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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM            TO
COMMISSION FILE NUMBER: 001-33776
ABITIBIBOWATER INC.
(Exact name of registrant as specified in its charter)
         
Delaware   98-0526415
         
(State or other jurisdiction of incorporation or organization)   (I.R.S. employer identification number)    
1155 Metcalfe Street, Suite 800; Montreal, Quebec; Canada H3B 5H2
 
(Address of principal executive offices) (Zip Code)
(514) 875-2160
 
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
         
    New York Stock Exchange    
Common Stock, par value $.001 per share   Toronto Stock Exchange    
(Title of class)   (Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o   No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer    o   Accelerated filer    o             Non-accelerated filer    o
(Do not check if a smaller reporting company)
  Smaller reporting company    þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o   No þ
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2010) was approximately $6 million. For purposes of the foregoing calculation only, all directors, executive officers and 5% beneficial owners have been deemed affiliates.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed pursuant to Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ   No o
On December 9, 2010, the predecessor registrant’s common stock, par value $1.00 per share, was canceled and the successor registrant issued 97,134,954 shares of common stock, par value $0.001 per share. As of February 28, 2011, there were 97,134,954 shares of AbitibiBowater Inc. common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2010 are incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.
 
 


 

     
 
TABLE OF CONTENTS
             
 
           
           
 
           
  Business     1  
 
           
  Risk Factors     13  
 
           
  Unresolved Staff Comments     22  
 
           
  Properties     22  
 
           
  Legal Proceedings     23  
 
           
  (Removed and Reserved)     24  
 
           
           
 
           
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     25  
 
           
  Selected Financial Data     26  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     28  
 
           
  Quantitative and Qualitative Disclosures About Market Risk     60  
 
           
  Financial Statements and Supplementary Data     61  
 
           
  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     141  
 
           
  Controls and Procedures     141  
 
           
  Other Information     141  
 
           
           
 
           
  Directors, Executive Officers and Corporate Governance     142  
 
           
  Executive Compensation     142  
 
           
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     142  
 
           
  Certain Relationships and Related Transactions, and Director Independence     142  
 
           
  Principal Accounting Fees and Services     142  
 
           
           
 
           
  Exhibits, Financial Statement Schedules     143  
 
           
    147  
  EX-4.4
  EX-10.2
  EX-10.4
  EX-10.5
  EX-10.6
  EX-10.11
  EX-10.12
  EX-10.13
  EX-10.16
  EX-10.17
  EX-10.18
  EX-10.19
  EX-10.20
  EX-10.21
  EX-10.23
  EX-10.25
  EX-10.26
  EX-10.27
  EX-10.28
  EX-10.29
  EX-10.31
  EX-10.32
  EX-10.33
  EX-12.1
  EX-21.1
  EX-23.1
  EX-24.1
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2
 

 


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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF
THIRD-PARTY DATA
Statements in this Annual Report on Form 10-K (“Form 10-K”) that are not reported financial results or other historical information of AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: restructuring efforts and the reorganization process in connection with our Creditor Protection Proceedings (as defined below); efforts to continue to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative expenses; business outlook; assessment of market conditions; liquidity outlook, prospects, growth, strategies and the industry in which we operate; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “anticipate,” “attempt,” “project” and other terms with similar meaning indicating possible future events or potential impact on our business or AbitibiBowater’s shareholders.
The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management’s current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and uncertainties that could cause our actual future financial condition, results of operations and performance to differ materially from those expressed or implied in this Form 10-K include those set forth under the heading “Risk Factors” in Part I, Item 1A.
All forward-looking statements in this Form 10-K are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the United States Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities. We disclaim any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
Market and Industry Data
Information about industry or general economic conditions contained in this Form 10-K is derived from third-party sources and certain trade publications (“Third-Party Data”) that we believe are widely accepted and accurate; however, we have not independently verified this information and cannot provide assurances of its accuracy.
PART I
ITEM 1. BUSINESS
We are a leading global forest products company with a significant regional and global market presence in newsprint, coated mechanical and specialty papers, market pulp and wood products. We are also one of the largest recyclers of newspapers and magazines in North America. As of December 31, 2010, excluding facilities we have permanently closed as of such date, we owned or operated 18 pulp and paper manufacturing facilities located in Canada, the United States and South Korea and 24 wood products facilities located in Canada.
AbitibiBowater Inc. is a Delaware corporation incorporated on January 25, 2007. On October 29, 2007, Abitibi-Consolidated Inc. (“Abitibi”) and Bowater Incorporated (“Bowater”) combined in a merger of equals (the “Combination”) with each becoming a subsidiary of AbitibiBowater Inc. Bowater was deemed to be the “acquirer” of Abitibi for accounting purposes and AbitibiBowater Inc. was deemed to be the successor to Bowater for purposes of U.S. securities laws and financial reporting. Therefore, the financial information included in this Form 10-K reflects the results of operations and financial position of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for the periods beginning on or after October 29, 2007.
Creditor Protection Proceedings
Emergence from Creditor Protection Proceedings
AbitibiBowater Inc. and all but one of its debtor affiliates (as discussed below) successfully emerged from Creditor Protection Proceedings under Chapter 11 of the United States Bankruptcy Code, as amended (“Chapter 11”) and the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”), as applicable on December 9, 2010 (the “Emergence Date”). The following is a brief history of the Creditor Protection Proceedings.

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On April 16, 2009 and December 21, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions (collectively, the “Chapter 11 Cases”) in the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”) for relief under the provisions of Chapter 11. In addition, on April 17, 2009, certain of AbitibiBowater Inc.’s Canadian subsidiaries sought creditor protection (the “CCAA Proceedings”) under the CCAA with the Superior Court of Quebec in Canada (the “Canadian Court”). On April 17, 2009, Abitibi and its wholly-owned subsidiary, Abitibi-Consolidated Company of Canada (“ACCC”), each filed a voluntary petition for provisional and final relief (the “Chapter 15 Cases”) in the U.S. Court under the provisions of Chapter 15 of the United States Bankruptcy Code, as amended, to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings and also on that date, AbitibiBowater Inc. and certain of its subsidiaries in the Chapter 11 Cases obtained orders under Section 18.6 of the CCAA in respect thereof (the “18.6 Proceedings”). The Chapter 11 Cases, the Chapter 15 Cases, the CCAA Proceedings and the 18.6 Proceedings are collectively referred to as the “Creditor Protection Proceedings.” The entities that were subject to the Creditor Protection Proceedings are referred to herein as the “Debtors.” The U.S. Court and the Canadian Court are collectively referred to as the “Courts.” Our wholly-owned subsidiary that operates our Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries operated outside of the Creditor Protection Proceedings.
On September 14, 2010 and September 21, 2010, the creditors under the CCAA Proceedings and the Chapter 11 Cases, respectively, with one exception, voted in the requisite numbers to approve the respective Plan of Reorganization. Creditors of Bowater Canada Finance Corporation (“BCFC”), a wholly-owned subsidiary of Bowater, did not vote in the requisite numbers to approve the Plans of Reorganization (as defined below). Accordingly, we did not seek approval of the Plans of Reorganization from the Courts with respect to BCFC. See Item 3, “Legal Proceedings – BCFC Bankruptcy and Insolvency Act Filing,” for information regarding BCFC’s Bankruptcy and Insolvency Act filing on December 31, 2010. On September 23, 2010, the CCAA Plan of Reorganization and Compromise (the “CCAA Reorganization Plan”) was sanctioned by the Canadian Court, on November 23, 2010, the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Reorganization Plan” and, together with the CCAA Reorganization Plan, the “Plans of Reorganization”) was confirmed by the U.S. Court and on December 9, 2010, the Plans of Reorganization became effective.
Upon implementation of the Plans of Reorganization, the Debtors were reorganized through the consummation of several transactions pursuant to which, among other things:
    each of the Debtors’ operations were continued in substantially the same form;
 
    all allowed pre-petition and post-petition secured claims, administrative expense claims and priority claims were paid in full in cash, including accrued interest, if applicable, and all pre-petition and post-petition secured credit facilities were terminated;
 
    all outstanding receivable interests sold under the Abitibi and Donohue Corp. (“Donohue,” an indirect, wholly-owned subsidiary of AbitibiBowater Inc.) accounts receivable securitization program were repurchased in cash for a price equal to the par amount thereof and the program was terminated;
 
    holders of allowed claims arising from the Debtors’ pre-petition unsecured indebtedness received their pro rata share of common stock issued by us on account of their claims;
 
    holders of pre-petition unsecured claims with individual claim amounts of $5,000 or less (or reduced to that amount) were paid in cash in an amount equal to 50% of their claim amount, but under certain circumstances, these claim holders were treated instead like all other holders of claims arising from pre-petition unsecured liabilities and received shares of common stock issued by us on account of their claims;
 
    all equity interests in the Predecessor Company (as defined below) existing immediately prior to the Emergence Date, including, among other things, all of our common stock issued and outstanding, were discharged, canceled, released and extinguished;
 
    AbitibiBowater Inc. issued an aggregate of 97,134,954 shares of Successor Company (as defined below) common stock, par value $0.001 per share, for the benefit of unsecured creditors of the Debtors in the Creditor Protection Proceedings, and distributed 73,752,881 of those shares in December 2010 to the holders of unsecured claims as of the applicable distribution record date on account of allowed unsecured creditor claims;
 
    various equity incentive and other employee benefit plans came into effect, including the AbitibiBowater Inc. 2010 Equity Incentive Plan, pursuant to which 8.5% of common stock on a fully diluted basis (or 9,020,960 shares) was

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      reserved for issuance to eligible persons, of which awards representing not more than 4% (or 4,245,158 shares) were to be made approximately 30 days after the Emergence Date;
 
    the Debtors’ obligations to fund the prior service costs related to their pension and other postretirement (“OPEB”) benefit plans were reinstated prospectively;
 
    the Debtors’ assets were retained by, and were reinvested in, the Successor Company;
 
    AbitibiBowater Inc. assumed by merger the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of 10.25% senior secured notes due 2018, as further discussed in Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“Item 7”), under “Liquidity and Capital Resources”; and
 
    we entered into the ABL Credit Facility, as defined and further discussed in Item 7 under “Liquidity and Capital Resources.”
From the 97,134,954 shares of Successor Company common stock issued for claims in the Creditor Protection Proceedings, we established a reserve of 23,382,073 shares for claims that remained in dispute as of the Emergence Date, from which we will make supplemental interim distributions to unsecured creditors as and if disputed claims are allowed or accepted. We continue to work to resolve these claims, including the identification of claims that we believe should be disallowed because they are duplicative, were later amended or superseded, are without merit, are overstated or for other reasons. Although we continue to make progress, in light of the substantial number and amount of claims filed and remaining unresolved claims, the claims resolution process may take considerable time to complete. The applicable Court will determine the resolution of claims that we are unable to resolve in negotiations with the affected parties. We may be required to settle certain disputed claims in cash under certain specific circumstances. As such, included in “Accounts payable and accrued liabilities” in our Consolidated Balance Sheets (as defined below) as of December 31, 2010 is a liability of approximately $35 million for the fair value of the estimated cash settlement of such claims. To the extent there are shares remaining after all disputed claims have been resolved, these shares will be reallocated ratably among unsecured creditors with allowed claims in the Creditor Protection Proceedings pursuant to the Plans of Reorganization.
The common stock of the Successor Company began trading under the symbol “ABH” on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) on December 10, 2010.
Events prior to emergence from Creditor Protection Proceedings
We initiated the Creditor Protection Proceedings to pursue reorganization efforts under the protection of Chapter 11 and the CCAA, as applicable. During the Creditor Protection Proceedings, we remained in possession of our assets and properties and operated our business and managed our properties as “debtors in possession” under the jurisdiction of the Courts and in accordance with the applicable provisions of Chapter 11 and the CCAA. In general, the Debtors were authorized to operate as ongoing businesses, but could not engage in transactions outside the ordinary course of business without the approval of the applicable Court(s) or Ernst & Young Inc. (which, under the terms of a Canadian Court order, served as the court-appointed monitor under the CCAA Proceedings (the “Monitor”)), as applicable.
Subject to certain exceptions under Chapter 11 and the CCAA, our filings and orders of the Canadian Court automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us and our property to recover, collect or secure a claim arising prior to the filing of the Creditor Protection Proceedings. Chapter 11 and orders of the Canadian Court gave us the ability to reject certain contracts, subject to Court oversight. We engaged in a review of our various agreements and rejected and repudiated a number of unfavorable agreements and leases, including leases of real estate and equipment. The creditors affected by these actions were given the opportunity to file proofs of claims in the Creditor Protection Proceedings.
The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations was stayed as a result of the commencement of the Creditor Protection Proceedings. See Note 17, “Liquidity and Debt,” to our consolidated financial statements and related notes (“Consolidated Financial Statements”) appearing in Item 8 of this Form 10-K, “Financial Statements and Supplementary Data” (“Item 8”), for additional information.
The NYSE and the TSX delisted the Predecessor Company’s common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. During the Creditor Protection Proceedings, the Predecessor Company’s common stock traded in the over-the-counter market and was quoted on the Pink Sheets Quotation Service (the “Pink Sheets”) and on the OTC

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Bulletin Board under the symbol “ABWTQ.” In addition, the TSX delisted the exchangeable shares of our indirect wholly-owned subsidiary, AbitibiBowater Canada Inc., at the close of market on May 15, 2009.
Basis of presentation
During Creditor Protection Proceedings
Effective upon the commencement of the Creditor Protection Proceedings and through the Convenience Date, as defined below, we applied the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“FASB ASC 852”), in preparing our consolidated financial statements. The guidance in FASB ASC 852 does not change the manner in which financial statements are prepared. However, it requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, during the Creditor Protection Proceedings, we: (i) recorded certain expenses, charges and credits incurred or realized that were directly associated with or resulting from the reorganization and restructuring of the business in “Reorganization items, net” in our Consolidated Statements of Operations included in our Consolidated Financial Statements (“Consolidated Statements of Operations”), (ii) classified pre-petition obligations that could be impaired by the reorganization process in our Consolidated Balance Sheets included in our Consolidated Financial Statements (“Consolidated Balance Sheets”) as “Liabilities subject to compromise” and (iii) ceased recording interest expense on certain of our pre-petition debt obligations. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures,” and Note 17, “Liquidity and Debt,” to our Consolidated Financial Statements.
Upon Emergence from Creditor Protection Proceedings
In accordance with FASB ASC 852, fresh start accounting (“fresh start accounting”) was required upon our emergence from the Creditor Protection Proceedings because: (i) the reorganization value of the assets of the Predecessor Company immediately prior to the approval of the Plans of Reorganization was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the Predecessor Company’s existing voting shares immediately prior to the approval of the Plans of Reorganization received less than 50% of the voting shares of the common stock of the Successor Company. FASB ASC 852 requires that fresh start accounting be applied as of the date the Plans of Reorganization were approved, or as of a later date when all material conditions precedent to effectiveness of the Plans of Reorganization are resolved, which occurred on December 9, 2010. We elected to apply fresh start accounting effective December 31, 2010, to coincide with the timing of our normal December accounting period close. We evaluated the events between December 9, 2010 and December 31, 2010 and concluded that the use of an accounting convenience date of December 31, 2010 (the “Convenience Date”) did not have a material impact on our results of operations or financial position. As such, the application of fresh start accounting was reflected in our Consolidated Balance Sheet as of December 31, 2010 and fresh start accounting adjustments related thereto were included in our Consolidated Statements of Operations for the year ended December 31, 2010.
The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to December 31, 2010 will not be comparable to our consolidated financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. References to “Successor” or “Successor Company” refer to the Company on or after December 31, 2010, after giving effect to the implementation of the Plans of Reorganization and the application of fresh start accounting. References to “Predecessor” or “Predecessor Company” refer to the Company prior to December 31, 2010. Additionally, references to periods on or after December 31, 2010 refer to the Successor and references to periods prior to December 31, 2010 refer to the Predecessor.
For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting,” to our Consolidated Financial Statements.
Going concern
Our Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty involved in the Creditor Protection Proceedings raised substantial doubt about our ability to continue as a going concern. During the Creditor Protection Proceedings, our ability to continue as a going concern was dependent on market conditions and our ability to obtain the approval of the Plans of Reorganization from affected creditors and the Courts, successfully implement the Plans of Reorganization, improve profitability and consummate our exit financing to replace our debtor in possession financing.

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Management believes that the implementation of the Plans of Reorganization and our emergence from the Creditor Protection Proceedings on the Emergence Date have resolved the substantial doubt and the related uncertainty about our application of the going concern basis of accounting.
Bridgewater Administration
On February 2, 2010, Bridgewater Paper Company Limited (“BPCL”), a subsidiary of AbitibiBowater Inc., filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended (the “BPCL Administration”). BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. In May 2010, the joint administrators announced the sale of the Bridgewater paper mill and all related machinery and equipment. As a result of the filing for administration, we lost control over and the ability to influence BPCL’s operations. As a result, effective as of the date of the BPCL Administration filing, the financial position, results of operations and cash flows of BPCL are no longer consolidated in our Consolidated Financial Statements. We are now accounting for BPCL using the cost method of accounting. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements.
Newfoundland and Labrador Expropriation
On August 24, 2010, we reached a settlement agreement with the government of Canada, which was subsequently approved by the Courts, concerning the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government pursuant to the Abitibi-Consolidated Rights and Assets Act , S.N.L. 2008, c.A-1.01 (“Bill 75”). Under the agreement, the government of Canada agreed to pay AbiBow Canada Inc. (“AbiBow Canada,” our post-emergence Canadian operating subsidiary) Cdn$130 million ($130 million) following our emergence from the Creditor Protection Proceedings. On February 25, 2010, we had filed a Notice of Arbitration against the government of Canada under the North American Free Trade Agreement (“NAFTA”), asserting that the expropriation was arbitrary, discriminatory and illegal. As part of the settlement agreement, we agreed to waive our legal actions and claims against the government of Canada under NAFTA.
Bill 75 was introduced following our December 4, 2008 announcement of the permanent closure of our Grand Falls, Newfoundland and Labrador newsprint mill to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The province also announced that it did not plan to compensate us for the loss of the water and timber rights, but indicated that it may compensate us for certain of our hydroelectric assets. However, it made no commitment to ensure that such compensation would represent the fair market value of such assets. As a result of the expropriation, in the fourth quarter of 2008, we recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.
In December 2010, following our emergence from the Creditor Protection Proceedings, we received the settlement amount. Since the receipt of the settlement was contingent upon our emergence from the Creditor Protection Proceedings, we recorded the settlement in “Reorganization items, net” in our Consolidated Statements of Operations for the year ended December 31, 2010.
Our Products
We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products. Certain segment and geographical financial information, including sales by segment and by geographic area, operating income (loss) by segment, total assets by segment and long-lived assets by geographic area, can be found in Note 26, “Segment Information,” to our Consolidated Financial Statements.
In accordance with our values, our environmental vision statement and forestry policies and in the interests of our customers and other stakeholders, we are committed to implementing and maintaining environmental management systems at our pulp, paper, woodlands and wood procurement operations to promote the conservation and sustainable use of forests and other natural resources.
Newsprint
In 2010, excluding BPCL, we produced newsprint at 13 facilities in North America and South Korea. We are among the largest producers of newsprint in the world by capacity, with total capacity of approximately 3.1 million metric tons, or approximately 9% of total worldwide capacity. In addition, we are the largest North American producer of newsprint, with total North American capacity of approximately 2.9 million metric tons, or approximately 35% of total North American capacity.

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We supply leading publishers with top-quality newsprint, including eco-friendly products made with 100% recycled fiber. We distribute newsprint by rail, truck and ship. Our newsprint is sold directly by our regional sales offices to customers in North America. Export markets are serviced primarily through our international offices located in or near the markets we supply or through international agents. In 2010, approximately 50% of our total newsprint shipments were to markets outside of North America.
We sell newsprint to various joint venture partners (partners with us in the ownership of certain mills we operate). During 2010, these joint venture partners purchased approximately 407,000 metric tons from our consolidated entities, which represented approximately 14% of the total newsprint metric tons we sold in 2010.
Coated papers
We produce coated mechanical papers at one facility in North America. We are one of the largest producers of coated mechanical papers in North America, with total capacity of approximately 651,000 metric tons, or approximately 15% of total North American capacity. Our coated papers are used in magazines, catalogs, books, retail advertising, direct mail and coupons.
We sell coated papers to major commercial printers, publishers, catalogers and retailers. We distribute coated papers by truck and rail. Export markets are serviced primarily through international agents.
Specialty papers
We produce specialty papers at 10 facilities in North America. We are one of the largest producers of specialty papers in North America, including supercalendered, superbright, high bright, bulky book and directory papers and kraft papers, with total capacity as of December 31, 2010 of approximately 1.9 million metric tons, or approximately 34% of total North American capacity. Our specialty papers are used in books, retail advertising, direct mail, coupons and other commercial printing applications.
We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers and retailers. We distribute specialty papers by truck and rail. Export markets are serviced primarily through international agents.
Market pulp
Wood pulp is the most common material used to make paper. Pulp shipped and sold as pulp, as opposed to being processed into paper in one of our facilities, is commonly referred to as market pulp. We produce market pulp at five facilities in North America, with total capacity of approximately 1.0 million metric tons, or approximately 6% of total North American capacity. Market pulp is used to make a range of consumer products including tissue, packaging, specialty paper products, diapers and other absorbent products.
North American market pulp sales are made through our regional sales offices, while export sales are made through international sales agents local to their markets. We distribute market pulp by truck, rail and ship.
Wood products
We operate 18 sawmills in Canada that produce construction-grade lumber sold in North America. In addition, our sawmills are a major source of wood chips for our pulp and paper mills. We also operate two engineered wood products facilities in Canada that produce products for specialized applications, such as wood i-joists for beam replacement, and four remanufacturing wood products facilities in Canada that produce roofing and flooring material and other products.

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Pulp and paper manufacturing facilities
The following table provides a listing of the pulp and paper manufacturing facilities we owned or operated as of December 31, 2010 (excluding facilities which have been permanently closed as of December 31, 2010) and production information by product line (which represents all of our reportable segments except wood products). The table below represents these facilities’ actual 2010 production, which reflects the impact of any downtime taken in 2010, and 2011 total capacity.
                                                         
 
    Number   2011   2010   2010 Production by Product Line
    of Paper   Total   Total           Coated   Specialty    
(In 000s of metric tons)   Machines   Capacity   Production   Newsprint   Papers   Papers   Market Pulp
 
Canada
                                                       
Alma, Quebec
    3       369       366                   366        
Amos, Quebec
    1       196       194       194                    
Baie-Comeau, Quebec (1)
    4       535       521       521                    
Clermont, Quebec (2)
    2       345       336       336                    
Fort Frances, Ontario
    2       291       272                   209       63  
Iroquois Falls, Ontario
    2       270       236       208             28        
Kenogami, Quebec
    2       216       204                   204        
Laurentide, Quebec
    2       334       330                   330        
Liverpool, Nova Scotia (3)
    2       258       222       195             27        
Thorold, Ontario (4)
    1       202       47       47                    
Thunder Bay, Ontario (5)
    1       579       540       202             2       336  
United States
                                                       
Augusta, Georgia (6)
    2       407       403       403                    
Calhoun, Tennessee (7)
    3       666       658       115             401       142  
Catawba, South Carolina
    3       878       858             620       19       219  
Coosa Pines, Alabama (8)
    1       454       419       51             112       256  
Grenada, Mississippi
    1       246       242       242                    
Usk, Washington (9)
    1       248       244       244                    
South Korea
                                                       
Mokpo, South Korea
    1       253       242       242                    
     
 
    34       6,747       6,334       3,000       620       1,698       1,016  
 
(1)   On April 1, 2011, we announced the permanent closure of a newsprint machine at our Baie-Comeau facility, effective May 28, 2011 (representing approximately 117,000 metric tons of capacity).
(2)   Donohue Malbaie Inc. (“DMI”), which owns one of Clermont’s paper machines, is owned 51% by us and 49% by NYT Capital Inc. We manage the facility and wholly own all of the other assets at the site. Manufacturing costs are transferred between us and DMI at agreed-upon transfer costs. DMI’s paper machine produced 213,000 metric tons of newsprint in 2010. The amounts in the above table represent the mill’s total capacity and production including DMI’s paper machine.
(3)   Bowater Mersey Paper Company Limited (“Mersey”) is located in Liverpool, Nova Scotia and is owned 51% by us and 49% by The Daily Herald Company, a wholly-owned subsidiary of The Washington Post. We manage the facility. The amounts in the above table represent the mill’s total capacity and production.
(4)   On March 11, 2010, we announced the indefinite idling of one of our newsprint machines at our Thorold facility, effective April 12, 2010 (representing approximately 207,000 metric tons of capacity in 2010). In the fourth quarter of 2010, this machine was restarted and we permanently closed our other newsprint machine at this facility (representing approximately 207,000 metric tons of capacity).
(5)   In August 2009, we announced the indefinite idling of our two newsprint machines at our Thunder Bay facility effective August 21, 2009 (representing 392,000 metric tons of capacity), one of which was restarted in February 2010. In the fourth quarter of 2010, we permanently closed the machine that was still idled.
(6)   As of December 31, 2010, Augusta Newsprint Company (“ANC”), which operates our newsprint mill in Augusta was owned 52.5% by us and 47.5% by an indirect subsidiary of The Woodbridge Company Limited (“Woodbridge”). We manage the facility. The amounts in the above table represent the mill’s total capacity and production. ANC became a wholly-owned subsidiary of ours on January 14, 2011.
(7)   Calhoun Newsprint Company (“CNC”), which owns one of Calhoun’s paper machines, Calhoun’s recycled fiber plant and a portion of the thermomechanical pulp (“TMP”) mill, is owned 51% by us and 49% by Herald Company, Inc. We manage the facility and wholly own all of the other assets at the site, including the remaining portion of the TMP mill, a kraft pulp mill, a market pulp dryer, four other paper machines (two of which are still operating) and other support equipment. Pulp, other raw materials, labor and other manufacturing services are transferred between us and CNC at agreed-upon transfer costs. CNC’s paper machine produced 115,000 metric tons of newsprint and 95,000 metric tons of specialty papers in 2010. The amounts in

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    the above table represent the mill’s total capacity and production including CNC’s paper machine.
(8)   On February 14, 2011, we announced the permanent closure of our paper machine at our Coosa Pines mill effective at the end of March 2011 (representing approximately 183,000 metric tons of capacity related to lightweight containerboard and other packaging grades, which were being produced on a trial basis on this paper machine since May 2010).
(9)   Ponderay Newsprint Company is located in Usk, Washington and is an unconsolidated partnership in which we have a 40% interest and, through a wholly-owned subsidiary, we are the managing partner. The balance of the partnership is held by subsidiaries of three newspaper publishers. The amounts in the above table represent the mill’s total capacity and production.
Wood products facilities
The following table provides a listing of the sawmills we owned or operated as of December 31, 2010 and their respective capacity and production. This table excludes facilities which have been permanently closed as of December 31, 2010.
                 
 
    2011   2010
(In million board feet)   Total Capacity   Total Production
 
Comtois, Quebec
    140       35  
Girardville-Normandin, Quebec
    175       176  
La Dore, Quebec
    160       178  
La Tuque, Quebec (1)
    130       44  
Maniwaki, Quebec
    140       91  
Mistassini, Quebec
    170       160  
Oakhill, Nova Scotia (2)
    152       91  
Obedjiwan, Quebec (3)
    30       42  
Petit Saguenay, Quebec (4)
    13        
Pointe-aux-Outardes, Quebec
    175       53  
Roberval, Quebec
    100       23  
Saint-Felicien, Quebec
    115       130  
Saint-Fulgence, Quebec (4)
    150       10  
Saint-Hilarion, Quebec
    35       25  
Saint-Ludger-de-Milot, Quebec (5)
    80       98  
Saint-Thomas, Quebec
    95       87  
Senneterre, Quebec
    85       103  
Thunder Bay, Ontario
    280       225  
     
 
    2,225       1,571  
 
(1)   Produits Forestiers Mauricie L.P. is located in La Tuque, Quebec and is a consolidated subsidiary in which we have a 93.2% interest. The amounts in the above table represent the mill’s total capacity and production.
(2)   The Oakhill sawmill is wholly owned by Mersey, which is a consolidated subsidiary in which we have a 51% interest. The amounts in the above table represent the mill’s total capacity and production.
(3)   Societe en Commandite Scierie Opitciwan is located in Obedjiwan, Quebec and is an unconsolidated entity in which we have a 45% interest. The amounts in the above table represent the mill’s total capacity and production.
(4)   In the third quarter of 2010, we indefinitely idled our Petit Saguenay and Saint-Fulgence sawmills.
(5)   Produits Forestiers Petit-Paris Inc. is located in Saint-Ludger-de-Milot, Quebec and is an unconsolidated entity in which we have a 50% interest. The amounts in the above table represent the mill’s total capacity and production.
The following table provides a listing of the remanufacturing and engineered wood facilities we owned or operated as of December 31, 2010 and their respective capacity and production.
                        
