DATED:  February 27, 1998

               Pre-Permit Application Agreement in Principle


     The parties to the Agreement of September 28, 1996, which is hereby
incorporated by reference, MAXXAM Inc., The Pacific Lumber Company, on
behalf of itself, its subsidiaries and its affiliates ("PL," and together
with MAXXAM, the "Pacific Lumber Parties"), the United States of America
("United States") and the State of California ("California") (hereinafter,
"the 1996 parties") agreed to use their best good faith efforts to achieve
expedited development and submission by Pacific Lumber (PL) and processing
by the government parties of a multi-species habitat conservation plan
(HCP) pursuant to Section 10(a) of the federal Endangered Species Act, 16
U.S.C. 1539(a), and a Sustained Yield Plan (SYP) pursuant to the California
Forest Practices Act, Cal. Pub. Res. Code 4511, et seq.

     The 1996 parties have continued their on-going discussions on this
topic in furtherance of the Agreement of September 28, 1996 and in
consideration of the provisions of Title V of the Department of the
Interior and Related Agencies Appropriations Act, 1998.  As a result of
these discussions, PL and the federal and state resource agencies (U.S.
Fish and Wildlife Service ("FWS"), National Marine Fisheries Service
("NMFS"), California Department of Fish and Game ("CDFG") and California
Department of Forestry and Fire Protection ("CDF")) (hereinafter, the
resource agencies) have reached the following understanding regarding the
HCP and the SYP:

I.   Incidental Take Permit (ITP).

     (A). PL commits to include in its application for an incidental take
     permit (ITP) and its accompanying HCP the following elements:

          i.   The terms of the ITP applied for and HCP will be 50 years.

          ii.  The ITP applied for and HCP will provide that, for the
     conservation of the marbled murrelet, no timber harvesting (including
     salvage) or other management activity detrimental to the marbled
     murrelet or to the marbled murrelet habitat will occur for the life of
     the ITP, in the following groves as depicted in the attached map
     (Attachment A), incorporated herein.  The Implementing Agreement (IA)
     shall describe management activities that may be conducted without
     detriment to the marbled murrelet or to marbled murrelet habitat.

<TABLE>
<CAPTION>

 <S>                                                    <C>
 (a). Elk Head Residual                                  564 acres
 (b). Cooper Mill                                        722 acres
 (c). Allen Creek                                       1421 acres
 (d). Allen Creek Extension                              301 acres
 (e). Road 3                                             659 acres
 (f). Owl Creek or Grizzly Creek South/West/Center
           See Note.                                     904 or 1251
                                                               acres
 (g). Shaw Gift                                          548 acres
 (h). Right Road 9                                       322 acres
 (i). Road 7 and 9 North                                 501 acres
 (j). Booth's Run                                        776 acres
 (k). Bell Lawrence                                      634 acres
 (l). Lower North Fork Elk                               531 acres

</TABLE>

               (All acreages are approximate).

     Note:  Initially, Owl Creek Grove is set aside for the life of the
     ITP.  If PL demonstrates to the satisfaction of the resource agencies
     that Grizzly Creek South/West/Center ("Grizzly Creek") will be
     protected in its present condition for the life of the ITP, then PL
     may substitute Grizzly Creek for the Owl Creek set aside.

          iii. PL has represented that the following timber harvest plans
     (THP) are the only ones that are either planned by PL or have been
     approved by the CDF within the areas set forth in paragraph 1(A)(ii),
     above:  THP Nos. 95-580; 97-003; 97-064; and 97-112.  Trees that
     have already been harvested under these THP's may be removed. 
     However, commencing on the date this Agreement in Principle is
     executed, further harvest in these or other areas set forth in
     paragraph 1(A)(ii), above, will not be conducted.

          iv.  PL and the resources agencies agree that the IA will provide
     that PL may sell, exchange or otherwise transfer to a third party one
     or more of the groves listed in paragraph 1(A)(ii) so long as the
     protection afforded by such third party (and its successors) to the
     marbled murrelet and the habitat of the marbled murrelet on such
     groves is equal to or greater than that afforded under the HCP.  PL
     will not be required to provide additional mitigation on its remaining
     lands to account for such sale, exchange or transfer.

     (B). PL agrees to implement specific aquatic conservation measures
     identified below prior to submittal of its application for an ITP and
     to incorporate these and other measures identified below in its
     application for an ITP and its accompanying HCP.

          i.   PL agrees to initiate immediately upon execution of this
     agreement the Washington Department of Natural Resources (DNR)
     watershed assessment process as described and modified in the
     interagency framework memorandum dated February 3, 1998, ("DNR
     process") to develop specific prescriptions on its lands.  These
     specific prescriptions, developed through the DNR process, will
     achieve properly functioning habitat conditions as intended by the
     resource agencies in their January 7, 1998, aquatics strategy proposal
     to PL.  In place of the input and approval criteria of Paragraph 7 of
     the February 3, 1998 memorandum, for each prescription team assembled
     by PL, FWS, NMFS, CDFG, and EPA will each designate at least one
     representative to participate on the team.

          ii.  Further, PL agrees to implement timely amendments to all
     pending (but not yet approved) timber harvest plans (THP) and include
     in all future THPs the prescriptions contained in the interagency
     proposal dated January 7, 1998, except for prescriptions on class II
     streams and in areas of high potential for mass wasting.  Class II
     streams will have a 100 foot riparian protective zone within which the
     inner 10 feet will be a restricted harvest band and the outer 90 feet
     will be managed according to PL's late seral prescription, except the
     minimum 240 square feet basal area retention will be calculated based
     upon the entire 100 foot zone.  The CDF, shall, within 45 days of
     submission of the amendments required herein, incorporate such
     amendments to the THPs, and thereafter shall process such amended THPs
     expeditiously.

