restructuring verso paper corp. - tma · restructuring verso paper corp. 5 2. balance sheet...

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Jordan Flowers Martin M. Saravia Laconi Thomas Silva Elizabeth Adams Boris Vaisman

As prepared for: Prof. Laura Resnikoff

Turnaround Management Columbia Business School

Restructuring Verso Paper Corp. May 3, 2012

Restructuring Verso Paper Corp.

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Table of Contents

EXECUTIVE SUMMARY .......................................................................................................................4

INDUSTRY ..........................................................................................................................................6

MARKET TRENDS .......................................................................................................................................... 6

COMPETITIVE LANDSCAPE ............................................................................................................................... 8

COMPANY ....................................................................................................................................... 11

HISTORY & BUSINESS DESCRIPTION ................................................................................................................ 11

MANUFACTURING PROCESS & VALUE CHAIN ................................................................................................... 13

PRODUCTS ................................................................................................................................................. 14

MANAGEMENT TEAM .................................................................................................................................. 15

SHAREHOLDER PROFILE ................................................................................................................................ 16

RECENT FINANCIAL PERFORMANCE ................................................................................................................ 17

SEGMENT OVERVIEW ................................................................................................................................... 19

CURRENT CAPITAL STRUCTURE ...................................................................................................................... 21

VALUATION ..................................................................................................................................... 26

DISCOUNTED CASH FLOW ANALYSIS ............................................................................................................... 26

Weighted Average Cost of Capital (WACC) ........................................................................................ 29

Sensitivity Analysis ............................................................................................................................. 30

COMPARABLE COMPANIES’ ANALYSIS ............................................................................................................. 30

ACQUISITION MULTIPLES ANALYSIS ................................................................................................................ 31

HISTORICAL TRADING PRICES ........................................................................................................................ 32

LIQUIDATION ANALYSIS ................................................................................................................................ 33

PLAN OF REORGANIZATION (“POR”) ................................................................................................. 33


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OPERATIONAL RESTRUCTURING ..................................................................................................................... 33

BALANCE SHEET RESTRUCTURING .................................................................................................................. 36

DISTRIBUTION OF VALUE & RECOVERY ANALYSIS .............................................................................................. 39

APPENDIX ........................................................................................................................................ 43


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EXECUTIVE SUMMARY

Since its spinout from International Paper in 2006 and subsequent IPO in 2008, Verso Paper

Corp. (“Verso” or “the Company”) has encountered a litany of industrial, financial, and

operational challenges. The paper manufacturing industry—and particularly the coated paper

industry—has faced strong secular headwinds in the form of declining demand due to the

increased adoption of digital media. The Company is harmfully overleveraged, and management

has only committed to “kicking the can down the road” with exchange offers and maturity

extensions. Finally, the operational strategy has been focused around low-growth, low margin

products and has missed opportunities to compete in more robust segments, such as corrugated

paper.

Under the current capital structure and declining earnings power, our “status-quo” scenario

analysis indicates that the Company will become insolvent by 2014. The purpose of this report is

to provide a two-pronged Plan of Reorganization (“POR”) to Verso’s Board of Directors, which

we believe will strengthen the Company operationally and restore it to financial health.

1. Operational Restructuring – The operational restructuring would be realized by adding

corrugated paper manufacturing capabilities to the Company’s four existing paper

machines. The conversion process would require capital investment of $10 million per

machine. The capacity shift toward corrugated paper—and away from coated/freesheet

paper—creates an opportunity to capture demand in a growing market segment and to

diversify the Company’s product mix. All together this should provide greater and less

volatile income streams.


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2. Balance Sheet Restructuring – The recapitalization plan simplifies the capital structure,

lowers the Company’s debt burden, and rebalances the debt/equity mix for greater

financial health. The proposed capital structure for the Company consists of (i) New

Secured Debt of $270 million, equivalent to 1.8x LTM EBITDA, and (ii) New Senior

Unsecured Debt of $475 million, equivalent to 3.2x LTM EBITDA. This results in $745

million of total debt at 5.0x LTM EBITDA, versus current total debt of 8.8x LTM

EBITDA. In addition, we plan to maintain a revolving credit facility of $200 million,

undrawn at the close of the restructuring, which will provide additional liquidity for

working capital. Under the restructuring operating case the equity of the Company

following the recapitalization is $537 million, which represents 42% of the estimated

enterprise value. The proposed POR provides for the full recovery of existing Senior

Secured creditors, the Second Priority Senior Secured creditors and the Senior

Subordinated Notes. The recovery for the Senior Unsecured Term Loan is just under par.

With an estimated enterprise value of $1,282 million, the current equity holders will be

wiped out, and therefore are likely to be the most critical of our proposal.

The above plan will strengthen the company operationally and provide steadier earnings

power. The concurrent reduction in debt obligations will increase cash flow that may be

reinvested or distributed to shareholders. Furthermore, we believe our recommendations

come at a crucial time when the Board is preparing to welcome new CEO Dave Paterson to

the Company. Mr. Paterson is familiar with the recent bankruptcies of competitors NewPage

and AbitibiBowater, and we would advise him to enact these changes at Verso in order to

avoid a similar outcome.


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INDUSTRY

Market Trends

Despite decreased demand in certain segments, the overall market for paper and packaging

products has seen increased acquisition activity. International Paper acquired Temple Inland,

which recently undertook efforts to increase the earnings of its corrugated box plants. Rock Tenn

acquired Smurfit-Stone Container Co, the second largest producer of linerboard. These show the

industry leaders working to gain more exposure to the corrugated packaging segment, which

shows the most potential for growth. Technology has played a large role in decreasing demand

for many paper segments, but it has actually had positive effects on the corrugated segment as

the rise in e-commerce has increased the need for shipment containers for goods purchased

online. 1

The recent consolidation of corrugated container producers displayed below

demonstrated the strategic consolidation the industry has taken in order to capitalize on this

growth segment.

1 Standard & Poor’s Industry Survey Paper & Forest Products, Stuart J. Benway CFA, Paper & Forest


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In a measure of the industries negative outlook on more traditional paper segments, many

companies in the sector have been tested with capacity management issues given decreasing

demand. The annual capacity survey of domestic paper manufacturers, conducted by the

American Forest & Paper Association published in March 2011, showed that US paper and

paperboard capacity declined 3.1% in 2010 to 91.1 million tons. This continued a trend of

declining capacity as production capability fell 1.1% per year on average from 2001 to 2010.2

In

a survey of the industry outlook for 2012 conducted by Deutsche Bank industry professionals

supported this view with over 65% of the respondents anticipating a decline in volumes of the

uncoated free sheet paper segment, 74% predicting a decline in the coated papers segment, and

71% seeing further decline in newsprint. However, 84% of respondents anticipate that volumes

for corrugated boxes would be flat or up as much as 2% in 2012.

2 Standard & Poor’s Industry Survey Paper & Forest Products, Stuart J. Benway CFA, Paper & Forest Products Industry Analyst, February 9, 2012


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The control of capacity has allowed prices to rebound from the economic downturn to current

levels, which are high relative to historic levels. Over the year 2011 many grades of coated and

uncoated paper showed increases in prices of 7%-8%. During the same year inputs cost pressures

moderated. The prices of energy and recovered paper, key inputs in the production, declined

significantly. Recovered paper prices dropped $230 per ton, down 24.3% from a year earlier.

However, the cost of chemicals used as inputs still remain high which continues to present a

challenge in the industry to maintain cost levels.

Competitive Landscape

Verso is a relatively small producer in the larger paper industry, but for the purpose of assessing

the competitive landscape there are 16 companies that warrant mention. Details of these

companies’ key financial metrics can be found in Exhibit 1. Three of the companies: Appleton

Paper Inc., Catalyst Paper Corporation, and New Page Consolidated Papers Inc., are directly

comparable to Verso in that they are paper producers through multi coated paper segments and

do not have a packaging business. Other companies within the comparison set represent

companies which do have paper businesses but also packaging businesses, namely: Boise Inc.,


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Cascades Inc., Domtar Corporation, Georgia Pacific LLC, International Paper Company,

Longview Fibre Paper and Packaging Inc. Three companies: AbitibiBowater, Sappi Limited, and

Tembec, were chosen as they represent companies with paper businesses, but also wood products

business representing a closer connection to inputs and an interesting comparison for any

synergies that could exist. Graphic Packaging International Corp. and Rock- Tenn Co.

manufacture packaging materials, for which the main input is paper rolls. These companies have

been included because of our recommendation to Verso to enter this line of business. PH

Glatfelter Co. and Neenah Paper are niche paper manufactures that produce technical products

such as carbon paper and other fine stationary papers. As Verso operates in limited segments, it

is important to include a comparison of companies that operate in similarly limited segments.

The best operationally comparable companies also mirror Verso's overleveraged balance sheet.

The average debt to EBITDA ratio for the industry excluding the coated paper manufactures is

3.0x, while the average for the coated paper producers is 9.8x. NewPage filed for bankruptcy on

September 8, 2011 in order to undertake a voluntary restructuring of its debt. Catalyst Paper filed

on January 18, 2012, which is not surprising given its excessive debt levels. While in bankruptcy

not all necessary data is available to include in our cost of capital calculations, however noting

these companies in the comparison set is important for a context of debt levels in the industry.

Appleton, which is private, has continued to issue new debt and extend maturities over the last

two years, much like Verso. The context of the coated paper companies indicates that the

producers in this segment are starting to feel the effects of the decline in demand for their

product. These companies have unsustainable levels of debt that push them dangerously close to

insolvency. While Appleton and Verso have healthier EBITDA margins, it is questionable if they

will be able to sustain these margins if they must continue to support a high debt level.


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Source: Capital IQ and Barclays U.S. High Yield Paper & Packaging Weekly Update, April 9,2012

AbitibiBowater, Inc., the largest newsprint producer (currently operating as Resolute Forest

Products), also provides and interesting context in the industry. It emerged from bankruptcy in

2010 after consolidating debt. Newsprint manufactures have faced more dramatic declines in

demand than the coated paper industry and therefore provide a lens of the possible future of the

coated paper industry as demand declines for printed periodicals and advertising materials.3

AbitibiBowater’s former CEO, Dave Paterson, who saw the company through the restructuring

will become the CEO of Verso effective May 14, 2012. In his restructuring of AbitibiBowater,

Paterson stressed the need for an evolving product mix and the importance of operational

flexibility.4

3 Standard & Poor’s Industry Survey Paper & Forest Products, Stuart J. Benway CFA, Paper & Forest Products Industry Analyst, February 9, 2012.

4 Out of Print, Interview with Dave Paterson, The Globe and Mail Report on Business, February 2011.

Company Revenue EBITDATotal Debt Net Debt

Gross Profit

MarginEBITDA Margin

EBITDA/ Interest

EBITDA-Capex/Interest

Total Debt/EBITDA

Appleton Papers Inc.

$857.3 $87.8 $512.0 $504.5 19.8% 10.2% 1.4 1.2 5.8

Catalyst Paper Corporation

$1,276.7 $48.1 $842.0 $817.0 7.0% 3.8% 0.6 0.4 17.5

NewPage Consolidated Papers, Inc.

