exh10_35.htm


    

      Exhibit
10.35

      


      MAXXAM
INC.

      TAX
ALLOCATION AGREEMENT WITH

      MAXXAM
GROUP HOLDINGS INC.

      OF
DECEMBER 23, 1996

      


      This Agreement is made as of December
23, 1996, between MAXXAM Inc. ("Parent"), a Delaware corporation, and MAXXAM
Group Holdings Inc. ("MGHI"), a Delaware corporation.

      


      WHEREAS, MGHI is currently a member of
the affiliated group within the meaning of Section 1504(a) of The Internal
Revenue Code of 1986, as amended (the "Code") of which Parent is the common
parent corporation (the "Group"); and

      


      WHEREAS, pursuant to a tax allocation
agreement dated as of May 21, 1988 (the "May 88 Agreement"), Parent and certain
of its then existing subsidiaries, including MAXXAM Group Inc. ("MGI"), a
Delaware Corporation, The Pacific Lumber Company ("Pacific Lumber"), a Delaware
corporation, MAXXAM Properties Inc. ("MPI"), a Delaware corporation, and Yosuba
Farms ("Yosuba"), a California corporation, established a Tax Allocation Method,
as hereinafter defined.  As used herein, the term "Tax Allocation
Method" shall mean a method for allocating the consolidated tax liability of a
group among its members and for reimbursing the group's parent for the payment
of such liability; and

      


      WHEREAS, pursuant to a tax allocation
agreement dated as of July 3, 1990, Parent and Britt Lumber Co.,
Inc.  ("Britt"), a California corporation, established a Tax
Allocation Method (the "Britt Agreement"); and

      


      WHEREAS, pursuant to a tax allocation
agreement dated as of March 23, 1993, Parent and Pacific Lumber amended the May
88 Agreement with respect to Pacific Lumber and established a Tax Allocation
Method with respect to certain Pacific Lumber subsidiaries (the "PL Agreement");
and

      


      WHEREAS, on December 23, 1996, MGHI
issued $130,000,000 of its Senior Secured Notes due 2003 (the "Notes");
and

      


      WHEREAS, from time to time, MGHI or any
of its Restricted Subsidiaries (as hereinafter defined) may incorporate a
Restricted Subsidiary which may become a member of the Group; and

      


      WHEREAS, pursuant to a tax allocation
agreement dated as of August 4, 1993, Parent and MGI further amended the May 88
Agreement solely with respect to MGI such that MGI and its subsidiaries,
excluding Salmon Creek Corporation, will ultimately pay Parent Federal income
taxes as if they filed on a consolidated basis with respect to taxable periods
beginning on or after August 4, 1993 (the "Revised MGI Agreement").

      


      NOW, THEREFORE, in consideration of the
promises and of the mutual agreements and covenants contained herein, Parent and
MGHI hereby agree as follows:


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      1.           MGHI
shall cause any Restricted Subsidiary, at the time that it becomes a member of
the Group, to agree to be included in Parent's consolidated Federal income tax
return for all taxable years during which such Restricted Subsidiary is eligible
to be included in Parent's consolidated Federal income tax
return.  Restricted Subsidiary shall mean a Restricted Subsidiary as
defined in the indenture dated as of December 23, 1996 by and between MGHI, as
Issuer, Parent, as Guarantor, and First Bank National Association, as Trustee,
for the Notes (the "Indenture").

      


      2.           MGHI
shall cause any Restricted Subsidiary which becomes a member of the Group to
execute any consents and other documents as are necessary in connection
therewith.

      


      3.           Except
with respect to any payments to Parent that are required under this Agreement,
the May 88 Agreement, the Britt Agreement, the PL Agreement or the Revised MGI
Agreement, Parent shall indemnify MGHI and each MGHI Subgroup Subsidiary (as
hereinafter defined) and hold them harmless against all Federal income tax
liabilities relating to taxable years of MGHI and each MGHI Subgroup Subsidiary
during which MGHI and each MGHI Subgroup Subsidiary is or was a member of the
Group.

      


      
        	
                4.

              	
                (a)

              	
                 

              	
                For
      purposes of making the computations described herein, MGHI and all lower
      (with respect to MGHI) tier entities, including newly-formed Restricted
      Subsidiaries but excluding Salmon Creek Corporation, (individually and
      collectively referred to as "MGHI Subgroup Subsidiary" or "MGHI Subgroup
      Subsidiaries") in which MGHI has direct or indirect ownership shall be
      treated as an affiliated group of corporations (the "MGHI Subgroup"), the
      common parent of which is MGHI, provided, however, that the MGHI Subgroup
      shall only include any MGHI Subgroup Subsidiary to the extent that such
      MGHI Subgroup Subsidiary meets the test of affiliation under Section 1504
      of the Code as it would apply to the MGHI Subgroup. MGHI and each MGHI
      Subgroup Subsidiary shall sometimes be referred to as "MGHI Subgroup
      Members".

