Exhibit 10.1

March 31, 2005

Private and Confidential

 

Scotia Pacific Company LLC

125 Main Street, Second Floor

Scotia, California 95565

 

Ladies and Gentlemen:

This letter agreement (this "Agreement") confirms the agreement that Scotia
Pacific Company LLC, a Delaware limited liability company (together with its
subsidiaries, the "Company"), has engaged UBS Securities LLC ("UBS") to act as
its exclusive financial advisor and capital markets advisor in connection with
any Restructuring Transaction (as defined below). Notwithstanding the exclusive
nature of UBS' engagement hereunder, UBS agrees and acknowledges that the
Company has retained Corporate Revitalization Partners, LLC, and may during the
effective period of this Agreement retain other professionals to provide
financial or capital markets advice; provided however that no other firm or
professional shall engage in negotiations with holders of the Obligations (as
defined below), including, without limitation, the holders of the Obligations
(as defined below), their advisors or other representatives. UBS shall act on
behalf of the Company and at the direction of the Independent Managers (as
defined in the Company's Agreement of Limited Liability Company dated as of July
20, 1998, as the same may be amended from time to time, such Independent
Managers currently being Sid Weiss and Jack Webb). This Agreement is separate
from the engagement letter, dated May 27, 2004, between MAXXAM Inc., the parent
of the Company ("Maxxam"), and UBS (the "Maxxam Agreement") with respect to a
potential Private Placement or Alternative Transaction (as defined therein).

The term of UBS' engagement shall commence on the date hereof and continue until
July 27, 2005, unless such engagement expires or is terminated earlier by the
Company or UBS pursuant to the terms of this Agreement (the "Term"). In the
event that the Company becomes a debtor in a case under chapter 11 of Title 11
of the United States Code (the "Bankruptcy Code"), the ongoing retention of UBS
by the Company will be subject to the approval of the bankruptcy court with
jurisdiction over the bankruptcy case. UBS and the Company acknowledge and agree
that in the event that the Company becomes a debtor in a case under the
Bankruptcy Code, UBS agrees to comply, and that this Agreement shall be
construed in a manner that complies, with all applicable provisions of the
Bankruptcy Code and applicable rules and agrees and acknowledges that the
bankruptcy court shall have jurisdiction over the adjudication of this Agreement
and any disputes relating to the engagement of professionals.

As used in this Agreement, the term "Restructuring Transaction" means, whether
effected directly or indirectly, any restructuring of a material amount of the
Company's liabilities outstanding

 

 

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on the date of this Agreement listed on Annex A hereto (the "Obligations"),
including, without limitation, any exchange, conversion, repurchase or repayment
of a material amount of such liabilities, or any material modification,
amendment, deferral, restructuring, recapitalization, rescheduling, moratorium,
or adjustment of the terms and/or conditions of any such liabilities; provided,
however, that any restructuring of the principal amount of Obligations held by
the Company in the Scheduled Amortization Reserve Account on the date of this
Agreement ($53,600,000) will not be included within the definition of
Restructuring Transaction.

1.   On the terms and subject to the conditions of this Agreement, UBS will
provide the Company, upon request by the Company, the following financial and
market related advisory services:

(a)

advising and assisting the Company in analyzing, structuring and negotiating the
financial aspects of any Restructuring Transaction; and

(b)

assisting the Company in soliciting tenders and consents in connection with any
Restructuring Transaction (except in connection with a Restructuring Transaction
intended to comply with the requirements of Section 3(a)(9) of the Securities
Act of 1933, as amended (the "Securities Act")), subject to the separate
Transaction Agreement referred to in Section 4 hereof.

2.   For UBS' services hereunder, the Company agrees to pay to UBS the following
non-refundable fees in cash:

(a) A monthly cash advisory fee of $150,000 (each, a "Monthly Advisory Fee"),
payable in advance for the period commencing on the date of this Agreement with
the first payment due upon execution of this Agreement and subsequent payments
due on each monthly anniversary of the date of this Agreement; provided that
100% of such Monthly Advisory Fee shall be credited, to the extent actually
paid, against the Restructuring Transaction Fee (as defined below).

(b)

A transaction fee equal to $5,600,000 (a "Restructuring Transaction Fee"). The
Restructuring Transaction Fee shall be payable upon the consummation of a
Restructuring Transaction; provided, however, that if the Restructuring
Transaction is effectuated as part of a plan of reorganization (a "Plan") under
the Bankruptcy Code, then the Restructuring Transaction Fee shall be payable
upon the consummation of the Plan, or if earlier, the effective date (or any
similar term) of the Plan.

