AMENDED AND RESTATED CREDIT AGREEMENT


     This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
November 10, 1995 between The Pacific Lumber Company (the "Company") and Bank
of America National Trust and Savings Association (the "Bank").

     WHEREAS, the Company and the Bank entered into a Credit Agreement
dated as of June 23, 1993 (as amended as of the opening of business on the
date of this Agreement, the "Prior Credit Agreement");

     WHEREAS, the Bank and the Company wish to further amend the Credit
Agreement by providing, among other matters, for a $30,000,000 two year
non-revolving credit facility which will convert into a four year term
loan;

     WHEREAS, the Company is willing to grant the Bank additional
collateral to secure the obligations of the Company to the Bank under
certain of the credit facilities to be extended under this Agreement;

     NOW, THEREFORE, the Company and the Bank agree that the Prior Credit
Agreement is hereby amended and restated in its entirety as set forth in
this Agreement and the Company and the Bank agree as follows:


                                 ARTICLE I

                                DEFINITIONS

     1.0  (a)  Certain Defined Terms.  The following terms have the
following meanings:

          "Acceptable Inventory" means inventory (as defined in the UCC)
which:
               (a)  Is owned by the Company free and clear of all security
interests, liens, encumbrances, and rights of others, except the
security interest in favor of the Bank;
               (b)  Is located at permanent locations acceptable to the
Bank and is not covered by a negotiable document of title unless such
document has been delivered to the Bank;
               (c)  In the Bank's reasonable opinion, is not obsolete,
unsalable, damaged, or unfit for further processing;
               (d)  Is not placed by the Company on consignment;
               (e)  Consists of wood chips, lumber, and log inventory and
is of a type held for sale in the Company's ordinary course of
business; and
               (f)  Is otherwise acceptable to the Bank in the exercise of
its reasonable judgment.

     The value of Acceptable Inventory shall be the lesser of the Company's
cost (determined under GAAP) or the Bank's independent determination
of the resale value of such inventory in such quantities and on such
terms as the Bank may reasonably deem appropriate.

          "Acceptable Receivable" means an Account:
               (a)  Arising from the sale of Acceptable Inventory or power
produced by the Company's cogeneration plant in Scotia, California, by
the Company in its ordinary course of business; and if arising from the
sale of Acceptable Inventory, is in an amount equal to or less
than $500,000.  The Bank may, from time to time, exempt specific
Accounts from this $500,000 limit;
               (b)  Upon which the Company's right to receive payment is
absolute and not contingent upon the fulfillment of any condition
whatever;
               (c)  Against which is asserted no defense, counterclaim or
setoff, whether well-founded or otherwise;
               (d)  That is a true and correct statement of a bona fide
indebtedness incurred in the amount of the Account for merchandise
sold and accepted by the Receivable Debtor obligated upon such
Account;
               (e)  With respect to which an invoice has been sent;
               (f)  That is owned by the Company and not subject to any
right, claim, or interest of another other than the security interest
in favor of the Bank;
               (g)  That does not arise from a sale to an employee,
Affiliate, parent, or Subsidiary of the Company, or an entity which
has common officers or directors with the Company; except that up to
20% of the total balance of Acceptable Receivables may include
Accounts on which the Receivable Debtor is Britt Lumber Co., Inc.;
               (h)  That is not the obligation of a Receivable Debtor that
is the federal government or a political subdivision thereof unless
the Bank has agreed to the contrary in writing and the Company has
complied with the Federal Assignment of Claims Act of 1940 with
respect to such obligation;
               (i)  That is not the obligation of a Receivable Debtor that
is any state of the United States or any city, town, municipality or
division thereof; except for Accounts up to an aggregate outstanding
amount at any one time of $100,000 which arise in one of the following
ways:
                    (1)  The sale of power produced by the Company's
cogeneration plant in Scotia, California; or
                    (2)  The sale of lumber to cities and towns;
               (j)  That is not the obligation of a Receivable Debtor
located in a foreign country;
               (k)  That is not the obligation of a Receivable Debtor to
whom the Company is or may become liable for goods sold or services
rendered by the Receivable Debtor to the Company except to the extent
that it exceeds the amount of the Company's obligation to such
Receivable Debtor;
               (l)  That does not arise with respect to goods which are
delivered on a cash-on-delivery basis or placed on consignment,
guaranteed sale or other terms by reason of which the payment by the
Receivable Debtor may be conditional;
               (m)  That is not in default.  An Account shall be deemed in
default upon the occurrence of any of the following:
                    (1)  The Account is not paid within the 60 day period
starting on its invoice date.  This 60 day limitation shall not
apply to an Account which is not paid within such period because
payment is subject to the Company's "winter terms" previously
approved by the Bank;
                    (2)  Any Receivable Debtor obligated upon such Account
suspends business, makes a general assignment for the benefit of
creditors, or fails to pay its debts generally as they come due;
or
                    (3)  Any petition is filed by or against any Receivable
Debtor obligated upon such Account under any bankruptcy law or
any other law or laws for the relief of debtors;
               (n)  That does not arise from the sale or lease of goods
which remain in the Company's possession or under the Company's
control; and<PAGE>
               (o)  That is otherwise acceptable to Bank.

          "Account" means any right to the payment of money owned by the
Company and arising out of the sale of goods or the rendering of
services by the Company which is not evidenced by an instrument or
chattel paper.

          "Acquisition Cost" of Timberlands means the aggregate of cash,
checks or other cash equivalent financial instruments paid and to be
paid by the Company as the acquisition price of the Timberlands being
acquired, including sale, use or other transaction taxes paid or
payable by the Company and amounts required to be applied to repay
principal, interest and prepayment premiums and penalties on
Indebtedness secured by a Lien (other than that arising from a
Collateral Document) on such Timberlands.

          "Adjusted Consolidated Cash Flow Coverage Ratio" means for the
Company, as of any quarter end, the ratio of:
     (i)  the amount by which, for the four most recent fiscal quarters for
which financial information in respect thereof is available as of such
quarter end, EBITDA exceeds the sum of Capital Expenditures plus
Cash Taxes plus Dividends Paid; to
    (ii)  the aggregate Consolidated Interest Expense plus the Principal
Payments on Long-Term Debt for the four fiscal quarters ending as
of such quarter end;

     provided that if the Company or any of its Restricted Subsidiaries is
a party to any Swap Contracts which would have the effect of changing
the interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter
period or portion thereof; and provided further that if, during the
four fiscal quarters referred to in clause (i) of this definition, (x)
the Company or any of its Restricted Subsidiaries shall have engaged
in any Asset Sale, EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive), or increased by an amount
equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on
a pro forma basis as if such Asset Sale and any related retirement of
Indebtedness had occurred on the first day of such period or (y) the
Company or any of its Restricted Subsidiaries shall have acquired any
material assets out of the ordinary course of business, EBITDA shall
be calculated on a pro forma basis as if such asset acquisition and
any related financing had occurred on the first day of such period.

          "Adjusted Consolidated Net Income" means, for any period, the
aggregate of the Consolidated Net Income of the Company for such
period taken as a single accounting period, plus any expenses for
depletion of the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP, for such period without
giving effect to any such expenses for depletion attributable to (a)
any Unrestricted Subsidiary for such period, or (b) any Restricted
Subsidiary if the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted (as set
forth in clause (v) of the definition of Consolidated Net Income in
this Agreement) or (c) SPHC so long as any Timber Notes are
outstanding.

          "Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, by contract or otherwise.  Except with
respect to the Bank or any Affiliate (defined without regard to this
sentence) of the Bank, any director, executive officer or beneficial
owner of 10% or more of the equity of a Person shall for the purposes
of this Agreement, be deemed to control the other Person.  In no event
shall any of the following be deemed an Affiliate of the Company or of
any Subsidiary of the Company:  (i) the Bank; (ii) Harold C. Simmons;
(iii) Kronos, Inc.; (iv) NL Industries, Inc.; and (v) The Combined
Master Retirement Trust; and (vi) certain related entities of the
entities identified in clauses (ii) through (v) of this definition.  A
Subsidiary of the Company shall not be deemed an Affiliate of the
Company. 

          "Agreement" means this Credit Agreement.

          "Applicable Margin" means, from the date of this Agreement until
December 31, 1995, 1.25% for each Base Rate Loan and 2.25% for each
Offshore Rate Loan, and thereafter:


<TABLE>

<CAPTION>


                  For each quarter    For each quarter
                  following a         following a
                  quarter where the   quarter where the
                  Consolidated Cash   Consolidated Cash
                  Flow Coverage       Flow Coverage
                  Ratio for the       Ratio for the
                  quarter is equal    quarter is greater
                  to or less than     than 3.00 to 1.00:
                  3.00 to 1.00:

 <S>              <C>                 <C>

 Base Rate Loan          1.50%               1.25%


 Offshore Rate           2.50%               2.25%
 Loan


</TABLE>

          "Asset Sale" means any sale, transfer or other disposition
(including, without limitation, dispositions pursuant to any Taking,
merger, consolidation or sale and leaseback transactions), after March
23, 1993, by the Company or any of its Restricted Subsidiaries (other
than SPHC so long as there are any Timber Notes outstanding) to any
Person other than to the Company or any of its Restricted Subsidiaries
of (a) any Capital Stock or other ownership interest of any of the
Company's Restricted Subsidiaries (including sales, transfers or other
dispositions by such Restricted Subsidiary of its Capital Stock or
other ownership interest) or (b) any other assets (other than any
Capital Stock or ownership interests in any Unrestricted Subsidiary)
of the Company or any of its Restricted Subsidiaries, other than
sales, transfers or other dispositions of assets in the ordinary
course of business of the Company and its Restricted Subsidiaries,
taken as a whole; provided, however, that the term Asset Sale shall
not include (A) the sale, transfer or other disposition in any single
transaction or series of related transactions of any assets or Capital
Stock or other ownership interest by the Company or its Restricted
Subsidiaries if the gross proceeds thereof (exclusive of indemnities)
do not exceed $10,000,000 (such proceeds, to the extent non-cash, to
be determined in good faith by the Board of Directors of the Company)
in any 12-month period, (B) the creation, incurrence, assumption or
existence of any Lien to the extent not prohibited by Section 7.01,
(C) any of the transactions permitted by Section 7.02, and (D) an
exchange of assets, provided the assets received are to be used in the
lines of business of the Company or any of its Restricted Subsidiaries
on the date of this Agreement or reasonably related extensions of such
lines and only to the extent such exchange qualifies for non-recognition
treatment under the Code.

          "Assignee" has the meaning specified in subsection 9.08(a).
     
          "Attorney Costs" means and includes all fees and disbursements of
any law firm or other external counsel, the allocated cost of internal
legal services and all disbursements of internal counsel.

          "Bank" means Bank of America National Trust and Savings
Association.  Unless the context otherwise clearly requires,
(a) "Bank" includes Bank of America National Trust and Savings
Association in its capacity as Swap Provider, and (b) references to
Bank of America National Trust and Savings Association as a "Bank"
shall also include any of such institution's Affiliates that may at
any time of determination be Swap Providers.

          "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section 101, et seq.).

          "Base Rate" means, for any day, the higher of:  (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of
interest in effect for such day as publicly announced from time to
time by the Bank in San Francisco, California, as its "reference
rate."  (The "reference rate" is a rate set by the Bank based upon
various factors including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below
such announced rate.)  Any change in the reference rate announced by
the Bank shall take effect at the opening of business on the day
specified in the public announcement of such change.

          "Base Rate Loan" means a Loan that bears interest based on the
Base Rate.

          "Bear Stearns Investment Advisory Contract" means the investment
advisory contract between the Company and Bear, Stearns & Co., Inc.
dated as of October 5, 1993, as amended, supplemented, or otherwise
modified from time to time.

          "Bering Agreement" means the investment management agreement,
effective as of December 1, 1991, between Bering Holdings Inc., the
Company, and various Affiliates of the Company, as amended,
supplemented, or otherwise modified from time to time.

          "Borrowing Base" means:
               (a) the sum of:
                    (1)  80% of the balance due on Acceptable Receivables;
plus
                    (2)  60% of the value of Acceptable Inventory; plus
                    (3)  50% of the Acquisition Cost of Timberlands;
          minus
               (b) the sum of:
                    (1)  the aggregate principal amount of outstanding Term
Loans; plus
                    (2)  the aggregate of the Company's open payables for
contracted logging and hauling;
     in each case as of the time of computation.

          "Borrowing Base Certificate" means a certificate, in form and
detail acceptable to the Bank, from the Company and signed by a
Responsible Officer, setting forth the computations which form the
basis for the Borrowing Base contained in the certificate.

          "Borrowing Date" means any date on which a Loan is disbursed.

          "Britt Lumber Agreement" means the agreement dated as of March
23, 1993, among the Company and Britt Lumber Co., Inc. as amended,
supplemented, or otherwise modified from time to time.

          "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in San Francisco, California are
authorized or required by law to close and, if the applicable Business
Day relates to any Offshore Rate Loan, means such a day on which
dealings are carried on in the applicable offshore dollar interbank
market.

          "Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.

          "Capital Expenditures" means for the Company, as of any quarter
end, capital expenditures as reported in the consolidated statement of
cash flows shown in the Company's 10Q and 10K filings with the SEC
covering such quarter, excluding all non-cash and/or financed portions
of such capital expenditures and such capital expenditures made by
SPHC or any Unrestricted Subsidiary.

          "Capital Lease" has the meaning specified in the definition of
Capital Lease Obligations.

          "Capital Lease Obligations" means all monetary obligations of the
Company or any of its Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, is classified as a capital
lease ("Capital Lease").

          "Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock of such
Person, including any Preferred Stock of such Person but excluding any
Redeemable Stock of such Person.

          "Cash Equivalents" means at any time (i) any evidence of any
obligation issued or directly and fully guaranteed or insured by the
United States or any agency or instrumentality thereof (provided, that
the full faith and credit of the United States is pledged in support
thereof); (ii) demand or time deposits with, and certificates of
deposit or acceptances issued by, any bank or trust company organized
under the laws of the United States or any State thereof (including
the Bank) whose unsecured, unguaranteed long-term debt obligations are
rated "A" by Standard & Poor's Corporation ("S&P") and "A2" by Moody's
Investors Service, Inc. ("Moody's") or higher, or whose unsecured,
unguaranteed commercial paper obligations are rated "A-2" by S&P and
"P-2" by Moody's or higher; (iii) repurchase agreements entered into
with entities whose unsecured, unguaranteed long-term debt obligations
are rated "A" by S&P and "A2" by Moody's or higher, or whose
unsecured, unguaranteed commercial paper obligations are rated "A-2"
by S&P and "P-2" by Moody's or higher, pursuant to a written agreement
with respect to any obligation described in clauses (i), (ii) or (iv)
of this definition; (iv) commercial paper (including both
noninterest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not later than
180 days from the date of acquisition thereof) and having a rating of
"A-2" by S&P and "P-2" by Moody's or higher; (v) direct obligations of
any money market fund or other similar investment company all of whose
investments consist primarily of obligations described in the
foregoing clauses of this definition and that is rated "AAm" by S&P
and "Aam" by Moody's or higher; (vi) taxable auction rate securities
commonly known as "money market notes" that at the time of purchase
have been rated and the ratings for which (A) for direct issues, must
not be less than "P2" if rated by Moody's and not less than "A2" if
rated by S&P, or (B) for collateralized issues which follow the asset
coverage tests set forth in the Investment Company Act of 1940, as
amended, must have long-term ratings of at least "AAA" if rated by S&P
and "Aaa" if rated by Moody's; or (vii) any investments hereafter
developed which are substantially comparable to those described above.

          "Cash Taxes" means for the Company, as of any quarter end, the
amount actually paid in cash in such quarter by the Company (excluding
payments made by SPHC or any Unrestricted Subsidiary) to local, state,
or federal taxing authorities, or to MAXXAM, Inc. under the Tax
Sharing Agreement.

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

          "Change in Control" means the occurrence of any of the following
events:
               (a)  MAXXAM Inc. not being the sole beneficial owner,
directly or indirectly, of at least 51% of the total common equity of
the Company.  For purposes of this clause, a beneficial owner shall
have the meaning ascribed in Regulation 13d-3 of the Exchange Act as
in effect on the date of this Agreement.  The provisions of this
clause shall not apply if MAXXAM Inc. should not hold the requisite
beneficial ownership interest because of bankruptcy, reorganization,
insolvency, or similar proceeding; or
               (b)  MAXXAM Inc., through direct representation or through
persons nominated by it, not controlling a majority of the Board of
Directors of the Company necessary to effectuate any actions by the
Board of Directors of the Company; or
               (c)  Any person or group directly or indirectly owning more
than MAXXAM Inc. of the total voting power entitled to vote generally
in the election of directors of the Company.  For purposes of this
clause, person or group shall have the meaning ascribed in Section
13(d)(3) of the Exchange Act as in effect on the date of this
Agreement; or
               (d)  Charles Hurwitz, members of his immediate family and
trusts for the benefit thereof (each such person, including Mr.
Hurwitz and any trustee of such trusts, a "Beneficiary") not having
(other than by reason of resolution of any litigation outstanding as
of the date of this Agreement or any similar litigation or the
existence of a Lien but including by reason of the foreclosure of or
other realization upon a Lien) direct or indirect sole beneficial
ownership (as defined under Regulation 13d-3 of the Exchange Act as in
effect on the date of this Agreement) of at least the Minimum
Percentage of the total equity of MAXXAM Inc. other than as a result
of new issuances of equity securities by MAXXAM Inc. to third parties
(other than to a third party who is not a Beneficiary and who controls
MAXXAM, Inc.).  For purposes of this definition, "Minimum Percentage"
means the product of (x) the percentage of the total equity of MAXXAM
Inc. directly or indirectly beneficially owned by the Beneficiaries as
of the date of this Agreement times (y) 80%.

          "Closing Date" means the date on which all conditions precedent
set forth in Section 4.01 are satisfied or waived by the Bank (or, in
the case of subsection 4.01(d), waived by the Person entitled to
receive such payment).

          "Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.

