UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported):  February 22, 2008

BOISE INC.

(Exact name of registrant as specified in its charter)

1111 West Jefferson Street, Suite 200

Boise, ID 83702-5388

(Address of principal executive offices, including zip code)

208-384-7000

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Introduction

The items disclosed in this Current Report on Form 8-K relate to the completion of the acquisition (the “Acquisition”) by Boise Inc., formerly Aldabra 2 Acquisition Corp. (the “Company”), of Boise White Paper, L.L.C. (“Boise White Paper”), Boise Packaging & Newsprint, L.L.C., Boise Cascade Transportation Holdings Corp. (collectively, the “Paper Group”) and other assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and most of the headquarters operations of Boise Cascade, L.L.C (the “Seller”) on February 22, 2008.  The business so acquired from the Seller is referred to in this Current Report on Form 8-K as the “Business”. The Acquisition was accomplished through the Company’s acquisition of Boise Paper Holdings, L.L.C. pursuant to that certain Purchase and Sale Agreement, dated as of September 7, 2007, by and among the Seller, Boise Paper Holdings, L.L.C., the Paper Group, Aldabra Sub LLC and the Company, as amended by Amendment No. 1 to Purchase and Sale Agreement, dated October 18, 2007, and Amendment No. 2 to the Purchase and Sale Agreement, dated February 22, 2008, each by and among such persons (the “Purchase Agreement”).

Item 1.01                                             Entry into a Material Definitive Agreement.

                                                Paper Purchase Agreement with OfficeMax

In October 2004, Boise White Paper, currently a subsidiary of the Company, entered into a 12-year paper supply agreement (the “Paper Supply Agreement”) with OfficeMax Incorporated (“OfficeMax”) under which OfficeMax is required to purchase from Boise White Paper all of OfficeMax’s North American requirements for cut-size office paper, to the extent Boise White Paper chooses to supply such paper to OfficeMax, through December 2012. OfficeMax’s purchase obligations under the Paper Supply Agreement will phase out over a four-year period beginning one year after the delivery of notice of termination, but not prior to December 31, 2012.  In connection with the Acquisition,  the Company acquired Boise White Paper.

The foregoing is qualified in its entirety by reference to the redacted text of the Paper Supply Agreement which is filed as Exhibit 10.1 to this Current Report on Form 8-K, which information is incorporated herein by reference.

Amendment No. 2 to Purchase Agreement

                                                On February 22, 2008, the Company, the Seller, Boise White Paper and the other parties to the Purchase Agreement, amended the Purchase Agreement by entering into a second amendment thereto (“Amendment No. 2”).  In addition to clarifying certain arrangements among the parties to the Purchase Agreement, Amendment No. 2 confirms the form of Seller Note (as defined in Item 2.01 to this Current Report on Form 8-K) issued as partial consideration to the Seller at the closing of the Acquisition.

                                                The foregoing is qualified in its entirety by reference to the full text of Amendment No 2. which is filed as Exhibit 10.2 to this Current Report on Form 8-K, which information is incorporated herein by reference.

                                                Investor Rights Agreement

                                                On February 22, 2008, in connection with the Acquisition, the Company, the Seller, and certain other stockholders of the Company named therein entered into an investor rights agreement (the “IRA”).  The IRA is described in detail in the Company’s definitive proxy statement, filed with the Securities and Exchange Commission (the “SEC”) on January 23, 2008 (the “Definitive Proxy Statement”), in the section entitled “Certain Relationships and Related Party Transactions—Agreements with Stockholders—Investor Rights Agreement” beginning on page 224, which information is incorporated herein by reference.

                                                The foregoing is qualified in its entirety by reference to the full text of the IRA which is filed as Exhibit 4.1 to this Current Report on Form 8-K, which information is incorporated herein by reference.

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                                                Senior Secured Credit Facilities and Seller Note

                                                The description of the Company’s senior credit facilities and the Seller Note (as defined in Item 2.01 to this Current Report on Form 8-K) issued to the Seller as set forth under Item 2.03, is incorporated herein by reference.

                                                2008 Boise Inc. Incentive and Performance Plan

                                                Immediately following the consummation of the Acquisition, the Company adopted the 2008 Boise Inc. Incentive and Performance Plan (the “Incentive Plan”). The Incentive Plan permits grants of annual incentive awards, stock bonuses, restricted stock, restricted stock units, performance stock, performance units, stock appreciation rights (SARS), and stock options (including performance based or indexed stock options) to the executive officers, key employees and nonemployee directors who are selected as participants.

                                                The 2008 Boise Inc. Incentive and Performance Plan is described in the Definitive Proxy Statement in the section entitled “Proposal V—Incentive Plan” beginning on page 143, which information is incorporated herein by reference.

                                                The foregoing is qualified in its entirety by reference to the full text of the Incentive Plan which is filed as Annex E to the Definitive Proxy Statement, which information is incorporated herein by reference.

                                                Outsourcing Agreement

In connection with the Acquisition and as a condition for its completion, the Company and the Seller entered into an outsourcing services agreement, dated as of February 22, 2008. Pursuant to this agreement, the parties will provide administrative services, such as information technology, accounting, financial management, and human resources services, to each other for a price equal to the provider’s fully allocable cost. The initial term of the agreement is for three years. It will automatically renew for one-year terms unless either party provides notice of termination to the other party at least 12 months in advance of the applicable term.

Because the headquarters operations (including a majority of legacy corporate functions) of the Seller were purchased by the Company as part of the Acquisition, substantially all of the services provided under this agreement will be provided to the Seller by the Company. The provision of services to the Seller by the Company is important to the operating success of the Seller. Either the Seller or the Company may terminate the agreement before its expiration only if (i) the Seller has failed to pay undisputed invoiced amounts due on three consecutive monthly invoices or for a total of 100 days; and (ii) after receipt of notice of the other party’s intent to terminate the agreement the party receiving such notice has failed to cure such default. A party that is receiving services pursuant to the agreement may terminate the agreement with respect to the services that it receives (but not with respect to the services it provides) at any time without cause. If the Seller terminates the agreement with respect to the services that it receives without cause during the three-year initial term, it will be required to pay the Company a termination fee that decreases over time. The Company will not be required to pay any termination fee if it terminates the agreement with respect to the services that it receives at any time during the term of the agreement.

The foregoing is qualified in its entirety by reference to the full text of the Outsourcing Agreement which is filed as Exhibit 10.17 to this Current Report on Form 8-K, which information is incorporated herein by reference.

                                                Intellectual Property License Agreement

                                                In connection with the Acquisition and as a condition for its completion, the Company and the Seller  and (on behalf of itself and its affiliates) entered into an intellectual property license agreement, dated as of February 22, 2008, pursuant to which the Seller will provide the Company a royalty-free, fully-paid, worldwide, non-transferable (except under certain circumstances (e.g., to any affiliate or a successor-in-interest to the Business)) and exclusive right and license (subject to specified retained rights of the Seller.) to use specified trademarks of the Seller in connection with the operation of the Business (on the terms and conditions set forth therein). Specifically, the Seller will license to the Company the tradename “Boise” for exclusive use in all product categories associated with paper and packaging. The Seller will also license to the Company the trademark  for exclusive use in all product

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categories other than those associated with wood and building products.

The foregoing is qualified in its entirety by reference to the full text of the Intellectual Property License Agreement which is filed as Exhibit 10.18 to this Current Report on Form 8-K, which information is incorporated herein by reference.

Item 2.01                                             Completion of Acquisition or Disposition of Assets.

                                                On February 22, 2008, the Company completed the Acquisition pursuant to the Purchase Agreement.

