NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Fortress Paper Ltd. (“Fortress Paper” or the “Company”) (TSX:FTP), announces that it has entered into a financing agreement with a syndicate of underwriters led by Dundee Securities Corporation and including Jennings Capital Inc., Raymond James Ltd., and TD Securities Inc. (the “Underwriters”). Pursuant to the agreement, the Underwriters have agreed to purchase, on a bought deal basis, 1,739,000 common shares (“Shares”) of the Company priced at $23.50 per Share (the “Offering Price”), for total gross proceeds of $40,866,500 (the “Offering”).

The Company has agreed to grant the Underwriters an over-allotment option to purchase up to an additional 260,850 common shares of the Company at the Offering Price, exercisable in whole or in part, at any time on or prior to the date that is 30 days following the closing of the Offering. If the over-allotment option is exercised in full, the aggregate gross proceeds of the Offering will be $46,996,475.

Fortress Paper intends to use the net proceeds of the offering to finance certain capital expenditures relating to its Fortress Specialty Cellulose Mill in Thurso, Quebec and its rebuild of papermachine number 1 at its Landqart Mill, and for working capital and general corporate purposes.

The Offering is expected to close on or about July 9, 2010 and is subject to certain customary conditions including, but not limited to, the receipt of all necessary regulatory and stock exchange approvals, including the approval of the Toronto Stock Exchange and the applicable securities regulatory authorities. The offering will be made in Canada by way of a short form prospectus and may be made in jurisdictions outside of Canada on a private placement basis pursuant to prospectus and registration exemptions in accordance with applicable laws. The Company intends to file a preliminary short form prospectus relating to the offering with the applicable securities regulatory authorities in Canada in due course.

The securities being offered have not been, nor will they be, registered under the United StatesSecurities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy any of the securities in the United States.

The agreement provides for a purchase price of Euro 3 Million (CAD $3.8Million) and includes the purchase and delivery of a complete displacement cooking plant consisting of 3 batch digesters, liquor accumulators and various associated specialty process equipment and piping.

Chad Wasilenkoff Chief Executive Officer of Fortress Paper, commented: “After spending a considerable amount of time assessing and evaluating the equipment, we are very pleased to be able to secure this equipment. This equipment has operated for only 12 years and we are confident of its quality and performance, which should result in a material reduction in our overall capital investment requirements for the conversion to dissolving pulp. We also believe that by acquiring almost an entire batch cooking system, we reduce the process risk for this transformation. At this time it is still too early to determine the impact this new equipment will have on the completion date.”

About Fortress Paper

Fortress Paper is a leading international producer of security and other specialty papers and products. Fortress Paper operates three mills, the Landqart Mill located in Switzerland, the Dresden Mill located in Germany and the Fortress Specialty Cellulose Mill located in Quebec, Canada. Fortress Paper’s security papers include banknote, passport and visa papers and its specialty papers include non-woven wallpaper base products, and graphic and technical papers. Fortress Paper’s pulp business will include NBHK with the re-start of the Fortress Specialty Cellulose Mill with plans to convert this capacity into dissolving pulp production along with the construction of a biomass based cogeneration plant.

The Thurso mill was sold to Fortress Paper. The Edmunston facility was sold as part of the specialty papers business, along with a mill in Madawaska, Maine, and two New Brunswick sawmills, to Twin Rivers Paper Company. Twin Rivers was formed by creditors of Fraser Papers.

Once Fraser Papers sells its remaining U.S. assets, the company will use the proceeds to settle the remaining secured claims, prior to distributing any remaining proceeds to unsecured creditors.

Fraser Papers was formed in 2004, from some assets of Norbord.

SOURCE:
Pulp And Paper Canada: “Fraser Papers Exits Canadian Scene After Six Years”

Under the Agreement, the Company will construct a cogeneration facility to provide net 18.8 megawatts of green power to Hydro Québec over a 15 year term, with deliveries estimated to commence in the fourth quarter of 2012.

Chadwick Wasilenkoff, CEO of Fortress Paper, states, “The signing of the Agreement represents an important step in achieving our business plan at the Thurso Mill, which includes the building of a cogeneration plant that produces green electricity that in turn will ultimately benefit Québec residents.  We believe that the results of this partnership with Hydro Québec will be beneficial to the environment and the economy of Québec, as well as providing net energy savings (income) to Fortress Paper.”

