrued as of the distribution date not otherwise satisfied by the Company,
would equal or exceed the principal amounts deposited by the Company with
Trustee under Section 1(a).

                                       8

<PAGE>

         Section 9.   Accounting by Trustee.
                      ---------------------

         Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and Trustee. Within 30 days following the close of each calendar year
and within 30 days after the removal or resignation of Trustee, Trustee shall
deliver to the Company a written account of its administration of this Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in this Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.

         Section 10. Responsibility of Trustee.
                     -------------------------

         (a)   Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Severance Arrangements or this Trust
and is given in writing by the Company. In the event of a dispute between the
Company and a party, Trustee may apply to a court of competent jurisdiction to
resolve the dispute.

         (b)   The Company hereby indemnifies Trustee against losses,
liabilities, claims, costs and expenses in connection with the administration of
this Trust, unless resulting from the gross negligence or willful misconduct of
Trustee. To the extent the Company fails to make any payment on account of an
indemnity provided in this Section 10(b), in a reasonably timely manner, Trustee
may obtain payment from this Trust. If Trustee undertakes or defends any
litigation arising in connection with this Trust or to

                                       9

<PAGE>

protect an Executive's or beneficiary's rights under the Severance Arrangements,
the Company agrees to advance to Trustee, and to indemnify Trustee against
Trustee's costs, reasonable expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be primarily
liable for such payments. If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustee may obtain payment from this
Trust.

         (c)   Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder. Following a Change in Control, Trustee may select independent legal
counsel (which can include its in-house counsel) and may consult with counsel or
other experts with respect to its duties and with respect to the rights of
Executives and their beneficiaries under the Severance Arrangements.

         (d)   Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder and in good faith may rely
on any determinations made by such agents and information provided to it by the
Company.

         (e)   Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein.

         (f)   Notwithstanding any powers granted to Trustee pursuant to this
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.

         Section 11.  Compensation and Expenses of Trustee and Resignation and
                      --------------------------------------------------------
                      Removal of Trustee.
                      ------------------

                                       10

<PAGE>

     (a) The Company shall timely pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from this Trust.

     (b) Prior to a Change in Control, Trustee may resign at any time by written
notice to the Company, which shall be effective sixty (60) days after receipt of
such notice unless the Company and Trustee agree otherwise. Following a Change
in Control, Trustee may resign only after the appointment of a successor Trustee
reasonably acceptable to a majority of the Executives hereunder. If Trustee
resigns within two years after a Change in Control or if the Company fails to
act within a reasonable period of time following such resignation, Trustee shall
apply, at the expense of the Company, to a court of competent jurisdiction for
the appointment of a successor Trustee or for instructions.

     (c) Trustee may be removed by the Company on sixty (60) days notice or upon
shorter notice accepted by Trustee prior to a Change in Control. Following a
Change in Control, Trustee may only be removed by the Company with the consent
of a majority of the Executives hereunder and upon appointment of a qualified
successor Trustee hereunder reasonably acceptable to the majority of the
Executives hereunder.

     (d) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be completed with sixty (60) days after receipt of acceptance
of an appointment as trustee by a successor trustee, unless the Company extends
the time limit.

     (e) If Trustee resigns or is removed, a successor shall be appointed by the
Company, in accordance with Section 12 hereof, by the effective date of
                            ----------
resignation or removal under this Section 11. If no such appointment has been
made, Trustee may apply to a court of competent jurisdiction for appointment of
a successor or for instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of this Trust.

                                       11

<PAGE>

     (f) Any Trustee of any trust created hereunder shall be an institution
having total assets under management of at least five hundred million dollars
($500,000,000) at the time of appointment and at all times thereafter (the
"Minimum Assets Requirement"). Should Trustee cease to have total assets of at
least five hundred million dollars ($500,000,000) under management or cease to
be so selected, Trustee shall be removed and a successor Trustee appointed in
accordance with the provisions of Sections 10 and 11 hereof.

     Section 12. Appointment of Successor.
                 ------------------------

     (a) If Trustee resigns or is removed in accordance with Section 11 hereof,
the Company may appoint any bank trust department or other party that may be
granted corporate trustee powers under state law who meets the Minimum Assets
Requirement, as a successor to replace Trustee upon resignation or removal (a
"Qualified Trustee"); provided that, following a Change in Control, if Trustee
resigns or is removed in accordance with Section 11 the successeor trustee shall
be reasonably acceptable to a majority of the Executives hereunder at the time.
In any such event, the appointment shall be effective when accepted in writing
by the new Trustee, who shall have all of the rights and powers of the former
Trustee, including ownership rights in this Trust . The former Trustee shall
execute any instrument necessary or reasonably requested by the Company or the
successor Trustee to evidence the transfer.

     (b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 9 and 10 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.

     (c) The Company shall provide the name of the successor Trustee to each
Executive, or if applicable, his or her beneficiaries receiving benefits at the
time of the appointment of Trustee.

