Document:

exh10_39.htm

    Exhibit
10.39

    

    MCO
HOLDINGS, INC.

    

    TAX ALLOCATION
AGREEMENT

    

    OF MAY 21,
1988

    

    This Agreement is made as of May 21,
1988, between MCO Holdings, Inc. ("Parent"), a Delaware corporation, and the
signatory corporations hereto (each such corporation is hereinafter individually
and collectively referred to as "Subsidiary").

    

    WHEREAS, each Subsidiary is currently a
member of an affiliated group within the meaning of Section 1504 (a) of The
Internal Revenue code (the "Code") of which Parent is the common parent
corporation (the "Group"); and

    

    WHEREAS, pursuant to a tax allocation
agreement dated as of March 17, 1987 ("March 87 Agreement") among Parent and
certain of its then existing subsidiaries shown on Schedule A hereto ("Prior
Group"), Parent and such subsidiaries established a Tax Allocation Method, as
hereinafter defined, for the Prior Group. 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 May 1, 1987, as amended ("May 87 Agreement"), MAXXAM Group
Inc. ("MAXXAM") and certain of its then existing subsidiaries shown on Schedule
B hereto, established a Tax Allocation Method for the affiliated group of which
MAXXAM was the parent ("MGI Group"); and

    

    WHEREAS, on May 20, 1988, a
wholly-owned subsidiary of Parent merged with and into MAXXAM ("MAXXAM
Merger".), and MAXXAM became a wholly-owned subsidiary of Parent;
and

    

    WHEREAS, as a consequence of the MAXXAM
Merger, the MGI Group no longer remains in existence within the meaning of
Treasury Regulation §1.1502-75(a) and therefore the May 87 Agreement has
terminated with respect to taxable periods beginning after May 20, 1988;
and

    

    WHEREAS, Parent and its undersigned
subsidiaries, including MAXXAM and its undersigned subsidiaries, desire to
establish a Tax Allocation Method for the Group which includes all current
members of the Group, including MAXXAM and its undersigned
subsidiaries.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

    1.         The
March 87 Agreement is hereby terminated with respect to taxable periods
beginning on and after January 1, 1988;

    

    2.             Each
undersigned subsidiary (each referred to herein as a "Subsidiary") agrees to be
included in, and Parent agrees to file a consolidated Federal income tax return
for all taxable years in which Parent and each Subsidiary are eligible to file
consolidated returns as an affiliated group of corporations as such term is
defined in Section 1504 of the Code.

    

    3.            
All elections relating to the filing of a consolidated Federal income tax return
which are required or are available and the computation of the consolidated
Federal income tax liability of the Group shall be made by Parent. Each
Subsidiary shall execute such consents and other documents as are necessary in
connection therewith.

    

    4.             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.

    

    
      	
              5.

            	
              (a)

            	
               

            	
              There
      shall be computed a Federal income tax liability for each Subsidiary for
      any taxable period covered by Section 7 of this Agreement (the "Applicable
      Period") as if (i) each Subsidiary had filed a separate return for such
      period and all prior Applicable Periods and (ii) each Subsidiary was never
      a member of the Group. In calculating such liability the separate returns
      shall be prepared by taking into account all inter-company transactions,
      including those eliminated by reason of the consolidated return Treasury
      Regulations.

            

    

    

    
      	
               
      

            	
              (b)

            	
              If
      the foregoing calculation results in a Federal income tax liability for a
      Subsidiary with respect to the Applicable Period, then, in that
      event, the Subsidiary shall pay such computed income tax liability to
      Parent in such amounts and at such times as the Subsidiary 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.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              (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 a Subsidiary with respect to which the
      subsidiary previously made payments to Parent pursuant to the preceding
      paragraph (b), then, in that event, Parent shall pay the Subsidiary an
      amount equal to the tax refund to which the Subsidiary would have been
      entitled if it were an unaffiliated corporation that filed separate income
      tax returns in respect of all the relevant taxable
  periods.

            

    

    

    
      	
               
      

            	
              (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 a Subsidiary with respect to which the Subsidiary 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 the Subsidiary 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.

            

    

    

    
      	
               
      

            	
              (e)

            	
              Any
      adjustment 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 each Subsidiary 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 such
  adjustment.

            

    

    

    6.            
The foregoing principles shall apply in similar-fashion
to any consolidated state or other local income tax return which the Group may
elect or be required to file.