          "Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Company in or
upon which a Lien now or hereafter exists in favor of the Bank
securing all or part of the Obligations (except, with respect to Specified
Swap Contracts, as set forth in Section 2.13), whether under this Agreement
or under any other documents executed and delivered to the Bank.

          "Collateral Documents" means, collectively, (i) the Company
Security Agreement, the Deeds of Trust, and all other security
agreements, mortgages, deeds of trust, patent and trademark
assignments, lease assignments, guarantees and other similar
agreements between the Company and the Bank now or hereafter delivered
to the Bank pursuant to or in connection with the transactions
contemplated hereby, granting Bank a Lien on the Collateral and all
financing statements (or comparable documents now or hereafter filed
in accordance with the UCC or comparable law) against the Company as
debtor in favor of the Bank as secured party, and (ii) any amendments,
supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.

          "Company Security Agreement" means the Security Agreement
(Receivables and Inventory) executed by the Company on November 30,
1989 granting the Bank a first priority security interest in the
Company's inventory and Receivables and previously delivered by the
Company to the Bank.

          "Consolidated Cash Flow Coverage Ratio" of the Company means, as
of any quarter end, the ratio of (i) the aggregate amount of EBITDA
for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to such quarter end to
(ii) the aggregate Consolidated Interest Expense for the four fiscal
quarters immediately prior thereto; provided that if the Company or
any of its Restricted Subsidiaries is a party to any Swap Contracts
which would have the effect of changing the interest rate on any
Indebtedness of the Company for such four quarter period (or a portion
thereof), the resulting rate shall be used for such four quarter
period or portion thereof; and provided further that if, during the
four fiscal quarters referred to in clause (i) of this definition, (x)
the Company or any of its Restricted Subsidiaries shall have engaged
in any Asset Sale, EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive), or increased by an amount
equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on
a pro forma basis as if such Asset Sale and any related retirement of
Indebtedness had occurred on the first day of such period or (y) the
Company or any of its Restricted Subsidiaries shall have acquired any
material assets out of the ordinary course of business, EBITDA shall
be calculated on a pro forma basis as if such asset acquisition and
any related financing had occurred on the first day of such period.

          "Consolidated Income Tax Expense" of the Company means (without
duplication), for any period the aggregate of the income tax expense
(net of applicable credits) of the Company and its Subsidiaries for
such period, determined on a consolidated basis in accordance with
GAAP other than income taxes (including credits) with respect to items
of net income excluded from the definition of Consolidated Net Income
and without giving effect to any income tax expense or benefit
attributable to any Unrestricted Subsidiary, or to SPHC so long as any
Timber Notes are outstanding, during such period.

          "Consolidated Interest Expense" of the Company means, for any
period (without duplication), (A) the sum of (i) the interest expense
of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, (ii) all fees,
commissions, discounts and other charges of the Company and its
Subsidiaries with respect to letters of credit and bankers'
acceptances and the costs (net of benefits) associated with Swap
Contracts for such period, determined on a consolidated basis in
accordance with GAAP, and (iii) dividends declared on Redeemable Stock
of the Company or any Restricted Subsidiary held by Persons other than
the Company or a Wholly-Owned Restricted Subsidiary (other than
dividends payable in Capital Stock of the Company or pro rata
dividends payable in Capital Stock of any such Restricted Subsidiary)
less (B) the sum of (i) the amortization or write-off of deferred
financing costs by the Company and its Subsidiaries during such
period, determined on a consolidated basis in accordance with GAAP
(including, without limitation, the amortization of any unamortized
deferred financing costs in connection with any refinancing of the
Prior Credit Agreement, and (ii) the amortization of any debt discount
associated with the Securities determined on a consolidated basis in
accordance with GAAP; in the case of clauses (A) and (B) of this
definition, without giving effect to any such items and amounts
attributable to any Unrestricted Subsidiary, or to SPHC so long as any
Timber Notes are outstanding, during such period.

          "Consolidated Net Income" of the Company means, for any period,
the aggregate net income (or net loss, as the case may be) of the Company
and its Subsidiaries for such period on a consolidated basis,
determined in accordance with GAAP ("GAAP Net Income"); provided that
(without duplication) there shall be excluded from GAAP Net Income (to
the extent otherwise included therein) (i) gains and losses (net of
applicable taxes) from Asset Sales or reserves relating thereto
(except any gain or loss on the sale of an Unrestricted Subsidiary);
(ii) items classified as extraordinary (other than the tax benefit of
the utilization of net operating loss carryforwards) and gains and
losses from discontinued operations; (iii) the net income (or loss) of
any Unrestricted Subsidiary, and of SPHC so long as there are Timber
Notes outstanding, during such period; (iv) except to the extent
includable pursuant to clause (iii) of this definition, the net income
(or loss) of any other Person accrued or attributable to any period
prior to the date it becomes a Subsidiary of the Company or is merged
into or consolidated with the Company or any of its Subsidiaries or
such other Person's property (or a portion thereof) is acquired by the
Company or any of its Subsidiaries; and (v) the net income of any
Subsidiary of the Company during such period to the extent that the
declaration or payment of dividends or similar distributions by such
Subsidiary of such net income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or government regulation
applicable to such Subsidiary; and provided further, that there shall
be added to GAAP Net Income the entire amount of dividends or other
distributions actually paid in cash or Cash Equivalents during such
period to the Company or any of its Restricted Subsidiaries by any
Unrestricted Subsidiary or SPHC out of funds legally available
therefor and which the Company elects to include in the computation of
Consolidated Net Income at the time of the computation thereof (such
election having been deemed to have occurred with respect to SPHC so
long as any Timber Notes are outstanding), except all dividends and
other distributions which are permitted to be distributed to
stockholders of the Company in accordance with Section 7.12.

          "Contingent Obligation" means, as to any Person, (a) any Guaranty
Obligation of that Person; and (b) any direct or indirect obligation
or liability, contingent or otherwise, of that Person, (i) in respect
of any letter of credit or similar instrument issued for the account
of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, or (ii) in respect of any Swap Contract
that is not entered into in connection with a bona fide hedging
operation that provides offsetting benefits to such Person.  The
amount of any Contingent Obligation shall (subject, in the case of
Guaranty Obligations, to the last sentence of the definition of
"Guaranty Obligation") be deemed equal to the maximum reasonably
anticipated liability in respect thereof, and shall, with respect to
item (b)(ii) of this definition, be marked to market on a current
basis, excluding any obligations pursuant to contracts with
Subsidiaries of the Company or with Britt Lumber Co., Inc.

          "Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or
by which it or any of its property is bound.

          "Conversion/Continuation Date" means any date on which, under
Section 2.04, the Company (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.

          "Deed of Trust" means any deed of trust, mortgage, leasehold
mortgage, assignment of rents or other document creating a Lien on
Timberlands or any interest in Timberlands in favor of the Bank.

          "Default" means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.

          "Dividends Paid" means for the Company, as of any quarter end,
dividends actually paid in such quarter by the Company as reported in
the consolidated statement of cash flows shown in the Company's 10Q
and 10K filings with the SEC covering such quarter.

          "Early Termination Date" with respect to a Specified Swap
Contract shall have the meaning specified in such contract.

          "EBITDA" of the Company means, for any period, the sum for such
period of Consolidated Net Income plus, to the extent reflected in the
income statement for such period from which Consolidated Net Income is
determined, without duplication, (i) Consolidated Interest Expense,
(ii) Consolidated Income Tax Expense, (iii) depreciation and depletion
expense, (iv) amortization expense (including amortization of deferred
financing costs), and (v) any charge related to any premium or penalty
paid in connection with redeeming or retiring any Indebtedness prior
to its stated maturity, in the case of clauses (iii), (iv) and (v) of
this definition, of the Company and its Subsidiaries determined on a
consolidated basis in accordance with GAAP for such period, but
without giving effect to any such items and amounts attributable to
any Unrestricted Subsidiary during such period or to SPHC so long as
any Timber Notes are outstanding.

          "Environmental Claims" means all claims, however asserted, by any
Governmental Authority or by any other Person in good faith and upon a
reasonable basis alleging potential liability or responsibility for
violation of any Environmental Law or for release or injury to the
environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other
type of relief, resulting from or based upon (a) the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from
property, whether or not owned by the Company, or (b) any other
circumstances forming the basis of any violation, or violation alleged
in good faith and upon a reasonable basis, of any Environmental Law.

          "Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters; including CERCLA, the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Endangered Species Act (16 U.S.C. Section 1531 et seq.),
the Migratory Bird Treaty Act (16 U.S.C. 703 et seq.), the Forest and
Rangeland Renewable Resources Act of 1974, the National Forest
Management Act of 1976, the Federal Resource Conservation and Recovery Act,
the Toxic Substances Control Act, the Emergency Planning and
Community Right-to-Know Act, the California Hazardous Waste Control
Law, the California Solid Waste Management, Resource, Recovery and
Recycling Act, the California Water Code and the California Health and
Safety Code, the Z'berg-Nejedly Forest Practices Act of 1973 and the
California Public Resources Code.

          "ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.

          "ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, or at any time within six years of the time in
question has been, under common control with the Company within the
meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of
the Code).

          "ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by the Company or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the treatment of a Pension Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the filing of a
notice of intent to terminate or the commencement of proceedings by
the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an
event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title
IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

          "Event of Default" means any of the events or circumstances
specified in Section 8.01.

          "Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.

          "Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Bank of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Bank.

          "FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal
functions.

          "GAAP" means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession) and which are applicable to the circumstances.

          "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.

          "Guaranty Obligation" means, as applied to any Person, any direct
or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent, (a)  to
purchase, repurchase or otherwise acquire such primary obligations or
any property constituting direct or indirect security therefor, or (b)
to advance or provide funds (i) for the payment or discharge of any
such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (d) otherwise to assure
or hold harmless the holder of any such primary obligation against
loss in respect thereof.  The amount of any Guaranty Obligation shall
be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated
liability in respect thereof.

          "Hazardous Materials" means all those substances that are
regulated by, or which may form the basis of liability under, any
Environmental Law, including any substance identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.

          "Incur" means, directly or indirectly, create, incur, issue,
assume, guarantee or become liable with respect to, contingently or
otherwise (and the terms "Incurred" and "Incurrence" have correlative
meanings.

          "Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary
course of business on ordinary terms); (c) all reimbursement or
payment obligations with respect to all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments (in each case to
the extent material or non-contingent); (d) all obligations evidenced
by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or
arising under any conditional sale or other title retention agreement,
or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are
limited to repossession or sale of such property); (f) all obligations
with respect to Capital Leases; (g) all indebtedness referred to in
clauses (a) through (f) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness; and
(h) all Guaranty Obligations in respect of indebtedness or obligations
of others of the kinds referred to in clauses (a) through (g) above.

          "Indemnified Liabilities" has the meaning specified in Section
9.05(a).

          "Indemnified Person" has the meaning specified in Section
9.05(a).

          "Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its
creditors generally or any substantial portion of its creditors;
undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.

          "Interest Payment Date" means, as to any Offshore Rate Loan, the
last day of each Interest Period applicable to such Loan and, as to
any Base Rate Loan, the last Business Day of each calendar quarter and
each date such Loan is converted into an Offshore Rate Loan, provided,
however, that if any Interest Period an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of
such Interest Period and after each Interest Payment Date thereafter
is also an Interest Payment Date.

          "Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter as selected by the Company in its
Notice of Borrowing or Notice of Conversion/Continuation;  provided
that:
               (i)  If any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, the result of such
extension would be to carry such Interest Period into another
calendar month, in which event such Interest Period shall end on
the preceding Business Day;
               (ii)  Any Interest Period pertaining to an Offshore Rate
Loan that begins on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall end
on the last Business Day of the calendar month at the end of such
Interest Period; and
               (iii)  No Interest Period for any Term Loan shall extend
beyond the sixth anniversary of this Agreement and no Interest
Period for any Revolving Loan shall extend beyond the Revolving
Termination Date; and
               (iv)  No Interest Period applicable to a Term Loan or
portion thereof shall extend beyond any date upon which is due
any scheduled principal payment in respect of the Term Loans
unless the aggregate principal amount of Term Loans represented
by Base Rate Loans or by Offshore Rate Loans having Interest
Periods that will expire on or before such date, equals or
exceeds the amount of such principal payment.

          "IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.

          "Joint Venture" means a single-purpose corporation, partnership,
limited liability company, joint venture or other similar legal
arrangement (whether created by contract or conducted through a
separate legal entity) now or hereafter formed by the Company or any
of its Subsidiaries with another Person in order to conduct a common
venture or enterprise with such Person.

          "Lending Office" means, as to the Bank, the office or offices of
the Bank specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office", as the case may be, on the
signature pages of this Agreement, or such other office or offices as
the Bank may from time to time notify the Company.

          "Letter of Credit Application" means the Bank's written
application for the issuance of or amendment to a standby letter of
credit as in effect from time to time.

          "Letter of Credit Obligations" means the amounts the Company is
obligated to pay the Bank arising from:
                    (i)  All drafts drawn on and paid by, drafts drawn on
and accepted by, and other demands for payment paid or agreed to
be paid by the Bank under the terms of the Standby Letters of
Credit; and
                    (ii)  All fees and commissions relating to all
(A) Standby Letters of Credit issued and Standby Letters of
Credit amended under Letter of Credit Applications, (B) drafts
drawn, and (C) payments made under Standby Letters of Credit;
     and not then paid or reimbursed to the Bank by the Company.

          "Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale
or other title retention agreement, the interest of a lessor under a
Capital Lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any
financing statement naming the owner of the asset to which such lien
relates as debtor, under the UCC or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.

          "Loan" means an extension of credit by the Bank to the Company
under Article II, and may be a Base Rate Loan or an Offshore Rate Loan
(each, a "Type" of Loan), and includes any Revolving Loan or Term
Loan.
          "Loan Documents" means this Agreement, the Collateral Documents,
the Letter of Credit Applications, any documents evidencing or
relating to Specified Swap Contracts with the Bank, and all other
documents delivered to the Bank in connection with the transactions
contemplated by this Agreement.

          "Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U  or X of the FRB. 

          "Material Adverse Effect" means a material adverse change in, or
a material adverse effect upon, any of (a) the operations, business,
properties, condition (financial or otherwise) or financial prospects
of the Company or the Company and its Subsidiaries taken as a whole or
as to SPHC; (b) the ability of the Company to perform under any Loan
Document and avoid any Event of Default; (c) the legality, validity,
binding effect or enforceability of any Loan Document; or (d) the
perfection or priority of any Lien granted to the Bank under any of
the Collateral Documents.

          "Mortgaged Property" means all property subject to a Lien
pursuant to a Deed of Trust.

          "Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any
ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made,
or been obligated to make, contributions.

          "Notice of Borrowing" means a notice in substantially the form of
Exhibit A.

          "Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.

          "Notice of Lien" has the meaning specified in Section 7.01(c).

          "Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document
owing by the Company to the Bank or any Indemnified Person, whether
direct or indirect (including those acquired by assignment), absolute
or contingent, due or to become due, now existing or hereafter
arising.

          "Offshore Rate" means, for any Interest Period, with respect to
any Offshore Rate Loan, the rate of interest per annum at which dollar
deposits in the approximate amount of the Bank's Offshore Rate Loan
for such Interest Period would be offered by the Bank's Grand Cayman
Branch, Grand Cayman, B.W.I. (or such other office as may be
designated for such purpose by the Bank) to major banks in the
offshore dollar interbank market upon request of such banks at
approximately 11:00 a.m. (New York City time) two Business Days prior
to the commencement of such Interest Period.

          "Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.

          "Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and all
applicable resolutions of the board of directors (or any
committee thereof) of such corporation.

          "Outstanding Letter of Credit" means at any time an issued and as
yet unexpired Standby Letter of Credit in an amount equal to the
undrawn amount of such Standby Letter of Credit.

          "Participant" has the meaning specified in subsection 9.08(b).

          "PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.

          "Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA (excluding any Multiemployer
Plan) which the Company sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions, or in the case of a
multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five
(5) plan years.

          "Permitted Liens" has the meaning specified in Section 7.01.

          "Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Company existing or arising under Swap Contracts,
provided that each of the following criteria is satisfied:  (a) such
obligations are (or were) entered into by such Person in the ordinary
course of business for the purpose of directly or indirectly
mitigating risks associated with liabilities, commitments or assets
held by such Person, or changes in the value of securities issued by
such Person in conjunction with a securities repurchase program not
otherwise prohibited hereunder, and not for purposes of speculation or
taking a "market view;" (b) such Swap Contracts do not contain (i) any
provision ("walk-away" provision) exonerating the non-defaulting party
from its obligation to make payments on outstanding transactions to
the defaulting party, or (ii) with respect to any Swap Contract that
is not a Specified Swap Contract, any provision creating or permitting
the declaration of an event of default, termination event or similar
event upon the occurrence of an Event of Default hereunder (other than
an Event of Default under Section 8.01(a).

          "Person" means an individual, a sole proprietorship, partnership,
corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture or
Governmental Authority.

          "Plan" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which the Company sponsors or maintains or to which the
Company makes, is making, or is obligated to make contributions and
includes any Multiemployer Plan or Pension Plan.

          "Preferred Stock" as applied to the Capital Stock or Redeemable
Stock of any corporation, means Capital Stock or Redeemable Stock of
any class or classes (however designated) which is preferred as to the
payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock or Redeemable Stock, as the
case may be, of any other class of such corporation. 

          "Principal Payments on Long-Term Debt" means for the Company, as
of any fiscal quarter end, principal payments on the Company's
Indebtedness (excluding amounts due under the Revolving Credit and any
principal on Indebtedness paid from the proceeds of any Asset Sale)
for the four fiscal quarters ending as of such quarter end.  For the
purposes of this definition, the Company's Indebtedness shall exclude
indebtedness of SPHC and any Unrestricted Subsidiary.

          "Prior Credit Agreement" has the meaning specified in the first
"WHEREAS" clause of this Agreement.

          "Receivable Debtor" means the person or entity obligated upon a
Receivable.

          "Receivables" means all rights to the payment of money owned by
the Company, whether due or to become due and whether or not earned by
performance including, but not limited to, Accounts, contract rights,
chattel paper, instruments and documents.