                                       12

<PAGE>

     (d) The Company shall execute such indemnification or other agreement with
Trustee as may be reasonably requested and customary for trustees performing
services of this kind.

     Section 13. Amendment or Termination.
                 ------------------------

     (a) This Agreement may be amended by a written instrument executed by
Trustee and the Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Severance Arrangements or shall make this Trust
revocable after it has become irrevocable in acordance with Section 1 hereof.

     (b) Except as provided in Section 13(c), this Trust shall not terminate
until the date on which each Executive and their beneficiaries are no longer
entitled to benefits pursuant to the terms of the Severance Arrangements and all
fees and expenses of this Trust have been paid.

     (c) Upon written approval of all Executives and beneficiaries entitled to
payment of benefits pursuant to the terms of the Severance Arrangements, the
Company may terminate this Trust prior to the time all benefit payments under
the Severance Arrangements have been made.

     (d) This Agreement may not be amended or terminated by the Company for two
(2) years following a Change in Control without the written consent of a
majority of the Executives then covered by this Agreement except, if in the
opinion of Review Counsel (as such term is defined in Schedule 3 hereto), such
amendment is necessary to maintain the tax status of this Trust, the deferred
compensation status of the Severance Arrangements, or status of this Trust under
the Employee Retirement Income Security Act of 1974 as amended to this Trust.

     (e) Upon termination of this Trust any assets remaining in this Trust,
after payment of all expenses of this Trust, shall be returned to the Company.

                                       13

<PAGE>

     Section 14. Miscellaneous.
                 -------------

     (a) Any provision of this Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating the remaining
provisions hereof.

     (b) Benefits payable to any Executive and his or her beneficiaries under
this Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.

     (c) This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, to the extent not preempted by
applicable federal law.

     Section 15. Effective Date.
                 --------------

     The effective date of this Agreement shall be the date and year first above
written.

                                       RAYONIER INC.




                                       By:  _____________________________
                                            John P. O'Grady
                                       Its: Senior Vice President
                                            Administration


                                            _____________________________

                                                             , as Trustee

                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>8
<FILENAME>dex12.txt
<DESCRIPTION>STATEMENT RE COMPUTATION
<TEXT>
<PAGE>

                                  EXHIBIT 12

                        RAYONIER INC. AND SUBSIDIARIES

                      RATIO OF EARNINGS TO FIXED CHARGES

                       (Unaudited, thousands of dollars)

<TABLE>
<CAPTION>
                                                                Year Ended December 31
                                                     --------------------------------------------
                                                       2001     2000     1999     1998     1997
                                                     -------- -------- -------- -------- --------
<S>                                                  <C>      <C>      <C>      <C>      <C>
Earnings:
Income from continuing operations................... $ 57,598 $ 78,187 $ 68,653 $ 63,635 $ 87,319
Add:
   Income tax.......................................   24,964   30,458   29,467   26,519   33,328
   Minority interest................................       --       --       --       --   25,520
   Amortization of capitalized interest.............    2,625    2,578    2,308    2,331    2,067
                                                     -------- -------- -------- -------- --------
                                                       85,187  111,223  100,428   92,485  148,234
                                                     -------- -------- -------- -------- --------
   Adjustments to earnings for fixed charges:
   Interest and other financial charges.............   69,083   85,753   42,193   34,712   25,868
   Interest attributable to rentals.................    1,633    1,362    1,367    1,750    1,974
                                                     -------- -------- -------- -------- --------
                                                       70,716   87,115   43,560   36,462   27,842
                                                     -------- -------- -------- -------- --------
Earnings as adjusted................................ $155,903 $198,338 $143,988 $128,947 $176,076
                                                     ======== ======== ======== ======== ========
Fixed charges:
   Fixed charges above.............................. $ 70,716 $ 87,115 $ 43,560 $ 36,462 $ 27,842
   Capitalized interest.............................       --       --      314      262    5,005
                                                     -------- -------- -------- -------- --------
Total fixed charges................................. $ 70,716 $ 87,115 $ 43,874 $ 36,724 $ 32,847
                                                     ======== ======== ======== ======== ========
Ratio of earnings as adjusted to total fixed charges     2.20     2.28     3.28     3.51     5.36
                                                     ======== ======== ======== ======== ========
Effective tax rate..................................   30%      28%      30%      29%      28%
                                                     ======== ======== ======== ======== ========
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-16
<SEQUENCE>9
<FILENAME>dex16.txt
<DESCRIPTION>LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
<TEXT>
<PAGE>

                                                                  EXHIBIT NO. 16

   Letter from Arthur Andersen LLP to the Securities and Exchange Commission


                         [Logo of Arthur Andersen LLP]


Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549


March 20, 2002


Dear Sir/Madam:

We have read Item 9 included in the Form 10-K dated March 20, 2002 of Rayonier
Inc. filed with the Securities and Exchange Commission and are in agreement
with the statements contained therein.

Very truly yours,

/s/ Arthur Andersen LLP

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>10
<FILENAME>dex21.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>

                                  Exhibit 21

                         Subsidiaries of Rayonier Inc.