     

    7.            
With respect to each Subsidiary, this Agreement shall be effective for the
Group's 1988 taxable period and all subsequent taxable periods (excluding any
period of time in 1988 in which the Subsidiary was not a member of the Group),
until the date on which (i) the Subsidiary ceases to be a member of the Group,
(ii) the Group no longer remains in existence within the meaning of Treasury
Regulation §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 too 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 the Subsidiary ceased to be a member of the Group, the reason that the
Group is no longer in existence, or the reason that Parent and Subsidiary can no
longer join in the same consolidated return.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    8.            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
tax return. The respective amounts of tax liability allocated to Parent and each
Subsidiary :for purposes of computing such corporations' 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) income tax purposes, on account of such a difference, as a
contribution to capital or 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) income tax purposes.

    

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

    

    
      	 
      	 
      	 
      	
              MCO
      Holdings, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      
	
              Braztah
      Corporation

            	 
      	
              TW
      Energy Corp.

            
	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      
	
              Carbon
      Fuel Company

            	 
      	
              MCOP
      Advertising, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              McCulloch
      Consolidated Coal Company

            	 
      	
              Cattleman’s
      Title Guarantee Company

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              MCO
      Development, Inc.

            	 
      	
              American
      Land Realty Services, Incorporated

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              MCO
      Investments, Inc.

            	 
      	
              Havasu
      Development Corporation

            
	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      
	
              MCO
      Equities, Inc.

            	 
      	
              Holiday
      Island Development Co.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Fountain
      Hills Management Corporation

            	 
      	
              MCO
      Realty, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Holiday
      Island Realty, Inc.

            	 
      	
              Spring
      Creek Recreation Corp.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              MCO
      Real Estate, Inc.

            	 
      	
              Chaparral
      City Water Company

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Pueblo
      West Properties, Inc.

            	 
      	
              Westcliff
      Development Corporation

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Spring
      Creek Corporation

            	 
      	
              Top
      of Aspen, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              McCulloch
      Community Properties of Texas, Inc.

            	 
      	
              MCO
      Communities, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Holly
      Development Co.

            	 
      	
              Pueblo
      West Storage Co., Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Spring
      Creek Utilities Co.

            	 
      	
              Pueblo
      West Development Co.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              MCO
      Properties Inc.

            	 
      	
              MCO
      Consulting, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              Houston
      Holdings, Inc.

            	 
      	
              MAXXAM
      Group Inc.

            
	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      
	
              Candelero
      Hotel Corporation

            	 
      	
              Eagle
      Creek Country Club, Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Eagle
      Creek Realty Company

            	 
      	
              Eagle
      Creek Utility Company

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Houston
      Group Inc.

            	 
      	
              KaiserTech
      Acquisition Corporation

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              KLU
      Holdings, Inc.

            	 
      	
              MAXXAM
      (Cayman) Corporation

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              MAXXAM
      Mortgage Corp.

            	 
      	
              MAXXAM
      Properties Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              MPI
      Investments Corp.

            	 
      	
              Palmas
      Holding Corp.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              The
      Pacific Lumber Company

            	 
      	
              The
      Pacific Lumber Company of Illinois

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Palco
      Export Company

            	 
      	
              Palco,
      Inc.

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Redwood
      Sales Company

            	 
      	
              Sangre
      de Cristo Timber Corporation

            
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	
              By:

            	
              /s/
      James V. Iaco, Jr.

            
	 
      	 
      	 
      	 
      	 
      
	
              Yoshuba
      Farms

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
              By:

            	
              /s/
      James V. Iaco, Jr.

            	 
      	 
      	 
      

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Schedule A

    

    MCO
Holdings, Inc.

    Braztah
Corporation

    Carbon
Fuel Company

    McCulloch
Consolidated Coal Company

    MCO
Development Inc.

    TW Energy
Corp.

    MCOP
Advertising, Inc.

    Cattleman's
Title Guarantee Company

    American
Land Realty Service, Incorporated

    MCO
Investments, Inc.

    MCO Equities,
Inc. MGPC, Inc.

    Fountain
Hills Management Corporation Holiday Island Realty, Inc.

    MCO Real
Estate, Inc.

    Pueblo
West Properties, Inc.

    Spring
Creek Corporation

    McCulloch
Community Properties of Texas, Inc.

    Havasu
Development Corporation

    Holiday
Island Development Co.

    MCO
Realty, Inc.

    Spring
Creek Recreation Corp.

    Chaparral
City. Water Company

    Westcliff
Development Corporation

    Top of
Aspen, Inc.

    MCO
Communities, Inc.

    Pueblo
West Storage Co., Inc.

    Holly
Development Co.

    Spring
Creek Utilities Co.

    MCO
Properties Inc.

    Pueblo
West Development Co.

    MCO
Consulting, Inc.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
B

    

    MAXXAM
Group Inc.

    Candelero
Hotel Corporation

    Eagle
Creek Country Club, Inc. Eagle Creek Realty Company

    MXM-2
Corporation

    MXM-3
Corporation

    PALCO
Industries, Inc.

    MAXXAM
Properties Inc.

    MAXXUS
Properties Inc.

