MAXXAM INC.
 
                                 CHARTER OF THE
                    AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
 
 
I.    AUDIT COMMITTEE PURPOSE
 
      The Audit Committee (the "Committee") of MAXXAM Inc. (the "Corporation")
      is appointed by the Board of Directors (the "Board") to aid the Board in
      fulfilling its oversight responsibilities. The Committee's primary duties
      and responsibilities are to:
 
      o     Serve as an independent and objective party to oversee the integrity
            of the Corporation's accounting and financial reporting processes
            and internal control system, including the Corporation's systems of
            internal controls regarding finance and accounting, that management
            and the Board have established. Consistent with this function, the
            Committee should encourage continuous improvement of, and should
            foster adherence to, the Corporation's policies, procedures and
            practices at all levels.
 
      o     Review and appraise the independence and performance of the
            Corporation's independent accountants and the performance of the
            Corporation's internal auditing department or other body performing
            that function on behalf of the Corporation (the "Internal Audit
            Group").
 
      o     Provide an open avenue of communication among senior management, the
            independent accountants, the Internal Audit Group, and, as
            necessary, the Board.
 
      The purpose of this Charter is to outline the duties and responsibilities
      of the Committee. Neither the existence nor the provisions of this Charter
      may be relied upon by any person as a basis for asserting any liability
      against anyone serving as a member of the Committee at any time or against
      any person or entity providing services to or on behalf of the Committee.
 
      The Committee shall have the authority to engage independent counsel and
      other advisers as it determines necessary to carry out its duties. The
      Committee shall also have, and the Board by ratification of this Charter
      grants to the Committee, the appropriate funding, as determined by the
      Committee, in its capacity as a committee of the Board, for payment of (a)
      compensation to any registered public accounting firm engaged for the
      purpose of preparing or issuing an audit report or performing other audit,
      review or attest services for the Corporation or any of its subsidiaries,
      (b) compensation to any advisers employed by the Committee, and (c)
      ordinary administrative expenses of the Committee that are necessary or
      appropriate in carrying out its duties.
 
II.   AUDIT COMMITTEE COMPOSITION AND MEETINGS
 
      The size and composition of the Committee and the qualification of its
      members shall meet the requirements of all laws, rules and regulations,
      including those of any exchange on which the Corporation's securities are
      listed (i.e. on such matters as having an Audit Committee Financial Expert
      and having members who satisfy requisite independence and financial
      literacy standards). Committee members may enhance their familiarity with
      finance and accounting by participating in educational programs conducted
      by the Corporation, an outside consultant or other third party.
 
      The members of the Committee shall be elected by the Board annually (by
      written consent or at a regular or special meeting of the Board). The
      Chairman of the Committee shall be selected in accordance with the
      procedures established in the Corporation's By-laws.
 
      The Committee shall meet at least four times annually, on a quarterly
      basis, and shall meet more frequently if circumstances dictate. In
      addition, the Committee (or at least its Chairman) shall meet with
      management and the independent accountants quarterly to review the
      Corporation's financial statements, consistent with Section III.3. below.
      As part of its duty to foster open communication, the Committee shall meet
      as it deems necessary with management, including the chief financial,
      legal and accounting officers, with the director of the Internal Audit
      Group, and with the independent accountants in separate executive sessions
      to discuss any matters that the Committee or any of these persons or
      groups believe should be discussed privately.
 
III.  COMMITTEE RESPONSIBILITIES AND DUTIES
 
      General
 
      1.    Review and reassess the adequacy of this Charter at least annually
            and update it as conditions dictate. Submit this Charter to the
            Board for approval whenever the Committee recommends any changes,
            but (whether or not changes are recommended) at least annually. Have
            the Corporation publish this Charter and provide any requisite
            certification in accordance with any applicable Securities and
            Exchange Commission, stock exchange or other requirements.
 
      2.    Establish regular and separate systems of reporting to the Committee
            by each of management and the independent accountants regarding any
            significant judgments made in management's preparation of the
            financial statements and the view of each as to appropriateness of
            such judgments.
 
      3.    Review with financial management and the independent accountants the
            Corporation's annual and quarterly financial statements prior to
            their issuance. The Committee may designate the Chairman to
            represent the entire Committee for purposes of the review of the
            quarterly (other than year-end) financial statements.
 
      4.    Consider and approve, if appropriate, major changes to the
            Corporation's auditing, accounting, and internal control principles
            and practices as suggested by management, the independent
            accountants, or the Internal Audit Group, and subsequently review
            with such persons, as appropriate, the extent to which such changes
            have been implemented.
 
      Independent Accountants
 
      5.    Advise the independent accountants that: (a) they are directly
            accountable to the Committee, as representatives of the
            Corporation's shareholders; and (b) the Committee has sole authority
            and responsibility to select, evaluate, and, where appropriate,
            replace the independent accountants.
 