              


      

      


      
        	
                 
      

              	
                (b)

              	
                The
      tax liability required of MGHI shall be equal to MGHI's Tentative Tax
      Liability (as hereinafter defined) minus MGI's Tentative Tax Liability (as
      determined under the Revised MGI
Agreement).

              


      

      


      
        	
                 
      

              	
                (c)

              	
                The
      computation of the Federal income tax liability of MGHI shall take into
      account the taxable income, loss, credits and other tax attributes of each
      MGHI Subgroup Subsidiary as if MGHI filed a consolidated return with each
      MGHI Subgroup Subsidiary (taking into account all applicable limitations
      under the Code) ("MGHI's Tentative Tax Liability").  In
      calculating such liability, all intercompany transactions between MGHI
      Subgroup Members shall be treated consistent with the consolidated return
      Treasury Regulations.

              


      

      


      
        	
                 
      

              	
                (d)

              	
                To
      the extent that MGHI's Tentative Tax Liability is less than MGI's
      Tentative Tax Liability, Parent shall pay the amount of such difference to
      MGHI.

              


      

      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        	
                 
      

              	
                (e)

              	
                For
      purposes of Section 4(c) of this Agreement, any net operating loss
      carryforwards available to the MGI Subgroup on the date hereof under the
      Revised MGI Agreement shall be available to offset income of the MGHI
      Subgroup in the same manner as under the Revised MGI
      Agreement.

              


      

      


      
        	
                 
      

              	
                (f)

              	
                If
      the calculation of MGHI's Tentative Tax Liability in Section 4(c) results
      in a net operating loss that can be carried back to a prior taxable period
      or periods with respect to which MGHI made payments to Parent under this
      Agreement, then, in that event, Parent shall pay MGHI an amount equal to
      the tax refund to which MGHI would have been entitled consistent with this
      Section 4.

              


      

      


      
        	
                 
      

              	
                (g)

              	
                If
      the calculation of MGHI's Tentative Tax Liability in Section 4(c) results
      in a net operating loss that cannot be carried back pursuant to the
      preceding subsection (f), then, in that event, such net operating loss
      shall be a net operating loss carryover to be used by the MGHI Subgroup in
      computing its Federal income tax liability pursuant to the preceding
      subsection (c) for future taxable periods, under the law applicable to net
      operating loss carryovers in
general.

              


      

      


      5.           This
Agreement shall be effective for the Group's 1996 taxable period and all
subsequent taxable periods until the earliest date on which (i) MGHI ceases to
be a member of the Group, (ii) the Group no longer remains in existence within
the meaning of Treasury Regulation Section 1.1502-75(a), or (iii) the Group is
no longer eligible to file, or is no longer eligible to join in the filing of, a
consolidated return for Federal income tax purposes.  Prior to or upon
termination of this Agreement, the parties may enter into a new agreement,
consistent with the provisions of this Agreement, taking into account, among
other things, to the extent applicable, the manner in which MGHI ceased to be a
member of the Group, the reason that the Group is no longer in existence, or the
reason that Parent and/or MGHI can no longer join in the same consolidated
return.

      


      6.           This
Agreement is entered into by the parties solely in recognition of the mutual
benefits resulting from filing a Federal (or state or other local) consolidated
or combined tax return.  The respective amounts of tax liability
allocated to each MGHI Subgroup Member for purposes of computing such
corporation's earnings and profits for Federal (or any other) income tax
purposes may differ from those determined in accordance with this
Agreement.  Furthermore, any amount treated for Federal (or state or
other local) income tax purposes, on account of such a difference, as a
contribution to capital or a distribution with respect to stock, or a
combination thereof, as the case may be, shall be treated as a contribution to
capital, a distribution with respect to stock, or a combination thereof, solely
for Federal (or state or other local) income tax purposes.

      


      7.           This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.

      


      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      IN WITNESS WHEREOF, Parent and MGHI
have executed this Agreement by authorized officers thereof as of the date first
above written.

      


      


      
        	
                MAXXAM Inc.

              	 
      	 
      
	 
      	 
      	 
      
	
                By:

              	
                /s/
      RONALD L. REMAN

              	 
      	 
      
	
                Name:

              	
                Ronald
      L. Reman

              	 
      	 
      
	
                Title:

              	
                Vice
      President - Taxes

              	 
      	 
      
	 
      	 
      	 
      	 
      
	
                MAXXAM Group Holdings
      Inc.

              	 
      	 
      
	 
      	 
      	 
      
	
                By:

              	
                /s/
      TERRY FREEMAN

              	 
      	 
      
	
                Name:

              	
                Terry
      Freeman

              	 
      	 
      
	
                Title:

              	
                Assistant
      Controller