KapStone Paper and Packaging Corp - Market Overview and Growth Strategy

1. Ticker Symbol: KS Date: 4/28/2011 By Raj Dhawle Patil Rajani Meka Kapstone Paperand Packaging Corporation Image: KapStone Investor Presentation, Feb. 2011

2. Kapstone manufactures paper packaging and forestry products • Headquartered in Northbrook, Illinois • Sells in domestic as well as International markets • Principal markets: Americas, Europe & Asia Company Overview

3. Net Sales: $782.2 m; up 24.9% Operating Profit: $68.7 m; down 54% Net Income: $65 m; down 19% EPS: $1.38 per share Stock does not pay dividends Net Debt: $48 m Market Cap: $780.42m Source: 10-k, fiscal year ending Dec.31st, 2010 Recent Financial Highlightsfiscal year ending dec.31st, 2010

4. Growth Strategy Management Team: Roger Stone & Matt Kaplan Source: http://ir.kapstonepaper.com/phoenix.zhtml?c=190219&p=irol-irhome

5. -All mills are highly efficient and cost effective • Access to abundant high quality, low cost wood • Strategically located for exports • Annual maintenance Capex around $25 to $30 million Source: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9ODE0NTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

6. Unbleached Kraft Market • Unbleached Kraft Paper • Linerboard • Saturating Kraft • Unbleached folding carton board • Forest Products • Dimensional Lumber • Timber Product Mix Images: KapStone Investor Presentation, Feb. 2011

7. Market share of 19%;300,000 tons • Sold as three main types of products: • Multiwall Paper: Bags for agricultural products, pet food, baking products, cement & chemicals • Specialty converting Paper: Wide application in coating and laminating applications, wraps, end caps and dunnage bags • Grocery bag & Sack Paper: Bags and sacks for retail, lawn and leaf, fast food carryout and grocery Images: Kapstone investor Presentation, Feb 2011 Unbleached Kraft Paper

8. Surface facing on corrugated boxes; 565000 tons Linerboard • Images: Kapstone investor Presentation, Feb 2011

9. Sold under brand name“Durasorb”; 325000 tons per year Market Leader Found in high pressure laminates Products include furniture, shelving, counter tops, medical surfaces, flooring and industrial laminates for sliding and plywood overlays Saturating Kraft • Images: Kapstone investor Presentation, Feb 2011

10. Sold under the brand named“Kraftpak”: 110,000 tons Strong position in Niche market Uses include beverage, gift boxes, take out cartons, retail food and quick serve cartons. Images: Investor Presentation, Feb, 2011 Unbleached folding carton board

11. Process

12. SWOT

13. Recent Stock Performance Source: http://finance.yahoo.com/q/ta?t=2y&s=KS&l=on&z=l&q=l&p=m20&p=m200&c=^gspc

14. Market Overview • Highly Fragmented • Highly cyclical with product prices fluctuating with input prices • Undifferentiated products easing the entry of new players • Moving towards consolidation • More emphasis on eco-friendly products • Historical CAGR, 2005-2009: 2% Source:http://web.ebscohost.com/bsi/pdf?sid=2029ad4a-4dac-45bc-a2b4-08bf3497f8af%40sessionmgr110&vid=5&hid=122

15. Geographical Distribution of Revenues Source:http://web.ebscohost.com/bsi/pdf?sid=2029ad4a-4dac-45bc-a2b4-08bf3497f8af%40sessionmgr110&vid=5&hid=122

16. Positive effects of economic recovery • Demand rebounded significantly leading to maximum operating rates • Paper prices rebounded • Improved product mix due to strong demand for saturated Kraft products, domestic linerboard and Kraft paper • Benefits from Industry consolidation • Unprecedented level of supply discipline and Inventory management • Availability of high quality, attractively priced assets Management Discussion & Analysis Source: 10-k, Fiscal year ending Dec.31st, 2011

17. Revenue/Ton $611 Reve nue/Ton Source: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9ODE0NTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

18. Trend of Product Sales Source: 10-k, Fiscal year ending Dec 31st,2010

19. Comparables Analysis

20. Revenue Growth Vs COGS Margin - The following assumptions are based on Global Economic factors, Industry outlook, Management guidance, Company’s ability to generate sales and contain costs. However, these assumptions are extremely conservative and on the assumption that the company would not acquire in the near future.

21. Discount Rate Discount Rate : 13.50%

22. Discounted Cash Flow Valuation

23. UPSIDe potential- Optimistic Case • Revenue assumptions on the basis that Kapstone would continue its trend of acquisitions, and that it makes a single acquisition in 2013 with much lesser sales growth of 60% compared to 08’s sales growth of over 100% • COGS have been assumed to fluctuate as its inputs are from a highly cyclical industry and also based on the new revenue assumptions • After adjusting CAPEX to account for the acquisition, DCF now gives a price close to $35

24. DCF Range: $14.36 - $35.59, Base Case: $18.74 • Triangulated Value: $17.31 • Current Stock Price: $16.91 • We would like to buy 200 shares at market, but due to market uncertainty, Recommend Placing on Watch List • Reasons: • Portfolio Diversification • Huge upward potential • Company Analysis: Product differentiation, Good credit rating, Low debt, Known for increased shareholder value, Experienced management • Industry Analysis: Growing kraft paper market, Increased demand Recommendation

25. Correlation with existing portfolio