      6.    Confer with the independent accountants concerning the scope of
            their examinations of the books and records of the Corporation and
            its subsidiaries; review and approve the independent accountants'
            annual engagement letter; direct the attention of the independent
            accountants to specific matters or areas deemed by the Committee to
            be of special significance; and authorize the independent
            accountants to perform such supplemental reviews or audits as the
            Committee may deem desirable.
 
      7.    Approve the fees and other compensation to be paid to the
            independent accountants taking into account all appropriate factors,
            including the range and cost of audit and non-audit services
            performed by the independent accountants.
 
      8.    The Committee shall pre-approve all audit and non-audit services to
            be furnished by the independent accountants to the Corporation or
            its subsidiaries; provided that (a) the Chairman (or, in the absence
            of the Chairman, another Committee member) may pre-approve such
            services on an emergency basis so long as the Committee subsequently
            ratifies this action, and (b) pre-approval is waived in those
            instances permitted by applicable SEC regulation so long as the
            Committee subsequently approves such services within any applicable
            deadline. The Committee may not approve the performance by the
            independent accountants of any non-audit services listed under
            Section 201(a) of the Sarbanes-Oxley Act of 2002 ("S-Ox Act") or
            Section (c)(4) of Rule 2-01 of SEC Regulation S-X ("Rule 2-01"). In
            assessing whether other non-audit services may be performed, the
            Committee shall focus on whether such services would be consistent
            with the provisions of Rule 2-01.
 
      9.    At least annually, review with management and the independent
            accountants any significant risks and exposures to the Corporation
            and its subsidiaries and the steps that management has taken to
            monitor and control such risks and exposures.
 
      10.   Review with management and the independent accountants the audit
            activities and significant audit findings of the independent
            accountants.
 
      11.   At least annually, consult with the independent accountants out of
            the presence of management about internal controls and the quality
            and appropriateness of the Corporation's accounting principles as
            applied in its financial statements.
 
      12.   On an annual basis, prior to the issuance of the independent
            accountants' opinion on the Corporation's financial statements, the
            Committee shall (a) receive from the independent accountants the
            report required by Rule 2-07 of SEC Regulation S-X (critical
            accounting policies and practices to be used, alternative GAAP
            treatments which have been discussed with management, and material
            written communications between the firm and management), and (b)
            obtain a formal written statement from the independent accountants
            delineating all relationships between the independent accountants
            and the Corporation consistent with Independence Standards Board
            Standard 1 "Independence Discussions with Audit Committees." The
            Committee shall review the statement and actively engage in a
            dialogue with the independent accountants with respect to any
            disclosed relationships or services that may impact the objectivity
            and independence of the accountants. The Committee shall take
            appropriate action to monitor and oversee the independence of the
            independent accountants.
 
      13.   Following completion of the annual audit, (a) review separately with
            each of management and the independent accountants any significant
            difficulties encountered during the course of the audit, including
            any restrictions on the scope of work or access to required
            information, and (b) review any significant disagreement among
            management and the independent accountants or the Internal Audit
            Group.
 
      14.   At least annually, inquire of management and the independent
            accountants as to whether they are aware of any consultations with
            other independent accountants regarding accounting and auditing
            matters that would have a material effect on the Corporation's
            financial statements.
 
      15.   The Committee shall monitor and review the performance of the
            independent accountants.
 
      Internal Audit Group
 
      16.   Confer with the Internal Audit Group concerning the focus of the
            work to be performed during the year.
 
      17.   Direct the special attention of the Internal Audit Group to specific
            matters or areas deemed by the Committee to be of special
            significance, and authorize the Internal Audit Group to perform such
            supplemental reviews or audits as the Committee may deem desirable.
 
      18.   Review an executive summary of the internal reports to management
            prepared by the Internal Audit Group and management's response.
 
      19.   Review and appraise the performance of the Corporation's Internal
            Audit Group.
 
      Whistleblower Procedures
 
      20.   The Committee shall review and reassess, at least annually, the
            procedures for (a) the receipt, retention and treatment of
            complaints received by the Corporation regarding accounting,
            internal accounting controls, or auditing matters, and (b) the
            confidential anonymous submission by employees regarding
            questionable accounting or auditing matters, as required by the S-Ox
            Act. The Committee shall update such procedures as conditions
            dictate.
 
      Other Audit Committee Responsibilities
 
      21.   Perform any other activities consistent with this Charter, the
            Corporation's By-laws and governing law, as the Committee or the
            Board deems necessary or appropriate.
 
      22.   Report to the Board periodically, but at least annually, concerning
            the activities of the Committee.