community town hall meeting town hall m… · 15.03.2008 · standing inventory of merchantable...

Community Town Hall Meeting

Fortuna/Eureka, CA

March 15, 2008

1Purpose

• Introduce Some Key Members Of Our Management Team

• Mendocino Redwood Company (MRC) Background“The First Nine Years”

• Overview of MRC/Marathon Plan

• Plan Comparison

• Questions

2Introduction

• Sandy Dean, Chairman, Mendocino Redwood Co., LLC (MRC)

• Gary Lembo, Director, Marathon Asset Management– Gary represents the creditor to Pacific Lumber Company and

Marathon who will form a new company to manage the town businesses, CoGen and the rent or sale of homes in Scotia.

• Richard Higgenbottom, CEO, MRC– Richard will lead management teams for the Mill, Distribution and

Forest Lands

• Mike Jani, President & Chief Forester, MRC– Mike will be responsible for Stewardship, Certification, and Forest

Management of the new timberlands company

• Marty Olhiser, Sr. VP, Mendocino Forest Products (MFP)– Marty, along with John Russell (President of MFP) will provide

leadership in sales and distribution of products.

3

All the information contained in this presentation is publicly available at www.mrc.com.

The discussion today is qualified by the bankruptcy court approved Joint Disclosure Statement which is available at www.mrc.com/palcoplans.

We urge everyone, especially all Creditors of Palco and Scotia Pacific, to read the bankruptcy court approved Disclosure Statement in its entirety. It too is available at www.mrc.com.

4Redwood Ownership Map

PALCO

Gree n Diamond - Korbel

Harwood

Mendocino Forest ProductsAg wood

Willit s Redwood

Redwood Empire Philo

Redwo od Emp ire Cloverdale

Redwood Region Ownership (1,740,000 acres)

•Industrial Forestlands (51%)

•Parks and Reserves (26% )

•Non-industrial forestlands (21%)

•Jackson Demonstration State Forest (2%)

Re dwoo d Sa wmi lls

Doug la s-f ir Sawmills

Green Diamond - Orick

Sierra Pacific Indust ries

5MRC Background

• MRC started with a publicly declared purpose:“To demonstrate it is possible to manage productive forestlands with a high standard of environmental stewardship, and also operate asuccessful business.”

• Early MRC policies included:– Eliminating traditional clear cutting,– Implementing an old growth policy down to level of tree,– Reducing the level of harvest,– Pursuit and attainment of Forest Stewardship Council (FSC)

certification.

• To learn more about MRC's approach after 9 years of sustainable forest management, go to www.mrc.comand see MRC®'s Approach

6MRC Background

• Now, almost 10 years after MRC was formed, there is measurable ecological progress in MRC’s forest. In particular:– Standing conifer has increased by more than 25%.– 40,000 acres overgrown with tan oak have been treated so that a

robust conifer forest will again emerge in 30-40 years.– Investment of $11 million in sediment and erosion control -

700,000 cubic yards of sediment (the equivalent of almost 70,000dump trucks).

• MRC has purposefully operated in an open and transparent fashion with members of the community.

7MRC and Palco Timberlands

8Timberlands-MRC vs Scotia Pacific

8360Forest Related Employees (excluding Road Department)

$7,850,000$3,100,000Average Annual Road Expenditures (projected next 5 years)

$15,200,000$9,600,000Average Annual All Forestry Costs Other Than Log And Haul And Road expenditures (projected next 5 years)

55,00038,000Average Expected Harvest next 5 years (net MBF)126,20033,106Average Harvest Last Five Years (2003 - 2007) MBF net

2,628,3141,542,085Unrestricted Standing Inventory Of Merchantable Conifer (net MBF)

3,943,1702,676,405Standing Inventory Of Merchantable Conifers (net MBF)1,0171,034Miles Of Streams (class I & II)1,6792,400Miles Of Roads On Lands

