CLU Cellu Tissue Holdings USD0.01

the closing of the merger may be delayed or may not occur

difficulties with the integration process or the realization of the benefits expected from the merger

Clearwater Paper’s ability to obtain debt financing to fund the acquisition of Cellu Tissue

general economic conditions in the regions and industries in which Clearwater Paper and Cellu Tissue operate

changes in the cost and availability of wood fiber used in the production of the companies ’ products

litigation or regulatory matters involving antitrust or other matters that could affect the closing of the transaction

Consumer product segment overview, nice steady business, again, a good jump in segment EBITDA. We consider ourselves really the only U.S. consumer tissue producer that manufactures solely private label tissue. And that means that, of course, there are competitors of ours that are branded players that also produce a bit of private label, but we do not produce any brands. Clearwater is strictly a private label tissue producer, of course, in addition to the paperboard side of the business.

This chart really shows you why we feel so good about the tissue business. It’s a nice, stable business, typically driven from population growth, and if population growth is 1 or 2 percent, the tissue business is typically growing at about the same rate. We plotted on the top there, the orange line, shows the GDP. So you can see that even if GDP is falling off, like it did last year, not that much impact on the tissue side of the business. Paperboard is a little bit more reflective of the general economy than tissue, but tissue is very much related to population. Inside of that tissue growth, though, private label continues to prosper. So you can see that growth and share between 2002 and 2009 across the three principal pieces of the tissue business, so private label is doing quite well.

This is a chart, one of my more favorite charts, but it’s a chart that kind of splits about the tissue business. So you can see where the splits are. And typically, in tissue, there is away from home it’s about a third, and the at-home business is about two-thirds. And Clearwater is in the at-home side of this particular chart in the green far left circle there. And then inside the at-home market, it’s split between non-grocery and grocery stores. And Clearwater is very much into the grocery store business. And if you took in the third circle from the left there, a quick look at what does a typical U.S. grocery store shelf look like, it’s 73% branded and 27% private label. And that’s a national kind of average. But then, take the 27% private label, again, we’re talking just grocery stores, at this point, Clearwater has 56% of that 27% nationally. So think of us from a tissue standpoint. And I know we’re going to talk more about this in a minute, but think of us as a private label tissue producer with West Coast papermaking capacities and a very high penetration in the grocery stores of private label in the West, not so much in the East. That’s pre-acquisition with Cellu Tissue.

We’ve also announced an expansion. We’re very excited about being able to add TAD paper machine capacity. And TAD is True Air Dried paper, which really allows us to participate very effectively in the ultra tissue market. And when you look at the tissue market, you’ve got about 84, 85, maybe 86% of the total tissue market is made up of bathroom tissue and towels. The rest is facial tissue and napkins. But you’ve got this 85% number that is bathroom tissue and towels, and

inside of that particular number, actually, 54% of that is bathroom tissue and bathroom tissue has, as you might expect, different levels of quality. The high end of that is ultra. This machine in Shelby, North Carolina allows us to participate in the ultra bathroom tissue market. We do today, and we do it very effectively with our conventional papermaking. But we really believe that in the future, we want to be able to compete even more effectively, and that’s why we’re adding a TAD paper machine in Shelby. And this was an announcement we made last spring.

On the paperboard business, again, we feel very good about this. Paperboard business has been nice and stable, good, particularly good in 2010. You can see our adjusted EBITDA numbers in the lower right hand corner, but a nice stable business. We participate in cosmetics, pharmaceuticals, blister board, commercial printing, high-end folding cartons, those types of things, and there’s a picture of some of the products that we make there. We are not a converter of those products, we’re strictly a parent roll seller of paperboard, of course, as opposed to tissue, where we actually convert all of what we make. But paperboard, we’re strictly a seller of the parent roll.

This is the market in paperboard, probably a little more sensitive to the economy, certainly more sensitive to the economy than tissue. But if you look at the far right lower right hand corner there, where the market in 2009, demand was off in 2009, given what was happening with the economy, but prices remained relatively stable. They remained stable because of producers like Clearwater, we took some downtime and we tried to match up supply to demand as effectively as we could so prices ended up remaining stable there. And really, then, in 2010, from that point, the price has improved a bit as demand has returned in paperboard.