          "Redeemable Stock" of any Person means any equity security of
such Person that by its terms is required to be redeemed prior to
March 1, 2003, or is redeemable at the option of the holder thereof at
any time prior to March 1, 2003.

          "Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.

          "Requirement of Law" means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to
or binding upon the Person or any of its property or to which the
Person or any of its property is subject.

          "Responsible Officer" of the Company means the chief executive
officer or the president, the chief financial officer, the Vice
President - Finance and Administration, the treasurer, assistant
treasurer, or any other officer having substantially the same
authority and responsibility or designated by the chief executive
officer or the chief financial officer as having the appropriate
authority and responsibility.

          "Restricted Subsidiary" means, as of any determination date, each
of the Subsidiaries of the Company which is not as of such
determination date an Unrestricted Subsidiary of the Company.

          "Revolving Commitment" means $30,000,000.

          "Revolving Credit" means the credit described in subsection
2.01(b).

          "Revolving Loan" has the meaning specified in subsection 2.01(b).

          "Revolving Termination Date" means the earlier to occur of:
               (a)  May 31, 1998; and 
               (b)  the date on which the Bank's commitment to make
Revolving Loans terminates in accordance with the provisions of
this Agreement.

          "Salmon Creek Corporation" means Salmon Creek Corporation, a
Delaware corporation, or any successor corporation, by way of merger,
consolidation, purchase of all or substantially all of its assets, or
otherwise, which holds the Salmon Creek Property on the date of this
Agreement but which may not acquire any other assets (other than
assets incidental to the operation, disposition, management and
maintenance of the Salmon Creek Property or assets received in
connection with a transaction described in Section 7.12(c) or any
clause thereof), except in exchange for or out of the proceeds of the
sale or disposition of Salmon Creek Property.

          "Salmon Creek Property" means any of the property described on
Exhibit C to this Agreement or any assets or Capital Stock or
Redeemable Stock, in each case, held by Salmon Creek Corporation.

          "SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.

          "Securities" means the securities issued, authenticated and
delivered under the $235,000,000 Indenture between the Company and the
First National Bank of Boston as Trustee, dated as of March 23, 1993,
and covering 10-1/2% Senior Notes due 2003, as amended, restated,
restructured, renewed, extended, refinanced or otherwise modified, in
whole or in part, from time to time, so long as each such amendment,
restatement, restructure, renewal, extension, refinancing, or other
modification shall not result in any of the following: (1) an
increase in the interest rate and/or the then outstanding principal
amount of the Securities being refinanced, amended, restated,
restructured, renewed, amended, or otherwise modified; (2) any
additional assets securing the Securities being refinanced, amended,
restated, restructured, renewed, amended, or otherwise modified; and
(3) an increase, during the term of this Agreement and for one year
thereafter, in the principal payments of the Securities being
refinanced, amended, restated, restructured, renewed, amended, or
otherwise modified; and (4) any restriction on the ability of the
Company to perform its obligations under this Agreement and any other
Loan Document;

          "Solvent" means, as to any Person at any time, that (a) the fair
value of the property of such Person is greater than the amount of
such Person's liabilities (including disputed, contingent and
unliquidated liabilities) as such value is established and liabilities
evaluated for purposes of Section 101(31) of the Bankruptcy Code and,
in the alternative, for purposes of the California Uniform Fraudulent
Transfer Act; (b) the present fair saleable value of the property of
such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured; (c) such Person is able to realize upon its
property and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal
course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature; and (e) such
Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.

          "Specified Swap Contract" means any Swap Contract made or entered
into at any time, or in effect at any time (whether heretofore or
hereafter), whether directly or indirectly, and whether as a result of
assignment or transfer or otherwise, between the Company and any Swap
Provider which Swap Contract is or was intended by the Company to have
been entered into, in part or entirely, for purposes of mitigating
interest rate risk relating to any Loan (which intent shall
conclusively be deemed to exist if the Company so represents to the
Swap Provider in writing), and as to which the final scheduled payment
by the Company is not later than the sixth anniversary of this
Agreement.

          "SPHC" means Scotia Pacific Holding Company, a Wholly-Owned
Subsidiary of the Company.

          "Standby Letters of Credit' means letters of credit issued under
the Prior Credit Agreement and standby letters of credit issued
pursuant to this Agreement including all such standby letters of
credit amended by the Bank from time to time at the request of the
Company.

          "Subsidiary" means, with respect to any Person, (i) any
corporation of which more than 50% of the outstanding Capital Stock
and Redeemable Stock having ordinary voting power to elect a majority
of the board of directors of the corporation (irrespective of whether
at the time Capital Stock or Redeemable Stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of
such Person, or (ii) any other entity of which more than 50% of the
outstanding equity ownership interests are at the time owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of
such Person.

          "Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity
index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any
option to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing. 
Investments made pursuant to the Bear Stearns Investment Advisory
Contract and the Bering Agreement are not Swap Contracts for purposes
of this Agreement and any other Loan Document.

          "Swap Provider" means the Bank, or any Affiliate of the Bank,
that is at the time of determination party to a Swap Contract with the
Company.

          "Swap Termination Value" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date
referenced in clause (a) the amount(s) determined as the mark-to-market
value(s) for such Swap Contracts, as determined by the Company
based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Swap Contracts (which
may include the Bank.)

          "Taking" means any sale, transfer or other disposition of all or
any part of the assets of the Company that occurs by reason of
condemnation or eminent domain or other similar proceedings exercised
by the United States or any State, municipality, agency or other
governmental authority thereof.

          "Tax Sharing Agreement" means the Tax Allocation Agreement, dated
May 21, 1988, by and among MAXXAM Inc. the Company, and certain other
subsidiaries of MAXXAM Inc. as amended by the Tax Allocation
Agreement, dated as of March 23, 1993, by and among MAXXAM Inc., the
Company, SPHC, and Salmon Creek Corporation, as amended, supplemented,
or otherwise modified from time to time. 

          "Term Commitment" means $30,000,000.

          "Term Credit" means the credit described in subsection 2.01(a).

          "Term Credit Termination Date" means the earliest to occur of:
          (a)  June 30, 1997; or
          (b)  the date on which the aggregate principal amount of the
disbursed Term Loans equals the Term Commitment; or
          (c)  the date on which the Bank's commitment to make Term Loans
terminates in accordance with the provisions of this Agreement.

          "Term Loan" has the meaning specified in subsection 2.01(a).

          "Timber Notes" means the 7.95% Timber Collateralized Notes due
2015, issued by SPHC, as amended, supplemented or otherwise modified,
in whole or in part from time to time in accordance with the terms of
the Indenture, dated as of March 23, 1993, between SPHC and The First
National Bank of Boston, as trustee.

          "Timberlands" means timberlands of the Company located in
California, the purchase price of which is, in whole or in part, paid
from or refinanced by the Term Loans, which timberlands are encumbered
by first priority Deeds of Trust securing the Obligations of the
Company to the Bank under this Agreement and the other Loan Documents.

          "Type" has the meaning specified in the definition of "Loan."

          "UCC" means the Uniform Commercial Code as in effect in the State
of California.

          "Unfunded Pension Liability" means the excess of a Pension Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Pension Plan's assets, determined in accordance
with the assumptions used for funding the Pension Plan pursuant to
Section 412 of the Code for the applicable plan year.

          "Unrestricted Subsidiary" means (a) each of the Subsidiaries of
the Company so designated by a resolution adopted by the Company's
Board of Directors and whose creditors have no direct or indirect
recourse (including, but not limited to, recourse with respect to the
payment of principal or interest on Indebtedness of such Subsidiary)
to the Company or a Restricted Subsidiary (except to the extent such
recourse arises (i) solely by operation of law and not pursuant to a
contractual or other consensual arrangement or (ii) pursuant to an
investment permitted by this Agreement, (b) any Subsidiary of an
Unrestricted Subsidiary, (c) any Person (other than a Subsidiary of
the Company) in which the Company and/or its Subsidiaries have an
equity ownership interest equal to or greater than 5% and in which no
Affiliate of the Company has a direct or an indirect equity ownership
interest in excess of 5% therein other than by virtue of the direct or
indirect equity ownership interest in such Person held (in the
aggregate) by the Company and/or one or more of its Subsidiaries, and
(d) Salmon Creek Corporation.  The Board of Directors may designate an
Unrestricted Subsidiary to be a Restricted Subsidiary.  The Board of
Directors of the Company also may designate any Restricted Subsidiary
(other than SPHC so long as there are any Timber Notes outstanding) to
be an Unrestricted Subsidiary.

          "Wholly-Owned Restricted Subsidiary" means any Restricted
Subsidiary (i) which is a corporation of which all of the outstanding
shares of Capital Stock and Redeemable 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 or
Redeemable Stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any
contingency) are owned at the time, directly or indirectly (through
one or more Wholly-Owned Restricted Subsidiaries), by the Company
(except for director's qualifying shares), or (ii) which is any other
entity of which all of the outstanding equity ownership interests are
owned at the time, directly or indirectly (through one or more Wholly-Owned
Restricted Subsidiaries), by the Company.

          "Wholly-Owned Subsidiary" means any corporation in which (other
than directors' qualifying shares required by law) 100% of the capital
stock of each class having ordinary voting power, and 100% of the
capital stock of every other class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Company, or by one or more of the other Wholly-Owned
Subsidiaries, or both.

     1.01  Other Interpretive Provisions.

          (a)  The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.

          (b)  The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references
are to this Agreement unless otherwise specified.

          (c) (1)  The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.

               (2)  The term "including" is not limiting and means
"including without limitation."

               (3)  In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."

               (4)  The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
          (d)  Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.

          (e)  The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of
this Agreement.

          (f)  This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or
similar matters.  All such limitations, tests and measurements are
cumulative and shall each be performed in accordance with their terms.

          (g)  This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Bank, the
Company and the other parties, and are the products of all parties. 
Accordingly, they shall not be construed against the Bank merely because of
the Bank's involvement in their preparation.

     1.02  Accounting Principles.

          (a)  Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.

          (b)  References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.


                                 ARTICLE II

                                THE CREDITS

     2.01  The Term Credit and the Revolving Credit.

          (a)  The Term Credit.  The Bank agrees, on the terms and
conditions set forth herein, to make loans to the Company (each such Loan,
a "Term Loan") from time to time on any Business Day during the period from
the Closing Date to the Term Credit Termination Date in an aggregate amount
not to exceed the Term Commitment.  The Term Credit is not a revolving
credit.  Amounts borrowed as Term Loans which are repaid or prepaid by the
Company may not be reborrowed.

          (b)  The Revolving Credit.  The Bank agrees, on the terms and
conditions hereinafter set forth, to make loans to the Company (each such
loan a "Revolving Loan") and to issue Standby Letters of Credit for the
account of the Company from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an
aggregate amount not to exceed at any time outstanding the lesser of the
Revolving Commitment or the Borrowing Base;  provided, however, that:
               (1)  After giving effect to any Loan and/or the issuance or
amendment of a Standby Letter of Credit, the aggregate principal
amount of (x) outstanding Loans, (y) Letter of Credit Obligations, and
(z) Outstanding Letters of Credit shall not exceed the lesser of the
Revolving Commitment or the Borrowing Base; and
               (2)  After the issuance or amendment of a Standby Letter of
Credit, the aggregate of (y) the Outstanding Letters of Credit and (z)
the Letter of Credit Obligations shall not exceed $15,000,000.
Within the limits of the Revolving Commitment and the Borrowing Base and
subject to the other terms and conditions hereof, the Company may, pursuant
to the terms of this Agreement (x) borrow, prepay, reborrow under this
subsection; and (y) obtain Standby Letters of Credit and obtain new Standby
Letters of Credit in place of Standby Letters of Credit that have been
discharged by performance and reimbursement to the Bank and which have
expired.

          (c)  The Standby Letters of Credit.
               (1)  Each Standby Letter of Credit shall be issued pursuant
to the terms and conditions hereof and of the Letter of Credit Application
executed by the Company.
               (2)  Each Standby Letter of Credit shall:
                    (A)  Expire on or before 365 days after the date such
Standby Letter of Credit is issued, but in no event later than the
Revolving Termination Date; and
                    (B)  Be otherwise in form and substance and in favor of
beneficiaries satisfactory to the Bank.
               (3)  The Company shall pay the Bank a per annum fee on each
Standby Letter of Credit equal to the Applicable Margin for Offshore Rate
Loans, computed on the outstanding undrawn amount of such Standby Letter of
Credit as of the date the fee is calculated, payable quarterly in advance,
and calculated on the basis of a 360 day year.  Such fee shall be prorated
if the term of a Standby Letter of Credit is less than one year.  If an
Event of Default occurs under this Agreement, at the option of the Bank,
the amount of the fee shall be increased by an additional 2.00% per annum,
commencing on the day the Bank provides notice of the increase to the
Company.
               (4)  The Company shall also pay such other standard fees and
commissions at the times and in the amounts the Bank advises the Company
from time to time as applicable to standby letters of credit, as set forth
the Bank's published schedule of fees.
               (5)  Any sum owed to the Bank with respect to a Letter of
Credit Obligation which is not paid when due shall, at the option of the
Bank in each instance, be added to Base Rate Loans outstanding under this
Agreement and shall thereafter bear interest at the rate applicable to Base
Rate Loans.
               (6)  In addition to any other rights or remedies which the
Bank may have under this Agreement or otherwise, upon the occurrence of an
Event of Default, the Bank may require the Company to prepay the amount of
any Letter of Credit Obligations and Outstanding Letters of Credit or to
furnish cash collateral for such Outstanding Letters of Credit and Letter
of Credit Obligations.

          (d)  Obligations under the Prior Credit Agreement.  From and
after the Closing Date, all Standby Letters of Credit, Loans, Letter of
Credit Obligations, Outstanding Letters of Credit, and other Obligations of
the Company to the Bank under the Prior Credit Agreement shall be deemed to
be Standby Letters of Credit and Obligations under this Agreement, included
in the computations required hereunder and subject to the provisions
hereof.

     2.02  Loan Accounts.  The Loans made by the Bank shall be evidenced by
one or more loan accounts or records maintained by the Bank in the ordinary
course of business.  The loan accounts or records maintained by the Bank
shall be evidence of the amount of the Loans made by the Bank to the
Company and the interest and payments thereon.  Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with respect to
the Loans.

     2.03  Procedure for Borrowing.

          (a)  Each Loan shall be made upon the Company's irrevocable
written notice (including notice via facsimile transmission confirmed
immediately by a telephone call) delivered to the Bank in the form of a
Notice of Borrowing (which notice must be received by the Bank prior to
(i) 9:00 a.m. (San Francisco, California time) three Business Days prior to
the requested Borrowing Date, in the case of Offshore Rate Loans; and
(ii) 11:00 a.m. San Francisco, California time on the requested Borrowing
Date, in the case of Base Rate Loans, specifying:
               (1)  The amount of the Loan, which:
                    (A)  For Loans under the Revolving Credit shall be in a
minimum amount of $3,000,000 or any whole multiple of $1,000,000 in
excess thereof for Offshore Rate Loans and $1,000,000 or any whole
multiple of $250,000 in excess thereof for Base Rate Loans; and
                    (B)  For Loans under the Term Credit shall be in a
minimum amount of $1,000,000 for Offshore Rate Loans and $250,000 for
Base Rate Loans;
               (2)  The requested Borrowing Date, which shall be a Business
Day;
               (3)  Whether each Loan is to be an Offshore Rate Loan or a
Base Rate Loan; and
               (4)  The duration of the Interest Period applicable to the
Offshore Rate Loans included in such notice.  If the Notice of
Borrowing fails to specify the duration of the Interest Period for any
Offshore Rate Loans, such Interest Period shall be three months.

          (b)  The proceeds of the Loans will be made available to the
Company by the Bank by crediting the account of the Company on the books of
the Bank with such proceeds or by wire transfer in accordance with written
instructions provided to the Bank by the Company.

          (c)  After disbursement of any Loan, unless the Bank shall
otherwise consent, there may not be more than ten different Interest
Periods in effect.

     2.04  Conversion and Continuation Elections.

          (a)    The Company may, upon irrevocable written notice to the
Bank in accordance with subsection 2.04(b):

               (1)  Elect to convert on any Business Day, any Base Rate
Loans (or any part thereof in an amount not less than $3,000,000
($1,000,000 for conversion of a Base Rate Term Loan into an Offshore
Rate Term Loan), or that is in an integral multiple of $1,000,000 in
excess thereof) into Offshore Rate Loans or;

               (2)  Elect to convert on any Interest Payment Date any
Offshore Rate Loans maturing on such Interest Payment Date (or any
part thereof in an amount not less than $1,000,000 or that is in an
integral multiple of $250,000 in excess thereof) into Base Rate Loans;
or

               (3)  Elect to renew on any Interest Payment Date any
Offshore Rate Loans maturing on such Interest Payment Date (or any part
thereof in an amount not less than $3,000,000 ($1,000,000 for an
Offshore Rate Term Loan), or that is in an integral multiple of
$1,000,000 in excess thereof);

provided, that if at any time an Offshore Rate Loan is reduced, by payment,
prepayment, or conversion of part thereof to be less than $1,000,000, such
Offshore Rate Loan shall automatically convert into a Base Rate Loan, and
on and after such date the right of the Company to continue such Loan as,
and convert such Loan into, an Offshore Rate Loan shall terminate.

          (b)  The Company shall deliver by telex, cable or facsimile,
confirmed immediately in writing, a Notice of Conversion/Continuation to be
received by the Bank not later than (i) 9:00 a.m. San Francisco, California
time at least three Business Days in advance of the Conversion/Continuation
Date, if the Loans are to be converted into or continued as Offshore Rate
Loans; and (ii) noon San Francisco, California time one Business Day in
advance of the Conversion Date or continuation date, if the Loans are to be
converted into or renewed as Base Rate Loans, specifying:

               (1)  The proposed Conversion/Continuation Date;

               (2)  The aggregate amount of Loans to be converted or
renewed;

               (3)  The nature of the proposed conversion or continuation;
and

               (4)  The duration of the requested Interest Period.

          (c)  If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select a new Interest Period
to be applicable to such Offshore Rate Loans, or if any Default or Event of
Default shall then exist, the Company shall be deemed to have elected to
convert such Offshore Rate Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.