209,960218,231Acres Of Forest LandPalcoMRCTimberlands

9Sawmills-MFP Ukiah Mill vs Palco Scotia Mill

90.00%90.00%Average Mill Uptime

16.7ft13.15ftAverage Log Length

$177.00$54.07Average Fence Line Conversion Costs (direct)

7.8 mbf/hr12 mbf/hrFence Line Average Production Rate

$210/mbf$115/mbfAverage Fully Loaded Mill Conversion Costs

43 mbf/hr30 mbf/hrMill Average Production Rate

PalcoMFPMill

10Overview of MRC/Marathon Plan

• MRC and Marathon propose to reorganize by integrating the commercial timberland, sawmill operations in a responsible sustainable manner. MRC and Marathon also propose to restructure the Town of Scotia and allow residents to purchase their homes.

• Principal Plan Elements1. MRC will contribute $200 million of Cash, and Marathon will contribute $25

million of Cash to Newco. Marathon will also convert approximately $135 million of senior secured prepetition and post petition debt into equity.

2. MRC and Marathon will bring in a new experienced management team from MRC

3. Newco will benefit from approximately $10 million annually of savings from synergies

4. MRC will immediately seek Forest Stewardship Council certification of the Debtors’ timberlands

5. The MRC/Marathon Plan assumes all environmental obligations, without any modification, including the HCP resulting from the Headwaters Agreement.

11Overview of MRC/Marathon Plan

• Principal Plan Elements (cont.)6. The debt obligations of the Debtors will be reduced by a total of approximately

$625 million, and as a result, Newco and Townco will be able to responsibly service their debt obligations going forward.

7. Trade creditors will be paid cash in the amount of approximately 75-90% of their claims and will be eligible for further distribution.

8. Holders of Timber Notes will, receive $175 million cash, plus new Timber Notes of $325 million.

9. Newco will assume responsibility for Debtors’ Pension Plan.10. The Town will be reorganized and residents will be offered the opportunity to

purchase their homes.11. Bank of America’s claim against Scopac for approximately $37.6 million will

be paid in full.12. All allowed administrative and administrative priority claims of all Debtors

will be paid in full.

12MRC Business Strategy for Newco

• Integrate the Timberlands and Mill to Maximize Value• MRC plans to take the following specific steps to be taken

to maximize value from the Mill and Timberlands– Invest $7.5 million in new capital in the Mill to make the Mill

flexible;– Match production of the Mill to the harvest rate and size of the

logs being harvested from the Timberlands;– Change the strategy of the Mill to produce what the market wants

to buy, as opposed to what can be produced in high volume or lowcost;

– Work to rebuild customer relationships that have been frayed in recent years due to poor customer service by the Debtors;

– Develop redwood lumber distribution capabilities, and / or utilize existing distribution infrastructure of MFP

13MRC Business Strategy for Newco

• Enable Newco to achieve significant synergies with MRC and MFP– Eliminate duplicative senior management positions– Consolidate redundant information system costs– Eliminate duplicative sales, sawmill administration, and

accounting administration positions– Unify forestry science, inventory and GIS departments– Utilize existing distribution facilities, capabilities, and

relationships

14Plan Comparisons

The Commercial Timberlands will be transferred to the Prepetition Indenture Trustee (Note holders); Reorganized Scopac will retain the MMCAs, the Redwood Preserve Development, and rights in the Headwaters Litigation

The Palco Business will be transferred to Marathon; Reorganized Palco will retain its Interests in Reorganized Scopac and all rights to the Headwaters Litigation.

Reorganization, with joint ownership among secured creditors and existing equity.

The Plan Agent appointed under the plan will conduct, with the assistance of a Sales Agent, a commercially reasonable sale of Scopac as a going concern.

The Debtors will be reorganized into two entities as follows:•Newco will consist of the Debtors’Scotia Mill and commercial timberland assets. The Mill and commercial timberland operations will be integrated and managed by MRC consistent with MRC’s track record in Mendocino County.•Townco will consist of the town of Scotia, including residences, the power plant and other assets not associated with the Scotia Mill and commercial timberland assets.