 
    2011   2010
(In million board feet, except where otherwise stated)   Total Capacity   Total Production
 
Remanufacturing Wood Products Facilities
               
Chateau-Richer, Quebec
    63       51  
La Dore, Quebec
    15       19  
Manseau, Quebec
    20       7  
Saint-Prime, Quebec
    28       27  
     
Total Remanufacturing Wood Facilities
    126       104  
 
               
Engineered Wood Products Facilities
               
Larouche and Saint-Prime, Quebec (million linear feet) (1)
    145       41  
 
(1)   Abitibi-LP Engineering Wood Inc. and Abitibi-LP Engineering Wood II Inc. are located in Larouche, Quebec and Saint-

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    Prime, Quebec, respectively, and are unconsolidated entities in which we have a 50% interest in each entity. We operate the facilities and our joint venture partners sell the products. The amounts in the above table represent the mills’ total capacity and production.
On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U.S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces, including Nova Scotia, being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Quebec based on historical production, and the volume quotas are not transferable between provinces. U.S. composite prices would have to rise above $355 composite per thousand board feet before the quota volume restrictions would be lifted, which had not occurred since the implementation of the 2006 Softwood Lumber Agreement. For additional information, reference is made to Note 22, “Commitments and Contingencies – Lumber duties,” to our Consolidated Financial Statements.
Other products
We also sell pulpwood, saw timber, wood chips and electricity to customers located in Canada and the United States. Sales of these other products are considered a recovery of the cost of manufacturing our primary products.
Raw Materials
Our operations consume substantial amounts of raw materials such as wood, recovered paper, chemicals and energy in the manufacturing of our paper, pulp and wood products. We purchase raw materials and energy sources (except internal generation) primarily on the open market.
Wood
Our sources of wood include property we own or lease, property on which we possess cutting rights and purchases from local producers, including sawmills that supply residual wood chips. As of December 31, 2010, we owned or leased approximately 0.8 million acres of timberlands, primarily in Canada, and have long-term cutting rights for approximately 40.8 million acres of Crown-owned land in Canada. These sources provide approximately half of our wood fiber supplies to our paper, pulp and wood products operations. The cutting rights contracts are approximately 20 – 25 years in length and automatically renew every five years, contingent upon our continual compliance with environmental performance and reforestation requirements.
All of our managed forest lands are third-party certified to one or more globally recognized sustainable forest management standards, including those of the Sustainable Forestry Initiative (the “SFI”), Canadian Standards Association (the “CSA”) and Forest Stewardship Council (the “FSC”). We have implemented fiber tracking systems at our mills to ensure that our wood fiber supply comes from acceptable sources such as certified forests and legal harvesting operations. At several of our mills, these systems are third-party certified to recognize chain of custody standards and others are in the process of being certified.
We strive to improve our forest management and wood fiber procurement practices and we encourage our wood and fiber suppliers to demonstrate continual improvement in forest resource management, wood and fiber procurement and third-party certification.
Recovered paper
We are one of the largest recyclers of newspapers and magazines in North America and have a number of recycling plants that use advanced mechanical and chemical processes to manufacture high quality pulp from a mixture of old newspapers and magazines, or “recovered paper.” Using recovered paper, we produce, among other things, recycled fiber newsprint and uncoated specialty papers comparable in quality to paper produced with 100% virgin fiber pulp. The Thorold and Mokpo operations produce products containing 100% recycled fiber. In 2010, we used 1.2 million metric tons of recovered paper worldwide and the recycled fiber content in newsprint averaged 23%.
In 2010, our North American recycling division collected or purchased 1.5 million metric tons of recovered paper. Our Paper Retriever ® program collects recovered fiber through a combination of community drop-off containers and recycling programs with businesses and commercial offices. The recovered paper that we physically purchase is from suppliers generally within the region of our recycling plants, primarily under long-term agreements.

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Energy
Steam and electrical power constitute the primary forms of energy used in pulp and paper production. Process steam is produced in boilers using a variety of fuel sources. All but one of our mills produce 100% of their own steam requirements. In 2010, our Alma, Calhoun, Catawba, Coosa Pines, Fort Frances, Kenogami, Mersey and Thunder Bay operations collectively consumed approximately 35% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric stations. The balance of our energy needs was purchased from third parties. We have six sites that operate cogeneration facilities and five of these sites generate “green energy” from carbon-neutral biomass. In addition, we utilize alternative fuels such as methane from landfills, used oil, tire-derived fuel and black liquor to reduce consumption of virgin fossil fuels.
The following table provides a listing of our hydroelectric facilities as of December 31, 2010 and their respective capacity and generation.
                                                         
 
                                                    Share of
                    Installed   Share of           Share of   Generation
            Number of   Capacity   Capacity   Generation   Generation   Received
    Ownership   Installations   (MW)   (MW)   (GWh)   (GWh)   (GWh)
 
Hydro Saguenay, Quebec
    100 %     7       162       162       880       880       880  
Fort Frances, Ontario (1)
    75 %     3       27       20       148       111       111  
Kenora, Ontario (1)
    75 %     2       18       14       102       77       77  
Iroquois Falls, Ontario (1)
    75 %     3       92       69       335       251       251  
               
 
            15       299       265       1,465       1,319       1,319  
 
(1)   The amounts in the above table represent the facility’s total installed capacity and power generation. On February 11, 2011, AbiBow Canada entered into an agreement to sell its 75% equity interest in ACH Limited Partnership (“ACH”), which owns these facilities. For additional information, see Item 7 under “Liquidity and Capital Resources.”
The water rights agreements typically vary from 10 to 50 years and are generally renewable, under certain conditions, for additional terms. In certain circumstances, water rights are granted without expiration dates. In some cases, the agreements are contingent on the continued operation of the related paper mill and a minimum level of capital spending in the region.
Competition
In general, our products are globally-traded commodities and are marketed in approximately 70 countries. The markets in which we compete are highly competitive and, aside from quality specifications to meet customer needs, the production of our products does not depend upon a proprietary process or formula. Pricing and the level of shipments of our products are influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. Any material decline in prices for our products or other adverse developments in the markets for our products could have a material adverse effect on our results of operations or financial condition. Prices for our products have been and are likely to continue to be highly volatile.
Newsprint, one of our principal products, is produced by numerous manufacturers worldwide. In 2010, the five largest North American producers represented approximately 85% of North American newsprint capacity and the five largest global producers represented approximately 35% of global newsprint capacity. Our total newsprint capacity is approximately 9% of worldwide newsprint capacity. We face competition from both large global producers and numerous smaller regional producers. In recent years, a number of global producers of newsprint based in Asia, particularly China, have grown their production capacity. Price, quality and customer relationships are important competitive determinants.
We compete with eight other coated mechanical paper producers with operations in North America. In 2010, the five largest North American producers represented approximately 83% of North American capacity for coated mechanical paper. In addition, several major offshore suppliers of coated mechanical paper compete for North American business. In 2010, offshore imports represented approximately 11% of North American demand. As a major supplier to printers, end users (such as magazine publishers, catalogers and retailers) and brokers/merchants in North America, we compete with numerous worldwide suppliers of other grades of paper such as coated freesheet and supercalendered paper. We compete on the basis of price, quality and service.

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In 2010, we produced approximately 33% of North American uncoated mechanical paper demand, comprised mainly of supercalendered, superbright, high bright, bulky book and directory papers. We compete with numerous uncoated mechanical paper producers with operations in North America. In addition, imports from overseas represented approximately 9% of North American demand in 2010 and were primarily concentrated in the supercalendered paper market where they represented approximately 18% of North American demand. We compete on the basis of price, quality, service and breadth of product line.
We compete with seven other major market pulp suppliers with operations in North America along with other smaller competitors. Market pulp is a globally-traded commodity for which competition exists in all major markets. We produce five major grades of market pulp (northern and southern hardwood, northern and southern softwood and fluff) and compete with other producers from South America (eucalyptus hardwood and radiata pine softwood), Europe (northern hardwood and softwood) and Asia (mixed tropical hardwood). Price, quality and service are considered the main competitive determinants.
By the end of 2008, we had completed the certification of all of our managed forest lands to globally-recognized sustainable forest management standards, namely the SFI and the Z809 Standard of the CSA. In 2009, to better respond to market demands, we introduced the FSC standard in our certification portfolio by re-certifying two forest units in Quebec from CSA to FSC and by dual-certifying one forest in Ontario to FSC (already certified to SFI). In 2010, we further balanced our forest certification portfolio by re-certifying two additional forest units in Quebec from CSA to FSC and by dual-certifying one forest in Nova Scotia to FSC (already certified to SFI).
As with other global commodities, the competitive position of our products is significantly affected by the volatility of foreign currency exchange rates. See Item 7A of this Form 10-K, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Exchange Risk.” We have operations in Canada, the United States and South Korea. Several of our primary competitors are located in Canada, Sweden, Finland and certain Asian countries. Accordingly, the relative rates of exchange between those countries’ currencies and the United States dollar can have a substantial effect on our ability to compete. In addition, the degree to which we compete with foreign producers depends in part on the level of demand abroad. Shipping costs and relative pricing generally cause producers to prefer to sell in local markets when the demand is sufficient in those markets.
Trends in advertising, electronic data transmission and storage and the Internet could have further adverse effects on the demand for traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, including television, electronic readers and the Internet, instead of newsprint, coated papers, uncoated specialty papers or other products made by us. The demand for newsprint declined significantly over the last several years as a result of continued declines in newspaper circulation and advertising volume and publishers’ conservation measures, which include increased usage of lighter basis-weight newsprint and web-width and page count reductions. Our newsprint, magazine and catalog publishing customers are also subject to the effects of competing media, including the Internet.
Employees
As of December 31, 2010, we employed approximately 10,500 people, of whom approximately 7,500 were represented by bargaining units. Our unionized employees are represented predominantly by the Communications, Energy and Paperworkers Union (the “CEP”) in Canada and predominantly by the United Steelworkers International in the U.S.
We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 300 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.
Trademarks
We registered the mark “AbitibiBowater” and the AbitibiBowater logo in the countries of our principal markets. We consider our interest in the logo and mark to be important and necessary to the conduct of our business.

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Environmental Matters
We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. While it is impossible to predict future environmental regulations that may be established, we believe that we will not be at a competitive disadvantage with regard to meeting future Canadian, United States or South Korean standards. For additional information, see Note 22, “Commitments and
Contingencies – Environmental matters,” to our Consolidated Financial Statements.
Internet Availability of Information
We make our Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to these reports, available free of charge on our Internet website (www.abitibibowater.com) as soon as reasonably practicable after we file or furnish such materials to the SEC. The SEC also maintains a website (www.sec.gov) that contains our reports and other information filed with the SEC. In addition, any materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C., 20549. Information on the operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our reports are also available on the System for Electronic Document Analysis and Retrieval website (www.sedar.com) .
Executive Officers
The following is information about our executive officers as of March 31, 2011:
                 
 
Name   Age   Position   Officer Since
 
Richard Garneau     63    
President and Chief Executive Officer
  2011
Alain Boivin     60    
Senior Vice President, Pulp and Paper Operations
  2011
Alain Grandmont     55    
Senior Vice President, Human Resources and Public Affairs
  2007
William G. Harvey     53    
Senior Vice President and Chief Financial Officer
  2007
John Lafave     46    
Senior Vice President, Pulp and Paper Sales and Marketing
  2011
Yves Laflamme     55    
Senior Vice President, Wood Products, Global Supply Chain,
Procurement and Information Technology
  2007
Jacques P. Vachon     51    
Senior Vice President and Chief Legal Officer
  2007
 
Mr. Garneau joined the Board of Directors in June 2010. Previously, Mr. Garneau served as President and Chief Executive Officer of Catalyst Paper Corporation from March 2007 to May 2010. Prior to his tenure at Catalyst, Mr. Garneau served as Executive Vice President, Operations at Domtar Corporation. He also held a variety of roles at Norampac Inc. (a division of Cascades Inc.), Copernic Inc., Future Electronics Inc., St. Laurent Paperboard Inc., Finlay Forest Industries Inc. and Donohue Inc. Mr. Garneau is a member of the Canadian Institute of Chartered Accountants.
Mr. Boivin previously served as Vice President of Mill Operations, Central Region at Smurfit-Stone Container Corporation and as a Vice President at Smurfit-Stone since 2000. He was Senior Vice President, Containerboard Operations for St. Laurent Paperboard Inc. from 1999 to 2000 and was Mill Manager at a number of operations for Donohue Inc. and Avenor Inc.
Mr. Grandmont previously served as Executive Vice President, Human Resources and Supply Chain from July 2009 to January 2011 and as Senior Vice President, Commercial Printing Papers Division from October 2007 to July 2009. He served as Senior Vice President, Commercial Printing Papers of Abitibi from 2005 to October 2007 and as Senior Vice President, Value-Added Operations and Sales of Abitibi in 2004.
Mr. Harvey previously served as Executive Vice President and Chief Financial Officer from July 2009 to January 2011 and as Senior Vice President and Chief Financial Officer from October 2007 to July 2009. He served as Executive Vice President and Chief Financial Officer of Bowater from August 2006 to October 2007, as Senior Vice President and Chief Financial Officer and Treasurer of Bowater from 2005 to 2006 and as Vice President and Treasurer of Bowater from 1998 to 2005.

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Mr. Lafave previously served as Vice President Sales, National Accounts – Paper Sales and as Vice President Sales, National
Accounts – Newsprint and Vice President Sales, Commercial Printers of Abitibi from 2004 to 2009. He held progressive positions in sales with UPM-Kymmene and Repap Enterprises.
Mr. Laflamme previously served as Senior Vice President, Wood Products from October 2007 to January 2011, as Senior Vice President, Woodlands and Sawmills of Abitibi from 2006 to October 2007 and as Vice President, Sales, Marketing and Value-Added Wood Products Operations of Abitibi from 2004 to 2005.
Mr. Vachon previously served as Senior Vice President, Corporate Affairs and Chief Legal Officer from October 2007 to January 2011 and as Senior Vice President, Corporate Affairs and Secretary of Abitibi from 1997 to October 2007.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Form 10-K, you should carefully consider the following factors which could materially affect our business, results of operations or financial condition. In particular, the risks described below could cause actual events to differ materially from those contemplated in the forward-looking statements in this Form 10-K.
Developments in alternative media could continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful.
Trends in advertising, electronic data transmission and storage and the Internet could have further adverse effects on the demand for traditional print media, including our products and those of our customers. Neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, including television, electronic readers and the Internet, instead of newsprint, coated papers, uncoated specialty papers or other products made by us. The demand for certain of our products weakened significantly over the last several years. For example, industry statistics indicate that North American newsprint demand has been in decline for several years and has experienced annual declines of 6.1% in 2006, 10.3% in 2007, 11.2% in 2008, 25.3% in 2009 and 6.0% in 2010. Third-party forecasters indicate that these declines in newsprint demand could continue in 2011 and beyond due to conservation measures taken by publishers, reduced North American newspaper circulation, less advertising and substitution to other uncoated mechanical grades.
One of our responses to the declining demand for our products has been to curtail our production capacity. If demand continues to decline for our products, it may become necessary to curtail production even further or permanently shut down even more machines or facilities. Curtailments or shutdowns could result in asset impairments and additional cash costs at the affected facilities, including restructuring charges and exit or disposal costs, and could negatively impact our cash flows and materially affect our results of operations or financial condition.
Currency fluctuations may adversely affect our results of operations or financial condition, and changes in foreign currency exchange rates can affect our competitive position, selling prices and manufacturing costs.
We compete with North American, European and Asian producers in most of our product lines. Our products are sold and denominated in U.S. dollars, Canadian dollars and selected foreign currencies. A substantial portion of our manufacturing costs are denominated in Canadian dollars. In addition to the impact of product supply and demand, changes in the relative strength or weakness of such currencies, particularly the U.S. dollar, may also affect international trade flows of these products. A stronger U.S. dollar may attract imports into North America from foreign producers, increase supply and have a downward effect on prices, while a weaker U.S. dollar may encourage U.S. exports and increase manufacturing costs that are in Canadian dollars or other foreign currencies. Variations in the exchange rates between the U.S. dollar and other currencies, particularly the Euro and the currencies of Canada, Sweden and certain Asian countries, will significantly affect our competitive position compared to many of our competitors.
We are sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The impact of these changes depends primarily on our production and sales volume, the proportion of our production and sales that occur in Canada, the proportion of our financial assets and liabilities denominated in Canadian dollars, our hedging levels and the magnitude, direction and duration of changes in the exchange rate. We expect exchange rate fluctuations to continue to impact costs and revenues; however, we cannot predict the magnitude or direction of this effect for any quarter, and there can be no assurance of any future effects. During the last two years, the relative value of the Canadian dollar ranged from US$0.78 in March 2009 to US$1.00 as of December 31, 2010. Based on exchange rates and operating conditions projected for 2011, we project that a one-cent increase in the Canadian-U.S. dollar exchange rate would decrease our pre-tax income (loss) for 2011 by approximately $22 million.

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If the Canadian dollar continues to remain strong or gets stronger versus the U.S. dollar, it could influence the foreign exchange rate assumptions that are used in our evaluation of long-lived assets for impairment and consequently, result in asset impairment charges.
We face intense competition in the forest products industry and the failure to compete effectively would have a material adverse effect on our business, financial condition or results of operations.
We compete with numerous forest products companies, many of which have greater financial resources than we do. There has been a continued trend toward consolidation in the forest products industry, leading to new global producers. These global producers are typically large, well-capitalized companies that may have greater flexibility in pricing and financial resources for marketing, investment and expansion than we do. The markets for our products are all highly competitive. Actions by competitors can affect our ability to sell our products and can affect the volatility of the prices at which our products are sold. While the principal basis for competition is price, we also compete on the basis of customer service, quality and product type. There has also been an increasing trend toward consolidation among our customers. With fewer customers in the market for our products, our negotiating position with these customers could be weakened.
In addition, our industry is capital intensive, which leads to high fixed costs. Some of our competitors may be lower-cost producers in some of the businesses in which we operate. Global newsprint capacity, particularly Chinese and European newsprint capacity, has been increasing, which may result in lower prices, volumes or both for our exported products. We believe that hardwood pulp capacity at South American pulp mills has unit costs that are significantly below those of our hardwood kraft pulp mills. Other actions by competitors, such as reducing costs or adding low-cost capacity, may adversely affect our competitive position in the products we manufacture and consequently, our sales, operating income and cash flows. We may not be able to compete effectively and achieve adequate levels of sales and product margins. Failure to compete effectively would have a material adverse effect on our business, financial condition or results of operations.
The forest products industry is highly cyclical. Fluctuations in the prices of, and the demand for, our products could result in small or negative profit margins, lower sales volumes and curtailment or closure of operations.
The forest products industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for our products. Most of our paper and wood products are commodities that are widely available from other producers and even our coated and specialty papers are susceptible to these fluctuations. Because our commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the products we manufacture and distribute and consequently, our sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general economic conditions in North America and worldwide. In 2008 and 2009, we experienced lower demand and decreased pricing for our wood products due to a weaker U.S. housing market. As a result, during 2008, we announced the curtailment of annualized capacity of approximately 1.3 billion board feet of lumber in the provinces of Quebec and British Columbia and during 2009 and 2010, we continued our wood products’ operating rate at extremely low levels. We did not see any significant improvement in the U.S. housing market in 2010 and there is significant uncertainty with respect to near-term prospects for recovery in the market. Curtailments or shutdowns could result in asset impairments at the affected facilities and could materially and adversely affect our results of operations or financial condition.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to service our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreement that governs our ABL Credit Facility and the indenture related to the 2018 Notes (each as defined below in Item 7 under “Liquidity and Capital Resources”) restrict our ability to dispose of

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assets and use the proceeds from any such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or obtain proceeds in an amount sufficient to meet any debt service obligations when due.
If we are unable to generate sufficient cash flows to service our obligations under the 2018 Notes and the ABL Credit Facility, we would be in default. If the default is not cured, holders of the 2018 Notes could declare all outstanding principal and interest to be due and payable, the lenders under the ABL Credit Facility could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing such borrowings and we could be forced into bankruptcy or liquidation.
The credit agreement that governs the ABL Credit Facility and the 2018 Notes indenture may restrict our ability to respond to changes or to take certain actions.
The 2018 Notes indenture and the credit agreement that governs our ABL Credit Facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including, among other things, restrictions on our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to another person; enter into transactions with affiliates; and enter into new lines of business.
In addition, the restrictive covenants in the credit agreement that governs our ABL Credit Facility could require us to maintain a specified financial ratio if the availability falls below a certain threshold, as well as satisfy other financial condition tests. Additionally, we are required to maintain a specified minimum liquidity of at least $200 million if the provinces of Quebec and Ontario do not adopt the pension funding relief regulations described in Item 7 under “Employee Benefit Plans – Resolution of Canadian pension situation.” Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet them.
A breach of the covenants under the 2018 Notes indenture or under the credit agreement that governs the ABL Credit Facility could result in an event of default under the applicable indebtedness. Such default may allow the holders to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement that governs our ABL Credit Facility would permit the

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lenders under our ABL Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our ABL Credit Facility, those lenders could proceed against the collateral over which they have priority granted to them to secure that indebtedness. In the event our lenders under the ABL Credit Facility or holders of the 2018 Notes accelerate the repayment of our borrowings, there can be no assurance that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to grow in accordance with our plans.
Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for all of our capital requirements.
Our businesses are capital intensive and require regular capital expenditures in order to maintain our equipment, increase our operating efficiency and comply with environmental laws. In addition, significant amounts of capital may be required to modify our equipment to produce alternative grades with better demand characteristics or to make significant improvements in the characteristics of our current products. If our available cash resources and cash generated from operations are not sufficient to fund our operating needs and capital expenditures, we would have to obtain additional funds from borrowings or other available sources or reduce or delay our capital expenditures. Recent global credit conditions and the downturn in the global economy have resulted in a significant decline in the credit markets and the overall availability of credit. Our indebtedness could adversely affect our financial health, limit our operations and impair our ability to raise additional capital. See “–If we incur substantial additional debt, our degree of leverage may limit our financial and operating activities” above. If this occurs, we may not be able to obtain additional funds on favorable terms or at all. If we cannot maintain or upgrade our equipment as we require, we may become unable to manufacture products that compete effectively. An inability to make required capital expenditures in a timely fashion could have a material adverse effect on our growth, business, financial condition or results of operations.
We may not be successful in implementing our strategies to increase our return on capital.
We are targeting a higher return on capital, which may require significant capital investments with uncertain return outcomes. Our strategies include improving our business mix, reducing our costs and increasing operational flexibility, targeting export markets with better newsprint demand and exploring strategic alternatives. There are risks associated with the implementation of these strategies, which are complicated and involve a substantial number of mills, machines, capital and personnel. To the extent we are unsuccessful in achieving these strategies, our results of operations may be adversely affected.
Our manufacturing businesses may have difficulty obtaining wood fiber at favorable prices, or at all.
Wood fiber is the principal raw material we use in our business. We use both virgin fiber (wood chips and logs) and recycled fiber (old newspapers and magazines) as fiber sources for our paper mills. The primary source for wood fiber is timber. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada and the United States. In addition, future domestic or foreign legislation or regulation, litigation advanced by Aboriginal groups and litigation concerning the use of timberlands, forest management practices, the protection of endangered species, the promotion of forest biodiversity and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may further be limited by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our outstanding timber from natural disasters or other causes.
Wood fiber is a commodity and prices historically have been cyclical, are subject to market influences and may increase in particular regions due to market shifts. Pricing of recycled fiber is also subject to market influences and has experienced significant fluctuations. During the last two years, the prices of old newspapers have ranged from a low of $76 average per ton during the first quarter of 2009 to a high of $153 average per ton during the fourth quarter of 2010. There can be no assurance that prices of recycled fiber will remain at levels that are economical for us to use. Any sustained increase in fiber prices would increase our operating costs and we may be unable to increase prices for our products in response, which could have a material adverse effect on our results of operations or financial condition.
There can be no assurance that access to fiber will continue at the same levels as in the past. The cost of softwood fiber and the availability of wood chips may be affected. If our cutting rights pursuant to the forest licenses or forest management agreements are reduced or if any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to us, our financial condition or operating results could suffer.

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A sustained increase in the cost of purchased energy and other raw materials would lead to higher manufacturing costs, thereby reducing our margins.
Our operations consume substantial amounts of energy, such as electricity, natural gas, fuel oil, coal and wood waste. We buy energy and raw materials, including chemicals, wood, recovered paper and other raw materials, primarily on the open market.
The prices for raw materials and energy are volatile and may change rapidly, directly affecting our results of operations. The availability of raw materials and energy may also be disrupted by many factors outside our control, adversely affecting our operations. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years and prices every year since 2005 have exceeded long-term historical averages. As a result, fluctuations in energy prices will impact our manufacturing costs and contribute to earnings volatility.
We are a major user of renewable natural resources such as water and wood. Accordingly, significant changes in climate and forest diseases or infestation could affect our financial condition or results of operations. The volume and value of timber that we can harvest or purchase may be limited by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our standing timber from natural disasters or other causes. Also, there can be no assurance that we will be able to maintain our water rights or to renew them at conditions comparable to those currently in effect.
For our commodity products, the relationship between industry supply and demand for these products, rather than changes in the cost of raw materials, will determine our ability to increase prices. Consequently, we may be unable to pass along increases in our operating costs to our customers. Any sustained increase in energy, chemical or raw material prices without any corresponding increase in product pricing would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines.
The global financial crisis and economic downturn could continue to negatively impact our liquidity, results of operations or financial condition and it may cause a number of the risks that we currently face to increase in likelihood, magnitude and duration.
The global financial crisis and economic downturn has adversely affected economic activity globally. Our operations and performance depend significantly on worldwide economic conditions. Customers across all of our businesses have been delaying and reducing their expenditures in response to deteriorating macroeconomic and industry conditions and uncertainty, which has had a significant negative impact on the demand for our products and therefore, the cash flows of our businesses, and could continue to have a negative impact on our liquidity and capital resources.
Our newsprint, coated papers and specialty papers demand has been and is expected to be negatively impacted by higher unemployment and lower gross domestic product growth rates. We believe that some consumers have reduced newspaper and magazine subscriptions as a direct result of their financial circumstances in the current economic downturn, contributing to lower demand for our products by our customers. Additionally, advertising demand in magazines and newspapers, including classified advertisements, and demand from automotive dealerships and real estate agencies have been impacted by higher unemployment, lower automobile sales and the distressed real estate environment. Lower demand for print advertisements leads to fewer pages in newspapers, magazines and other advertisement circulars and periodicals, decreasing the demand for our products. Furthermore, consumer and advertising-driven demand for our paper products may not recover, even with an economic recovery, as purchasing habits may be permanently changed with a prolonged economic downturn.
The economic downturn has had a profoundly negative impact on the U.S. housing industry, which sets the prices for many of our lumber and other wood-based products. According to the U.S. Census Bureau, U.S. housing starts declined from approximately 1.4 million in 2007 to approximately 0.5 million in 2010, reflecting a 61% decline. With this low level of primary demand for our lumber and other wood-based products, our wood products business may continue to operate at a low level until there is a meaningful recovery in new residential construction demand. With less demand for saw logs at sawmills throughout North America and lower saw log prices, our timberland values may decline, impacting some of our financial options. Additionally, with less lumber demand, sawmills have generated less sawdust and wood chips and shavings that we use for fiber for our mills. The price of sawdust and wood chips for our mills that need to purchase their furnish on the open market may also continue to be at elevated levels, until there is a meaningful recovery in new residential demand in the U.S.

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Changes in laws and regulations could adversely affect our results of operations.
We are subject to a variety of foreign, federal, state, provincial and local laws and regulations dealing with trade, employees, transportation, taxes, timber and water rights, pension funding and the environment. Changes in these laws or regulations or their interpretations or enforcement have required in the past, and could require in the future, substantial expenditures by us and adversely affect our results of operations. For example, changes in environmental laws and regulations have in the past, and could in the future, require us to spend substantial amounts to comply with restrictions on air emissions, wastewater discharge, waste management, landfill sites, including remediation costs, the Environmental Protection Agency’s new greenhouse gas regulations and Boiler MACT. Environmental laws are becoming increasingly stringent. Consequently, our compliance and remediation costs could increase materially.
Changes in the political or economic conditions in Canada, the United States or other countries in which our products are manufactured or sold could adversely affect our results of operations.
We manufacture products in Canada, the United States and South Korea and sell products throughout the world. Paper prices are tied to the health of the economies of North and South America, Asia and Europe, as well as to paper inventory levels in these regions. The economic and political climate of each region has a significant impact on our costs and the prices of, and demand for, our products. Changes in regional economies or political instability, including acts of war or terrorist activities, can affect the cost of manufacturing and distributing our products, pricing and sales volume, directly affecting our results of operations. Such changes could also affect the availability or cost of insurance.
We may be required to record additional environmental liabilities.
We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of hazardous substances and waste, the clean-up of contaminated sites, landfill and lagoon operation and closure, forestry operations, endangered species habitat and health and safety. As an owner and operator of real estate and manufacturing and processing facilities, we may be liable under environmental laws for cleanup and other costs and damages, including tort liability and damages to natural resources, resulting from past or present spills or releases of hazardous or toxic substances on or from our current or former properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the property at the time of, any spill or release of hazardous or toxic substances on or from our property, or at properties where we arranged for the disposal of regulated materials. Claims may also arise out of currently unknown environmental conditions or aggressive enforcement efforts by governmental or private parties. As a result of the above, we may be required to record additional environmental liabilities. For information regarding environmental matters to which we are subject, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.
We are subject to physical and financial risks associated with climate change.
Our operations are subject to climate variations, which impact the productivity of forests, the distribution and abundance of species and the spread of disease or insect epidemics, which may adversely or positively affect timber production. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters such as hurricanes, earthquakes, hailstorms, wildfires, snow and ice storms, which could also affect our woodlands or cause variations in the cost for raw materials, such as fiber. Changes in precipitation resulting in droughts could adversely affect our hydroelectric facilities’ production, increasing our energy costs, while increased precipitation may generally have positive effects.
To the extent climate change impacts raw material availability or our electricity production, it may also impact our costs and revenues. Furthermore, should financial markets view climate change as a financial risk, our ability to access capital markets or to receive acceptable terms and conditions could be affected.