          (d)  Unless the Bank otherwise consents, during the existence of
a Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan.

          (e)  After giving effect to any conversion or continuation of
Loans, unless the Bank shall otherwise consent, there may not be more than
ten different Interest Periods in effect.

     2.05  Voluntary Termination or Reduction of Commitment.  The Company
may, upon not less than five Business Days' prior notice to the Bank:

          (a)  At any time prior to the Revolving Termination Date,
terminate the Bank's commitment to make Revolving Loans or permanently
reduce the amount of the Revolving Commitment by a minimum amount of
$1,000,000 or any whole multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Revolving Loans made
on the effective date thereof, the aggregate of the then outstanding
principal amount of the Revolving Loans, Outstanding Letters of Credit, and
Letter of Credit Obligations would exceed the amount of the Revolving
Commitment then in effect and, provided, further, that once reduced in
accordance with this subsection, the Revolving Commitment may not be
increased.  If the Revolving Commitment is terminated in its entirety, all
accrued commitment fees relating to the Revolving Commitment to, but not
including, the effective date of such termination shall be payable on the
effective date of such termination without any premium or penalty.

          (b)  At any time prior to the Term Credit Termination Date,
terminate the Bank's commitment to make Term Loans or permanently reduce
the amount of the Term Commitment by a minimum amount of $1,000,000 or any
whole multiple of $1,000,000 in excess thereof; unless, after giving effect
thereto and to any prepayments of Term Loans made on the effective date
thereof, the aggregate outstanding principal amount of the Term Loans would
exceed the amount of the Term Commitment then in effect and, provided,
further, that once reduced in accordance with this subsection, the Term
Commitment may not be increased.  If the Term Commitment is terminated in
its entirety, all accrued commitment fees relating to the Term Commitment
to, but not including, the effective date of such termination shall be
payable on the effective date of such termination without any premium or
penalty.

     2.06  Optional Prepayments. Subject to Section 3.04, the Company may,
at any time or from time to time, upon not less than three Business Days'
(with respect to Offshore Rate Loans) and same Business Day (with respect
to Base Rate Loans) irrevocable notice to the Bank, ratably prepay Loans in
whole or in part, in whole multiples of $1,000,000 for Offshore Rate Loans,
and in whole multiples of $250,000 with respect to Base Rate Loans.   Such
notice of prepayment shall specify the date and amount of such prepayment
and the Type(s) of Loans to be prepaid.  If such notice is given by the
Company, the Company shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount
prepaid and any amounts required pursuant to Section 3.04.  Optional
prepayments of Term Loans shall be applied to the most remote principal
installments of the Term Credit.

     2.07  Mandatory Prepayments of Loans; Mandatory Commitment Reductions.

          (a)  Revolving Credit:  Mandatory Prepayments, Cash Collateral. 
If at any time and for any reason the aggregate of the Revolving Loans,
Outstanding Letters of Credit, and Letter of Credit Obligations exceeds the
lesser of the Revolving Commitment or the Borrowing Base, the Company shall
pay to Bank, upon Bank's election and demand, the amount of the excess. 
Payments under this Section may be applied to the obligations of the
Company relating to the Revolving Loans, Outstanding Letters of Credit, and
Letter of Credit Obligations in the order and manner as the Company in its
discretion may determine.  Payments to be applied to Outstanding Letters of
Credit may, at Bank's option, be used to prepay, or held as cash collateral
to secure, the Company's obligations to Bank with respect thereto and
Letter of Credit Obligations.

          (b)  Clean-up Period.  The Company agrees to borrow, repay, and
reborrow under the Revolving Credit such that in each calendar year there
shall be at least one period of 30 consecutive days in which there are no
outstanding Revolving Loans under this Agreement.

          (c)  General.  Any prepayments relating to the Revolving Loans
made pursuant to this Section shall be applied as instructed by the
Company; provided, however, that the Company may, at its option, place any
amounts which it would otherwise be required to use to prepay Offshore Rate
Loans on a day other than the last day of the Interest Period therefor in
an interest-bearing account pledged to the Bank until the end of such
Interest Period at which time such pledged amounts will be credited to the
prepayment of such Offshore Rate Loans.  The Company shall pay, together
with each prepayment under this Section, accrued interest on the amount
prepaid and any amounts required under Section 3.04.

     2.08  Repayment.

          (a)  The Term Credit. The Company shall repay the aggregate
amount of the Term Loans outstanding as of the close of business on the
Term Credit Termination Date in 16 substantially equal principal
instalments commencing on:

               (1)  If the Term Credit Termination Date occurs on June 30,
1997, on the last day of the Company's next fiscal quarter and
thereafter on the last day of each succeeding fiscal quarter of the
Company.

               (2)  If the Term Credit Termination Date occurs prior to
June 30, 1997 and:

                    (A)  During the first half of a fiscal quarter of the
Company, on the last day of such fiscal quarter and thereafter on the
last day of each succeeding fiscal quarter of the Company; or

                    (B)  During the last half of a fiscal quarter of the
Company, on the last day of the next fiscal quarter of the Company and
thereafter on the last day of each succeeding fiscal quarter of the
Company.

All remaining unpaid principal of the Term Loans and interest thereon shall
be due and payable on the sixth anniversary of this Agreement.

          (b)  The Revolving Credit.  The Company shall repay to the Bank
in full on the Revolving Termination Date the aggregate principal amount of
Revolving Loans outstanding on such date.

     2.09  Interest.

          (a)  Each Loan shall bear interest on the outstanding principal
amount thereof from its Borrowing Date at a rate per annum equal to the
Offshore Rate or the Base Rate, as the case may be (and subject to the
Company's right to convert to other Types of Loans under Section 2.04),
plus the Applicable Margin.

          (b)  Interest on each Loan shall be paid in arrears on each
Interest Payment Date.  Interest shall also be paid on the date of any
prepayment of Loans under Sections 2.06 or 2.07 for the portion of the
Loans so prepaid and upon payment (including prepayment) in full thereof
and, during the existence of any Event of Default, interest shall be paid
on demand of the Bank.

          (c)  Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, the Company shall pay
interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all Obligations due and
unpaid, at a rate per annum which is determined by adding 2% per annum to
the Applicable Margin then in effect for such Loans and, in the case of
Obligations not subject to an Applicable Margin, at a rate per annum equal
to the Base Rate plus 2%; provided, however, that, on and after the
expiration of any Interest Period applicable to any Offshore Rate Loan
outstanding on the date of occurrence of such Event of Default or
acceleration, the principal amount of such Loan shall, during the
continuation of such Event of Default or after acceleration, bear interest
at a rate per annum equal to the Base Rate plus 2%.

          (d)  Anything herein to the contrary notwithstanding, the
obligations of the Company to the Bank hereunder shall be subject to the
limitation that payments of interest shall not be required, for any period
for which interest is computed hereunder, to the extent (but only to the
extent) that contracting for or receiving such payment by the Bank would be
contrary to the provisions of any law applicable to the Bank limiting the
highest rate of interest that may be lawfully contracted for, charged or
received by the Bank, and in such event the Company shall pay the Bank
interest at the highest rate permitted by applicable law.

     2.10  Fees.

          (a)  Commitment Fee.

               (1)  Revolving Credit.  The Company shall pay to the Bank a
commitment fee on the average daily unused portion (which excludes the
Outstanding Letters of Credit and Letter of Credit Obligations) of the
Revolving Commitment, computed on a quarterly basis in arrears on the last
day of each calendar quarter based upon the daily utilization for that
quarter, equal to 0.50% per annum.  Such commitment fee shall accrue from
the date through which the commitment fee was paid under the Prior
Credit Agreement through the Revolving Termination Date and shall be due
and payable quarterly in arrears on the last Business Day of each calendar
quarter commencing on the first such date occurring after the date of this
Agreement through the Revolving Termination Date, with the final prorated
payment to be made on the Revolving Termination Date.

               (2)  Term Credit.  The Company shall pay to the Bank a
commitment fee on the average daily unused portion of the Term Commitment,
computed on a quarterly basis in arrears on the last day of each calendar
quarter based upon the daily utilization for that quarter, equal to 0.375%
per annum.  Such commitment fee shall accrue from the date of this
Agreement to the Term Credit Termination Date and shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter
commencing on the first such date after the date of this Agreement through
the Term Credit Termination Date with the first such commitment fee
prorated for any period less than a full calendar quarter from the date of
this Agreement, with the final prorated payment to be made on the Term
Credit Termination Date.

               (3)  Accrual of Commitment Fees.  The commitment fees
provided in this subsection shall accrue at all times after the above-
mentioned commencement date, including at any time during which one or more
conditions in Article IV are not met.

          (b)  Arrangement Fee.  The Company shall pay $100,000 to the Bank
on the Closing Date which is the balance of the arrangement fee due the
Bank pursuant to a separate agreement between the Company and the Bank.

          (c)  Utilization Fees.  The Company shall pay a utilization fee
on the Term Credit.  This utilization fee shall be computed on the
cumulative aggregate amount of Term Loans disbursed, at the rate of $50,000
for each multiple of $6,000,000 and payable each time such cumulative
aggregate amount exceeds a whole multiple of $6,000,000.

For example:  Assume this Agreement is executed on June 30, 1995.  On that
date, the Company borrows $10,000,000 in Term Loans.  The Company shall pay
the Bank on such date a utilization fee of $100,000.  On September 10,
1995, the Company borrows an additional $2,000,000 in Term Loans.  No
utilization fee is due from the Company on that date.  On January 14, 1996
the Company borrows an additional $5,000,000 in Term Loans so that the
cumulative aggregate amount of Term Loans disbursed is $17,000,000.  A
utilization fee of $50,000 is due the Bank on such date.

     2.11  Computation of Fees and Interest.

          (a)  All computations of interest for Base Rate Loans when the
Base Rate is determined by the Bank's "reference rate" shall be made on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed.  All other computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more
interest and fees being paid than if computed on the basis of a 365-day
year).  Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last
day thereof.

          (b)  Any change in the interest rate on a Loan resulting from a
change in the Applicable Margin shall become effective as of the opening of
business on the day on which such change in the Applicable Margin becomes
effective.

          (c)  Each determination of an interest rate by the Bank shall be
conclusive and binding on the Company in the absence of manifest error.

     2.12  Payments by the Company.

          (a)  All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim.  Except as otherwise expressly
provided herein, all payments by the Company shall be made to the Bank at
the place indicated as the place of payment in the signature pages to this
Agreement or such other place of payment as the Bank may specify to the
Company in writing from time to time, and shall be made in dollars and in
immediately available funds, no later than 10:00 a.m. (San Francisco,
California time) for Offshore Rate Loans and no later than 1:00 p.m. (San
Francisco, California time) for Base Rate Loans, in each case on the date
specified herein.  Any payment received by the Bank later than such
specified times shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue.

          (b)  Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.

     2.13  Security.

          (a)  All obligations of the Company under this Agreement, and all
other Loan Documents shall be secured in accordance with the Collateral
Documents; except that the obligations of the Company to the Bank under
Specified Swap Contracts shall be secured by the Deeds of Trust only if a
written agreement(s) between the Company and the Bank specifically states
that the Specified Swap Contract(s) described in such agreement(s) is or
are secured by the Deeds of Trust.  The Company hereby ratifies and
reaffirms all of the Liens previously granted in favor of the Bank pursuant
to the Company Security Agreement, which Liens are and continue to be
perfected and of first priority.
          (b)  The Bank agrees to release its security interest in the
inventory and Receivables upon (i) the termination of the Bank's commitment
to extend credit under the Revolving Credit (including but not limited to
there being no Outstanding Letters of Credit) and (ii) payment in full of
all Obligations under the Revolving Credit (including but not limited to
and payment in full of all Letter of Credit Obligations and Revolving
Loans), if the following conditions are met at the time such release is to
occur:
               (1)  The Acquisition Cost of the Timberlands subject to the
Deeds of Trust is equal to or greater than 200% of the aggregate
principal amount of the then outstanding Term Loans; and
               (2)  The Term Credit Termination Date has occurred.


                                ARTICLE III

                   TAXES, YIELD PROTECTION AND ILLEGALITY

     3.01  Taxes.

          (a)  (i)  If, as a result of the Company's actions, any taxes,
(other than income taxes imposed by the country or any state or
subdivision of the country in which the Bank's principal office or
actual lending office is located) are imposed on any payments under or
in respect of this Agreement or any instrument or agreement required
hereunder including, but not limited to, payments made pursuant to
this Section, the Company shall pay all such taxes and shall also pay
to the Bank promptly all additional amounts which are reasonably
necessary to preserve the after-tax yield the Bank would have received
if such taxes had not been imposed.

               (ii)  The additional amounts necessary to preserve the
after-tax yield the Bank would have received if such taxes had not
been imposed shall be calculated pursuant to the formula:

                               (w)(t)(i)
                         y = ----------------
                                 1-w-t

     where the terms are defined as follows:

          y =  additional payment to be made to Bank
          w =  withholding tax rate levied by foreign government
          t =  the Bank's combined Federal and state tax rate
          i =  stated interest amount to be paid on credit (calculated
using the applicable contract rate plus quoted spread)

          1 =  one

          (b)  All payments made to the Bank under this Agreement shall be
net of all applicable U.S. withholding taxes.

          (c)  The Company will provide the Bank with original tax
receipts, notarized copies of tax receipts, or such other documentation as
will prove payment of tax in a court of law applying the United States
Federal Rules of Evidence, for all taxes paid by the Company pursuant to
subsection 3.01(a) above.  The Company will deliver receipts to the Bank
within 30 days after the due date for the related tax.

          (d)  Nothing contained in this Section shall override any term or
provision of any Specified Swap Contract regarding withholding taxes
relating to Swap Contracts.

     3.02  Illegality.

          (a)  If, after the date of this Agreement, the Bank shall
reasonably determine that the introduction of any Requirement of Law, or
any change in any Requirement of Law or in the interpretation or
administration thereof, has made it unlawful, or that any central bank or
other Governmental Authority has asserted that it is unlawful, for the Bank
or its Lending Office to make Offshore Rate Loans, then, on notice thereof
by the Bank to the Company, the obligation of the Bank to make Offshore
Rate Loans shall be suspended until the Bank shall have notified the
Company that the circumstances giving rise to such determination no longer
exists.

          (b)  If, after the date of this Agreement, the Bank shall
reasonably determine that it is unlawful to maintain any Offshore Rate
Loan, the Company shall prepay in full all Offshore Rate Loans of the Bank
then outstanding, together with interest accrued thereon, either on the
last day of the Interest Period thereof if the Bank may lawfully continue
to maintain such Offshore Rate Loans to such day, or immediately, if the
Bank may not lawfully continue to maintain such Offshore Rate Loans,
together with any amounts required to be paid in connection therewith
pursuant to Section 3.04.

          (c)  If the Company is required to prepay any Offshore Rate Loan
immediately as provided in subsection 3.02(b), then concurrently with such
prepayment, the Company may borrow from the Bank, in the amount of such
repayment, a Base Rate Loan.

          (d)  If the obligation of the Bank to make or maintain Offshore
Rate Loans has been so terminated or suspended, the Company may elect, by
giving notice to the Bank, that all Loans which would otherwise be made by
the Bank as Offshore Rate Loans shall be instead Base Rate Loans.

     3.03  Increased Costs and Reduction of Return.

          (a)  If the Bank shall determine that, due to either (i) the
introduction, after the date of this Agreement, of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request, made after the date of this Agreement, from any
central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to the Bank of
agreeing to make or making, funding or maintaining any Offshore Rate Loans,
then the Company shall be liable for, and shall from time to time, upon
demand therefor by the Bank pay to the Bank additional amounts as are
sufficient to compensate the Bank for such increased costs; provided that
the Bank shall have given the Company prompt notice of such introduction,
guideline, or request, as applicable.

          (b)  If the Bank shall have determined that (i) the introduction,
after the date of this Agreement, of any Capital Adequacy Regulation, (ii)
any change, after the date of this Agreement, in any Capital Adequacy
Regulation, (iii) any change, after the date of this Agreement, in the
interpretation or administration of any Capital Adequacy Regulation by any
central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank
(or its Lending Office) or any corporation controlling the Bank, with any
Capital Adequacy Regulation enacted or adopted after the date of this
Agreement; affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the
Bank and (taking into consideration the Bank's or such corporation's
policies with respect to capital adequacy and the Bank's desired return on
capital) the Bank determines in good faith that the amount of such capital
is increased as a consequence of its loans, credits or obligations under
this Agreement, then, upon demand of the Bank the Company shall immediately
pay to the Bank, from time to time as specified by the Bank, additional
amounts sufficient to compensate the Bank for such increase.  The Bank
agrees to give the Company prompt notice of any such Capital Adequacy
Regulation, change in Capital Adequacy Regulation, change in the
interpretation or administration of Capital Adequacy Regulation.

     3.04  Funding Losses.  The Company agrees to reimburse the Bank and
hold the Bank harmless from any loss or expense which the Bank may sustain
or incur as a consequence of:

          (a)  The failure of the Company to make on a timely basis any
payment or prepayment of principal of any Offshore Rate Loan (including
payments made after any acceleration thereof);

          (b)  The failure of the Company to borrow, continue or convert a
Loan after the Company has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;

          (c)  The failure of the Company to make any prepayment after the
Company has given a notice in accordance with Section 2.06;

          (d)  The prepayment (including pursuant to Section 2.07) or other
payment (including after acceleration thereof) of an Offshore Rate Loan on
a day that is not the last day of the relevant Interest Period; or

          (e)  The automatic conversion under Section 2.04 of any Offshore
Rate Loan to a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;

including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Offshore Rate Loans or
from fees payable to terminate the deposits from which such funds were
obtained.  For purposes of calculating amounts payable by the Company to
the Bank under this Section and under subsection 3.03(a), each Offshore
Rate Loan made by the Bank (and each related reserve, special deposit or
similar requirement) shall be conclusively deemed to have been funded at
the Offshore Rate for such Offshore Rate Loan by a matching deposit or
other borrowing in the interbank eurodollar market for a comparable amount
and for a comparable period, whether or not such Offshore Rate Loan is in
fact so funded.

