Oji Paper Co., Ltd. Notice Regarding Commencement of Tender Offer

Tokyo, Japan, 01 August 2006 -- /PRNewswire/ -- Oji Paper Co., Ltd. will commence a tender offer for shares of the common stock of Hokuetsu Paper Mills, Ltd. (Code: 3865; "Hokuetsu"), as set forth below. The board of directors of Oji approved the transaction at a meeting held today.

1. Background and Purpose of the Tender Offer

As described in Oji's 23 July 2006 press release, "Proposal of Business Integration with Hokuetsu Paper," by combining Hokuetsu's proven highly efficient business operations and Oji's extensive management resources, the business integration between Oji and Hokuetsu represents a strategic best fit. The business integration will simultaneously achieve an expansion of corporate scale and an improvement in efficiency. The combined corporate group will be able to use an ample cash-flow to make large-scale investments which are essential to compete on a global level. In addition, a more efficient production system will be established through a combination of Hokuetsu's currently planned expansion of its coated paper production facilities and the scrapping of Oji's aging, small-scale facilities. The business integration will bring about synergies across various areas, such as optimizing production and sales operations, streamlining logistics through a rationalization of transportation resources, and technical exchange.

After the business integration, the new Oji/Hokuetsu Group will be the fifth largest pulp and paper manufacturer in the world in terms of revenues. The business integration will increase the potential for growth by enhancing both companies' existing competitive advantages and supplementing each other's areas for improvement. Oji is convinced that the prompt implementation of the business integration will bring positive results not only to the shareholders of Hokuetsu, but also to its other stakeholders, such as employees, trading partners, consumers and local communities.

In the belief that the company can achieve the benefits as described above, on 03 July 2006, the representative directors of Oji submitted to Hokuetsu for its consideration a proposal of the business integration detailing the specific terms. These include a tender offer for all the Common Shares of Hokuetsu at the price of JPY 860 share. The proposal asked Hokuetsu to respond in writing to Oji by 9:00 a.m. on 24 July on whether it would agree to the proposal. In response, on 21 July, Hokuetsu announced that its board of directors had resolved to place 50,000,000 new Common Shares (representing 30.5% of the issued Common Shares as of 21 July) at JPY 607 per share, and enter into a business alliance, with Mitsubishi Corporation.

In light of the above development, on 23 July, 2006, the board approved the proposal, including a tender offer for all the Common Shares of Hokuetsu at the price of JPY 860 per share, and resolved to proceed with the business integration on the condition that Hokuetsu withdraw the placement and the business alliance. In addition, Oji urged Hokuetsu and Mitsubishi to withdraw the placement and the business alliance. Regrettably, Hokuetsu issued press releases announcing that it would not withdraw the placement and the business alliance and neither Hokuetsu nor Mitsubishi has agreed to withdraw the planned placement and business alliance.

Under the proposal, the tender offer was scheduled to commence in mid-August. However, the board of directors of Hokuetsu resolved to proceed with the placement and the business alliance, an option that would not be compatible with the business integration. As the Hokuetsu board chose such an option and has already expressed twice its intention not to withdraw the placement and the business alliance, Oji felt obligated to bring this matter directly to the shareholders of Hokuetsu for their consideration.

In light of the foregoing and despite the fact that the placement and business Alliance have not yet been withdrawn, the Board resolved at a meeting held today to commence the tender offer.

The details of the purpose of the tender offer will be described in the "Purpose of the Tender Offer" section of the Japanese Tender Offer Statement to be filed on 02 August 2006. (The Tender Offer Explanatory Statement, which will contain an identical discussion of such details, will be available in English on 03 August 2006 (EST).)

2. Tender Offer Price Adjustment Caused by the Placement

As described in the Business Integration Press Release, the Placement will affect the terms of the Tender Offer. The price for Tender Offer Oji proposed in the Business Integration Press Release was determined without taking into account the dilution that would result from the Placement: the price per share as adjusted to take into account of such dilution will be JPY 800 (the "Tender Offer Price"). Oji will carry out the Tender Offer even if the Placement is not withdrawn, and, therefore, set 800 yen as the Tender Offer Price. However, if the Placement and the Business Alliance are withdrawn during the Tender Offer period, absent special circumstances that may adversely affect the terms of the Tender Offer, Oji will raise the Tender Offer Price to 860 yen. Similarly, Oji has determined the number of Common Shares to be purchased (the "Tender Offer Minimum") by taking into account the increase in the number of Common Shares caused by the Placement. However, in the case that the Placement and the Business Alliance are withdrawn, absent any special circumstances that may adversely affect the terms of the Tender Offer, Oji will lower the Tender Offer Minimum.

