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| 1. | (a) |   | Scotia      and Salmon Creek agree to be included in, and Parent agrees to file, a      consolidated Federal income tax return for all taxable years in which      Parent, Scotia and Salmon Creek are eligible to file consolidated returns      as part of an affiliated group of corporations as such term is defined in      section 1504 of the Code. |
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|   | (b) | Pacific      Lumber shall cause any Restricted Subsidiary to become a party to this      Agreement at the time that it becomes a member of the Group. Restricted      Subsidiary shall mean a Restricted Subsidiary as defined in the indenture      dated as of March 23, 1993 by and between Pacific Lumber and the First      National Bank of Boston, as Trustee, for Pacific Lumber's $235 million      senior Notes due 2003 (the “Indenture”). Pacific Lumber shall cause any      such Restricted Subsidiary 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 taxreturn. |
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| 3. | (a) |   | Parent,      as the common parent and agent of the Group, shall be responsible for, and      shall pay, any consolidated Federal income tax liability of the Group, and      has the sole right to any refunds from the Internal Revenue      Service. |
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|   | (b) | Except      with respect to any payment to Parent that Salmon Creek or Pacific Lumber      is required to make under this Agreement or the May 88 Agreement, or any      payment to Scotia that Pacific Lumber is required to make under this      Agreement, Parent shall indemnify Salmon Creek, Pacific Lumber and each PL      Subgroup Subsidiary (as hereinafter defined) and hold them harmless      against all Federal income tax liabilities relating to taxable years of      Salmon Creek, Pacific Lumber and each PL Subgroup Subsidiary during which      Salmon Creek, Pacific Lumber and each      PL Subgroup Subsidiary is or was a member of theGroup.  |
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| 4. | (a) |   | For      purposes of making the computations described herein, Scotia and any      Restricted Subsidiary which becomes a member of the Group (each a “PL      Subgroup Subsidiary”) shall, together with Pacific Lumber, be treated as      an affiliated group of corporations (the “PL Subgroup”), the common parent      of which is Pacific Lumber, provided, however, that the PL Subgroup shall      only include any subsidiary to the extent that such subsidiary meets the      test of affiliation under Section 1504 of the Code as it would apply to      the PL Subgroup. |
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|   | (b) | The      computation of the Federal income tax liability of Pacific Lumber under      Section 5 of the May 88 Agreement shall be amended effective March 23,      1993 to take into account the taxable income, loss, credits and other      tax attributes of each PL Subgroup Subsidiary for taxable periods of such      PL Subgroup Subsidiary which are covered by Section 7 of      this Agreement, as if Pacific Lumber filed a consolidated return solely      with each PL Subgroup Subsidiary for such periods (taking into account all      applicable limitations under the Code).  In calculating such      liability, all intercompany transactions between PL Subgroup members shall      be treated consistent with the consolidated return Treasury      Regulations. |
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|   | (c) | There      shall be no Federal income tax liability or refund for Scotia for any      taxable period covered by Section 7 of this  Agreement. |
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|   | (d) | Pacific      Lumber shall indemnify Scotia and hold it harmless against all Federal      income tax liabilities and shall have the sole right to any refunds from      the Internal Revenue Service with respect to taxable periods of Scotia      which are not covered by Section 7 of this Agreement. The foregoing      indemnity is being given solely by Pacific Lumber and neither Parent nor      any of the affiliates of Parent, other than Pacific Lumber, shall have any      liability or other obligation whatsoever in respect of such indemnity or      such Federal income taxes. |
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| 5. | (a) |   | There      shall be computed a Federal income tax liability for Salmon Creek for any      taxable period of Salmon Creek covered by Section 7 of this Agreement (the      “Applicable Period”) as if (i) Salmon Creek had filed a separate return      for such period and all prior Applicable Periods (taking into account all      limitations which would be applicable      to Salmon Creek) and (ii) Salmon Creek was never a member of the Group. In      calculating such liability, the separate returns shall be prepared      by taking into account all intercompany transactions, including those      eliminated by reason of the consolidated return Treasury      Regulations. |
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|   | (b) | If      the foregoing calculation results in a Federal income tax liability for      Salmon Creek with respect to the Applicable Period, then, in that event,      Salmon Creek shall pay such computed income tax liability to Parent in      such amounts and at such times as Salmon Creek would have been required to      pay to the Internal Revenue Service if it were an unaffiliated corporation      making separate estimated payments of tax and filing a separate tax      return. |
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|   | (c) | If      the foregoing calculation with respect to the Applicable Period results in      a net operating loss that can be carried back to a prior taxable period or      periods of Salmon Creek with respect to which Salmon Creek previously made      payments to Parent pursuant to the preceding paragraph (b), then, in that      event, Parent shall pay Salmon Creek an amount equal to the tax refund to      which Salmon Creek would have been entitled if it were an unaffiliated      corporation that filed separate income tax returns in respect of all the      relevant taxable periods. |
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|   | (d) | If      the foregoing calculation with respect to the Applicable Period results in      a net operating loss that cannot be carried back to a prior taxable period      or periods of Salmon Creek which respect to which Salmon Creek previously      made payments to Parent pursuant to the preceding paragraph (b), then, in      that event, such net operating loss shall be a net operating loss      carryover to be used by Salmon Creek in computing its Federal income tax      liability pursuant to the preceding paragraph (a) for future taxable      periods, under the law applicable to net operating loss carryovers in      general. |
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|   | (e) | Any      adjustments other than a net operating loss carryback described in      paragraph (c) above, for whatever reason (including, without limitation,      audits or amended returns), to any item affecting a calculation of tax      liabilities under paragraph (a), (b), (c) or (d) above, shall be given      effect by redetermining the amount payable by or due to Salmon Creek      pursuant to this Agreement as if such adjustment was part of the original      determination hereunder      and including any interest due to or from the Internal Revenue Service as      a result of suchadjustment. |
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| MAXXAM      Inc.                    |                       |   |
|-------------------------------------|----------------------------|--------|
|                                |                       |   |
| By                                  | /s/      Ronald L. Reman   |   |   |   |
|                                |
| THE      PACIFIC LUMBER COMPANY     |                       |   |
|                                |                       |   |   |   |
| By                                  | /s/      Byron L. Wade     |   |   |   |
|                                |                       |   |   |   |
| SCOTIA      PACIFIC HOLDING COMPANY |                       |   |
|                                |                       |   |   |   |
| By                                  | /s/      Paul N. Schwartz  |   |   |   |
|                                |                       |   |   |   |
| SALMON      CREEK CORPORATION       |                       |   |
|                                |                       |   |   |   |
| By                                  | /s/      Jacques C. Lazard |   |   |   |
|                                |                       |   |   |   |

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