          iii. The resource agencies recognize that there are issues to be
     resolved which relate to implementation and operation of the HCP.  The
     agencies will work with PL to resolve such issues provided that their
     resolution does not diminish the potential to achieve properly
     functioning riparian habitat.

          iv.  In addition, prior to completion of the DNR process, the
     mass wasting avoidance strategy of PL's August 27, 1997, Draft HCP/SYP
     will be used along with harvest plan specific review and it will be
     extended to hill slopes and inner gorges where the potential for mass
     wasting is rated "high".  If PL harvests in areas that have not been
     mapped for risk of mass wasting prior to completion of the DNR
     process, PL will identify areas of high, very high, and extreme mass
     wasting potential and follow its mass wasting avoidance strategy
     (referenced above).  PL will consult with agency (NMFS, EPA, and CDFG)
     biologists in the development of timber harvest prescriptions for
     areas where the Registered Professional Geologist determines the
     appropriate prescription.  The geologist's report and the recommended
     timber harvest prescription will be submitted with the THP.

          v.   PL will submit an HCP which provides that, for a three-year
     period commencing on the date of issuance of the ITP, PL will continue
     to use the prescriptions contained in paragraphs 1(B)ii through 1(B)iv,
     unless prescriptions have been developed and agreed to by the resource
     agencies through the DNR process.  Prescriptions that have been
     developed and agreed to by the resource agencies through the DNR
     process will be implemented immediately.

          vi.  The HCP which PL submits will also provide that, after three
     years, following the date of issuance of the ITP, PL agrees to follow
     prescriptions developed by the prescription team through the DNR
     process.  The prescriptions will to the maximum extent practicable be
     developed collaboratively by the prescription team.  Within 45 days of
     being advised in writing that PL proposes to implement a prescription,
     the Regional Administrator, NMFS, or the Regional Director, FWS, as
     appropriate, may reject the proposed prescription(s).  In that event,
     the applicable prescription(s) from the January 7, 1998 inter-agency
     proposal will apply.  Further, for watersheds for which prescriptions
     have not been developed through the DNR process, the prescriptions
     contained in the interagency proposal dated January 7, 1998, will
     apply.

          vii. Prior to issuance of an ITP, road storm proofing will be
     implemented within watersheds as indicated by the results of the DNR
     process, but PL agrees to conduct road storm proofing of at least 50
     miles per year until the ITP is issued.  Further PL will ensure that
     all new roads and landings related to THP's comply with
     specifications described in the Handbook for Forest and Ranch Roads
     (Weaver 1994), and that any new roads are constructed according to
     prescriptions contained in the January 7, 1998, interagency proposals.

          viii.     Subsequent to issuance of the ITP, the roads will be
     managed and monitored according to the ITP and approved HCP.

          ix.  Various provisions of Paragraph 1(B) rely on the Washington
     DNR process.  If the State of California, in conjunction with NMFS and
     FWS, agree upon a California watershed plan, then it is the intent of
     the parties to consider substitution of the California plan, or parts
     thereof, as appropriate.

2.   Sustained Yield Plan (SYP).

     (A). PL will submit to CDF an SYP which describes the range of timber
     growth (in terms of board feet per acre per year) from extensive
     management to intensive management.  Upon receipt from PL of an SYP
     incorporating CDF's request for timber growth estimates, CDF will find
     the SYP sufficient for public review.

     (B). The SYP will be evaluated by CDFG and CDF under the California
     Endangered Species Act (CESA), Cal. Fish and Game Code 2050, et seq.,
     and the California Forest Practices Act, Cal. Pub. Res. Code 4511, et
     seq., and other applicable state statutes to ensure that it satisfies
     applicable statutory requirements.

3.   After receipt of a complete Section 10(a) permit application package
and a complete SYP, FWS and CDF will make available for review and comment
a draft EIS/EIR on PL's proposed HCP pursuant to the National Environmental
Policy Act (NEPA), 42 U.S.C. 4321, et seq., and its SYP pursuant to the
California Environmental Quality Act (CEQA), Cal. Pub. Res. Code 21000, et
seq.

4.   The proposed HCP will be evaluated by FWS and NMFS under Sections 7
and 10 of the ESA, 16 U.S.C. 1536 and 1539, and other applicable federal
law to ensure that it satisfies the requirements of those and other
applicable statutes.  In accordance with 50 C.F.R. 13.23(a), PL shall have
the right to apply for amendment of the ITP, based on, if appropriate, a
proposed modified HCP.

5.   PL and the resource agencies agree that this Pre-Permit Application
Agreement in Principle may be executed in counterparts by the respective
signatories and that it will become effective upon the signature of the
final signatory.

SIGNED:

/S/ Michael Spear                       /S/ Charles Hurwitz
Michael Spear                           Charles Hurwitz
Regional Director                       Chairman
United States Fish and Wildlife         MAXXAM Inc.
     Service
United States Department of the
     Interior

/S/ William Hogarth                     /S/ John Campbell
William Hogarth                         John Campbell
Regional Administrator                  President and CEO
National Marine Fisheries Service       The Pacific Lumber Company
United States Department of
     Commerce

/S/ Douglas P. Wheeler
Douglas P. Wheeler
Secretary for Resources
State of California
On behalf of CDF and CDFG

                                ATTACHMENT A


[MAP of Proposed Marbled Murrelet Conservation Areas; Map of Proposed
Aquatic Protection Zones]


<PAGE>