How will the plan be implemented (sale, reorganization, etc.)?

Not applicable.Yes.Yes.Not applicable.Yes. The Plan provides that MRC and Marathon will change the strategic approach of the Scotia Mill, invest up to $7.5 million in capital in the Scotia Mill, and share MFP’s distribution infrastructure with the Scotia Mill. Long term success of the Scotia Mill is a critical element of the reorganization plan developed by MRC and Marathon.

Does the plan provide assurances for continued operation of the Scotia sawmill?

Yes.Yes.No.Scopac will continue operations substantially in its current manner until its sale as a going concern on the plan’s Effective Date.

Yes.Does the plan contemplate any material changes in the Debtors’ business operations?

Only Scopac.Only the Palco Debtors (Palco, Britt, Scotia Inn, Salmon Creek and Scotia Development).

All Debtors.Only Scopac.All Debtors.Which Debtors does the plan affect?

ScopacAlternative Plan

PalcoAlternative PlanDebtors Plan

Indenture Trustee PlanMRC/Marathon PlanTopics

15Plan Comparisons

Reorganized Palco.MAXXAM.Shared control among Reorganized Palco, MAXXAM, Marathon, and the Prepetition Timber Note holders.

The Plan Agent under the direction of a Post-Confirmation Board consisting initially of representatives of Scopac’s secured creditors and thereafter of representatives of Scopac’s unsecured creditors.

The Scotia Mill and commercial timberland assets will be controlled by a Board of Directors that largely overlaps with the Board of Directors that controls MRC, and run day to day by a management team that is drawn from both MRC and MFP. The town of Scotia will be managed by an affiliate of Marathon.

Who will control the Debtors after the plan is confirmed?




Paid in full on the Distribution Date.



Paid in full in cash on the Effective Date.

Paid in full in cash.How does the plan treat priority and administrative claims?

Plan confirmation of the Palco Alternative Plan and the Scopac Alternative Plan, plus a willing lender or lenders.

Plan confirmation and a willing lender or lenders.

Not applicable.None.What conditions or contingencies must be met for any financings associated with the plan?

Not applicable.$110 million.$90 million ($40MM for Palco and $50MM for Scopac).

Not applicable.None.If so, what financing is required?

No.Yes.Yes.No.No.Is financing required to consummate the plan?

16Plan Comparisons


Semi annual payments of interest only at rate of 8.25%, plus all principal on the seventh anniversary of the Effective Date.

Semi annual payments of interest only at rate of 8.25%, plus all principal on the seventh anniversary of the Effective Date.

Anticipated to be paid at approximately 100% from a $1.45 million fund set aside for the benefit of general unsecured creditors of Scopac.

Allowed Palco Trade Claims and Allowed Palco General Unsecured Claims will be paid a Pro Rata share of $10.1 million plus a Litigation Trust Participation for any remaining amount owed, and the recovery is estimated to be 75-90%.Allowed Scopac Trade Claims will be paid a Pro Rata share of $500,000 plus a Litigation Trust Participation for any remaining amount owed, and the recovery is estimated to be 75-90%.Allowed Scopac General Unsecured Claims will receive a Litigation Trust Participation, and the estimated recovery is unknown.Deficiency claims for the Marathon DIP Loan and Term Loan shall be waived and receive no recovery.

How does the plan treat the general unsecured creditors of the affected debtor(s)?

Not applicable.Marathon will receive title to the Palco Town Assets and the Scotia Mill in full satisfaction of the term loan debt.

Transfer of the Town Assets to Marathon and 17.7% of the common stock of Reorganized Palco in full satisfaction of the term loan debt.

Not applicable.In full satisfaction of its Palco DIP Loan Claim and Palco Term Loan Claim and contributing a portion of the cash contribution to Newco, Marathon shall receive (1) 100% equity ownership interest of Townco, (2) 15% equity ownership interest in Newco (subject to adjustment), and (3) a note from Newco in the aggregate principal amount equal to the amount of the Mill Working Capital and secured solely by Liens on the Mill Working Capital.

How does the plan treat Marathon’s term loan in the amount of $85 million?




17Plan Comparisons

Transfer of the Commercial Timberlands

Not applicable.49% of the New Scopac Common Stock, 375 million shares of the New Scopac Preferred Stock, and $225 million in New Timber Notes.

Paid from the proceeds of the sale after payment of senior classes and setting aside funds (including those for unsecured creditors) as required under the Plan.

Unless the Timber Note holders elect otherwise under 1111(b)(1)(A)(i) of the Bankruptcy Code prior to the agreed deadline of March 2, 2008 at 5:00 p.m. Central time, the Timber Note holders shall, subject to the New Timber Note Adjustment, receive a Pro Rata share of $175 million in Cash plus a Pro Rata share of New Timber Notes in the principal amount of $325 million accruing interest at 5.5% per annum and secured by the Timberlands.

How does the plan treat the claims of the Indenture Trustee?




Not applicable.Retained.Diluted to 36.6% ownership of Reorganized Palco.

Not applicable.Maxxam will not receive any distributions.

What happens to Maxxam’s ownership interests in Palco?

Paid in full (at the non-default interest rate) on the Distribution Date if the Palco Alternative Plan is confirmed; otherwise Bank of America will receive $20 million and a six-month note for the balance of its claim.

Not applicable.Paid in full (at the non-default interest rate) on the Distribution Date.

Bank of America’s claim will be paid in full on the Effective Date in accordance with the terms of the Indenture and Deed of Trust.

All principal and non-default interest rate paid on Distribution Date.Accrued default interest paid over time in 12 monthly payments.

How does the plan treat Bank of America?

Not applicable.Paid in full on the Distribution Date with the proceeds of the Alternative Exit Facility.

45.7% of the common stock of Reorganized Palco in full satisfaction of the debt.

Not applicable.See above.How does the plan treat Marathon’s DIP loan in the amount of $75 million?

18Plan Comparisons

Yes.Yes.Yes.Yes.Yes.Does the plan promise to honor the obligations associated with AB 1986

Not applicable. Scopac does not have a defined benefit pension plan.

Yes.Yes.Not applicable. Scopac does not have a defined benefit pension plan.

Yes.Does the plan provide for the assumption and continuation of the Debtors’ defined benefit pension plan?




Released.Released.Released.Preserved. The Plan Agent will prosecute such claims for the benefit of Scopac’s unsecured creditors.

Trade Avoidance Actions and Avoidance Actions against Marathon and Bank of America are waived. All other Avoidance Actions are assigned to the Litigation Trust.

How will avoidance actions and other claims under Chapter 5 of the Bankruptcy Code be handled?

No.No.No.No. The sale of Scopac as a going concern will be subject to existing regulatory rights and agreements.

No.Does the plan purport to alter any of the regulatory rights of the Federal Government?

No.No.No.No. The sale of Scopac as a going concern will be subject to existing regulatory rights and agreements.

No.Does the plan purport to alter any of the regulatory rights of the California State Agencies?

Retained.RetainedDiluted to 51% ownership of Reorganized Scopac.

In the event all Scopac creditors are paid in full, Palco will be paid in cash from the remaining proceeds of sale and distributions from the Liquidation Trust and Litigation Trust.

Palco will not receive any distributions.What happens to Palco’s ownership interests in Scopac?

19Plan ComparisonsScopac

Alternative PlanPalco

Alternative PlanDebtors PlanIndenture Trustee

PlanMRC/Marathon PlanTopics

The following parties are released from potential claims brought by the Debtors and certain limited claims brought by third parties: (i) Debtors, (ii) Non-Debtor Affiliates, and (iii) each of the foregoing parties’officers, directors, employees and professionals.