     3.05  Inability to Determine Rates.  If the Bank determines that for
any reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or that the Offshore Rate applicable pursuant to
subsection 2.09(a) for any requested Interest Period with respect to a
proposed Offshore Rate Loan does not adequately and fairly reflect the cost
to the Bank of funding such Loan, the Bank will promptly so notify the
Company.  Thereafter, the obligation of the Bank to make or maintain
Offshore Rate Loans hereunder shall be suspended until the Bank revokes
such notice in writing.  Upon receipt of such notice, the Company may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it.  If the Company does not revoke such Notice, the Bank
shall make, convert or continue the Loans, as proposed by the Company, in
the amount specified in the applicable notice submitted by the Company, but
such Loans shall be made, converted or continued as Base Rate Loans instead
of Offshore Rate Loans.

     3.06  Reserves on Offshore Rate Loans.  The Company shall pay to the
Bank, as long as the Bank shall be required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "Eurocurrency
liabilities"), additional costs on the unpaid principal amount of each
Offshore Rate Loan equal to the actual costs of such reserves allocated to
such Loan by the Bank (as determined by the Bank in good faith, which
determination shall be conclusive), payable on each date on which interest
is payable on such Loan, provided the Company shall have received at least
15 days' prior written notice of such additional costs from the Bank.  If
the Bank fails to give notice 15 days prior to the relevant Interest
Payment Date, such additional costs shall be payable 15 days from receipt
of such notice.

     3.07  Survival.  The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.


                                ARTICLE III

                            CONDITIONS PRECEDENT

     4.01  Conditions of Initial Loans. The obligation of the Bank (x) to
issue or amend the first Standby Letter of Credit after the date of this
Agreement, and (y) to make its initial Loan hereunder is subject to the
condition that the Bank has received on or before the Closing Date all of
the following, in form and substance satisfactory to the Bank:

          (a)  Credit Agreement.  This Agreement executed by each party
thereto;

          (b)  Resolutions; Incumbency.

               (1)  Copies of the resolutions of the board of directors of
the Company authorizing the transactions contemplated hereby, certified as
of the Closing Date by the Secretary or an Assistant Secretary of the
Company;

               (2)  A certificate of the Secretary or Assistant Secretary
of the Company, certifying the names and true signatures of the officers of
the Company authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it hereunder;

          (c)  Legal Opinion.  An opinion of Anthony L. Pierno, Vice
President and General Counsel to the Company and addressed to the Bank, in
form and substance reasonably acceptable to the Bank;

          (d)  Payment of Fees.  Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs of the Bank to
the extent invoiced prior to or on the Closing Date, plus such additional
amounts of Attorney Costs as shall constitute the Bank's reasonable
estimate of Attorney Costs incurred or to be incurred by it through the
closing proceedings (provided that such estimate shall not thereafter
preclude final settling of accounts between the Company and the Bank)
including any such costs, fees and expenses arising under or referenced in
Sections 2.10 and 9.04;

          (e)  Certificate.  A certificate signed by a Responsible Officer,
dated as of the Closing Date, stating that:

               (1)  the representations and warranties contained in Article
V are true and correct on and as of such date, as though made on and
as of such date;

               (2)  no Default or Event of Default exists or would result
from the making of the first Loan; and

               (3)  there has occurred since June 30, 1995, no event or
circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect.

     4.02  Conditions to All Loans; Standby Letters of Credit.  The
obligation of the Bank to make any Loan to be made by it (including its
initial Loan), to continue or convert any Loan, and to issue or amend any
Standby Letter of Credit (including the initial issuance or amendment) from
and after the date of this Agreement is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date or
Conversion/Continuation Date:

          (a)  Notice of Borrowing or Conversion/Continuation; Letter of
Credit Application.  The Bank shall have received a Notice of Borrowing, 
Notice of Conversion/Continuation, or a properly completed Letter of Credit
Application for the issuance or amendment of a Standby Letter of Credit, as
applicable;

          (b)  Continuation of Representations and Warranties.  The
representations and warranties in Article V shall be true and correct on
and as of such Borrowing Date, Conversion/Continuation Date, or Standby
Letter of Credit issuance or amendment date with the same effect as if made
on and as of such Borrowing Date, Conversion/Continuation Date, or Standby
Letter of Credit issuance or amendment date (except to the extent such
representations and warranties expressly refer to an earlier date, in which
case they shall be true and correct as of such earlier date);

          (c)  No Existing Default.  No Default or Event of Default shall
exist or shall result from the making of such Loan or its continuation or
conversion; or from the issuance or amendment of such Standby Letter of
Credit;

          (d)  No Future Advance Notice.  The Bank shall not have received
from the Company any notice that any Collateral Document will no longer
secure on a first priority basis future advances or future Loans to be made
or extended, and Standby Letters of Credit to be issued and/or amended
under this Agreement; and

          (e)  Other Documents.  Such other approvals, opinions, documents
or materials as the Bank may reasonably request (each in form and substance
satisfactory to the Bank).

     4.03  Conditions to All Term Loans.  The obligation of the Bank to
make any Term Loan to be made by it (including its initial Term Loan), and
to continue or convert any Term Loan is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date or
Conversion/Continuation Date:
          (a)  Deeds of Trust.  Unless previously delivered, the executed
Deeds of Trust (in form and substance reasonably satisfactory to the Bank),
executed by the Company, in appropriate form for recording, where
necessary, together with:

               (1)  Evidence satisfactory to the Bank that there has been
filed, registered, or recorded all filings, registrations and
recordings necessary and advisable to grant the Liens under the Deeds
of Trust in favor of the Bank in accordance with applicable law;

               (2)  Written advice relating to such Liens and judgment
searches as the Bank shall have reasonably requested, and such
documents as may be necessary to confirm that the Collateral is
subject to no other Liens in favor of any Persons (other than
Permitted Liens);

               (3)  Performance of all other actions necessary or, in the
reasonable opinion of the Bank, desirable to perfect and protect the
first priority security interest or Lien created by the Deeds of
Trust;

               (4)  With respect to the Mortgaged Property, an A.L.T.A.
Form B (or other form acceptable to the Bank, provided that such form
does not require a survey) mortgagee policy of title insurance or a
binder issued by a title insurance company reasonably satisfactory to
the Bank insuring (or undertaking to insure, in the case of a binder)
that the Deed of Trust creates and constitutes a valid first Lien
against the Mortgaged Property in favor of the Bank, subject only to
exceptions reasonably acceptable to the Bank, with such endorsements
and affirmative insurance as the Bank may reasonably request;

               (5)  Such consents, estoppels, subordination agreements and
other documents and instruments executed by landlords, tenants and
other Persons party to material contracts relating to any Collateral
as to which the Bank shall be granted a Lien as reasonably requested
by the Bank (in all instances in form and substance reasonably
satisfactory to the Bank); and

               (6)  Performance of all other actions necessary or, in the
reasonable opinion of the Bank, desirable to perfect and protect the
first priority Lien created by the Deeds of Trust and to enhance the
Bank's ability to preserve and protect its interests in and access to
the Collateral;

          (b)  Environmental Review.  If required by the Bank, a Phase I
environmental site assessment, in form and detail reasonably satisfactory
to the Bank, with respect to any real property as to which the Bank is
granted a Lien, dated as of a recent date prior to the disbursement date of
the Term Loan to which it is related, prepared by a qualified firm
reasonably acceptable to the Bank, stating, among other things, that based
upon an investigation, the scope of which is reasonably satisfactory to the
Bank, such real property is free from Hazardous Materials and that
operations conducted thereon are in compliance with all Environmental Laws
(other than the Endangered Species Act (16 U.S.C.  Section 1531 et seq.), the
Migratory Bird Treaty Act (16 U.S.C. 703 et seq.), the Forest and Rangeland
Renewable Resources Act of 1974, the National Forest Management Act of
1976, the Z'berg-Nejedly Forest Practices Act of 1973 and the California
Public Resources Code) and if not free from Hazardous Materials, showing
any Estimated Remediation Costs.  For purposes of this subsection,
"Estimated Remediation Costs" means all costs associated with performing
work to remediate contamination of real property or groundwater, including
engineering and other professional fees and expenses, costs to remove,
transport and dispose of contaminated soil, costs to "cap" or otherwise
contain contaminated soil, and costs to pump and treat water and monitor
water quality.

          (c)  Reports.  Unless previously delivered, a certificate(s)
executed by a Responsible Officer of the Company, showing the age class
distribution and estimated timber volume (by Mbf) in each age class, of the
trees growing on the land encumbered by the Deeds of Trust.

Each Notice of Borrowing, Notice of Conversion/Continuation, or Letter of
Credit Application submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of
each such notice, as of each Borrowing Date or Conversion/Continuation
Date, as applicable, and as of each issuance or amendment of a Standby
Letter of Credit, that the conditions in Sections 4.02 or Sections 4.02 and
4.03, as appropriate, are satisfied.


                                 ARTICLE IV

                       REPRESENTATIONS AND WARRANTIES

     The Company represents and warrants to the Bank that:

     5.01  Corporate Existence and Power.  The Company and each of its
Subsidiaries:

          (a)  Is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation;

          (b)  Has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under the
Loan Documents;

          (c)  Is duly qualified as a foreign corporation and is licensed
and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license; and

          (d)  Is in compliance with all Requirements of Law; except, in
each case referred to in clause (c) or clause (d), to the extent that the
failure to do so could not reasonably be expected to have a Material
Adverse Effect.

     5.02  Corporate Authorization; No Contravention.  The execution,
delivery and performance by the Company of this Agreement and each other
Loan Document to which the Company is party, have been duly authorized by
all necessary corporate action, and do not and will not:

          (a)  Contravene the terms of any of the Company's Organization
Documents;

          (b)  Conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company or any of its Subsidiaries is a party or
any order, injunction, writ or decree of any Governmental Authority to
which Company or any of its Subsidiaries or its property is subject; or
          (c)  Violate, to the Company's knowledge, any Requirement of Law.

     5.03  Governmental Authorization.  No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with
the Liens granted to the Bank under the Collateral Documents) is necessary
or required in connection with the execution, delivery or performance by,
or enforcement against, the Company of this Agreement or any other Loan
Document.

     5.04  Binding Effect.  This Agreement and each other Loan Document to
which the Company is a party constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles
relating to enforceability.

     5.05  Litigation.  Except as specifically disclosed in Schedule 5.05
and in subsequent notices to the Bank pursuant to Section 6.03, there are
no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Company, or
its Subsidiaries or any of their respective properties which:

          (a)  Purport to affect or pertain to this Agreement or any other
Loan Document, or any of the transactions contemplated hereby or thereby;
or

          (b)  If determined adversely to the Company or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect.  No
injunction, writ, temporary restraining order or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of this Agreement
or any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.

     5.06  No Default.  No Default or Event of Default exists or would
result from the incurring of any Obligations by the Company or from the
grant or perfection of the Liens of the Bank on the Collateral.  As of the
Closing Date, neither the Company nor any Subsidiary of the Company is in
default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could reasonably be
expected to have a Material Adverse Effect, or that would, if such default
had occurred after the Closing Date, create an Event of Default under
subsection 8.01(d).

     5.07  ERISA Compliance.  Except as specifically disclosed in Schedule
5.07:

          (a)  To the Company's knowledge, each Plan is in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other federal or state law.  Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter
from the IRS at the time of Plan adoption and to the best knowledge of the
Company, nothing has occurred which would cause the loss of such
qualification.  The Company and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
In connection with the foregoing, the PALCO Retirement Plan has been
amended and restated as of December 1, 1989.  On March 31, 1995 this plan
was timely filed with the IRS for an advance determination on its continued
qualification under Section 401(a) of the Code.  As a result, any required
remedial amendment may be timely made.

          (b)  There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably
be expected to result in a Material Adverse Effect.  There has been no
prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected
to result in a Material Adverse Effect.

          (c)  (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA with
respect to any Pension Plan (other than premiums due and not delinquent
under Section 4007 of ERISA); (iv) neither the Company nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and
no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 or 4243 of
ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor
any ERISA Affiliate has engaged in a transaction that could be reasonably
be expected to be subject to Section 4069 or 4212(c) of ERISA.

     5.08  Use of Proceeds; Margin Regulations.  The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by
Section 6.12 and Section 7.07.  Neither the Company nor any Subsidiary of
the Company is generally engaged in the business of purchasing or selling
Margin Stock or extending credit for the purpose of purchasing or carrying
Margin Stock.

     5.09  Title to Properties.  The Company and each of its Subsidiaries
have good record and marketable title in fee simple to, or valid leasehold
interests in, all real property necessary or used in the ordinary conduct
of their respective businesses, except for such defects in title as could
not, individually or in the aggregate, have a Material Adverse Effect.  As
of the Closing Date, the property of the Company and its Subsidiaries is
subject to no Liens, other than Permitted Liens.

     5.10  Taxes.  The Company and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have
paid all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable, except those which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided in accordance with GAAP. There is no proposed
tax assessment against the Company or any of its Subsidiaries that would,
if made, have a Material Adverse Effect.

     5.11  Financial Condition.

          (a)  The audited consolidated financial statements of the Company
and its Subsidiaries dated December 31, 1994, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for
the fiscal year ended on that date:

               (1)  Were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise
expressly noted therein;

               (2)  Are, in all material respects, complete and accurate,
and fairly present the financial condition of the Company and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and

               (3)  Show all material indebtedness and other liabilities,
direct or contingent, of the Company and its consolidated Subsidiaries
as of the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.

          (b)  Since June 30, 1995, there has been no Material Adverse
Effect.

     5.12  Environmental Matters.

          (a)  Except as specifically disclosed in Schedule 5.12, the on-
going operations of the Company and each of its Subsidiaries comply in all
respects with all Environmental Laws, except such non-compliance which
would not (if enforced in accordance with applicable law) reasonably be
expected to result in liability which would cause a Material Adverse
Effect;

          (b)  Except as specifically disclosed in Schedule 5.12, the
Company and each of its Subsidiaries have obtained all material licenses,
permits, authorizations and registrations required under any Environmental
Law ("Environmental Permits") and necessary for their respective ordinary
course operations, all such material Environmental Permits are in good
standing, and the Company and each of its Subsidiaries are in compliance
with all material terms and conditions of such Environmental Permits.

          (c)  Except as specifically disclosed in Schedule 5.12, none of
the Company, any of its Subsidiaries or any of their respective present
property or operations, is subject to any outstanding written order from or
agreement with any Governmental Authority, nor subject to any judicial or
docketed administrative proceeding, respecting any Environmental Law,
Environmental Claim or Hazardous Material, the non-compliance with which
could be reasonably be expected to have a Material Adverse Effect.

          (d)  Except as specifically disclosed in Schedule 5.12, there are
no Hazardous Materials or other conditions or circumstances existing with
respect to any property of the Company or any of its Subsidiaries, or
arising from operations prior to the Closing Date, of the Company or any of
its Subsidiaries that would reasonably be expected to give rise to
Environmental Claims for any such condition, circumstance or property that
could reasonably be expected to have a Material Adverse Effect.  In
addition, to the best of the Company's knowledge, (i) neither the Company
nor any of its Subsidiaries has any underground storage tanks (x) that are
not properly registered or permitted under applicable Environmental Laws,
or (y) that are leaking or disposing of Hazardous Materials off-site, and
(ii) the Company and its Subsidiaries have notified all of their employees
of the existence, if any, of any health hazard arising from the conditions
of their employment and have met all notification requirements under Title
III of CERCLA and all other Environmental Laws.

     5.13  Collateral Documents.

          (a)  The provisions of each of the Collateral Documents are
effective to create in favor of the Bank, a legal, valid and enforceable
first priority security interest in all right, title and interest of the
Company in the collateral described therein.

          (b)  Each Deed of Trust when delivered will be effective to grant
to the Bank a legal, valid and enforceable deed of trust/mortgage lien on
all the right, title and interest of the mortgagor under such Deed of Trust
in the Mortgaged Property described therein.  When each such Deed of Trust
is duly recorded in the offices listed on the schedule to such Deed of
Trust and the mortgage recording fees and taxes in respect thereof are paid
and compliance is otherwise had with the formal requirements of state law
applicable to the recording of real estate mortgages generally, each such
mortgaged property, subject to the encumbrances and exceptions to title set
forth therein and except as noted in the title policies delivered to the
Bank pursuant to Section 4.03, is subject to a legal, valid, enforceable
and perfected first priority deed of trust; and when financing statements
have been filed in the offices specified in such Deed of Trust, such Deed
of Trust also creates a legal, valid, enforceable and perfected first lien
on, and security interest in, all right, title and interest of the Company
under such Deed of Trust in all personal property and fixtures which is
covered by such Deed of Trust, subject to no other Liens, except the
encumbrances and exceptions to title set forth therein and except as noted
in the title policies delivered to the Bank pursuant to Section 4.03, and
Permitted Liens.

          (c)  All representations and warranties of the Company contained
in the Collateral Documents are true and correct.

     5.14  Regulated Entities.  None of the Company, any Person controlling
the Company, or any Subsidiary of the Company, is (a) an "Investment
Company" within the meaning of the Investment Company Act of 1940; or (b)
subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act, any state public
utilities code, or any other Federal or state statute or regulation
limiting its ability to incur Indebtedness.

     5.15  No Burdensome Restrictions.  Neither the Company nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation, or
subject to any restriction in any Organization Document, or any Requirement
of Law, which could reasonably be expected to have a Material Adverse
Effect.

     5.16  Subsidiaries.  As of the Closing Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of
Schedule 5.16 hereto and has no material equity investments in any other
corporation or entity other than those specifically disclosed in part
(b) of Schedule 5.16.

     5.17  Insurance.  The properties of the Company and its Subsidiaries
are insured with financially sound and reputable insurance companies, and
to the knowledge of the Company, in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in
similar businesses and owning similar properties in localities where the
Company or such Subsidiary operates.