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We may be required to record long-lived asset impairment charges.
Losses related to impairment of long-lived assets are recognized when circumstances indicate the carrying values of the assets may not be recoverable, such as continuing losses in certain locations. When certain indicators that the carrying value of a long-lived asset may not be recoverable are triggered, we evaluate the carrying value of the asset group in relation to our expected undiscounted future cash flows. If the carrying value of the asset group is greater than the expected undiscounted future cash flows, an impairment charge is recorded based on the excess of the long-lived asset group’s carrying value over its fair value.
If there were to be a triggering event, it is possible that we could record non-cash long-lived asset impairment charges in future periods, which would be recorded as operating expenses and would directly and negatively impact our reported operating income (loss) and net income (loss).
We may be required to record additional valuation allowances against our recorded deferred income tax assets.
We recorded significant tax attributes (deferred income tax assets) in our Consolidated Balance Sheet as of December 31, 2010, which attributes would be available to offset any future taxable income. If we later determine that we are unable to use the full extent of these tax attributes as a result of sustained cumulative future taxable losses, we could be required to record additional valuation allowances for the unusable portion of the tax attributes. Such valuation allowances, if taken, would be recorded as a charge to income tax expense and would negatively impact our reported net income (loss).
If expected regulations are not adopted in a timely fashion in Quebec and Ontario to implement special funding parameters in respect of our material Canadian registered pension plans, or if we do not meet certain related undertakings, this could have a material impact on our financial condition.
Pension plan funding obligations, including special funding obligations in respect of solvency deficits within pension plans, are generally determined based on applicable law. We reached agreements with the provinces of Quebec and Ontario for special funding parameters in respect of our material Canadian registered pension plans, 15 of which are defined benefit plans registered in Quebec and Ontario and currently have a material aggregate solvency deficit. The agreements provide for a number of undertakings by AbiBow Canada and the adoption of funding relief regulations in those provinces consistent with those special funding parameters, as further described in Item 7 under “Employee Benefit Plans – Resolution of Canadian pension situation.” There can be no definitive assurance that the regulations will be adopted in a timely fashion, or that if adopted, that they will be consistent with our expectation, either of which could have a material impact on our financial condition. If and when the regulations are adopted, we could lose their benefit if we fail to comply or fail to meet our undertakings in the related agreements.
A $286 million reserve has been established against AbiBow Canada’s borrowing base under the ABL Credit Facility until these regulations are adopted, which restricts its ability to draw on the ABL Credit Facility, should the need to do so arise. As of December 31, 2010, AbiBow Canada had no availability under the ABL Credit Facility. Furthermore, if as of April 30, 2011, the regulations discussed above have not been adopted, we will be required pursuant to the ABL Credit Facility to maintain a specified minimum liquidity of at least $200 million until their adoption. This could have a material impact on our financial condition.
It is also possible that provinces other than Quebec and Ontario could attempt to assert jurisdiction and to compel additional funding of certain of our Canadian registered pension plans in respect of plan members associated with sites we formerly operated in their respective provinces.
We could be compelled to make additional environmental remediation payments in respect of certain sites we formerly owned and/or operated in the province of Newfoundland and Labrador.
On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings. Any additional environmental remediation payments required to be made by us could have a material adverse effect on our results of operations or financial condition. For information regarding our environmental matters, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

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Continued weakness in the global economy may significantly inhibit our ability to sell assets.
Non-core asset sales have been and may continue to be a source of additional liquidity and may be a source of debt repayment in the future. We expect to continue to review non-core assets and seek to divest those that no longer fit within our long-term strategic business plan. However, as a result of the current global economy and credit conditions, it may be difficult for potential purchasers to obtain the financing necessary to buy such assets. As a result, we may be forced to sell the assets for significantly lower amounts than planned or may not be able to sell them at all.
We could experience disruptions in operations or increased labor costs due to labor disputes.
As of December 31, 2010, we employed approximately 10,500 people, of whom approximately 7,500 were represented by bargaining units. Our unionized employees are represented predominantly by the CEP in Canada and predominantly by the United Steelworkers International in the U.S.
The employees at the Mokpo facility have complied with all conditions necessary to strike, but the possibility of a strike or lockout of those employees is not clear; we served the six-month notice necessary to terminate the collective bargaining agreement related to the Mokpo facility in June 2009.
We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 300 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.
The occurrence of natural or man-made disasters could disrupt our supply chain and the delivery of our products and adversely affect our financial condition or results of operations.
The success of our businesses is largely contingent on the availability of direct access to raw materials and our ability to ship products on a timely basis. As a result, any event that disrupts or limits transportation or delivery services would materially and adversely affect our business. In addition, our operating results are dependent on the continued operation of our various production facilities and the ability to complete construction and maintenance projects on schedule. Material operating interruptions at our facilities, including interruptions caused by the events described below, may materially reduce the productivity and profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties.
Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to hazards inherent in our business and the transportation of raw materials, products and wastes. These potential hazards include: explosions; fires; severe weather and natural disasters; mechanical failures; unscheduled downtimes; supplier disruptions; labor shortages or other labor difficulties; transportation interruptions; remediation complications; discharges or releases of toxic or hazardous substances or gases; other environmental risks; and terrorist acts.
Some of these hazards may cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage and may result in suspension of operations, the shutdown of affected facilities and the imposition of civil or criminal penalties. Furthermore, except for claims that were addressed by the Plans of Reorganization, we will also continue to be subject to present and future claims with respect to workplace exposure, exposure of contractors on our premises, as well as other persons located nearby, workers’ compensation and other matters.
We maintain property, business interruption, product, general liability, casualty and other types of insurance, including pollution and legal liability, that we believe are in accordance with customary industry practices, but we are not fully insured against all potential hazards incident to our business, including losses resulting from natural disasters, war risks or terrorist acts. Changes in insurance market conditions have caused, and may in the future cause, premiums and deductibles for certain insurance policies to increase substantially and in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all, and might be obligated to divert a significant portion of our cash flow from normal business operations.

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Shared control or lack of control of joint ventures may delay decisions or actions regarding the joint ventures.
A portion of our operations currently are, and may in the future be, conducted through joint ventures, where control may be exercised by or shared with unaffiliated third parties. We cannot control the actions of our joint venture partners, including any nonperformance, default or bankruptcy of joint venture partners. The joint ventures that we do not control may also lack adequate internal controls systems.
In the event that any of our joint venture partners do not observe their joint venture obligations, it is possible that the affected joint venture would not be able to operate in accordance with our business plans or that we would be required to increase our level of commitment in order to give effect to such plans. As with any such joint venture arrangements, differences in views among the joint venture participants may result in delayed decisions or in failures to agree on major matters, potentially adversely affecting the business and operations of the joint ventures and in turn our business and operations.
Bankruptcy of a significant customer could have a material adverse effect on our liquidity, financial condition or results of operations.
Trends in alternative media continue to impact the operations of our newsprint customers. See “–Developments in alternative media could continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful” above. If a customer is forced into bankruptcy as a result of these trends, any receivables related to that customer prior to the date of the bankruptcy filing of such customer may not be realized. In addition, such a customer may choose to reject its contracts with us, which could result in a larger claim arising prior to the date of the bankruptcy filing of such customer that also may not be realized.
Because our Consolidated Financial Statements reflect adjustments related to the implementation of the Plans of Reorganization and the application of fresh start accounting as a result of our emergence from the Creditor Protection Proceedings, the consolidated financial statements of the Successor Company will not be comparable to the consolidated financial statements of the Predecessor Company.
As of December 31, 2010, we applied fresh start accounting, pursuant to which the reorganization value, as derived from the enterprise value established in the Plans of Reorganization, was allocated to our assets and liabilities based on their fair values (except for deferred income taxes and pension and OPEB projected benefit obligations) in accordance with FASB ASC 805, “Business Combinations” (“FASB ASC 805”), with the excess of net asset values over the reorganization value recorded as an adjustment to equity. The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740, “Income Taxes” (“FASB ASC 740”). The amount of pension and OPEB projected benefit obligations recorded was determined in accordance with FASB ASC 715, “Compensation – Retirement Benefits” (“FASB ASC 715”). Additionally, the implementation of the Plans of Reorganization, among other things, resulted in a new capital structure that replaced our historical pre-petition capital structure. The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our Consolidated Financial Statements for periods prior to December 31, 2010 will not be comparable to our consolidated financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.

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Certain liabilities were not fully extinguished as a result of our emergence from the Creditor Protection Proceedings.
While a significant amount of our existing liabilities were discharged upon emergence from the Creditor Protection Proceedings, a number of obligations remain in effect following the effective date of the Plans of Reorganization. Various agreements and liabilities remain in place, such as certain employee benefit and pension obligations, potential environmental liabilities related to sites in operation or formerly owned or operated by us and other contracts that, even if they were modified during the Creditor Protection Proceedings, may still subject us to substantial obligations and liabilities. Other claims, such as those alleging toxic tort or product liability, or environmental liability related to formerly owned or operated sites, were not extinguished.
Other circumstances in which claims and other obligations that arose prior to Creditor Protection Proceedings were not discharged include instances where a claimant had inadequate notice of the Creditor Protection Proceedings or a valid argument as to when its claim arose or as a matter of law or otherwise.
It is unlikely that we will pay dividends with respect to our common stock in the foreseeable future.
It is unlikely that we will pay any dividends with respect to our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of the board of directors and will be dependent on then-existing conditions, including our financial condition, results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. The 2018 Notes indenture and the credit agreement that governs the ABL Credit Facility contain restrictions on our ability to pay dividends.
As a result of the consummation of the Plans of Reorganization, there are significant holders of our common stock.
Upon consummation of the Plans of Reorganization, certain holders of claims received distributions of our common stock representing a substantial percentage of the outstanding shares of our common stock. If these holders of claims obtained a sufficiently sizeable position of our common stock, such holders could be in a position to influence the outcome of actions requiring shareholder approval, including, among other things, the election of board members. This concentration of ownership could also facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. Furthermore, the possibility that one or more holders of a significant number of shares of our common stock may sell all or a large portion of its shares of our common stock in a short period of time may adversely affect the trading price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Information regarding our owned properties is included in Item 1, “Business,” of this Form 10-K.
In addition to the properties that we own, we also lease under long-term leases certain timberlands, office premises and office and transportation equipment and have cutting rights with respect to certain timberlands. Information regarding timberland and operating leases and cutting rights is included in Note 24, “Timberland and Operating Leases and Purchase Obligations,” to our Consolidated Financial Statements.

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ITEM 3. LEGAL PROCEEDINGS
Creditor Protection Proceedings
For information regarding the Creditor Protection Proceedings from which we emerged on December 9, 2010, see Item 1, “Business – Creditor Protection Proceedings.”
BCFC Bankruptcy and Insolvency Act Filing
As part of a negotiated resolution to certain objections to the Plans of Reorganization, as reflected in the U.S. Court’s order confirming the Chapter 11 Reorganization Plan, BCFC has been dismissed from the CCAA Proceedings and is expected to be dismissed from the Chapter 11 Cases. In addition, BCFC has made an assignment for the benefit of its creditors under the Bankruptcy and Insolvency Act (Canada) (the “BIA”). BCFC appointed a trustee as its representative in the BIA filing, whose responsibilities are to prosecute its claims (including a disputed claim in the Creditor Protection Proceedings), distribute its property, if any, and others as provided by the BIA.
Bridgewater Administration
On February 2, 2010, BPCL filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended. BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. For additional information, see Item 1, “Business – Bridgewater Administration.”
Newfoundland and Labrador Expropriation
For information regarding our August 24, 2010 settlement agreement with the Canadian government regarding the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government, see Item 1, “Business – Newfoundland and Labrador Expropriation.”
Legal Items
We are involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers’ compensation claims, Aboriginal claims and other matters. We periodically review the status of these proceedings with both inside and outside counsel. Although the final outcome of any of these matters is subject to many variables and cannot be predicted with any degree of certainty, we establish reserves for a matter (including legal costs expected to be incurred) when we believe an adverse outcome is probable and the amount can be reasonably estimated. We believe that the ultimate disposition of these matters will not have a material adverse effect on our financial condition, but it could have a material adverse effect on our results of operations in any given quarter or year.
Subject to certain exceptions, all litigation against the Debtors that arose out of pre-petition conduct or acts was subject to the automatic stay provisions of Chapter 11 and the CCAA and the orders of the Courts rendered thereunder and subject to certain exceptions, any recovery by the plaintiffs in those matters was treated consistently with all other general unsecured claims in the Creditor Protection Proceedings, i.e., to the extent a disputed general unsecured claim becomes an accepted claim, the claimholder would be entitled to receive a ratable amount of Successor Company common stock from the reserve established on the Emergence Date for this purpose, as discussed in Item 1, “Business – Creditor Protection Proceedings.” As a result, we believe that these matters will not have a material adverse effect on our results of operations or financial position.
On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008 with Bill 75. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings, which payments could have a material impact on our results of operations or financial condition.
We settled certain matters on December 23, 2010 relating to Woodbridge’s March 9, 2010 motion in the U.S. Court to force Abitibi Consolidated Sales Corporation (“ACSC”), an indirect, wholly-owned subsidiary of AbitibiBowater Inc., to reject the partnership agreement governing ANC (an appeal of which to the U.S. Court was rejected) and our U.S. Court-approved

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rejection in October 2009 of an amended and restated call agreement in respect of Augusta Newsprint Inc. (“ANI”), an indirect subsidiary of Woodbridge and our former partner in ANC. ANC is the partnership that owned and operated the Augusta newsprint mill before we purchased from Woodbridge all of the issued and outstanding securities of ANI. Woodbridge’s claims for damages resulting from our rejection of the amended and restated call agreement remains a disputed general unsecured claim in the claims resolution process. If Woodbridge’s claims are successful, any award would be settled out of the share reserve and would not impact our results of operations and cash flows. The call agreement would have obligated ACSC to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. In connection with the settlement, we entered into a stock purchase agreement pursuant to which ANC acquired from Woodbridge all of the issued and outstanding voting securities of ANI. ANI owned a 47.5% interest in ANC and ACSC owned the remaining 52.5% interest. After giving effect to the transaction on January 14, 2011, ANC distributed the ANI securities to ACSC, and ANI thus became a wholly-owned subsidiary of ACSC and a wholly-owned subsidiary of ours.
Following the announcement of the permanent closure of our Donnacona, Quebec paper mill, on December 3, 2008, the Centrale Syndicale Nationale (“CSN”) and the employees of the Donnacona mill filed against us, Investissement Quebec and the government of the province of Quebec a civil lawsuit before the Superior Court of the district of Quebec. The CSN and the employees also filed a grievance claim for labor arbitration on the same basis. The CSN and the employees had claimed an amount of approximately $48 million in salary through April 30, 2011, as well as moral and exemplary damages, arguing that we failed to respect the obligations subscribed in the context of a loan made by Investissement Quebec. The CSN and the employees had also claimed that Investissement Quebec and the government were solidarily responsible for the loss allegedly sustained by the employees. We settled the matter and the two related grievances in the fourth quarter of 2010 and, as a result, recognized an approximate $5 million general unsecured claim, which will be settled out of the share reserve and will not impact our cash flows.
On June 18, 2007, The Levin Group, L.P. filed a complaint against Bowater in the Supreme Court of New York, New York County, asserting claims for breach of contract and related claims relating to certain advisory services purported to have been provided by the plaintiff in connection with the Combination. The Levin Group sought damages of not less than $70 million, related costs and such other relief as the court deemed just and proper. As part of the Creditor Protection Proceedings, we filed a motion with the U.S. Court to reject the engagement letter entered into with The Levin Group pursuant to which The Levin Group was asserting the claims. As a result, The Levin Group filed a proof of claim for approximately $88 million in the Chapter 11 claims process, which remains a disputed general unsecured claim that will be resolved in the claims resolution process. Accordingly, to the extent The Levin Group is successful, we expect any award would be settled out of the share reserve and would not impact our results of operations and cash flows.
Since late 2001, Bowater, several other paper companies, and numerous other companies have been named as defendants in asbestos personal injury actions. These actions generally allege occupational exposure to numerous products. We have denied the allegations and no specific product of ours has been identified by the plaintiffs in any of the actions as having caused or contributed to any individual plaintiff’s alleged asbestos-related injury. These suits have been filed by approximately 1,800 claimants who sought monetary damages in civil actions pending in state courts in Delaware, Georgia, Illinois, Mississippi, Missouri, New York and Texas. Approximately 1,000 of these claims have been dismissed, either voluntarily or by summary judgment, and approximately 800 claims remain. We expect that any resulting liability would be a general unsecured claim in the claims resolution process, which would be settled out of the share reserve and would not impact our results of operations and cash flows.
For a discussion of environmental matters to which we are subject, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.
ITEM 4. (REMOVED AND RESERVED)

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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Predecessor Company’s common stock began trading under the symbol “ABH” on both the NYSE and the TSX on October 29, 2007, following the consummation of the Combination. As a result of the Creditor Protection Proceedings, each of the NYSE and the TSX delisted this common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. During the Creditor Protection Proceedings, this common stock traded in the over-the-counter market and was quoted on the Pink Sheets and on the OTC Bulletin Board under the symbol “ABWTQ.”
As of the Emergence Date and pursuant to the Plans of Reorganization, each share of the Predecessor Company’s common stock and each option, warrant, conversion privilege or other legal or contractual right to purchase shares of the Predecessor Company’s common stock, in each case to the extent outstanding immediately before the Emergence Date, was canceled and the holders thereof are not entitled to receive or retain any property on account thereof. On the Emergence Date, we issued 97,134,954 shares of new common stock. The Successor Company’s common stock began trading under the symbol “ABH” on both the NYSE and the TSX on December 10, 2010.
The high and low prices of our common stock for 2009 and 2010, by quarter, are set forth below. The data after May 21, 2009 through December 9, 2010 reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
                 
 
    High     Low  
 
Predecessor common stock:
               
 
       
2009
               
First quarter
   $ 1.25      $ 0.31  
Second quarter
   $ 0.60      $ 0.11  
Third quarter
   $ 0.18      $ 0.10  
Fourth quarter
 $ 0.34      $ 0.10  
 
               
2010
               
First quarter
   $ 0.24      $ 0.09  
Second quarter
   $ 0.60      $ 0.09  
Third quarter
   $ 0.14      $ 0.01  
Fourth quarter – October 1 – December 9
 $ 0.08      $ 0.00  
 
               
Successor common stock:
               
 
               
2010
               
Fourth quarter – December 10 – December 31
 $ 25.15      $ 21.50  
 
As of February 28, 2011, there were approximately 1,900 holders of record of the Successor Company’s common stock.
During the fourth quarter of 2007, the payment of a quarterly dividend to shareholders was suspended indefinitely. Additionally, during the Creditor Protection Proceedings, we could not pay dividends on the Predecessor Company’s common stock under the terms of our debtor in possession financing arrangements. It is unlikely that we will pay any dividends with respect to the Successor Company’s common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of the board of directors and will be dependent on then-existing conditions, including our financial condition, results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. The 2018 Notes indenture and the credit agreement that governs the ABL Credit Facility contain restrictions on our ability to pay dividends.
We did not repurchase any shares of common stock pursuant to publicly-announced plans or programs during 2010.
See Item 12 of this Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for information regarding our equity compensation plan.

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ITEM 6. SELECTED FINANCIAL DATA
The following table presents summary historical consolidated financial information for each of the last five years and should be read in conjunction with Items 7 and 8. The selected financial information for the years ended December 31, 2010, 2009 and 2008 and as of December 31, 2010 and 2009 under the captions “Statement of Operations Data,” “Segment Sales Information,” “Statement of Cash Flows Data” and “Financial Position” shown below has been derived from our audited Consolidated Financial Statements. All other data under the above-referenced sections has been derived from our or Bowater’s audited consolidated financial statements, which are not included in this Form 10-K. As discussed in Item 1, “Business,” on October 29, 2007, Abitibi and Bowater became subsidiaries of AbitibiBowater Inc. The data set forth below reflects the results of operations and financial position of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for periods beginning on or after October 29, 2007, and may not be indicative of our future financial condition or results of operations.
As previously discussed, the implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our Consolidated Financial Statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, the consolidated financial statements of the Predecessor Company will not be comparable to the consolidated financial statements of the Successor Company. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.
                                         
 
    Predecessor
(In millions, except per share amounts or otherwise                    
indicated)   2010     2009     2008     2007     2006  
 
Statement of Operations Data
                                       
Sales
   $ 4,746      $ 4,366      $ 6,771      $ 3,876      $ 3,530  
Operating (loss) income (1)
    (160 )     (375 )     (1,430 )     (400 )     41  
Reorganization items, net (2)
    1,901       (639 )                  
Income (loss) before extraordinary item and cumulative effect of accounting change
    2,775       (1,560 )     (1,951 )     (491 )     (130 )
Net income (loss) attributable to AbitibiBowater Inc. (3)
    2,614       (1,553 )     (2,234 )     (490 )     (138 )
Basic net income (loss) per share attributable to AbitibiBowater Inc. common shareholders
    45.30       (26.91 )     (38.79 )     (14.11 )     (4.64 )
Diluted net income (loss) per share attributable to AbitibiBowater Inc. common shareholders
    27.63       (26.91 )     (38.79 )     (14.11 )     (4.64 )
Dividends declared per common share (4)
                      1.15       1.54  
 
Segment Sales Information
                                       
Newsprint
   $ 1,804      $ 1,802      $ 3,238      $ 1,574      $ 1,438  
Coated papers
    482       416       659       570       612  
Specialty papers
    1,321       1,331       1,829       800       570  
Market pulp
    715       518       626       600       559  
Wood products
    424       290       418       318       332  
Other
          9       1       14       19  
 
 
   $ 4,746      $ 4,366      $ 6,771      $ 3,876      $ 3,530  
 
Statement of Cash Flows Data
                                       
Net cash provided by (used in) operating activities
   $ 39      $ 46      $ (420 )    $ (247 )    $ 182  
Cash invested in fixed assets
    81       101       186       128       199  
     
    Successor   Predecessor
    2010     2009     2008     2007     2006  
     
Financial Position
                                       
Fixed assets (5)
   $ 2,641      $ 3,897      $ 4,507      $ 5,733      $ 2,939  
Total assets
    7,156       7,112       8,072       10,287       4,646  
Long-term debt, including current portion (6) (7)
    905       613       5,293       5,059       2,267  
Total debt (6) (7)
    905       1,499       5,970       5,648       2,267  
     
Additional Information
                                       
Employees (number)
    10,500       12,100       15,900       18,000       7,400  
     
(1)   Operating (loss) income for 2010, 2009, 2008, 2007 and 2006 included a net gain on disposition of assets and other of $30 million, $91 million, $49 million, $145 million and $186 million, respectively, and included closure costs, impairment of assets other than goodwill and other related charges of $11 million, $202 million, $481 million, $123

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    million and $53 million, respectively. Operating loss for 2009 included $276 million of alternative fuel mixture tax credits (see Note 25, “Alternative Fuel Mixture Tax Credits,” to our Consolidated Financial Statements for additional information). Operating (loss) income for 2008 and 2006 included impairment of goodwill charges of $810 million and $200 million, respectively. Operating loss for 2007 included a charge for an arbitration award of $28 million. Operating income for 2006 included a lumber duties refund of $92 million.
(2)   Certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred in the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting, were recorded in “Reorganization items, net” in our Consolidated Statements of Operations. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements.
(3)   Net loss attributable to AbitibiBowater Inc. in 2008 included a $256 million extraordinary loss for the non-cash write-off of the carrying value of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, which were expropriated by the government of Newfoundland and Labrador in the fourth quarter of 2008. For additional information, see Item 1, “Business – Newfoundland and Labrador Expropriation.”
(4)   Dividends were declared quarterly. During the fourth quarter of 2007, the payment of a quarterly dividend to shareholders was suspended indefinitely. Additionally, during the Creditor Protection Proceedings, we could not pay dividends on the Predecessor Company’s common stock under the terms of our debtor in possession financing arrangements.
(5)   As part of the application of fresh start accounting, fixed assets were adjusted to their fair values as of December 31, 2010. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.
(6)   As previously discussed, as of the Emergence Date and pursuant to the Plans of Reorganization, all amounts outstanding under our debtor in possession financing arrangements and the Debtors’ pre-petition secured debt obligations were paid in full in cash and certain holders of allowed claims arising from the Debtors’ pre-petition unsecured debt obligations received their pro rata share of the Successor Company’s common stock. Additionally, upon the consummation of the Plans of Reorganization, we assumed the obligations in respect of the $850 million principal amount of 2018 Notes issued by an escrow subsidiary of ours. For additional information, see Note 17, “Liquidity and Debt,” to our Consolidated Financial Statements.
(7)   Due to the commencement of the Creditor Protection Proceedings, our Consolidated Balance Sheets as of December 31, 2009 included unsecured pre-petition debt obligations of $4,852 million (included in “Liabilities subject to compromise”), secured pre-petition debt obligations of $980 million (included in current liabilities) and pre-petition secured debt obligations of $34 million (included in “Long-term debt, net of current portion”).

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) provides information that we believe is useful in understanding our results of operations, cash flows and financial condition for the years ended December 31, 2010, 2009 and 2008. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements.
Creditor Protection Proceedings
For information regarding the Creditor Protection Proceedings from which we emerged on December 9, 2010, see Item 1, “Business – Creditor Protection Proceedings.”
Bridgewater Administration
For information regarding our BPCL subsidiary’s filing for administration in the United Kingdom on February 2, 2010, see Item 1, “Business – Bridgewater Administration.”
Business Strategy and Outlook
We emerged from the Creditor Protection Proceedings with a more flexible, lower-cost operating platform and a conservative capital structure. Through aggressive capacity reductions, we streamlined our asset base and the substantial majority of our remaining assets are highly competitive, top performing facilities. We have reduced our debt levels from approximately $6.2 billion at the time of filing for creditor protection to approximately $0.9 billion as of December 31, 2010 (excluding ACH’s long-term debt of $280 million, which was included in “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets as of December 31, 2010). We have substantially lowered our debt service charges, as well as our selling, general and administrative expenses (“SG&A”). We have also lowered overall manufacturing costs including significant reductions in salary and labor wages and costs.
Our business strategy, which continues actions taken during our Creditor Protection Proceedings, is focused on the following key elements: (i) improving our business mix and targeting markets with better demand characteristics, (ii) continuing to improve our cost structure, (iii) further reducing debt and (iv) opportunistically examining growth alternatives.
Improve business mix
We plan to continue our focus on improving our business mix on grades that have and are expected to offer better margins and higher returns. We believe we have cost effective opportunities to grow into grades that offer better demand characteristics, margins and returns compared to newsprint.
Although North American newsprint demand is expected to continue to decline, world newsprint demand, excluding North America, is expected to grow by approximately 0.3% per year from 2010 to 2012, with growth being strongest in Asia, Latin America and the Middle East. The growth in many of the international markets is primarily the result of increased urbanization trends, a rapidly growing middle class, lower Internet penetration rates per capita versus developed countries, economic growth and rising literacy rates. Accordingly, we will continue to focus on capitalizing on the growth of these markets. The location of certain of our mills, which are on or near deep sea ports, allows us the opportunity to serve these higher growth markets.
Reduce costs
We will aggressively focus on reducing our manufacturing costs through operational improvements at our sites and making focused capital investments to improve our cost competitiveness at our critical sites. We will manage our capital spending carefully and plan to take advantage of funding opportunities under the Canadian Pulp and Paper Green Transformation Program (the “Canadian Green Initiative Program”) on energy and other projects in Canada.
We have significantly reduced our SG&A costs from $332 million in 2008 to $155 million in 2010 and have targeted further reductions in SG&A for 2011.
Reduce debt
Reducing debt and the associated interest charges is one of our primary financial goals. We believe this would improve our financial flexibility and support the implementation of our strategic objectives. The indenture governing the 2018 Notes provides that we must use the first $100 million of the net proceeds received from certain asset sales occurring within six months of the Emergence Date to redeem a portion of the 2018 Notes at a redemption price of 105% of the principal amount, plus accrued and unpaid interest. We expect to apply a portion of the net proceeds from the recently announced sale of our 75% interest in ACH, as described below under “Liquidity and Capital Resources,” to that end. The indenture also provides other opportunities for further note redemptions, subject to certain conditions, including the option, before October 15, 2013, to redeem up to 10% of the 2018 Notes per twelve-month period at a redemption price of 103% of the principal amount, plus accrued and unpaid interest.