                                                Effective upon the consummation of the Acquisition, (i) the Paper Group became subsidiaries of the Company, (ii) the Business became the Company’s only operations and (iii) the Company changed its name to Boise Inc.  The Acquisition is described in greater detail in the Definitive Proxy Statement in the sections entitled “Proposal I—Acquisition Proposal” beginning on page 54 and “The Purchase Agreement” beginning on page 87, which information is incorporated herein by reference. The description of the Acquisition in the Definitive Proxy Statement is qualified in its entirety by reference to the Purchase Agreement, a copy of which was filed as Annex A to the Definitive Proxy Statement.

                                                In exchange for the sale of the Business to the Company, the Seller received the following (collectively, the “Purchase Price”):

·                  $1,252,280,781.80 in cash (in addition to cash paid to the Seller in respect of financing fees and other expenses);

·                  37,857,374 shares of common stock, par value $.0001 per share, of the Company (the “Common Stock”); and

·                  a subordinated promissory note in the original amount of $41,000,000 (the “Seller Note”).

Please see the pro forma financials of the Company attached hereto as Exhibit 99.3 for further details.

BUSINESS

General

The paper and packaging and newsprint business units of Boise Cascade Holdings, L.L.C. (“BPP”) have operated as three segments: the paper segment, the packaging and newsprint segment, and the corporate and other segment (which includes BPP’s transportation business and corporate staff support).

Paper

Products

BPP’s paper segment manufactures and sells uncoated free sheet paper (including cut-size office papers, commercial printing paper, envelope papers, and a wide range of premium and specialty papers), market pulp, and corrugating medium (a component of containerboard). For all years presented, the paper segment’s annual paper production was approximately 1.8 million short tons (a short ton is equal to 2,000 pounds) and its annual paper production capacity was approximately 1.9 million short tons. Many of BPP’s paper products are commodity products, while others have specialized features that make these products premium or specialty grades. BPP’s premium grades include 100% recycled, high-bright and colored cut-size office papers, and BPP’s specialty grades

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include custom-developed papers for such uses as label and release and flexible food packaging. BPP ships to customers both directly from its mills and through distribution centers. In 2007, BPP was the third-largest manufacturer of uncoated free sheet paper in North America, with annual uncoated free sheet paper production capacity of approximately 1.5 million short tons and market share of approximately 12% in 2007. During 2007, uncoated free sheet paper accounted for approximately 87% of segment sales.

The following table sets forth the capacity and production by product for the periods indicated:

(1)                                  Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.

BPP’s strategy is to increase its presence in the growing premium and specialty paper markets, while reducing its exposure to shrinking commodity markets, such as converting paper for business forms. BPP increased sales of premium and specialty papers from approximately 28% of uncoated free sheet tons sold during 2004 to approximately 33% of uncoated free sheet tons sold during 2007. Some traditional communications paper markets have been declining as electronic media has developed. These declines have varied by specific products; for example, roll stock for business forms has declined significantly, while cut-size copy paper consumption has been essentially flat over the past several years as increased printer placements in home and manufacturing environments has offset reductions in office consumption. Many premium paper markets, such as recycled and colored papers have been growing. Other paper markets, such as label and release papers and flexible packaging papers, are not impacted negatively by electronic substitution. While BPP produces some uncoated free sheet paper for forms converting use, its commodity uncoated free sheet paper production is heavily weighted to cut-size copy paper sold through OfficeMax, which also helps facilitate sales of premium office papers, such as recycled and colored copy paper.

The following table sets forth packaging and newsprint segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and EBIDTA for the periods indicated:

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(a)                                  The year ended December 31, 2007, included approximately $21.7 million of lower depreciation and amortization expense as a result of discontinuing depreciation and amortization on the assets recorded as held for sale.

(b)                                 Segment EBITDA is calculated as segment income (loss) before interest, income tax provision (benefit) and depreciation, amortization and depletion. EBITDA is the primary measure used by the Company’s chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See the section entitled “Selected Historical Financial Information of Boise Paper Products” contained in Item 2.01 of this Current Report on Form 8-K for a description of the Seller’s reasons for using EBITDA, for a discussion of the limitations of such a measure and for a reconciliation of the Seller’s EBITDA to net income.

BPP’s commodity-grade paper products are produced primarily on its larger paper machines in long, high-volume production runs that achieve economies of scale. On BPP’s smaller paper machines, BPP cost-competitively manufactures premium and specialty grades, which are increasingly displacing the production of commodity grades. Premium and specialty grades tend to require shorter production runs, generate higher and more stable prices, and have higher margins over time. Sales volumes of premium and specialty grades are more than 10% above the 436,000-ton level achieved in 2005. This increased focus on premium and specialty grades is an important component of BPP’s strategy. In support of this strategy, as of December 31, 2007, BPP had spent approximately $80 million to modify its uncoated free sheet paper machine at its Wallula, Washington mill to enable it to produce pressure sensitive papers in addition to the commodity grades it has historically produced. Pressure sensitive papers include those used in the manufacture of labels and other adhesive papers.

BPP also manufactures and sells market pulp. The quantity of market pulp it sells is approximately equal to the market pulp it purchases across its operating segments; therefore, any changes in the price and cost of pulp generally tend to offset one another.

Facilities

BPP manufactures uncoated free sheet paper at four mills in the United States. These mills had an annual capacity of 1.5 million short tons of uncoated free sheet paper as of December 31, 2007. BPP’s uncoated free sheet paper mills are supported by converting machines that, on a net basis, can produce approximately 1 million short tons of cut- and folio-size sheets annually.

The following table sets forth the annual capacities of manufacturing locations in BPP’s paper segment as of December 31, 2007, and production for the year then ended:

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(1)                                  Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed capacity under some operating conditions.

Raw Materials and Input Costs

Wood fiber is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips, wood shavings, and sawdust. Most of BPP’s manufacturing facilities are located in close proximity to active wood markets. BPP has long-term market-based contracts for a portion of its fiber needs. BPP obtains some of its wood residuals from the Seller’s sawmills and wood products facilities in the Pacific Northwest and, to a lesser extent, in the South, and the remainder are purchased from outside sources. As a part of the transaction, BPP is entering into contracts (based on market price) with the Seller to continue to source this fiber based on terms and conditions traditionally used between the businesses when they operated as fully-owned segments of the Seller. BPP also obtains fiber for its pulp mills in the Pacific Northwest from its cottonwood fiber farm near Wallula, Washington. In addition, the Company will continue to enter into fiber supply contracts with other third parties, which enable the Company to source wood at market prices.

All of BPP’s paper mills have on-site pulp production facilities. Some of BPP’s paper mills also purchase pulp from third parties pursuant to contractual arrangements. At the time these arrangements were negotiated, pulp markets were relatively soft and, as a result, BPP was able to negotiate attractive terms. Because the current pulp market is relatively tight, BPP may not be able to achieve new purchase arrangements with similarly attractive terms.

BPP generally purchases raw materials through contracts or open-market purchases. These contracts are generally with suppliers located in closest proximity to the specific facility they supply, and they generally contain price adjustment mechanisms to account for market price and expense volatility.

BPP’s paper segment consumes substantial amounts of energy, such as electricity, natural gas, and a modest amount of fuel oil. During 2007, energy costs accounted for approximately 15% of the aggregate amount of materials, labor, and other operating expenses, including fiber costs, in this segment. BPP purchases substantial portions of its natural gas and electricity under supply contracts, most of which are between a specific plant and a specific local provider. Under most of these contracts, the providers are bound to provide BPP with all of its needs for a particular type of energy at a specific facility. Most of these contracts have pricing mechanisms that adjust or set prices based on current market prices. In addition, the Seller also uses derivative instruments such as natural gas swaps, options, or a combination of these instruments to partially mitigate price risk for its energy requirements. In addition, BPP has been increasing its use of renewable biomass fuels to displace fossil fuels. Historically, these fuels have cost less than fossil fuels per unit of energy output. Some of this shift has required capital investment to convert power boilers to be able to handle biomass fuels. For example, BPP has recently completed a $9 million project in Wallula, Washington, which allows one of its boilers to burn wood waste (hog fuel) instead of natural gas.