                                                        State/Country of
                 Name of Subsidiary*                Incorporation/Organization
                 -------------------                --------------------------
                   EAM Corporation                          Delaware
            Forestal Rayonier Chile Ltd.                    Delaware
                     RAYAD, Inc.                            Delaware
                    Rayland, LLC                            Delaware
             Rayonier Australia PTY Ltd.                 South Australia
                Rayonier Canada Ltd.                 Yukon Territory, Canada
               Rayonier China Limited                       Delaware
          Rayonier de Mexico, S.A. de C.V.                   Mexico
               Rayonier Far East Ltd.                       Delaware
         Rayonier Foreign Sales Corporation            U.S. Virgin Islands
          Rayonier Forest Management, Inc.                  Delaware
          Rayonier Forest Resources Company                 Delaware
               The Rayonier Foundation                      New York
                 Rayonier HB Limited                       New Zealand
              Rayonier Industries Ltd.                      New York
  Rayonier International Financial Services Limited        New Zealand
            Rayonier New Zealand Limited                   New Zealand
              Rayonier MDF New Zealand                     New Zealand
        Rayonier New Zealand Services Company               Delaware
            Rayonier NZ Holdings Limited                   New Zealand
           Rayonier NZ Management Limited                  New Zealand
  Rayonier Products and Financial Services Company          Delaware
          Rayonier Pulp Distribution Corp.                  Delaware
             Rayonier Singapore Limited                     Delaware
        Rayonier Timberlands Management, Inc.               Delaware
             Rayonier Timberlands, L.P.                     Delaware
    Rayonier Timberlands Operating Company, L.P.            Delaware
             Rayonier Wood Products, LLC                    Delaware
              REMI Environmental, Inc.                      Delaware
               RLA Trading Corporation                      Delaware
           Southern Wood Piedmont Company                   Delaware
                     Taiga, Ltd.                            Delaware
- --------
*Each of these subsidiaries may conduct business under the name of "Rayonier."

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>11
<FILENAME>dex23.txt
<DESCRIPTION>CONSENTS OF EXPERTS AND COUNSEL
<TEXT>
<PAGE>

                                                                      EXHIBIT 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Registration Statement on Form S-3 (File No. 333-52857).




Arthur Andersen LLP

Jacksonville, Florida
March 15, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>12
<FILENAME>dex24.txt
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
<PAGE>



                                                                      EXHIBIT 24

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/24/02                                              /s/ Rand V. Araskog
                                                             -------------------
                                                             Rand V. Araskog

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/30/02                                              /s/ Ronald M. Gross
                                                             -------------------
                                                             Ronald M. Gross

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/19/02                                            /s/ Paul G. Kirk, Jr.
                                                           ---------------------
                                                           Paul G. Kirk, Jr.

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/22/02                                          /s/ Katherine D. Ortega
                                                         -----------------------
                                                         Katherine D. Ortega

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/18/02                                           /s/ Burnell R. Roberts
                                                          ----------------------
                                                          Burnell R. Roberts

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/17/02                                               /s/ Carl S. Sloane
                                                              ------------------
                                                              Carl S. Sloane

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  2/1/02                                               /s/ Ronald Townsend
                                                             -------------------
                                                             Ronald Townsend

<PAGE>

                                POWER OF ATTORNEY
                                -----------------

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.


Dated:  1/19/02                                              /s/ Gordon I. Ulmer
                                                             -------------------
                                                             Gordon I. Ulmer

<PAGE>

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Hans E. Vanden Noort, Jill Witter and W. Edwin Frazier,
III his or her true and lawful attorneys-in-fact, with full power in each to act
without the other and with full power of substitution and resubstitution, to
sign in the name of such person and in each of his or her offices and capacities
with Rayonier Inc. (the "Company"), the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, together with any amendments thereto,
and to file same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.

Dated:  January 23, 2002                                      /s/ W. Lee Nutter
                                                              -----------------
                                                                  W. Lee Nutter

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>13
<FILENAME>dex99.txt
<DESCRIPTION>LETTER RE ANDERSEN ASSURANCES
<TEXT>
<PAGE>
                                                                  Exhibit No. 99

Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549

March 20, 2002

Dear Sir/Madam:

In connection with our filing of Rayonier's Annual Report on Form 10-K for the
year ended December 31, 2001, Arthur Andersen LLP ("Andersen") has represented
to us, by letter dated March 15, 2002, that the audit was subject to Andersen's
quality control system for the U.S. accounting and auditing practice to provide
reasonable assurance that the engagement was conducted in compliance with
professional standards and that there was appropriate continuity of Andersen
personnel working on the audit, availability of national office consultation and
availability of personnel at foreign affiliates of Andersen to conduct the
relevant portions of the audit.



Very truly yours,


/s/HANS E. VANDEN NOORT
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 Hans E. Vanden Noort
  Vice President and
 Corporate Controller

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