Strategy vs. Execution The Hampton Story

2  Family-owned company in business since 1950s  One large Doug fir sawmill in Willamina, Oregon- annual production capacity 180 MMBF  One veneer mill, also in Willamina  Lumber wholesale business-total sales $100 million Hampton Lumber Mid-1980s

3  Modest Oregon timberland holdings near Willamina – 30,000 acres  Heavily reliant on federal timber sale contracts  Minimal net worth Look what’s lurking…

4 Brilliant Strategy or Flawless Execution Overall 1980s Hampton corporate strategy was opportunistic local growth

5 Opportunity:  National pulp & paper company wants to divest two Oregon sawmills Benefits:  Product diversification into hemlock  Additional volume to sell through wholesale lumber business  Relatively low acquisition price

6 Risks:  Timber supply  SBA 500 rule  Rumored poor workforce  Hemlock perceived as inferior product

7 Spotted Owl litigation underway… Should Hampton’s strategy change? ► Should we exit the lumber business? ► Should we shift business to other geographical areas? ► Should we attempt to purchase our own timber supply?

8 Corporate strategy changed to timberland acquisition – veneer mill closed “With trees, you have options…”

9 Opportunities:  Large fixed-price timber cutting right available from national paper company  34,000 acres of timberland available for purchase near Astoria, Oregon Benefits:  Timber supply for Willamina & Tillamook sawmills  Protection against shrinking federal timber harvest

10 Risks:  If log prices drop, company could be wiped out  Obtaining financing would be challenging  Time is of the essence

11 Manufacturing strategy has been led by family head and focused on “lean & mean” with limited capital investments. Should Hampton bring in new managers with different ideas on manufacturing? Considerations:  Additional mill investments will tie up valuable capital  Personnel changes can be disruptive  Mill operations have not been historically very profitable, unless lumber markets have been strong

12 Opportunities: Two SYP sawmills available in Alabama for a reasonable price One Southern Yellow Pine (SYP) sawmill under construction in Texas is available for acquisition Company’s Financial Position is Stable – Still Looking For Opportunistic Growth

13 Benefits:  Timber supply risk diversification away from Pacific Northwest  Product diversification into SYP for wholesale lumber company Risks:  No Hampton experience in the South  Significant geographic distance away from core business  Sawmills needed significant additional investment

14  Cavenham is selling entire Oregon timberland holdings  International Paper is selling all Oregon & Washington timberland Opportunities:

15 Benefits:  Significant timber holdings not normally on the market  Huge timber supply provides many options and puts Hampton in the “Big Leagues”  Banks are accommodating risk-taking 1995 – Timberland Acquisition Potential

16 Risks  Significant debt required could put company at risk in down cycle  Timber holdings are not near our sawmills 1995 – Timberland Acquisition Potential

17 Opportunity: Three sawmills for purchase in SW Washington Mid 1990s - Good Years Very Tough Year Benefits:  Two of the sawmills produce studs, which would be a new product for Hampton  Purchase price is historically very cheap

18 Risks:  Current owner is in financial difficulty and mills have been for sale for a while.  Mills are in a valley near U.S. Forest Service lands, so timber supply could be an issue.  Mills have been union for years - other Hampton operations are non-union. Sawmills Acquisition?

19 Opportunity: Very large moulding & millwork manufacturer in Mexico is in financial difficulty and offers Hampton a low-cost venture into remanufacturing Mill Business is growing… Should we expand our wholesale business? Benefits:  Almost no capital entrée to significant remanufacturing capacity  Reman labor costs are very competitive vs. U.S. options

20 Risks:  Hampton has no experience in Mexico  Hampton has no management experience or systems to manage a reman business Expand Our Wholesale Business?

21 Opportunity: A sawmill with a good quality reputation is for sale in Northern Washington Benefits:  Cheap acquisition cost  Low-cost private & state timber supply is available  Core business, although five hours from Portland Cowlitz Acquisition A Big Success Let’s Keep It Going!

22 Risks:  Current owner is almost bankrupt and has not maintained mill well  Mill needs significant investment to be competitive  Workforce capability and depth is questionable  Economy is heading down after 9/11 tragedy 2002 Sawmill Acquisition

23 Our Core Values Guide Our Conduct Ethics People Candor Innovation Execution Very Successful Period For Industry and Hampton New Vision Adopted:

24 Opportunity: Two Canadian sawmills available for purchase in Northern Interior British Columbia Benefits:  Product diversification into SPF lumber for wholesale company  Cheap timber supply available  Good first step for new vision More Sawmill Capacity in 2006?

25 Risks:  Pine beetle is destroying timber supply  Hampton has no experience in Canada or with foreign exchange risk  Lumber market is entering a down cycle that could be challenging More Sawmill Capacity?

26 Should we adjust some of our strategic actions to focus on the green movement? Considerations:  Can we change the public debate on logging to emphasize renewable resources?  Are there market opportunities for green building products?  How much will additional environmental restrictions impact Hampton’s ability to be successful in business? 2007 – Climate Change Issues Are Upon Us And Green-Washing Is Prevalent

27 Hampton Today

28  Still a family-owned company, but with non-family day-to-day management  Seven sawmills in Oregon, Washington, and Canada with annual production capacity of 1.9 billion board feet  Very large wholesale business with total sales in a normal year of $1.5 billion  Timberland holdings of approximately 100,000 acres However, the current housing depression is a potential game changer! Hampton Today

29 Go Beavs! Never Forget! Strategy Is Worthless Without Execution!