3. Tender Offer: Summary of Terms
A. Subject Company
(1) Trade name Hokuetsu Paper Mills, Ltd.
(2) Principal business Manufacturing, processing
and sale/purchase of
paper/pulp products and
their by-products
(3) Date of incorporation 27 April 1907
(4) Principal office 5-1, Nishizao 3-chome,
Nagaoka, Niigata
Prefecture
(5) Representative Masaaki Miwa
Representative Director
and President
(6) End of fiscal year 31 March
(7) Number of employees 2,822 (including those at
consolidated subsidiaries;
as of March 31, 2006)
(8) Capital JPY 26,820 million (as of
March 31, 2006)
(9) Total number of issued Common Shares 164,052,054 shares (as of
June 28, 2006)
(10) Major shareholders and ownership percentages (as of March 31,
2006)
(thousands of shares)
The Master Trust Bank
of Japan, Ltd. (Trust Account) 13,867 8.45%
Japan Trustee Services Bank, Ltd.
(Trust Account) 13,715 8.36%
NIPPONKOA Insurance Co., Ltd. 5,992 3.65%
Japan Trustee Services Bank, Ltd.
(Common Shares re-trusted with
The Sumitomo Trust and Banking Company
for Oji Pension Trust Accounts) 5,614 3.42%
Mizuho Corporate Bank, Ltd. 4,697 2.86%
The Daishi Bank, Ltd. 4,217 2.57%
The Hokuetsu Bank, Ltd. 4,215 2.57%
Japan Trustee Services Bank, Ltd.
(Trust Account 4) 3,660 2.23%
The Chase Manhattan Bank N.A., London,
SL Omnibus Account (Standing Agent:
Mizuho Corporate Bank, Ltd.'s Kabutocho
Custody & Proxy Department within the
Settlement & Clearing Division) 3,437 2.10%
The Norinchukin Bank 2,950 1.80%

(Note) The Common Shares held by Japan Trustee Services Bank,
Ltd. (the portion re-trusted with The Sumitomo Trust and
Banking Company for Oji Pension Trust Accounts) are the
Common Shares owned by Oji in a pension trust. These
Common Shares have been placed in trust as trust assets
and the voting rights represented by those shares will be
exercised pursuant to Oji's instructions.

(11) Trend of the consolidated business results in the recent fiscal
years
(millions of yen [JPY])
Year ended March 2005 March 2006
Sales 151,204 153,692
Operating income 12,908 6,932
Ordinary income 12,548 7,205
Net income 6,959 3,238
Total Assets 221,437 232,486
Net Assets 107,211 112,800

(12) Relationship with Oji
Equity Relationship: Oji holds 3.42% of the total issued Common
Shares of Hokuetsu.
(Note) The above percentage includes the 5,614,000 shares held by
Japan Trustee Services Bank, Ltd. (re-trusted with The
Sumitomo Trust and Banking Company for the Oji Pension
Trust Accounts) in addition to the 1045 shares held by
Oji.
Personal relationship: None.
Trade relationship: Manufacturing consignment of thermal paper
(sales volume of JPY 13,000,000 for the
fiscal year ending March 2006)

B. Class of Shares to be Purchased
Common stock

C. Tender Offer Period
From 02 August 2006 (Wednesday)
To 04 September 2006 (Monday)
(34 calendar days)

D. Tender Offer Price
JPY 800 per share. If the Placement and Business Alliance is
withdrawn during the Tender Offer period, absent special
circumstances that may adversely affect the terms of the Tender
Offer, the Tender Offer Price is scheduled to be raised to JPY 860
per share.

E. Basis of Tender Offer Price
The Tender Offer Price of JPY 800 per share is determined by taking
into account the impact of the Placement and the Business Alliance
on a price (JPY 860 per share) representing an approximately 34%
premium over the one-month average closing price of the Common
Shares on the Tokyo Stock Exchange (the "TSE") from 01 June 2006 to
30 June 2006, which predates Oji's submission of its Proposal for
Business Integration to Hokuetsu on 03 July 2006. The details of
the foregoing calculation are as follows:
(1) The Tender Offer Price Prior to the Announcement of the
Placement
The Tender Offer Price proposed prior to the announcement of
the Placement (the "Unadjusted Tender Offer Price") was JPY 860
per share, representing an approximately 34% premium over the
average closing price of the Common Shares on the TSE for a
one-month period (01 June 2006 to 30 June 2006) prior to the
date of the Proposal, and has been determined based on a
comprehensive analysis of various factors, such as historic
stock price movements, financial performance and forecast of
future earnings of Hokuetsu. The Unadjusted Tender Offer Price
also represents an approximately 32% premium over the average
closing price of the Common Shares on the TSE for a one-month
period (22 June 2006 to 21 July 2006) before the date of
Oji's press release entitled "Proposal of Business Integration
with Hokuetsu Paper," dated 23 July 2006. In addition, the
enterprise value of Hokuetsu calculated on the basis of the
Unadjusted Tender Offer Price amounts to 9.9 times Hokuetsu's
EBITDA of 20,594 million yen (for the fiscal year ending March
2006). The equity value of Hokuetsu calculated on the basis of
the Unadjusted Tender Offer Price amounts to 28.1 times the
estimated net income (for the fiscal year ending March 2007),
and 24.4 times the estimated adjusted net income (for the
fiscal year ending March 2007) (both on a consolidated basis).
(Note 1) EBITDA = operating profit + depreciation expense +
amortization of consolidated account adjustment. The
financial data is based on the Securities Report for
the 168th Term filed by Hokuetsu on 28 June 2006.
(Note 2) Adjusted net income = ordinary income x (1 -
effective tax rate)
(Note 3) The estimated net income (for the fiscal year ending
March 2007) and the estimated adjusted net income
(for the fiscal year ending March 2007) are based on
average analyst estimates in the Institutional
Brokers Estimate System (I/B/E/S) from 19 May 2006
(the day after Hokuetsu's press release in Japanese
entitled "Expansion of Coated Paper Production
Facilities," dated 18 May 2006) to 30 June 2006.
(2) Tender Offer Price after the Placement
According to Hokuetsu's press release in Japanese entitled
"Notice Relating to Third-Party Allotment, Change in Major
Shareholders, and Business Alliance with Major Shareholder,"
dated 21 July 2006, the Placement will involve a purchase of
50,000,000 Common Shares by Mitsubishi at a purchase price of
JPY 607 per share, for a total purchase price of JPY 30.35 billion
(the "Mitsubishi Purchase Price"). The equity value of
Hokuetsu based on the Unadjusted Tender Offer Price is
approximately JPY 140 billion. The Tender
Offer Price of JPY 800 per share is based on the sum of the
Mitsubishi Purchase Price and the Equity Value, or
approximately JPY 170 billion, divided by the total number of
issued Common Shares following the Placement.
(3) Premium of Tender Offer Price
The Tender Offer Price of JPY 800 per share represents an
approximately 24% premium over the average closing price of the
Common Shares on the TSE for 01 June 2006 to 30 June 2006 and
an approximately 23% premium over the average closing price of
the Common Shares on the TSE for the most recent one-month
period (22 June 2006 to 21 July 2006) before the date of
Oji's press release entitled "Proposal of Business Integration
with Hokuetsu Paper," dated 23 July 2006. The Tender Offer
Price of JPY 800 per share represents an approximately 26%
premium over the closing price of JPY 635 of the Common Shares
on the TSE as of 21 July 2006, one business day immediately
preceding the date of the press release relating to the
Proposal.

F. Number of Common Shares to be Acquired
100,818,239 shares
(Note 1) The number of Common Shares to be acquired (the "Tender
Offer Minimum") is calculated by subtracting 5,614,000
Common Shares held by Japan Trustee Services Bank, Ltd.
(the portion re-trusted with The Sumitomo Trust and
Banking Company for the Oji Pension Trust Accounts) from
50% of 212,864,478 Common Shares, which is derived by
adding 50,000,000 Common Shares to the total issued
Common Shares (164,052,054 Common Shares) as of 28 June
2006 as stated in the Securities Report for the 168th
Term filed by Hokuetsu on 28 June 2006 to reflect the
increase in issued Common Shares as a result of the
Placement (as described in Hokuetsu's press release in
Japanese entitled "Notice Relating to Third-Party
Allotment, Change in Major Shareholders, and the Business
Alliance with Major Shareholder," dated 21 July 2006)
and subtracting the 1,187,576 Common Shares that Hokuetsu
itself owns (as of 28 June 2006).
(Note 2) Oji will not acquire any Common Shares if the number of
Common Shares tendered is less than the Tender Offer
Minimum. Oji will acquire all of the Common Shares
tendered if the number of Common Shares tendered is not
less than the Tender Offer Minimum.
(Note 3) If Hokuetsu withdraws the Placement and the Business
Alliance, absent special circumstance that would
adversely impact the terms of the Tender Offer, Oji plans
to recalculate and lower the Tender Offer Minimum with
the assumption that the Placement will not be made. In
such case, the Tender Offer Minimum will be determined by
subtracting 5,614,000 Common Shares held by Japan Trustee
Services Bank, Ltd. (the portion re-trusted with The
Sumitomo Trust and Banking Company for the Oji Pension
Trust Accounts) from 50% of Hokuetsu's total issued
Common Shares minus the number of Common Shares that
Hokuetsu itself owns.