    Palmas
del Mar Company

    Palmas
Holding Corp.

    MAXXAM
Mortgage Corporation

    MXM Holdings
Corporation

    The
Pacific Lumber Company

    Yosuba
Farms

    Victor
Equipment Company

    Tweco
Products, Inc.

    Thermal
Dynamics Corporation PALCO International Corp.

    Coyne
Cylinder Co.

    Cyclomatic
Industries, Inc.exh10_40.htm

    Exhibit
10.40

    

    MAXXAM
INC.

    TAX ALLOCATION AGREEMENT
WITH

    THE PACIFIC LUMBER
COMPANY,

    SCOTIA PACIFIC HOLDING
COMPANY AND

    SALMON CREEK
CORPORATION

    OF MARCH 23,
1993

    

    This Agreement is made as of March 23,
1993, between MAXXAM Inc. (“Parent”), a Delaware corporation, The Pacific Lumber
Company (“Pacific Lumber”), a Delaware corporation, Scotia Pacific Holding
Company (“Scotia”), a Delaware corporation and Salmon Creek Corporation (“Salmon
Creek”), a Delaware corporation.

    

    WHEREAS, Pacific Lumber is currently a
member of the affiliated group within the meaning of Section 1504(a) of The
Internal Revenue Code of 1986 (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 Pacific Lumber 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, on March 23, 1993, Scotia
issued its capital stock to Pacific Lumber (the “Scotia Incorporation”) and on
March 23, 1993, Salmon Creek issued its capital stock to Pacific Lumber (the
“Salmon Creek Incorporation”); and

    

    WHEREAS, as of March 23, 1993, as a
consequence of the Scotia Incorporation, Scotia became a member of the Group and
as of March 23, 1993, as a consequence of the Salmon Creek
Incorporation,

    Salmon
Creek became a member of the Group; and

    

    WHEREAS, from time to time, Pacific
Lumber may incorporate a Restricted Subsidiary (as hereinafter defined) which
may become a member of the Group; and

    

    WHEREAS, Parent, Pacific Lumber, Scotia
and Salmon Creek desire to establish a Tax Allocation Method which includes
Scotia, Salmon Creek and any Restricted Subsidiary (in the case of a Restricted
Subsidiary, as of the time that it becomes a member of the
Group).

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NOW, THEREFORE, in consideration of the
promises and of the mutual agreements and covenants contained herein, Parent,
Pacific Lumber, Scotia and Salmon Creek hereby agree as follows:

    

    
      	
              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.

            

    

    

    
      	
               
      

            	
              (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 tax
return.

            

    

    

    2.           
All elections relating to the filing of a consolidated Federal income tax return
which are required or are available and the computation of the consolidated
Federal income tax liability of the Group shall be made by Parent. Scotia and
Salmon creek shall execute, and Pacific Lumber shall cause any Restricted
Subsidiary which becomes a party to this Agreement to execute, such consents and
other documents as are necessary in connection therewith.

    

    
      	
              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.

            

    

    

    
      	
               
      

            	
              (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 the
Group.

               

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              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.

            

    

    

    
      	
               
      

            	
              (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.

            

    

    

    
      	
               
      

            	
              (c)

            	
              There
      shall be no Federal income tax liability or refund for Scotia for any
      taxable period covered by Section 7 of this
  Agreement.

            

    

    

    
      	
               
      

            	
              (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.

            

    

    

    
      	
              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.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              (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.

            

    

    

    
      	
               
      

            	
              (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.

            

    

    

    
      	
               
      

            	
              (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.

            

    

    

    
      	
               
      

            	
              (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 such
adjustment.

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    6.            
The foregoing principles shall apply in similar fashion to any. consolidated
state or other local income tax return which the Group may elect or be required
to file.

    

    7.            
Except with respect to Section 4(d), with respect to Salmon Creek and each PL
Subgroup Subsidiary, this Agreement shall be effective for the Group's 1993
taxable period and all subsequent taxable periods (excluding any period of time
prior to the date upon which Salmon Creek or such PL Subgroup Subsidiary joined
the Group) until the date on which (i) Salmon Creek or such PL Subgroup
Subsidiary ceases to be a member of the Group, (ii) the Group no

    longer
remains in existence within the meaning of Treasury Regulation §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
Salmon Creek or such PL Subgroup Subsidiary ceased to be a member of the Group,
the reason that the Group is no longer in existence, or the reason that Parent
and Salmon Creek or such PL Subgroup Subsidiary can no longer join in the same
consolidated return.

    

    8.            
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 Salmon Creek and each PL Subgroup Subsidiary 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.

    

    9.            
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, Pacific
Lumber, Scotia and Salmon Creek have executed this Agreement by authorized
officers thereof as of the date first above written.

    

    
      	
              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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