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Explore strategic opportunities
We believe there will be continued consolidation in the paper and forest products sector as we and our competitors continue to explore ways to increase efficiencies and diversify customer offerings. We believe consolidation could benefit us by allowing us to capture synergies and operate with a lower cost platform. Accordingly, from time to time, we may explore strategic opportunities to enhance our business and improve our returns. Additionally, we will continue to execute on our non-core asset sales initiatives and use the proceeds to continue to improve our balance sheet, increase financial flexibility or reinvest in our business.
Outlook
Overall, the significant operational and financial restructuring that we have implemented since the Combination and during the Creditor Protection Proceedings has provided a competitive operating platform and a conservative capital structure. We believe this operating platform, our financial flexibility and liquidity levels combined, provide us the opportunity to implement our strategies and better manage the continued secular decline in paper consumption.
We will continually strive to improve these strategies and implement more aggressive actions to mitigate downside risk due to cost pressures and cost spikes in our manufacturing costs and a stronger Canadian dollar (currently above parity to the U.S. dollar), which has a significant impact on our financial performance of our Canadian manufacturing sites.
As a result of the implementation of the Plans of Reorganization and the application of fresh start accounting, as well as other actions taken during the Creditor Protection Proceedings, the consolidated financial statements of the Successor Company will not be comparable to the consolidated financial statements of the Predecessor Company. Beginning in 2011, it is expected that the consolidated statement of operations of the Successor Company will be significantly different from the Predecessor Company due to, among other things, the following:
    lower depreciation, amortization and cost of timber harvested as a result of the rationalization of facilities, sale of assets, reductions in the carrying values of fixed assets and amortizable intangible assets to reflect fair values and updated useful lives of fixed assets and amortizable intangible assets;
 
    lower labor and salary costs as a result of the implementation of our new labor agreements (costs of sales, excluding depreciation, amortization and cost of timber harvested) and salary reductions at the corporate level (selling and administrative expenses);
 
    significantly lower interest expense as a result of the settlement or extinguishment of the Predecessor Company’s secured and unsecured debt obligations, partially offset by interest expense on our exit financing; and
 
    higher income tax provision due to the reversal of deferred tax valuation allowances in connection with the implementation of the Plans of Reorganization. We established approximately $1,783 million of deferred income tax assets and therefore do not expect to pay significant cash taxes until these deferred income tax assets are fully utilized.
Financial Review
      Overview
Through our subsidiaries, we manufacture newsprint, coated and specialty papers, market pulp and wood products. We operate pulp and paper manufacturing facilities in Canada, the United States and South Korea, as well as wood products manufacturing facilities and hydroelectric facilities in Canada. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products.
As discussed further below, the newsprint industry experienced a decrease in North American demand in 2010 compared to 2009; however, the newsprint market was much improved in 2010 compared to 2009 when North American demand declined 25.3% compared to 2008. North American demand for coated mechanical papers increased slightly in 2010 compared to 2009. The specialty papers industry experienced a slight increase in North American demand in 2010 compared to 2009, particularly for supercalendered high gloss papers. Global shipments of market pulp increased slightly in 2010 compared to 2009. During this period, increases in demand in North America and Western Europe were partially offset by a significant demand decline in China. Our wood products segment benefited from a significant increase in pricing in 2010 compared to 2009.
As discussed above, due to the implementation of the Plans of Reorganization and the application of fresh start accounting, our past operating results and financial condition will not be comparable to our future operating results and financial condition.

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Consolidated Results of Operations
Year Ended December 31, 2010 versus December 31, 2009
                         
 
    Predecessor
    Years Ended December 31,
(In millions, except per share amounts)   2010     2009     Change  
 
Sales
   $ 4,746      $ 4,366      $ 380  
Operating loss
    (160 )     (375 )     215  
Net income (loss) attributable to AbitibiBowater Inc.
    2,614       (1,553 )     4,167  
Net income (loss) per share attributable to AbitibiBowater Inc. – basic
    45.30       (26.91 )     72.21  
Net income (loss) per share attributable to AbitibiBowater Inc. – diluted
    27.63       (26.91 )     54.54  
 
 
                       
Significant items that favorably (unfavorably) impacted operating loss:
                       
Product pricing
                   $ 233  
Shipments
                    147  
 
Change in sales
                    380  
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    (272 )
 
                       
Change in distribution costs
                    (66 )
 
                       
Change in selling and administrative expenses
                    43  
 
                       
Change in closure costs, impairment of assets other than goodwill and other related charges
                    191  
 
                       
Change in net gain on disposition of assets and other
                    (61 )
 
 
                   $ 215  
 
                     
 
Sales
Sales increased $380 million, or 8.7%, from $4,366 million in 2009 to $4,746 million in 2010. The increase was primarily due to significantly higher transaction prices for market pulp and wood products, higher transaction prices for newsprint and higher shipments for coated papers, specialty papers and wood products, partially offset by lower transaction prices for specialty papers and lower shipments for newsprint. The impact of each of these items is discussed further below under “Segment Results of Operations.”
Operating loss
Operating loss decreased $215 million from $375 million in 2009 to $160 million in 2010. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.
Manufacturing costs increased $272 million in 2010 compared to 2009, primarily due to a significantly unfavorable currency exchange ($248 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits of $276 million that were recorded in 2009 (the fuel tax credit program expired at the end of 2009) and higher costs for maintenance ($26 million) and energy ($12 million). These higher costs were partially offset by lower volumes ($40 million) and lower costs for wood and fiber ($15 million), fuel ($8 million), chemicals ($21 million), labor and benefits ($55 million), depreciation ($109 million) and other favorable cost variances. For additional information regarding the alternative fuel mixture tax credits, reference is made to Note 25, “Alternative Fuel Mixture Tax Credits,” to our Consolidated Financial Statements.
Distribution costs increased $66 million in 2010 compared to 2009 due to higher distribution costs per ton and higher shipment volumes.
Selling and administrative costs decreased $43 million in 2010 compared to 2009 due to our continued cost reduction initiatives and the reversal of a $17 million bonus accrual in 2010, as well as $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts. These decreases were partially offset by a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, an accrual of approximately $7 million in 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in 2010 related to our head office in Montreal, Quebec.

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In 2010 and 2009, we recorded $11 million and $202 million, respectively, in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan. In 2010 and 2009, we realized $30 million and $91 million, respectively, in net gains on disposition of assets and other, which were not associated with our work towards a comprehensive restructuring plan. For additional information, see “Segment Results of Operations – Corporate and Other” below.
Net income (loss) attributable to AbitibiBowater Inc.
Net income (loss) attributable to AbitibiBowater Inc. in 2010 was $2,614 million of net income, or $27.63 per diluted common share, an improvement of $4,167 million, or $54.54 per diluted common share, compared to $1,533 million of net loss, or $26.91 per diluted common share, in 2009. The improvement was primarily due to the decrease in operating loss, as discussed above, decreases in interest expense and reorganization items, net, and an increase in income tax benefit, partially offset by the increase in other (expense) income, net, all of which are discussed further below under “Non-operating Items.” As further discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements, reorganization items, net in 2010 included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting. Additionally, we recorded an income tax benefit of $1,606 million, primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 21, “Income Taxes,” to our Consolidated Financial Statements for additional information).
Fourth Quarter of 2010 versus Fourth Quarter of 2009
Sales increased $146 million, or 13.0%, from $1,126 million in the fourth quarter of 2009 to $1,272 million in the fourth quarter of 2010. The increase was due to significantly higher transaction prices for newsprint and market pulp, higher transaction prices for coated papers, specialty papers and wood products, as well as higher shipments for coated papers, specialty papers, market pulp and wood products, partially offset by lower shipments for newsprint.
Operating loss improved $54 million from an operating loss of $43 million in the fourth quarter of 2009 to operating income of $11 million in the fourth quarter of 2010. The improvement was primarily due to the increase in sales, as discussed above, and a $16 million increase in net gain on disposition of assets and other (resulting from a net gain related to a customer bankruptcy settlement), partially offset by the following:
    an increase in manufacturing costs of $56 million, primarily due to an unfavorable currency exchange ($26 million, primarily due to the Canadian dollar) and higher costs for wood and fiber ($4 million), energy ($27 million), chemicals ($2 million) and other unfavorable cost variances, partially offset by lower volumes ($56 million) and lower costs for maintenance ($6 million), labor and benefits ($12 million) and depreciation ($24 million), as well as benefits from the alternative fuel mixture tax credits ($75 million) that were recorded in the fourth quarter of 2009;
 
    an increase in distribution costs of $9 million, due to higher distribution costs per ton, partially offset by lower shipment volumes;
 
    an increase in selling and administrative expenses of $13 million, primarily due to an accrual of approximately $7 million in the fourth quarter of 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in the fourth quarter of 2010 related to our head office in Montreal, Quebec; and
 
    a change in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, of $30 million.
Interest expense decreased $70 million from $136 million in the fourth quarter of 2009 to $66 million in the fourth quarter of 2010, primarily as a result of ceasing to accrue interest on the CCAA filers’ pre-petition unsecured debt obligations in the third quarter of 2010, as discussed further below, partially offset by interest accrued on the 2018 Notes in the fourth quarter of 2010.
Other expense, net was $121 million in the fourth quarter of 2010 compared to other expense, net of $15 million in the fourth quarter of 2009, primarily due to higher foreign currency exchange losses in the fourth quarter of 2010 compared to the fourth quarter of 2009.
Net income (loss) attributable to AbitibiBowater Inc. in the fourth quarter of 2010 was $4,240 million of net income, or $44.82 per diluted common share, compared to $314 million of net loss, or $5.43 per diluted common share, in the fourth quarter of 2009. The improvement was primarily due to the decreases in operating loss and interest expense, as discussed above, a decrease in reorganization items, net, and an increase in income tax benefit. These decreases were partially offset by the increase in other expense, net, as discussed above. As further discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements, reorganization items, net in the fourth quarter of 2010 included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting. Additionally, we recorded an income tax benefit of $1,601 million, primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 21, “Income Taxes,” to our Consolidated Financial Statements for additional information).

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Year Ended December 31, 2009 versus December 31, 2008
                         
 
    Predecessor
    Years Ended December 31,
(In millions, except per share amounts)   2009     2008     Change  
 
Sales
   $ 4,366      $ 6,771     $ (2,405 )
Operating loss
    (375 )     (1,430 )     1,055  
Net loss attributable to AbitibiBowater Inc.
    (1,553 )     (2,234 )     681  
Net loss per share attributable to AbitibiBowater Inc. – basic and diluted
    (26.91 )     (38.79 )     11.88  
 
 
Significant items that (unfavorably) favorably impacted operating loss:
                       
Product pricing
                  $ (838 )
Shipments
                    (1,567 )
 
Change in sales
                    (2,405 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    1,925  
 
                       
Change in distribution costs
                    270  
 
                       
Change in selling and administrative expenses
                    134  
 
                       
Change in impairment of goodwill
                    810  
 
                       
Change in closure costs, impairment of assets other than goodwill and other related charges
                    279  
 
                       
Change in net gain on disposition of assets and other
                    42  
 
 
                   $ 1,055  
 
Sales
Sales decreased $2,405 million, or 35.5%, from $6,771 million in 2008 to $4,366 million in 2009. The decrease was primarily due to significantly lower shipments of newsprint, coated papers, specialty papers and wood products, as well as significantly lower transaction prices for newsprint, coated papers and market pulp. The impact of each of these items is discussed further below under “Segment Results of Operations.”
Operating loss
Operating loss decreased $1,055 million from $1,430 million in 2008 to $375 million in 2009. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.
Manufacturing costs decreased $1,925 million in 2009 compared to 2008, primarily due to lower volumes ($931 million), a favorable currency exchange ($194 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits ($276 million) that were recorded in 2009 and lower costs for labor and benefits ($135 million), depreciation ($124 million), wood and fiber ($109 million), maintenance ($49 million), energy ($20 million), fuel ($13 million) and other favorable cost variances. These lower costs were partially offset by higher costs for chemicals ($18 million).
Distribution costs decreased $270 million in 2009 compared to 2008, due to significantly lower shipment volumes and lower distribution costs per ton.
Selling and administrative costs decreased $134 million in 2009 compared to 2008, primarily due to our cost reduction initiatives, as well as a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, partially offset by $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts.
In 2008, we recorded an $810 million non-cash impairment charge for goodwill. Additionally, in 2009, we recorded $202 million in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, compared to $481 million in 2008. In 2009, we realized $91 million in net gains on disposition of assets and other, which were not associated with our work towards a comprehensive

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restructuring plan, compared to $49 million in 2008. For additional information, see “Segment Results of Operations – Corporate and Other” below.
Net loss attributable to AbitibiBowater Inc.
Net loss attributable to AbitibiBowater Inc. in 2009 was $1,553 million, or $26.91 per common share, a decrease of $681 million, or $11.88 per common share, compared to $2,234 million, or $38.79 per common share, in 2008. The decrease was primarily due to the decrease in operating loss, as discussed above, and a decrease in interest expense resulting from the Creditor Protection Proceedings, a decrease in income taxes, as well as the extraordinary loss on expropriation of assets recorded in 2008. These decreases were partially offset by increases in reorganization items, net and other (expense) income, net. Each of these items, except for operating loss discussed above, is discussed further below under “Non-operating Items.”
Non-operating Items – Years Ended December 31, 2010, 2009 and 2008
Interest expense
Interest expense decreased to $483 million in 2010 from $597 million in 2009 and $706 million in 2008. Pursuant to the Creditor Protection Proceedings, we ceased recording interest expense on certain pre-petition debt obligations. In accordance with FASB ASC 852, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured or unsecured claim. As such, during the Creditor Protection Proceedings, we continued to accrue interest on the Debtors’ pre-petition secured debt obligations and, until the third quarter of 2010, the CCAA filers’ pre-petition unsecured debt obligations, based on the expectation that post-petition accrued interest on the CCAA filers’ pre-petition unsecured debt obligations would be a permitted claim under the CCAA Proceedings. However, pursuant to the CCAA Reorganization Plan sanctioned by the Canadian Court on September 23, 2010, the CCAA filers’ pre-petition unsecured debt obligations did not include the amount of such post-petition accrued interest for distribution purposes and therefore, such accrued interest was accounted for as not having been approved as a permitted claim. Accordingly, we reversed such post-petition accrued interest as a Reorganization item in the third quarter of 2010 and we ceased accruing interest on the CCAA filers’ pre-petition unsecured debt obligations, as discussed in Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements. Interest expense in 2010 included a cumulative adjustment of $43 million to increase the accrued interest on the unsecured U.S. dollar denominated debt obligations of the CCAA filers, as further discussed in Note 17, “Liquidity and Debt – Debt – During Creditor Protection Proceedings,” to our Consolidated Financial Statements. Interest expense in 2010 also included accrued interest on the 2018 Notes, which were issued on October 4, 2010, as further discussed below under “Liquidity and Capital Resources.”
Other (expense) income, net
Other expense, net in 2010 was $89 million, primarily comprised of foreign currency exchange losses. Other expense, net in 2009 was $71 million, primarily comprised of foreign currency exchange losses of $59 million, fees of $23 million for waivers and amendments to the Abitibi and Donohue accounts receivable securitization program, as well as a loss on the sale of ownership interests in accounts receivable of $17 million, partially offset by $24 million of income, net from a subsidiary’s proceeds sharing arrangement related to a third party’s sale of timberlands. Other income, net in 2008 was $93 million, primarily comprised of foreign currency exchange gains of $72 million and a gain on extinguishment of debt of $31 million, partially offset by a loss on the sale of ownership interests in accounts receivable of $20 million.
Reorganization items, net
Pursuant to FASB ASC 852, we recorded reorganization items, net in 2010 of a credit of $1,901 million and expense of $639 million in 2009 for certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred in the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization (net gain of $3,553 million in 2010) and the application of fresh start accounting (net expense of $362 million in 2010). For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements. We anticipate that legal and certain other costs related to our emergence from the Creditor Protection Proceedings will continue in 2011 and such costs, when incurred, will be recorded in other (expense) income, net in our consolidated statements of operations.
Income taxes
In 2010, income tax benefits of approximately $1,606 million were recorded on income before income taxes of $1,169 million, resulting in an effective tax rate of (137)%. The income tax benefit was primarily due to the reversal of our valuation allowances as part of the implementation of the Plans of Reorganization and the non-taxability of the gains on the Plans of Reorganization. See Note 21, “Income Taxes,” to our Consolidated Financial Statements.

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Our effective tax rate in 2009 and 2008 was 7% and 5%, respectively, resulting from the recording of a tax benefit on a pre-tax loss in both years. In 2009 and 2008, income tax benefits of approximately $615 million and $331 million, respectively, generated on the majority of our losses for each of these years were entirely offset by tax charges to increase our valuation allowance related to these tax benefits. Our effective tax rate for the year ended December 31, 2009 was primarily impacted by the valuation allowance, as described above, and the tax treatment on foreign currency gains and losses. Additionally, subsequent to the commencement of Abitibi’s CCAA Proceedings, in 2009, we concluded that our investment in the common stock of Abitibi no longer had any value and therefore, we recorded a $308 million tax benefit for a worthless stock deduction, which represents the estimated tax basis in our investment in Abitibi of approximately $800 million. In addition, in 2009, we recorded a tax recovery of approximately $141 million related to the asset impairment charges associated with our investment in Manicouagan Power Company (“MPCo”) while it was an asset held for sale. For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements. Our effective tax rate for the year ended December 31, 2008 was primarily impacted by the valuation allowance, the non-deductible goodwill impairment charge, the tax treatment on foreign currency gains and losses and the impacts of lower foreign income taxes.
Our effective tax rate varies frequently and substantially from the weighted-average effect of both domestic and foreign statutory tax rates, primarily as a result of the tax treatment on foreign currency gains and losses. We have a number of foreign subsidiaries whose unconsolidated foreign currency gains and losses are taxed in the local country. Upon consolidation, such gains and losses are eliminated, but we are still liable for the local country taxes. Due to the variability and volatility of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate.
Extraordinary loss on expropriation of assets
In 2008, we recorded an extraordinary loss of $256 million for the non-cash write-off of the carrying value of our expropriated assets in the province of Newfoundland and Labrador, which were expropriated by the government of Newfoundland and Labrador in the fourth quarter of 2008. For additional information, see Item 1, “Business – Newfoundland and Labrador Expropriation.”
      Financial Condition
As previously discussed, the implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our Consolidated Financial Statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, the Consolidated Balance Sheet of the Successor Company as of December 31, 2010 is not comparable to the consolidated balance sheet of the Predecessor Company as of December 31, 2009. Total assets were $7.2 billion as of December 31, 2010, an increase of $0.1 billion compared to December 31, 2009. Total assets as of December 31, 2010 reflect the recording of deferred tax assets, partially offset by the revaluation of assets to fair value as a result of the application of fresh start accounting, the sale of assets and a decrease in cash and cash equivalents. Cash and cash equivalents were $319 million as of December 31, 2010, a decrease of $437 million compared to December 31, 2009. This decrease was primarily due to the payments related to the implementation of the Plans of Reorganization in 2010, partially offset by the proceeds received from the issuance of the 2018 Notes and the NAFTA settlement in 2010. For additional information regarding our liquidity, see “Liquidity and Capital Resources” below. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.
      Segment Results of Operations
We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products. None of the income or loss items following “Operating loss” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, impairment of goodwill, closure costs, impairment of assets other than goodwill and other related charges, employee termination costs, net gain on disposition of assets and other, as well as other discretionary charges or credits are not allocated to our segments. Also excluded from our segment results are corporate and other items, which include timber sales and general and administrative expenses, including costs associated with our unsuccessful refinancing efforts. These items are also analyzed separately from our segment results. Share-based compensation expense and depreciation expense are, however, allocated to

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our segments. For additional information regarding our segments, see Note 26, “Segment Information,” to our Consolidated Financial Statements.
Year Ended December 31, 2010 versus December 31, 2009
Newsprint
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     Change  
 
Average price (per metric ton)
   $ 600      $ 571      $ 29  
Average cost (per metric ton)
   $ 657      $ 682       $ (25 )
Shipments (thousands of metric tons)
    3,005       3,157       (152 )
Downtime (thousands of metric tons)
    738       1,404       (666 )
Inventory at end of year (thousands of metric tons)
    75       117       (42 )
 
                       
(In millions)
                       
 
Segment sales
   $ 1,804      $ 1,802      $ 2  
Segment operating loss
    (171 )     (353 )     182  
 
 
                       
Significant items that favorably (unfavorably) impacted segment operating loss:
                       
Product pricing
                   $ 93  
Shipments
                    (91 )
 
Change in sales
                    2  
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    211  
 
                       
Change in distribution costs
                    (22 )
 
                       
Change in selling and administrative expenses
                    (9 )
 
 
                   $ 182  
 
Segment sales increased $2 million, or 0.1%, from $1,802 million in 2009 to $1,804 million in 2010 due to higher transaction prices, offset by lower shipment volumes. Shipments in 2010 decreased 152,000 metric tons, or 4.8%, compared to 2009.
In 2010, downtime was primarily at indefinitely idled facilities.
Segment operating loss decreased $182 million to $171 million in 2010 compared to $353 million in 2009, primarily due to lower manufacturing costs, partially offset by higher distribution and selling and administrative costs. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.
Segment manufacturing costs decreased $211 million in 2010 compared to 2009, primarily due to lower volumes ($166 million), lower costs for wood and fiber ($7 million), energy ($4 million), fuel ($5 million), labor and benefits ($55 million), depreciation ($68 million) and other favorable cost variances. These lower costs were partially offset by an unfavorable currency exchange ($96 million, primarily due to the Canadian dollar), as well as benefits from the alternative fuel mixture tax credits of $15 million that were recorded in 2009. The average cost per ton decreased $30 in 2010 compared to 2009, excluding the benefit of $5 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.
Segment distribution costs increased $22 million in 2010 compared to 2009 due to higher distribution costs per ton, partially offset by lower shipment volumes.
Newsprint Third-Party Data: In 2010, North American newsprint demand declined 6.0% compared to 2009 and for the month of December 2010, declined 4.5% compared to the month of December 2009. In 2010, North American net exports of newsprint were 47.9% higher than 2009. Inventories for North American mills as of December 31, 2010 were 187,000 metric tons, which is 34.2% lower than as of December 31, 2009. The days of supply at the U.S. daily newspapers was 44 days as of December 31, 2010 compared to 47 days as of December 31, 2009. The North American operating rate for newsprint was 92% in 2010 compared to 75% in 2009.

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Coated Papers
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     Change  
 
Average price (per short ton)
   $ 718      $ 730       $ (12 )
Average cost (per short ton)
   $ 672      $ 574      $ 98  
Shipments (thousands of short tons)
    671       571       100  
Downtime (thousands of short tons)
    10       114       (104 )
Inventory at end of year (thousands of short tons)
    20       22       (2 )
 
                       
(In millions)
                       
 
Segment sales
   $ 482      $ 416      $ 66  
Segment operating income
    31       89       (58 )
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating income:
                       
Product pricing
                    $ (6 )
Shipments
                    72  
 
Change in sales
                    66  
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    (117 )
 
                       
Change in distribution costs
                    (6 )
 
                       
Change in selling and administrative expenses
                    (1 )
 
 
                    $ (58 )
 
Segment sales increased $66 million, or 15.9%, from $416 million in 2009 to $482 million in 2010 due to significantly higher shipment volumes, partially offset by lower transaction prices.
Segment operating income decreased $58 million to $31 million in 2010 compared to $89 million in 2009, primarily due to higher manufacturing and distribution costs, partially offset by increased sales as discussed above. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.
Segment manufacturing costs increased $117 million in 2010 compared to 2009, primarily due to benefits from the alternative fuel mixture tax credits of $62 million that were recorded in 2009, higher volumes ($31 million) and higher costs for wood and fiber ($10 million), fuel ($2 million), chemicals ($8 million), labor and benefits ($2 million), maintenance ($7 million) and depreciation ($2 million), partially offset by favorable cost variances. The average cost per ton decreased $11 in 2010 compared to 2009, excluding the benefit of $109 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.
Segment distribution costs increased $6 million in 2010 compared to 2009 due to higher shipment volumes.
Coated Papers Third-Party Data: North American demand for coated mechanical papers increased 1.8% in 2010 compared to 2009. The North American operating rate for coated mechanical papers was 88% in 2010 compared to 78% in 2009. North American coated mechanical mill inventories were at 14 days of supply as of December 31, 2010 compared to 19 days of supply as of December 31, 2009.

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Specialty Papers
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     Change  
 
Average price (per short ton)
   $ 687      $ 731       $ (44 )
Average cost (per short ton)
   $ 709      $ 685      $ 24  
Shipments (thousands of short tons)
    1,924       1,819       105  
Downtime (thousands of short tons)
    115       521       (406 )
Inventory at end of year (thousands of short tons)
    88       86       2  
 
                       
(In millions)
                       
 
Segment sales
   $ 1,321      $ 1,331       $ (10 )
Segment operating (loss) income
    (44 )     85       (129 )
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating (loss) income:
                       
Product pricing
                    $ (82 )
Shipments
                    72  
 
Change in sales
                    (10 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    (114 )
 
                       
Change in distribution costs
                    (3 )
 
                       
Change in selling and administrative costs
                    (2 )
 
 
                    $ (129 )
 
Segment sales decreased $10 million, or 0.8%, from $1,331 million in 2009 to $1,321 million in 2010 due to lower average transaction prices, partially offset by higher shipment volumes.
In 2010, downtime at our facilities was market related.
Segment operating income decreased $129 million to an operating loss of $44 million in 2010 compared to $85 million of operating income in 2009, primarily due to higher manufacturing costs, as well as decreased sales as discussed above. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.
Segment manufacturing costs increased $114 million in 2010 compared to 2009, primarily due to an unfavorable Canadian dollar currency exchange ($78 million), benefits from the alternative fuel mixture tax credits of $34 million that were recorded in 2009, higher volumes ($8 million) and higher costs for energy ($23 million), maintenance ($10 million) and other unfavorable cost variances. These higher costs were partially offset by lower costs for wood and fiber ($3 million), depreciation ($23 million), chemicals ($14 million) and fuel ($3 million). The average cost per ton increased $5 in 2010 compared to 2009, excluding the benefit of $19 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.
Segment distribution costs increased $3 million in 2010 compared to 2009 due to higher shipment volumes, partially offset by lower distribution costs per ton.
Specialty Papers Third-Party Data: In 2010 compared to 2009, North American demand for supercalendered high gloss papers was up 1.8%, for lightweight or directory grades was down 8.1%, for standard uncoated mechanical papers was up 3.5% and in total for all specialty papers was up 1.1%. The North American operating rate for all specialty papers was 91% in 2010 compared to 76% in 2009. North American uncoated mechanical mill inventories were at 16 days of supply as of December 31, 2010 compared to 18 days supply as of December 31, 2009.

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Market Pulp
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     Change  
 
Average price (per metric ton)
   $ 737      $ 548      $ 189  
Average cost (per metric ton)
   $ 596      $ 430      $ 166  
Shipments (thousands of metric tons)
    970       946       24  
Downtime (thousands of metric tons)
    47       138       (91 )
Inventory at end of year (thousands of metric tons)
    58       53       5  
 
                       
(In millions)
                       
 
Segment sales
   $ 715      $ 518      $ 197  
Segment operating income
    137       112       25  
 
 
                       
Significant items that favorably (unfavorably) impacted segment operating income:
                       
Product pricing
                   $ 180  
Shipments
                    17  
 
Change in sales
                    197  
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    (159 )
 
                       
Change in distribution costs
                    (10 )
 
                       
Change in selling and administrative expenses
                    (3 )
 
 
                   $ 25  
 
Segment sales increased $197 million, or 38.0%, from $518 million in 2009 to $715 million in 2010 due to significantly higher transaction prices and slightly higher shipment volumes.
Segment operating income increased $25 million to $137 million in 2010 compared to $112 million in 2009, primarily due to increased sales as discussed above, partially offset by higher manufacturing and distribution costs. The above table analyzes the major items that increased operating income. A brief explanation of these major items follows.
Segment manufacturing costs increased $159 million in 2010 compared to 2009, primarily due to benefits from the alternative fuel mixture tax credits of $165 million that were recorded in 2009, an unfavorable Canadian dollar currency exchange ($26 million), higher costs for maintenance ($6 million) and other unfavorable cost variances. These higher costs were partially offset by lower volumes ($10 million) and lower costs for energy ($2 million), fuel ($2 million), chemicals ($13 million), labor and benefits ($15 million) and depreciation ($3 million). The average cost per ton decreased $9 in 2010 compared to 2009, excluding the benefit of $175 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.
Segment distribution costs increased $10 million in 2010 compared to 2009 due to higher distribution costs per ton and higher shipment volumes.
Market Pulp Third-Party Data: World shipments for market pulp increased 0.3% in 2010 compared to 2009. Shipments were up 7.6% in Western Europe (the world’s largest pulp market), up 5.7% in North America, down 17.4% in China, up 11.3% in Latin America and down 7.0% in Africa and Asia (excluding China and Japan). World market pulp producers shipped at 92% of capacity in 2010 compared to 91% in 2009. World market pulp producer inventories were at 30 days of supply as of December 31, 2010 compared to 27 days of supply as of December 31, 2009.

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Wood Products
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     Change  
 
Average price (per thousand board feet)
   $ 304      $ 254      $ 50  
Average cost (per thousand board feet)
   $ 297      $ 303       $ (6 )
Shipments (millions of board feet)
    1,395       1,143       252  
Downtime (millions of board feet)
    954       1,761       (807 )
Inventory at end of year (millions of board feet)
    122       106       16  
 
                       
(In millions)
                       
 
Segment sales
   $ 424      $ 290      $ 134  
Segment operating income (loss)
    9       (56 )     65  
 
 
                       
Significant items that favorably (unfavorably) impacted segment operating income (loss):
                       
Product pricing
                   $ 57  
Shipments
                    77  
 
Change in sales
                    134  
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    (54 )
 
                       
Change in distribution costs
                    (17 )
 
                       
Change in selling and administrative expenses
                    2  
 
 
                   $ 65  
 
Segment sales increased $134 million, or 46.2%, from $290 million in 2009 to $424 million in 2010 due to significantly higher shipment volumes and transaction prices. Despite a decrease in U.S. housing starts, shipments were higher in 2010, primarily due to an increase in Canadian housing starts.
In 2010, downtime at our facilities was market related.
Segment operating loss improved $65 million to operating income of $9 million in 2010 compared to a $56 million operating loss in 2009, primarily due to increased sales as discussed above, partially offset by higher manufacturing and distribution costs. The above table analyzes the major items that improved operating loss. A brief explanation of these major items follows.
Segment manufacturing costs increased $54 million in 2010 compared to 2009, primarily due to an unfavorable Canadian dollar currency exchange ($48 million) and higher volumes ($105 million), partially offset by lower costs for wood ($14 million), energy ($5 million), depreciation ($6 million), labor and benefits ($12 million), administrative overhead ($38 million) and other favorable cost variances.
Segment distribution costs increased $17 million in 2010 compared to 2009 due to higher shipment volumes and higher distribution costs per ton.
Wood Products Third-Party Data : Privately-owned housing starts in the U.S. decreased 8.2% to a seasonally-adjusted annual rate of 529,000 units in December 2010 compared to 576,000 units in December 2009.

