TAX ALLOCATION AGREEMENT

This Agreement is made as of February 9, 2004, between MAXXAM Inc. ("Parent"), a Delaware corporation, MAXXAM Group Inc. ("MGI"), a Delaware corporation, The Pacific Lumber Company ("Pacific Lumber"), a Delaware corporation and Britt Lumber Co., Inc. ("Britt"), a California corporation.

WHEREAS, Pacific Lumber and Britt are currently members, for federal income tax purposes, 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, Pacific Lumber and Britt are currently members of a combined unitary reporting group for Arizona and California income tax purposes of which MGI is the common parent corporation (the "Forest Products Group"); and

WHEREAS, pursuant to a tax allocation agreement dated as of May 21, 1988 (the "May 88 Agreement"), Parent and 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, the May 88 Agreement was amended as between Parent and Pacific Lumber to establish a Tax Allocation Method for Pacific Lumber that included Scotia Pacific Holding Company ("Scotia") and Salmon Creek Corporation ("Salmon Creek"), then-existing subsidiaries of Pacific Lumber (the "March 93 Agreement"); and

WHEREAS, Scotia, which was a wholly owned subsidiary of Pacific Lumber, ceased to be a member of the Group as a result of being merged into a newly formed wholly owned subsidiary of Pacific Lumber, Scotia Pacific Company LLC ("Scotia LLC") on July 20, 1998; and

WHEREAS, Salmon Creek, which was a wholly owned subsidiary of Pacific Lumber, ceased to be a member of the Group as a result of being converted into a newly formed wholly owned subsidiary of Pacific Lumber, Salmon Creek LLC ("Salmon Creek LLC") on December 7, 1999; and

WHEREAS, Scotia LLC and Salmon Creek LLC are not members of the Group since each entity is a single member limited liability company which has not elected to be treated as an association taxable as a corporation and, therefore, is treated as a division of Pacific Lumber pursuant to Treasury Regulation ss.301.7707-3(b)(1); and

WHEREAS, on December 31, 2001, the March 93 Agreement was further amended (the "Amended March 93 Agreement") as between Parent and Pacific Lumber to clarify the treatment of Scotia LLC and Salmon Creek LLC as members of the PL Subgroup, as that term is defined in the Amended March 93 Agreement; and

WHEREAS, pursuant to a Tax Allocation Agreement dated July 3, 1990 (the "July 90 Agreement"), Parent and Britt established a Tax Allocation Method; and

WHEREAS, as of even date herewith, the stock of Britt was acquired by Pacific Lumber; and

WHEREAS, Parent and Pacific Lumber recognize that the May 88 and Amended March 93 Agreements are no longer reflective of Pacific Lumber and its subsidiaries' relationship with Parent; and

WHEREAS, Parent and Britt recognize that the July 90 Agreement is no longer reflective of Britt's relationship with Parent; and

WHEREAS, Parent and Pacific Lumber desire to establish a Tax Allocation Method which includes Britt and any other Pacific Lumber subsidiary in the computation of Pacific Lumber's income tax liability to Parent; and

WHEREAS, Pacific Lumber and Britt desire to establish a Tax Allocation Method which reflects Britt's subsidiary relationship to Pacific Lumber.

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

1.           Parent and Pacific Lumber agree to terminate the May 88 Agreement, as it pertains to their relationship, and the Amended March 93 Agreement with respect to taxable periods beginning on and after January 1, 2004.

2.           Parent and Britt agree to terminate the July 90 Agreement with respect to taxable periods beginning on or after January 1, 2004.

3.           Pacific Lumber and its subsidiaries, either as of the date of this Agreement or at the time that the subsidiary becomes eligible to become a member of the group, agree to be included in, and Parent agrees to file a consolidated Federal income tax return for all taxable years in which Parent and Pacific Lumber are eligible to file consolidated returns as an affiliated group of corporations as such term is defined in Section 1504 of the Code.

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

5.           Except with respect to any payments to Parent that are required under this Agreement, the May 88 Agreement, the Amended March 93 Agreement, or the July 90 Agreement, or any payment that Britt is required to make to Pacific Lumber under this Agreement, Parent shall indemnify Pacific Lumber and each Pacific Lumber Subgroup Subsidiary (as hereinafter defined) and hold them harmless against all Federal income tax liabilities relating to taxable years of Pacific Lumber and each Pacific Lumber Subgroup Subsidiary during which Pacific Lumber and each Pacific Lumber Subgroup Subsidiary is or was a member of the Group.