The Agreement is subject to final approval by the Régie de l’énergie in Québec which is expected to be received in the third quarter of 2010.

About Fortress Paper

Fortress Paper is a leading international producer of security and other specialty papers. Fortress Paper operates three mills, the Landqart Mill located in Switzerland, the Dresden Mill located in Germany and the Thurso Mill located in Canada. Fortress Paper’s security papers include banknote, passport and visa papers and its specialty papers include non-woven wallpaper base products, and graphic and technical papers. Fortress Paper’s pulp business currently includes NBHK with plans to convert this capacity into dissolving pulp production. Fortress Paper plans to build a biomass based cogeneration plant at the Thurso Mill.

Chad Wasilenkoff, CEO of Fortress Paper, states, “We are pleased to announce the transaction has closed. We intend to move aggressively to ramp up operations at the Thurso Mill and anticipate production of NBHK to commence in mid June of this year during the interim period while we immediately begin the conversion of the Thurso Mill into a dissolving pulp operation.  We are finalizing the terms of employment with several key individuals with extensive experience in dissolving pulp conversions and should be able to provide more details on this matter in the coming weeks.  This acquisition will diversify our specialty product mix and we believe will provide a significant financial contribution to Fortress’ growth aspirations.”

The acquisition of the Thurso Mill has been completed through its wholly-owned subsidiary Fortress Specialty Cellulose Inc. (“Fortress Specialty”).  The Corporation intends to incur capital expenditures of approximately $153 million to convert the non‑operating NBHK mill into a high quality specialty cellulose mill and to construct a new cogeneration facility.

Concurrent with the completion of the acquisition the Company has finalized $102.4 million project financing with Investissement Québec (“IQ”) and a $15 million convertible debenture (the “Debenture”) with Solidarity Fund QFL.  Additionally, included in the assets being purchased is approximately $9.9 million in credits (black liquor credits) granted under the Canadian government’s Pulp and Paper Green Transformation Program. Fortress Paper also intends to apply for approximately $15.2 million in federal credits under the Green Infrastructure Fund program of the Minister of Transport, Infrastructure & Communities relating to the planned cogeneration project.

New collective agreements have been negotiated with all three unions which will be in effect until 2016.  The defined benefit pension plan which existed under the previous collective agreements has been replaced with a defined contribution pension plan, eliminating the risk of future unfunded pension liabilities.  Under these new agreements, Fortress will not be assuming any of the previous pension liabilities.  Management is confident that these agreements will ensure a positive partnership with the union and a stable, efficient cost structure through the transition into dissolving pulp.

Further Details:

Fortress Paper has completed a loan agreement whereby Investissement Québec has agreed to provide up to $102.4 million to Fortress Specialty to support the proposed business plan in respect of the Thurso Mill. The loan is secured by the capital assets of Fortress Specialty and has a term of 10 years. Interest will be calculated at a fixed rate of 5.0% per annum for the first five years, followed by a rate based on the cost of IQ’s funds plus 2.0% for the remaining five years, up to a maximum of 5.5% per annum.

Fortress Paper has also issued a $15 million convertible debenture (the “Debenture”) to Solidarity Fund QFL.  The convertible debt matures in five years with an interest rate of 7% per annum.  The Debenture is convertible, in whole or in part, at the option of Solidarity Fund QFL into common shares of Fortress Paper at any time after closing of the debenture at a conversion price equal to $20.00.

The Solidarity Fund QFL is a development capital company that channels the savings of Québec residents into investments in all sectors of the economy to help create and maintain jobs and to further Québec’s economic growth. The Fund is a partner, either directly or through its network members, in approximately 2,000 companies.

The specialty cellulose mill is planned to have an annual production capacity of more than 200,000 air dried metric tonnes and is expected to be completed in mid-2011. In entering into the specialty cellulose sector, Fortress Specialty will focus on producing dissolving grade cellulose for the textile industry, primarily targeting viscose fibre (rayon) products which have shown strong growth of approximately 10% in China and 7% worldwide over the past five years. Rayon is a technically evolved and versatile fibre with many advantages, particularly in the warmer and higher growth regions of the world.

Fortress Paper also plans to construct an approximately 25 megawatt cogeneration facility to service a net 18.8 megawatt power supply agreement over a 15 year term. The location of the cogeneration facility provides it with access to on‑site generation of biomass and an extensive local network of chip and other biomass suppliers. The cogeneration facility is expected to be supplying electricity in the fourth quarter of 2012.

