PROPOSAL 2

APPROVAL OF THE ORCHIDS PAPER PRODUCTS COMPANY 2014 STOCK INCENTIVE PLAN

        On February 12, 2014 the Board of Directors approved, subject to stockholder approval, the Orchids Paper Products Company 2014 Stock Incentive Plan (the " 2014 Plan "). The 2014 Plan proposes to allocate 400,000 shares of Company Common Stock in the aggregate for issuance under the plan, which includes 21,416 shares rolled over from the 2005 Plan (defined below). The Company's adoption of the 2014 Plan is contingent upon the receipt of stockholder approval of the 2014 Plan and does not include the 400,000 shares under the Schoen Option described in Proposal 1.

        Options covering 1,181,750 shares of Common Stock have been awarded under the 2005 Plan at exercise prices ranging from $5.18 to $31.125 per share. As of February 10, 2014, an aggregate of 751,834 shares of Common Stock were issued upon exercise of such options, and 113,666 shares were forfeited or expired. As of the same date, options covering 316,250 shares of Common Stock remain outstanding under the 2005 Plan with exercise prices ranging from $5.18 to $31.125 per share, 142,000 of which remain unvested. In addition, 8,000 shares of restricted stock have been issued and remain unvested. See the tables below for additional details.

Background

        The Company currently has one equity compensation plan in place that permits the Company to grant various equity based awards, the Orchids Paper Products Company Stock Incentive Plan, which was approved by our Board of Directors and stockholders in April 2005 (the " 2005 Plan "). The 2005 Plan was established to provide the Company with a means to assist in recruiting, retaining and rewarding certain employees, directors and consultants and to motivate such individuals to exert their best efforts on our behalf by providing incentives through the granting of awards. Initially, 697,500 shares of Company Common Stock were allocated to satisfy awards under the 2005 Plan. In May 2008, the Board of Directors and our stockholders approved an amendment to the 2005 Plan to increase the number of shares allocated to the 2005 Plan by 200,000 shares, from 697,500 to 897,500 shares of Company Common Stock. In 2011, the Board of Directors and our stockholders again approved an amendment to the 2005 Plan to increase the number of shares allocated to the 2005 Plan by 200,000 shares, from 897,500 shares to 1,097,500 shares of Company Common Stock. As of February 10, 2014, only 21,416 shares remain available for future awards under the 2005 Plan, or approximately 2% of the shares reserved. Additionally, by its terms, the 2005 Plan will no longer be available for future grants as of April 14, 2015.

        A total of 400,000 shares of Common Stock will be allocated to the 2014 Plan. However, the Company is seeking stockholder approval at this time for the allocation of 378,584 shares of Company Common Stock, because 21,416 shares will be rolled over from the shares previously approved by stockholders for the 2005 Plan.

        The Board of Directors is seeking stockholder approval to adopt the 2014 Plan because: (i) our existing 2005 Plan has only 21,416 shares available for future awards; (ii) next year, in April 2015, the 2005 Plan will no longer be available for incentive grants; (iii) our Board of Directors desires the continued flexibility to grant awards that are comparable to awards that our peer group companies have the ability to grant; (iv) our Board of Directors desires the ability to continue to issue options which will qualify as incentive options pursuant to the Internal Revenue Code of 1986, as amended (the " Code "); and (v) compliance with Rule 711 of the NYSE MKT Rules, requires stockholder approval of equity compensation plans in which officers, directors, employees, or consultants may participate.

        The 2014 Plan is intended to allow the Company to continue to provide incentives to officers, employees, consultants and advisers (including members of the Board of Directors), who contribute to the success of the Company by offering them the opportunity to acquire an ownership interest in it. The Board of Directors believes that the 2014 Plan also will help to align the interests of its management, directors, employees and other personnel with the interests of our stockholders. Our Board of Directors and the Compensation Committee believe that approving the 2014 Plan is in the best interests of the Company and

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our shareholders because it will permit us to increase the shares available and continue to use such shares to attract and retain key employees by providing them with appropriate equity incentives and allow us to avoid having to undergo the costs of putting in place a new plan in 2015 upon the expiration of the 2005 Plan.

        If the adoption of the 2014 Plan is approved by the stockholders, any equity awards previously granted under the 2005 Plan shall continue in full force and effect under the terms of the 2005 Plan and shall not be changed nor modified. Subject to the approval of the 2014 Plan by our stockholders, no further grants shall be made under the 2005 Plan and the remaining 21,416 shares currently available under the 2005 Plan shall be rolled into and allocated to the 2014 Plan to satisfy future equity awards which will be granted under the 2014 Plan.

        If the stockholders do not approve the adoption of the 2014 Plan, the Company may be unable to provide adequate stock-based incentives to new or existing officers, directors or employees of the Company.

Summary Description of the 2014 Plan

        The following is a summary of the 2014 Plan. This summary is qualified in its entirety by reference to the complete text of the 2014 Plan, a copy of which is attached hereto as Appendix B and incorporated by reference. You are urged to read the full text of the 2014 Plan in its entirety.

        Purpose.     The purpose of the 2014 Plan is to provide us with a means to assist in recruiting, retaining and rewarding certain employees, directors and consultants and to motivate such individuals to exert their best efforts on our behalf by providing incentives through the granting of awards. By granting awards to such individuals, we expect that the interests of the recipients will be better aligned with our interests.

        Stock Subject to the 2014 Plan.     Currently a total of 400,000 shares of Common Stock have been allocated under the 2014 Plan, subject to stockholder approval (these shares are in addition to the 400,000 shares under the Schoen Option described under Proposal 1). The total number of shares of Stock allocated under the 2014 Plan includes those shares of stock available and now rolled over from the 2005 Plan in the amount of 21,416 shares. Thus, 378,584 shares of Company Common Stock have been newly allocated under the 2014 Plan.

        The Company may use shares held in treasury in lieu of authorized but unissued shares. If any award expires or terminates, the shares subject to such award shall again be available for purposes of the 2014 Plan. Any shares used by the participant as payment to satisfy a purchase price related to an award, and any shares withheld by the Company to satisfy an applicable tax-withholding obligation, shall again be available for purposes of the 2014 Plan.

        Administration of the 2014 Plan.     The 2014 Plan is administered by the Compensation Committee, all of the members of which are independent as required by law. The Compensation Committee has sole discretion over determining individuals eligible to participate in the 2014 Plan and the time or times at which awards will be granted and the number of shares, if applicable, which will be granted under an award. Subject to certain limitations, the Compensation Committee's power and authority includes, but is not limited to, the ability to interpret the 2014 Plan, to establish rules and regulations for carrying out the 2014 Plan and to amend or rescind any rules previously established, to determine the terms and provisions of the award agreements and to make all other determinations necessary or advisable for the administration of the 2014 Plan.

        Eligible Persons.     Any of our employees and directors, as well as consultants to us, who are selected by the Compensation Committee are eligible to receive awards. The Compensation Committee will consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective awards, provided that incentive stock options may only be granted to employees.

        Grant of Awards.     The types of awards that may be granted under the 2014 Plan are stock options (either incentive stock options or non-qualified stock options), stock appreciation rights, performance-

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based awards, as well as other stock-based awards and cash-based awards. Awards are evidenced by an agreement and an award recipient has no voting rights as a stockholder with respect to any securities covered by an award until the date the recipient becomes a holder of record of the Company's Common Stock.

        The Compensation Committee shall designate the purchase price for each share of stock subject to a non-qualified stock option or incentive stock option under the 2014 Plan, provided that such exercise price shall not be less than 100% of the fair market value of the stock subject to an a non-qualified stock option or incentive stock option on the date the option is granted. With respect to a participant who owns, directly or indirectly, more than 10% of the total combined voting power of all classes of the stock of the Company, or a parent or subsidiary of the Company, the exercise price of the stock subject to an incentive stock option shall be at least 110% of the fair market value of such stock on the incentive stock option's grant date.

        Stock appreciation rights granted under the 2014 Plan are subject to the same terms and restrictions as the option grants and may be granted independent of, or in connection with, the grant of options. The Compensation Committee determines the exercise price of stock appreciation rights subject to the limitation that such exercise price shall not be less than 100% of fair market value on the date the stock appreciation right is granted. A stock appreciation right granted independent of an option entitles the participant to payment in an amount equal to the excess of the fair market value of a share of the Company's Common Stock on the exercise date over the exercise price per share, times the number of stock appreciation rights exercised. A stock appreciation right granted in connection with an option entitles the participant to surrender an unexercised option and to receive in exchange an amount equal to the excess of the fair market value of a share of the Company's Common Stock over the exercise price per share for the option, times the number of shares covered by the option which is surrendered. Fair market value is determined in the same manner as it is determined for options.

        The Compensation Committee may also grant awards of stock, restricted stock and other awards valued in whole or in part by reference to the fair market value of the Company's Common Stock. These stock-based awards, in the discretion of the Compensation Committee, may be, among other things, subject to completion of a specified period of service, the occurrence of an event or the attainment of performance objectives. Additionally, the Compensation Committee may grant awards of cash, in values to be determined by the Compensation Committee. If any awards are in excess of $1,000,000 such that Section 162(m) of the Internal Revenue Code applies, the Compensation Committee may, in its discretion, alter its compensation practices to ensure that compensation deductions are permitted.

        Awards granted under the 2014 Plan are generally not transferable by the participant except by will or the laws of descent and distribution, and each award is exercisable, during the lifetime of the participant, only by the participant or his or her guardian or legal representative, unless otherwise permitted by the Compensation Committee.

Awards Granted .

        No awards have been granted under the 2014 Plan.

        As of February 10, 2014, only 21,416 shares remain available for future awards under the 2005 Plan, or approximately 2% of the shares reserved. The table below sets forth the number of shares subject to awards which have been granted through February 10, 2014 under the 2005 Plan to (i) our named executive officers, (ii) our named executive officers as a group, (iii) all current directors who are not named executive

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officers, (iv) all employees, including officers who are not named executive officers, as a group; and (v) former directors, as a group:

        As of February 10, 2014, there were options to purchase 316,250 shares of Common Stock outstanding under the 2005 Plan at exercise prices ranging from $5.18 to $31.125 per share and 8,000 shares of Common Stock issued and unvested under the 2005 Plan pursuant to restricted stock grants. The weighted average exercise price of the outstanding options was $22.95. The following table sets forth additional details regarding the awards that were made under the 2005 Plan:

        Options granted under the 2014 Plan will vest as provided by the Compensation Committee at the time of the grant. The Compensation Committee may provide for accelerated vesting or termination in exchange for cash of any outstanding awards or the issuance of substitute awards upon consummation of a change in control, as defined in the 2014 Plan. The currently outstanding employee options vest (i) 20% on the date of grant and then ratably at 20% per year over the following four years, (ii) 33 ¹ / 3 % on the date of grant and then ratably at 33 ¹ / 3 % per year over the following two years, or (iii) based on when the closing price of the Company's Common Stock reaches certain levels as specified in the option agreement. Options granted to members of the Board of Directors vested upon grant.

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        Amendment.     The 2014 Plan may be amended, altered, suspended or terminated by the administrator at any time. The Company may not alter the rights and obligations under any award granted before amendment of the 2014 Plan without the consent of the affected participant. Unless terminated sooner, the 2014 Plan will terminate automatically in February 2024.

Federal Income Tax Consequences of Awards

        The following is a summary of the U.S. federal income tax consequences that generally will arise with respect to awards granted under the 2014 Plan and with respect to the sale of Common Stock acquired under the 2014 Plan. The federal tax laws may change and the federal, state and local tax consequences for any participant will depend upon his or her individual circumstances. The tax consequences for any particular individual may be different.

        Incentive Stock Options.     Some options may constitute "incentive stock options" within the meaning of Section 422 of the Code. If we grant an incentive stock option, the recipient is not required to recognize income upon the grant of the incentive stock option, and the Company will not be allowed to take a deduction. Similarly, when a recipient exercises any incentive stock options, provided he or she has not ceased to be an employee of the Company and all affiliates for more than three months before the date of exercise due to a reason other than the employee's death or disability, such employee will not be required to recognize income, and the Company will not be allowed to take a deduction. For purposes of the alternative minimum tax, however, the amount by which the aggregate fair market value of Common Stock acquired on exercise of an incentive stock option exceeds the exercise price of that option generally will be an adjustment included in alternative minimum taxable income for the year in which the incentive stock option is exercised. The Code imposes an alternative minimum tax on a taxpayer whose tentative minimum tax, as defined in Section 55(b)(1) of the Code, exceeds the taxpayer's regular tax.

