SEPARATION, RELEASE AND CONFIDENTIALITY AGREEMENT

THIS SEPARATION, RELEASE AND CONFIDENTIALITY AGREEMENT (“Agreement”) is made and entered into on this 31st day of July, 2008 by and between J. Kent Friedman hereinafter referred to as (“Employee”) and MAXXAM Inc. (hereinafter referred to as the “Company”).

Employee and the Company have maintained an employer-employee relationship for a period of time and the now mutually desire to terminate that aspect of their relationship.

Employee and the Company desire to enter into a written separation agreement to establish their respective rights, duties and obligations and to avoid and resolve any actual and potential differences between them, including, without limitation, differences arising out of Employee’s employment with the Company and the end of that employment.

THEREFORE , in consideration of the mutual promises, conditions and covenants in this Agreement, the parties hereby agree as follows:

1.        Termination Date .  The employment relationship between the parties shall terminate as of the close of business on July 31, 2008 (the “Termination Date”), and neither party shall have any further rights or obligations with respect to or arising from such employment relationship except as provided in this Agreement or the Separation Agreement Addendum affixed hereto (the “Addendum”).

2.        Severance Payment .   Under the terms of the MAXXAM Inc. Severance Pay Plan and conditioned upon Employee’s execution of this Agreement, the Company shall pay Employee sixteen (16) weeks of severance pay at Employee’s base rate of compensation (the “Severance Payment”).  All necessary taxes and withholdings will be deducted from this amount.  This sum shall be paid to Employee six months following the effective date of this Agreement.  (The effective date of this Agreement is discussed in paragraph 7 below.)  The Severance Payment amount is included in paragraph 4 of the Addendum.  The severance payment is in addition to any pension benefits Employee might be entitled to under any Company defined benefit pension plan in effect at the time of the Termination Date, and other employee benefits Employee may be entitled to under any Company Plan in effect at the time of the Termination Date.  Receipt of any pension benefits to which Employee is entitled shall in no way preclude or reduce Employee’s entitlement to severance pay in an amount equivalent to the level of severance benefits which Employee would have otherwise been entitled to under the terms of the MAXXAM Inc. Severance Pay Plan.

3.        Group Health Insurance Benefits .  Under the terms of the MAXXAM Inc. Severance Pay Plan, the Employee is entitled to up to fifty-two (52) weeks of continued group health and managed mental health insurance, provided the Employee pays for 50% of the total cost of the coverage.  Such coverage will terminate prior to the expiration of the fifty-two weeks if Employee becomes covered by any other group program.   If after the expiration of this initial continuation, Employee has not obtained alternative coverage, Employee will be eligible for the remaining time under the rules of COBRA up to the maximum of 18 months.  The initial period of coverage under the terms of the Severance Plan counts toward the COBRA eligibility period, which eligibility period shall commence on the Termination Date.

4.        Stock Options .  The Company and Employee acknowledge that (a) Employee has previously been granted non-qualified stock options/stock appreciation rights (collectively, the “Options”) pursuant to the Company’s 1994 and 2002 Omnibus Employee Incentive Plans (collectively, the “Option Plans”), as set forth on Exhibit 2 hereto, and (b) the last column of each page of Exhibit 2 sets forth those Options that are currently outstanding and exercisable or will become exercisable prior to the Termination Date (collectively, the “Vested Options”).  The Employee acknowledges that (x) any Options that are not Vested Options shall be cancelled effective as of the Termination Date, (y) notwithstanding the terms of the December 1, 1999 Rights Agreement referred to below, he has until November 30, 2009 to exercise any or all the Options covered by such Rights Agreement, and (z) notwithstanding the terms of the other Rights Agreements referred to below, he has until December 31, 2009to exercise any or all of the Vested Options covered by such other Rights Agreements.  Any Vested Options not exercised by 5:00 p.m., Houston time, on the applicable termination dates noted above shall be cancelled immediately thereafter.

In order to exercise any of the Vested Options, the Employee must complete and sign the exercise form attached hereto as Exhibit 3 and deliver such form to the Company either:  (i)  by means of U.S. mail, overnight delivery or in person to the attention of the Corporate Secretary, MAXXAM Inc., 1330 Post Oak Boulevard, Suite 2000, Houston, Texas 77056-3058, or (ii) via e-mail to both Bernie Birkel ( bernie.birkel@mxmin.com ) and Valencia McNeil ( valencia.mcneil@mxminc.com ), provided that the form must be received by the Company prior to the  applicable termination date noted above.  Except as noted in items (y) and (z) of the immediately preceding paragraph, the Company, Employee and the Options shall continue to be subject to the terms and provisions of the Option Plans and any outstanding Rights Agreements between the Company and Employee, including those dated December 1, 1999, December 18, 2000, December 12, 2001, December 10, 2002, December 10, 2003, December 20, 2004, December 7, 2005,  December 11, 2006 and December 17, 2007.

5.        Confidentiality .   Employee acknowledges that in the course of his employment with the Company, he acquired confidential information of a special and unique nature and value relating to such matters as the Company’s trade secrets, strategic plans, programs, confidential reports and communications, clients and business prospects.  Employee hereby agrees that he shall not, at any time following the date of this Agreement, except with the prior written consent of the Company, directly or indirectly, disclose, divulge, reveal, report, publish, transfer, or use for any purpose, any such information.

6.        Release and Waiver .  In consideration for the benefits provided above and in the Addendum, Employee fully and completely releases, waives and discharges any and all suits, causes of action, demands, claims, charges, complaints, liabilities, costs, losses, damages, injuries, bonds, judgments, and attorneys’ fees and expenses of any kind, in law or in equity, whether known or unknown (collectively, “Claims”), arising out of his employment by the Company, or otherwise, that Employee has ever asserted, or could assert, against the Company, any other entities that are affiliated with the Company, as well as the Company’s directors, officers, employees, owners, agents, representatives, successors and assigns (collectively, “Releases”).  These released Claims are intended to and do include, without limitation, any and all Claims that Employee can or could assert against one or more of the