This is really a graphic depiction of where are the operations at in paperboard. We have one in Lewiston, Idaho and another in Cypress Bend, Arkansas. The one in Cypress Bend, Arkansas is on the Mississippi, the one in Lewiston, Idaho is on the Clearwater River, where the Clearwater meets the Snake River in Idaho. And that just shows you from a graphic example where those are. Our export business, and we do a little bit of export, as noted by that circular chart to the right, comes out of Lewiston, goes to Asia, and it’s a liquid packaging, for instance, to Japan, milk carton stock, juice cartons, that type of thing.

The Cellu Tissue acquisition, we had a very exciting announcement that I think got folks’ attention, and we’re delighted to have you all here today to ask questions about it and hear about it. But the Cellu acquisition is something that we’re extremely excited about. Just a quick transaction overview, if we take it from the top, back in September, this is here in September, September 16, we made the announcement that we had announced an agreement to acquire Cellu Tissue holdings and cash for approximately $502 million. The price per share of that was going to be $12 a share, of course, there’s an equity value, plus we plan

on assuming their debt. Concurrent with that agreement, we’ve entered into a commitment letter, so we have a commitment letter to be able to help us on $300 million of a senior, unbridged, unsecured bridge facility. But the transaction is really, ultimately going to be financed with a bond of about $350 million of new senior, unsecured notes. And we are using cash on hand and along with that particular bond to really fund the acquisition. We expect it to close some time in the fourth quarter of 2010, and it is subject to a couple of approvals. Those approvals are not by the Clearwater shareholders, but by the Cellu Tissue shareholder approval and also passing Hart-Scott-Rodino clearance, getting those things done. We don’t anticipate problems with either of those, but we’re still working on them. The significant shareholder and CEO of Cellu Tissue, and that was a private equity firm, the CEO is a shareholder of it, executed this voting agreement in support of the transaction. So we feel comfortable that the transaction will proceed.

Transaction highlights, what does it really do? What’s it really mean to us? Well, it strengthens our position as one of the leading private label tissue manufacturers. If you take a look at these two companies, and we’ll show a chart in a minute, there’s really papermaking for us in the West, papermaking in the East for Cellu Tissue, and we’re putting them together. So Clearwater had a national, and still has a national sales presence, coast to coast sales presence in grocery stores, but all of the productive tissue capacity was either in Lewiston, Idaho or Las Vegas, Nevada. This really expands that production capacity to meet our national sales footprint. So we’re in alignment with that. That’s really the second point there is that we’re adding those multiple sites throughout North America. It increases our exposure to a more stable tissue sector. We believe that because it’s driven by population, it’s more predictable and stable than many of the other sectors in the pulp and paper industry. Customer growth with existing and new customers, this allows us to grow our business. We are, actually, a net buyer of parent rolls, and Cellu Tissue is a net seller of parent rolls, or hard rolls, as they would call them. And so we think that that’s an excellent fit to go together. Annual net cost savings of $15 to $20 million, we expect to have that by 2012. I don’t want to skip over the immediately accretive to earnings, but that’s mostly a function of really doing it by cash and it’s immediately accretive with no synergies. But we do have this $15 to $20 million of synergies to be realized by the end of 2012. And as you look and study our numbers, we have substantial liquidity and a very conservative leverage profile on this business. And of course, we feel good about our management team, and we feel awfully good about the Cellu Tissue management team and the folks at Cellu Tissue, as well. This acquisition allows us to actually increase our bandwidth of knowledge and talent, and we do that through welcoming the, assuming that the merger takes place, which we’re counting on, but welcoming the Cellu Tissue folks to the company.

There’s just a very quick summary of kind of if you add it up, what are some of the financial performance things. You can see the synergies listed there in the column, second end from the right. Tissue, hard roll tissue converted, I’d draw your attention down here to Clearwater Paper, 225,000 tons of tissue hard roll and 213,000 tons of tissue converted, the difference is really just a waste number. I mean, we, at Clearwater, absolutely convert 100% of all the tissue that we’re making. And as I mentioned, we’re actually a net parent roll buyer of tissue, but when you look at Cellu Tissue, a little bit different situation. They currently make more parent rolls or hard rolls than they convert. Their announced strategy has been to increase their conversion and decrease the number of parent rolls they sell, and we think that that was an excellent strategy, it’s a strategy which we are planning on continuing.