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Sales, Marketing, and Distribution

BPP’s uncoated free sheet paper is sold primarily by BPP’s own sales personnel. BPP ships to customers both directly from its mills and through distribution centers. This allows BPP to respond quickly to customer requirements.

The following table sets forth sales volumes of paper and paper products for the periods indicated:

Customers

BPP’s largest customer in this segment is OfficeMax. In 2007, sales to OfficeMax accounted for $615.7 million of paper segment sales. Sales to OfficeMax constitute 44% of BPP’s total uncoated free sheet sales volume and 78% of its office papers sales volume. In October 2004, OfficeMax agreed to purchase from BPP its full North American requirements for cut-size office paper, to the extent BPP chooses to supply such paper to them, through December 2012. OfficeMax’s purchase obligations under the Paper Supply Agreement will phase out over a four-year period (25% per year) beginning one year after the delivery of notice of termination, but in no event will the purchase obligation be reduced prior to December 31, 2012. The price for paper sold under the Paper Supply Agreement approximates market prices. However, due to the structure of the contract, price changes to OfficeMax lag the market approximately 60 days. The Paper Supply Agreement was transferred to the Company on closing of the Acquisition. The Paper Supply Agreement provides the Company with access to one of North America’s largest office products sales and distribution networks, giving it a competitive advantage from the perspective of market access and customer supply-chain management.

Prior to the Acquisition, BPP also had an agreement in place whereby it received or made additional payments to OfficeMax each year based on the average price of uncoated free sheet paper. For the first and second anniversary periods, which ended October 29, 2005 and 2006, neither BPP nor OfficeMax owed additional consideration for the purchase price. For the third anniversary period ended October 29, 2007, BPP paid OfficeMax $32.5 million. This agreement will terminated as a result of the Acquisition, and consequently, the Company and BPP will neither receive payments from, nor make payments to, OfficeMax under this agreement.

In addition to OfficeMax, BPP has approximately 800 uncoated free sheet paper customers, none of which individually represents a material portion of its sales. BPP’s customers include paper merchants, commercial and financial printers, paper converters such as envelope and form manufacturers, and customers who use its paper for specialty applications such as label and release products. The majority of these customers purchase products through individual purchase orders. In addition to its paper supply agreement with OfficeMax, BPP has long-term relationships with other customers, although no single relationship, other than the one with OfficeMax, is material to its business.

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Business Plan

BPP’s strategy in its paper segment is to maximize profitability by operating its two largest paper manufacturing machines at full capacity in the production of cut-size commodity office paper while dedicating as much production as possible on its smaller machines to premium and specialty papers for a variety of markets and end uses.

BPP works closely with its customers to develop and manufacture innovative premium and specialty papers and to provide related service programs that respond to its customers’ changing needs and technical requirements. On BPP’s smaller machines, BPP will continue to displace the production of commodity grades with higher-margin premium and specialty grades. By leveraging its existing customer relationships, design capabilities, competitive cost position, and efficient logistics network, BPP seeks to expand its position as a leading North American supplier of premium and specialty papers. In support of this strategy, at December 31, 2007, BPP had spent approximately $80 million to modify its uncoated free sheet paper machine at its Wallula, Washington mill (the Wallula #3 machine), which historically produced a variety of commodity paper grades, to enable it to produce pressure sensitive papers, as well as commodity grades.  Significant to the execution of BPP’s strategy is the ability to produce and sell pressure sensitive papers from the Wallula #3 machine and the ability to develop, produce and sell other premium and specialty grades on its smaller machines. Pressure sensitive paper grades, as well as other specialty grade products, are important because these categories are generally growing, while North American demand for commodity uncoated free sheet paper in total has declined over the last five years.

The long-term supply agreement with OfficeMax allows BPP to focus its largest paper machines on producing commodity products in long, high-volume production runs. This relationship allows BPP to continue to improve the capacity utilization of its largest paper machines, achieve supply-chain efficiencies, and develop and test product and packaging innovations. BPP plans to leverage the expertise developed in this relationship to better serve its other customers and develop new customers and products while pursuing productivity improvements and cost reductions.

Packaging & Newsprint

Products

BPP’s packaging and newsprint segment manufactures and sells containerboard (linerboard) and corrugated containers and sheets, as well as newsprint. For all years presented, the packaging and newsprint segment’s annual linerboard and newsprint production and production capacity was approximately 1.0 million short tons. BPP consumes approximately 71% of its own linerboard and medium production (including industry trades) to make corrugated containers and sheets in this segment.

The following table sets forth the capacity and production by product for the periods indicated:

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(1)                                  Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.

The following table sets forth packaging and newsprint segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and EBITDA for the periods indicated:

(a)                                  The year ended December 31, 2007, included approximately $19.1 million of lower depreciation and amortization expense as a result of discontinuing depreciation and amortization on the assets recorded as held for sale.

(b)                                 Segment EBITDA is calculated as segment income (loss) before interest, income tax provision (benefit) and depreciation, amortization and depletion. EBITDA is the primary measure used by the Company’s chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. See the section entitled “Selected Historical Financial Information of Boise Paper Products” contained in Item 2.01 of this Current Report on Form 8-K for a description of BPP’s reasons for using EBITDA, for a discussion of the limitations of such a measure and for a reconciliation of BPP EBITDA to net income.

Containerboard is used in the production of corrugated containers and sheets. BPP’s corrugated containers are used in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. Growth of corrugated containers is driven by durable and non-durable goods production as more packaging gets used in the sale of these products. Corrugated sheets are primarily sold to converters who finish the sheets into corrugated container products. In 2007, BPP’s packaging and newsprint segment produced approximately 573,000 short tons of linerboard and its paper segment produced approximately 134,000 tons of corrugating medium, both of which are used in the production of corrugated containers. In 2007, BPP’s two segments produced 707,000 short tons of linerboard and medium, while BPP’s corrugated container and sheet plants consumed approximately 502,000 tons of containerboard (including both linerboard and corrugating medium) or the equivalent of 71% of its containerboard production.

BPP manufactured approximately 410,000 tons of newsprint during 2007, primarily for use in printing daily newspapers and other publications in North America. Of the machines at its mills in DeRidder, Louisiana, two machines are currently used in the production of newsprint. It is possible that these machines can be switched to other paper grades (such as linerboard, corrugating medium, unbleached kraft pulp, or packaging papers) provided that the Company makes additional capital expenditures and can economically source sufficient fiber.

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Facilities

BPP manufactures containerboard (linerboard) and newsprint at its mill in DeRidder, Louisiana. This mill is one of the largest paper mills in North America, with an approximate annual production capacity of 1 million short tons as of December 31, 2007. BPP also manufactures corrugated containers and sheets at five plants in the Pacific Northwest and one sheet feeder plant in Texas, with an aggregate annual capacity of approximately 9.3 billion square feet, (which assumes operating the plants five days a week, 24 hours a day).

The following table sets forth annual capacities of the containerboard (linerboard) and newsprint mill in DeRidder, Louisiana, as of December 31, 2007, and production for the year then ended:

(1)                                  Capacity assumes production 24 hours per day, 365 days per year, less days allotted for planned maintenance and capital improvements. Accordingly, production can exceed calculated capacity under some operating conditions.