This week, The Globe and Mail selected Fortress Paper as a microcap company poised to do big things in the coming months:

Fortress Paper Ltd., which has mills in Germany and Switzerland, makes security (such as currency notes) and specialty papers as well as wallpaper.

“It definitely has above-average profitability compared to other businesses that operate in the pulp-and-paper segment,” said Ralph Lindenblatt of Bissett Investment Management, a unit of Franklin Templeton Investments Corp.

The stock is “very attractively valued,” trading at 11 times trailing earnings, he added.

SOURCE:
The Globe and Mail: “Microcap growth at a reasonable price”

The statement stems from what was supposed to be a one-off gift of sorts from a Czech company called Vedici to its employees. As a unique way of congratulating its employees upon the completion of a project, Vedici paid them in cash – each banknote containing the company logo.

“We wanted to make their first salary something they would never forget,” says Martin Vilimek, one of Vedici’s owners.

The logo was not embedded in the banknote in any way; rather it simply took the form of a sticker placed on each bill.

Before embarking on the mission, however,Vedici sought the permission of CNB to make sure their plan was both legit and legal.

Permission was granted in the form of a letter with the assumption that the event was to transpire only once and that, once paid, the employees would promptly remove the stickers from the banknotes.

Given the success of the stickers, however, Vedici is now offering the service on their website calling it “a unique way to promote your company” and is using the letter from the CNB as justification.

Marek Petruš, a spokesman for the CNB, says Vedici is violating not only its initial agreement, but also existing Czech laws.

“[The company] was arguing that the sticker would be removed, which would mean that according to the letter from the CNB, no law would be broken,” said Petruš. “This letter from the CNB was misused by the company. The CNB has a strong and clear position, which is that it is not possible to use Czech banknotes for advertisements.”

Vedici says if the CNB tries to thwart their new venture, they will seek advice from their lawyers.

SOURCE
Radio.cz: “‘Czech Invention’ of Ads on Banknotes Unlawful, says Czech National Bank”

ePassport Contract

Chad Wasilenkoff, Chief Executive Officer of Fortress Paper reports, “This initial ePassport contract, or reference contract, is generally the most difficult to obtain.  We feel this significant milestone now provides us with a platform to secure additional contracts in this rapidly growing and lucrative segment of the identification industry.”

Electronic passports, also referred to as ePassports, are RFID, radio frequency identification, enabled passports which have an embedded chip containing the holder’s personal data and other biometric information, such as a digital photograph or fingerprint.  As of October 2009, over 79 countries had introduced biometric passports and over 100 million ePassports had been issued globally. With over 70 million new ePassports being issued every year, it is estimated that over the next ten years, most of the 750 million passports currently in use will be replaced by electronic passports.

Electronic passports securely store biographical information and digital images that are identical to the information that is visually displayed in the passport. Contactless chip technology allows the information stored in an ePassport to be read by special chip readers at a close distance. Digital signature technology verifies the authenticity of the data stored on the chip.  The ePassport facilitates travel by allowing automated identity verification for faster immigration inspections and greater border protection and security.  As travel security has become increasingly important, ePassports have become the industry standard.

The Visa Waiver Program “VWP” in the United States, allows foreign nationals from certain countries to be admitted to the U.S. under limited conditions and for a limited time without obtaining a visa. Visitors who wish to travel on to the United States, and who are citizens of countries included in the program, have to present their passports at any U.S. port of entry. Passports issued after October 26, 2006 must be ePassports – that is, include an integrated computer chip in order to be eligible for entry under the VWP.

ePassport symbol

Paper Machine No. 1 Rebuild

Fortress Paper’s Board of Directors has approved a plan to increase the production capacity of its banknotes from the current 2,500 tonnes per annum to approximately 10,000 tonnes per annum. The rebuild of its PM1 Machine, currently utilized for lower margin specialty papers and low to medium security papers, into a higher margin high output banknote paper machine is expected to commence in the first quarter of 2010 with banknote production from this rebuilt machine scheduled to begin in the first quarter of 2011. This expansion initiative requires a capital expenditure at its Landqart Mill of approximately CDN $50 million. Fortress is currently finalizing a number of bank and debt based financing options.