     5.18  Solvency.  The Company and SPHC are each Solvent.

     5.19  Swap Obligations.

          (a)  As of the Closing Date, neither the Company nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap
Contracts.  With respect to any Swap Contracts that may be entered into by
the Company after the Closing Date, the Company represents and warrants
that it has undertaken its own independent assessment of its consolidated
assets, liabilities and commitments and has considered appropriate means of
mitigating and managing risks associated with such matters and has not
relied on any Swap Provider or any Affiliate of any Swap Provider, swap
counterparty or any Affiliate of any swap counterparty, in determining
whether to enter into any Swap Contract.

          (b)  The Company has not entered into any master agreement
relating to Swap Contracts and under which termination values resulting
from Swap contracts that are Specified Swap Contracts are nettable against
termination values resulting from Swap Contracts that are not Specified
Swap Contracts unless only Specified Swap Contracts are outstanding under
such master agreement.

          (c)  None of the Subsidiaries of the Company has entered into any
Swap Contracts other than as disclosed in the SEC filings of SPHC.

     5.20  Full Disclosure.  None of the representations or warranties made
by the Company in the Loan Documents as of the date such representations
and warranties are made or deemed made, and none of the statements
contained in any exhibit, report, statement or certificate furnished by or
on behalf of the Company in connection with the Loan Documents, contains
any untrue statement of a material fact or omits any material fact required
to be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they are made, not misleading as of
the time when made or delivered.

     5.21  Labor Relations.  There are no strikes, lockouts or other labor
disputes against the Company or any of its Subsidiaries, or , to the best
of the Company's knowledge, threatened against or affecting the Company or
any of its Subsidiaries, and no significant unfair labor practice complaint
is pending against the Company or any of its Subsidiaries or, to the best
knowledge of the Company, threatened against any of them before any
Governmental Authority.

     5.22  Compliance with Laws.  The Company has complied in all material
respects with all federal, state, and local laws, rules, and regulations
applicable to the business of the Company including, but not limited to,
laws regulating the Company's sales or the furnishing of services to
Receivable Debtors and disclosures in connection therewith.

     5.23  Merchantable Inventory.  All inventory which is included in the
Borrowing Base is of good and merchantable quality.

     5.24  Location of the Company.  The Company's place of business (or,
if the Company has more than one place of business, its chief executive
office) is located at 125 Main Street, Scotia, California.


                                 ARTICLE V

                           AFFIRMATIVE COVENANTS


     The Company covenants and agrees that, so long as the Bank shall have
any commitment to extend credit hereunder, or any Loan, Outstanding Letter
of Credit, Letter of Credit Obligation, or other Obligation shall remain
unpaid or unsatisfied, unless the Bank waives compliance in writing: 

     6.01  Financial Statements.  The Company shall deliver to the Bank, in
form and detail satisfactory to the Bank:

          (a)  As soon as available, but not later than 105 days after the
end of each fiscal year, a copy of the audited consolidated balance sheets
of the Company and SPHC as at the end of such year and the related
consolidated statements of income, shareholders' equity and cash flows for
such fiscal year, setting forth in each case in comparative form the
figures for the previous year, and accompanied by the opinion of a
nationally-recognized independent public accounting firm which report shall
state that such consolidated financial statements present fairly the
financial position for the periods indicated in conformity with GAAP;

          (b)  As soon as available, but not later than 60 days after the
end of each of the first three fiscal quarters of each year the unaudited
consolidated balance sheets of the Company and SPHC and the related
consolidated statements of income, shareholders' equity and cash flows for
such quarter, all certified by an appropriate Responsible Officer of the
Company as having been used or as shall be used in connection with the
preparation of the financial statements referred to in subparagraph (a) of
this Section;

          (c)  Within 45 days after the end of each monthly accounting
period, and as of the last day of such period, Company prepared financial
statements;

          (d)  Promptly upon each request of Bank, such other statements,
lists of property and accounts, budgets, forecasts or reports as to the
Company as Bank may reasonably request;

     6.02  Certificates; Other Information.  The Company shall furnish to
the Bank:

          (a)  Concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and (b) above, a certificate of a
Responsible Officer of the Company on behalf of the Company (i) stating
that, to the best of such officer's knowledge, the Company, during such
period, has observed and performed all of its covenants and other
agreements, and satisfied every condition contained in this Agreement to be
observed, performed or satisfied by it, and that such officer has obtained
no knowledge of any Default or Event of Default except as specified (by
applicable subsection reference) in such certificate, and (ii) showing in
detail the calculations supporting such statement in respect of Sections
7.12 and 7.13;

          (b)  Within 45 days after the end of each monthly accounting
period, and as of the last day of such period:

               (1)  A Borrowing Base Certificate;

               (2)  A description of lumber and log inventories with book
and market value;

               (3)  Statements showing an aging and reconciliation of
Receivables;

          (c)  Promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its public shareholders;
and promptly after the same are filed, copies of all financial statements
and regular, periodical or special reports which the Company may make to,
or file with, the SEC or any similar Governmental Authority; and 

          (d)  On or before each March 31, the following prepared on a
consolidated basis (which information shall be considered as confidential
information pursuant to Section 9.09, whether or not identified as
"confidential" or "secret"):

               (1)  The Company's annual business plan, and if requested by
Bank, the Company's key operating assumptions, such as timber harvest
volumes, log consumption and lumber production, wood product
shipments, projected prices of logs, lumber and other products sold by
the Company, capital expenditures, and expected debt repayments and/or
borrowings.  The Company agrees to meet with the Bank, at least once a
year, to discuss the foregoing matters;

               (2)  The Company's "Category of species and inventory of
timber", the annual harvest plan indicating timber harvest volumes by
major categories, and a listing of approved timber harvest plans;

          (e)  Within the 60 day period commencing on the first day of each
calendar quarter, an updated status report of the Company's approved timber
harvest plans (which information shall be considered as confidential
information pursuant to Section 9.09, whether or not identified as
"confidential" or "secret");

          (f)  Promptly, such additional business, financial, corporate
affairs and other information as the Bank may from time to time reasonably
request (which information shall be considered as confidential information
pursuant to Section 9.09, whether or not identified as "confidential" or
"secret").

     6.03  Notices.  The Company shall promptly notify the Bank:

          (a)  Of the occurrence of any Default or Event of Default, and of
the occurrence or existence of any event or circumstance that foreseeably
will become a Default or Event of Default;

          (b)  Of (i) any breach or non-performance of, or any default
under, any Contractual Obligation of the Company or any of its Subsidiaries
which could reasonably be expected to result in a Material Adverse Effect;
and (ii) any dispute, litigation, investigation, proceeding or suspension
which may exist at any time between the Company or any of its Subsidiaries
and any Governmental Authority which could reasonably be expected to result
in a Material Adverse Effect;

          (c)  Of the commencement of, or any material adverse development
in, any litigation or proceeding affecting the Company or any Subsidiary of
the Company which, if adversely determined, would reasonably be expected to
have a Material Adverse Effect, or in which the relief sought is an
injunction or other stay of the performance of this Agreement or any Loan
Document (such obligation to give notice shall be deemed satisfied by the
Company giving the Bank, pursuant to Section 6.02(c), the reports
containing the required information furnished by the Company to the SEC;

          (d)  Promptly upon becoming aware of any of the following that
could reasonably be expected to have a Material Adverse Effect:  (i) any
and all enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against the Company or any of
its Subsidiaries or any of their respective properties pursuant to any
applicable Environmental Laws, (ii) all other Environmental Claims, and
(iii) any environmental or similar condition on any real property adjoining
or in the vicinity of the property of the Company or any of its
Subsidiaries that could reasonably be anticipated to cause such property or
any part thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of such property under any Environmental
Laws;

          (e)  Of any other litigation or proceeding affecting the Company
or any of its Subsidiaries which the Company would be required to report to
the SEC pursuant to the Exchange Act, promptly after reporting the same to
the SEC;

          (f)  Of any of the following events affecting the Company,
together with a copy of any notice with respect to such event that may be
required to be filed with a Governmental Authority and any notice delivered
by a Governmental Authority to the Company with respect to such event:

               (1)  An ERISA Event;

               (2)  If any of the representations and warranties in Section
5.07 ceases to be true and correct in any material respect;

               (3)  The adoption of any new Pension Plan or other Plan
subject to Section 412 of the Code;

               (4)  The adoption of any amendment to a Pension Plan or
other Plan subject to Section 412 of the Code, if such amendment
results in a material increase in contributions or Unfunded Pension
Liability; or 

               (5)  The commencement of contributions to any Pension Plan
or other Plan subject to Section 412 of the Code; 

          (g)  Any Material Adverse Effect subsequent to the date of the
most recent audited financial statements of the Company delivered to the
Banks pursuant to subsection 6.01(a); 

          (h)  Of any material change in accounting policies or financial
reporting practices by the Company or any of its Subsidiaries;

          (i)  Of any labor controversy resulting in or which could
reasonably be expected to result in any strike, work stoppage, boycott,
shutdown or other labor disruption against or involving the Company or any
of its Subsidiaries;

          (j)  Of any change in the Company's name, business or legal
structure, place of business, or chief executive office if the Company has
more than one place of business; each such notice to be given in writing
and not less than 45 days prior to such change;

          (k)  Of the entry by the Company into any Specified Swap
Contract, together with the details thereof;

          (l)  Of the occurrence of any default, event of default,
termination event or other event under any Specified Swap Contract that
after the giving of notice, passage of time or both, would permit either
counterparty to such Specified Swap Contract to terminate early any or all
trades relating to such contract.
          Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary of the Company proposes to take with respect thereto and at what
time.  Each notice under subsection 6.03(a) shall describe with
particularity any and all clauses or provisions of this Agreement or other
Loan Document that have been (or foreseeably will be) breached or violated.

     6.04  Preservation of Corporate Existence, Etc.  The Company shall,
and shall cause each of its Subsidiaries to:

          (a)  Preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;

          (b)  Preserve and maintain in full force and effect all material
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the ordinary course of business except in
connection with transactions permitted by Section 7.03 and sales of assets
permitted by Section 7.02;

          (c)  Use reasonable efforts, in the ordinary course of business,
to preserve its business organization and preserve the goodwill and
business of the customers, suppliers, and others having material business
relations with it.

     6.05  Maintenance of Property.  The Company shall maintain, and shall
cause each of its Subsidiaries to maintain, and preserve all its property
which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted and make all necessary repairs
thereto and renewals and replacements thereof except where the failure to
do so could not reasonably be expected to have a Material Adverse Effect,
except as permitted by Section 7.02.  The Company and each Subsidiary of
the Company shall use the standard of care typical in the industry in the
operation and maintenance of its facilities and in the care and
preservation of the Timberlands.

     6.06  Insurance.

          (a)  In addition to insurance requirements set forth in the
Collateral Documents, the Company shall maintain and shall cause each of
its Subsidiaries to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts
as are customarily carried under similar circumstances by such other
Persons; including workers' compensation insurance, comprehensive general
liability and property insurance.  The Company may self-insure any or all
Workers' Compensation liabilities.

          (b)  To the extent that any of the insurance required by this
clause ceases to be available at commercially reasonable rates, the Company
may effect substitute insurance coverage therefor in accordance with the
prudent standards then being followed by other companies engaged in the
same or similar business or having comparable properties.  In the event
that the Company wishes to effect substitute coverage pursuant to the
foregoing proviso, it will notify the Bank of such intent as soon as
reasonably practicable, and not less than five Business Days prior to the
termination of the coverage for which substitution is to be made, furnish
the Bank with a report describing in reasonable detail the nature of such
substitute coverage and the reasons why the Company believes that such
substitute coverage is appropriate.

          (c)  Upon request of the Bank, the Company shall furnish the Bank
at reasonable intervals (but not more than once per calendar year) a
certificate of a Responsible Officer of the Company or any insurance broker
of the Company setting forth the nature and extent of all insurance
maintained by the Company and its Subsidiaries in accordance with this
Section or any Collateral Documents (and which, in the case of a
certificate of a broker, were placed through such broker).

     6.07  Payment of Obligations.  The Company shall, and shall cause its
Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and known liabilities, including:

          (a)  All tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such
Subsidiary;

          (b)  All lawful claims which, if unpaid, would by law become a
Lien upon its property unless such claims are contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are
being maintained by the Company and such Subsidiaries;

          (c)  All Indebtedness, as and when due and payable, but subject
to any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness; and

          (d)  All Obligations.

     6.07  Compliance with Laws.  The Company shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over
it or its business (including the Federal Fair Labor Standards Act), except
such as may be contested in good faith or as to which a bona fide dispute
may exist.

     6.09  Compliance with ERISA.  The Company shall, and to the fullest
extent permitted by applicable law shall cause each of its ERISA Affiliates
to:  (a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law;
(b) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; and (c) make all required contributions to any
Plan subject to Section 412 of the Code.

     6.10  Inspection of Property and Books and Records.  The Company shall
maintain and shall cause each of its Subsidiaries to maintain proper books
of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the Company
and such Subsidiary.  The Company shall permit, and shall cause each of its
Subsidiaries to permit, representatives of the Bank to visit, inspect, and
audit any of their respective properties, to examine their respective
corporate, financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at the expense of the Company and at such reasonable times
during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Company; provided, however, when an
Event of Default exists the Bank may do any of the foregoing at the expense
of the Company at any time during normal business hours and without advance
notice.

     6.11  Environmental Laws.

          (a)  The Company shall, and shall cause each of its Subsidiaries
to, conduct its operations and keep and maintain its property in compliance
in all material respects with all applicable Environmental Laws, except
such as may be contested in good faith by appropriate proceedings or as to
which a bona fide dispute may exist and resolution of which is being sought
by appropriate proceedings.

          (b)  Upon the written request of the Bank, the Company shall
submit and cause each of its Subsidiaries to submit, to the Bank, at the
Company's sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice or report
required pursuant to subsection 6.03(d), that could, individually or in the
aggregate, result in liability having a Material Adverse Effect.

     6.12  Use of Proceeds. The Company shall use the proceeds of the
Revolving Loans for working capital and other general corporate purposes
and the proceeds of the Term Loans to pay for the Acquisition Costs of
Timberlands and in each case, not in contravention of any Requirement of
Law or of any Loan Document.

     6.13  Solvency.  The Company shall at all times be, and shall cause
SPHC to be, Solvent.

     6.14  Protection of Collateral; Access.  The Company shall take all
steps reasonably necessary or advisable to preserve and protect the
Collateral (including all of the Timberlands covered by Collateral
Documents) and ensure that the Bank's rights and access to and interests in
the Collateral are not in any way materially impaired or adversely
affected.
     
     6.15  Further Assurances.

          (a)  The Company shall ensure that all written information,
exhibits and reports furnished to the Bank do not and will not contain any
untrue statement of a material fact and do not and will not omit to state
any material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made, and
will promptly disclose to the Bank and correct any defect or error that may
be discovered therein or in any Loan Document or in the execution,
acknowledgement or recordation thereof.

          (b)  Promptly upon request by the Bank, the Company shall do,
execute, acknowledge, deliver, record, re-record, file, re-file, register
and re-register, any and all such further acts, deeds, conveyances,
security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements,
notices of assignment, transfers, certificates, assurances and other
instruments the Bank may reasonably require from time to time in order
(i) to carry out more effectively the purposes of this Agreement or any
other Loan Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the properties, rights or interests covered by
any of the Collateral Documents, (iii) to perfect and maintain the
validity, effectiveness and priority of any of the Collateral Documents and
the Liens intended to be created thereby, and (iv) to better assure,
convey, grant, assign, transfer, preserve, protect and confirm to the Bank
the rights granted or now or hereafter intended to be granted to the Bank
under any Loan Document or under any other document executed in connection
therewith.


                                 ARTICLE VI

                             NEGATIVE COVENANTS

     The Company hereby covenants and agrees that, so long as the Bank
shall have any commitment to extend credit hereunder, or any Loan,
Outstanding Letter of Credit, Letter of Credit Obligation, or other
Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing:

     7.01  Limitation on Liens.  The Company shall not, and shall not
suffer or permit any of its Restricted Subsidiaries to, directly or
indirectly, make, create, incur, assume or suffer to exist any Lien upon or
with respect to any part of its property, whether now owned or hereafter
acquired, other than the following ("Permitted Liens"):

          (a)  Any Lien (other than Liens on the Collateral) existing on
the property of the Company or its Subsidiaries on the Closing Date and set
forth in Schedule 7.01 securing Indebtedness outstanding on such date or
refinancings thereof provided that each such refinancing of an Indebtedness
shall not result in any of the following: (1) an increase in the interest
rate and/or the then outstanding principal amount of the Indebtedness being
refinanced, (2) any additional assets securing the Indebtedness being
refinanced, (3) the Company or any Restricted Subsidiary incurring any
Guaranty Obligation in connection therewith; and (4) an increase, during
the term of this Agreement and for one year thereafter, in the principal
payments of the Indebtedness being refinanced, and (5) any restriction on
the ability of the Company to perform its obligations under this Agreement
and any other Loan Document;

          (b)  Any Lien created under any Loan Document;

          (c)  Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to
the extent that non-payment thereof is permitted by Section 6.07, provided
that no Notice of Lien has been filed or recorded.  For purposes of this
subsection, "Notice of Lien" means any "notice of lien" or similar document
intended to be filed or recorded with any court, registry, recorder's
office, central filing office or other Governmental Authority for the
purpose of evidencing, creating, perfecting or preserving the priority of a
Lien securing obligations owing to a Governmental Authority;

          (d)  Carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary
course of business which are not delinquent or remain payable without
penalty or which are being contested in good faith and by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property subject thereto;

          (e)  Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
social security legislation;

          (f)  Liens (other than Liens on the Collateral) on the property
of the Company or any of its Restricted Subsidiaries securing (i) the non-
delinquent performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a
like nature; in each case, incurred in the ordinary course of business,
provided all such Liens in the aggregate would not (even if enforced) cause
a Material Adverse Effect;

          (g)  Liens (other than Liens on the Collateral) consisting of
judgment or judicial attachment liens, provided that the enforcement of
such Liens is effectively stayed;

          (h)  Easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Company and
its Restricted Subsidiaries;

          (i)  Liens on assets of Persons which become Restricted
Subsidiaries after the date of this Agreement, provided, however, that such
Liens existed at the time the respective Persons became Subsidiaries and
were not created in anticipation thereof;

          (j)  Security interests on any property acquired or held by the
Company or its Restricted Subsidiaries in the ordinary course of business,
other than the Collateral, securing Indebtedness in an aggregate
outstanding principal amount which cannot exceed at any time $25,000,000
minus the aggregate principal amount of the then outstanding Term Loans in
excess of $10,000,000;

          (k)  Liens securing Capital Lease Obligations on assets subject
to such Capital Leases, provided that such Capital Leases are permitted
under subsection 7.11;

          (l)  Liens arising solely by virtue of any statutory or common
law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; provided that (i) such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by the Company in excess of those set forth by regulations
promulgated by the Federal Reserve Board, and (ii) such deposit account is
not intended by the Company or any of its Restricted Subsidiaries to
provide collateral to the depository institution.  The provisions of this
subsection shall not apply to cash collateral accounts maintained by SPHC
with any third Person; and

          (m)  Liens securing Indebtedness permitted under Section 7.05(d).