Raw Materials and Input Costs

Wood fiber is the principal raw material in this segment. The primary sources of wood fiber are timber and its byproducts, such as wood chips. BPP’s DeRidder manufacturing facility is located in close proximity to active wood markets. It relies on market-based contracts for a significant portion of its fiber needs. It obtains some of its wood residuals from the Seller’s wood products plants in the South, and the remainder are purchased from outside sources. After the Acquisition and pursuant to written arrangements, the Company and the Seller will continue to jointly source wood requirements to maximize cost efficiencies.

BPP generally purchases raw materials through contracts or open-market purchases. Its contracts are generally with suppliers located in close proximity to the specific facility they supply, and they generally contain price adjustment mechanisms to account for market price and expense volatility.

BPP’s packaging and newsprint segment consumes substantial amounts of energy, such as electricity and natural gas. During 2007, energy costs accounted for approximately 14% of the sum of materials, labor, and other operating expenses, including fiber costs, in this segment. BPP purchases substantial portions of its natural gas and electricity under supply contracts. Under most of these contracts, the providers are bound to supply BPP with all of its needs for a particular type of energy at a specific facility. BPP’s gas contracts have pricing mechanisms based primarily on current market prices, and its electricity contracts have pricing mechanisms based primarily on published tariffs. BPP also uses derivative instruments such as natural gas swaps, options, or a combination of these instruments to partially mitigate price risk. For more information about its use of derivative instruments, see the section entitled “Boise Paper Products Management’s Discussion and Analysis of Financial Condition and Results of Operations—Disclosures of Financial Market Risks” in the Definitive Proxy Statement, beginning on page 196.  BPP has undertaken a major capital project, which the Company will complete by the end of first quarter 2008, to reduce fiber and energy costs and increase production of linerboard through the addition of a shoe press in the Company’s DeRidder manufacturing facility.

Sales, Marketing, and Distribution

BPP’s containerboard (linerboard) and corrugated containers and sheets are sold by its own sales personnel or brokers. BPP markets its newsprint through AbitibiBowater Inc. (AbitibiBowater) pursuant to an arrangement

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whereby AbitibiBowater purchases all of the newsprint BPP produces at a price equal to the price AbitibiBowater’s mills in the southern United States receive from customers, less associated expenses and a sales and marketing discount.  The newsprint price is verified through a third-party review. AbitibiBowater is one of the world’s largest producers and marketers of newsprint. AbitibiBowater sells BPP’s newsprint primarily in regional markets near the Company’s DeRidder, Louisiana, manufacturing facility. The Company’s contract with AbitibiBowater expires on December 31, 2008, but will renew automatically for one additional five-year term unless either party gives notice, before April 30, 2008, that it wishes to terminate the agreement. During the five-year renewal period, either party may terminate the contract on one year’s prior written notice.

The following table sets forth sales volumes of containerboard (linerboard), newsprint, and corrugated containers and sheets for the periods indicated:

(1)                                  Includes the impact of adopting Emerging Issues Task Force (“EITF”) 04-13, Accounting for Purchases and Sales of Inventory With the Same Counterparty, effective January 1, 2006, which required BPP to report its inventory buy/sell transactions on a net basis. In accordance with the provisions of EITF 04-13, prior-period financial information has not been reclassified to conform with the current period’s presentation. See the consolidated financial statements of BPP (as operated by the Seller) included as Exhibit 99.2 to this Current Report on Form 8-K for more information.

Customers

During 2007, BPP sold approximately 42% of its linerboard in the open market, both domestically and in the export market. However, once trades (linerboard sales to other producers who, in turn, sell linerboard to BPP to achieve freight benefits) are included, approximately 71% of its total containerboard production (including both linerboard and corrugating medium) was effectively consumed by its own corrugated container and sheet plants. BPP sells its finished corrugated containers to over 1,000 active customers, including large agricultural producers and food and beverage processors. BPP sells corrugated sheets to over 200 converters who use the sheets to manufacture corrugated containers for a variety of customers.

BPP sells all of its newsprint to AbitibiBowater, one of the largest manufacturers of newsprint in the world, which sells to a number of newspaper publishers located near BPP’s mill. In October 2007, Abitibi-Consolidated Inc., which sells the newsprint BPP produces at its DeRidder mill pursuant to a long-standing marketing agreement, completed a merger with Bowater Incorporated, another major newsprint producer. As a part of the merger, the merged company, AbitibiBowater, assumed rights and responsibilities of Abitibi-Consolidated Inc.  It is uncertain what the effects of this merger will be, if any, on the newsprint industry in general.

Business Plan

BPP operates its packaging and newsprint business segment to optimize cash flow through integration between its containerboard and converting operations and operational improvements in its facilities to lower costs and improve efficiency. The acquisition of Central Texas Corrugated (“CTC”) in February 2006 was a significant step in increasing its integration. BPP is a low-volume producer of newsprint, all of which is sold through AbitibiBowater. BPP’s strategy for newsprint is to reduce exposure to that market by identifying an opportunity to

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convert current newsprint production capacity to serve packaging markets or, if no attractive conversion alternative is identified, to run its newsprint production capacity only if it generates positive cash flow. Should its newsprint production fail to continue to generate positive cash flow, the company will consider a shut down of one or both of the newsprint machines and associated pulp and utility operations.

Corporate and Other

BPP’s corporate and other segment primarily includes an allocation of BPP’s and OfficeMax’s (in the predecessor periods) corporate support staff services and related assets and liabilities. These support services include, but are not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes certain rail and truck transportation businesses and related assets that support BPP’s manufacturing facilities. Rail cars and trucks are generally leased. BPP provides transportation service not only to its own facilities but also, on a limited basis, to third parties when geographic proximity and logistics are favorable. During the years ended December 31, 2007, 2006, and 2005, segment sales related primarily to the Company’s rail and truck transportation business and were $58.9 million, $61.4 million, and $66.5 million, respectively. Segment sales were $11.2 million and $54.2 million for the period of October 29 (inception) through December 31, 2004 and the period of January 1 through October 28, 2004, respectively.

The following table sets forth segment sales; segment income (loss) before interest and taxes; depreciation, amortization, and depletion; and EBITDA for the periods indicated:

(a)                                  The year ended December 31, 2007, included approximately $1.0 million of lower depreciation and amortization expense as a result of discontinuing depreciation and amortization on the assets recorded as held for sale.

(b)                                  Segment EBITDA is calculated as segment income (loss) before interest, income tax provision (benefit), and depreciation, amortization and depletion. EBITDA is the primary measure used by the Company’s chief operating decision makers to evaluate segment operation performance and to decide how to allocate resources to segments. See the section entitled “Selected Historical Information of Boise Paper Products”  in the Definitive Proxy Statement, beginning on page 24 for a description of the Seller’s reasons for using EBITDA, for a discussion of the limitations of such a measure, and for a reconciliation of the Seller’s EBITDA to net income.

Competition

The markets in each of BPP’s operating segments are large and highly competitive. BPP’s products and services compete with similar products manufactured and distributed by others. Many factors influence BPP’s

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competitive position in each of its operating segments. Those factors include price, service, quality, product selection, and convenience of location.

Paper

The markets in which BPP’s paper segment competes are large and highly competitive. Commodity grades of uncoated free sheet paper are globally traded, with numerous worldwide manufacturers, and as a result, these products compete primarily on the basis of price. All of BPP’s paper manufacturing facilities are located in the United States, and although they compete largely in the domestic market, they face competition from foreign producers, some of which have lower operating costs than BPP. The level of this competition varies, depending on domestic and foreign demand and foreign currency exchange rates. In general, paper production does not rely on proprietary processes or formulas, except in highly specialized or custom grades.