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Corporate and Other
The following table is included in order to facilitate the reconciliation of our segment sales and segment operating income (loss) to our total sales and operating loss in our Consolidated Statements of Operations.
                         
 
    Predecessor
    Years Ended December 31,
(In millions)   2010     2009     Change  
 
Sales
   $      $ 9     $ (9 )
Operating loss
    (122 )     (252 )     130  
 
 
                       
Sales
   $      $ 9     $ (9 )
 
                       
Cost of sales and depreciation, amortization and cost of timber harvested
    (44 )     (8 )     (36 )
 
                       
Distribution (costs) credit
    (3 )     6       (9 )
 
                       
Selling and administrative expenses
    (94 )     (148 )     54  
 
                       
Closure costs, impairment of assets other than goodwill and other related charges
    (11 )     (202 )     191  
 
                       
Net gain on disposition of assets and other
    30       91       (61 )
 
Operating loss
  $ (122 )    $ (252 )    $ 130  
 
Cost of sales and depreciation, amortization and cost of timber harvested
Manufacturing costs included an accrual of approximately $6 million in 2010 for the 2010 short-term incentive plan and approximately $31 million in 2010 for ongoing costs related to closed mills. Manufacturing costs included $17 million in 2009 for the write-down of inventory, primarily associated with our Alabama River, Alabama and Dalhousie, New Brunswick mills, as well as two paper machines at our Calhoun mill.
Selling and administrative expenses
The decrease in selling and administrative expenses in 2010 compared to 2009 was due to our continued cost reduction initiatives, the reversal of a $17 million bonus accrual in 2010, as well as $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts. These decreases were partially offset by a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, an accrual of approximately $7 million in 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in 2010 related to our head office in Montreal, Quebec.
Closure costs, impairment of assets other than goodwill and other related charges
In 2010, we recorded $11 million of closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, primarily for the recording of a tax indemnification liability related to the 2009 sale of our investment in MPCo and long-lived asset impairment charges related to our previously permanently closed Covington, Tennessee facility, as well as costs for a lawsuit related to a closed mill and other miscellaneous adjustments to severance liabilities and asset retirement obligations.
In 2009, we recorded $202 million of closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, primarily for asset impairment charges related to assets held for sale for our interest in MPCo, as well as certain of our newsprint mill assets, accelerated depreciation charges for two paper machines at our Calhoun mill, which were previously indefinitely idled, and additional asset impairment charges primarily related to two previously permanently closed mills. In addition, in 2009, we recorded severance and other costs related to the permanent closures of our Westover, Alabama sawmill and Goodwater, Alabama planer mill operations and the continued idling of our Alabama River newsprint mill.
For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements.

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Net gain on disposition of assets and other
In 2010, we recorded a net gain on disposition of assets and other of $30 million, primarily related to the sale, with Court or Monitor approval, as applicable, of various assets, which were not associated with our work towards a comprehensive restructuring plan, as well as a net gain related to a customer bankruptcy settlement. In 2009, we recorded a net gain on disposition of assets and other of $91 million, primarily related to the sale, with Court or Monitor approval, as applicable, of 491,356 acres of timberlands, primarily located in Quebec, Canada and other assets.
For additional information, see Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other – Net gain on disposition of assets and other,” to our Consolidated Financial Statements.
Year Ended December 31, 2009 versus December 31, 2008
Newsprint
                         
 
    Predecessor
    Years Ended December 31,
    2009     2008     Change  
 
Average price (per metric ton)
   $ 571      $ 682      $ (111 )
Average cost (per metric ton)
   $ 682      $ 676      $ 6  
Shipments (thousands of metric tons)
    3,157       4,746       (1,589 )
Downtime (thousands of metric tons)
    1,404       238       1,166  
Inventory at end of year (thousands of metric tons)
    117       129       (12 )
 
                       
(In millions)
                       
 
Segment sales
   $ 1,802      $ 3,238      $ (1,436 )
Segment operating (loss) income
    (353 )     30       (383 )
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating (loss) income:
                       
Product pricing
                   $ (529 )
Shipments
                    (907 )
 
Change in sales
                    (1,436 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    873  
 
                       
Change in distribution costs
                    170  
 
                       
Change in selling and administrative expenses
                    10  
 
 
                   $ (383 )
 
Segment sales decreased $1,436 million, or 44.3%, from $3,238 million in 2008 to $1,802 million in 2009, due to significantly lower shipment volumes and transaction prices as a result of industry and global economic conditions and mill and paper machine closures and idlings. Shipments in 2009 decreased 1,589,000 metric tons, or 33.5%, compared to 2008. Our average transaction price in 2009 was lower than 2008 as a result of a reduction in prices due to market conditions.
In 2009, there was significant market-related downtime at our facilities.
Segment operating income decreased $383 million to an operating loss of $353 million in 2009 compared to $30 million of operating income in 2008, primarily due to decreased sales as discussed above, partially offset by lower manufacturing and distribution costs. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.
Segment manufacturing costs decreased $873 million in 2009 compared to 2008, primarily due to lower volumes ($581 million), favorable currency exchange ($103 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits ($15 million) that were recorded in 2009 and lower costs for wood and fiber ($92 million), depreciation ($48 million), labor and benefits ($47 million) and maintenance ($15 million), partially offset by higher costs for chemicals ($7 million) and other unfavorable cost variances.

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Segment distribution costs decreased $170 million in 2009 compared to 2008 due to significantly lower shipment volumes, as well as lower distribution costs per ton.
Newsprint Third-Party Data: In 2009, North American newsprint demand declined 25.3% compared to 2008. North American newsprint demand for the month of December 2009 declined 15.5% compared to the month of December 2008. In 2009, North American net exports of newsprint were 35.3% lower compared to 2008. Inventories for North American mills as of December 31, 2009 were 284,000 metric tons, which is 11.3% lower than as of December 31, 2008. The days of supply at the U.S. daily newspapers was 47 days as of December 31, 2009 compared to 50 days as of December 31, 2008. The North American operating rate for newsprint was 75% in 2009 compared to 94% in 2008.
Coated Papers
                         
 
    Predecessor
    Years Ended December 31,
    2009     2008     Change  
 
Average price (per short ton)
   $ 730      $ 882     $ (152 )
Average cost (per short ton)
   $ 574      $ 713     $ (139 )
Shipments (thousands of short tons)
    571       748       (177 )
Downtime (thousands of short tons)
    114       10       104  
Inventory at end of year (thousands of short tons)
    22       39       (17 )
 
                       
(In millions)
                       
 
Segment sales
   $ 416      $ 659     $ (243 )
Segment operating income
    89       126       (37 )
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating income:
                       
Product pricing
                  $ (113 )
Shipments
                    (130 )
 
Change in sales
                    (243 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    183  
 
                       
Change in distribution costs
                    16  
 
                       
Change in selling and administrative expenses
                    7  
 
 
                  $ (37 )
 
Segment sales decreased $243 million, or 36.9%, from $659 million in 2008 to $416 million in 2009, due to significantly lower shipment volumes and transaction prices as a result of industry and global economic conditions.
In 2009, downtime at our facilities was primarily market related.
Segment operating income decreased $37 million to $89 million in 2009 compared to $126 million in 2008, primarily due to decreased sales as discussed above, partially offset by lower manufacturing and distribution costs. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.
Segment manufacturing costs decreased $183 million in 2009 compared to 2008, primarily due to lower volumes ($71 million), benefits from the alternative fuel mixture tax credits ($62 million) that were recorded in 2009 and lower costs for depreciation ($10 million), labor and benefits ($16 million), maintenance ($5 million), fuel ($6 million) and other favorable cost variances, partially offset by higher costs for chemicals ($5 million). The average cost per ton decreased $139 in 2009 compared to 2008, primarily due to the benefits from the alternative fuel mixture tax credits in 2009.
Segment distribution costs decreased $16 million in 2009 compared to 2008 due to lower shipment volumes, as well as lower distribution costs per ton.
Coated Papers Third-Party Data: North American magazine advertising pages decreased 26% in 2009 compared to 2008. In

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2009, North American demand for coated mechanical papers decreased 19.8% compared to 2008. The North American operating rate for coated mechanical papers was 78% in 2009 compared to 85% in 2008. North American coated mechanical mill inventories were at 19 days of supply as of December 31, 2009 compared to 27 days of supply as of December 31, 2008.
Specialty Papers
                         
 
    Predecessor
    Years Ended December 31,
    2009     2008     Change  
 
Average price (per short ton)
   $ 731      $ 754     $ (23 )
Average cost (per short ton)
   $ 685      $ 760     $ (75 )
Shipments (thousands of short tons)
    1,819       2,425       (606 )
Downtime (thousands of short tons)
    521       124       397  
Inventory at end of year (thousands of short tons)
    86       143       (57 )
 
                       
(In millions)
                       
 
Segment sales
   $ 1,331      $ 1,829     $ (498 )
Segment operating income (loss)
    85       (14 )     99  
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating income (loss):
                       
Product pricing
                  $ (54 )
Shipments
                    (444 )
 
Change in sales
                    (498 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    537  
 
                       
Change in distribution costs
                    60  
 
 
                   $ 99  
 
Segment sales decreased $498 million, or 27.2%, from $1,829 million in 2008 to $1,331 million in 2009, due to lower shipment volumes and transaction prices as a result of industry and global economic conditions and mill and paper machine closures and idlings.
In 2009, there was significant market-related downtime at our facilities.
Segment operating loss improved $99 million to $85 million of operating income in 2009 compared to a $14 million operating loss in 2008, primarily due to lower manufacturing and distribution costs, partially offset by the decrease in sales as noted above. The above table analyzes the major items that improved operating loss. A brief explanation of these major items follows.
Segment manufacturing costs decreased $537 million in 2009 compared to 2008, primarily due to lower volumes ($265 million), a favorable Canadian dollar currency exchange ($52 million), benefits from the alternative fuel mixture tax credits ($34 million) that were recorded in 2009 and lower costs for wood and fiber ($13 million), depreciation ($88 million), labor and benefits ($48 million), maintenance ($15 million), energy ($13 million) and other favorable cost variances.
Segment distribution costs decreased $60 million in 2009 compared to 2008 due to lower shipment volumes, as well as lower distribution costs per ton.
Specialty Papers Third-Party Data: In 2009 compared to 2008, North American demand for supercalendered high gloss papers was down 18.9%, for lightweight or directory grades was down 21.3%, for standard uncoated mechanical papers was down 14.5% and in total for all specialty papers was down 17.5%. The North American operating rate for all specialty papers was 76% in 2009 compared to 92% in 2008. North American uncoated mechanical mill inventories were at 18 days of supply as of December 31, 2009 compared to 20 days supply as of December 31, 2008.

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Market Pulp
                         
 
    Predecessor
    Years Ended December 31,
    2009     2008     Change  
 
Average price (per metric ton)
   $ 548      $ 700     $ (152 )
Average cost (per metric ton)
   $ 430      $ 626     $ (196 )
Shipments (thousands of metric tons)
    946       895       51  
Downtime (thousands of metric tons)
    138       79       59  
Inventory at end of year (thousands of metric tons)
    53       101       (48 )
 
                       
(In millions)
                       
 
Segment sales
   $ 518      $ 626     $ (108 )
Segment operating income
    112       66       46  
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating income:
                       
Product pricing
                  $ (136 )
Shipments
                    28  
 
Change in sales
                    (108 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    150  
 
                       
Change in distribution costs
                    1  
 
                       
Change in selling and administrative expenses
                    3  
 
 
                   $ 46  
 
Segment sales decreased $108 million, or 17.3%, from $626 million in 2008 to $518 million in 2009, primarily due to lower transaction prices, partially offset by slightly higher shipment volumes.
Segment operating income increased $46 million to $112 million in 2009 compared to $66 million in 2008, primarily due to lower manufacturing costs, partially offset by the decrease in sales as noted above. The above table analyzes the major items that increased operating income. A brief explanation of these major items follows.
Segment manufacturing costs decreased $150 million in 2009 compared to 2008, primarily due to a favorable Canadian dollar currency exchange ($18 million), benefits from the alternative fuel mixture tax credits ($165 million) that were recorded in 2009, maintenance ($6 million), energy ($5 million) and fuel ($6 million), partially offset by higher volumes ($36 million) and higher costs for wood and fiber ($6 million), labor and benefits ($7 million) and chemicals ($3 million). The average cost per ton decreased $196 in 2009 compared to 2008, primarily due to the benefits from the alternative fuel mixture tax credits in 2009.
Market Pulp Third-Party Data: World shipments for market pulp increased 1.8% in 2009 compared to 2008. Shipments were down 10.9% in Western Europe (the world’s largest pulp market), down 10.9% in North America, up 55.4% in China, up 9.5% in Latin America and up 8.6% in Africa and Asia (excluding China and Japan). World market pulp producers shipped at 91% of capacity in 2009 compared to 87% in 2008. World market pulp producer inventories were at 27 days of supply as of December 31, 2009 compared to 49 days of supply as of December 31, 2008.

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Wood Products
                         
 
    Predecessor
    Years Ended December 31,
    2009     2008     Change  
 
Average price (per thousand board feet)
   $ 254      $ 269     $ (15 )
Average cost (per thousand board feet)
   $ 303      $ 313     $ (10 )
Shipments (millions of board feet)
    1,143       1,556       (413 )
Downtime (millions of board feet)
    1,761       1,225       536  
Inventory at end of year (millions of board feet)
    106       133       (27 )
 
                       
(In millions)
                       
 
Segment sales
   $ 290      $ 418     $ (128 )
Segment operating loss
    (56 )     (69 )     13  
 
 
                       
Significant items that (unfavorably) favorably impacted segment operating loss:
                       
Product pricing
                  $ (14 )
Shipments
                    (114 )
 
Change in sales
                    (128 )
 
                       
Change in cost of sales and depreciation, amortization and cost of timber harvested
                    121  
 
                       
Change in distribution costs
                    17  
 
                       
Change in selling and administrative expenses
                    3  
 
 
                   $ 13  
 
Segment sales decreased $128 million, or 30.6%, from $418 million in 2008 to $290 million in 2009, due to lower shipment volumes and product pricing. The decrease in shipments of wood products was primarily due to lower demand from a weak U.S. housing market.
Segment operating loss decreased $13 million to $56 million in 2009 compared to $69 million in 2008. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.
The significant decrease in shipments in 2009 was offset by lower manufacturing and distribution costs in 2009 compared to 2008. The decrease in manufacturing costs was primarily due to lower volumes ($60 million), a favorable Canadian dollar currency exchange ($21 million) and lower costs for labor and benefits ($15 million), maintenance ($9 million) and other favorable cost variances.
Wood Products Third-Party Data : Privately-owned housing starts in the U.S. increased 0.2% in December 2009 compared to December 2008. Housing starts rose to the highest level in July 2009 since November 2008, but not before reaching an all time record low in April 2009 with a seasonally-adjusted annual rate of 479,000 units. The increase in housing starts was attributed largely to the deadline associated with the special tax break for first-time homebuyers.

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Corporate and Other
The following table is included in order to facilitate the reconciliation of our segment sales and segment operating income (loss) to our total sales and operating loss in our Consolidated Statements of Operations.
                         
 
    Predecessor
    Years Ended December 31,
(In millions)   2009     2008     Change  
 
Sales
   $ 9      $ 1      $ 8  
Operating loss
    (252 )     (1,569 )     1,317  
 
 
                       
Sales
   $ 9      $ 1      $ 8  
 
                       
Cost of sales and depreciation, amortization and cost of timber harvested
    (8 )     (69 )     61  
 
                       
Distribution credit
    6             6  
 
                       
Selling and administrative expenses
    (148 )     (259 )     111  
 
                       
Impairment of goodwill
          (810 )     810  
 
                       
Closure costs, impairment of assets other than goodwill and other related charges
    (202 )     (481 )     279  
 
                       
Net gain on disposition of assets and other
    91       49       42  
 
Operating loss
  $ (252 )    $ (1,569 )    $ 1,317  
 
Manufacturing costs
Manufacturing costs included $17 million in 2009 for the write-down of inventory, primarily associated with our Alabama River and Dalhousie mills, as well as two paper machines at our Calhoun mill. Manufacturing costs included $30 million in 2008 for the write-down of inventory related to the permanent closures of our Donnacona; Mackenzie, British Columbia; Grand Falls; and Covington paper mills.
Selling and administrative expenses
The decrease in selling and administrative expenses in 2009 compared to 2008 was due to our cost reduction initiatives, as well as a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, partially offset by $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts.
Impairment of goodwill
In 2008, we recorded an $810 million non-cash impairment charge for goodwill, which represented the full amount of goodwill associated with our newsprint and specialty papers reporting units. For additional information, see Note 5, “Goodwill and Amortizable Intangible Assets, Net – Goodwill,” to our Consolidated Financial Statements.
Closure costs, impairment of assets other than goodwill and other related charges
In 2009, we recorded $202 million of closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, primarily for asset impairment charges related to assets held for sale for our interest in MPCo, as well as certain of our newsprint mill assets, accelerated depreciation charges for two paper machines at our Calhoun mill, which were previously indefinitely idled, and additional asset impairment charges primarily related to two previously permanently closed mills. In addition, in 2009, we recorded severance and other costs related to the permanent closures of our Westover sawmill and Goodwater planer mill operations and the continued idling of our Alabama River newsprint mill.
In 2008, we recorded $481 million of closure costs, impairment of assets other than goodwill and other related charges,

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primarily for asset impairment charges related to assets held for sale for our interest in MPCo and for the permanent closures of our Donnacona, Mackenzie, Grand Falls and Covington paper mills and Baie-Comeau recycling facility, charges for noncancelable contracts at our Dalhousie operations and severance costs at our Donnacona and Grand Falls paper mills and workforce reductions across numerous facilities.
For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements.
Net gain on disposition of assets and other
In 2009, we recorded a net gain on disposition of assets and other of $91 million, primarily related to the sale, with Court or Monitor approval, as applicable, of 491,356 acres of timberlands, primarily located in Quebec, Canada and other assets. In 2008, we recorded a net gain on disposition of assets and other of $49 million, primarily related to the sale of 46,400 acres of timberlands and other assets, primarily our Price, Quebec sawmill.
For additional information, see Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other – Net gain on disposition of assets and other,” to our Consolidated Financial Statements.
Liquidity and Capital Resources
Overview
In addition to cash and cash equivalents and cash provided by operations, our external source of liquidity is comprised of the ABL Credit Facility, which is defined and discussed below. As of December 31, 2010, we had cash and cash equivalents of approximately $319 million and had approximately $265 million of availability under the ABL Credit Facility (see “ABL Credit Facility” below for a discussion of reserves that reduce our borrowing base availability). We believe that these sources will be sufficient to provide us with adequate liquidity for the next twelve months.
Non-core asset sales have been and may continue to be a source of additional liquidity. We expect to continue to review non-core assets and seek to divest those that no longer fit within our long-term strategic business plan. It is unclear how current global credit conditions may impact our ability to sell any of these assets. Proceeds generated as a result of any divestiture may be required to be used to redeem a portion of the 2018 Notes (as further discussed below). During 2010, we sold various mills and other assets for proceeds of $96 million, including our Mackenzie paper mill and sawmills, four previously permanently closed paper mills that were bundled and sold together, the remaining assets of our Lufkin, Texas paper mill and our Albertville, Alabama sawmill.
On February 11, 2011, AbiBow Canada entered into an agreement to sell its 75% equity interest in ACH to a consortium formed by a major Canadian institutional investor and a private Canadian renewable energy company. Cash proceeds for our interest will be approximately Cdn$293 million ($296 million, based on the exchange rate in effect on February 11, 2011) plus certain adjustments based on ACH’s working capital and cash available at closing, which is currently anticipated to occur in the second quarter of 2011. The closing of the transaction is subject to a number of conditions, including the receipt of applicable regulatory approvals and other third party consents, the execution of certain ancillary definitive agreements, other customary closing conditions and addressing pending or threatened litigation. The proceeds will be applied consistently with the 2018 Notes indenture, which requires, among other things, that the first $100 million of net proceeds from the sale of ACH and certain other assets be used to redeem 2018 Notes if the closing occurs within six months of the Emergence Date. In addition, the purchaser will acquire ACH with its current outstanding debt. Since we have control over ACH, our Consolidated Financial Statements include this entity on a fully consolidated basis. Accordingly, upon closing of the transaction, ACH’s total long-term debt of $280 million will no longer be reflected in our Consolidated Balance Sheets.
Exit financing
10.25% senior secured notes due 2018
On December 9, 2010, AbitibiBowater Inc. and each of its material, wholly-owned U.S. subsidiaries entered into a supplemental indenture with Wells Fargo Bank, National Association, as trustee and collateral agent, pursuant to which AbitibiBowater Inc. assumed the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of 10.25% senior secured notes due 2018 (the “2018 Notes” or “notes”), originally issued on October 4, 2010 pursuant to an indenture as of that date (as supplemented, the “indenture”). ABI Escrow Corporation was a wholly-owned subsidiary of AbitibiBowater Inc. created solely for the purpose of issuing the 2018 Notes. The notes were issued in a private placement exempt from registration under the Securities Act of 1933, as amended. Interest is payable on the notes on April 15 and October 15 of each year beginning on April 15, 2011, until their maturity date of October 15, 2018.

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In accordance with certain conditions in the indenture, the net proceeds of the notes offering were placed into an escrow account on October 4, 2010. ABI Escrow Corporation granted the trustee, for the benefit of the holders of the notes, a continuing security interest in, and lien on, the funds deposited into escrow to secure the obligations under the indenture and the notes. Upon satisfaction of the escrow conditions, the funds deposited into escrow were released to AbitibiBowater Inc. on December 9, 2010. Following such release, we used the net proceeds to repay certain indebtedness pursuant to the Plans of Reorganization.
The notes are and will be guaranteed by our current and future wholly-owned material U.S. subsidiaries (the “guarantors”) and are secured on a first priority basis, subject to permitted liens, by the capital stock of our subsidiaries (limited to 65% of the capital stock in first tier foreign subsidiaries) now owned or acquired in the future by AbitibiBowater Inc. and the guarantors and substantially all of AbitibiBowater Inc.’s and the guarantors’ assets (other than certain excluded assets and assets that are first priority collateral in respect of the ABL Credit Facility) now owned or acquired in the future. The notes and the guarantees are also secured on a second priority basis by the collateral granted to the lenders in respect of the ABL Credit Facility on a first priority basis, including accounts receivable, inventory and cash deposit and investment accounts.
The notes rank equally in right of payment with all of AbitibiBowater Inc.’s post-emergence senior indebtedness and senior in right of payment to all of its subordinated indebtedness. The note guarantees rank equally in right of payment with all of the guarantors’ post-emergence senior indebtedness and are senior in right of payment to all of the guarantors’ post-emergence subordinated indebtedness. In addition, the notes are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the notes. The notes and the guarantees are also effectively junior to indebtedness under the ABL Credit Facility to the extent of the value of the collateral that secures the ABL Credit Facility on a first priority basis and to indebtedness secured by assets that are not collateral to the extent of the value of such assets.
At any time prior to October 15, 2014, we may redeem some or all of the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest plus a “make-whole” premium. We may also redeem some or all of the notes on and after October 15, 2014, at a redemption price of 105.125% of the principal amount thereof if redeemed during the twelve-month period beginning on October 15, 2014, 102.563% of the principal amount thereof if redeemed during the twelve-month period beginning on October 15, 2015, and 100% of the principal amount thereof if redeemed on or after October 15, 2016, plus, in each case, accrued and unpaid interest. We may also redeem up to 35% of the notes using the proceeds of certain equity offerings completed before October 15, 2013 at a redemption price of 110.250% of the principal amount thereof, plus accrued and unpaid interest. Prior to October 15, 2013, we may also redeem up to 10% of the notes per twelve-month period at a redemption price of 103% of the principal amount, plus accrued and unpaid interest. If we experience specific kinds of changes in control, we must offer to purchase the notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest. If we sell certain of our assets, including or interest in ACH, within six months of the Emergence Date, we must use the first $100 million of the net proceeds received from any such sales to redeem a portion of the notes at a redemption price of 105% of the principal amount plus accrued and unpaid interest. If we sell certain of our assets thereafter, and we do not use the proceeds to pay down certain indebtedness, purchase additional assets or make capital expenditures, each as specified in the indenture, we must offer to purchase the notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date with the net cash proceeds from the asset sale.
The terms of the indenture impose certain restrictions, subject to a number of exceptions and qualifications, on us, including limits on our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to, another person; enter into transactions with affiliates and enter into new lines of business. The indenture also contains customary events of default.
As a result of our application of fresh start accounting, the 2018 Notes were recorded at their fair value of $905 million, which resulted in a premium of $55 million, which will be amortized to interest expense using the effective interest method over the term of the notes.
In connection with the issuance of the notes, during 2010, we incurred fees of approximately $27 million, which were written off to “Reorganization items, net” in our Consolidated Statements of Operations as a result of the application of fresh start accounting (see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting”) to our Consolidated Financial Statements.
ABL Credit Facility
On December 9, 2010, AbitibiBowater Inc., Bowater and Abitibi-Consolidated Corp., a wholly-owned subsidiary of AbitibiBowater Inc., (collectively, the “U.S. Borrowers”) and AbiBow Canada (the “Canadian Borrower” and, together with the

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U.S. Borrowers, the “Borrowers”) entered into a senior secured asset-based revolving credit facility (the “ABL Credit Facility”) with certain lenders and Citibank, N.A., as administrative agent and collateral agent (the “agent”).
The ABL Credit Facility, with a maturity date of December 9, 2014, provides for an asset-based, revolving credit facility with an aggregate lender commitment of up to $600 million at any time outstanding, subject to borrowing base availability, including a $20 million swingline sub-facility and a $150 million letter of credit sub-facility. The ABL Credit Facility includes a $400 million tranche available to the Borrowers and a $200 million tranche available solely to the U.S. Borrowers, in each case subject to the borrowing base availability of those Borrowers. The ABL Credit Facility also provides for an uncommitted incremental loan facility of up to $100 million, subject to certain terms and conditions set forth in the ABL Credit Facility.
As of December 31, 2010, the Borrowers had no borrowings and $42 million of letters of credit outstanding under the ABL Credit Facility. As of December 31, 2010, the U.S. Borrowers and the Canadian Borrower had $265 million and zero, respectively, of availability under the ABL Credit Facility.
In accordance with its stated purpose, the proceeds of the ABL Credit Facility were used to fund amounts payable under the Plans of Reorganization and can be used by us for, among other things, working capital, capital expenditures, permitted acquisitions and other general corporate purposes. Upon receipt of the NAFTA settlement amount, we repaid the $100 million we had borrowed on the Emergence Date under the ABL Credit Facility.
The borrowing base availability of each borrower is subject to certain reserves, which are established by the agent in its discretion. The reserves may include dilution reserves, inventory reserves, rent reserves and any other reserves that the agent determines are necessary and have not already been taken into account in the calculation of the borrowing base. An additional reserve of $286 million has been established against the borrowing base of the Canadian Borrower until the adoption, by the governments of Quebec and Ontario, of regulations implementing previously-agreed funding relief applicable to contributions toward the solvency deficits in its material Canadian registered pension plans, as discussed in Note 20, “Pension and Other Postretirement Benefit Plans – Resolution of Canadian pension situation,” to our Consolidated Financial Statements. As a result of this reserve, the borrowing base of the Canadian Borrower will be restricted until such regulations are adopted and as a result, until such time, borrowings under the ABL Credit Facility will be primarily limited to the borrowing base availability of the U.S. Borrowers. Furthermore, if as of April 30, 2011, the regulations discussed above have not been adopted, we will be required pursuant to the ABL Credit Facility to maintain a specified minimum liquidity of at least $200 million until such time as the regulations are adopted.
Revolving loan (and letter of credit) availability under the ABL Credit Facility is subject to a borrowing base, which at any time is equal to: (a) for U.S. Borrowers, the sum of (i) 85% of eligible accounts receivable of the U.S. Borrowers plus (ii) the lesser of 65% of eligible inventory of the U.S. Borrowers or 85% of the net orderly liquidation value of eligible inventory of the U.S. Borrowers, minus reserves established by the agent and (b) for the Canadian Borrower, the sum of (i) 85% of eligible accounts receivable of the Canadian Borrower plus (ii) the lesser of 65% of eligible inventory of the Canadian Borrower or 85% of the net orderly liquidation value of eligible inventory of the Canadian Borrower, minus reserves established by the agent.
The obligations of the U.S. Borrowers under the ABL Credit Facility are guaranteed by each of the other U.S. Borrowers and certain material U.S. subsidiaries of AbitibiBowater Inc. (the “U.S. Guarantors”), and secured by first priority liens on and security interests in accounts receivable, inventory and related assets of the U.S. Borrowers and the U.S. Guarantors and second priority liens on and security interests in all of the collateral of the U.S. Borrowers and the U.S. Guarantors pledged to secure the 2018 Notes, as described above. The obligations of the Canadian Borrower under the ABL Credit Facility are guaranteed by each of the other Borrowers, the U.S. Guarantors and certain material Canadian subsidiaries of AbitibiBowater Inc. (the “Canadian Guarantors” and, together with the U.S. Guarantors, the “Guarantors”), and are secured by first priority liens on and security interests in accounts receivable, inventory and related assets of the Borrowers and the Guarantors and second priority liens on and security interests in all of the collateral of the U.S. Borrowers and the U.S. Guarantors pledged to secure the 2018 Notes.
Borrowings under the ABL Credit Facility bear interest at a rate equal to, at the Borrower’s option, the base rate, the Canadian prime rate or the Eurodollar rate, in each case plus an applicable margin. The base rate under the ABL Credit Facility equals the greater of: (i) the agent’s base rate, (ii) the Federal Funds rate plus 0.5%, (iii) the agent’s rate for certificates of deposit having a term of three months plus 0.5% or (iv) the Eurodollar rate for a one month interest period plus 1.0%. The initial applicable margin is 2.0% with respect to the base rate and Canadian prime rate borrowings and 3.0% with respect to the Eurodollar borrowings. The applicable margin is subject, in each case, to monthly pricing adjustments based on the average monthly excess availability under the ABL Credit Facility, with such adjustments commencing after the end of the second full fiscal quarter following the Emergence Date.
In addition to paying interest on the outstanding borrowings under the ABL Credit Facility, the Borrowers are required to pay a