The following parties are released from potential claims brought by the Debtors and certain limited claims brought by third parties: (i) Debtors, (ii) Non-Debtor Affiliates, and (iii) each of the foregoing parties’officers, directors, employees and professionals.

The following parties are released from potential claims brought by the Debtors and certain limited claims brought by third parties: (i) Debtors, (ii) Non-Debtor Affiliates, (iii) Committee and its members, (iv) Marathon, (v) Prepetition Indenture Trustee, (vi) each holder of an Allowed Scopac Timber Note holder Claim and (vii) each of the foregoing parties’officers, directors, employees and professionals.

The plan grants certain releases to the Plan Agent and the Plan Proponent, their professionals and other agents.

Releases and discharges for the Debtors and Reorganized Entities. Releases and exculpations for the Plan Proponents, the Committee and its members.

Does the plan contain any releases or exculpation provisions? If so, who is covered?

Retained by Reorganized Scopac.

Retained by Reorganized Palco.

Retained by Reorganized Debtors.

Scopac’s interests in other estate litigation will be contributed to a Litigation Trust whose beneficiaries will be, per the absolute priority rule, the creditors and shareholders of Scopac.

Actions for (i) accounts receivable, (ii) breach of the Headwaters Agreement, and (iii) non-monetary relief will be retained by the Debtors' estates and assigned to Newco or Townco, as applicable. All other affirmative actions will be assigned to the Litigation Trust.

What will happen to any other estate litigation claims, including the Debtors’ lawsuit against the State of California alleging, among other claims, breach of the Headwaters Agreement?

20

Questions?

21

To learn more about MRC's approach after 9 years of sustainable forest management, go to

www.mrc.com

22Restoration at MRC

• Long-Term Commitment• Aquatic Habitat Improvement

– Remove barriers to migration– Reduce sediment in streams– Maintain appropriate stream

temperatures– Increase in-stream habitat structure

• Upslope Habitat Improvement– Restore former tree-species mix– Protect old growth, snags and other

key habitat components– Increase forest inventory, age and

structure– Increase carbon sequestration

Old Growth In Navarro Watershed

23

2000 2008 2045

Cottoneva Creek Planning Watershed

Increase Forest Structure

24Growing Conifer Inventory

25Remove Barriers to Migration

Culvert - 1998 Bridge Replacement - 2001

South Fork Garcia River

26

Fish Barrier Restored Summer 2007

Little Waldron Creek – Hollowtree Watershed

Remove Barriers to Migration

27

$1,723,20066,5212006

$1,601,81670,4352005

$11,060,432684,877Totals

$1,418,90330,3882004

$1,762,298203,4632003

$1,449,99988,2862002

$938,48438,1262001

$1,075,629127,5552000

$628,15652,8191999

$461,9477,2841998

Total Contributions

Controlled Sediment

(yd3)Year

Restoration SummaryRoad Improvements

28

•7 fish barriers have been treated to restore and open 8,144 feet (or 1.5 miles) of streams which previously obstructed fish access.

•23 partial fish barriers have been treated which has enhanced 92,461 feet (or 17.5 miles) of watercourses and allowed for year around use.

1,6141Garcia100,605 (19 miles)30Total

41,9343Ukiah20,2596Navarro21,6918Albion

1,6552Big River1,7551Noyo

11,6979Rockport

Habitat Enhanced(feet)

Number of

ProjectsArea

Stream ImprovementsRestoration Summary

29

Tanoak dominated forestland

The Tanoak Challenge

30

MRC approach to restoring tanoak challenged forest

Variable Retention – Post Harvest

31

Greenwood Creek Watershed

Variable Retention – Post Harvest

32

• Old Growth

• Snags

• Downed Woody Debris

•“Goospens” (tree cavities)

• Rocky Outcroppings

• Pygmy Forest

• Carbon storage

• Forest Structure

Protect Biologically

Significant Forest Attributes

community town hall meeting town hall m… · 15.03.2008 · standing inventory of merchantable...

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