Four major manufacturers in the North American uncoated free sheet paper market account for approximately 72% of capacity. As of December 2007, BPP was the third-largest producer of uncoated free sheet paper in North America. The Company’s competitors include Domtar (the largest producer), International Paper, and Georgia-Pacific. Although price is the primary basis for competition in most of BPP’s paper grades, quality and service are important competitive determinants, especially in premium and specialty grades. Some of BPP’s paper products also compete with other paper grades, and other technologies such as electronic transmission and document storage alternatives. As the use of these alternatives continues to grow, BPP may see variances in overall demand for paper products or shifts from one type of paper to another.

In early 2007, two of BPP’s major competitors in the uncoated free sheet paper business, Domtar Inc. and Weyerhaeuser Company, combined their uncoated free sheet paper businesses. This combination has resulted in a larger and potentially much stronger competitor than the two companies operating their paper businesses independently. It is uncertain what the long-term effects of this merger will be on the paper industry in general.

BPP’s execution of its strategy is partially dependent upon the ability to produce and sell pressure sensitive papers from the Wallula #3 machine and the ability to develop, produce and sell other premium and specialty grades on its smaller machines.

Packaging & Newsprint

Containerboard (corrugating medium and linerboard) and newsprint are globally traded commodities with numerous worldwide manufacturers, and as a result, these products compete primarily on the basis of price. The intensity of competition in these industries fluctuates based on demand and supply levels, as well as prevailing foreign currency exchange rates. BPP’s corrugated container operations in the Pacific Northwest have a leading regional market position and compete with several national and regional manufacturers. BPP’s plant in Waco, Texas, known as CTC, produces corrugated sheets that are sold to sheet plants in the Southwest, where they are converted into corrugated containers for a variety of customers. Some of BPP’s competitors have lower operating costs and/or enjoy greater integration between their containerboard production and corrugated container production than does BPP.

In October 2007, Abitibi-Consolidated Inc., which sells the newsprint BPP produces at its DeRidder mill pursuant to a long-standing marketing agreement, completed a merger, with Bowater Incorporated another major newsprint producer.  It is uncertain what the long-term effects of the merger will be, if any, on the newsprint industry in general.

Seasonality

BPP’s paper businesses experience some seasonality, based primarily on buying patterns associated with particular products. For example, the demand for corrugated container products is influenced by changes in agricultural shipments in the Pacific Northwest. In addition, seasonally cold weather increases costs, especially energy consumption, at all BPP’s manufacturing plants.

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Working Capital

The Company has no unusual working capital practices. The Company believes its management practices with respect to working capital conform to common business practices in the United States.

RISK FACTORS

        The risks associated with the Company’s business are described in the Definitive Proxy Statement in the section entitled “Risk Factors” beginning on page 32, and in the Company’s Annual Report on Form 10-K filed with the SEC on February 21, 2008 (the “10-K”), beginning on page 7, which information is incorporated herein by reference.

FINANCIAL INFORMATION

        Selected historical financial information of the Company and its management’s discussion and analysis of financial condition and results of operations is set forth in the sections entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” beginning on page 28 and 29 of the 10-K, respectively, which information is incorporated herein by reference.

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SELECTED HISTORICAL FINANCIAL INFORMATION OF BOISE PAPER PRODUCTS

The following table sets forth historical financial data for the dates indicated below. The financial information is provided to assist you in your analysis of the financial aspects of the Acquisition. The term “predecessor” refers to the forest products and paper assets of OfficeMax other than its related timberland operations that Boise Cascade Holdings, L.L.C. acquired on October 29, 2004 (inception) (such acquisition, the “2004 Transaction”). BPP’s selected historical information is derived from the following audited and unaudited consolidated financial statements:

Boise Paper Products Audited Consolidated Financial Statements

I.                                         Consolidated balance sheets as of December 31, 2005, 2006 and 2007; and

II.                                     Consolidated statements of income (loss) for the years ended December 31, 2005, 2006 and 2007, and the periods of January 1, 2004 through October 28, 2004 (Predecessor), and October 29, 2004 (inception) through December 31, 2004.

Boise Paper Products Unaudited Consolidated Financial Statements

III.                                 Consolidated balance sheets as of December 31, 2003, October 28, 2004 and December 31, 2004; and

IV.                                 Consolidated statements of income for the year ended December 31, 2003.

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The information is only a summary and should be read in conjunction with BPP’s historical consolidated financial statements and related notes and “Boise Paper Products Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this Current Report on Form 8-K. The historical results included below and elsewhere in this Current Report on Form 8-K may not be indicative of the future performance of BPP.

(1)                                  Costs and expenses reflected in the statement of income as other (income) expense, net, for the year ended December 31, 2007, include a $4.4 million gain for the changes in BPP’s retiree healthcare programs. Other costs reflected in the statement of income as materials, labor and other operating expenses include $8.7 million of incremental costs related to unfavorable energy hedges and approximately $4.0 million of incremental costs recorded for the start-up of the Company’s reconfigured paper machine in Wallula, Washington.

Costs and expenses reflected in the statement of income as other (income) expense, net, for the year ended December 31, 2006, include $3.7 million gain for the changes in BPP’s retiree healthcare programs, a $2.8 million charge for special project costs and a $0.6 million charge for the sawmill closure in Jackson, Alabama. Other costs reflected in the statement of income as materials, labor and other operating expenses include $18.1 million of costs related to unfavorable energy hedges, approximately $2.4 million of expense

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primarily for inventory write-downs at BPP’s closed Vancouver, Washington operations and $1.1 million of expense related to the closure of the sawmill in Jackson, Alabama.

Costs and expenses reflected in the statement of income as other (income) expense, net, for the year ended December 31, 2005, include a $5.2 million gain for changes in BPP’s retiree healthcare programs.

Costs and expenses reflected in the statement of income as materials, labor and other operating expenses for the period of October 29 (inception) through December 31, 2004, include an $11.7 million non-cash inventory purchase price adjustment recorded in connection with the October 29, 2004 acquisition of the forest products and paper assets of the Seller’s parent company, Boise Cascade Holdings, L.L.C.

Costs and expenses reflected in the statement of loss as other (income) expense, net, for the period of January 1, 2004 through October 28, 2004, include $7.3 million of costs recorded by BPP’s predecessor in October 2004, related primarily to a one-time retention bonus that became payable as a result of the 2004 Transaction.

Costs and expenses reflected in the statement of loss as other (income) expense, net, for the year ended December 31, 2003, include $3.6 million of costs due to the early termination of an operating lease used in connection with the predecessor’s paper business.

(2)                                  The Company’s predecessor recorded a one-time charge of $3.9 million as a cumulative effect adjustment relating to its adoption in January 2003 of Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, which affected the way it accounted for landfill closure costs.

(3)                                  The year ended December 31, 2007, includes approximately $45 million of expenditures related to the reconfiguration of the paper machine at the Company’s pulp and paper mill in Wallula, Washington, to produce both pressure sensitive paper and commodity uncoated free sheet paper.

The year ended December 31, 2006 exclude approximately $42.6 million of cash paid for the purchase of the assets of CTC in Waco, Texas. The year ended December 31, 2006 also includes approximately $34 million of expenditures related to the reconfiguration of the paper machine at the Company’s pulp and paper mill in Wallula, Washington, to produce both pressure sensitive paper and commodity uncoated free sheet paper.

