The Pacific Lumber Company and Subsidiaries Adjust Operations to Recover From Chapter 11

Scotia, California, USA, 31 July 2007 --(BUSINESS WIRE)-- The Pacific Lumber Company and its subsidiaries announced today several important developments in its business operations under Chapter 11 of the U.S. Bankruptcy Code. The companies filed for voluntary bankruptcy protection on 18 January 2007.

The companies said they have secured agreement with Marathon Structured Finance Fund, LLC to provide USD 75 million in debtor-in-protection (DIP) financing to provide funding for the continuing operations of the companies. The DIP agreement was approved in U.S. Bankruptcy Court today.

“This financing agreement is an important milestone in our progress towards resolving our financial issues and emerging from bankruptcy as a viable entity,” said George A. O’Brien, president and CEO of The Pacific Lumber Company. “This does not mean an easy road ahead, and the announcements we are making today underscore the challenges we face.”

To maximize the effectiveness of the DIP financing and to take into account the dramatically adverse market conditions facing the lumber market overall, combined with the failure of the regional water quality control board to release timber harvest plans that have been approved by all other agencies governing forest management in California, the company announced a 30-day “market downtime” suspension of sawmill operations in Scotia.

The Scotia facility will be shut down at the end of the second shift on 03 August and will resume operations on 04 September.

“Like many others in the industry facing depressed housing construction trends and reduced demand for lumber products, we are going to conserve our financial resources by taking this step,” O’Brien said. “We realize the hardship this creates for our employees, but hope they understand the need to adjust our operations to the reality of the marketplace.”

O’Brien said the company will continue to meet customer needs and use the downtime to complete ongoing capital improvements. He said the cmpany will support employee applications for unemployment compensation during this period.

The company will also restructure its operations to reflect the ongoing market conditions by planning a workforce reduction once the market downtime concludes, O’Brien said.

“This will mean a further reduction in employment. We estimate about 100 jobs will be affected between our Scotia and Arcata facilities. We are reorienting the Scotia mill to focus exclusively on high value, high quality redwood products,” O’Brien said.

”The combination of DIP financing, the prudent decision on market downtime, and the necessary re-design of our business model going forward, means we are on the road to recreating our company to sustain a viable on-going business,” continued O’Brien.

“Our employees have been through a lot and many are paying a very high price,” he added. “It is hard to ask for their continuing sacrifices, but I pledge every effort to complete this process in a way that sustains opportunities for as many of our people as possible.”

The filing companies are The Pacific Lumber Company (Pacific Lumber), Scotia Pacific Company LLC (Scopac), Britt Lumber Co., Inc. (Britt), Scotia Development LLC, Salmon Creek LLC and Scotia Inn Inc.