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fee in respect of committed but unutilized commitments equal to 0.75% per annum initially. Commencing after the end of the second full fiscal quarter following the Emergence Date, the fee is subject to monthly pricing adjustments based on the unutilized commitment of the ABL Credit Facility over the prior month. The Borrowers are required to pay a fee equal to 0.75% per annum when the unutilized commitment of the ABL Credit Facility is greater than or equal to 50% of the total commitments and 0.50% per annum when the unutilized commitment of the ABL Credit Facility is less than 50% of the total commitments. The Borrowers must also pay a fee on outstanding letters of credit under the ABL Credit Facility at a rate equal to the applicable margin in respect of Eurodollar borrowings, plus a facing fee as agreed to in writing from time to time, and certain administrative fees.
The Borrowers are able to voluntarily repay outstanding loans and reduce unused commitments, in each case, in whole or in part, at any time without premium or penalty. The Borrowers are required to repay outstanding loans anytime the outstanding loans exceed the maximum availability then in effect. The Borrowers are also required to use net proceeds from certain significant asset sales to repay outstanding loans, but may re-borrow following such prepayments if the conditions to borrowings are met.
The ABL Credit Facility contains customary covenants for asset-based credit agreements of this type, including, among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence and repayment of indebtedness; (iii) restrictions on the existence or incurrence of liens; (iv) restrictions on making certain restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset dispositions; (vii) restrictions on transactions with affiliates; (viii) restrictions on amendments or modifications to the Canadian pension and benefit plans; (ix) restrictions on modifications to material indebtedness; (x) a springing requirement for us to maintain a minimum consolidated fixed charge coverage ratio of 1.10 to 1.00, which is triggered anytime excess availability under the ABL Credit Facility falls below 15% of the total commitments then in effect and, following such triggering, remains in place until excess availability returns to above 15% for a period of 40 consecutive days and (xi) a springing requirement that, if as of April 30, 2011, the pension funding relief regulations discussed above have not been adopted, we will be required to maintain a specified minimum liquidity of at least $200 million until such time as the regulations are adopted. Subject to customary grace periods and notice requirements, the ABL Credit Facility also contains customary events of default.
As consideration for entering into the ABL Credit Facility, during 2010, we incurred fees of approximately $19 million, which were recorded as deferred financing costs in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and will be amortized to interest expense over the term of the facility.
Flow of funds
Summary of cash flows
A summary of cash flows for the years ended December 31, 2010, 2009 and 2008 was as follows:
                         
 
    Predecessor
(In millions)   2010     2009     2008  
 
Net cash provided by (used in) operating activities
   $ 39      $ 46      $ (420 )
Net cash provided by (used in) investing activities
    96       484       (27 )
Net cash (used in) provided by financing activities
    (572 )     34       444  
 
Net (decrease) increase in cash and cash equivalents
  $ (437 )    $ 564      $ (3 )
 
Cash provided by (used in) operating activities
The $7 million decrease in cash provided by operating activities in 2010 compared to 2009 was primarily due to the alternative fuel mixture tax credits received in 2009 and payments in 2010 related to our emergence from the Creditor Protection Proceedings for professional fees, administrative, priority and convenience claims and a backstop commitment agreement termination fee related to a rights offering that we elected not to pursue. These decreases in cash provided by operating activities were partially offset by reductions in our pension contributions and selling and administrative expenses in 2010, as well as the receipt of the NAFTA settlement in 2010.
The $466 million increase in cash provided by operating activities in 2009 compared to 2008 was primarily related to a significant reduction in accounts receivable and a significant increase in accounts payable and accrued liabilities, as well as proceeds from the alternative fuel mixture tax credits. Liabilities subject to compromise included pre-petition accounts payable and accrued liabilities, none of which were paid. As a result, our cash flows from operating activities were favorably affected

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by the stay of payment related to such accounts payable and accrued liabilities, including the stay of interest payments related to certain pre-petition debt obligations.
Cash provided by (used in) investing activities
The $388 million decrease in cash provided by investing activities in 2010 compared to 2009 was primarily due to the proceeds from the sale of our interest in MPCo in 2009, lower proceeds from the disposition of assets in 2010 and an increase in deposit requirements for letters of credit in 2010, partially offset by a reduction in cash invested in fixed assets in 2010 and a decrease in restricted cash in 2010.
The $511 million increase in cash provided by investing activities in 2009 compared to 2008 was primarily due to proceeds from the sale of our interest in MPCo and reductions in cash invested in fixed assets and deposit requirements for letters of credit in 2009, partially offset by decreased proceeds from timberlands and other asset sales and an increase in restricted cash in 2009.
Capital expenditures for all periods include compliance, maintenance and projects to increase returns on production assets.
Cash (used in) provided by financing activities
The $606 million decrease in cash provided by financing activities in 2010 compared to 2009 was primarily due to the repayment of borrowings under our debtor in possession financing arrangement in 2010 versus the amount of borrowings and repayments under the debtor in possession financing arrangements in 2009, the repayment of secured pre-petition debt obligations upon our emergence from the Creditor Protection Proceedings versus the repayments of long-term debt in 2009 and the payment of financing fees on our exit financing, partially offset by the proceeds received on the issuance of the 2018 Notes in 2010 and lower debtor in possession financing costs in 2010.
The $410 million decrease in cash provided by financing activities in 2009 compared to 2008 was due to the lower level of borrowings under our debtor in possession financing arrangements in 2009 versus the long-term borrowings in 2008, primarily due to refinancings in the second quarter of 2008, and the partial repayment of ACCC’s 13.75% Senior Secured Notes due 2011 in 2009, partially offset by lower repayments in 2009 on our pre-petition secured bank credit facilities.
Contractual Obligations
In addition to our debt obligations as of December 31, 2010, we had other commitments and contractual obligations that require us to make specified payments in the future. As of December 31, 2010, the scheduled maturities of our contractual obligations were as follows:
                                         
 
(In millions)   Total   2011   2012 – 2013   2014 – 2015   Thereafter  
 
Long-term debt (1)
   $ 1,550      $ 90      $ 174      $ 174      $ 1,112  
Non-cancelable operating lease obligations (2)
    28       8       8       3       9  
Purchase obligations (3)
    249       20       35       24       170  
Tax reserves
    136       62       15       14       45  
Pension and OPEB funding (4)
    598       148       100       100       250  
 
 
   $ 2,561      $ 328      $ 332      $ 315      $ 1,586  
 
(1)   Long-term debt commitments include interest payments but exclude the related premium on the debt of $55 million as of December 31, 2010, as this item requires no cash outlay. Also excluded is ACH’s long-term debt of $280 million, which was included in “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets as of December 31, 2010.
(2)   We lease timberlands, certain office premises, office equipment and transportation equipment under operating leases.
(3)   As of December 31, 2010, purchase obligations include, among other things, a bridge and railroad contract for our Fort Frances operations with commitments totaling $136 million through 2044.
(4)   Pension and OPEB funding is calculated on an annual basis for the following year only. The amounts in the above table for 2012 and thereafter represent the Cdn$50 million basic contribution only, which is discussed further below.

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In addition to the items shown in the table above, we have contractual obligations related to certain undertakings with the provinces of Quebec and Ontario, as discussed further below. We are also party to employment and change-in-control agreements with our executive officers. See Item 11 of this Form 10-K, “Executive Compensation.”
Employee Benefit Plans
Resolution of Canadian pension situation
AbiBow Canada, through its principal predecessor entities, ACCC and Bowater Canadian Forest Products Inc. (“BCFPI,” formerly an indirect, wholly-owned subsidiary of Bowater), entered into agreements with the provinces of Quebec and Ontario in September and November of 2010, respectively (which became effective on the Emergence Date), relating in part to funding relief in respect of the material aggregate solvency deficits in the registered pension plans sponsored by ACCC and BCFPI in those provinces.
The agreements include a number of undertakings by AbiBow Canada, which will apply for five years from the Emergence Date. As a result, the governments of Quebec and Ontario have separately confirmed to ACCC and BCFPI their intention to adopt the funding relief regulations to provide, among other things, that AbiBow Canada’s aggregate annual contribution in respect of the solvency deficits in its material Canadian registered pension plans for each year from 2011 through 2020 are limited to the following: (i) a Cdn$50 million basic contribution; (ii) beginning in 2013, if the plans’ aggregate solvency ratio falls below a specified target for a year, an additional contribution equal to 15% of free cash flow up to Cdn$15 million per year and (iii) beginning in 2016, if the amount payable for benefits in a year exceeds a specified threshold and the plans’ aggregate solvency ratio is more than 2% below the target for that year, a supplementary contribution equal to such excess (such supplementary contribution being capped at Cdn$25 million on the first occurrence only of such an excess). Should a plan move into a surplus during the 2011 – 2020 period, it will cease to be subject to this funding relief. After 2020, the funding rules in place at the time will apply to any remaining deficit.
In addition, AbiBow Canada has undertaken in those agreements, among other things, to:
    not pay a dividend at any time when the weighted average solvency ratio of its pension plans in Quebec or Ontario is less than 80%;
 
    abide by the compensation plan detailed in the Plans of Reorganization with respect to salaries, bonuses and severance;
 
    direct at least 60% of the maintenance and value-creation investments earmarked for our Canadian pulp and paper operations to projects in Quebec and at least 30% to projects in Ontario;
 
    invest a minimum of Cdn$50 million over a two to three year construction period for a new condensing turbine at our Thunder Bay facility, subject to certain conditions;
 
    invest at least Cdn$75 million in strategic projects in Quebec over a five-year period;
 
    maintain our head office and the current related functions in Quebec;
 
    make an additional solvency deficit reduction contribution to its pension plans of Cdn$75, payable over four years, for each metric ton of capacity reduced in Quebec or Ontario, in the event of downtime of more than six consecutive months or nine cumulative months over a period of 18 months;
 
    create a diversification fund by contributing Cdn$2 million per year for five years for the benefit of the municipalities and workers in our Quebec operating regions;
 
    pay an aggregate of Cdn$5 million over five years to be used for such environmental remediation purposes instructed by the province of Ontario; and
 
    maintain and renew certain financial assurances with the province of Ontario in respect of certain properties in the province.
Pension and OPEB plans
The determination of projected benefit obligations and the recognition of expenses related to our pension and OPEB obligations are dependent on assumptions used in calculating these amounts. These assumptions include: discount rates, expected rates of return on plan assets, rate of future compensation increases, mortality rates, termination rates, health care inflation trend rates and other factors. All assumptions are reviewed periodically with third-party actuarial consultants and adjusted as necessary.

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Any deterioration in the global securities markets could impact the value of the assets included in our defined benefit pension plans, which could materially impact future minimum cash contributions. Should values deteriorate in 2011, the decline in fair value of our plans could result in increased total pension costs for 2012 as compared to total pension costs in 2011.
Our policy for funding our pension and OPEB plans is to contribute annually the minimum amounts required by applicable laws and regulations, taking into account the agreements entered into with the provinces of Quebec and Ontario discussed above. In 2010, gross contributions to our defined benefit pension and OPEB plans were $76 million. We estimate our 2011 contributions to be approximately $120 million to our pension plans and approximately $28 million to our OPEB plans. The estimated contributions for 2011 are approximately $100 million lower than what would have been required had we not entered into the agreements with the provinces of Quebec and Ontario discussed above.
For a further discussion of our pension and OPEB plans, see Note 20, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial Statements.
Exchange Rate Fluctuation Effect on Earnings
We compete with North American, European and Asian producers in most of our product lines. Our products are sold and denominated in U.S. dollars, Canadian dollars and selected foreign currencies. A substantial portion of our manufacturing costs are denominated in Canadian dollars. In addition to the impact of product supply and demand, changes in the relative strength or weakness of such currencies, particularly the U.S. dollar, may also affect international trade flows of these products. A stronger U.S. dollar may attract imports into North America from foreign producers, increase supply and have a downward effect on prices, while a weaker U.S. dollar may encourage U.S. exports and increase manufacturing costs that are in Canadian dollars or other foreign currencies. Variations in the exchange rates between the U.S. dollar and other currencies, particularly the Euro and the currencies of Canada, Sweden and certain Asian countries, will significantly affect our competitive position compared to many of our competitors.
We are sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The impact of these changes depends primarily on our production and sales volume, the proportion of our production and sales that occur in Canada, the proportion of our financial assets and liabilities denominated in Canadian dollars, our hedging levels and the magnitude, direction and duration of changes in the exchange rate. We expect exchange rate fluctuations to continue to impact costs and revenues; however, we cannot predict the magnitude or direction of this effect for any quarter, and there can be no assurance of any future effects. During the last two years, the relative value of the Canadian dollar ranged from US$0.78 in March 2009 to US$1.00 as of December 31, 2010. Based on exchange rates and operating conditions projected for 2011, we project that a one-cent increase in the Canadian-U.S. dollar exchange rate would decrease our pre-tax income (loss) for 2011 by approximately $22 million.
If the Canadian dollar continues to remain strong or gets stronger versus the U.S. dollar, it could influence the foreign exchange rate assumptions that are used in our evaluation of long-lived assets for impairment and consequently, result in asset impairment charges.
Hedging Programs
For a description of our hedging activities during 2010, 2009 and 2008, see Note 19, “Derivative Financial Instruments and Other Embedded Derivatives,” to our Consolidated Financial Statements. There were no foreign currency exchange contracts outstanding as of December 31, 2010.
Newfoundland and Labrador Expropriation
For information regarding our August 24, 2010 settlement agreement with the Canadian government regarding the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government, see Item 1, “Business – Newfoundland and Labrador Expropriation.”
Environmental Matters
For information regarding our environmental matters, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

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Monetization of Timber Notes
In connection with certain timberland sales transactions in 2002 and prior years, Bowater received a portion of the sale proceeds in notes receivable from institutional investors. In order to increase our liquidity, we monetized these notes receivable using qualified special purpose entities (“QSPEs”) set up in accordance with FASB ASC 860, “Transfers and Servicing.” The more significant aspects of the QSPEs are discussed in Note 18, “Monetization of Timber Notes,” to our Consolidated Financial Statements.
The following summarizes our retained interest in our QSPEs and the QSPEs’ total assets and obligations as of December 31, 2010:
                                 
 
                            Excess of
    Retained   Total   Total   Assets over
(In millions)   Interest   Assets   Obligations   Obligations
 
Calhoun Note Holdings AT LLC
   $ 8      $ 74      $ 64      $ 10  
Calhoun Note Holdings TI LLC
    11       74       62       12  
 
 
   $ 19      $ 148      $ 126      $ 22  
 
Recent Accounting Guidance
There is no accounting guidance issued which we have not yet adopted that is expected to materially impact our results of operations or financial condition.
Critical Accounting Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires us to make accounting estimates based on assumptions, judgments and projections of future results of operations and cash flows. These estimates and assumptions affect the reported amounts of revenues and expenses during the periods presented and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements.
We base our estimates, assumptions and judgments on a number of factors, including historical experience, recent events, existing conditions, internal budgets and forecasts, projections obtained from industry research firms and other data that we believe are reasonable under the circumstances. We believe that our accounting estimates are appropriate and that the resulting financial statement amounts are reasonable. Due to the inherent uncertainties in making estimates, actual results could differ materially from these estimates, requiring adjustments to financial statement amounts in future periods.
A summary of our significant accounting policies is disclosed in Note 2, “Summary of Significant Accounting Policies,” to our Consolidated Financial Statements. Based upon a review of our significant accounting policies, we believe the following accounting policies require us to make accounting estimates that can significantly affect the results reported in our Consolidated Financial Statements. We have reported the development, selection and disclosures of our critical accounting estimates to the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures relating to these estimates.
Fresh start accounting
Description of accounts impacted by the accounting estimate
As discussed in Note 2, “Summary of Significant Accounting Policies – Fresh start accounting,” to our Consolidated Financial Statements, we applied fresh start accounting as of December 31, 2010 in accordance with FASB ASC 852, pursuant to which, among other things, the reorganization value derived from the enterprise value established in the Plans of Reorganization was assigned to our assets and liabilities in conformity with FASB ASC 805, which requires recording assets and liabilities at fair value (except for deferred income taxes and pension and OPEB projected benefit obligations). The excess of net asset values over the reorganization value was recorded as an adjustment to equity. The accounts impacted by these accounting estimates are presented in our Reorganized Consolidated Balance Sheet in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.

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Judgments and uncertainties involved in the accounting estimate
Enterprise valuation
In connection with the development of the Plans of Reorganization, we engaged an independent financial advisor to assist us in the determination of the enterprise value of the Successor Company. Using a number of estimates and assumptions, we prepared financial projections through 2014, which were included in the disclosure statement related to the Plans of Reorganization. Based on these financial projections, which assumed an emergence date of October 1, 2010, and with the assistance of our financial advisor, we estimated a going concern enterprise value of the Successor Company within a range of approximately $3,500 million to $3,850 million, with a midpoint estimate of $3,675 million, which included the fair value of tax attributes that were expected to be available to the Successor Company. This enterprise value was estimated using three valuation methods: (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transactions analysis, each of which is discussed further below. We used the midpoint estimate of the enterprise value as the basis for our determination of the Successor Company’s equity value and reorganization value. The reorganization value is viewed as the fair value of the Successor Company before considering liabilities and is intended to approximate the amount a willing buyer would pay for the assets of the entity immediately after the reorganization and represents the amount of resources available for the satisfaction of post-petition liabilities and allowed claims, as negotiated between the Debtors and their creditors.
The DCF analysis is a forward-looking enterprise valuation methodology that estimates the value of an asset or business by calculating the present value of expected future cash flows to be generated by that asset or business. Under this methodology, projected future cash flows are discounted by the business’ weighted average cost of capital (the “Discount Rate”). The Discount Rate reflects the estimated blended rate of return that would be required by debt and equity investors to invest in the business based upon its capital structure. Our enterprise value was determined by calculating the present value of our unlevered after-tax free cash flows based on our five-year financial projections, with certain adjustments, plus an estimate for the value of the Company beyond the five-year projection period, known as the terminal value. The terminal value was derived by applying a perpetuity growth rate (ranging from negative 3.6% to 1.4%) to the average free cash flow generated over the five-year period, discounted back to the assumed date of emergence (October 1, 2010) by the Discount Rate. The present value of our five-year cash flow projections was calculated using Discount Rates ranging from 14% – 16% and an implied terminal value ranging from 4.0x – 5.0x terminal Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”).
The comparable company analysis estimates the value of a company based on a relative comparison with other publicly-traded companies with similar operating and financial characteristics. Under this methodology, the enterprise value for each selected public company was determined by examining the trading prices for the equity securities of such company in the public markets and adding the aggregate amount of outstanding net debt for such company (at book value) and noncontrolling interests. Those enterprise values are commonly expressed as multiples of various measures of operating statistics, most commonly EBITDA. Our financial advisor also examined enterprise values for each selected company by including the pension underfunding of each company in the enterprise value and then expressing those enterprise values as multiples of EBITDAP (EBITDA including pension underfunding). In addition, each of the selected public company’s operational performance, operating margins, profitability, leverage and business trends were examined. Based on these analyses, financial multiples and ratios were calculated to apply to our actual and projected operational performance. Multiples ranged from 4.0x – 5.0x 2011 projected EBITDA.
The precedent transactions analysis estimates value by examining public merger and acquisition transactions. The valuations paid in such acquisitions or implied in such mergers are analyzed as ratios of various financial results. These transaction multiples were calculated based on the purchase price (including any debt assumed) paid to acquire companies that are comparable to us. Since precedent transactions analysis reflects aspects of value other than the intrinsic value of a company, there are limitations as to its applicability in determining the enterprise value. Nonetheless, our financial advisor reviewed recent merger and acquisition transactions involving paper and forest products companies. Many of the transactions analyzed occurred in fundamentally different industry and credit market conditions from those prevailing in the marketplace, and therefore, may not be the best indication of value. Transaction multiples for the precedent mean and median were 8.1x and 6.9x, respectively, the last twelve months’ EBITDA, but these multiples were not deemed to be meaningful.
The range of enterprise values was determined primarily based on the DCF analysis.
In addition, certain of our other non-operating assets were valued separately, as follows: (i) tax attributes at each Debtor were valued based on a DCF of the projected tax savings arising from the use of our available post-emergence attributes, (ii) the value of certain litigation claims was determined based upon discussions with internal and external legal counsel and in

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consultation with the Creditors Committee, (iii) miscellaneous timber assets were valued based on precedent transactions and (iv) other non-operating assets marketed to be sold prior to emergence were based upon estimated sale proceeds.
Income taxes in these financial projections were calculated based on the projected applicable statutory tax rates in the countries in which we operate. For our U.S. operations, the federal tax rate was assumed to be 35% through 2014 and 38% thereafter and state taxes were deemed to not be material over the projection period. For our Canadian operations, the federal tax rate was assumed to be 30% in 2010, 28.5% in 2011 and 27% thereafter.
The enterprise valuation was based upon achieving the future financial results set forth in our projections, as well as the realization of certain other assumptions. The financial projections included in the enterprise valuation were limited by the information available to us as of the date of the preparation of the projections and reflected numerous assumptions concerning anticipated future performance, as well as prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize. These assumptions and the financial projections are inherently subject to significant uncertainties, as well as significant business, economic and competitive risks, many of which are beyond our control. Accordingly, there can be no assurance that the assumptions and financial projections will be achieved and actual results could vary materially. The assumptions for which there is a reasonable possibility of a variation that would significantly affect the calculated enterprise value include, but are not limited to, sales volumes, product pricing, product mix, foreign currency exchange rates, costs of raw materials and energy, achievement of operating margins and cost reductions, income tax rates, working capital changes, capital spending and overall industry conditions.
Allocation of reorganization value to assets and liabilities
The reorganization value derived from our enterprise value was assigned to our assets and liabilities in conformity with the acquisition method of accounting for business combinations pursuant to FASB ASC 805, which requires recording assets and liabilities at fair value (except for deferred income taxes and pension and OPEB projected benefit obligations). The reorganization value was assigned first to tangible and identifiable intangible assets and then the excess of net asset values over the reorganization value was recorded as an adjustment to equity, as further discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.
The estimated fair values of our assets and liabilities represent our best estimates and valuations, primarily based on the cost, income or market valuation approaches, as follows:
    Inventories: The fair value of our finished goods inventories was based on their estimated selling prices less the sum of selling costs, shipping costs and a reasonable profit allowance for the selling effort. The fair value of our mill stores and other supplies inventories was based on replacement cost for high-turnover items and on replacement cost less economic obsolescence for all other items. The fair values of our raw materials and work in process inventories were recorded at the Predecessor Company’s carrying values, which approximated fair value.
 
    Fixed assets : Except for construction in progress, the estimated fair values of our fixed assets were based on the cost approach and income approach valuation methods.
 
    The cost approach method considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility, adjusted for depreciation as of the appraisal date as described below:
    Physical deterioration – the loss in value or usefulness attributable solely to the use of the asset and physical causes such as wear and tear and exposure to the elements.
 
    Functional obsolescence – the loss in value caused by the inability of the property to adequately perform the function for which it is utilized.
 
    Technological obsolescence (a form of functional obsolescence) – the loss in value due to changes in technology, discovery of new materials and improved manufacturing processes.
 
    Economic obsolescence – the loss in value caused by external forces such as legislative enactments, overcapacity in the industry, low commodity pricing, changes in the supply and demand relationships in the marketplace and other market inadequacies.
    The cost approach relies on management’s assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our fixed assets along with assumptions regarding the age and estimated useful lives of our fixed assets.
 
    The income approach method estimates fair value based on a DCF analysis. We derived our income approach assumptions from our business plan, which was developed using several sources, including our internal budgets (which contain existing sales data based on current product lines and assumed production levels, manufacturing costs and product pricing). Our valuation model used a cash flow period of four years, with a terminal value based on a multiple of EBITDA. We used Discount Rates ranging from 13% – 15%.
 
    Construction in progress was recorded at the Predecessor Company’s carrying value, which approximated fair value.
    Amortizable intangible assets: In the application of fresh start accounting, we identified amortizable intangible assets related to water rights. The estimated fair value of these identifiable intangible assets was primarily based on DCF valuation methods.

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    Joint ventures: The fair values of our joint ventures were based on a combination of the cost, income and market approach valuation methods.
 
    Long-term debt: The fair value of our Senior Secured Notes due 2018 was based on quoted market prices.
 
    All other assets and liabilities were recorded at the Predecessor Company’s carrying values, after adjustments resulting from the implementation of the Plans of Reorganization. The resulting carrying values approximated their fair values.
The value of our assets included in assets held for sale and our liabilities included in liabilities associated with assets held for sale was determined based on recent offers, as applicable, or the applicable method discussed above less costs to sell. The fair value of long-term debt included in liabilities associated with assets held for sale was estimated by discounting the cash flows using interest rates as of December 31, 2010 for financial instruments with similar characteristics and maturities.
The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740. See Note 21, “Income Taxes,” to our Consolidated Financial Statements for additional information.
The amount of pension and OPEB projected benefit obligations recorded was determined in accordance with FASB ASC 715. See Note 20, “Pension and Other Postretirement Benefit Plans,” to our Consolidated Financial Statements for a discussion of the assumptions used to determine our pension and OPEB projected benefit obligations as of December 31, 2010.
The estimates and assumptions used in the valuation of our assets and liabilities are inherently subject to significant uncertainties, many of which are beyond our control. Accordingly, there can be no assurance that the estimates, assumptions and values reflected in these valuations will be realized and actual results could vary materially.
Effect if actual results differ from assumptions
A number of judgments were made in the determination of the enterprise value, as well as the allocation of the reorganization value to our assets and liabilities. If a different conclusion had been reached for any one of our assumptions, it could have resulted in a different allocation from the one we made, which, among other things, could have resulted in a different conclusion on the amount of inventories, assets held for sale, fixed assets, amortizable intangible assets, deferred income taxes, other assets, liabilities associated with assets held for sale, long-term debt, pension and OPEB projected benefit obligations, other long-term liabilities and shareholders’ equity recorded in our Consolidated Balance Sheet as of December 31, 2010.
Pension and OPEB projected benefit obligations
Description of accounts impacted by the accounting estimate
We record assets and liabilities associated with our pension and OPEB projected benefit obligations that may be considered material to our financial position. We also record net periodic benefit costs associated with these obligations as our employees render service. As of December 31, 2010, we have pension and OPEB projected benefit obligations aggregating $6,710 million and accumulated pension plan assets at fair value of $5,422 million. Our 2010 net periodic pension and OPEB benefit cost was $37 million.
Judgments and uncertainties involved in the accounting estimate
The following inputs are used to determine our net periodic benefit costs each year and the determination of these inputs requires judgment:
    discount rate – used to arrive at the net present value of the pension and OPEB projected benefit obligations;
 
    return on assets – used to estimate the growth in the value of invested assets that are available to satisfy pension projected benefit obligations;
 
    mortality rate – used to estimate the impact of mortality on pension and OPEB projected benefit obligations;
 
    rate of compensation increase – used to calculate the impact future pay increases will have on pension projected benefit obligations; and
 
    health care cost trend rate – used to calculate the impact of future health care costs on OPEB projected benefit obligations.
We determined the discount rate by considering the timing and amount of projected future benefit payments, which, for our U.S. plans, is based on a portfolio of long-term high quality corporate bonds of a similar duration and, for our Canadian and other plans, is based on a model that matches the plan’s duration to published yield curves. To develop our expected long-term rate of return on assets, we considered the historical returns and the future expectations for returns for each class of assets held in our pension portfolios, as well as the target asset allocation of those portfolios. For the mortality rate, we used actuarially-determined mortality tables that were consistent with our historical mortality experience and future expectations for mortality of the employees who participate in our pension and OPEB plans. In determining the rate of compensation increase, we reviewed historical salary increases and promotions, while considering current industry conditions, the terms of

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collective bargaining agreements with our employees and the outlook for our industry. For the health care cost trend rate, we considered historical trends for these costs, as well as recently enacted healthcare legislation.
Effect if actual results differ from assumptions
Variations in assumptions could have a significant effect on the net periodic benefit cost and net unfunded pension and OPEB projected benefit obligations reported in our Consolidated Financial Statements. For example, a 25 basis point change in any one of these assumptions would have increased (decreased) our net periodic benefit cost for our pension and OPEB plans and our net pension and OPEB projected benefit obligations as follows (in millions):
                                 
 
                    Net Pension and OPEB Projected
                    Benefit Obligations as of
    2010 Net Periodic Benefit Cost   December 31, 2010
    25 Basis Point   25 Basis Point   25 Basis Point   25 Basis Point
Assumption   Increase   Decrease   Increase   Decrease
 
Discount rate
   $ (1 )    $ 1      $ (174 )    $ 180  
Return on assets
    (13 )     13              
Rate of compensation increase
    2       (2 )     5       (5 )
Health care cost trend rate
    1       (1 )     11       (9 )
 
As of December 31, 2010, the most significant change in our assumptions was a decrease to 5.5% from 6.4% as of December 31, 2009 in the weighted-average discount rate for our pension projected benefit obligations.
The net periodic benefit cost of our pension plans is based on the expected return on plan assets and not the actual return on plan assets, and the net periodic benefit cost of our pension and OPEB plans is based on the expected change in pension and OPEB projected benefit obligations arising from the time value of money and not the actual change in pension and OPEB projected benefit obligations. Differences between these expected and actual results were recorded in “Accumulated other comprehensive loss” in our Consolidated Balance Sheets as an actuarial gain or loss. These accumulated differences, which are normally amortized into income in future years, were eliminated as of December 31, 2010 as a result of our application of fresh start accounting.
Recoverability of deferred tax assets
Description of accounts impacted by the accounting estimate
Based on the existence of significant negative evidence such as a cumulative three-year loss and our financial condition, we concluded that a valuation allowance was necessary on substantially all of our net deferred tax assets in 2008, 2009 and 2010 until the Emergence Date on the basis that the tax benefits would not be realized. Upon emergence from the Creditor Protection Proceedings, we evaluated the need for a valuation allowance against our net deferred tax assets and determined that post-emergence, we expect to generate sufficient taxable income in the future to realize the deferred tax assets and accordingly, determined that we do not need a valuation allowance against certain deferred tax assets. In making this determination, we primarily focused on a post-reorganization outlook, which reflects a new capital structure, new contractual arrangements and a new asset structure with new values under the application of fresh start accounting as of December 31, 2010. Management has reassessed the prior three-year operating performance and adjusted the past results to reflect that we would have had cumulative three-year profits had the changes in the Company that were effective on the Emergence Date been in place during that three-year period. The weight of this positive evidence, together with the positive evidence of our expected future performance, resulted in the conclusion by management that upon emergence from the Creditor Protection Proceedings, valuation allowances were not required for most deferred tax assets. Therefore, the valuation allowances were reversed as part of the implementation of the Plans of Reorganization and the application of fresh start accounting.