(4)                                  “EBITDA” represents income (loss) before interest (interest expense and interest income), income tax provision (benefit), and depreciation, amortization and depletion. EBITDA is the primary measure used by the Company’s chief operating decision makers to evaluate segment operating performance and to decide how to allocate resources to segments. The Company believes EBITDA is useful to investors because it provides a means to evaluate the operating performance of its segments and its company on an ongoing basis using criteria that are used by its internal decision makers and because it is frequently used by investors and other interested parties in the evaluation of companies with substantial financial leverage. The Company believes EBITDA is a meaningful measure because it presents a transparent view of its recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For example, the Company believes that the inclusion of items such as taxes, interest expense and interest income distorts management’s ability to assess and view the core operating trends in its segments. EBITDA, however, is not a measure of the Company’s liquidity or financial performance under generally accepted accounting principles (“GAAP”) and should not be considered as an alternative to net income (loss), income (loss) from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of the Company’s liquidity. The use of EBITDA instead of net income (loss) or segment income (loss) has limitations as an analytical tool, including the inability to determine profitability; the exclusion of interest expense, interest income and associated significant cash requirements; and the exclusion of depreciation, amortization and depletion, which represent significant and unavoidable operating costs, given the level of indebtedness and the capital expenditures needed to maintain the Company’s businesses. Management compensates for these limitations by relying on the

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Company’s GAAP results. The Company’s measures of EBITDA are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

The following is a reconciliation of net income (loss) to EBITDA:

The following items resulted in an (increase) or decrease in EBITDA as reflected below:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of the financial condition and results of operations of BPP in conjunction with the consolidated financial statements and related notes contained elsewhere in this Current Report on Form 8-K. Among other things, those consolidated financial statements include more detailed information regarding the basis of the presentation.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) includes statements regarding the Company’s expectations with respect to performance, liquidity, and capital resources. Such statements, along with any other non-historical statements in the discussion, are forward-looking. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the

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risks and uncertainties described in “Risk Factors.” Actual results may differ materially from those contained in or implied by any of these forward-looking statements.

Overview

BPP is the paper and packaging and newsprint businesses of the Company, and its predecessor in interest. BPP is comprised of the Paper Group: Boise White Paper, Boise Packaging & Newsprint, L.L.C. and Boise Transportation Corp., and assets and liabilities related to the operation of the paper, packaging and newsprint, and transportation businesses of the Paper Group and most of the headquarters operations of the Seller.

BPP’s Management’s Discussion and Analysis of Financial Condition and Results of Operations begins with a general overview of the effects of the Acquisition on BPP, including the impact of purchase accounting, costs associated with running the business as a stand-alone company, changes in tax expense as a result of operating as a stand-alone company and the anticipated impact of increased leverage of the business.

Next, the analysis discusses BPP’s three operating segments—paper, packaging and newsprint, and corporate and other. The discussion of “Recent Trends and Operational Outlook” and “Factors That Affect Operating Results” is intended to give the reader an overview of the goals and challenges of BPP’s business and the direction in which its business and products are moving.

The analysis then reviews BPP’s “Results of Operations” for 2007, compared with 2006 and 2006 compared with 2005. Following the analysis of BPP’s results, relevant merger activity in BPP’s industry is discussed in “Industry Mergers and Acquisitions,” as well as in “Acquisitions” and “Divestitures,” including BPP’s February 1, 2006 acquisition of CTC for $43.8 million, is addressed.

The analysis then provides discussion of changes in BPP’s balance sheet and cash flows and discusses its financial commitments in the sections entitled “Liquidity and Capital Resources.” This is presented on both a historical basis under “Historical” and pro forma for the proposed Acquisition under “Following the Acquisition.” The analysis then addresses BPP’s “Contractual Obligations” and “Disclosures of Financial Market Risks”, giving effect to the proposed Acquisition. On a historical basis, BPP’s financials statements did not include an allocation of the Seller’s debt or interest. The analysis then addresses BPP’s “Contractual Obligations” and “Disclosures of Financial Market Risks.” These sections are followed by a discussion of the “Critical Accounting Estimates” BPP’s management believes are important to understanding the assumptions and judgments incorporated in its reported financial results.

Effects of the Acquisition

Purchase Accounting

The Company has accounted for the Acquisition using the purchase method of accounting. As a result, the total estimated purchase price of approximately $1.683 billion (after working capital and certain other adjustments as set forth in the Company’s pro forma financials set forth in Exhibit 99.3 hereto) has been preliminarily allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the date of the Acquisition.  Such allocation of the purchase price of the assets acquired has resulted in an increase in the pro forma book depreciation and amortization expense as a result of allocating a higher value to the acquired assets than their historical carrying value based on BPP’s assessment of fair value, pending completion of a third-party valuation.

Stand-Alone Company

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During all periods presented, BPP used the services and administrative staff of the Seller. These services included, but were not limited to, finance, accounting, legal, information technology, and human resource functions. The costs not specifically identifiable to BPP were allocated based primarily on average sales, assets, and labor costs. Management believes all of the allocations reasonably reflect BPP’s use of the services; however, had BPP operated on a stand-alone basis, and excluding gains related to changes in retiree healthcare programs, management estimates BPP’s corporate and other segment would have reported segment losses of approximately $18 million of segment expenses before interest, taxes, depreciation, and amortization (EBITDA) in all annual periods presented. For 2007 and 2006, the corporate and other segment reported losses before interest, taxes, depreciation, and amortization of $10.0 million and $11.6 million, respectively.

Taxes

For all periods presented, the majority of BPP’s assets were held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation. The income taxes in respect to these operations were payable by Seller’s equity holders in accordance with their respective ownership percentages. Following the Acquisition, BPP will be subject to entity-level federal income taxation.

Increased Leverage

As of December 31, 2007, after giving pro forma effect to the Acquisition, the Company would have had approximately $1.066 billion of outstanding indebtedness under the new credit facilities and approximately $41.0 million under the Seller Note. As a result, the Company is a leveraged company and interest expense will increase significantly in the periods following the consummation of the Acquisition. The indebtedness may limit the Company’s flexibility in planning for, or reacting to, changes in the business and future business opportunities since a substantial portion of cash flow from operations will be dedicated to the repayment of indebtedness. This may place the Company at a competitive disadvantage as some of the Company’s competitors are less leveraged. The Company’s leverage may make it more vulnerable to a downturn in the business, the industry or the economy in general.

Segments

The Company operates its business through three segments: paper, packaging and newsprint, and corporate and other. These segments represent distinct businesses that are managed separately because of differing products and services. Each of these businesses requires distinct operating and marketing strategies. Management reviews the performance of the Company based on these segments.

Paper Segment

BPP’s paper segment manufactures and sells uncoated free sheet paper (including cut-size office papers, commercial printing paper, envelope papers, and a wide range of premium and specialty papers), market pulp, and corrugating medium (a component of containerboard). Many of BPP’s paper products are commodity products, while others have specialized features that make these products premium and specialty grades. BPP’s premium grades include 100% recycled and colored cut-size office papers and BPP’s specialty grades include custom-developed papers for such uses as label and release and flexible food packaging. BPP ships to customers both directly from its mills and through distribution centers. In 2007, approximately 44% of BPP’s uncoated free sheet paper sales volume, including about 78% of its office papers sales volume, was sold to OfficeMax.

Packaging and Newsprint Segment

BPP’s packaging and newsprint segment manufactures and sells containerboard (linerboard) and newsprint at its mill in DeRidder, Louisiana. BPP also operates five corrugated container plants in the Northwest and a sheet feeder plant in Waco, Texas, which it acquired in February 2006 for $43.8 million. BPP’s corrugated containers are used primarily in the packaging of fresh fruit and vegetables, processed food, beverages, and other industrial and consumer products. BPP’s Waco plant, known as CTC, produces corrugated sheets that are sold to sheet plants in the Southwest region, where they are converted into corrugated containers for a variety of customers. BPP’s containerboard and corrugated products are sold by its own sales personnel and by brokers.