$3,681.0 $333.0 $3,285.0 $3,276.0 1.1% 9.0% 0.9 0.7 9.9

Verso Paper Corp.

$1,722.0 $203.0 $1,221.0 $1,126.0 12.6% 11.8% 0.7 5.9 6.0

Coated Paper Producers


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COMPANY

History & Business Description

Verso is engaged in the production and sale of coated papers in the United States. The Company

offers coated groundwood paper used primarily in magazines and catalogs. It also produces

coated freesheet paper that is used in annual reports, brochures, and magazine covers. Other

products include supercalendered paper, northern bleached hardwood kraft pulp, recycled paper,

and customized paper with different grades and specific weights, brightness, and pulp mix.

Verso was founded in 2006, following the spin-off from International Paper Company

(“International Paper” or “IP”) of its Coated and Supercalendered Paper Division. The division

was acquired by Apollo Global Management (“Apollo”), and went public in May 2008. As of

May 5, 2012, Verso traded at an enterprise value if 1,263 million. In 2011, the Company posted

sales of $1.7 billion and an unadjusted EBITDA of $148 million, improving upon the results

achieved in 2010 (Net sales of $1.6 billion and EBITDA of $123 million).

Net Sales Tons Sold$mm % Kts %

Coated Groundwood 798 46.3% 886 43.8%Coated Freesheet 507 29.4% 570 28.2%Supercalendered 114 6.6% 145 7.2%Pulp and Other 303 17.6% 422 20.9%Total Sales 1,722 100.0% 2,023 100.0%

Products:


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The Company is one of the largest North America’s producers of coated paper, with four

operation sites located in three states: Maine, Michigan and Minnesota. Verso’s 9 paper

machines combine for a total annual production capacity of 1.5 million tons of coated and

supercalendered paper, 165 thousand tons of ultra-lightweight specialties and uncoated papers,

and 930 thousand tons of kraft pulp. Verso has a client base of over 125 customers that reach

more than 700 end-user accounts, through a variety of sales channels, such as direct sales,

commercial printers, paper merchants and brokers. Verso offers customers a wide range of

products, from ultra-light weighted coated groundwood to heavy weighted coated freesheet and

supercalendered papers.

As seen in the detailed manufacturing process overview on the following page, Verso’s main

cost inputs for all its products are wood fiber, market kraft pulp, chemicals, and energy:

Mill/Location Product/Paper Grades Paper Machines Production Capacity (tons)Jay (Androscoggin), Maine Lightweight Coated Groundwood 2 355,000

Lightweight Coated Freesheet 1 175,000Specialty/Uncoated 1 105,000Pulp 445,000

Bucksport, Maine Lightweight and Ultra-Lightweight Coated Groundwoodand High Bulk Specialty Coated Groundwood 2 350,000Specialty/Uncoated 1 55,000

Quinnesec, Michigan Coated Freesheet 1 410,000Specialty/Uncoated 5,000Pulp 485,000

Sartell, Minnesota Lightweight and Ultra-Lightweight Coated 1 215,000Groundwood and Supercalendered


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Manufacturing Process & Value Chain


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Products

Verso offers 5 major product lines that operate in 3 primary business units. Coated groundwood,

freesheet, and supercalendered paper are combined in to the same business unit (“Coated &

Supercalendered”), while Market Pulp and Other products have their own business units:

• Coated Groundwood - Coated groundwood paper includes a fiber component produced

through a mechanical pulping process. In additional to mechanical pulp, coated

groundwood paper also includes a kraft pulp component to improve brightness and print

quality.

• Coated Freesheet - Manufactured with bleached kraft pulp, produced through a chemical

process that breaks apart wood fibers and dissolves impurities. This kind of paper is

suited for high-end commercial application and premium magazines. It contains primarily

kraft pulp, with less than 10% mechanical pulp in its composition.

• Supercalendered - Supercalendered paper consists of groundwood fibers and very high

filler content, but does not have a separate surface coating. This paper goes through a

supercalendering process in which alternating steel and filled rolls iron the paper,

producing a gloss and smoothness effect. Supercalendered paper is primarily used for

retail inserts, given its relative low price point.

• Market Pulp - Verso also produces NBHK pulp through the chemical kraft process

using hardwoods, which typically have shorter length fibers than softwoods and are used

to smooth paper. Kraft is used in applications where brighter and whiter paper is required.

• Other - The Company also offers recycled papers to address its client’s requirements.

These products are customized solutions for strategic clients and include paper grades

with customer specified weight, brightness, and pulp mix specifications.


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Management Team

Since inception in 2006, CEO Michael A. Jackson has led Verso’s management team. Mr.

Jackson is a seasoned executive in the pulp and paper industry. Effective May 14th Dave

Paterson will succeed Mr. Jackson as Chief Executive Officer which may lead to changes in the

current management team presented below

Verso Board of Directors is composed of nine members, eight external and one internal director.

From the nine members, five are representatives of Apollo, the controlling shareholder. Below is

the list of members and their roles:

Name Title

Michael A. Jackson Chief Executive Officer

Robert P. Mundy Chief Financial Officer, Principal Accounting Officer and SVP

Lyle J. Fellows Senior Vice President of Manufacturing & Energy

Benjamin Hinchman Chief Information Officer and Vice President

Peter H. Kesser President, Secretary and General Counsel

Michael A. WeinholdSenior Vice President of Sales Marketing and Product Development

Kenneth D. Sawyer Vice President of Human Resources

Joseph C. Duffy Vice President of Integrated Planning and Control

Craig J. Liska Vice President of Sustainability

Verso Paper Management Team

Board of DirectorsName Title Role

Kleinman, Scott M.Chairman, Chairman of Corporate Governance & Nominating Committee and Chairman of Compensation Committee

External

Jackson, Michael A. Chief Executive Officer, President and Director InternalDucey, Michael Elliott Director and Chairman of Audit Committee ExternalGutierrez, Thomas Director and Member of Audit Committee External

Oskin, David WilliamDirector, Member of Audit Committee and Member of Corporate Governance & Nominating Committee

External

Press, Eric L. Director ExternalPuckett Jr., L. H. Director ExternalSambur, David B. Director and Member of Compensation Committee ExternalZaken, Jordan C. Director and Member of Compensation Committee External


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Shareholder Profile

After the acquisition of the Coated and Supercalendered Paper Division from IP, and following

the IPO in 2008, Apollo—a leading private equity investor—became the controlling shareholder

of Verso, with roughly 61% of the Company’s outstanding shares. Other shareholders with a

relevant position in Verso are distressed investment firm Avenue Capital (5.5%), investment

advisor Lombard Odier (4.3%), and the CEO of Verso Michael A. Jackson (1.2%).

From a corporate governance perspective, it is important to consider the influence that Apollo

and Avenue Capital have over the board of directors and shareholders generally. For example,

both Apollo and Avenue have reputations as being a tough negotiators in distressed companies.

And Apollo is represented by Scott Kleinman as Chairman of the Board, who is a highly astute

investor in the industrials space. Any proposed restructuring plan will need to persuade Mr.

Kleinman and his board. Any plan that dilutes or eliminates existing equity holders will be

difficult to push through, unless these firms also have large exposure in the senior parts of the

capital structure that would be distributed new equity.

Apollo 62%

Avenue Capital

6%

Lombard Odier

3%

Jackson, Michael A.

1%

Others28%

Top ShareholdersInstitutions

10%Individuals/Ins

iders3%

Hedge Fund Managers

6%

PE/VC Firms61%

Public and Other20%

Shareholders by Type


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Recent Financial Performance

Verso Paper’s historical performance reveals a combination of volatility and operating leverage

as well as declining conversion of EBITDA to Free Cash Flow that has plagued the Company.

Since September 2007 LTM Revenue fluctuated between $1.35 billion and $1.85 billion. Over

the same period LTM EBITDA margin fluctuated from 4.0% to 11.0%. While some of this

volatility is tied to the financial crisis and its effect on the customer bases demand for paper to

produce marketing materials, there is still a troubling story in other financial metrics which

generates concern beyond the top line. See charts below for Revenue and EBITDA performance.

Revenue ($ billions) EBITDA Margin (%)

The true trouble is revealed in LTM ROIC trend. The metric has fluctuates between -9% and 6%.

It has averaged positive until end of 2009 and then has become increasingly negative. This is

partially the cause of declining earnings power due to the negative effect of operating leverage.

As the chart shows, a $1 billion decline in Revenue contracts EBITDA margin by 16.9%. Thus,

a $100 million decline in Revenue from $1.85 billion to $1.75 billion contracts EBITDA by

$42M. (The effect is not linear and far more profound at higher revenues.) This a gargantuan hit

to an EBITDA that ranges from $55 million to $228 million. The other contributor to the

problem is a declining ability to convert EBITDA to cash. As the next graph shows, LTM cash


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flow from operations fluctuates more than EBITDA, leading to a decidedly negative FCF from

operations and even more so FCF to equity.

The two factors together limit the Company’s ability to generate cash. As the last graph shows,

required investment is financed in equal parts from both operations and financing. The Company

generates a speckle of excess cash, which is not nearly sufficient to service the debt.


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Segment Overview

While the Coated/Supercalendered segment produces the great majority of EBIT, it is actually

the Hardwood Market Pulp segment that is most profitable with an EBIT Margin of 30% in

2011.

As with EBIT, the Coated/Supercalendered segment produces the great majority of EBITDA and

Hardwood Market Pulp has the higher EBITDA Margins at roughly 40% for FYE 2011. It is not

surprising that Coated/Supercalendered has much higher EBITDA levels since the more

complicated process requires more valuable machinery. This machinery would then have high

depreciation and feed into EBITDA. In the context of a restructuring, we would certainly keep an

eye toward the more asset light and high margin business units in order to increase return on

capital and drive value.


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Again, similar trends appear in the EBITDA-CAPEX analysis by segment with the

Coated/Supercalendered segment producing 75% of the Company’s cash flow at a 10% margin,

while Hardwood Market Pulp contributes 21.4% of the cash flow at a very high margin of 25%.


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Current Capital Structure

Similar to many of its struggling peers in the coated paper industry, Verso has been a highly

leveraged company since the spinout from International Paper by Apollo. At the time of the

Apollo transaction, the Company was leveraged 5.6x FY 2006 EBITDA of $208 million. Due to

declining EBITDA and no significant deleveraging initiatives by management, the company’s

leverage ratio increased dramatically to 10.0x FY 2010 EBITDA of $123 million.

The Company has been significantly weighted down by its heavy debt burden, incurring

approximately $125 million of Interest Expense per year since 2008. With further pressure from

declining fundamentals, the Company’s interest coverage ratio (after subtracting capital

expenditures) has been below 1.0x since FY 2009, meaning that the Company has not been able

to serve its interest expenses with the cash flow generated by its operations.


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The capital structure presented below is adjusted from FYE 2011 to include completed exchange

offers up to the present time (i.e. after December 31, 2011). With only $148 million of FY 2011

EBITDA, Verso is 6.2x leveraged through $920.0 million of secured debt and 8.8x through its

total debt of $1,304.6 million, including the Senior Subordinated Notes and the Senior

Unsecured Term Loan.

