KPS Special Situations Funds Sells its Controlling Interest in Blue Heron Paper Company

New York, New York, USA, 14 September 2006 -- /PRNewswire/ -- KPS Special Situations Funds (KPS) announced today the sale of its controlling equity ownership interest in Blue Heron Paper Company to an employee stock ownership plan (ESOP) formed by Blue Heron, creating a 100% employee-owned company. Before the sale transaction, the ESOP and senior management owned minority stakes in Blue Heron. Terms of the transaction were not disclosed.

KPS returned more than five times its invested capital in Blue Heron to its limited partners as a result of the sale transaction and a prior dividend distribution.

Blue Heron is one of North America's leading producers of newsprint and other specialty paper products from a predominantly recycled fiber base. The company has annual revenue of USD 220 million and production capacity of more than 360,000 tons/year More information can be found at www.blueheronpaper.com.

KPS created Blue Heron in May 2000 to acquire the newsprint assets of the Smurfit-Stone Container Corporation in Oregon City, Oregon. In July 2005, Blue Heron acquired the Pomona, California, assets of the former Smurfit Newsprint Corporation of California.

Raquel Vargas Palmer, principal of KPS, said, "This transaction demonstrates the value that can be created when an investor, management, and labor work together towards a common goal. We congratulate Mike Siebers, chief executive officer, his senior management team, and the employees of Blue Heron on creating a 100% employee-owned company. Blue Heron's success is a tribute to Mike's leadership and the very constructive support of the Association of Western Pulp and Paper Workers of America and the United Steelworkers in making the company a success."

"Blue Heron is also a textbook example of KPS's investment strategy at work. We created a new company six years ago to purchase two severely underperforming paper mill assets, and working collaboratively with management and the employees, helped to transform the company into a viable, profitable business. After implementing a turnaround plan predicated on cost reduction and targeted capital investment, we subsequently pursued a wide range of growth initiatives, including acquisitions, improved product mix and new product introductions. We are not only proud of the return on our investment, but of the significant opportunities created for the employees of Blue Heron," Palmer concluded.

KPS's legal advisor with respect to this transaction was Paul, Weiss, Rifkind, Wharton & Garrison LLP. Houlihan Lokey Howard & Zukin acted as financial advisors to Blue Heron and structured the transaction on behalf of the company while Stout Risius Ross, Inc. provided a fairness opinion to the company.

About KPS Special Situations Funds

KPS Special Situations Funds are a family of private equity funds with over $600 million of committed capital focused on constructive investing in restructurings, turnarounds and other special situations. KPS has created new companies to purchase operating assets out of bankruptcy; established stand- alone entities to operate divested assets; and recapitalized highly leveraged public and private companies. The KPS investment strategy and its portfolio companies are described in detail at the firm's website: www.kpsfund.com.

Source: KPS Special Situations Funds