July 29th 2008

By Nathan Rushton
The Eureka Reporter
July 29, 2008

After nearly 150 years as one of the county's most high-profile and largest timber company, which has been embroiled in 18 months of contentious bankruptcy proceedings, the Pacific Lumber Co. has all but come to an end.

PALCO attorney Katherine Coleman announced in court Tuesday that all documents have been signed and delivered that are necessary to implement the court-approved reorganization plan put forward by Mendocino Redwood Co. and PALCO creditor Marathon Structured Finance Fund.

Parties in the bankruptcy case convened in a Corpus Christi, Texas courtroom Tuesday to work out the latest last-minute effort by PALCO's largest creditor group -- the Timber Noteholders -- to stall the plan from going forward while Fifth Circuit Court of Appeals reviews judge Richard Schmidt's rulings in the case.

But the Timber Noteholders were unable to persuade Schmidt, a federal district court or the Fifth Circuit Court of Appeals to grant a stay to halt the transfer while the appeal was pending.

Under the reorganization plan, Scotia Pacific's 210,000 acres of land and PALCO's Scotia sawmill will be transferred to and run by MRC, while the historic company town of Scotia will be handed over to Marathon -- a New York-based financial lender specialized in leveraged companies with no experience running a historic lumber town in rural California.

PALCO and its sister companies are set to be consolidated into a single timber company to be called Humboldt Redwood Co., which MRC officials said will begin immediately to operate the timber operations under a more conservative harvest model that will eliminate conventional clear-cutting and most old-growth redwood cutting.

PALCO President George O'Brien issued a memo to employees Tuesday morning wishing everyone well and asking them to remain optimistic.

MRC Chairman Sandy Dean said in a phone interview Tuesday that the official completion of the transfer, including the wiring of approximately $540 million to the Timber Noteholders to settle the debts, is expected to be completed this morning.

"We are very happy to be in a position to move forward with the reorganization," Dean said. "It's a very positive day for the redwood forest, the mill, the town of Scotia and for Humboldt County."

Dean expressed MRC's gratitude for what he said has been important support and help in the bankruptcy process that came from the Unsecured Creditors Committee, California's regulatory agencies, U.S. Rep. Mike Thompson and Gov. Arnold Schwarzenegger, environmental groups and residents.

But Dean said hard work lies ahead, including getting Scotia's sawmill up and running successfully.

"We are very committed to doing that," Dean said.

While he couldn't provide specific numbers Tuesday afternoon as to how many of PALCO and SCOPAC's mill, forestry and administrative employees would be hired on in the restructuring of Humboldt Redwood Co., Dean said the final tally when things are settled over the next few days would be consistent with MRC's previous estimates of between 225 and 250.

PALCO officials state previously that there were approximately 350 workers currently employed, some of whom have already been hired by Marathon.

Offers of employment for newly created HRC are scheduled to be made today.

PALCO's sawmill in Scotia will be shut down for several days while an inventory is conducted, but Dean said the people who join HRC will be paid beginning when the new business is formalized.

For the hundreds of employees who have watched the bankruptcy unfold, much of the uncertainty is expected to be over today.

Rio Dell resident Jack Saffell has worked as a gardener for PALCO since 1983 and remains hopeful.

With eight years left until he is set to retire, today will be Saffell's last day with PALCO.

As Marathon and the other parties in the bankruptcy case argued over PALCO's assets, Saffell said he mowed lawns and kept Scotia pretty -- a job he has done for decades.

On Friday Saffell attended a meeting with Marathon representatives and was one the ones who signed on with the new company as an employee of the Town of Scotia, LLC, which includes a 401(k) retirement plan and an insurance package that he said is better.

"That's good," Saffell said. "At least we haven't lost our jobs."

Marathon has never owned and run a town before, but Saffell said representatives have been very open with him and want to know how things in Scotia are run.

While Marathon takes stock in upcoming days of its cogeneration plant, town and numerous homes, company officials told Saffell and others that they wanted to keep the status quo for at least 90 days.

"We are kind of in it together," Saffell said.

For Saffell, Scotia is a part of his and his family's lives he reluctantly moved away from with his wife to nearby Rio Dell to purchase a home, although he still attends church there.

"We just absolutely love it there," Saffell said.

(Nathan Rushton can be reached at nrushton@eurekareporter.com, or at 707-269-7442.)

A letter sent to all PALCO employees

Fellow PALCO Employees,

This morning (Tuesday), the Fifth Circuit court denied reconsideration of a last-minute stay request by SCOPAC and the Noteholders and, as a result, the acquisition of PALCO and SCOPAC will occur sometime today.

PALCO has had a long and proud history, and all of you have played a significant role in that history. Many of you have parents or even grandparents who also worked at PALCO. Even though the last few years have not been the best for PALCO, I hope you will always be proud of having been a part of this great company. I am proud that I had the chance to work with you the last two years, and I wouldn't trade my time at PALCO for anything.

It's often an overused phrase, but change is the one constant we all deal with, and things will certainly change for PALCO. When MRC takes over, the new company will be known as the Humboldt Redwood Company, but it will always have a PALCO heart.

I wish all of you the absolute very best. If you stay with Humboldt Redwood or the Town, I know you will give it your all, because that is what you have always done.

So good luck. Stay proactive and stay on the bright side of things, because PALCO has a great future ahead.

Best wishes,

George A. O'Brien
PALCO President/Chief Executive Officer