Based on low current trading prices, several debt tranches are offering very high yields. The

8.75% Second Priority Notes are trading at 50 with a 24.1% YTM. Although these notes are pari

passou on a collateral protection basis with the Second Priority Floating Rate Notes, the floating

rate notes have traded up to 94.5 due to a recently announced exchange offer. As part of the

exchange offer the floating notes will be tendered at 100 (par) plus $3 cash for every $100 of par

value for new notes at 11.75%. Verso also has recently received commitments for a new $150

million ABL Facility and $50 million First-Lien Revolving Facility that together replaced the

Company’s pre-existing $200 million Revolver.


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Verso is an excellent example of the “amend, extend, pretend” phenomena that has become Wall

Street's slogan since the Great Recession, as companies attempt to “kick the can down the road”

and avoid looming maturities for which they may not have the cash to repay. During the past

year, Verso has been aggressively pursuing exchange offers and refinancings with the goal of

amending covenants, deleveraging, and extending maturities while capital remains cheap and the

markets are frothy. Since filing FYE 2011 results, the Company has completed or announced

exchanges/tender offers for nearly every tranche of debt in its capital structure.


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Above is a snapshot of the recent shift from near-term maturities to maturities of more than 5

years in the future. And this large shift is only for the period between December 31, 2011 and the

present day. The extension strategy is likely supported by the clout that Apollo brings to the

negotiating table as owners. Scott Kleinman, the Board Chairman and young Apollo Partner, is

head of the industrials/chemicals practice and is very familiar with the methods required to

effectuate a chain of successful exchange offers. As we have discussed before, the equity is a call

option on the cash flow of the business. Today, this call is underwater, and extending the

duration of the call increases the option value of the equity. Basically, the extension of maturities

provides more time for the business to recover and, hopefully, generate a positive value for the

equity holder. It is important to mention that under these circumstances, the equity has a larger

incentive to take risky investment (“hit the tail of the distribution”), which conflicts with the

interest of the debt holders.

The following table summarizes the completed and announced exchange offerings since

December 31, 2011. While the analysis included in our recommended Plan of Reorganization

assumes a pro-forma balance sheet for the completed deals, it does not include the announced

exchanges as there is some risk that financing will not come through or that the required


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participation levels for a tender offer will not be met. The flurry of transaction activity in the

table is evidence of the fragility of Verso’s capital structure. However, these transactions do not

contemplate significant reductions in outstanding principal.

Date Transaction Summary Details 2/17/12 Received commitment for new $100

million AR Securitization Facility and $55 million Revolving Credit Facility

• 5 year maturity • Springing maturity feature • AR Facility at L+200 • Revolver at L+200

3/7/12 Announced cash tender offer for $315 million of 11.5% Senior Secured Notes due 2014

• Intends to issue $345 million of new Senior Secured Notes due 2019 through private offering

• Tender Offer: 1025 • Early Tender: 30 • Total Consideration: 1055 • Exchange is Conditioned upon issuance of new debt, ability of proceeds

to pay total consideration; 3/7/12 Received commitments of $150

million for new ABL revolver and $50m for new First-Priority Revolving Credit Facility

• These commitments to be used in lieu of the credit facility commitments announced on 2/17/12

• New facilities will replace existing $200 million revolver maturing 8/1/12

• $159.2 expected availability on ABL Revolver at close • $50.0 million availability at close for First Lien Revolver; includes $25

million accordion feature at Verso’s option 3/8/12 Priced $345 million of 11.75%

Senior Secured Notes due 2019 in exchange for existing $315 million of 11.5% Senior Secured Notes due 2014

• Received $334.4 million of net proceeds after OID and Fees • Entered indenture agreement on 3/21/12

3/28/12 Announced Exchange offer for $180.2 million Second Priority Senior Secured Floating Notes at L+375

• Exchange is at par, including early tender fee

4/4/12 Announced completion of tender offer to purchase all 11.5% Senior Secured Notes due 2014

• Issuers received tenders from $270,573,000 in principal, or 85.9% of the original $315 million principal

• Issuers will redeem the 11.5% notes at the applicable redemption price plus accrued and unpaid interest on 4/30/12

• Received no additional tenders after early tender date 4/25/12 Announced Exchange Offer for

11.375% Senior Sub Notes due 2016

• Issue up to 104,737,500 principal of new 11.75% secured notes due 2019 in exchange for $157.5 million principal of the outstanding $300 million aggregate principal of 11.375% senior sub notes due 2016 (the “Old Sub Notes”)

• For each $1000 of principal in old notes, Holders of Old notes will receive $665 principal of new notes and $110 in cash for total consideration of $775. Late tenders receive only $60 of cash for total consideration of $725

• Exchange offer Expiration date 5/8/12 • New notes will be identical to and fully fungible with the New Notes

issued in the existing exchange offer for the Second Priority Senior Secured Floating Rate Notes due 2014

4/25/12 Amendment to Exchange Offer for Second Priority Senior Secured Floating Rate Notes due 2014

• Old Secured Floating Rate notes will now receive $1000 of new notes and $30 of cash for $1000 of old notes at 11.75%

• Originally, old secured floating rate note holders would only receive $1000 of new notes for $1000 of old notes (no cash) and the original proposed interest rate was 9.75%

• As of 4/25/12, 19,885,000 principal of old secured float notes have tendered


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Valuation

In order to estimate the value of Verso we used the appropriate valuation methodologies

including a discounted cash flow analysis (“DCF”), comparable companies’ analysis, acquisition

multiples analysis, liquidation value, and historical trading prices. All methodologies and their

respective results will be discussed in detail in this section.

Based on the DCF analysis, the enterprise value (EV) of Verso is $1,282 million under the

restructuring operating case. The chart below summarizes the main results of our valuation

analysis and provides the valuation range of the different methodologies used.

Discounted Cash Flow Analysis

The DCF analysis was the main valuation methodology used to estimate the enterprise value of

the Company. The DCF methodology measures the value of a business as the net present value

of its future cash flows discounted by its respective weighted average cost of capital (WACC).

We have discounted the Company’s free cash flow (“FCF”) to determine its total economic

value. Verso’s FCF was defined as earnings before interest and taxes (“EBIT”), plus depreciation

and amortization (“D&A”), less cash income taxes, less change in working capital, less capital

$1,195

$1,157

$864

$1,223

$1,373

$1,415

$955

$1,411

500 1000 1500 2000

Discounted Cash Flow

Trading Multiples

Acquisition Multiples

Historical Prices (LTM range)

Verso Paper - Enterprise Value


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expenditures (“Capex”). The Company’s terminal value was calculated using a multiple of 7.0x

EBITDA in the last year of the projection. This multiple is in line with trading multiples of

comparable companies in the industry.

The basis for the Company’s FCF projections was the two operating scenarios. In one of the

scenario we assume that Verso will continue operating as is – with the same line of products and

decreasing sales volume. This is our “Current Operating Case”, and its projections are presented

in Exhibits 4 and 5. In the second scenario we modeled a gradual transition from current

machines and product lines to shifting a portion of the business to corrugated paperboard

production, as this is a growing market and a strategically sound move for the future of the

Company. We named this scenario “Restructuring Operating Case”, and its projections are

presented in Exhibits 2 and 3. In order for Verso to transition a segment of its business to

corrugated containers it would need to add a machine to its existing process line as the process

for producing corrugated containers in an extension of the graphic paper production process.5

5 Interview with Alpine Corrugated Machinery

This would require an additional investment of $10 million per machine and subtracting capacity

from an existing product line. The Restructuring Operating Case accounted for a gradual shift

into the corrugated segment with the addition of one machine per year beginning in 2013 and

ending in 2016, for a total of 4 machines and 4 process lines producing corrugated paper

products. Production was estimated based on the existing output of the process we replaced,

meaning that any capacity added to the corrugated segment was eliminated from directly from

other segments with increases limited to the original production capacity due to the limitations of

raw material inputs. While competitors who run this process demonstrated levels of production


28

roughly double that of what we assumed for Verso’s corrugated paper production, a conservative

estimate was warranted given that the Company would most likely run a new process at lower

efficiency or utilization rates than competitors and the factor of inputs must also be taken into

account. Overall Verso’s corrugated production would only account for 2% of the 38 million

tons of capacity in the industry, which expects demand to increase on average 2% in the next

year.67

The option of using cash income taxes, instead of the more common methodology of taxes on

EBIT, is a result of Verso’s accumulated net operating loss (NOL’s) carryforwards, which

generate a tax benefit in the years the Company will generate a positive net income. Based on

our projections for earnings before taxes (EBT), the net present value of the tax benefits

generated by the NOL’s is $18.6 million.

A summary of the DCF analysis is presented below:

6 Deutsche Bank Paper & Packaging Estimate & Outlook for 2012, January 21, 2012 7 Standard & Poor’s Industry Survey Paper & Forest Products, Stuart J. Benway CFA, Paper & Forest Products Industry Analyst, February 9, 2012.


29

Weighted Average Cost of Capital (WACC)

To estimate Verso’s cost of debt, we conservatively assumed the Company would issue debt as a

B+ rated company, with a yield of around 9% - equivalent to a spread of 6.7% above the one

year average of the United States 10-year Treasury bond of 2.3% (risk-free rate). It is also

important to mention that we are using a pre-tax cost of debt, since our FCF projection already

incorporates the tax benefit of the debt. Verso’s pre-tax cost of debt is estimated at 9.0%.

To compute the Company’s cost of equity we used the capital asset pricing model (CAPM),

defined as the risk-free rate, plus the equity risk premium multiplied by the Company’s beta. The

equity risk premium used was 6.7%, which is the mean equity risk premium per Ibbotson SBBI

2011 Valuation Yearbook.

Verso’s unleveraged beta of 0.92 was estimated based on the average unleveraged betas of

selected comparable companies. The group of comparable companies used to calculate the beta

is provided in the table below. The unleveraged beta was then re-levered taking into account

Verso’s proposed long-term capital structure of 50% debt and 50% equity. This long-term capital

structure is also in line with comparable companies in the industry. Verso’s levered beta is 1.51

and its cost of equity estimated to be 10.7%.

After computing a pre-tax cost of debt of 9.0% and a cost of equity of 12.4%, given the proposed

capital structure of 50/50 debt and equity, the WACC for Verso is estimated at 10.7%.

Comps Leverage betas % of Debt % of Equity Unleverage betasAbitibiBowater, Inc. (NYSE:ABH) 0.74 39.0% 61.0% 0.52Boise Inc. (NYSE:BZ) 1.91 54.9% 45.1% 1.07Domtar Corporation (NYSE:UFS) 1.37 21.9% 78.1% 1.16International Paper Company (NYSE:IP) 1.49 50.1% 49.9% 0.90Neenah Paper, Inc. (NYSE:NP) 1.59 29.8% 70.2% 1.25PH Glatfelter Co. (NYSE:GLT) 1.10 26.6% 73.4% 0.89Rock-Tenn Co. (NYSE:RKT) 1.32 43.8% 56.2% 0.87Tembec Inc. (TSX:TMB) 1.62 68.8% 31.2% 0.67

Average 0.92


30

Sensitivity Analysis

As part of the DCF analysis, we performed a sensitivity analysis varying the terminal value

multiple and the WACC, as illustrated in the table below.

Comparable Companies’ Analysis

As part of our valuation exercise, we also prepared a comparable companies’ analysis, to

estimate the enterprise value of Verso based on trading multiples of publicly negotiated

companies. Market prices reflect investors’ prospects for future performance of the pulp and

paper industry. The set of comparable companies used in this analysis is the same used in

computing the beta for the Company.

Verso Paper - WACCCapital Structure

Debt 50%Equity 50%

Cost of DebtUS Government 10y bond 2.3%Spread above US Govt 6.7%Pre-tax cost of debt 9.0%

Cost of EquityRisk free rate 2.3%Equity risk premium 6.7%Unleveraged beta 0.92Leveraged Beta 1.51Cost of Equity 12.4%

WACC 10.7%

Sensitivity Analysis: Enterprise ValueTerminal Multiple

1,282.4 6.0x 6.5x 7.0x 7.5x 8.0x9.7% 1,201 1,268 1,334 1,401 1,467

10.2% 1,178 1,243 1,308 1,373 1,43810.7% 1,155 1,219 1,282 1,346 1,41011.2% 1,133 1,195 1,257 1,320 1,38211.7% 1,112 1,172 1,233 1,294 1,355D

isco

unt R

ate


31

The median multiple of total enterprise value to EBITDA of the selected peer companies is 6.9x,

yield and implied enterprise value for Verso of $1,286 million and an equity value of $111

million.8

Acquisition Multiples Analysis

Although our work is focused on elaborating a restructuring plan for the Company, we thought it

would be informative to compute Verso’s implied enterprise value based on recent acquisition

multiples in the industry. This analysis reflects actual completed transaction values and factors

such as strategic value, supply and demand, and control premium.

Usually, we would expect to see acquisition multiples higher than trading multiples given the

factors mentioned above. In the case of paper and pulp industry, the most comparable recent

transaction was priced at a multiple of 4.9x EBITDA. This multiple yields an implied enterprise

value for Verso of $909 million and a negative equity value of $266 million.

8 Note: Debt amount not adjusted for the exchanges occurred since December 31, 2011.

Trading Multiple Valuation($ millions, except per share data)

2012E 2012E 2012EEBITDA 185.6 185.6 185.6 Trading Multiple (Comps) 6.2x 6.9x 7.6xEnterprise Value 1,157.5 1,286.1 1,414.7

Less: Net Debt + Minority Interest (1,175.5) (1,175.5) (1,175.5)Equity Value (18.0) 110.6 239.2

Shares Outstanding 52.6 52.6 52.6

Price Per Share (0.3) 2.1 4.5 Premium (Discount) -121% 27% 176%


32

Historical Trading Prices

Verso Paper share price has dropped more than 63% in the last twelve months, from $4.48 per

share to $1.65, reflecting market expectations that the Company will need to restructure its

oversized debt in order to avoid bankruptcy. The current valuation reflects the value of the equity

as a call on the Company’s cash flow. The charts below illustrate the share price evolution in the

last year and the average share price in different periods.

Acquisition Multiple Valuation($ millions, except per share data)

2012E 2013E 2013EEBITDA 185.6 185.6 185.6 Trading Multiple (Comps) 4.7x 4.9x 5.1xEnterprise Value 863.9 909.3 954.8

Less: Net Debt + Minority Interest (1,175.5) (1,175.5) (1,175.5)Equity Value (311.6) (266.2) (220.7)

* $100m/yr FCF pays down debtShares Outstanding 52.6 52.6 52.6

Price Per Share (5.9) (5.1) (4.2) Premium (Discount) -459% -407% -354%

Period $/sharePremium to current price

Avergae 1-year 1.97 19.1%Average 6-mos 1.37 (17.1%)Average 3-mos 1.54 (6.4%)Average 1-mos 1.54 (6.4%)52 Wk High 4.48 171.5%52 Wk Low 0.91 (44.8%)Current price 1.65 0.0%

1.65

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12

Share Price Evolution


33

Liquidation Analysis

Exhibit 6 shows a liquidation analysis under reasonable assumptions of recovery rates for the

main assets. It suggests a liquidation value of the assets of $818.1 million. After deducting

accounts payable ($109.6 million) and accrued expenses and liabilities ($140.7 million), the

remaining value shrinks to $567.8 million. The going concern value is greater than the

liquidation value of Verso, and thus the creditors will be in a better position if the Company

continues operating.

Plan of Reorganization (“POR”)

Operational Restructuring

As mentioned previously, the operational restructuring includes adding a machine component

that allows for the production of corrugated paper. This paper may then be converted into boxes

and sold to customers that are driving the increase in demand for this paper. The usage of

corrugated paper has grown along with the Internet retail industry. Prominent companies such as

Amazon, Zappos, and Gilt Group keep demand high for these products because all their retail

items are shipped in boxes made from the corrugated paper. Furthermore, “Big Box” retailers

such as Wal-Mart and Best Buy are shifting towards smaller physical footprints with an

increased internet presence. We believe this will provide additional tailwinds for corrugated

paper products.

Beginning in 2013, the POR allocates $10 million of capital spending to add the corrugated

capacity to 1 machine per year. The addition of the new machines is not a reflection of capital


34

under spending, but is instead a repurposing of PPE from graphic paper to corrugated

paperboard. The former is a shrinking market while the latter is expanding. This transition

increases the earnings power of assets. This transition is a onetime expense. The cost structure is

essentially the same, as making corrugated paper board requires the same machines, plus the

additional new component. There is also training of mechanics to handle the new machine

capabilities. On the variable side, the only new expense is glue as well as and incremental

maintenance and energy.

We are confident that Verso will be able to capture market share because the business is based

on local economies of scale. Corrugated paperboard, and paper in general, is heavy and thus it is

expensive to transport. So, manufactures can provide the product at a lower price to customers

who are closest. Since the ultimate end users of corrugated paperboard are home users, we

assumed that customers are distributed proportionally to population density. Thus, to

demonstrate local advantage we conducted a geographic analysis to ensure that the Verso Paper

plants do not overlap with larger competitors. The plant locations of the various players are

spotted below.


35

In order to implement this transition in a cash tight environment, we decided to proceed with 1

machine per year. In year one we convert 150 kton graphic paper capacity, which is one

lightweight coated ground wood paper machine from Jay Maine. Year two we convert 175 kton

of coated free sheet, which is another one machine in Jay Maine. Year 3 we convert 170 kton in

coated ground wood paper, which is one machine in Bucksport Maine. In Year 4 we convert 145

kton which is the super calendar machine (145) in Sartel Minnesota. It is worth noting that this

approach also sends a signal to the large competitors. Given the overall trend of consolidation

and capacity reduction in the corrugated paperboard market, it is very possible that the lager

players will buy out Verso, which could be just as valuable as the POR option.


36

Balance Sheet Restructuring

As shown in Exhibits 2 and 4, the Company is not able to cover service its debt under the

current capital structure under the Restructuring Operating Case and the Current Operating Case

respectively. EBITDA less Capex coverage ratio is lower than one, and the Company withdraws

the Revolver to fund its financial outflows. The projected balance sheet shows a negative cash

balance once the Revolver is required to draw more than its remaining available balance

(assuming no further maturity extensions). As can be seen, the current capital structure is not

sustainable, and it needs to be restructured.

We proposed to restructure the current capital structure and create a new capital structure that

allows the Company to avoid “Chapter 11” Bankruptcy. The proposed capital structure will be

well balanced between the debt and equity, and will position the Company on a healthy path

from a financial perspective. Under the proposed capital structure, the credit rating of the

Company may increase to B+ based on the averages Debt/Equity and EBITDA coverage of

companies rated in that category, and it is estimated to increase to BB- in the following years

once the Company proves that it has started its operating restructuring. The expected evolution

of the credit statistics and the expected credit score are shown in the following chart.

Projected Fiscal Year Ending12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

EBITDA $185,581 $191,794 $197,294 $206,235 $211,521 $217,013EBIT Interest Coverage (x)EBITDA Interest Coverage (x) 3.0x 3.2x 3.5x 3.9x 4.3x 4.8xTotal Net Debt / EBITDA (x) 3.7x 3.4x 3.1x 2.7x 2.2x 1.8x

Credit ScoreEBITDA interest coverage 13.16 12.72 12.25 11.58 10.85 10.17Total debt/EBITDA 12.53 11.82 11.02 9.92 8.64 7.14Total Credit Score 13 12 12 11 10 9Credit Rating BB- BB BB BB+ BBB- BBB


37

The proposed capital structure for the Company consists of (i) Secured Debt for $270 million,

equivalent to 1.8x LTM EBITDA, and (ii) $475 million of a new Senior Unsecured Debt,

equivalent to 3.2x LTM EBITDA. The total debt would be $745 million, which represents a

leverage of 5.0x EBITDA. In addition, we plan to maintain a revolving credit facility of $200

million, undrawn immediately after the restructuring, but which will provide the main source of

liquidity (as the existing excess cash will be distributed in the restructuring). Under the

Restructuring Operating Case, the equity of the Company following the capital structure

restructuring would be $537 million, which represents 42% of the estimated enterprise value.

Although this seems a conservative capital structure, we believed that the Company needs to go

through a tough operating restructuring, and it will be healthy to have some cushion from a

financial perspective.

The following chart summarizes the proposed capital structure under two scenarios: (i) the

proposed Restructuring Operating Case discussed before, and (ii) the Current Operating Case.

The latter case is presented only as a basis for comparison, as we believe that from a strategic

perspective the Company has to implement the operating restructuring. Also, since the difference

of the enterprise value is not significant, we have considered the same debt tranches for both

cases; the main difference is the residual equity. With the objective of incentivizing the

management, we proposed a compensation package that will amount to 10% of the equity in the

new Company.


38

Based on the expected improvements in the credit statistics and ratings, the Company will be

able to reduce its cost of debt. The $270 million Senior Secured Debt would emerge from the

restructuring of the current $345 million Senior Secured Notes. Our proposal consists on a 100%

recovery for the creditors under these Notes, paid with $75 million of available excess cash and

the New Senior Secures facility, which will bear an interest rate of 7.5%. This facility will also

include a cash sweep clause guarantying the distribution of any excess cash as a prepayment of

the debt. The $475 million Senior Unsecured Note will have the usual terms and conditions for a

high yield bond (no covenants, no callable, etc.) and its cost is estimated in the area of 9.0%.

Exhibits 3 and 5 shows that the Company is able to cover its debt cost and that the proposed

capital structure is sustainable. EBITDA less Capex coverage ratio is higher than 1.5x for any

year, and the Revolver preserved only to fund working capital and liquidity issued; in fact, it is

not drawn during the projected period.