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As a result, we have significant net deferred tax assets of approximately $1.7 billion recorded on the Successor Company’s Consolidated Balance Sheet as of December 31, 2010. These deferred tax assets consist of approximately $1.3 billion, net in Canada and $400 million, net in the U.S. and are comprised primarily of:
      United States :
    Federal and state net operating loss carryforwards of approximately $500 million. Our federal operating loss carryforwards are subject to certain annual limitations; however, these ordinary losses expire in 2029 and we expect to fully utilize them during this period. In most instances, we have applied a full valuation allowance to our state operating loss carryforwards.
 
    Our remaining U.S. deferred tax assets and liabilities net to a deferred tax liability position of approximately $100 million and relate primarily to a deferred tax liability on our fixed assets.
 
    We have approximately $400 million of capital loss carryforwards against which we have applied a full valuation allowance because we are not assured of realizing capital gains in the carryforward period.
      Canada :
    Operating loss carryforwards of approximately $130 million and investment tax credits of approximately $201 million that expire between 2014 and 2030 and which we expect to fully utilize during this period.
 
    A pool of scientific research and experimental development costs of approximately $270 million that expire between 2019 and 2029 and which we expect to fully utilize during this period.
 
    Indefinite lived deferred tax assets for undepreciated capital costs of approximately $500 million and tax credits related to our employee future benefits (pension and OPEB) of approximately $210 million.
Judgments and uncertainties involved in the accounting estimate
We are required to assess whether it is more likely than not that the deferred tax assets will be realized, based on the nature, frequency and severity of recent losses, forecasted income, or where necessary, the implementation of prudent and feasible tax planning strategies. The carrying value of our deferred tax assets (tax benefits expected to be realized in the future) assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits, or in the absence of sufficient future taxable income, that we would implement tax planning strategies to generate sufficient taxable income. In making such judgments, significant weight is given to evidence that can be objectively verified.
Effect if actual results differ from assumptions
If actual financial results are not consistent with the assumptions and judgments used in determining and estimating the realization of our net deferred tax assets by recording a valuation allowance, we may be required to reduce the value of our net deferred tax assets, resulting in additional income tax expense, and such reduction and related tax expense could be material.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to risks associated with fluctuations in foreign currency exchange rates, interest rates, commodity prices and credit risk on the accounts receivable from our customers.
Foreign Currency Exchange Risk
We have manufacturing operations in Canada, the United States and South Korea and sales offices located throughout the world. As a result, we are exposed to movements in foreign currency exchange rates in countries outside the United States. Our most significant foreign currency exposure relates to Canada. Over half of our pulp and paper production capacity and all of our wood products production capacity are in Canada, with manufacturing costs primarily denominated in Canadian dollars. Also, certain other assets and liabilities are denominated in Canadian dollars and are exposed to foreign currency movements. As a result, our earnings are affected by increases or decreases in the value of the Canadian dollar. Increases in the value of the Canadian dollar versus the United States dollar will tend to reduce reported earnings, and decreases in the value of the Canadian dollar will tend to increase reported earnings. See “Exchange Rate Fluctuation Effect on Earnings” in Item 7 for additional information on foreign exchange risks related to our operating costs. There were no foreign currency exchange contracts outstanding as of December 31, 2010.
Interest Rate Risk
We are exposed to interest rate risk on our fixed-rate long-term debt (the 2018 Notes) and our variable-rate short-term bank debt (borrowings under the ABL Credit Facility). As of December 31, 2010, we had $905 million ($850 million principal amount) of fixed-rate long-term debt and no variable-rate short-term bank debt. Our fixed-rate long-term debt is exposed to fluctuations in fair value resulting from changes in market interest rates, but such changes do not affect earnings or cash flows.
Commodity Price Risk
We purchase significant amounts of energy, chemicals, wood fiber and recovered paper to supply our manufacturing facilities. These raw materials are market-priced commodities and as such, are subject to fluctuations in market prices. Increases in the prices of these commodities will tend to reduce our reported earnings and decreases will tend to increase our reported earnings. From time to time, we may enter into contracts aimed at securing a stable source of supply for commodities such as timber, wood fiber, energy, chemicals and recovered paper. These contracts typically require us to pay the market price at the time of purchase. Thus, under these contracts, we generally remain subject to market fluctuations in commodity prices.
Credit Risk
We are exposed to credit risk on the accounts receivable from our customers. In order to manage our credit risk, we have adopted policies, which include the analysis of the financial position of our customers and the regular review of their credit limits. We also subscribe to credit insurance and, in some cases, require bank letters of credit. Our customers are mainly in the newspaper publishing, specialty, advertising and paper converting, as well as lumber wholesaling and retailing businesses. See Part I, Item 1A, “Risk Factors – Bankruptcy of a significant customer could have a material adverse effect on our liquidity, financial condition or results of operations.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
         
    Page
    62  
    63  
    64  
    65  
    66  
    67  
    138  
    140  

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ABITIBIBOWATER INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     2008  
 
Sales
    $ 4,746       $ 4,366       $ 6,771  
Costs and expenses:
                       
Cost of sales, excluding depreciation, amortization and cost of timber harvested
    3,724       3,343       5,144  
Depreciation, amortization and cost of timber harvested
    493       602       726  
Distribution costs
    553       487       757  
Selling and administrative expenses
    155       198       332  
Impairment of goodwill
                810  
Closure costs, impairment of assets other than goodwill and other related charges
    11       202       481  
Net gain on disposition of assets and other
    (30 )     (91 )     (49 )
 
Operating loss
    (160 )     (375 )     (1,430 )
Interest expense (contractual interest of $714 and $788 for the years ended December 31, 2010 and 2009, respectively) (Note 17)
    (483 )     (597 )     (706 )
Other (expense) income, net
    (89 )     (71 )     93  
 
Loss before reorganization items, income taxes and extraordinary item
    (732 )     (1,043 )     (2,043 )
Reorganization items, net (Note 4)
    1,901       (639 )      
 
Income (loss) before income taxes and extraordinary item
    1,169       (1,682 )     (2,043 )
Income tax benefit
    1,606       122       92  
 
Income (loss) before extraordinary item
    2,775       (1,560 )     (1,951 )
Extraordinary loss on expropriation of assets, net of tax of $0 (Note 22)
                (256 )
 
Net income (loss) including noncontrolling interests
    2,775       (1,560 )     (2,207 )
Net (income) loss attributable to noncontrolling interests
    (161 )     7       (27 )
 
Net income (loss) attributable to AbitibiBowater Inc.
    $ 2,614       $ (1,553 )     $ (2,234 )
 
 
                       
Income (loss) per share:
                       
Basic:
                       
Income (loss) attributable to AbitibiBowater Inc. common shareholders before extraordinary item
    $ 45.30       $ (26.91 )     $ (34.34 )
Extraordinary loss on expropriation of assets, net of tax
                (4.45 )
 
Net income (loss) attributable to AbitibiBowater Inc. common shareholders
    $ 45.30       $ (26.91 )     $ (38.79 )
 
Diluted:
                       
Income (loss) attributable to AbitibiBowater Inc. common shareholders before extraordinary item
    $ 27.63       $ (26.91 )     $ (34.34 )
Extraordinary loss on expropriation of assets, net of tax
                (4.45 )
 
Net income (loss) attributable to AbitibiBowater Inc. common shareholders
    $ 27.63       $ (26.91 )     $ (38.79 )
 
Weighted-average number of AbitibiBowater Inc. common shares outstanding:
                       
Basic
    57.7       57.7       57.6  
Diluted
    94.6       57.7       57.6  
 
See accompanying notes to consolidated financial statements.

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ABITIBIBOWATER INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
                   
 
    Successor     Predecessor
    As of December 31,     As of December 31,
    2010     2009
     
Assets
                 
Current assets:
                 
Cash and cash equivalents
    $ 319         $ 756  
Accounts receivable, net
    854         644  
Inventories, net
    438         581  
Assets held for sale
    698         52  
Deferred income tax assets
    47         26  
Other current assets
    88         113  
     
Total current assets
    2,444         2,172  
     
Fixed assets, net
    2,641         3,897  
Amortizable intangible assets, net
    19         473  
Deferred income tax assets
    1,736          
Goodwill
            53  
Other assets
    316         517  
     
Total assets
    $ 7,156         $ 7,112  
     
 
                 
Liabilities and equity (deficit)
                 
Liabilities not subject to compromise:
                 
Current liabilities:
                 
Accounts payable and accrued liabilities
    $ 568         $ 462  
Debtor in possession financing
            206  
Short-term bank debt
            680  
Current portion of long-term debt
            305  
Liabilities associated with assets held for sale
    289         35  
     
Total current liabilities
    857         1,688  
     
Long-term debt, net of current portion
    905         308  
Pension and other postretirement projected benefit obligations
    1,272         89  
Deferred income tax liabilities
    72         107  
Other long-term liabilities
    63         162  
     
Total liabilities not subject to compromise
    3,169         2,354  
     
Liabilities subject to compromise (Note 4)
            6,727  
     
Total liabilities
    3,169         9,081  
     
Commitments and contingencies
                 
Equity (deficit):
                 
AbitibiBowater Inc. shareholders’ equity (deficit):
                 
Predecessor common stock, $1 par value. 54.7 shares outstanding as of
December 31, 2009
            55  
Successor common stock, $0.001 par value. 114.1 shares issued and 97.1 shares outstanding as of December 31, 2010
             
Predecessor exchangeable shares, no par value. 3.0 shares outstanding as of
December 31, 2009
            173  
Additional paid-in capital
    3,709         2,522  
Deficit
            (4,391 )
Accumulated other comprehensive loss
            (450 )
Successor treasury stock at cost, 17.0 shares as of December 31, 2010 (Note 23)
             
     
Total AbitibiBowater Inc. shareholders’ equity (deficit)
    3,709         (2,091 )
Noncontrolling interests
    278         122  
     
Total equity (deficit)
    3,987         (1,969 )
     
Total liabilities and equity (deficit)
    $ 7,156         $ 7,112  
     
See accompanying notes to consolidated financial statements.

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ABITIBIBOWATER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(In millions)
                                                                 
 
    AbitibiBowater Inc. Shareholders’ Equity (Deficit)        
                                    Accumulated                
                    Additional           Other           Non-   Total
    Common   Exchangeable   Paid-in           Comprehensive   Treasury   controlling   Equity
    Stock   Shares   Capital   Deficit   (Loss) Income   Stock   Interests   (Deficit)
 
Balance as of December 31, 2007 (Predecessor)
  $ 52     $ 276     $ 2,313     $ (598 )   $ (144 )   $     $ 150     $ 2,049  
 
Cumulative adjustment to deficit and accumulated other comprehensive loss for the adoption of new accounting guidance related to pension and other postretirement benefit plans, net of tax
                      (6 )     (11 )                 (17 )
Exchangeable shares retracted and common shares issued (0.7 shares)
    1       (34 )     33                                
Restricted stock units vested, net of shares forfeited for employee withholding taxes (0.2 shares)
                                               
Share-based compensation costs for equity-classified awards
                6                               6  
Beneficial conversion feature of Convertible Notes
                105                               105  
Equity issuance costs on Convertible Notes
                (6 )                             (6 )
Dividends paid to noncontrolling interests
                                        (25 )     (25 )
Net (loss) income
                      (2,234 )                 27       (2,207 )
Other comprehensive loss, net of tax
                            (229 )           (16 )     (245 )
 
Balance as of December 31, 2008 (Predecessor)
    53       242       2,451       (2,838 )     (384 )           136       (340 )
 
Exchangeable shares retracted and common shares issued (1.4 shares)
    2       (69 )     67                                
Share-based compensation costs for equity-classified awards
                4                               4  
Restricted stock units vested, net of shares forfeited for employee withholding taxes (0.1 shares)
                                               
Dividends paid to noncontrolling interests
                                        (7 )     (7 )
Net loss
                      (1,553 )                 (7 )     (1,560 )
Other comprehensive loss, net of tax
                            (66 )                 (66 )
 
Balance as of December 31, 2009 (Predecessor)
    55       173       2,522       (4,391 )     (450 )           122       (1,969 )
 
Share-based compensation costs for equity-classified awards
                3                               3  
Net income
                      2,614                   161       2,775  
Other comprehensive loss, net of tax
                            (570 )           (5 )     (575 )
Implementation of Plans of Reorganization and application of fresh start accounting (Note 4):
                                                               
Cancellation of Predecessor Company common stock (54.7 shares) and exchangeable shares (3.0 shares)
    (55 )     (173 )     228                                
Issuance of Successor Company common stock (97.1 shares)
                3,709                               3,709  
Plans of Reorganization adjustments to accumulated other comprehensive loss (Note 9)
                            44                   44  
Elimination of Predecessor Company additional paid-in capital, deficit and accumulated other comprehensive loss
                (2,753 )     1,777       976                    
Issuance of Successor Company common stock
to Donohue Corp., a wholly-owned
subsidiary of the Company
(17.0 shares in treasury) (Note 23)
                                               
 
Balance as of December 31, 2010 (Successor)
  $     $     $ 3,709     $     $     $     $ 278     $ 3,987  
 
See accompanying notes to consolidated financial statements.

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ABITIBIBOWATER INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     2008  
 
Net income (loss) including noncontrolling interests
    $ 2,775       $ (1,560 )     $ (2,207 )
 
Other comprehensive income (loss):
                       
Change in unamortized prior service costs, net of tax of $0, $0 and $3 in 2010, 2009 and 2008, respectively
    8       (15 )     (9 )
Change in unamortized actuarial gains and losses, net of tax of $0, $0 and $3 in 2010, 2009 and 2008, respectively
    (598 )     (176 )     (110 )
Foreign currency translation
    15       125       (136 )
Change in unrecognized gain on hedged transactions, net of tax of $5 in 2008
                10  
 
Other comprehensive loss, net of tax
    (575 )     (66 )     (245 )
 
Comprehensive income (loss) including noncontrolling interests
    2,200       (1,626 )     (2,452 )
 
Less: Comprehensive loss (income) attributable to noncontrolling interests:
                       
Net (income) loss
    (161 )     7       (27 )
Foreign currency translation
    5             16  
 
Comprehensive (income) loss attributable to noncontrolling interests
    (156 )     7       (11 )
 
Comprehensive income (loss) attributable to AbitibiBowater Inc.
    $ 2,044       $ (1,619 )     $ (2,463 )
 
See accompanying notes to consolidated financial statements.

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ABITIBIBOWATER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
                         
 
    Predecessor
    Years Ended December 31,
    2010     2009     2008  
 
Cash flows from operating activities:
                       
Net income (loss) including noncontrolling interests
    $ 2,775       $ (1,560 )     $ (2,207 )
Adjustments to reconcile net income (loss) including noncontrolling interests to net cash provided by (used in) operating activities:
                       
Extraordinary loss on expropriation of assets, net of tax
                256  
Share-based compensation
    3       4       4  
Depreciation, amortization and cost of timber harvested
    493       602       726  
Impairment of goodwill
                810  
Closure costs, impairment of assets other than goodwill and other related charges
    11       170       428  
Write-downs of inventory
          17       30  
Deferred income taxes
    (1,600 )     (118 )     (225 )
Net pension contributions
    (36 )     (150 )     (241 )
Net gain on disposition of assets and other
    (30 )     (91 )     (49 )
Gain on extinguishment of debt
                (31 )
Amortization of debt discount (premium) and debt issuance costs, net
    14       57       123  
Loss (gain) on translation of foreign currency denominated debt
    116       62       (39 )
Non-cash interest expense
    217       230        
Non-cash reorganization items, net
    (1,981 )     535        
Debtor in possession financing costs
    10       31        
Exit financing costs
    27              
Changes in working capital:
                       
Accounts receivable
    (75 )     159       (63 )
Inventories
    (13 )     101       159  
Other current assets
    4       (29 )     (13 )
Accounts payable and accrued liabilities
    119       (1 )     (171 )
Other, net
    (15 )     27       83  
 
Net cash provided by (used in) operating activities
    39       46       (420 )
 
Cash flows from investing activities:
                       
Cash invested in fixed assets
    (81 )     (101 )     (186 )
Disposition of investment in Manicouagan Power Company (Note 17)
          554        
Disposition of other assets
    96       119       220  
Decrease (increase) in restricted cash
    76       (142 )      
(Increase) decrease in deposit requirements for letters of credit, net
    (3 )     49       (69 )
Release of pension trust assets
    8              
Cash received in monetization of derivative financial instruments
          5       5  
Other investing activities, net
                3  
 
Net cash provided by (used in) investing activities
    96       484       (27 )
 
Cash flows from financing activities:
                       
Decrease in secured borrowings, net
    (141 )            
Cash dividends to noncontrolling interests
          (7 )     (25 )
Debtor in possession financing
          261        
Debtor in possession financing costs
    (10 )     (31 )      
Payments of debtor in possession financing
    (206 )     (55 )      
Term loan financing
                400  
Term loan repayments
    (347 )           (53 )
Short-term financing, net
    (338 )     (7 )     (248 )
Issuance of long-term debt
    850             763  
Payments of long-term debt
    (334 )     (118 )     (298 )
Payments of financing and credit facility fees
    (46 )     (9 )     (89 )
Payment of equity issuance fees on Convertible Notes
                (6 )
 
Net cash (used in) provided by financing activities
    (572 )     34       444  
 
Net (decrease) increase in cash and cash equivalents
    (437 )     564       (3 )
Cash and cash equivalents:
                       
Beginning of year
    756       192       195  
 
End of year (2010: Successor; 2009 and 2008: Predecessor)
    $ 319       $ 756       $ 192  
 
Supplemental disclosures of cash flow information:
                       
Cash paid (received) during the year for:
                       
Interest, including capitalized interest of $0, $1 and $0 in 2010, 2009 and 2008, respectively (Note 17)
    $ 198       $ 276       $ 559  
Income taxes, net
    $ (3 )     $ (3 )     $ 6  
 
See accompanying notes to consolidated financial statements.
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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 1. Organization and Basis of Presentation
Nature of operations
AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) is incorporated in Delaware. We are a global forest products company with a market presence in newsprint, coated mechanical and specialty papers, market pulp and wood products. We operate pulp and paper manufacturing facilities in Canada, the United States and South Korea, as well as wood products manufacturing facilities and hydroelectric facilities in Canada.
Financial statements
We have prepared our consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All amounts are expressed in U.S. dollars, unless otherwise indicated. Certain prior year amounts in our consolidated financial statements and the related notes have been reclassified to conform to the 2010 presentation. The reclassifications had no effect on total assets, total liabilities or net income.
Creditor Protection Proceedings
AbitibiBowater Inc. and all but one of its debtor affiliates (as discussed below) successfully emerged from Creditor Protection Proceedings (as defined below) under Chapter 11 of the United States Bankruptcy Code, as amended (“Chapter 11”) and the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”), as applicable on December 9, 2010 (the “Emergence Date”). The following is a brief history of the Creditor Protection Proceedings.
On April 16, 2009 and December 21, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions (collectively, the “Chapter 11 Cases”) in the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”) for relief under the provisions of Chapter 11. In addition, on April 17, 2009, certain of AbitibiBowater Inc.’s Canadian subsidiaries sought creditor protection (the “CCAA Proceedings”) under the CCAA with the Superior Court of Quebec in Canada (the “Canadian Court”). On April 17, 2009, Abitibi-Consolidated Inc. (“Abitibi”), a subsidiary of AbitibiBowater Inc., and its wholly-owned subsidiary, Abitibi-Consolidated Company of Canada (“ACCC”), each filed a voluntary petition for provisional and final relief (the “Chapter 15 Cases”) in the U.S. Court under the provisions of Chapter 15 of the United States Bankruptcy Code, as amended, to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings and also on that date, AbitibiBowater Inc. and certain of its subsidiaries in the Chapter 11 Cases obtained orders under Section 18.6 of the CCAA in respect thereof (the “18.6 Proceedings”). The Chapter 11 Cases, the Chapter 15 Cases, the CCAA Proceedings and the 18.6 Proceedings are collectively referred to as the “Creditor Protection Proceedings.” The entities that were subject to the Creditor Protection Proceedings are referred to herein as the “Debtors.” The U.S. Court and the Canadian Court are collectively referred to as the “Courts.” Our wholly-owned subsidiary that operates our Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries operated outside of the Creditor Protection Proceedings.
On September 14, 2010 and September 21, 2010, the creditors under the CCAA Proceedings and the Chapter 11 Cases, respectively, with one exception, voted in the requisite numbers to approve the respective Plan of Reorganization. Creditors of Bowater Canada Finance Corporation (“BCFC”), a wholly-owned subsidiary of Bowater Incorporated (“Bowater”), a wholly-owned subsidiary of AbitibiBowater Inc., did not vote in the requisite numbers to approve the Plans of Reorganization (as defined below). Accordingly, we did not seek sanction of the CCAA Plan of Reorganization and Compromise (the “CCAA Reorganization Plan”) or confirmation of the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Reorganization Plan” and, together with the CCAA Reorganization Plan, the “Plans of Reorganization”) with respect to BCFC. See Note 22, “Commitments and Contingencies – BCFC Bankruptcy and Insolvency Act filing,” for information regarding BCFC’s Bankruptcy and Insolvency Act filing on December 31, 2010. On September 23, 2010, the CCAA Reorganization Plan was sanctioned by the Canadian Court, on November 23, 2010, the Chapter 11 Reorganization Plan was confirmed by the U.S. Court and on December 9, 2010, the Plans of Reorganization became effective.
For additional information, see Note 3, “Creditor Protection Proceedings.”

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Basis of presentation
During Creditor Protection Proceedings
Effective upon the commencement of the Creditor Protection Proceedings and through the Convenience Date, as defined below, we applied the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“FASB ASC 852”), in preparing our consolidated financial statements. The guidance in FASB ASC 852 does not change the manner in which financial statements are prepared. However, it requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, during the Creditor Protection Proceedings, we: (i) recorded certain expenses, charges and credits incurred or realized that were directly associated with or resulting from the reorganization and restructuring of the business in “Reorganization items, net” in our Consolidated Statements of Operations, (ii) classified pre-petition obligations that could be impaired by the reorganization process in our Consolidated Balance Sheets as “Liabilities subject to compromise” and (iii) ceased recording interest expense on certain of our pre-petition debt obligations. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures,” and Note 17, “Liquidity and Debt.”
Upon Emergence from Creditor Protection Proceedings
In accordance with FASB ASC 852, fresh start accounting (“fresh start accounting”) was required upon our emergence from the Creditor Protection Proceedings because: (i) the reorganization value of the assets of the Predecessor Company (as defined below) immediately prior to the approval of the Plans of Reorganization was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the Predecessor Company’s existing voting shares immediately prior to the approval of the Plans of Reorganization received less than 50% of the voting shares of the common stock of the Successor Company (as defined below). FASB ASC 852 requires that fresh start accounting be applied as of the date the Plans of Reorganization were approved, or as of a later date when all material conditions precedent to effectiveness of the Plans of Reorganization are resolved, which occurred on December 9, 2010. We elected to apply fresh start accounting effective December 31, 2010, to coincide with the timing of our normal December accounting period close. We evaluated the events between December 9, 2010 and December 31, 2010 and concluded that the use of an accounting convenience date of December 31, 2010 (the “Convenience Date”) did not have a material impact on our results of operations or financial position. As such, the application of fresh start accounting was reflected in our Consolidated Balance Sheet as of December 31, 2010 and fresh start accounting adjustments related thereto were included in our Consolidated Statements of Operations for the year ended December 31, 2010.
The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to December 31, 2010 will not be comparable to our consolidated financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. References to “Successor” or “Successor Company” refer to the Company on or after December 31, 2010, after giving effect to the implementation of the Plans of Reorganization and the application of fresh start accounting. References to “Predecessor” or “Predecessor Company” refer to the Company prior to December 31, 2010. Additionally, references to periods on or after December 31, 2010 refer to the Successor and references to periods prior to December 31, 2010 refer to the Predecessor.
For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting.”
Going concern
Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty involved in the Creditor Protection Proceedings raised substantial doubt about our ability to continue as a going concern. During the Creditor Protection Proceedings, our ability to continue as a going concern was dependent on market conditions and our ability to obtain the approval of the Plans of Reorganization from affected creditors and the Courts, successfully implement the Plans of Reorganization, improve profitability and consummate our exit financing to replace our debtor in possession financing. Management believes that the implementation of the Plans of Reorganization and our emergence from the Creditor Protection Proceedings on the Emergence Date have resolved the substantial doubt and the related uncertainty about our application of the going concern basis of accounting.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Bridgewater Administration
On February 2, 2010, Bridgewater Paper Company Limited (“BPCL”), a subsidiary of AbitibiBowater Inc., filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended (the “BPCL Administration”). BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. In May 2010, the joint administrators announced the sale of the Bridgewater paper mill and all related machinery and equipment. As a result of the filing for administration, we lost control over and the ability to influence BPCL’s operations. As a result, effective as of the date of the BPCL Administration filing, the financial position, results of operations and cash flows of BPCL are no longer consolidated in our consolidated financial statements. We are now accounting for BPCL using the cost method of accounting. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net.”
Consolidation
Our consolidated financial statements include the accounts of AbitibiBowater Inc. and its controlled subsidiaries. All significant transactions and balances between these companies have been eliminated. All consolidated subsidiaries are wholly-owned as of December 31, 2010 with the exception of the following:
                     
 
    AbitibiBowater       Partner
Consolidated Subsidiary   Ownership   Partner   Ownership
 
Produits Forestiers Mauricie L.P.
    93.2 %   Cooperative Forestiere du Haut Saint-Maurice     6.8 %
ACH Limited Partnership (“ACH”) (1)
    75 %   Caisse de depot et placement du Quebec     25 %
Augusta Newsprint Company (“ANC”) (2)
    52.5 %   The Woodbridge Company Limited (“Woodbridge”)     47.5 %
Calhoun Newsprint Company (“CNC”)
    51 %   Herald Company, Inc.     49 %
Bowater Mersey Paper Company Limited
    51 %   The Daily Herald Company     49 %
Donohue Malbaie Inc.
    51 %   NYT Capital Inc.     49 %
 
(1)   On February 11, 2011, AbiBow Canada Inc. (“AbiBow Canada,” our post-emergence Canadian operating subsidiary) entered into an agreement to sell its 75% equity interest in ACH. For additional information, see Note 29, “Subsequent Events.”
 
