D. G. Smalley and Nell R. Smalley - Page 4




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          Pursuant to the terms of the timber contract, Rayonier was to pay           
          the $517,076 purchase price, less $12,141 timber ad valorem                 
          taxes, to an escrow agent, Francis M. Lewis (Lewis).1                       
               Also on November 29, 1994, petitioner and Rayonier executed            
          a “MEMORANDUM OF CONTRACT”, reciting that they had as of that               
          date entered into the timber contract (referred to in the                   
          Memorandum of Contract as a “Timber Indenture Agreement”),                  
          whereby petitioner had conveyed to Rayonier:                                
                    All merchantable pine and hardwood timber suitable                
               for poles, sawtimber, or pulpwood, which are located                   
               within * * * [the 95 acres].                                           
                         *    *    *    *    *    *    *                              
                    And, subject to the provisions of * * * [the                      
               timber contract], the right to cut and remove from the                 
               above-described lands all and singular of the said                     
               described trees and timber.                                            
          Petitioner recorded this memorandum of contract (but apparently             
          not the timber contract) in the real property deed records of               
          Laurens County, Georgia.                                                    
               Also on November 29, 1994, petitioner and Rayonier executed            
          a “TAX FREE EXCHANGE AGREEMENT”.  This agreement provides in                
          relevant part:                                                              
                    WHEREAS, * * * [Rayonier] and * * * [petitioner]                  
               have entered into an Agreement for the purchase of                     
               timber wherein * * * [petitioner] has agreed to sell to                


               1 Francis M. Lewis is an attorney licensed to practice in              
          the State of Georgia.  He performed no services for petitioner              
          during the 2-year period preceding Nov. 29, 1994, and is not                
          related to petitioner.                                                      





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