Hokuetsu Paper and Nippon Paper Begin Strategic Alliance Discussions

HoYurakucho,Chiyoda-ku, Tokyo, Japan 12 September 2006 -- Hokuetsu Paper Mills, Ltd. and Nippon Paper Industries Co., Ltd., a wholly-owned subsidiary of Nippon Paper Group, Inc. have agreed to enter into joint discussions regarding a strategic alliance to cope with the recent difficult business environment and escalating competition in the Asian paper market.

For improving international competitiveness by expanding and reinforcing the domestic manufacturing bases, while respecting the independent management of the two companies and independently continuing to improve corporate value through healthy market competition, Hokuetsu Paper and Nippon Paper have reached an agreement as summarized below.

1. Scope

(i) The companies wish to achieve a smooth launch of the two new large-sized on-machine-coaters, Nippon Paper Ishinomaki Plant N-6 paper machine (operation to start in fiscal year 2007) and Hokuetsu Paper Niigata Plant N-9 paper machine (operation to start in fiscal year 2008), and to achieve early improvement of earnings. The companies intend to form a specific cooperative relationship within the OEM production consignment including existing facilities, operation, distribution of goods, and procurement of raw materials.

(ii) The companies wish to more effectively deal with common challenges within the paper industry in such areas as the environment, forestation, recycling, energy, and paper technology and development. They also wish to form specific cooperative relationships in business fields such as white paper boards, specialty papers and the beverage packaging cartons.

2. The two companies are opening discussions, with the intention of signing the definitive alliance agreement on 30 November 2006.