$ thousand Proposed Operating Case Current Operating Casex LTM EBITDA x LTM EBITDA

EBITDA $148,049 $148,049Enterprise Valuation $1,282,388 8.7x $1,219,988 8.2x

% of Base case ValuationSenior Secured Debt 270,000.0 1.8x 270,000.0 1.8xNew Senior Unsecured Note 475,000.0 3.2x 475,000.0 3.2x

Total Debt $745,000.0 5.0x $745,000.0 5.0xImplied Common Stock Value $537,388.3 $474,988.5Common Stock Distribution

Equity to Management 10% 53,738.8 47,498.8Equity to be Distributed 90% 483,649.5 427,489.6


39

Distribution of Value & Recovery Analysis

The valuation in our Restructuring Operating Case is $1,282 million, which derives from the

DCF valuation described in the Valuation section, and it is consistent with trading multiples of

comparable companies. By adding $75 million of excess cash, the total amount to be distributed

among the claims rise to $1,357 million. The face value of the total debt as of the restructuring

date is $1,305 million, which implies that the Company is solvent and that all creditors may

receive a full recovery. However, since we are contemplating a compensation package of up to

10% of the equity in the new company for the top management, there will be no value to be

distributed among the current equity holders and the less senior debt in the capital structure may

suffer a small haircut.

The following table summarizes our proposed Plan of Reorganization under the Restructuring

Operating Case, which is our base case, and under the Current Operating Case, which is provided

just for illustration purposes.


40

Our base case provides 100% recovery of the face value of their debt for the Senior Secured

Creditors. The $345 million Senior Secured Debt creditors will be offered a package that

includes an upfront cash payment of $75 million and a 100% of the new $270 million Senior

Secured Facility. No equity will be allocated to the Senior Secured creditors, who will be happy

to receive a full repayment of their principal, continue in the senior tranche of the new capital

structure and receive an upfront cash payment.

Enterprise Valuation + Excess Cash ($75,000 K)Proposed Operating Case Current Operating Case

$1,357,388.3 $1,294,988.5Book Value

$ thousandCommon equity

% ownership$ thousand

Common equity % ownership

11.75% Senior Secured Note $345,000a. Cash 75,000 75,000b. Senior Secured Debt 270,000 270,000c. New Senior Unsecured Note 0 0d. Common Stock 0 0.0% 0 0.0%

Total implied value recovery $270,000 $270,000Recovery on claim to Book value 78.3% 78.3%

8.75% Second Priority Sr. Sec. Notes $394,736b. Senior Secured Debt $0 $0c. New Senior Unsecured Note 326,113 326,113d. Common Stock 68,623 12.8% 68,623 14.4%


Second Priority Sr. Sec Floating Notes $180,216b. Senior Secured Debt $0 $0c. New Senior Unsecured Note 148,887 148,887d. Common Stock 31,329 5.8% 31,329 6.6%


11.375% Sr. Sub. Notes $300,000b. Senior Secured Debt $0 $0c. New Senior Unsecured Note 0 0d. Common Stock 300,000 55.8% 300,000 63.2%


Sr. Unsec. Term Loan (PIK-Option) $84,687b. Senior Secured Debt $0 $0c. New Senior Unsecured Note 0 0d. Common Stock 83,697 15.6% 27,538 5.8%


Common Equitya. New Common Equity to existing common equity shareholders $0 0.0% $0 0.0%b. New Common Equity to management $53,739 10.0% $47,499 10.0%


41

Existing Second Priority Senior Secured creditors, which include $395 million of Second

Priority Senior Secured Notes and $180 million of Second Priority Senior Secured Floating

Notes, will receive 100% recovery of the face value of their debt in package that combines debt

and equity. This group of creditors will be entitled to the $475 million new Senior Unsecured

Notes and approximately $100 million of equity value. Allocating a portion of the equity will

sweeten the proposal and encourage them to vote in favor of the POR.

The creditors under the current Senior Sub Note will also recover 100% of their claims and will

become the controlling shareholders of the restructured company. This group of creditors will

receive $300 million of equity value, equivalent to the face value of their debt, which represents

55.8% of the equity of the new company. Despite receiving all equity, we understand that these

creditors would be more than happy of achieving full recovery of their debt, given that the debt is

currently trading at 67% of their book value. We expect a positive reception of the POR by these

creditors.

In the base case, the current Senior Unsecured Term Loan will receive a small haircut 1.2%.

These creditors will also become shareholders of the emerging company, receiving 15.6% of the

new equity value. The unsecured creditors will be happy with the POR as they are receiving

almost full recovery in a context where they would be the first to be hit in any reduction of the

estimated enterprise value (as can be seen in the case without operating restructuring). We

believe that the unsecured creditors would vote favorable to the POR.

In the proposed POR the pre-petition equity holders will be fully wiped out. The equity value

distributed to the debt holders together with the 10% distributed to the management to support

the transaction would leave no left over for the current shareholders, who would be the most


42

critical of the proposed POR. Currently the equity of the company is trading at low levels

reflecting the option value of the equity.

In our valuation based on the Current Operating Case, the main significant change is that the

creditors under the Senior Unsecured Term Loan would receive a significant haircut on their

principal; they will receive only 32.5% of the face value of their debt. In this case, the rest of the

debt creditors also receive full recovery and the current equity holders are wiped out. Based on

our analysis, the current shareholders are going to be the most critical of our valuation analysis

as they disappear from the capital structure.


43

APPENDIX

Exhibit 1: Comparable Trading Multiples

44

Ticker Company Revenue EBITDA Total Debt Net DebtMarket

CapitalizationShares

Outstanding TEV BetaGross Profit

MarginEBITDA Margin

EV / Revenue

EV / EBITDA P / E

EBITDA/ Interest

EBITDA-Capex/Interest

Total Debt/EBITDA

ABH AbitibiBowater, Inc. $4,756.0 $481.0 $621.0 $252.0 $1,304.0 97.1 $1,556.0 - 24.6% 10.1% 0.33 3.23 10.40x 7.7 6.1 1.3Appleton Papers Inc. $857.3 $87.8 $512.0 $504.5 - 19.8% 10.2% 0.00 0.00 - 1.4 1.2 5.8

BZ Boise Inc. $2,404.1 $337.2 $800.0 $703.0 $752.0 100.5 $1,503.0 3.24 21.0% 14.0% 0.63 4.46 9.00x 5.3 3.3 2.4CAS Cascades, Inc. $3,668.7 $198.4 $1,497.0 $1,485.0 $390.0 94.5 $1,876.0 1.68 10.4% 5.4% 0.51 9.46 21.10x 2.2 1.0 7.5CTL Catalyst Paper Corporation $1,276.7 $48.1 $842.0 $817.0 $2,125.0 392.8 $4,219.0 1.04 7.0% 3.8% 3.30 87.71 NM 0.6 0.4 17.5UFS Domtar Corporation $5,612.0 $1,096.0 $848.0 $404.0 $3,391.0 36.1 $3,795.0 2.66 25.7% 19.5% 0.68 3.46 10.80x 13.3 11.5 0.8

Georgia-Pacific LLC $17,009.0 $3,477.0 $7,413.0 $7,047.0 - 24.5% 20.4% 0.00 0.00 - 4.9 3.6 2.1Graphic Packaging International Corp. $4,206.0 $591.0 $2,366.0 $2,094.0

-11.4% 14.1% 0.00 0.00

-4.1 3.0 4.0

IP International Paper Company $26,034.0 $3,651.0 $9,913.0 $5,919.0 $14,117.8 437.1 $20,376.8 2.19 27.2% 14.0% 0.78 5.58 11.90x 6.1 4.2 2.7Longview Fibre Paper and Packaging, Inc. $822.0 $104.0 $480.0 $458.0

-15.7% 12.7% 0.00 0.00

-2.7 1.6 4.6

NP Neenah Paper, Inc. $696.0 $90.2 $186.0 $173.4 $443.2 15.8 $616.6 1.79 18.0% 13.0% 0.89 6.84 11.40x 5.8 4.3 2.1NewPage Consolidated Papers, Inc. $3,681.0 $333.0 $3,285.0 $3,276.0

-1.1% 9.0% 0.00 0.00

-0.9 0.7 9.9

GTL PH Glatfelter Co. $1,612.5 $150.6 $227.0 $188.7 $649.7 42.63 $838.4 1.39 12.8% 9.3% 0.52 5.57 12.50x 4.7 2.7 1.5RKT Rock-Tenn Co. $6,906.2 $956.0 $3,476.0 $3,394.0 $4,516.0 70.6 $7,910.0 1.16 18.3% 13.8% 1.15 8.27 11.90x 9.1 6.7 3.6SAP Sappi Limited $6,998.0 $769.0 $2,576.0 $2,175.0 $1,923.0 537.1 $4,098.0 0.82 11.5% 11.0% 0.59 5.33 9.60x 3.2 2.0 3.3TMP Tembec Inc. $1,743.0 $103.0 $335.0 $249.0 $347.0 100 $596.0 1.94 11.2% 5.9% 0.34 5.79 28.70x 3.2 1.5 3.3

Competitive Landscape as of 4/24/2011

Exhibit 2: Restructuring Operating Case + Current Capital Structure

45

Projected Income Statement

Pro FormaFYE Projected Fiscal Year Ending

($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

INCOME STATEMENT:

Net Revenues 1,722,489 1,719,880 1,761,140 1,795,160 1,859,593 1,907,258 1,956,777Less: Cost of Sales (1,460,290) (1,456,358) (1,489,535) (1,516,513) (1,569,086) (1,609,304) (1,651,087)

Gross Margin 262,199 263,522 271,605 278,646 290,508 297,954 305,690% of Revenues 15.2% 15.3% 15.4% 15.5% 15.6% 15.6% 15.6%

Less: SG&A (Excl. Amort, Dep, & Depletion) (78,059) (77,941) (79,811) (81,352) (84,272) (86,432) (88,676)Less: Amortization, Depreciation, & Depletion (125,295) (125,688) (125,904) (126,278) (126,952) (126,847) (126,973)Less: Other Operating Costs (43,159) 0 0 0 0 0 0

Operating Income ("EBIT") 15,686 59,893 65,891 71,016 79,284 84,674 90,040% Margin 0.9% 3.5% 3.7% 4.0% 4.3% 4.4% 4.6%

Less: Other Non-Operating Expenses, Net (25,943) 0 0 0 0 0 0Less: Interest Expense (126,607) (123,172) (121,068) (116,599) (114,332) (98,237) (81,158)

Earnings Before Income Taxes (136,864) (63,279) (55,177) (45,583) (35,048) (13,563) 8,882

Less: Taxes (197) 0 0 0 0 0 (3,109)

Net Income (137,061) (63,279) (55,177) (45,583) (35,048) (13,563) 5,773% of Revenues -8.0% -3.7% -3.1% -2.5% -1.9% -0.7% 0.3%


46

Projected Balance Sheet

Adjusted Adj, Pro FormaFYE Refinance FYE Projected Fiscal Year Ending

($ in thousand) 12/31/11 Debt 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

BALANCE SHEET:Cash & Equivalents 94,869 0 94,869 67,323 19,869 (80,793) (84,758) (359,775) (356,666)Accounts Receivable, Net 128,086 128,086 127,892 130,960 133,490 138,281 141,826 145,508Inventories 166,876 166,876 166,427 170,218 173,301 179,309 183,905 188,680Prepaid Expenses & Other Current Assets 3,239 3,239 3,234 3,312 3,376 3,497 3,586 3,680

Current Assets 393,070 0 393,070 364,876 324,359 229,373 236,329 (30,458) (18,799)

Net PP&E 934,699 934,699 899,011 865,027 832,251 801,798 763,666 727,712Goodwill 0 0 0 0 0 0 0 0 0Reforestation 13,671 13,671 13,671 13,671 13,671 13,671 13,671 13,671Intangible & Other Assets, Net 80,035 80,035 80,035 80,035 80,035 80,035 80,035 80,035

Total Assets 1,421,475 0 1,421,475 1,357,593 1,283,092 1,155,330 1,131,832 826,914 802,619

Revolver 0 0 0 0 58,003 150,000 150,000 150,000 107,842Accounts Payable 109,683 109,683 109,388 111,880 113,906 117,855 120,876 124,014Accrued Expenses & Liabilities 140,756 140,756 140,543 143,914 146,694 151,960 155,855 159,901Other Current Liabilities 0 0 0 0 0 0 0 0

Current Liabilities 250,439 0 250,439 249,930 313,797 410,600 419,814 426,730 391,757Long-Term Debt 1,304,639 0 1,304,639 1,304,639 1,219,952 1,039,736 1,039,736 739,736 739,736Deferred Income Taxes 0 0 0 0 0 0 3,109Other Liabilities 62,465 62,465 62,370 63,867 65,100 67,437 69,166 70,961

Total Liabilities 1,617,543 0 1,617,543 1,616,940 1,597,616 1,515,437 1,526,987 1,235,632 1,205,563

Shareholders' Equity (196,068) 0 (196,068) (259,347) (314,524) (360,107) (395,155) (408,718) (402,944)

Total Liabilities & Shareholders' Equity 1,421,475 0 1,421,475 1,357,593 1,283,092 1,155,330 1,131,832 826,914 802,619


47

Projected Cash Flow Statement


($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

CASH FLOW STATEMENT:

Net Income (137,061) (63,279) (55,177) (45,583) (35,048) (13,563) 5,773

Depreciation, Amortization, & Depletion 132,363 125,688 125,904 126,278 126,952 126,847 126,973Plus: Income Tax Expenses - - - - - 3,109 Less: Cash Income Tax - - - - - -

Working Capital Adjustments:Accounts Receivable (21,078) 194 (3,068) (2,530) (4,791) (3,544) (3,682)Inventories (24,360) 449 (3,791) (3,083) (6,008) (4,596) (4,775)Prepaid Expenses & Other Current Assets 0 5 (78) (64) (121) (90) (93)Other Assets (787) 0 0 0 0 0 0Accounts Payable (14,191) (295) 2,492 2,026 3,949 3,021 3,138Accrued Expenses & Liabilities 28,731 (213) 3,372 2,780 5,265 3,895 4,047Other Current Liabilities 0 0 0 0 0 0 0Other Liabilities 0 (95) 1,496 1,234 2,337 1,729 1,796

Working Capital Adjustments (31,685) 45 423 363 630 414 430Less: Capital Expenditures (90,272) (90,000) (91,919) (93,502) (96,499) (88,716) (91,019)Less: Debt Amortization / Principal Repayment 0 0 (84,687) (180,216) 0 (300,000) 0Less: Other Payments / Proceeds 68,744 0 0 0 0 0 0

Cash Flow Before Revolver Drawdown/(Paydown) (57,911) (27,546) (105,457) (192,659) (3,965) (275,017) 45,267

Minimum Cash Balance 19,869 19,869 19,869 19,869 19,869 19,869Cash total over (under) minimum cash balance 47,454 (58,003) (192,659) (104,627) (379,644) (334,377)Revolver Borrowing Availability 150,000 150,000 91,997 0 0 0

Beginning Cash & Equivalents 94,869 67,323 19,869 (80,793) (84,758) (359,775)Change in Cash from Operations (27,546) (105,457) (192,659) (3,965) (275,017) 45,267Revolver Drawdown/(Paydown) 0 58,003 91,997 0 0 (42,158)Ending Cash & Equivalents 94,869 67,323 19,869 (80,793) (84,758) (359,775) (356,666)


48

Projected Credit Ratios and Debt Schedule


EBITDA $185,581 $191,794 $197,294 $206,235 $211,521 $217,013CapEx 90,000 91,919 93,502 96,499 88,716 91,019Interest Expenses 123,172 121,068 116,599 114,332 98,237 81,158Total Interest Expense 123,172 121,068 116,599 114,332 98,237 81,158EBITDA / Cash Interest Expense 1.5x 1.6x 1.7x 1.8x 2.2x 2.7x(EBITDA - CapEx) / Cash Interest Expense 0.8x 0.8x 0.9x 1.0x 1.3x 1.6xEBITDA / Total Interest Expense 1.5x 1.6x 1.7x 1.8x 2.2x 2.7x(EBITDA - CapEx) / Total Interest Expense 0.8x 0.8x 0.9x 1.0x 1.3x 1.6xTotal Debt / EBITDA 7.0x 6.7x 6.0x 5.8x 4.2x 3.9xNet Debt / EBITDA 6.7x 6.6x 6.4x 6.2x 5.9x 5.5xROIC = EBIT/(Net PPP&E + Inventory + AR - AP) 5.5% 6.2% 6.9% 7.9% 8.7% 9.6%

Interest ExpensesRevolver Undrawn Fee (1,000) (605) (230) 0 0 (105)$150m ABL Facility Interest Expense 0 (757) (2,995) (5,130) (6,098) (5,975)$50m First-Lien Revolving Facility Interest Expense 0 0 0 0 0 011.75% Sr. Sec. Notes due 2019 Interest Expense (40,538) (40,538) (40,538) (40,538) (40,538) (40,538)8.75% Second Priority Sr. Sec. Notes Interest Expense (34,539) (34,539) (34,539) (34,539) (34,539) (34,539)Second Priority Sr. Sec Floating Notes Interest Expense (7,677) (7,857) (4,172) 0 0 011.375% Sr. Sub. Notes Interest Expense (34,125) (34,125) (34,125) (34,125) (17,063) 0Sr. Unsec. Term Loan (PIK-Option) Interest Expense (5,293) (2,646) 0 0 0 0Total Interest Expenses ($123,172) ($121,068) ($116,599) ($114,332) ($98,237) ($81,158)

Debt Balance$150m ABL Facility 0 0 58,003 150,000 150,000 150,000 107,842$50m First-Lien Revolving Facility 0 0 0 0 0 0 011.75% Sr. Sec. Notes due 2019 345,000 345,000 345,000 345,000 345,000 345,000 345,0008.75% Second Priority Sr. Sec. Notes 394,736 394,736 394,736 394,736 394,736 394,736 394,736Second Priority Sr. Sec Floating Notes 180,216 180,216 180,216 0 0 0 011.375% Sr. Sub. Notes 300,000 300,000 300,000 300,000 300,000 0 0Sr. Unsec. Term Loan (PIK-Option) 84,687 84,687 0 0 0 0 0

Total Debt 1,304,639 1,304,639 1,277,955 1,189,736 1,189,736 889,736 847,578

Free Cash Flow to Paydown Debt ($27,546) ($20,770) ($12,443) ($3,965) $24,983 $42,158

Mandatory Debt Payments $0 ($84,687) ($180,216) $0 ($300,000) $0Required 11.75% Sr. Sec. Notes due 2019 Paydown 0 0 0 0 0 0Required 8.75% Second Priority Sr. Sec. Notes Paydown 0 0 0 0 0 0Required Second Priority Sr. Sec Floating Notes Paydown 0 0 (180,216) 0 0 0Required 11.375% Sr. Sub. Notes Paydown 0 0 0 0 (300,000) 0Required Sr. Unsec. Term Loan (PIK-Option) Paydown 0 (84,687) 0 0 0 0

Cash Flow Available for Additional Debt Paydown $47,454 ($58,003) ($192,659) ($3,965) ($275,017) $42,158Excess Cash Generated in Current Period (27,546) (105,457) (192,659) (3,965) (275,017) 42,158Plus BOP Excess Cash in BS 75,000 47,454 0 0 0 0

Additional Debt Prepayment $0 $58,003 $91,997 $0 $0 ($42,158)Optional $150m ABL Facility Paydown 0 58,003 91,997 0 0 (42,158)

Exhibit 3: Restructuring Operating Case + Proposed Capital Structure

49



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

INCOME STATEMENT:






Earnings Before Income Taxes (136,864) (2,875) 5,786 14,003 25,912 35,945 45,131

Less: Taxes (197) 0 (2,025) (4,901) (9,069) (12,581) (15,796)

Net Income (137,061) (2,875) 3,761 9,102 16,843 23,364 29,335% of Revenues -8.0% -0.2% 0.2% 0.5% 0.9% 1.2% 1.5%


50



($ in thousand) 12/31/11 Debt 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

BALANCE SHEET:Cash & Equivalents 94,869 (75,000) 19,869 19,869 21,894 24,770 28,938 32,450 83,065Accounts Receivable, Net 128,086 128,086 127,892 130,960 133,490 138,281 141,826 145,508Inventories 166,876 166,876 166,427 170,218 173,301 179,309 183,905 188,680Prepaid Expenses & Other Current Assets 3,239 3,239 3,234 3,312 3,376 3,497 3,586 3,680

Current Assets 393,070 (75,000) 318,070 317,422 326,384 334,937 350,025 361,766 420,932

Net PP&E 934,699 934,699 899,011 865,027 832,251 801,798 763,666 727,712Goodwill 0 248,817 248,817 248,817 248,817 248,817 248,817 248,817 248,817Reforestation 13,671 13,671 13,671 13,671 13,671 13,671 13,671 13,671Intangible & Other Assets, Net 80,035 80,035 80,035 80,035 80,035 80,035 80,035 80,035

Total Assets 1,421,475 173,817 1,595,292 1,558,956 1,533,934 1,509,710 1,494,346 1,467,956 1,491,167

Revolver 0 0 0 0 0 0 0 0 0Accounts Payable 109,683 109,683 109,388 111,880 113,906 117,855 120,876 124,014Accrued Expenses & Liabilities 140,756 140,756 140,543 143,914 146,694 151,960 155,855 159,901Other Current Liabilities 0 0 0 0 0 0 0 0

Current Liabilities 250,439 0 250,439 249,930 255,794 260,600 269,814 276,730 283,915Long-Term Debt 1,304,639 (559,639) 745,000 712,142 673,973 629,707 576,879 505,900 475,000Deferred Income Taxes 0 0 2,025 6,926 15,995 28,576 44,372Other Liabilities 62,465 62,465 62,370 63,867 65,100 67,437 69,166 70,961

Total Liabilities 1,617,543 (559,639) 1,057,904 1,024,443 995,659 962,334 930,126 880,372 874,248

Shareholders' Equity (196,068) 733,456 537,388 534,514 538,275 547,377 564,219 587,584 616,919

Total Liabilities & Shareholders' Equity 1,421,475 173,817 1,595,292 1,558,956 1,533,934 1,509,710 1,494,346 1,467,956 1,491,167


51



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17


Net Income (137,061) (2,875) 3,761 9,102 16,843 23,364 29,335

Depreciation, Amortization, & Depletion 132,363 125,688 125,904 126,278 126,952 126,847 126,973Plus: Income Tax Expenses - 2,025 4,901 9,069 12,581 15,796 Less: Cash Income Tax - - - - - -

Working Capital Adjustments:Accounts Receivable (21,078) 194 (3,068) (2,530) (4,791) (3,544) (3,682)Inventories (24,360) 449 (3,791) (3,083) (6,008) (4,596) (4,775)Prepaid Expenses & Other Current Assets 0 5 (78) (64) (121) (90) (93)Other Assets (787) 0 0 0 0 0 0Accounts Payable (14,191) (295) 2,492 2,026 3,949 3,021 3,138Accrued Expenses & Liabilities 28,731 (213) 3,372 2,780 5,265 3,895 4,047Other Current Liabilities 0 0 0 0 0 0 0Other Liabilities 0 (95) 1,496 1,234 2,337 1,729 1,796

Working Capital Adjustments (31,685) 45 423 363 630 414 430Less: Capital Expenditures (90,272) (90,000) (91,919) (93,502) (96,499) (88,716) (91,019)Less: Debt Amortization / Principal Repayment 0 (32,858) (38,168) (44,267) (52,827) (70,979) (30,900)Less: Other Payments / Proceeds 68,744 0 0 0 0 0 0

Cash Flow Before Revolver Drawdown/(Paydown) (57,911) 0 2,025 2,876 4,168 3,512 50,615

Minimum Cash Balance 19,869 19,869 19,869 19,869 19,869 19,869Cash total over (under) minimum cash balance 0 2,025 4,901 9,069 12,581 63,196Revolver Borrowing Availability 200,000 200,000 200,000 200,000 200,000 200,000

Beginning Cash & Equivalents 19,869 19,869 21,894 24,770 28,938 32,450Change in Cash from Operations 0 2,025 2,876 4,168 3,512 50,615Revolver Drawdown/(Paydown) 0 0 0 0 0 0Ending Cash & Equivalents 19,869 19,869 21,894 24,770 28,938 32,450 83,065


52

Projected Credit Ratios and Debt Schedule



Interest ExpensesRevolver Undrawn Fee (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)$200m Revolver Interest Expense 0 0 0 0 0 0Senior Secured Loan Interest Expense (19,018) (16,354) (13,263) (9,622) (4,979) (1,159)Senior Unsecured Note Interest Expense (42,750) (42,750) (42,750) (42,750) (42,750) (42,750)Total Interest Expenses ($62,768) ($60,104) ($57,013) ($53,372) ($48,729) ($44,909)

Debt Balance$200m Revolver 0 0 0 0 0 0 0Senior Secured Loan 270,000 237,142 198,973 154,707 101,879 30,900 0Senior Unsecured Note 475,000 475,000 475,000 475,000 475,000 475,000 475,000

Total Debt 745,000 712,142 673,973 629,707 576,879 505,900 475,000

Free Cash Flow to Paydown Debt $32,858 $38,168 $42,242 $47,926 $61,910 $65,720

Mandatory Debt Payments $0 $0 $0 $0 $0 $0Capital Lease ObligationsRequired Senior Secured Loan Paydown 0 0 0 0 0 0Required Senior Unsecured Note Paydown 0 0 0 0 0 0

Cash Flow Available for Additional Debt Paydown $32,858 $38,168 $44,267 $52,827 $70,979 $78,301Excess Cash Generated in Current Period 32,858 38,168 42,242 47,926 61,910 65,720Plus BOP Excess Cash in BS 0 0 2,025 4,901 9,069 12,581

Additional Debt Prepayment ($32,858) ($38,168) ($44,267) ($52,827) ($70,979) ($30,900)Optional $200m Revolver Paydown 0 0 0 0 0 0Optional Senior Secured Loan Paydown (32,858) (38,168) (44,267) (52,827) (70,979) (30,900)

Exhibit 4: Current Operating Case + Current Capital Structure

53



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

INCOME STATEMENT:






Earnings Before Income Taxes (136,864) (64,611) (59,112) (50,623) (43,767) (24,715) (4,951)

Less: Taxes (197) 0 0 0 0 0 0

Net Income (137,061) (64,611) (59,112) (50,623) (43,767) (24,715) (4,951)% of Revenues -8.0% -3.8% -3.5% -2.9% -2.5% -1.4% -0.3%


54



($ in thousand) 12/31/11 Debt 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

BALANCE SHEET:Cash & Equivalents 94,869 0 94,869 74,805 19,869 (64,087) (67,374) (353,331) (353,331)Accounts Receivable, Net 128,086 128,086 126,285 126,703 127,657 129,152 130,667 132,201Inventories 166,876 166,876 164,335 164,685 165,729 167,471 169,435 171,424Prepaid Expenses & Other Current Assets 3,239 3,239 3,193 3,204 3,228 3,266 3,304 3,343

Current Assets 393,070 0 393,070 368,619 314,461 232,527 232,515 (49,925) (46,363)

Net PP&E 934,699 934,699 890,011 846,538 804,558 764,320 725,739 688,732Goodwill 0 0 0 0 0 0 0 0 0Reforestation 13,671 13,671 13,671 13,671 13,671 13,671 13,671 13,671Intangible & Other Assets, Net 80,035 80,035 80,035 80,035 80,035 80,035 80,035 80,035

Total Assets 1,421,475 0 1,421,475 1,352,336 1,254,705 1,130,791 1,090,541 769,520 736,075

Revolver 0 0 0 0 45,275 150,000 150,000 150,000 117,765Accounts Payable 109,683 109,683 108,013 108,243 108,929 110,074 111,365 112,672Accrued Expenses & Liabilities 140,756 140,756 138,776 139,236 140,285 141,928 143,592 145,278Other Current Liabilities 0 0 0 0 0 0 0 0

Current Liabilities 250,439 0 250,439 246,789 292,754 399,214 402,002 404,957 375,715Long-Term Debt 1,304,639 0 1,304,639 1,304,639 1,219,952 1,039,736 1,039,736 739,736 739,736Deferred Income Taxes 0 0 0 0 0 0 0Other Liabilities 62,465 62,465 61,587 61,791 62,256 62,985 63,723 64,472

Total Liabilities 1,617,543 0 1,617,543 1,613,015 1,574,496 1,501,206 1,504,723 1,208,416 1,179,923

Shareholders' Equity (196,068) 0 (196,068) (260,679) (319,791) (370,415) (414,181) (438,896) (443,848)

Total Liabilities & Shareholders' Equity 1,421,475 0 1,421,475 1,352,336 1,254,705 1,130,791 1,090,541 769,520 736,075


55



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17


Net Income (137,061) (64,611) (59,112) (50,623) (43,767) (24,715) (4,951)

Depreciation, Amortization, & Depletion 132,363 124,688 123,738 122,849 122,055 121,356 120,755Plus: Income Tax Expenses - - - - - - Less: Cash Income Tax - - - - - -

Working Capital Adjustments:Accounts Receivable (21,078) 1,801 (418) (954) (1,495) (1,514) (1,534)Inventories (24,360) 2,541 (350) (1,044) (1,742) (1,964) (1,989)Prepaid Expenses & Other Current Assets 0 46 (11) (24) (38) (38) (39)Other Assets (787) 0 0 0 0 0 0Accounts Payable (14,191) (1,670) 230 686 1,145 1,291 1,308Accrued Expenses & Liabilities 28,731 (1,980) 460 1,049 1,643 1,664 1,686Other Current Liabilities 0 0 0 0 0 0 0Other Liabilities 0 (878) 204 465 729 739 748

Working Capital Adjustments (31,685) (140) 115 178 242 177 179Less: Capital Expenditures (90,272) (80,000) (80,265) (80,869) (81,816) (82,776) (83,748)Less: Debt Amortization / Principal Repayment 0 0 (84,687) (180,216) 0 (300,000) 0Less: Other Payments / Proceeds 68,744 0 0 0 0 0 0

Cash Flow Before Revolver Drawdown/(Paydown) (57,911) (20,064) (100,211) (188,682) (3,286) (285,957) 32,235

Minimum Cash Balance 19,869 19,869 19,869 19,869 19,869 19,869Cash total over (under) minimum cash balance 54,936 (45,275) (188,682) (87,243) (373,200) (340,964)Revolver Borrowing Availability 150,000 150,000 104,725 0 0 0

Beginning Cash & Equivalents 94,869 74,805 19,869 (64,087) (67,374) (353,331)Change in Cash from Operations (20,064) (100,211) (188,682) (3,286) (285,957) 32,235Revolver Drawdown/(Paydown) 0 45,275 104,725 0 0 (32,235)Ending Cash & Equivalents 94,869 74,805 19,869 (64,087) (67,374) (353,331) (353,331)


56

Projected Credit Rations and Debt Schedule



Interest ExpensesRevolver Undrawn Fee (1,000) (637) (262) 0 0 (81)$150m ABL Facility Interest Expense 0 (591) (2,812) (5,130) (6,098) (6,205)$50m First-Lien Revolving Facility Interest Expense 0 0 0 0 0 011.75% Sr. Sec. Notes due 2019 Interest Expense (40,538) (40,538) (40,538) (40,538) (40,538) (40,538)8.75% Second Priority Sr. Sec. Notes Interest Expense (34,539) (34,539) (34,539) (34,539) (34,539) (34,539)Second Priority Sr. Sec Floating Notes Interest Expense (7,677) (7,857) (4,172) 0 0 011.375% Sr. Sub. Notes Interest Expense (34,125) (34,125) (34,125) (34,125) (17,063) 0Sr. Unsec. Term Loan (PIK-Option) Interest Expense (5,293) (2,646) 0 0 0 0Total Interest Expenses ($123,172) ($120,933) ($116,448) ($114,332) ($98,237) ($81,363)

Debt Balance$150m ABL Facility 0 0 45,275 150,000 150,000 150,000 117,765$50m First-Lien Revolving Facility 0 0 0 0 0 0 011.75% Sr. Sec. Notes due 2019 345,000 345,000 345,000 345,000 345,000 345,000 345,0008.75% Second Priority Sr. Sec. Notes 394,736 394,736 394,736 394,736 394,736 394,736 394,736Second Priority Sr. Sec Floating Notes 180,216 180,216 180,216 0 0 0 011.375% Sr. Sub. Notes 300,000 300,000 300,000 300,000 300,000 0 0Sr. Unsec. Term Loan (PIK-Option) 84,687 84,687 0 0 0 0 0

Total Debt 1,304,639 1,304,639 1,265,227 1,189,736 1,189,736 889,736 857,501

Free Cash Flow to Paydown Debt ($20,064) ($15,524) ($8,466) ($3,286) $14,043 $32,235

Mandatory Debt Payments $0 ($84,687) ($180,216) $0 ($300,000) $0Required 11.75% Sr. Sec. Notes due 2019 Paydown 0 0 0 0 0 0Required 8.75% Second Priority Sr. Sec. Notes Paydown 0 0 0 0 0 0Required Second Priority Sr. Sec Floating Notes Paydown 0 0 (180,216) 0 0 0Required 11.375% Sr. Sub. Notes Paydown 0 0 0 0 (300,000) 0Required Sr. Unsec. Term Loan (PIK-Option) Paydown 0 (84,687) 0 0 0 0

Cash Flow Available for Additional Debt Paydown $54,936 ($45,275) ($188,682) ($3,286) ($285,957) $32,235Excess Cash Generated in Current Period (20,064) (100,211) (188,682) (3,286) (285,957) 32,235Plus BOP Excess Cash in BS 75,000 54,936 0 0 0 0