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BPP markets its newsprint through AbitibiBowater Inc. (AbitibiBowater) pursuant to an arrangement whereby AbitibiBowater purchases all of the newsprint BPP produces at a price equal to the price at which AbitibiBowater sells newsprint produced at its mills located in the southern United States, less associated expenses and a sales and marketing discount. The newsprint price is verified through a third-party review. In October 2007, Abitibi-Consolidated Inc., which sold the newsprint BPP produced at its DeRidder mill pursuant to a long-standing marketing agreement, completed a merger with Bowater Incorporated, another major newsprint producer.  As a part of the merger, the merged company, AbitibiBowater, assumed rights and responsibilities of Abitibi-Consolidated Inc., under the newsprint marketing agreement with BPP. Either party has a one-time option to terminate the agreement on December 31, 2008, by giving notice of termination on or before April 30, 2008.

Corporate and Other Segment

BPP’s corporate and other segment primarily includes an allocation of BPP’s corporate support staff services and related assets and liabilities. These support services include, but are not limited to, finance, accounting, legal, information technology, and human resource functions. This segment also includes transportation assets such as railcars and trucks that BPP uses to transport its products from its manufacturing sites. During the years ended December 31, 2007, 2006, and 2005, segment sales related primarily to BPP’s rail and truck transportation business were $58.9 million, $61.4 million and $66.5 million, respectively.

Recent Trends and Operational Outlook

North American demand for commodity communications papers continues to be flat to down, as electronic media continues to substitute for traditional paper media in North America. Relative to 2006, uncoated free sheet demand decreased approximately 4.5% in 2007. The demand for commodity cut-size office papers appears to be flat to modestly down, while demand for premium office papers, such as colored and 100% recycled-content cut-size papers continues to grow. The demand for uncoated free sheet printing and converting papers continues to be heavily affected by the shift to electronic media for communications. While, traditionally, presidential election and Olympic years tend to increase demand in these grades, the longer-term trend continues to be negative. Two factors have allowed producers to raise prices in the face of decreasing demand: first, producers have closed or converted capacity to match demand reductions, and second, the decreased value of the U.S. dollar, relative to other currencies, has allowed U.S. producers to export profitably while making U.S. markets less attractive to offshore producers. As a result, industry inventories are low relative to historical standards, and some producers have announced price increases. BPP recently announced a $60 per ton price increase for cut-size copy paper, which became effective in mid-February, and a $60 per ton price increase for roll products, which is scheduled be effective in early March. There is no assurance that announced price increases will be realized.

Packaging-based paper markets in the U.S. continue to be relatively strong, as positive economic growth has supported demand for packaging papers in the U.S., while a relatively weak U.S. dollar has helped make export markets attractive for U.S. producers and U.S. markets less attractive for overseas producers. Containerboard inventories are currently low relative to historical standards, and some producers have announced price increases. There is no assurance that announced price increases will be realized.

North American newsprint demand has continued to trend downward. In December, AbitibiBowater, the largest producer of newsprint in North America, announced the permanent closure of manufacturing facilities with approximately 1 million tons of annual capacity of groundwood printing and newsprint papers. At the same time, AbitibiBowater announced price increases of $60 per ton, which are scheduled to be phased in during the first half of 2008. According to published industry data, newsprint inventories are relatively low, compared with prior years; for example, combined producer and consumer year-end 2007 inventories were 7.5% lower than 2006 inventories.

While markets for BPP’s paper and packaging and newsprint products have been relatively strong in 2007, a reduction in economic growth in the U.S. or a strengthening of the U.S. dollar could cause market conditions to deteriorate, resulting in lower pricing.

On the cost side, fiber markets in the Pacific Northwest, while improved from early 2007 levels, are still relatively high by historical standards. In early 2008, spot shortages for residual chips caused fiber prices in the Pacific Northwest to move higher, as wood products capacity curtailments in the Pacific Northwest continued to put pressure on fiber availability and prices in this region. Inadequate fiber supplies may result in downtime. BPP is pursuing alternative sources of fiber including expansion of its whole log chipping capacity. Energy costs, while improved over 2006,

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are also high relative to historical standards, and many of BPP’s chemical suppliers have been increasing their prices as contracts have allowed. In early 2008, natural gas prices moved higher.

In first quarter 2008, BPP plans to take downtime at its DeRidder, Louisiana, pulp and paper mill to install a shoe press on its linerboard machine as well as to conduct other long-term maintenance. The outage will have a significant negative impact on BPP’s financial performance in the first quarter. The total project is scheduled for 29 days. BPP currently anticipates losing approximately 14 days of linerboard production and 11 days of newsprint production during the outage. However, there is a risk that the outage could be extended beyond BPP’s expectations increasing the negative impact on its financial performance.

Factors That Affect Operating Results

The results of operations and financial performance of BPP historically and the Company following the Acquisition are influenced by a variety of factors, including the following:

·                  General economic conditions, including but not limited to housing starts, repair-and-remodel activity, nonresidential construction, white-collar employment, electronic substitution, durable goods production, and relative currency values;

·                  Volatility in raw material costs, energy prices, and currency values;

·                  The commodity nature of the Company’s products and their price movements, which are driven largely by supply and demand;

·                  Industry cycles and capacity utilization rates;

·                  The cost and ability to obtain necessary financing;

·                  Continued compliance with government regulations;

·                  Legislative or regulatory environments, requirements, or changes affecting the businesses in which the Company is engaged;

·                  Labor and personnel relations;

·                  Credit or currency risks affecting the Company’s revenue and profitability;

·                  Major equipment failure;

·                  Severe weather phenomena such as drought, hurricanes, tornadoes, and fire;

·                  The Company’s customer concentration;

·                  The Company’s ability to implement its strategies;

·                  Actions of suppliers, customers, and competitors;

·                  The ability to secure skilled technical personnel and staffing; and

·                  The other factors described in “Risk Factors”.

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Commodity and Premium and Specialty Products

Many of the products BPP manufactures and distributes are widely available and can be readily produced by its competitors. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is primarily based on price, which is determined by supply relative to demand. Generally, market conditions beyond BPP’s control determine the price for its commodity products, and the price for any one or more of these products may fall below BPP’s cash production costs. Therefore, BPP’s profitability with respect to these products depends on managing its cost structure, particularly raw material and energy costs, which also exhibit commodity characteristics.

Not all of BPP’s products are commodities. BPP’s premium and specialty papers are differentiated from competing products based on quality and product design, as well as related customer service. In the case of these products, BPP is generally able to influence price based on the strength of differentiation and levels of customer service and are generally able to sell these products at higher margins than its commodity products. Demand for specialty and premium products is impacted by overall levels of economic activity. In order to reduce its sensitivity to price cyclicality inherent in the paper industry and improve its margins, a fundamental component of BPP’s strategy is to increase production of premium and specialty papers as a percent of its Paper segment sales. BPP believes these products are less susceptible to commodity pricing dynamics.

Comparing 2007 with 2006, sales of BPP’s premium and specialty papers were flat at approximately 33% of uncoated free sheet tons sold. The project to convert BPP’s Wallula, Washington, #3 paper machine to enable it to produce pressure sensitive grades is a key step in providing BPP with the capacity to increase production of premium and specialty paper grades. This project came online during second quarter 2007, and BPP resolved machine performance issues that were identified during the second half of 2007.