G. Change in the Number of Common Shares held by Oji as a Result of
Tender Offer
Before the Tender Offer: 5,615,045 shares (ownership percentage
of 3.45%)
After the Tender Offer: 106,433,284 shares (ownership percentage
of 50.0004%)
(Note 1) The number of the Common Shares held by Oji after the
Tender Offer is based on the Tender Offer Minimum being
equal to 100,818,239 Common Shares. Since Oji will
purchase all the tendered Common Shares when the number
of such tendered Common Shares exceeds the Tender Offer
Minimum, the ownership percentage of voting rights
represented by the Common Shares held by Oji after the
Tender Offer will be greater than 50.0004% and may be as
high as 100%.
(Note 2) The ownership percentage is calculated based on the
number of the voting rights held by all the shareholders
of Hokuetsu as stated in the Securities Report for the
168th Term filed by Hokuetsu on 28 June 2006 (including
the number of voting rights represented by Common Shares
constituting less than one unit and those held under a
cross-shareholding arrangement: 162,864). However, the
ownership percentage after the Tender Offer is calculated
by adding the number of voting rights represented by the
50,000,000 Common Shares proposed to be issued pursuant
to the Placement to the total number of voting rights
held by all the shareholders.

H. Public Notice of Commencement of Tender Offer
02 August 2006 (Wednesday)
(Note) Public announcement will be made electronically at
http://info.edinet.go.jp/EdiHtml/main.htm and this will be
separately announced in Nihon Keizai Shimbun. The public
announcement in English will be made available at
http://www.ojipaper.co.jp/english/ on 03 August 2006 (EDT).

I. Tender Offer Agent
Nomura Securities Co., Ltd.

J. Funds Required for Tender Offer
JPY 80,654,591,200
(Note) The above amount is calculated by multiplying the Tender
Offer Minimum (100,818,239 Common Shares) and the Tender
Offer Price. Because all of the tendered Common Shares
will be purchased if the total number of tendered Common
Shares exceeds the Tender Offer Minimum, the estimated
amount of funds required for the Tender Offer will be as
much as approximately JPY 165,800 million.

K. Proposed Date of Commencement of Settlement of Tender Offer
08 September 2006 (Friday)

4. Agreement with Hokuetsu Regarding Tender Offer

Hokuetsu announced in its press releases in Japanese entitled "Regarding Press Release by Oji Paper Co., Ltd" dated 24 July 2006 and "Certain Media Reports Regarding Tender Offer" dated 29 July 2006 that it has no intention to withdraw the Placement and the Business Alliance, and as of 01 August 2006, Oji does not have Hokuetsu's endorsement for the Tender Offer and the Business Integration.

Oji will continue its efforts to obtain the understanding and support of Hokuetsu to consummate the Business Integration.

5. After the Tender Offer

Oji intends to achieve a complete business integration with Hokuetsu. If Oji is not able to acquire all the Common Shares (excluding the Common Shares, etc. held by Hokuetsu) through the Tender Offer, Oji will acquire any remaining Common Shares following the Tender Offer through a second step transaction, such as a statutory share exchange. The Common Shares are listed on the First Section of each of the TSE and Osaka Securities Exchange (the "OSE"), and pursuant to the listing rules of the TSE and the OSE, they will be delisted if Oji acquires all the Common Shares. Because the Tender Offer does not set a maximum number of Common Shares to be acquired, if Mitsubishi becomes a large shareholder by holding 24.44% (based on voting rights) upon the consummation of the Placement, the Common Shares may also be delisted, depending on the outcome of the Tender Offer.

Provided that there will be no new issuance of Common Shares other than that by the Placement or any other analogous event, Oji plans to calculate the share exchange ratio assuming that each Common Share has a value equal to the price per share offered in the Tender Offer. The same pricing approach will also be used if another acquisition method is used.

Oji will consider the final structure of the new group by considering Hokuetsu's corporate culture and its value as an integrated organization, taking into account the opinions of the management of Hokuetsu.

Oji will report the effect that the Tender Offer may have on its consolidated business results for the fiscal year ending March 2007 after the completion of the Tender Offer.

6. Other

On 19 July 2006, Hokuetsu adopted a takeover defense plan. However, Oji made the Proposal to Hokuetsu on 03 July 2006, which predates the announcement of the Defense Plan. Further, Oji has been providing relevant information and sufficient time for Hokuetsu's management to consider the Proposal, including promptly responding to verbal and written questions from Hokuetsu regarding the Proposal. These questions have not been presented to Oji pursuant to the process provided for in the Defense Plan. As such, the Business Integration described in the Proposal does not fall within the scope of the process required by the Defense Plan, and Oji believes that there is no legal basis for Oji to be required to comply with the Defense Plan, which was unilaterally adopted by Hokuetsu's board of directors.

Except as otherwise indicated, all references as to time and date are to those in Japan.

Source: Oji Paper Co., Ltd.