     7.02  Disposition of Assets.  The Company shall not, and shall not
suffer or permit any of its Restricted Subsidiaries to, directly or
indirectly, sell, assign, lease, convey, transfer or otherwise dispose of
(whether in one or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except:

          (a)  Dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business; 

          (b)  The sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to
the purchase price of such replacement equipment; and

          (c)  The sale of all or part of Salmon Creek Corporation or the
Salmon Creek Property; and

          (d)  Sales of assets which are not covered by the preceding
subsections of this Section, which sales do not exceed, on a cumulative
basis, $25,000,000 during the term of this Agreement and which assets are
not subject to any Collateral Document.

     7.03  Consolidations and Mergers.  The Company shall not, and shall
not suffer or permit any of its Restricted Subsidiaries to, merge,
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 or in favor of any Person, except:

          (a)  Any Subsidiary of the Company may merge with any one or more
Subsidiaries of the Company, provided that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation; and

          (b)  Any Subsidiary of the Company may sell all or substantially
all of its assets (upon voluntary liquidation or otherwise), to the Company
or another Wholly-Owned Subsidiary of the Company.

     7.04  Loans and Investments.  The Company shall not purchase or
acquire, or suffer or permit any of its Restricted Subsidiaries to purchase
or acquire, or make any commitment therefor, any capital stock, equity
interest, all or substantially all of the assets of, or any obligations or
other securities of, or any interest in, any Person, or make any advance,
loan, extension of credit or capital contribution to or any other
investment in, any Person including any Affiliate of the Company, except
for:

          (a)  Investments in Cash Equivalents;

          (b)  Extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;

          (c)  Extensions of credit by the Company to any of its
Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to
another of its Wholly-Owned Subsidiaries of the Company;

          (d)  Investments made pursuant to the Bering Agreement or the
Bear Stearns Investment Advisory Contract; and

          (e)  Extensions of credit in the ordinary course of business to
its employees and independent contractors which in the aggregate
outstanding amount do not exceed $1,000,000 at any time.

     7.05  Limitation on Indebtedness.  The Company shall not, and shall
not suffer or permit any of its Restricted Subsidiaries to, create, incur,
assume, suffer to exist, or otherwise become or remain directly or
indirectly liable with respect to, any Indebtedness, except:

          (a)  Indebtedness incurred pursuant to this Agreement;

          (b)  Accounts payable to trade creditors for goods and services
and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of business of the Company or such
Restricted Subsidiary in accordance with customary terms and paid within
the specified time, unless contested in good faith by appropriate
proceedings and reserved for in accordance with GAAP;

          (c)  Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.08; 

          (d)  Up to an aggregate outstanding principal amount of
$10,000,000 in tax-free financing, which amount shall be an aggregate limit
for the period covered by this Agreement;

          (e)  Indebtedness existing on the Closing Date and set forth in
Schedule 7.05, which Indebtedness may be refinanced on terms and conditions
no less favorable than those existing on the Closing Date;

          (f)  Indebtedness secured by Liens permitted by Section 7.01(i),
(j) and (k);

          (g)  Indebtedness incurred in connection with leases permitted
pursuant to Section 7.11;

          (h)  Extensions of credit permitted under Sections 7.04(c) and
7.04(e); and

          (i)  Indebtedness incurred in connection with investments
permitted under Subsection 7.04(d).

In the event of any conflict between this Section and any other provisions
of this Agreement, the provisions of this Section shall prevail.

     7.06  Transactions with Affiliates.

          (a)  The Company shall not, and shall not suffer or permit any of
its Restricted Subsidiaries to, enter into any transaction with any
Affiliate of the Company or of any such Restricted Subsidiary, except (a)
as expressly permitted by this Agreement, or (b) in its ordinary course of
business and pursuant to the reasonable requirements of the business of the
Company or such Restricted Subsidiary; in each case (a) and (b), upon fair
and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would obtain in a comparable arm's-length transaction with
a Person not an Affiliate of the Company or such Restricted Subsidiary.

          (b)  The provisions contained in this Section shall not apply to:
(i) any transaction permitted by Section 7.12, (ii) the execution and
delivery of, the performance of, and the making of any payments required
by, the Tax Sharing Agreement, (iii) the execution and delivery of, the
performance of, and the making of any payments required by, the Britt
Lumber Agreement, (iv) the execution and delivery of, the performance of,
and the making of any payments required by, the Bering Agreement, (v) the
making of payments to MAXXAM Group Inc., MAXXAM Inc. and their Affiliates
for reimbursement for actual services provided thereby to the Company and
its Restricted Subsidiaries based on actual costs and an allocable share of
overhead expenses consistent with prior practices and (vi) compensation,
indemnification and other benefits paid or made available to officers,
directors and employees of the Company or a Restricted Subsidiary for
services rendered in such person's capacity as an officer, director, or
employee (including reimbursement or advancement of reasonable out-of-
pocket expenses and directors' and officers' liability insurance).

     7.07  Use of Proceeds.  The Company shall not and shall not suffer or
permit any of its Subsidiaries to use any portion of the proceeds of any
extension of credit under this Agreement, directly or indirectly, (i) to
purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act, or (v) to make any
investments under the Bering Agreement or under the Bear Stearns Investment
Advisory Contract.

     7.08  Contingent Obligations.  The Company shall not, and shall not
suffer or permit any of its Restricted Subsidiaries to, create, incur,
assume or suffer to exist any Contingent Obligations except:

          (a)  Endorsements for collection or deposit in the ordinary
course of business;

          (b)  Contingent Obligations of the Company and its Restricted
Subsidiaries existing as of the Closing Date and listed in Schedule 7.08;

          (c)  Contingent Obligations entered into in the ordinary course
of business;

          (d)  Contingent Obligations relating to Standby Letters of
Credit; and

          (e)  Permitted Swap Obligations.

     7.09  Joint Ventures.  The Company shall not, and shall not suffer or
permit any of its Restricted Subsidiaries to enter into any Joint Venture,
other than in the ordinary course of business.

     7.10  ERISA.  The Company shall not, and to the fullest extent
permitted by applicable law shall not suffer or permit any of its ERISA
Affiliates to:  (a) engage in a prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of the Company in an
aggregate amount in excess of $5,000,000; or (b) engage in a transaction
that could reasonably be expected to be subject to Section 4069 or 4212(c)
of ERISA and that could reasonably be expected to have a Material Adverse
Effect.

     7.11  Lease Obligations.  The Company shall not, and shall not suffer
or permit any of its Restricted Subsidiaries to, create or suffer to exist
any obligations for the payment of rent for any property under lease or
agreement to lease, except for:

          (a)  Leases of the Company and its Restricted Subsidiaries in
existence on the Closing Date and any renewal, extension or refinancing
thereof;

          (b)  Capital Leases other than those permitted under subsection
(a) of this Section, entered into by the Company or any of its Restricted
Subsidiaries after the Closing Date to finance the acquisition of
equipment; provided that the aggregate annual rental payments for all such
Capital Leases shall not exceed $10,000,000 in the aggregate;

          (c)  Operating Leases entered into by the Company and its
Restricted Subsidiaries in the ordinary course of business.

     7.12  Restricted Payments.  The Company shall not declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its
capital stock, or purchase, redeem or otherwise acquire for value any
shares of its capital stock or any warrants, rights or options to acquire
such shares, now or hereafter outstanding; except that the Company may:

          (a)  Declare and make dividend payments or other distributions
payable solely in its common stock;

          (b)  Purchase, redeem or otherwise acquire shares of its common
stock or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its
common stock; and 

          (c)  Declare or pay cash dividends to its stockholders and
purchase, redeem, or otherwise acquire shares of its capital stock or
warrants, rights or options to acquire any such shares for cash solely out
of 50% of Adjusted Consolidated Net Income of the Company arising after
March 1, 1993; provided that immediately after giving effect to such
proposed action, (i) the Adjusted Consolidated Cash Flow Coverage Ratio as
of the last quarterly calculation is not less than 1.00 to 1.00, and
(ii) no Default or Event of Default would exist.  The direct or indirect
dividend or distribution to the stockholders of the Company of any
consideration received by the Company or any of its Subsidiaries from any
Person (A) in respect of all or any part of the Capital Stock or Redeemable
Stock of Salmon Creek Corporation, or (B) in respect of all or any part of
the real property constituting the Salmon Creek Property, or (C) otherwise
in connection with Salmon Creek Corporation or the Salmon Creek Property,
except in connection with the harvesting of timber located on the Salmon
Creek Property, shall be exempt from the limitation contained in this
clause (c) (it being understood that any Subsidiary of the Company can
distribute any such consideration to the Company or to any other Subsidiary
of the Company and that the Company can distribute any such consideration
to its stockholders pursuant to this clause (c)).

     7.13  Consolidated Cash Flow Coverage Ratio.  The Company shall not
permit (as of the end of any fiscal quarter) its Consolidated Cash Flow
Coverage Ratio to be less than 2.00 to 1.00.

     7.14  Change in Business.  The Company shall not, and shall not permit
any of its Subsidiaries to, engage in any material line of business
substantially different from those lines of business carried on by it on
the date hereof.

     7.15  Change in Structure.  Except as expressly permitted under
Sections 7.03 or 7.12, the Company shall not make any changes in its equity
capital structure (including in the terms of its outstanding stock), or
amend its certificate of incorporation or by-laws in any material respect.

     7.16  Accounting Changes.  The Company shall not, and shall not suffer
or permit any of its Restricted Subsidiaries to, make any significant
change in accounting treatment or reporting practices, except as required
by GAAP or the SEC or change the fiscal year of the Company or of any of
its consolidated Restricted Subsidiaries; provided, however, that the
Company or any of its consolidated Restricted Subsidiaries may change any
of its significant accounting methods or reporting practices provided that
the alternative accounting method chosen conforms with GAAP and the Company
or any of its consolidated Restricted Subsidiaries has obtained a
"preferability letter" from its independent public accountants stating that
each such significant change in accounting method is preferable in the
circumstances.

     7.17  Other Contracts.  The Company shall not enter into any
employment contracts or other employment or service-retention arrangements
whose terms, including salaries, benefits and other compensation, are not
normal and customary in the industry.


                                ARTICLE VII

                             EVENTS OF DEFAULT

     8.01  Event of Default.  Any of the following shall constitute an
"Event of Default":

          (a)  Non-Payment.  The Company fails to make, (i) when and as
required to be made herein, payments of any amount of principal of any
Loan, or (ii) when and as required to be paid under any Specified Swap
Contract, any payment or transfer under such Specified Swap Contract, or
(iii) within five days after the same becomes due, payment of any interest,
fee or any other amount payable hereunder or under any other Loan Document
(other than a Specified Swap Contract); or

          (b)  Representation or Warranty.  Any representation or warranty
by the Company or any Subsidiary of the Company made or deemed made herein,
in any other Loan Document other than a Specified Swap Contract, or which
is contained in any certificate, document or financial or other statement
by the Company, any Subsidiary of the Company, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document other than a Specified Swap Contract, is incorrect in any material
respect on or as of the date made or deemed made; or

          (c)  Other Defaults.  The Company fails to perform or observe any
other term or covenant contained in this Agreement or any Loan Document, or
any default or event of default shall occur thereunder and such default
shall continue unremedied for a period of 30 days (the "30-Day Period")
after the earlier of (i) the date upon which a Responsible Officer of the
Company knew or should have known of such failure or (ii) the date upon
which written notice thereof is given to the Company by the Bank, unless
(in both (i) and (ii)) the default is curable, the Company has started to
cure such default and continues to try to cure such default, and the
default is cured within the 60 days starting on the first day of the 30-Day
Period; 

          (d)  Cross-Default.  (i) The Company or any of its Restricted
Subsidiaries (A) fails to make any payment in respect of any Indebtedness
or Contingent Obligation (other than in respect of Swap Contracts), having
an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $5,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such
failure; or (B) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist, under any
agreement or instrument relating to any such Indebtedness or Contingent
Obligation, and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such
failure if the effect of such failure, event or condition is to cause, or
to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or (ii) there occurs under
any Specified Swap Contract an Early Termination Date resulting from
(1) any event of default under such Specified Swap Contract as to which the
Company is the Defaulting Party (as defined in such Specified Swap
Contract) or (2) any Termination Event (as defined in such Specified Swap
Contract) as to which the Company is an Affected Party (as defined in such
Specified Swap Contract), and, in either event, the Swap Termination Value
owed by the Company as a result thereof is greater than $5,000,000; or

          (e)  Insolvency; Voluntary Proceedings.  The Company, SPHC, or
any of the Company's Restricted Subsidiaries (i) ceases or fails to be
solvent, or generally fails to pay, or admits in writing its inability to
pay, its debts as they become due, subject to applicable grace periods, if
any, whether at stated maturity or otherwise; (ii) voluntarily ceases to
conduct its business in the ordinary course; (iii) commences any Insolvency
Proceeding with respect to itself; or (iv) takes any action to effectuate
or authorize any of the foregoing; or

          (f)  Involuntary Proceedings.  (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any of its
Restricted Subsidiaries or SPHC, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied against a
substantial part of the Company's or SPHC's properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy;
(ii) the Company or SPHC admits the material allegations of a petition
against it in any Insolvency Proceeding, or an order for relief (or similar
order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or SPHC acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or
agent therefor), or other similar Person for itself or a substantial
portion of its property or business; or

          (g)  ERISA.  (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably
be expected to result in liability of the Company under Title IV of ERISA
to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount
in excess of $5,000,000; or (ii) the aggregate amount of Unfunded Pension
Liability among all Pension Plans at any time exceeds $5,000,000; or
(iii) the Company or any ERISA Affiliate shall fail to pay when due, after
the expiration of any applicable grace period, any installment payment with
respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $5,000,000; or

          (h)  Monetary Judgments.  One or more final (non-interlocutory)
judgments, orders, decrees or arbitration awards is entered against the
Company or any of its Restricted Subsidiaries involving in the aggregate a
liability (to the extent not covered by independent third-party insurance
as to which the insurer does not dispute coverage) as to any single or
related series of transactions, incidents or conditions, that would
reasonably be expected to have a Material Adverse Effect, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 30 days after the entry thereof; or

          (i)  Non-Monetary Judgments.  Any non-monetary judgment, order or
decree is entered against the Company or any of its Restricted Subsidiaries
which does or would reasonably be 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

          (j)  Change in Control.  There occurs any Change in Control; or 

          (k)  Collateral.

               (1)  Any breach or default occurs under any Collateral
Document; or

               (2) (A)  Any material provision of any Collateral Document
shall for any reason cease to be valid and binding on or
enforceable against the Company thereto; or

                  (B)  Any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a
valid security interest or Lien in the Collateral purported to be
covered thereby; or

                  (C)  The Bank ceases to have, for any reason, a
perfected and first priority security interest or Lien on any
item of Collateral (subject only to Permitted Liens) and the
failure to have such perfected first priority security interest
or Lien is not caused by the Bank's failure to timely file a UCC
continuation statement;

     and the sum of (x) the aggregate principal amount of the then
outstanding Loans, plus (y) the Outstanding Letters of Credit, plus
(z) Letter of Credit Obligations is more than the amount computed
pursuant to clause (a) of the definition of the Borrowing Base
(excluding, in the computation of the Borrowing Base for purposes of
this clause the Collateral encumbered by the Collateral Documents
covered by subclauses (A), (B), and (C) of this subclause; or

               (3)  The Company shall state in writing its belief that any
material provision of any Collateral Document is not valid and binding
or the Company shall bring an action to limit its obligations or
liabilities thereunder; or

               (4)  Any title insurance coverage in respect of any material
portion of the Timberlands covered by a Collateral Document is
disavowed or becomes ineffective and the Company fails to furnish the
Bank with replacement coverages in amount, form and substance
substantially similar to such title insurance coverage from title
insurance companies reasonably satisfactory to the Bank; or

               (5)  The Bank, in good faith, considers any Collateral to be
unsafe or in danger of misuse to the extent that the Bank's prospect
of or right to payment or performance under this Agreement or any Loan
Document is materially impaired; or

          (l)  Condemnation.  All, or such as in the reasonable opinion of
the Bank constitutes a substantial portion, of the Timberlands or other
property of the Company is condemned, seized, or expropriated; or

          (m)  Regulatory Action.  Any Governmental Authority takes or
institutes action which could reasonably be expected to have a Material
Adverse Effect on the Company's unconsolidated financial condition or
results of operations or ability to perform its obligations under this
Agreement or any other Loan Document.

     8.02  Remedies.  If any Event of Default occurs, the Bank may:

          (a)  Declare its commitment to make Loans and/or issue and amend
Standby Letters of Credit to be terminated, whereupon such commitment shall
be terminated;

          (b)  Declare the unpaid principal amount of all outstanding
Loans, all Outstanding Letters of Credit (including the Company's
reimbursement obligations for Outstanding Letters of Credit), all Letter of
Credit Obligations, all interest accrued and unpaid thereon, and all other
amounts owing or payable hereunder or under any other Loan Document to be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the
Company; and

          (c)  Exercise on behalf of itself all rights and remedies
available to it under the Loan Documents or applicable law;

provided, however, that upon the occurrence of any event specified in
subsection (e) or (f) of Section 8.01 (in the case of clause (i) of
subsection (f) upon the expiration of the 60-day period mentioned therein),
the obligation of the Bank to make Loans and issue and amend Standby
Letters of Credit shall automatically terminate and the unpaid principal
amount of all outstanding Loans, all Outstanding Letters of Credit
(including the Company's reimbursement obligations for Outstanding Letters
of Credit), all Letter of Credit Obligations, and all interest and other
amounts as aforesaid shall automatically become due and payable without
further act of the Bank.