Demand

                The overall level of demand for the products BPP makes and distributes is affected by, among other things, construction activity, manufacturing activity, employment, and consumer spending. Accordingly, BPP believes that its financial results depend in large part on general macroeconomic conditions in North America, as well as on regional economic conditions in the geographic markets in which it operates. While no single product line drives BPP’s overall financial performance, individual product lines are influenced by conditions in their respective industries. For example:

·                  Historically, demand for uncoated free sheet correlated positively with general economic activity. However, demand for communications paper grades, such as uncoated free sheet printing and forms paper, which BPP produces, has decreased as the use of electronic transmission and document storage alternatives has become more widespread and more efficient.

·                  A large share of the demand for corrugated containers, and therefore, containerboard, is driven by unprocessed and processed food production and manufacturing, specifically the manufacture of nondurable goods. In addition, inventory stocking or liquidation of these goods has an impact, as do currency exchange rates that affect the cost-competitiveness of foreign manufacturers. The weakening U.S. dollar has made U.S. producers more attractive relative to overseas competitors.

·                  Demand for newsprint depends upon prevailing levels of newspaper advertising and circulation. Demand for newsprint in North America declined approximately 22% between 2003 and 2007, according to Resource Information Systems, Inc. (RISI), due in part to the growth of online media.

Supply

Industry supply of paper is affected by the number of operational or idled facilities, the building of new capacity, and the shutting down of existing capacity. Capacity also tends to increase gradually over time without significant capital expenditures, as manufacturers improve production efficiencies. Generally, more capacity is

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added or employed when supply is tight and margins are relatively high, and capacity is idled or eliminated when capacity significantly exceeds demand and margins are poor.

While new capacity additions are constrained by the high capital investment and long lead times required to plan, obtain regulatory approvals for, and build a new mill, a favorable pricing environment may prompt manufacturers to initiate expansion projects.

From 2003 to 2007, North American uncoated free sheet, containerboard, and newsprint capacities declined 10%, 2%, and 19%, respectively, according to RISI. In addition, some suppliers have recently announced either modifications to paper machines to move capacity to other grades or shutdowns of paper machines and paper mills.

Industry supply of paper is also influenced by the level of imports and overseas production capacity, which has grown in recent years. The weakening of the U.S. dollar has mitigated the level of imports in recent years.

Operating Costs

BPP’s major costs of production are labor, wood fiber, energy, and chemicals. The relative importance of these costs varies by segment. Given the significance of raw material and energy costs to BPP’s total operating expenses and its limited ability to control these costs, compared with other operating costs, volatility in these costs can materially affect BPP’s margins. In addition, the timing and degree of price cycles of raw materials and energy differ with respect to each type of raw material and energy BPP uses.

Labor.  BPP’s labor costs tend to increase steadily due to inflation in healthcare and wage costs. Labor costs are not as volatile as BPP’s energy and wood fiber costs. See “Employees” in information about Boise Paper Products for more information.

Wood fiber.  BPP’s primary raw material is wood fiber, accounting for the following percentages of materials, labor, and other operating expenses, including fiber costs, for each of the respective segments listed below:

BPP’s primary sources of logs and wood fiber are timber and byproducts of timber, such as wood chips, wood shavings, and sawdust. BPP acquires substantially all of its fiber from outside sources. In BPP’s paper and packaging and newsprint segments, logs and wood chips are converted into pulp, which BPP sells or uses at its paper mills to produce paper. On an aggregate basis, BPP is generally able to produce all of its pulp needs, purchasing and selling similar amounts on the open market.

Logs and wood fiber are commodities, and prices for logs and wood fiber have historically been cyclical due to changing levels of demand. Log and fiber supply may be limited by public policy or government regulation as well as fire, insect infestation, disease, ice storms, windstorms, hurricanes, flooding, other weather conditions, and other natural and man-made causes. Residual fiber supply may be limited due to reduction in primary manufacturing at sawmills and plywood plants. Declines in log and fiber supply, driven primarily by changes in public policy and government regulation, have been severe enough to cause the closure of numerous facilities in some of the regions in which BPP operates. Any sustained undersupply and resulting increase in wood fiber prices could decrease BPP’s production volumes and/or increase BPP’s operating costs. Prices for BPP’s products might not reflect increases or decreases in log and wood fiber prices, and as a result, its operating margins could fluctuate. In Minnesota, wood fiber prices came down in 2007, as OSB plants in the region curtailed operations, resulting in less demand pressure. The Northwest, residual fiber costs began to come down in 2007 but continue to be high by historical standards. Because residual fiber for BPP’s paper mills in the Northwest comes predominantly from

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sawmills and plywood plants, curtailments in these mills, as a result of decreased demand for these products related to the housing slowdown, will continue to impact the availability of residual fiber for BPP’s Northwest pulp and paper operations. In early 2008, residual fiber prices in the Pacific Northwest started to increase again, as continued curtailments of wood products facilities put pressure on relatively tight fiber markets. Relative to historical standards, fiber costs were high in Louisiana in 2007 due to unusually high and persistent rainfall, which limited access to many harvest areas and limited supply availability. Recently, fiber costs in Louisiana have leveled off, as weather patterns have allowed better access to timberlands

Other raw materials and energy purchasing and pricing.  BPP purchases other raw materials and energy used to manufacture its products in both the open market and through long-term contracts. These contracts are generally with regional suppliers who agree to supply all of BPP’s needs for a certain raw material or energy at one of its facilities. These contracts normally contain minimum purchase requirements and are for terms of various lengths. They also contain price adjustment mechanisms that take into account changes in market prices. Therefore, although the long-term contracts provide BPP with supplies of raw materials and energy that are more stable than open-market purchases, in many cases, they may not alleviate fluctuations in market prices.

BPP’s costs for raw materials are influenced by increases in energy costs. Specifically, some of BPP’s key chemicals, including pulping and bleaching chemicals consumed in its paper and packaging and newsprint mills, are heavily influenced by energy costs. A number of BPP’s major suppliers have obtained price increases tied to their increased energy costs. For BPP’s commodity products, the relationship between industry supply and demand, rather than changes in the cost of raw materials, determines BPP’s ability to increase prices. Consequently, BPP may be unable to pass increases in its operating costs to customers in the short term.

Energy.  Energy prices, particularly for electricity, natural gas, and fuel oil, have been volatile in recent years and currently exceed historical averages. In addition, BPP has limited flexibility to switch between fuel sources in the short term; accordingly, BPP has significant exposure to natural gas price changes. Energy costs represented the following percentages of materials, labor, and other operating expenses, including fiber costs, for each of the respective segments listed below:

The Seller has historically entered into natural gas swaps, options, or a combination of these instruments to hedge the variable cash flow risk of natural gas purchases at index prices. As of December 31, 2007, the Seller had entered into derivative instruments related to approximately 23% of its forecasted natural gas purchases through March 2008, 3% of forecasted natural gas purchases from July 2008 through October 2008, and 2% of forecasted natural gas purchases from November 2008 through March 2009. BPP has elected to account for these instruments as economic hedges and record the changes in fair value in its Consolidated Statements of Income.

Chemicals. Important chemicals BPP uses in the production of its products include starch, sodium chlorate, precipitated calcium carbonate, sodium hydroxide, and dyestuffs and optical brighteners. Purchases of chemicals represented the following percentages of materials, labor, and other operating expenses, including fiber costs, for each of the respective segments listed below:

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BPP experienced higher chemical costs during 2007, compared with 2006, due primarily to chemical market supply and demand dynamics.

Results of Operations

The following tables set forth the results of operations in dollars and as a percentage of sales for the years ended December 31, 2005, 2006 and 2007: