Blue Heron Paper Company




FOR IMMEDIATE RELEASE:
July 12, 2005

Contact: Mike Siebers     503.650.4211


BLUE HERON PAPER COMPANY ACQUIRES POMONA MILL


Oregon City, OR (July 12, 2005) -- Blue Heron Paper Company (“Blue Heron”) has acquired the Pomona, California assets of the former Smurfit Newsprint Corporation of California. The new company will be named Blue Heron Paper Company of California, LLC. The Pomona Mill produces 140,000 metric tons per year of newsprint type grades from 100% recycled paper and is the only operating facility of its kind in the state. “We are delighted to have the opportunity to own such a strategically located asset,” said Mike Siebers, President of Blue Heron. “We know this mill and the customer base well and are planning to make improvements to both product quality and the competitiveness of the operations. We look forward to working with the employees at Pomona on the integration of the two companies.” The mill has 120 employees with approximately 95 of them represented by the United Steel Workers Union local 1979 (formally known as “PACE”). A key part of the transaction was the successful negotiation of a four-year extension to the current labor agreement, which was to expire in March of 2006. The combined companies will have gross annual revenue of $220 million and production capacity of over 360,000 tons. Financing for the acquisition was provided by Wells Fargo Business Credit.

About Blue Heron Paper Company

Blue Heron Paper Company (www.BlueHeronPaper.com) was formed in 2000 and produces newsprint and other specialty paper products from a predominantly recycled fiber base. The Company is majority-owned by KPS Special Situations Fund, L.P., and the employees hold a minority stake through an ESOP (Employee Stock Ownership Plan).

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 targets companies with strong franchises that are experiencing operating and financial problems. KPS invests its capital concurrently with a turnaround plan predicated on cost reduction, capital investment, and capital availability. Typically, the KPS turnaround plan is accompanied by a financial restructuring of the company's liabilities. The KPS investment strategy and portfolio companies are described in detail at the firm’s website: www.KPSFUND.com