Amounts paid by the Company to be applied to prepayment of  Letter of
Credit Obligations and to the Company's reimbursement obligations for
Outstanding Letters of Credit may be held by the Bank as cash collateral
for such Obligations.

     8.03  Specified Swap Contract Remedies.  Notwithstanding any other
provision of this Article, each Swap Provider shall have the right, with
prior notice to the Bank, with respect to any Specified Swap Contract of
such Swap Provider, (a) to declare an event of default, termination event
or other similar event thereunder and to create an Early Termination Date,
(b) to determine net termination amounts in accordance with the terms of
such Specified Swap Contracts and to set-off amounts in accordance with the
terms of such Specified Swap Contracts, and (c) to prosecute any legal
action against the Company to enforce net amounts owing to such Swap
Provider.  The Company hereby grants the Bank a security interest in all of
the Company's rights, title, and interests in the Company's rights to
payment and performance by the Swap Provider in each of the Specified Swap
Contracts.
     8.04  Rights Not Exclusive.  The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any
other rights, powers, privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement now existing or
hereafter arising.

     8.05  Certain Financial Covenant Defaults.  In the event that, after
taking into account any extraordinary charge to earnings taken or to be
taken as of the end of any fiscal period of the Company (a "Charge"), and
if solely by virtue of such Charge, there would exist an Event of Default
due to the breach of Section 7.13 as of such fiscal period end date, such
Event of Default shall be deemed to arise upon the earlier of (a) the date
after such fiscal period end date on which the Company announces publicly
it will take, is taking or has taken such Charge (including an announcement
in the form of a statement in a report filed with the SEC) or, if such
announcement is made prior to such fiscal period end date, the date that is
such fiscal period end date, and (b) the date the Company delivers to the
Bank its audited annual or unaudited quarterly financial statements in
respect of such fiscal period reflecting such Charge as taken.


                                ARTICLE VIII

                               MISCELLANEOUS

     9.01  Amendments and Waivers.  No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect
to any departure by the Company therefrom, shall be effective unless the
same shall be in writing and signed by the Bank and the Company, and then
any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

     9.02  Notices.

          (a)  All notices, requests, consents, approvals, waivers and
other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Company or the Bank by facsimile (i) shall be
immediately confirmed by a telephone call to the Bank or the Company,
respectively, at the number specified on the signature pages to this
Agreement and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or
facsimile number specified for notices on the signature pages of this
Agreement; or, as directed to the Company or the Bank, to such other
address as shall be designated by such party in a written notice to the
other party, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the other party.

          (b)  All such notices, requests, consents, approvals, and
communications shall, when transmitted by overnight delivery, or faxed, be
effective when delivered for overnight (next-day) delivery, or transmitted
in legible form by facsimile machine, respectively, or if mailed, upon the
third Business Day after the date deposited into the U.S. mail, or if
delivered, upon delivery; except that notices of borrowing, of
conversion/continuation, prepayment, and termination or reduction of
commitments pursuant to Article II shall not be effective until actually
received by the Bank.

          (c)  Any agreement of the Bank herein to receive certain notices
by telephone or facsimile is solely for the convenience and at the request
of the Company.  The Bank shall be entitled to rely on the authority of any
Person purporting to be a Person authorized by the Company to give such
notice and the Bank shall not have any liability to the Company or other
Person on account of any action taken or not taken by the Bank in reliance
upon such telephonic or facsimile notice.  The obligation of the Company to
repay the Loans, the Letter of Credit Obligations, and the other
Obligations shall not be affected in any way or to any extent by any
failure by the Bank to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Bank of a confirmation which is at
variance with the terms understood by the Bank to be contained in the
telephonic or facsimile notice.

     9.03  No Waiver; Cumulative Remedies.  No failure to exercise and no
delay in exercising, on the part of the Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof;  nor shall any
single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege.

     9.04  Costs and Expenses.  The Company shall:

          (a)  Whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within 20 Business Days after demand
(subject to subsection 4.01(d)) for all costs and expenses incurred by the
Bank in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement,
any Loan Document, and any other documents prepared in connection herewith
or therewith, and the consummation of the transactions contemplated hereby
and thereby, including filing or recording taxes or fees in connection with
any Collateral Documents, title insurance premiums, documentary stamp or
intangible taxes, recording fees and mortgage taxes payable in connection
with the recording of any Deed of Trust or the issuance of title insurance
policies, and reasonable Attorney Costs incurred by the Bank with respect
thereto; and

          (b)  Pay or reimburse the Bank within 20 Business Days after
demand (subject to subsection 4.01(d)) for all costs and expenses
(including Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding);
and

          (c)  Pay or reimburse the Bank within 20 Business Days after
demand (subject to subsection 4.01(d)) for all reasonable appraisal
(including the allocated cost of internal appraisal services), audit,
environmental inspection and review (including the allocated cost of such
internal services), search and filing costs, fees and expenses, incurred or
sustained by the Bank in connection with the matters referred to under
subsections (a) and (b) of this Section.

     9.05  Company Indemnification.

          (a)  Whether or not the transactions contemplated hereby are
consummated, the Company shall indemnify, defend and hold the Bank, each
Bank Affiliate, and each of its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the
Loans and Letter of Credit Obligations, expiration of the Standby Letters
of Credit, and termination of all Specified Swap Contracts) be imposed on,
incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred
to herein, or the transactions contemplated hereby, or any action taken or
omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding)
related to or arising out of this Agreement, the Specified Swap Contracts,
or the Standby Letters of Credit, the Loans or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that the
Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross
negligence or willful misconduct of such Indemnified Person. The agreements
in this Section shall survive payment of all other Obligations.

          (b) (1)  The Company shall indemnify, defend and hold harmless
each Indemnified Person, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including Attorney Costs and the
allocated cost of internal environmental audit or review services), which
may be incurred by or asserted against such Indemnified Person in
connection with or arising out of any pending or threatened investigation,
litigation or proceeding, or any action taken by any Person, with respect
to any Environmental Claim arising out of or related to any property
subject to a Deed of Trust in favor of the Bank except to the extent that
such Environmental Claim arises by reason of the Bank's actions taken after
the Bank acquires title to any such property following a foreclosure sale
or deed-in-lieu transaction and such actions on the part of the Bank do not
relate or pertain in any way to any conditions or circumstances that were
either (i) caused or exacerbated (whether directly or indirectly) in any
way by the Company, or (ii) existed (regardless of whether they were known
or unknown) at the time the Bank acquired title to such property.  No
reasonable action taken (reasonableness of an action to be determined as of
the time and under the circumstances such action is taken) by legal counsel
chosen by the Bank in defending against any such investigation, litigation
or proceeding or requested remedial, removal or response action shall
vitiate or any way impair the Company's obligation and duty hereunder to
indemnify and hold harmless the Bank.

               (2)  In no event shall any site visit, observation, or
testing by the Bank (or any contractee of the Bank) be deemed a
representation or warranty that Hazardous Materials are or are not present
in, on, or under, the site, or that there has been or shall be compliance
with any Environmental Law.  Neither the Company nor any other Person is
entitled to rely on any site visit, observation, or testing by the Bank. 
The Bank owes no duty of care to protect the Company or any other Person
against, or to inform the Company or any other party of, any Hazardous
Materials or any other adverse condition affecting any site or property. 
The Bank shall not be obligated to disclose to the Company or any other
Person any report or findings made as a result of, or in connection with,
any site visit, observation, or testing by the Bank.

          (c)  The obligations in this Section shall survive payment of all
other Obligations.  Promptly after receipt by an Indemnified Person of
notice of the commencement of any proceeding indemnified against hereunder,
such Indemnified Person will, if a claim in respect thereof is to be made
against the Company hereunder, notify the Company in writing of the
commencement thereof; but the failure so to notify the Company (i) will not
relieve it from liability under subsections (a) and (b) above unless and to
the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the Company of substantial rights and defenses
and (ii) will not, in any event, relieve the Company from any obligations
to any Indemnified Person other than the indemnification obligation
provided above.  The Company shall be entitled to appoint counsel of the
Company's choice at the Company's expense to represent the Indemnified
Person in any action for which indemnification is sought (in which case the
Company shall not thereafter be responsible for the fees and expenses of
any separate counsel retained by the Indemnified Person except as set forth
below); provided, however, that such counsel shall be reasonably
satisfactory to the Indemnified Person.  Notwithstanding the Company's
election to appoint counsel to represent the Indemnified Person in an
action, the Indemnified Person shall have the right to employ separate
counsel (including local counsel), and the Company shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the use
of counsel chosen by the Company to represent the Indemnified Person would
present such counsel with a conflict of interest, (ii) the actual or
potential defendants in, or targets of, any such proceeding include both
the Indemnified Person and the Company and the Indemnified Person shall
have reasonably concluded that there may be legal defenses available to the
Indemnified Person which are different from or additional to those
available to the Company, (iii) the Company shall not have employed counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person within a reasonable time after notice of the institution
of such action, or (iv) the Company shall authorize the Indemnified Person
to employ separate counsel at the expense of the Company.  The Company will
not, without the prior written consent of the Indemnified Person (which
consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any proceeding in
respect of which indemnification may be sought hereunder (whether or not
the Indemnified Person is an actual or potential party to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Person from all liability arising
out of such proceeding.

          (d)  All amounts owing under this Section shall be paid within 30
days after demand.

     9.06  Marshalling; Payments Set Aside.  The Bank shall be under no
obligation to marshall any assets in favor of the Company or any other
Person or against or in payment of any or all of the Obligations.  To the
extent that the Company makes a payment to the Bank, or the Bank exercises
its right of set-off, and such payment or the proceeds of such set-off or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by the Bank in its discretion) to be repaid to a trustee,
receiver or any other party, in connection with any Insolvency Proceeding
or otherwise, then to the extent of such recovery the obligation or part
thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such set-
off had not occurred.

     9.07  Successors and Assigns.  The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign
or transfer any of its rights or obligations under this Agreement without
the prior written consent of the Bank.

     9.08  Assignments, Participations, etc.

          (a)  The Bank may at any time, with the written consent of the
Company at all times other than during the existence of an Event of
Default, which consent shall not be unreasonably withheld, at any time
assign and delegate to one or more Persons (provided that no written
consent of the Company shall be required in connection with any assignment
and delegation to an Affiliate of the Bank and the costs charged to the
Company shall not exceed the costs that would have been charged had the
Bank not made such assignment and delegation) (each an "Assignee") all, or
any ratable part of all, of the Loans, the Company's reimbursement
obligations for Outstanding Letters of Credit, the Letter of Credit
Obligations, the Bank's commitment to extend credit hereunder, and the
other rights and obligations of the Bank hereunder; provided, however, that
the Company may continue to deal solely and directly with the Bank in
connection with the interest so assigned to an Assignee until written
notice of such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have been given
to the Company by the Bank and the Assignee.

          (b)  The Bank may at any time sell to one or more Persons (a
"Participant") participating interests in any Loans, the Company's
reimbursement obligations for any Outstanding Letters of Credit, any Letter
of Credit Obligations, the Bank's commitment to extend credit hereunder,
and the other interests of the Bank hereunder and under the other Loan
Documents; provided, however, that (i) the Bank's obligations under this
Agreement shall remain unchanged, (ii) the Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company
shall continue to deal solely and directly with the Bank in connection with
the Bank's rights and obligations under this Agreement and the other Loan
Documents, and (iv) the Participant shall, together with the Bank, be
entitled to the non-exclusive protection of Sections 3.01, 3.03 and 9.10 as
though it were also the "Bank" hereunder; except that the Company shall not
be obliged to pay the Participant an amount greater than what the Company
would have had to pay the Bank if it had not sold the participating
interest to the Participant.  In the case of any such participation, if
amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as an Assignee under this Agreement.

          (c)  Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, the Bank may assign
all or any portion of the Loans held by it to any Federal Reserve Bank or
the United States Treasury as collateral security pursuant to Regulation A
of the Board of Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank, provided that any payment in
respect of such assigned Loans made by the Company to or for the account of
the Bank in accordance with the terms of this Agreement shall satisfy the
Company's obligations hereunder in respect to such assigned Loans to the
extent of such payment.  No such assignment shall release the Bank from its
obligations hereunder.

     9.09  Confidentiality.  The Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care
to maintain the confidentiality of all information identified as
"confidential" or "secret"  by the Company and provided to it by the
Company or any Subsidiary of the Company, under this Agreement or any other
Loan Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business
now or hereafter existing or contemplated with the Company or any
Subsidiary of the Company; except to the extent such information (i) was or
becomes generally available to the public other than as a result of
disclosure by the Bank, or (ii) was or becomes available on a 
non-confidential basis from a source other than the Company, provided that
such source is not bound by a confidentiality agreement with the Company
known to the Bank; provided, however, that the Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with
an examination of the Bank by any such authority; (B) pursuant to subpoena
or other court process; provided that the Bank shall, if permitted by
applicable law, offer the Company a reasonable opportunity to obtain a
protective order in connection therewith; (C) when required to do so in
accordance with the provisions of any applicable Requirement of Law; (D) to
the extent reasonably required in connection with any litigation or
proceeding to which the Bank or its Affiliates may be party; provided that
the Bank shall, if permitted by applicable law, offer the Company a
reasonable opportunity to obtain a protective order in connection
therewith; (E) to the extent reasonably required in connection with the
exercise of any remedy hereunder or under any other Loan Document; (F) to
the Bank's independent auditors and other professional advisors if such
advisors have a duty of confidentiality toward the Bank; (G) to any
Participant or Assignee, actual or potential, provided that such Person
agrees in writing to keep such information confidential to the same extent
required of the Bank hereunder; (H) as to the Bank or its Affiliate, as
expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Company or any Subsidiary of the
Company is party or is deemed party with the Bank or such Affiliate; and
(I) to its Affiliates provided that such Affiliates shall be subject to the
same confidentiality obligation as the Bank in instances where there is no
document or agreement regarding confidentiality between the Company or any
Subsidiary or the Company and the Bank or such Affiliate.

     9.10  Set-off.  In addition to any rights and remedies of the Bank
provided by law, if an Event of Default exists or the Loans have been
accelerated, the Bank is authorized at any time and from time to time,
without prior notice to the Company, any such notice being waived by the
Company 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 by, and other indebtedness at any time owing by, the Bank
to or for the credit or the account of the Company against any and all
Obligations owing to the Bank, now or hereafter existing, irrespective of
whether or not the Bank shall have made demand under this Agreement or any
Loan Document and although such Obligations may be contingent or unmatured.

     9.11  Counterparts.  This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument. 

     9.12  Severability; Conflicting Provisions.

          (a)  Severability.  The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.

          (b)  Conflicting Provisions.  In the event of any conflict
between any provision contained in this Agreement and any provision
contained in another Loan Document, the provision contained in this
Agreement shall prevail.

     9.13  No Third Parties Benefited.  This Agreement is made and entered
into for the sole protection and legal benefit of the Company, the Bank,
and each Affiliate of the Bank and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or
have any direct or indirect cause of action or claim in connection with,
this Agreement or any of the other Loan Documents.

     9.14  Governing Law and Jurisdiction.

          (a)  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE BANK
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

          (b)  Nothing contained in this Section shall override any
contrary provision contained in any Specified Swap Contract.

     9.15  Verification of Receivables.  The Bank may at any time, either
orally or in writing, request confirmation from any Receivable Debtor of
the current amount and status of the Receivable upon which such Receivable
Debtor is obligated.

     9.16  Termination of Commitment to Lend under the Prior Credit
Agreement.  Upon execution of this Agreement by the Company and the Bank,
the Bank's commitment to issue and amend letters of credit and to lend
under the Prior Credit Agreement shall automatically terminate without
necessity of further act of the Bank and the Company.


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.


THE PACIFIC LUMBER COMPANY


By: GARY L. CLARK
Name:  Gary L. Clark
Title:  Vice President-Finance and 
               Administration


Address for Notices:

     The Pacific Lumber Company
     Mill and Main Street
     Scotia, California  95565

     Attention:  Gary L. Clark
                 Vice President-Finance
                    and Administration
     Telephone:  707/764-4213
     FAX:  707/764-4269


     With a copy to:

     MAXXAM Inc.
     5847 San Felipe - Suite 2600
     Houston, Texas  77057

     Attention:  Treasury Department

     Telephone:  713/267-3642
     FAX:  713/267-3704





BANK OF AMERICA NATIONAL TRUST
  AND SAVINGS ASSOCIATION


By: MICHAEL J. BALOK
Name:  Michael J. Balok
Title:  Vice President


Address for notices:

     Credit Products #3838
     Bank of America National Trust and Savings Association 
     555 California Street - 41st Floor
     P.O. Box 37000
     San Francisco, CA  94137

     Attention:  Michael J. Balok

     Telephone:  415/622-2018
     FAX:  415/622-4585


     Domestic and Offshore Lending Office:
     1850 Gateway Boulevard
     Concord, California 94520


     Place of Payment:
     Bank of America National Trust and Savings Association 
     ABA #121-000-358-S.F.
     1850 Gateway Boulevard
     Concord, CA  94520
     Account # 12331 83980; Ref. The Pacific Lumber Company
     
     Telephone:  510/657-7350
     FAX: 510/675-7531

     Attention:  Terry Peach

     SCHEDULES

     Schedule 5.05  Litigation
     Schedule 5.07  ERISA
     Schedule 5.12  Environmental Matters
     Schedule 5.16  Subsidiaries and Minority Interests
     Schedule 5.17  Insurance Matters
     Schedule 7.01  Permitted Liens
     Schedule 7.05  Permitted Indebtedness
     Schedule 7.08  Contingent Obligations


     EXHIBITS

     Exhibit A    Form of Notice of Borrowing
     Exhibit B    Form of Notice of Conversion/Continuation
     Exhibit C    Salmon Creek Property