        Additional tax consequences will depend upon how long the recipient holds the shares of Common Stock received after exercising the incentive stock options. If the shares are held for more than two years from the date of grant and one year from the date of exercise of the option, upon disposition of the shares, any gain or loss upon the subsequent sale of the Common Stock will be taxed as a long-term capital gain or loss. If the recipient disposes of shares acquired upon exercise of an incentive stock option which shares were held for two years or less from the date of grant or one year or less from the date of exercise (" Disqualifying Disposition "), the recipient generally will recognize ordinary income in the year of the disposition.

        To the extent that a recipient recognizes ordinary income, the Company is allowed to take a deduction. In addition, a recipient must recognize as short-term or long-term capital gain, depending on whether the holding period for the shares exceeds one year, any amount that is realized upon disposition of those shares which exceeds the fair market value of those shares on the date of exercise of the option.

        Non-Qualified Stock Options.     If a recipient receives a non-qualified stock option, he or she will not recognize income at the time of the grant of the stock option, nor will the Company be entitled to a deduction. However, such person will recognize ordinary income upon the exercise of the non-qualified stock option. The amount of ordinary income recognized equals the difference between (a) the fair market value of the stock on the date of exercise and (b) the amount paid for the stock. The Company will be entitled to a deduction in the same amount. The ordinary income recognized will be subject to applicable tax withholding by the Company. When the shares are sold, any difference between the sales price and the basis (i.e., the amount paid for the stock plus the ordinary income recognized) will be treated as a short-term or long-term capital gain or loss, depending on the holding period of the shares.

        Performance-Based Awards/Stock Appreciation Rights.     An award recipient generally will not recognize taxable income upon the grant of performance-based awards or stock appreciation rights. Instead, such person will recognize as ordinary income, and the Company will have as a corresponding deduction, for any cash delivered and the fair market value of any Common Stock delivered in payment of an amount due

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under the performance award or stock appreciation right. The ordinary income recognized will be subject to applicable tax withholding.

        Upon selling any Common Stock received by a recipient in payment of an amount due under a performance award or stock appreciation right, such recipient generally will recognize a short- or long-term capital gain or loss in an amount equal to the difference between the sale price of the Common Stock and the tax basis in the Common Stock, depending on the holding period for the shares.

        Other Stock-Based Awards and Cash-Based Awards.     The tax consequences associated with any other stock-based award or cash-based award granted under the 2014 Plan will vary depending on the specific terms of the award, including whether the award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions or restrictions on transfer, the nature of the property under the award, the applicable holding period and the recipient's tax basis.

        Income Tax Rates on Capital Gain and Ordinary Income.     Under current tax law, short-term capital gain and ordinary income will be taxable at a maximum federal rate of 39.6%. Phaseouts of personal exemptions and reductions of allowable itemized deductions at higher levels of income may result in slightly higher effective tax rates. Ordinary compensation income generally will also be subject to the Medicare tax and, under certain circumstances, a social security tax. On the other hand, the relevant long-term capital gain will generally be taxable at a maximum federal rate of 15%.

        Effect of Section 162(m) of the Code.     Pursuant to Section 162(m) of the Code, we may not deduct compensation of more than $1,000,000 that is paid in a taxable year to an individual who, on the last day of the taxable year, is our chief executive officer or among one of our three other highest compensated officers for that year other than the chief financial officer. The deduction limit, however, does not apply to certain types of compensation, including qualified performance-based compensation. Compensation attributable to incentive stock options and non-qualified stock options granted under the 2014 Plan could be treated as qualified performance-based compensation and therefore not be subject to the deduction limit. The Compensation Committee may structure certain performance-based awards utilizing the performance criteria set forth in the 2014 Plan so that payments under such awards may be treated as qualified performance-based compensation.

Use of New Plan Benefits

        The future benefits or amounts that would be received under the 2014 Plan by executive officers and other employees are discretionary and are therefore not determinable at this time. It is anticipated that the 400,000 shares will be granted to executive officers, employees and directors consistent with past practice. This has included awards to executive officers and to directors upon their appointments to such positions, as well as annual awards to directors.

        Proposal 2 to approve the 2014 Plan requires the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the proposal for approval.

The Board of Directors believes that the approval of the 2014 Plan is in the best interest of the Company and its stockholders and therefore recommends that stockholders vote "FOR" Proposal 2.

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