(c) If the Restructuring Transaction is effectuated as part of a Plan, the
Restructuring Transaction Fee will be an administrative expense entitled to
first priority under Section 503(b)(1)(A) and 507(a)(1) of the Bankruptcy Code
and shall be paid in full as a condition precedent to consummation of such Plan.

In addition to any fees payable to UBS, the Company will reimburse UBS, upon
request made from time to time, for all of its reasonable expenses incurred in
connection with this engagement from

 

 

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and after the date of this Agreement (which reimbursable expenses shall not
include allocable overhead costs, including internal counsel expenses),
including the reasonable fees, disbursements and other charges of its legal
counsel, if any. Expenses reimbursable by the Company pursuant to this Section 2
shall not exceed $25,000 in the aggregate without the Company's prior written
(which shall include e-mail) consent. Notwithstanding any other provisions of
Section 2, in the event of termination of this Agreement, the Company shall only
be liable for reimbursement of expenses pursuant to this Section 2, to the
extent the same are incurred prior to the effective date of such termination.
The provisions of this Section 2 shall not apply to legal or other professional
fees and expenses to the extent that they are reimbursable by the Company
pursuant to Section 5 hereof. UBS agrees and acknowledges that although it has
investment banking professionals from several areas working on this matter, all
such professionals will coordinate efforts to avoid duplication, and in no event
shall the Company be obligated to pay any fees and expenses in connection with
this engagement in addition to those contemplated by this Agreement.

The Company agrees that if the Restructuring Transaction Fee has not been paid
to UBS during the term of this Agreement and at any time during the 12 months
following termination or expiration of this Agreement, the Company determines to
retain a financial advisor, placement agent, arranger or lead manager, as the
case may be, to pursue (a) any sale, acquisition, merger or similar transaction
involving all or substantially all of the business, securities or assets of the
Company or another party (an "M&A Transaction") or (b) any debt or equity
financing, whether public, private or otherwise (including any bank financing)
(a "Financing"), UBS shall have the right of first refusal (but not the
obligation) to act as exclusive financial advisor, exclusive placement agent,
sole arranger, or sole book-running lead manager, as the case may be, with
respect thereto for compensation customarily charged by an exclusive financial
advisor, exclusive placement agent, sole arranger or sole book-running lead
manager, as the case may be, of similar standing as UBS, in each case under a
separate agreement containing customary terms and conditions.

3.   In rendering its services to the Company hereunder, UBS is not assuming any
responsibility for the Company's underlying business decision to pursue or not
to pursue any business strategy or to effect or not to effect any Restructuring
Transaction. UBS acknowledges and agrees that the Company shall have the
unilateral right to enter into and consummate any Restructuring Transaction (or
no Restructuring Transaction) in its sole discretion. The Company agrees that
UBS shall not have any obligation or responsibility to provide "crisis
management" services for the Company or to provide any solvency or fairness
opinion in connection with any Restructuring Transaction.

4.   The Company will furnish, or cause to be furnished, to UBS all data,
material and other information known to the Company as UBS believes appropriate
to its assignment (all such information so furnished being the "Information").
The Company recognizes and confirms that UBS (a) will use and rely primarily on
the Information and on information available from generally recognized public
sources in performing the services contemplated by this Agreement without having
assumed responsibility for independently verifying the same, (b) does not assume
responsibility for the accuracy or completeness of the Information and such
other information and (c) will not make an appraisal of any assets or
liabilities (contingent or otherwise) of the Company or any party to a
Restructuring Transaction. To the best of the Company's knowledge, the
Information to be furnished

 

 

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by the Company, when delivered, will be true and correct in all material
respects and will not contain any material misstatement of fact or omit to state
any material fact necessary to make the statements contained therein not
misleading. The Company will promptly notify UBS if it learns of any material
inaccuracy or misstatement in, or material omission from, any Information
theretofore delivered to UBS.

The Company represents and warrants to UBS that the information (whether written
or oral) supplied to any prospective purchaser or seller of a security in a
Restructuring Transaction by or on behalf of the Company, when supplied and
through the closing of such Transaction, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading. In the event any Restructuring Transaction
involves an exchange offer, tender offer or consent solicitation, prior to the
commencement thereof the Company shall enter into with UBS a separate dealer
manager or other appropriate agreement (a "Transaction Agreement") containing
terms and conditions, including appropriate representations and legal opinions,
customary for UBS in similar transactions; provided, that no separate fee shall
be payable to UBS pursuant to such Transaction Agreement.

UBS will keep confidential any material non-public information of the Company
made available to UBS by the Company in connection with its engagement
hereunder; provided, such confidential information shall not include (1) any
information that is or becomes generally available to the public, or (2) any
information which is or becomes available to UBS on a non-confidential basis
from a third party who is not known by recipient to be bound by a
confidentiality obligation to the Company; and provided further, that such
confidential information may be disclosed (a) to UBS' employees, agents,
advisors and representatives in connection with its engagement hereunder who
shall be informed of the confidential nature of the information and agree to be
bound by confidentiality obligations similar to those set forth in this
Agreement; (b) to any holder of obligations subject to a confidentiality
agreement with the Company; (c) any person with the consent of the Company; or
(d) if UBS is required to disclose such information pursuant to law, judicial or
administrative process, or regulatory demand or request of any body having
jurisdiction over UBS. In the event that UBS is requested or required by law to
disclose any such confidential information, UBS shall provide the Company with
prompt written notice of any such request or requirement so that the Company may
seek a protective order or other appropriate remedy; provided that no such prior
notification shall be required in respect of any disclosure to regulatory
authorities in response to a request concerning UBS' business. This subparagraph
supersedes any prior agreement between the Company and UBS respecting
confidentiality.

5.   The Company agrees to the indemnification and other agreements set forth in
the Indemnification Agreement attached hereto, the provisions of which are
incorporated herein by reference and shall survive the termination, expiration
or supersession of this Agreement.

6.   Except to the extent required by a court or similar order or as may be
required under applicable law (after consultation with, and approval as to form
and substance by, UBS and its counsel, which approval shall not be unreasonably
withheld), none of (i) the name of UBS, (ii) any advice rendered by UBS to the
Company, or (iii) the terms of this Agreement or any communication from UBS in
connection with the services performed by UBS pursuant to this Agreement will be

 

 

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quoted or referred to orally or in writing, or in the case of (ii) and (iii),
reproduced or disseminated, by the Company or any of its affiliates or any of
their agents, without UBS' prior written consent.

7.   UBS' services hereunder may be terminated by the Company or UBS upon 30
days prior written notice without liability or continuing obligation of the
Company or UBS, except as provided in this Section 7. If UBS' engagement
pursuant to this Agreement expires at the end of the Term or is terminated
earlier by the Company or UBS pursuant to the terms of this Agreement (the
"Termination Date"), (i) UBS shall be entitled to any fees earned prior to the
Termination Date and payable pursuant to Section 2 hereof, (ii) as set forth in
the following sentences of this Section, (iii) expenses incurred by UBS as a
result of services rendered prior to the Termination Date shall become
immediately payable in full, and (iv) Sections 4 (other than the first sentence
thereof) and 5 through 14 hereof shall remain operative and in full force and
effect regardless of the occurrence of the Termination Date. UBS shall be
entitled to payment in full of the fees referred to in Section 2(b) if at any
time prior to the expiration of 12 months after the Termination Date, (x) a
Restructuring Transaction is consummated (by virtue of the consummation, or if
earlier, the effective date (or any similar term), of a Plan or otherwise) or
(y) the Company enters into a letter of intent or any agreement that
subsequently results in the consummation of a Restructuring Transaction.

8.   UBS shall not make any public announcements regarding any matter relating
to this Agreement without the Company's prior written consent, which consent
shall not be unreasonably withheld.

9.   If the Company or any entity comprising part of the Company becomes a
debtor in a case under the Bankruptcy Code, the Company shall file an
application and use reasonable commercial efforts to obtain a Bankruptcy Court
order pursuant to Section 328(a) of the Bankruptcy Code authorizing the Company
to retain UBS (the "Retention Order") on the terms set forth in this Agreement.
Reasonable commercial efforts in this Agreement shall include, among other
things, diligently supporting UBS' retention. If the Company does not obtain a
Retention Order reasonably satisfactory to UBS, UBS shall not be required to
serve as the Company's financial advisor during its Chapter 11 case, and the
Company agrees that it will recognize in its bankruptcy any and all of UBS'
claims for compensation arising under or in connection with the tail provisions
contained in Section 7 herein. If UBS (i) cannot be retained in the Company's
bankruptcy case because it is finally determined by a court of competent
jurisdiction that UBS is not a "disinterested person" within the meaning of
Section 101(14) of the Bankruptcy Code, provided that UBS is afforded a
reasonable opportunity to undertake any actions to cure any problems or concerns
related to its "disinterested" status, or (ii) declines to serve on the ground
that the Retention Order is not reasonably satisfactory to it because the court
with jurisdiction over the case (a) declines to permit payment of the Monthly
Advisory Fee on a "flat fee" basis (this clause (a) shall not apply if the Court
indicates that it would be willing to approve a Monthly Advisory Fee on a flat
fee basis if the amount were lower than the Monthly Advisory Fee provided for in
this Agreement) or (b) declines to approve the indemnification provisions of
this Agreement, provided that the terms and conditions of the indemnification
provisions that the court approves or indicates that it would be willing to
approve are customary for cases of similar size and complexity in the
jurisdiction in which the bankruptcy case is filed , then no Restructuring
Transaction Fee shall be payable to UBS under this Agreement, including pursuant
to Section 7 hereof.

 

 

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10.       The Company acknowledges and agrees that UBS has been retained to act
solely as advisor to the Company, and not as an advisor of any other person, and
the Company's engagement of UBS is not intended to confer rights upon any person
(including shareholders, employees or creditors of the Company) not a party
hereto as against UBS or its affiliates, or their respective directors,
officers, employees or agents, successors or assigns. UBS shall act as an
independent contractor under this Agreement, and any duties arising out of its
engagement shall be owed solely to the Company. UBS shall not have any liability
or responsibility for any action or omission of Corporate Revitalization
Partners, LLC or any other advisor to the Company.

UBS AG (the parent of UBS) and its subsidiaries, branches and affiliates (the
"UBS Group") is involved in a wide range of commercial banking, investment
banking and other activities (including investment management, corporate finance
and securities issuing, trading and research) from which conflicting interests,
or duties may arise. Information which is held elsewhere within UBS or within
the UBS Group, but of which none of the individuals in the Investment Banking
Department of UBS involved in carrying out this engagement actually has
knowledge, will not for any purpose be taken into account in determining UBS'
responsibilities to the Company under this engagement. Neither UBS nor any other
part of the UBS Group will have any duty to disclose to the Company or utilize
for the Company's benefit any non-public information acquired in the course of
providing services to any other person, engaging in any transaction (on its own
account or otherwise) or otherwise carrying on its business. In addition, in the
ordinary course of its business, UBS and its affiliates may trade the securities
of the Company and any party to a Restructuring Transaction for its own or their
account and for the accounts of customers, and UBS and its affiliates may at any
time hold a long or short position in such securities. UBS maintains and will
maintain information barriers between the investment banking team working on
this engagement and UBS' trading business restricting the information flow from
the investment banking team to the trading business.

 

11.       THIS AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY KIND OR
NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT
("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, DIRECTLY OR INDIRECTLY,
INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW. EXCEPT AS SET FORTH BELOW, NO CLAIM MAY BE COMMENCED,
PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN IN COURTS OF THE STATE OF NEW
YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE
JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS, AND THE COMPANY AND UBS
CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL SERVICE WITH RESPECT
THERETO. EACH OF UBS AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) IN
ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF UBS AND THE
COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR COUNTERCLAIM BROUGHT
IN ANY SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND UBS AND
MAY BE

 

 

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ENFORCED IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY OR UBS, AS
APPROPRIATE, IS OR MAY BE SUBJECT, BY SUIT UPON SUCH JUDGMENT.

12.       This Agreement shall be binding upon UBS and the Company and their
respective successors and assigns and any successor or assign of any substantial
portion of the Company's and UBS' respective businesses and/or assets.

13.       This Agreement (including the attached Indemnification Agreement)
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. If any provision of this Agreement is determined to be invalid or
unenforceable in any respect, such determination will not affect such provision
in any other respect or any other provision of this Agreement, which will remain
in full force and effect. This Agreement may not be amended or otherwise
modified or waived except by an instrument in writing signed by both UBS and the
Company. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same Agreement.

 

[Signature page follows]

 

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If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below, whereupon this Agreement and
your acceptance shall constitute a binding agreement between us.

Very truly yours,

UBS SECURITIES LLC

 

 

By: /s/ Thomas Benninger

_________________________

Thomas Benninger

Managing Director

 

 

By: /s/ Chetan Bhandari

_________________________

Chetan Bhandari

Executive Director

 

Accepted and agreed to as of

the date first above written:

SCOTIA PACIFIC COMPANY LLC

 

By: /s/ Sid Weiss

________________________________

Name: Sid Weiss

Title: Independent Manager

 

By: /s/ Jack Webb

________________________________

Name: Jack Webb

Title: Independent Manager

 

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Annex A

(Obligations)

 

 

1.

6.55% Class A-1 Timber Collateralized Notes due July 20, 2008 ($45 million
aggregate principal amount)

2.

7.11% Class A-2 Timber Collateralized Notes due July 20, 2008 ($243 million
aggregate principal amount)

3.

7.71% Class A-3 Timber Collateralized Notes due July 20, 2008 ($463 million
aggregate principal amount)

 

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UBS SECURITIES LLC INDEMNIFICATION AGREEMENT

 

 

March 31, 2005

 

Private and Confidential

 

UBS Securities LLC

299 Park Avenue

New York, New York 10171

 

Ladies and Gentlemen:

 

In connection with the engagement of UBS Securities LLC ("UBS") to advise and
assist the undersigned (together with its subsidiaries, referred to as the
"Company") with the matters set forth in the Agreement, dated March 1, 2005,
between the Company and UBS (the "Agreement"), in the event that UBS becomes
involved in any capacity in any claim, suit, action, proceeding, investigation
or inquiry (including, without limitation, any shareholder or derivative action
or arbitration proceeding) (collectively, a "Proceeding") (i) in connection with
or arising out of any untrue statement or alleged untrue statement of a material
fact contained in any disclosure document in connection with any transaction
arising out of the Agreement or any omission or alleged omission to state
therein a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or (ii) otherwise
in connection with any matter in any way relating to or referred to in the
Agreement or arising out of the matters contemplated by the Agreement,
including, without limitation, related services and activities prior to the date
of the Agreement, the Company agrees to indemnify, defend and hold UBS harmless
to the fullest extent permitted by law, from and against any losses, claims,
damages, liabilities and expenses in connection with any matter in any way
relating to or referred to in the Agreement or arising out of the matters
contemplated by the Agreement, including, without limitation, related services
and activities prior to the date of the Agreement, except, in the case of clause
(ii) above only, to the extent that it shall be determined by a court of
competent jurisdiction in a judgment that has become final in that it is no
longer subject to appeal or other review that such losses, claims, damages,
liabilities and expenses resulted solely from the gross negligence or willful
misconduct of UBS, including, without limitation, its breach of the Agreement.
In addition, in the event that UBS becomes involved in any capacity in any
Proceeding in connection with any matter in any way relating to or referred to
in the Agreement or arising out of the matters contemplated by the Agreement,
the Company will reimburse UBS for its reasonable legal and other third party
expenses (including the cost of any investigation and preparation) as such
expenses are incurred by UBS in connection therewith; provided however, that UBS
shall promptly repay to the Company any such expenses the Company has previously
reimbursed to the extent UBS is finally judicially determined not to be entitled
to indemnification hereunder as a result of the exception in the first sentence
of this Indemnification Agreement. If such indemnification were not to be
available for any reason (other than as a result of a final judicial
determination of the gross negligence or willful misconduct of UBS, including,
without limitation, its breach of the Agreement as provided in the exception in
the first sentence of this Indemnification Agreement), the Company agrees to
contribute to the losses, claims, damages, liabilities and expenses involved (i)
in the

 

 

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proportion appropriate to reflect the relative benefits received or sought to be
received by the Company, its stockholders and its creditors, on the one hand,
and UBS, on the other hand, in connection with the matters contemplated by the
Agreement or (ii) if (but only if and to the extent) the allocation provided for
in clause (i) is for any reason held unenforceable, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of the Company, its stockholders and its creditors,
on the one hand, and the party entitled to contribution, on the other hand, as
well as any other relevant equitable considerations. The Company agrees that for
the purposes of this paragraph the relative benefits received, or sought to be
received, by the Company, its stockholders and its creditors, on the one hand,
and the party entitled to contribution, on the other hand, in connection with
the matters contemplated by the Agreement shall be deemed to be in the same
proportion that the total value received or paid or contemplated to be received
or paid by the Company, its stockholders and its creditors, as the case may be,
as a result of or in connection with the matters (whether or not consummated)
for which UBS has been retained to perform financial services bears to the fees
paid to UBS under the Agreement; provided that, in no event shall the Company
contribute less than the amount necessary to assure that UBS is not liable for
losses, claims, damages, liabilities and expenses in excess of the amount of
fees actually received by UBS pursuant to the Agreement. Relative fault shall be
determined by reference to, among other things, whether any alleged untrue
statement or omission or any other alleged conduct relates to information
provided by the Company or other conduct by the Company (or its employees or
other agents), on the one hand, or by UBS, on the other hand. The Company will
not settle any Proceeding in respect of which indemnity may be sought hereunder,
whether or not UBS is an actual or potential party to such Proceeding, without
UBS' prior written consent, which, in the case of a settlement involving
monetary damages only, shall not be unreasonably withheld; unless such
settlement (i) includes an unconditional release of UBS from all liability in
any way related to or arising out of such Proceeding and (ii) does not impose
any actual or potential liability upon UBS and does not contain any factual or
legal admission by or with respect to UBS or any adverse statement with respect
to the character, professionalism, due care, loyalty, expertise or reputation of
UBS or any action or inaction by UBS. For purposes of this Indemnification
Agreement, UBS shall include UBS Securities LLC, any of its affiliates, each
other person, if any, controlling UBS or any of its affiliates, their respective
officers, current and former directors, employees and agents, and the successors
and assigns of all of the foregoing persons. The foregoing indemnity and
contribution agreement shall be in addition to any rights that any indemnified
party may have at common law or otherwise.