Cost savings opportunities, I won’t dwell too much on this, but you might imagine the freight cost minimization is an important part of this. We have been satisfying this national footprint, our sales commitment to the national grocery stores by shipping parent rolls of paper from Idaho, for instance, to our Chicago plant, converting it into cases, and then shipping it further East. Those kinds of things aren’t going to necessarily be necessary anymore because we’ll have paper making capacity in the East and converting capacity in the East. So we think that there is some significant logistical freight savings associated with that.

Pulp optimization, even though we are, at Clearwater, a net buyer of pulp and Cellu Tissue is as well a net buyer of pulp, we have been selling some pulp into the external market. We think that we can divert a portion of that back into the paper machines inside Cellu Tissue and really help from a cost standpoint there, as well.

SG&A is really a, what you might expect SG&A would be, the opportunity for some consolidations of rolls. On the hard roll integration, that’s really this thing I mentioned earlier, where we’re a net buyer of parent rolls and they’re, actually, a net seller, so there’s some consolidation efficiencies that happen there. And in efficiency improvements that just come from the due course of the size of the organizations and the scale benefits that come from being able to increase our capabilities relative to procurement. So we think that that will help us.

This is just a quick look at how the company moves through the integration and what’s it look like when it’s done. Pulp and paperboard over here on the left at about 57% of the mix, consumer products ala our tissue business at 43%, and then when you add Cellu Tissue to that, and we see Cellu Tissue as really being added in the aggregate to the consumer product side, we end up with pulp and paper at 41% and consumer products at the 59%. So we move from about a $1.3 to a $1.8, $1.9 billion company and very much more oriented on consumer products than we have in the past. We still like our paperboard business very much, as I mentioned earlier, it’s been a terrific business, but we are, actually, growing substantially, and it’s all in the tissue side of our business.

This is the map, a little hard to see, maybe, for some of you back there. But I’m sure you can go online and pull this one off. You can kind of see how very complimentary these geographic locations are. And they really don’t overlap. I mean, there’s not an overlap of the two anywhere on there that we consider to be inappropriate. And the Shelby, North Carolina fits perfect right into the mix, in particular because it’s going to run TAD tissue at Shelby. But if you go around that horn, and I won’t label them all, you can see manufacturing paper capacity in the Northeast, in the East, in the Southeast, a bit in the Midwest compliments ours in the West.

So what about customers? As you look across customers, we sell, very predominantly, into the national grocery channel. There is not a real significant overlap of customers here, maybe just a little bit in the grocery channel, but we have been predominantly in the grocery store channel, and Cellu Tissue has been predominantly in mass merchandising discount stores, dollar stores. So what we really have is two very nice companies with very comparable assets, very comparable quality, two high quality teams of people coming together to satisfy an expanded customer base across that increased capability. So we feel terrific about that.

This is a quick summary of what the North American tissue market looks like by producer, and as we start there to left, you can see the large branded players. This is pro forma, the one in the dotted blue line there is pro forma Clearwater after the merger with Cellu Tissue and puts us at about five percent of the tissue market. You can see the tissue market still remains fairly fragmented below that level. But again, if you look across there and you say who is producing private label tissue, one of the brands that is producing private label tissue, another only a very small amount, another not at all, and then it really kind of comes almost all the way over to us. We are, as I mentioned, the non-branded leader, relative to private label production, certainly post-acquisition.

This is just a very quick conservative pro forma capitalization comment. It’s our editorial comment at the top. But if we look up there and we say where are we really going to be? We’ll still have cash post-acquisition of $126 million, you can see our adjusted EBITDA, and if you go all the way down in the lower right hand corner, even after this acquisition, we will have significant liquidity. We will have significant liquidity, we will have significant cash, and our leverage will really only move to 1.6. And that 1.6 net debt to LTM adjusted EBITDA is actually before synergies. It’s more like about 1.5 after synergies happen. So although we are increasing leverage, we’ve gone from zero leverage, or actually negative leverage, to a very modest, conservative leverage level.