Additional Debt Prepayment $0 $45,275 $104,725 $0 $0 ($32,235)Optional $150m ABL Facility Paydown 0 45,275 104,725 0 0 (32,235)

Exhibit 5: Current Operating Case + Proposed Capital Structure

57



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

INCOME STATEMENT:






Earnings Before Income Taxes (136,864) (3,915) 2,566 10,127 18,840 26,247 32,069

Less: Taxes (197) 0 (898) (3,545) (6,594) (9,187) (11,224)

Net Income (137,061) (3,915) 1,668 6,583 12,246 17,061 20,845% of Revenues -8.0% -0.2% 0.1% 0.4% 0.7% 1.0% 1.2%


58



($ in thousand) 12/31/11 Debt 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17

BALANCE SHEET:Cash & Equivalents 94,869 (75,000) 19,869 19,869 20,767 23,414 26,463 29,056 82,521Accounts Receivable, Net 128,086 128,086 126,285 126,703 127,657 129,152 130,667 132,201Inventories 166,876 166,876 164,335 164,685 165,729 167,471 169,435 171,424Prepaid Expenses & Other Current Assets 3,239 3,239 3,193 3,204 3,228 3,266 3,304 3,343

Current Assets 393,070 (75,000) 318,070 313,682 315,359 320,028 326,352 332,461 389,490

Net PP&E 934,699 934,699 890,011 846,538 804,558 764,320 725,739 688,732Goodwill 0 248,817 248,817 248,817 248,817 248,817 248,817 248,817 248,817Reforestation 13,671 13,671 13,671 13,671 13,671 13,671 13,671 13,671Intangible & Other Assets, Net 80,035 80,035 80,035 80,035 80,035 80,035 80,035 80,035

Total Assets 1,421,475 173,817 1,595,292 1,546,217 1,504,420 1,467,109 1,433,195 1,400,724 1,420,745

Revolver 0 0 0 0 0 0 0 0 0Accounts Payable 109,683 109,683 108,013 108,243 108,929 110,074 111,365 112,672Accrued Expenses & Liabilities 140,756 140,756 138,776 139,236 140,285 141,928 143,592 145,278Other Current Liabilities 0 0 0 0 0 0 0 0

Current Liabilities 250,439 0 250,439 246,789 247,479 249,214 252,002 254,957 257,950Long-Term Debt 1,304,639 (559,639) 745,000 704,368 659,112 609,474 553,203 490,790 475,000Deferred Income Taxes 0 0 898 4,443 11,037 20,223 31,447Other Liabilities 62,465 62,465 61,587 61,791 62,256 62,985 63,723 64,472

Total Liabilities 1,617,543 (559,639) 1,057,904 1,012,744 969,279 925,386 879,226 829,694 828,869

Shareholders' Equity (196,068) 733,456 537,388 533,473 535,141 541,724 553,969 571,030 591,875

Total Liabilities & Shareholders' Equity 1,421,475 173,817 1,595,292 1,546,217 1,504,420 1,467,109 1,433,195 1,400,724 1,420,745


59



($ in thousand) 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17


Net Income (137,061) (3,915) 1,668 6,583 12,246 17,061 20,845

Depreciation, Amortization, & Depletion 132,363 124,688 123,738 122,849 122,055 121,356 120,755Plus: Income Tax Expenses - 898 3,545 6,594 9,187 11,224 Less: Cash Income Tax - - - - - -

Working Capital Adjustments:Accounts Receivable (21,078) 1,801 (418) (954) (1,495) (1,514) (1,534)Inventories (24,360) 2,541 (350) (1,044) (1,742) (1,964) (1,989)Prepaid Expenses & Other Current Assets 0 46 (11) (24) (38) (38) (39)Other Assets (787) 0 0 0 0 0 0Accounts Payable (14,191) (1,670) 230 686 1,145 1,291 1,308Accrued Expenses & Liabilities 28,731 (1,980) 460 1,049 1,643 1,664 1,686Other Current Liabilities 0 0 0 0 0 0 0Other Liabilities 0 (878) 204 465 729 739 748

Working Capital Adjustments (31,685) (140) 115 178 242 177 179Less: Capital Expenditures (90,272) (80,000) (80,265) (80,869) (81,816) (82,776) (83,748)Less: Debt Amortization / Principal Repayment 0 (40,632) (45,256) (49,638) (56,271) (62,412) (15,790)Less: Other Payments / Proceeds 68,744 0 0 0 0 0 0

Cash Flow Before Revolver Drawdown/(Paydown) (57,911) 0 898 2,647 3,049 2,593 53,466

Minimum Cash Balance 19,869 19,869 19,869 19,869 19,869 19,869Cash total over (under) minimum cash balance 0 898 3,545 6,594 9,187 62,652Revolver Borrowing Availability 200,000 200,000 200,000 200,000 200,000 200,000

Beginning Cash & Equivalents 19,869 19,869 20,767 23,414 26,463 29,056Change in Cash from Operations 0 898 2,647 3,049 2,593 53,466Revolver Drawdown/(Paydown) 0 0 0 0 0 0Ending Cash & Equivalents 19,869 19,869 20,767 23,414 26,463 29,056 82,521


60

Projected Credit Rations and Debt Schedule



Interest ExpensesRevolver Undrawn Fee (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)$200m Revolver Interest Expense 0 0 0 0 0 0Senior Secured Loan Interest Expense (18,726) (15,505) (11,947) (7,975) (3,525) (592)Senior Unsecured Note Interest Expense (42,750) (42,750) (42,750) (42,750) (42,750) (42,750)Total Interest Expenses ($62,476) ($59,255) ($55,697) ($51,725) ($47,275) ($44,342)

Debt Balance$200m Revolver 0 0 0 0 0 0 0Senior Secured Loan 270,000 229,368 184,112 134,474 78,203 15,790 0Senior Unsecured Note 475,000 475,000 475,000 475,000 475,000 475,000 475,000

Total Debt 745,000 704,368 659,112 609,474 553,203 490,790 475,000

Free Cash Flow to Paydown Debt $40,632 $45,256 $48,740 $52,726 $55,818 $58,032

Mandatory Debt Payments $0 $0 $0 $0 $0 $0Capital Lease ObligationsRequired Senior Secured Loan Paydown 0 0 0 0 0 0Required Senior Unsecured Note Paydown 0 0 0 0 0 0

Cash Flow Available for Additional Debt Paydown $40,632 $45,256 $49,638 $56,271 $62,412 $67,219Excess Cash Generated in Current Period 40,632 45,256 48,740 52,726 55,818 58,032Plus BOP Excess Cash in BS 0 0 898 3,545 6,594 9,187

Additional Debt Prepayment ($40,632) ($45,256) ($49,638) ($56,271) ($62,412) ($15,790)Optional $200m Revolver Paydown 0 0 0 0 0 0Optional Senior Secured Loan Paydown (40,632) (45,256) (49,638) (56,271) (62,412) (15,790)

Exhibit 6: Liquidation Analysis

61

ACTUAL%

Realized Liquidation

Value($ in thousands) 12/31/11

LIQUIDATION ANALYSIS

Cash & Equivalents 94,869 100% 94,869Accounts Receivable, Net 128,086 85% 108,873Inventories 166,876 118,778

Raw materials 27,953 80% 22,362Woodyard logs 5,931 40% 2,372Work-in-process 19,120 20% 3,824Finished goods 87,585 85% 74,447Replacement parts and other supplies 26,287 60% 15,772

Prepaid Expenses & Other Current Assets 3,239 0% 0Current Assets 559,946 322,520

Gross PP&E 1,587,532Land and land improvements 37,101 100% 37,101Building and leasehold improvements 188,201 50% 94,101Machinery, equipment, and other 1,330,275 25% 332,569Construction-in-progress 31,955 50% 15,978Property, plant, and equipment, gross 1,587,532 479,748

Less: Accumulated Depreciation (652,833) 0Net PP&E 934,699 479,748Goodwill 0Reforestation 13,671 90% 12,304Intangible & Other Assets, Net 80,035 3,560

Patents Net Of Dep. 526 0% 0

Financing Costs 24,483 0% 0

Defered Major repair 12,294 0% 0

Defered Software cost 725 0% 0

Restricted Cash 3,560 100% 3,560

Total Assets 1,588,351 818,132

Accounts Payable 109,683 100% 109,683Accrued Expenses & Liabilities 140,756 100% 140,756

Other Current Liabilities 0 100% 0Current Liabilities 250,439 250,439

Long-Term Debt 1,262,459 100% 1,262,459

Other Liabilities 62,465 100% 62,465

Total Liabilities 1,575,363 1,575,363

Shareholders' Equity (153,888)

Total Liabilities & Shareholders' Equity 1,421,475 1,575,363

Exhibit 7: Management Biographies

62

Michael A. Jackson - Chief Executive Officer Since the Company's inception in 2006, CEO Michael A. Jackson has led Verso's management team. Mr. Jackson is a seasoned executive in the pulp and paper industry, having accumulated leadership positions in many companies in the industry. He served as Senior Vice President of Cellulose Fiber and White Papers of Weyerhaeuser Real Estate Company, a subsidiary of Weyerhaeuser Co. from December 2004 until November 2006. He also served as General Manager of the Tri-Wall business and other packaging plants from 1990 to 1993. Mr. Jackson served as Chairman of the Board of NORPAC and as Director of Electronic Documents Systems Foundation (EDSF), vice chair of education for EDSF, and as co-chair for the AF&PA Printing and Writing Executive Committee. Mr. Jackson was responsible for the cellulose fibers, fine paper, newsprint, and liquid packaging board businesses. After joining Weyerhaeuser in 1977, Mr. Jackson held numerous management positions in the paper and containerboard businesses. In addition, he served as Vice President of Quality and Human Resources for containerboard packaging from 1993 to 1998. He served as Vice Chair of the AF&PA Paper and Recycling Group. He also served as Chairman of the Board of North Pacific Paper Corporation (NORPAC) from 2005 to 2006. Mr. Jackson is a 1970 graduate of St. Michael's College, where he earned a BA in Business Administration. Dave Paterson – Chief Executive Officer and Director (Effective May 14th) Effective May 14th Dave Paterson will succeed Michael Jackson as CEO and Director of Verso Paper Company which may presents the possibility for changes to the executive team. Mr. Jackson brings a wealth of experience from his time at AbitibiBowater where he served as Chief Executive Officer from 2007 to 2011. Prior to Bowater’s merge with Abitibi-Consolidated, Mr. Paterson served as President and Chief Executive Officer of the company from 2006-2007. Prior to his time at Bowater, Mr. Paterson worked in various sales and marketing positions for Georgia- Pacific Corporation, including most recently as Executive Vice President of the Building Products division from 2003 to 2006. He also serves as Executive Vice President of the Pulp and Paperboard division from 2001 to 2003, President of the Paper and Bleached Board division in 2001, and Senior Vice President of the Communication papers Division from 2000 to 2001.9

9 Verso Paper Press Release, April 20, 2012.

http://en.wikipedia.org/wiki/Abitibi-Consolidated