UBS promptly will notify the Company upon receipt of actual notice of a
Proceeding with respect to which indemnity is sought hereunder if the Company is
not a party to such Proceeding, provided that the failure to so notify the
Company will not relieve the Company from any liability that the Company may
have on account of this indemnity or otherwise, except to the extent the Company
is materially prejudiced by such failure. The Company shall have the right to
assume, and if requested by UBS shall assume, the defense of any such
Proceeding, including the employment of counsel reasonably satisfactory to UBS.
UBS shall have the right to employ separate counsel in any such Proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of UBS, unless (i) the Company has agreed to pay such
fees and expenses, (ii) the Company shall have failed promptly to assume the
defense thereof and employ counsel as provided above or (iii) the named parties
to any such Proceeding (including impleaded parties) include UBS and the
Company, and UBS shall have been advised by counsel that there may be one or

 

 

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more legal defenses available to it that are different from or in addition to
those available to the Company, provided that the Company shall not in any event
be responsible hereunder for the fees and expenses of more than two law firms,
one of which shall be local counsel, in connection with any Proceeding in the
same jurisdiction. UBS also agrees that it will not settle any proceeding in
respect of which indemnification may be sought hereunder without the prior
written consent of the Company (which consent shall not be unreasonably
withheld).

The Company agrees that neither UBS nor any of its affiliates, directors,
agents, employees or controlling persons shall have any liability to the Company
or any person asserting claims on behalf of or in right of the Company in
connection with or as a result of either UBS' engagement under the Agreement or
any matter referred to in the Agreement, including, without limitation, related
services and activities prior to the date of the Agreement, except to the extent
that it shall be determined by a court of competent jurisdiction in a judgment
that has become final in that it is no longer subject to appeal or other review
that any losses, claims, damages, liabilities or expenses incurred by the
Company resulted solely from the gross negligence or willful misconduct of UBS
in performing the services that are the subject of the Agreement, including,
without limitation, its breach of the Agreement.

THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF ANY
KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW,
NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE
COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS,
AND THE COMPANY AND UBS CONSENT TO THE JURISDICTION OF SUCH COURTS AND PERSONAL
SERVICE WITH RESPECT THERETO. EACH OF UBS AND THE COMPANY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT. THE COMPANY
AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR CLAIM ARISING OUT OF OR IN ANY
WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT SHALL BE CONCLUSIVE AND
BINDING UPON THE COMPANY AND MAY BE ENFORCED IN ANY OTHER COURTS TO THE
JURISDICTION OF WHICH THE COMPANY IS OR MAY BE SUBJECT, BY SUIT UPON SUCH
JUDGMENT.

 

[Signature page follows]

 

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The foregoing Indemnification Agreement shall remain in full force and effect
notwithstanding any termination of UBS' engagement. This Indemnification
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
agreement.

 

Very truly yours,

 

SCOTIA PACIFIC COMPANY LLC

 

By: /s/ Sid Weiss

_________________________

Name: Sid Weiss

Title: Independent Manager

 

By: /s/ Jack Webb

_________________________

Name: Jack Webb

Title: Independent Manager

 

Accepted and agreed to as of

the date first above written:

 

UBS SECURITIES LLC

 

 

By: /s/ Thomas Benninger

_________________________

Thomas Benninger

Managing Director

 

 

By: /s/ Chetan Bhandari

_________________________

Chetan Bhandari

Executive Director