(2)   On January 14, 2011, Augusta Newsprint Inc. (“ANI”), an indirect subsidiary of Woodbridge, became a wholly-owned subsidiary of ours. For additional information, see Note 29, “Subsequent Events.”
Equity method investments
We account for our investments in affiliated companies where we have significant influence, but not control over their operations, using the equity method of accounting.
Note 2. Summary of Significant Accounting Policies
Use of estimates
In preparing our consolidated financial statements in accordance with U.S. GAAP, management is required to make accounting estimates based on assumptions, judgments and projections of future results of operations and cash flows. These estimates and assumptions affect the reported amounts of revenues and expenses during the periods presented and the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements. The most critical estimates relate to the determination of the fair values of assets and liabilities in our application of fresh start accounting, the assumptions underlying the projected benefit obligations of our pension and other postretirement (“OPEB”) benefit plans and the recoverability of deferred tax assets. Estimates, assumptions and judgments are based on a number of factors, including historical experience, recent events, existing conditions, internal budgets and forecasts, projections obtained from industry research firms and other data that management believes are reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions.
Fresh start accounting
As discussed in Note 1, “Organization and Basis of Presentation – Basis of presentation,” we applied fresh start accounting as

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
of the December 31, 2010 Convenience Date. Under fresh start accounting, the reorganization value, as derived from the enterprise value established in the Plans of Reorganization, was allocated to our assets and liabilities based on their fair values (except for deferred income taxes and pension and OPEB projected benefit obligations) in accordance with FASB ASC 805, “Business Combinations” (“FASB ASC 805”), with the excess of net asset values over the reorganization value recorded as an adjustment to equity. The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740, “Income Taxes” (“FASB ASC 740”). The amount of pension and OPEB projected benefit obligations recorded was determined in accordance with FASB ASC 715, “Compensation – Retirement Benefits” (“FASB ASC 715”). Therefore, all assets and liabilities reflected in the Consolidated Balance Sheet of the Successor Company were recorded at fair value or, for deferred income taxes and pension and OPEB projected benefit obligations, in accordance with the respective accounting policy described below. For additional information regarding the impact of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting.”
Cash and cash equivalents
Cash and cash equivalents generally consist of direct obligations of the U.S. and Canadian governments and their agencies, demand deposits and other short-term, highly liquid securities with a maturity of three months or less from the date of purchase.
Accounts receivable
Accounts receivable of the Predecessor Company were recorded at cost, net of an allowance for doubtful accounts that was based on expected collectibility, and such carrying value approximated fair value.
As of December 31, 2009, under our accounts receivable securitization program, ownership interests in certain of our accounts receivable were sold to third-party financial institutions, net of an amount based on the financial institutions’ funding cost plus a margin. This resulted in a loss on the sale of the ownership interests in the receivables sold for the amount sold in excess of cash proceeds received. The allocation of the carrying value of accounts receivable between the portion sold and the portion retained was based on their relative fair values. As more fully discussed below under “Recently adopted accounting guidance,” on January 1, 2010, we prospectively adopted new accounting guidance, under which the transfers of accounts receivable interests under our accounts receivable securitization program no longer qualified as sales. Upon our emergence from the Creditor Protection Proceedings, the accounts receivable securitization program was terminated.
Monetization of notes receivable
We monetized notes receivable using qualified special purpose entities (“QSPEs”) set up in accordance with FASB ASC 860, “Transfers and Servicing” (“FASB ASC 860”). The QSPEs that were established for note monetization purposes have not been consolidated within our financial statements. Our retained interest consists principally of the net excess cash flows (the difference between the interest received on the notes receivable and the interest paid on the debt issued by the QSPE to third parties) and a cash reserve account established at inception. Fair value of our retained interest was estimated based on the present value of future excess cash flows to be received over the life of the notes, using management’s best estimate of key assumptions, including credit risk and discount rates. Our retained interest is included in “Other assets” in our Consolidated Balance Sheets. Excess cash flows revert to us on a quarterly or semi-annual basis. The balance of the cash reserve accounts, if any, reverts to us at the maturity date of the QSPE third-party debt.
Inventories
Inventories of the Predecessor Company were stated at the lower of cost or market value using the average cost and last-in, first-out (“LIFO”) methods. Cost included labor, materials and production overhead, which was based on the normal capacity of our production facilities. Unallocated overhead, including production overhead associated with abnormal production levels, was recognized in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations when incurred.
Assets held for sale and liabilities associated with assets held for sale
Assets held for sale and liabilities associated with assets held for sale are carried in our Consolidated Balance Sheets at the lower of carrying value or fair value less costs to sell. We cease recording depreciation and amortization when assets are classified as held for sale.
Fixed assets, including timber and timberlands
Fixed assets of the Predecessor Company were stated at cost less accumulated depreciation. The cost of the fixed assets was reduced by any investment tax credits or government capital grants received. Depreciation was provided on a straight-line basis over the estimated useful lives of the assets. Repair and maintenance costs, including those associated with planned

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
major maintenance, were expensed as incurred. We capitalized interest on borrowings during the construction period of major capital projects as part of the related asset and amortized the capitalized interest into earnings over the related asset’s remaining useful life. We also capitalized costs related to the acquisition of timber and timberlands and subsequent costs incurred for the planting and growing of timber. The cost generally included the acquisition cost of land and timber, site preparation and other costs. These costs, excluding land, were expensed at the time the timber was harvested, based on annually determined depletion rates, and were included in “Depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations. Growth and yield models are used to estimate timber volume on our land from year to year. These volumes affect the depletion rates, which are calculated annually based on the capitalized costs and the total timber volume based on the current stage of the growth cycle.
Asset retirement obligations
We record an asset and a liability equal to the fair value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists; life of the long-lived asset is determinable; and a reasonable estimate of fair value can be made, even if the timing and/or settlement of the obligation is conditional on a future event that may or may not be within our control. Fair value is established using the discounted cash flow method. The liability is accreted to recognize the passage of time using a credit adjusted risk-free interest rate, and the asset is depreciated over the life of the related equipment or facility. The asset and liability are subsequently adjusted for changes in the amount or timing of the estimated costs.
Environmental costs
We expense environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. These costs are included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations. Expenditures that extend the life of the related property are capitalized. We determine our liability on a site-by-site basis and record a liability at the time it is probable and can be reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are discounted to their present value when the amount and timing of expected cash payments are reliably determinable.
Amortizable intangible assets
Amortizable intangible assets of the Predecessor Company, which consisted of water rights and customer relationships, were stated at cost less accumulated amortization. Amortization of the water rights was provided on a straight-line basis over the estimated useful lives of the assets. Amortization of the customer relationships was provided based on the ratio determined by the remaining useful life of the asset divided by the sum-of-the-years’ digits of the years of the original estimated useful life of the asset.
An impairment loss is recognized in the amount that the intangible asset’s carrying value exceeds its fair value if it is determined that the carrying amount is not recoverable.
Impairment of goodwill
We reviewed the carrying value of our goodwill for impairment in the fourth quarter of each year or more frequently, if an event occurred that triggered such an interim review. We compared our reporting units’ fair values with their respective carrying values, including goodwill. If a reporting unit’s fair value exceeded its carrying value, no impairment loss was recognized. If a reporting unit’s carrying value exceeded its fair value, an impairment charge was recorded equal to the difference between the carrying value of the reporting unit’s goodwill and the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill was determined in the same manner as the amount of goodwill recognized in a business combination. The excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the reporting unit was the implied fair value of goodwill.
Impairment of long-lived assets, other than goodwill
The unit of accounting for impairment testing for long-lived assets is its group, which includes fixed assets, amortizable intangible assets and liabilities directly related to those assets, such as asset retirement obligations (herein defined as “asset group”). For asset groups that are held and used, that group represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other asset groups. For asset groups that are to be disposed of by sale or otherwise,

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that group represents assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction.
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value of an asset group may no longer be recoverable. The recoverability of an asset group that is held and used is tested by comparing the carrying value of the asset group to the sum of the estimated undiscounted future cash flows expected to be generated by that asset group. In estimating the undiscounted future cash flows, we use projections of cash flows directly associated with, and which are expected to arise as a direct result of, the use and eventual disposition of the asset group. If there are multiple plausible scenarios for the use and eventual disposition of an asset group, we assess the likelihood of each scenario occurring in order to determine a probability-weighted estimate of the undiscounted future cash flows. The principal assumptions include periods of operation, projections of product pricing, production levels and sales volumes, product costs, market supply and demand, foreign exchange rates, inflation and projected capital spending. Changes in any of these assumptions could have a material effect on the estimated undiscounted future cash flows expected to be generated by the asset group. If it is determined that an asset group is not recoverable, an impairment loss is recognized in the amount that the asset group’s carrying value exceeds its fair value. The fair value of a long-lived asset group is determined in accordance with our accounting policy for fair value measurements, as discussed below.
When an asset group meets the criteria for classification as an asset held for sale, an impairment charge is recognized, if necessary, based on the excess of the asset group’s carrying value over the expected net proceeds from the sale (the estimated fair value minus the estimated cost to sell).
Asset groups to be disposed of other than by sale are classified as held and used until the asset group is disposed or use of the asset group has ceased.
Income taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, we consider estimates of future taxable income and tax planning strategies. We have not provided for U.S. income taxes on the undistributed earnings of certain of our foreign subsidiaries, as we have specific plans for the reinvestment of such earnings. We recognize interest and penalties accrued related to unrecognized tax benefits as components of income tax expense.
Pension and OPEB projected benefit obligations
For our defined benefit plans, we recognize an asset or a liability for pension and OPEB projected benefit obligations net of the fair value of plan assets. An asset is recognized for a plan’s over-funded status and a liability is recognized for a plan’s under-funded status. Changes in the funding status that have not been recognized in our net periodic benefit costs are reflected as an adjustment to our “Accumulated other comprehensive loss” in our Consolidated Balance Sheets. Net periodic benefit costs are recognized as employees render the services necessary to earn the pension and OPEB benefits. Amounts we contribute to our defined contribution plans are expensed as incurred.
Derivative financial instruments and other embedded derivatives
We record all derivative financial instruments and embedded derivatives as either assets or liabilities in our Consolidated Balance Sheets at fair value. Changes in the fair value of a derivative that has been designated and qualifies as a cash flow hedge are deferred and recorded as a component of “Accumulated other comprehensive loss” until the underlying transaction is recorded in earnings. At that time, gains or losses are reclassified from “Accumulated other comprehensive loss” to our Consolidated Statements of Operations on the same line as the underlying transaction has been recorded (“Sales,” “Cost of sales, excluding depreciation, amortization and cost of timber harvested” or “Interest expense”). Any ineffective portion of a hedging derivative’s change in fair value is recognized immediately in earnings. Changes in the fair value of a derivative that has not been designated or does not qualify for hedge accounting treatment and changes in the fair value of an embedded derivative are recognized in earnings immediately.

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Notes to Consolidated Financial Statements
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date, and is based on our principal or most advantageous market for the specific asset or liability. We consider the risk of non-performance of the obligor, which in some cases reflects our own credit risk, in determining fair value. In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” we categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. This fair value hierarchy is as follows:
     
Level 1 –
  Valuations based on quoted prices in active markets for identical assets and liabilities.
Level 2 –
  Valuations based on observable inputs, other than Level 1 prices, such as quoted interest or currency exchange rates.
Level 3 –
  Valuations based on significant unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies based on internal cash flow forecasts.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used in the determination of fair value of our assets and liabilities, when required, maximize the use of observable inputs and minimize the use of unobservable inputs.
Share-based compensation
During the pendency of the Creditor Protection Proceedings and through December 31, 2010, no new share-based compensation awards were granted and during the pendency of the Creditor Protection Proceedings, no issuance or payments of vested share-based awards were permitted without Court approval. As of the Emergence Date and pursuant to the Plans of Reorganization, each share of the Predecessor Company’s common stock and each option, warrant, conversion privilege or other legal or contractual right to purchase shares of the Predecessor Company’s common stock, including restricted stock units (“RSUs”) and deferred stock units (“DSUs”), in each case to the extent outstanding immediately before the Emergence Date, was canceled and the holders thereof are not entitled to receive or retain any property on account thereof. For the years ended December 31, 2010, 2009 and 2008, share-based compensation expense, net of tax, was $3 million, $4 million and $3 million, respectively.
We amortize the fair value of our share-based awards over the requisite service period using the straight-line attribution approach. The requisite service period is reduced for those employees who are retirement eligible at the date of the grant or who will become retirement eligible during the vesting period and who will be entitled to vest in their entire award upon retirement. The fair value of our stock options is determined using a Black-Scholes option pricing formula. The fair value of RSUs or DSUs is determined based on the market price of a share of AbitibiBowater Inc. common stock on the grant date. Share-based awards that will be settled in cash or with shares purchased on the open market are recognized as a liability, which is remeasured at fair value as of each balance sheet date. The cumulative effect of the change in fair value is recognized in the period of the change as an adjustment to compensation cost. We estimate forfeitures of share-based awards based on historical experience and recognize compensation cost only for those awards expected to vest. Estimated forfeitures are adjusted to actual experience as needed. Compensation cost for performance-based awards is recognized when it is probable that the performance criteria will be met.
We adopted the alternative transition method for calculating the tax effects of share-based compensation. The additional paid-in capital (“APIC”) pool represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, we record the excess as income tax expense in our Consolidated Statements of Operations. For the years ended December 31, 2010, 2009 and 2008, we had a sufficient APIC pool to cover any tax deficiencies recorded; as a result, these deficiencies did not affect our results of operations. The APIC pool was reset to zero as of December 31, 2010 as a result of the application of fresh start accounting.
We classify the cash flows resulting from the tax benefit that arise from the exercise of stock options and the vesting of RSUs and DSUs that exceed the compensation cost recognized (excess tax benefits) as financing cash flows.
Revenue recognition
Pulp, paper and wood products delivered to our customers in the United States and Canada directly from our mills by either truck or rail are sold with the terms free on board (“FOB”) shipping point. For these sales, revenue is recorded when the

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Notes to Consolidated Financial Statements
product leaves the mill. Pulp and paper products delivered to our international customers by ship are sold with international shipping terms. For these sales, revenue is recorded when risk of loss and title of the product passes to the customer. Sales are reported net of allowances and rebates, and the following criteria must be met before they are recognized: persuasive evidence of an arrangement exists, delivery has occurred and we have no remaining obligations, prices are fixed or determinable and collectibility is reasonably assured.
Income (loss) per share
We calculate basic net income (loss) per share attributable to AbitibiBowater Inc. common shareholders by dividing our net income (loss) by the Predecessor Company’s weighted-average number of outstanding common shares, including outstanding exchangeable shares. We calculate diluted net income (loss) per share attributable to AbitibiBowater Inc. common shareholders by dividing our net income (loss), as adjusted for the assumed conversion of the Convertible Notes, as defined in Note 17, “Liquidity and Debt – April 1, 2008 refinancings,” by the Predecessor Company’s weighted-average number of outstanding common shares, including outstanding exchangeable shares, as adjusted for the incremental shares attributable to the dilutive effects of potentially dilutive securities (such as the Convertible Notes, stock options and RSUs). The incremental shares are calculated using the “if converted” method (Convertible Notes) or the treasury stock method (stock options and RSUs).
Translation
The functional currency of the majority of our operations is the U.S. dollar. However, some of these operations maintain their books and records in their local currency in accordance with certain statutory requirements. Non-monetary assets and liabilities and related depreciation and amortization for such operations are remeasured into U.S. dollars using historical exchange rates. Remaining assets and liabilities are remeasured into U.S. dollars using the exchange rates as of the balance sheet date. Gains and losses from foreign currency transactions and from remeasurement of the balance sheet are reported as “Other (expense) income, net” in our Consolidated Statements of Operations. Income and expense items are remeasured into U.S. dollars using an average exchange rate for the period.
The functional currency of all other operations is their local currency. Assets and liabilities of these operations are translated into U.S. dollars at the exchange rates in effect as of the balance sheet dates. Income and expense items are translated at average daily or monthly exchange rates for the period. The resulting translation gains or losses are recognized as a component of equity in “Accumulated other comprehensive loss.”
Distribution costs
Shipping and handling costs represent costs associated with shipping products to customers and handling finished goods. Such costs are included in “Distribution costs” in our Consolidated Statements of Operations.
Creditor Protection Proceedings
As discussed in Note 1, “Organization and Basis of Presentation – Basis of presentation,” during the Creditor Protection Proceedings, we applied the guidance in FASB ASC 852, which requires that financial statements distinguish transactions and events that are directly associated with the reorganization process from the ongoing operations of the business.
Reorganization items, net
FASB ASC 852 requires separate disclosure of reorganization items such as certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred during the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting, as further detailed in Note 4, “Creditor Protection Proceedings Related Disclosures.” As a result, during the Creditor Protection Proceedings, all charges related to the commencement of an indefinite idling or permanent closure of a mill or a paper machine subsequent to the commencement of the Creditor Protection Proceedings were recorded in “Reorganization items, net,” whereas all charges related to the commencement of an indefinite idling or permanent closure of a mill or a paper machine prior to the commencement of the Creditor Protection Proceedings were recorded in “Closure costs, impairment of assets other than goodwill and other related charges” in our Consolidated Statements of Operations. The recognition of Reorganization items, net, unless specifically prescribed otherwise by FASB ASC 852, is in accordance with other applicable U.S. GAAP, including accounting for impairments of long-lived assets, accelerated depreciation, severance and termination benefits and costs associated with exit and disposal

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Notes to Consolidated Financial Statements
activities (including costs incurred in a restructuring).
Liabilities subject to compromise
Liabilities subject to compromise primarily represented unsecured pre-petition obligations of the Debtors that we expected to be subject to impairment as part of the Creditor Protection Proceedings process and as a result, were subject to settlement at lesser amounts. Generally, actions to enforce or otherwise effect payment of such liabilities were stayed by the Courts. Such liabilities were classified separately from other liabilities in our Consolidated Balance Sheets as “Liabilities subject to compromise” and were accounted for in accordance with our normal accounting policies except that: (i) other than our debt obligations, these liabilities were recorded at the amounts allowed or expected to be allowed as claims by the Courts, whether known or potential claims, under a plan of reorganization, even if the distributions to the claimants may have been for lesser amounts and (ii) debt obligations, until they became allowed claims approved by the applicable Court, were recorded net of unamortized debt discounts and premiums, which we ceased amortizing as a result of the Creditor Protection Proceedings. Debt discounts and premiums were viewed as valuations of the related debt until the debt obligations became allowed claims by the applicable Court, at which time the recorded debt obligations were adjusted to the amounts of the allowed claims.
We did not include the Debtors’ secured pre-petition debt obligations in liabilities subject to compromise since we believed that the value of the underlying collateral of these obligations significantly exceeded the amount of the claims by the secured creditors and the Plans of Reorganization required that all amounts outstanding under our pre-petition secured debt obligations were to be paid in full in cash, including accrued interest. Liabilities subject to compromise did not include: (i) liabilities held by our subsidiaries that were not subject to the Creditor Protection Proceedings; (ii) liabilities incurred after the commencement of the Creditor Protection Proceedings, except for accrued interest on pre-petition unsecured debt obligations of the CCAA filers (the cumulative post-petition interest accrued on such obligations was reversed in 2010 since such interest was not included in the CCAA Reorganization Plan sanctioned by the Canadian Court – see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net,” for additional information) and (iii) pre-petition liabilities that the Debtors expected to be required to pay in full by applicable law, even though certain of these amounts were not paid until the Plans of Reorganization were implemented.
The Debtors repudiated or rejected certain pre-petition executory contracts and unexpired leases with respect to the Debtors’ operations with the approval of the Courts. Damages that resulted from repudiations or rejections of executory contracts and unexpired leases were typically treated as general unsecured claims and were also classified as liabilities subject to compromise.
Interest expense
During the Creditor Protection Proceedings, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured, or unsecured claim.
Recently adopted accounting guidance
On January 1, 2010, we prospectively adopted new accounting guidance which eliminated the concept of a QSPE, changed the requirements for derecognizing financial assets and required additional disclosures. The adoption of this accounting guidance did not have a material impact on our results of operations or financial position as it applies to the QSPEs that were established for note monetization purposes (see Note 18, “Monetization of Timber Notes”). However, as a result of the adoption of this new accounting guidance, the transfers of accounts receivable interests under our accounts receivable securitization program no longer qualified as sales and effective January 1, 2010, such transfers and the proceeds received thereon were accounted for as secured borrowings. For additional information, see Note 17, “Liquidity and Debt.”
On January 1, 2010, we adopted new accounting guidance which changed how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. QSPEs are no longer exempted from the application of such accounting guidance. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. We are not the primary beneficiary of any of the QSPEs that were established for note monetization purposes and therefore, such QSPEs remain unconsolidated entities. The adoption of this accounting guidance did not have an impact on our results of operations or financial position.

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Notes to Consolidated Financial Statements
Note 3. Creditor Protection Proceedings
Emergence from Creditor Protection Proceedings
As discussed in Note 1, “Organization and Basis of Presentation – Creditor Protection Proceedings,” on December 9, 2010, the Plans of Reorganization became effective and we emerged from the Creditor Protection Proceedings. Upon implementation of the Plans of Reorganization, the Debtors were reorganized through the consummation of several transactions pursuant to which, among other things:
    each of the Debtors’ operations were continued in substantially the same form;
 
    all allowed pre-petition and post-petition secured claims, administrative expense claims and priority claims were paid in full in cash, including accrued interest, if applicable, and all pre-petition and post-petition secured credit facilities were terminated;
 
    all outstanding receivable interests sold under the Abitibi and Donohue Corp. (“Donohue,” an indirect, wholly-owned subsidiary of AbitibiBowater Inc.) accounts receivable securitization program were repurchased in cash for a price equal to the par amount thereof and the program was terminated;
 
    holders of allowed claims arising from the Debtors’ pre-petition unsecured indebtedness received their pro rata share of common stock issued by us on account of their claims;
 
    holders of pre-petition unsecured claims with individual claim amounts of $5,000 or less (or reduced to that amount) were paid in cash in an amount equal to 50% of their claim amount, but under certain circumstances, these claim holders were treated instead like all other holders of claims arising from pre-petition unsecured liabilities and received shares of common stock issued by us on account of their claims;
 
    all equity interests in the Predecessor Company existing immediately prior to the Emergence Date, including, among other things, all of our common stock issued and outstanding, were discharged, canceled, released and extinguished;
 
    AbitibiBowater Inc. issued an aggregate of 97,134,954 shares of Successor Company common stock, par value $0.001 per share, for the benefit of unsecured creditors of the Debtors in the Creditor Protection Proceedings, and distributed 73,752,881 of those shares in December 2010 to the holders of unsecured claims as of the applicable distribution record date on account of allowed unsecured creditor claims;
 
    various equity incentive and other employee benefit plans came into effect, including the AbitibiBowater Inc. 2010 Equity Incentive Plan, pursuant to which 8.5% of common stock on a fully diluted basis (or 9,020,960 shares) was reserved for issuance to eligible persons, of which awards representing not more than 4% (or 4,245,158 shares) were to be made approximately 30 days after the Emergence Date;
 
    the Debtors’ obligations to fund the prior service costs related to their pension and OPEB benefit plans were reinstated prospectively;
 
    the Debtors’ assets were retained by, and were reinvested in, the Successor Company;
 
    AbitibiBowater Inc. assumed by merger the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of 10.25% senior secured notes due 2018, as further discussed in Note 17, “Liquidity and Debt”; and
 
    we entered into the ABL Credit Facility, as defined and further discussed in Note 17, “Liquidity and Debt.”
From the 97,134,954 shares of Successor Company common stock issued for claims in the Creditor Protection Proceedings, we established a reserve of 23,382,073 shares for claims that remained in dispute as of the Emergence Date, from which we will make supplemental interim distributions to unsecured creditors as and if disputed claims are allowed or accepted. We continue to work to resolve these claims, including the identification of claims that we believe should be disallowed because they are duplicative, were later amended or superseded, are without merit, are overstated or for other reasons. Although we continue to make progress, in light of the substantial number and amount of claims filed and remaining unresolved claims, the claims resolution process may take considerable time to complete. The applicable Court will determine the resolution of claims that we are unable to resolve in negotiations with the affected parties. We may be required to settle certain disputed claims in cash under certain specific circumstances. As such, included in “Accounts payable and accrued liabilities” in our Consolidated Balance

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Notes to Consolidated Financial Statements
Sheets as of December 31, 2010 is a liability of approximately $35 million for the fair value of the estimated cash settlement of such claims. To the extent there are shares remaining after all disputed claims have been resolved, these shares will be reallocated ratably among unsecured creditors with allowed claims in the Creditor Protection Proceedings pursuant to the Plans of Reorganization.
The common stock of the Successor Company began trading under the symbol “ABH” on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) on December 10, 2010. See Note 23, “Share Capital,” for additional information.
Events prior to emergence from Creditor Protection Proceedings
We initiated the Creditor Protection Proceedings to pursue reorganization efforts under the protection of Chapter 11 and the CCAA, as applicable. During the Creditor Protection Proceedings, we remained in possession of our assets and properties and operated our business and managed our properties as “debtors in possession” under the jurisdiction of the Courts and in accordance with the applicable provisions of Chapter 11 and the CCAA. In general, the Debtors were authorized to operate as ongoing businesses, but could not engage in transactions outside the ordinary course of business without the approval of the applicable Court(s) or Ernst & Young Inc. (which, under the terms of a Canadian Court order, served as the court-appointed monitor under the CCAA Proceedings (the “Monitor”)), as applicable.
Subject to certain exceptions under Chapter 11 and the CCAA, our filings and orders of the Canadian Court automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us and our property to recover, collect or secure a claim arising prior to the filing of the Creditor Protection Proceedings. Chapter 11 and orders of the Canadian Court gave us the ability to reject certain contracts, subject to Court oversight. We engaged in a review of our various agreements and rejected and repudiated a number of unfavorable agreements and leases, including leases of real estate and equipment. The creditors affected by these actions were given the opportunity to file proofs of claims in the Creditor Protection Proceedings.
The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations was stayed as a result of the commencement of the Creditor Protection Proceedings. See Note 17, “Liquidity and Debt,” for additional information.
The NYSE and the TSX delisted the Predecessor Company’s common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. During the Creditor Protection Proceedings, the Predecessor Company’s common stock traded in the over-the-counter market and was quoted on the Pink Sheets Quotation Service and on the OTC Bulletin Board under the symbol “ABWTQ.” In addition, the TSX delisted the exchangeable shares of our indirect wholly-owned subsidiary, AbitibiBowater Canada Inc. (“ABCI”), at the close of market on May 15, 2009.
Note 4. Creditor Protection Proceedings Related Disclosures
Fresh start accounting
Overview
As discussed in Note 2, “Summary of Significant Accounting Policies – Fresh start accounting,” we applied fresh start accounting as of December 31, 2010 in accordance with FASB ASC 852, pursuant to which, among other things: (i) the reorganization value derived from the enterprise value established in the Plans of Reorganization was assigned to our assets and liabilities in conformity with FASB ASC 805, which requires recording assets and liabilities at fair value (except for deferred income taxes and pension and OPEB projected benefit obligations), with the excess of net asset values over the reorganization value recorded as an adjustment to equity and (ii) the Predecessor Company’s additional paid-in capital, deficit and accumulated other comprehensive loss were eliminated.
Enterprise valuation
In connection with the development of the Plans of Reorganization, we engaged an independent financial advisor to assist us in the determination of the enterprise value of the Successor Company. Using a number of estimates and assumptions, we prepared financial projections through 2014, which were included in the disclosure statement related to the Plans of Reorganization. Based on these financial projections, which assumed an emergence date of October 1, 2010, and with the assistance of our financial advisor, we estimated a going concern enterprise value of the Successor Company within a range of approximately $3,500 million to $3,850 million, with a midpoint estimate of $3,675 million, which included the fair value

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of tax attributes that were expected to be available to the Successor Company. This enterprise value was estimated using three valuation methods: (i) discounted cash flow analysis (“DCF”), (ii) comparable company analysis and (iii) precedent transactions analysis, each of which is discussed further below. We used the midpoint estimate of the enterprise value as the basis for our determination of the Successor Company’s equity value and reorganization value (see notes (16) and (19) to our Reorganized Consolidated Balance Sheet below for the reconciliations of the midpoint enterprise value to our equity value and reorganization value, respectively). The reorganization value is viewed as the fair value of the Successor Company before considering liabilities and is intended to approximate the amount a willing buyer would pay for the assets of the entity immediately after the reorganization and represents the amount of resources available for the satisfaction of post-petition liabilities and allowed claims, as negotiated between the Debtors and their creditors.
The DCF analysis is a forward-looking enterprise valuation methodology that estimates the value of an asset or business by calculating the present value of expected future cash flows to be generated by that asset or business. Under this methodology, projected future cash flows are discounted by the business’ weighted average cost of capital (the “Discount Rate”). The Discount Rate reflects the estimated blended rate of return that would be required by debt and equity investors to invest in the business based upon its capital structure. Our enterprise value was determined by calculating the present value of our unlevered after-tax free cash flows based on our five-year financial projections, with certain adjustments, plus an estimate for the value of the Company beyond the five-year projection period, known as the terminal value. The terminal value was derived by applying a perpetuity growth rate (ranging from negative 3.6% to 1.4%) to the average free cash flow generated over the five-year period, discounted back to the assumed date of emergence (October 1, 2010) by the Discount Rate. The present value of our five-year cash flow projections was calculated using Discount Rates ranging from 14% – 16% and an implied terminal value ranging from 4.0x – 5.0x terminal Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”).
The comparable company analysis estimates the value of a company based on a relative comparison with other publicly-traded companies with similar operating and financial characteristics. Under this methodology, the enterprise value for each selected public company was determined by examining the trading prices for the equity securities of such company in the public markets and adding the aggregate amount of outstanding net debt for such company (at book value) and noncontrolling interests. Those enterprise values are commonly expressed as multiples of various measures of operating statistics, most commonly EBITDA. Our financial advisor also examined enterprise values for each selected company by including the pension underfunding of each company in the enterprise value and then expressing those enterprise values as multiples of EBITDAP (EBITDA including pension underfunding). In addition, each of the selected public company’s operational performance, operating margins, profitability, leverage and business trends were examined. Based on these analyses, financial multiples and ratios were calculated to apply to our actual and projected operational performance. Multiples ranged from 4.0x – 5.0x 2011 projected EBITDA.
The precedent transactions analysis estimates value by examining public merger and acquisition transactions. The valuations paid in such acquisitions or implied in such mergers are analyzed as ratios of various financial results. These transaction multiples were calculated based on the purchase price (including any debt assumed) paid to acquire companies that are comparable to us. Since precedent transactions analysis reflects aspects of value other than the intrinsic value of a company, there are limitations as to its applicability in determining the enterprise value. Nonetheless, our financial advisor reviewed recent merger and acquisition transactions involving paper and forest products companies. Many of the transactions analyzed occurred in fundamentally different industry and credit market conditions from those prevailing in the marketplace, and therefore, may not be the best indication of value. Transaction multiples for the precedent mean and median were 8.1x and 6.9x, respectively, the last twelve months’ EBITDA, but these multiples were not deemed to be meaningful.
The range of enterprise values was determined primarily based on the DCF analysis.
In addition, certain of our other non-operating assets were valued separately, as follows: (i) tax attributes at each Debtor were valued based on a DCF of the projected tax savings arising from the use of our available post-emergence attributes, (ii) the value of certain litigation claims was determined based upon discussions with internal and external legal counsel and in consultation with the Creditors Committee, (iii) miscellaneous timber assets were valued based on precedent transactions and (iv) other non-operating assets marketed to be sold prior to emergence were based upon estimated sale proceeds.
Income taxes in these financial projections were calculated based on the projected applicable statutory tax rates in the countries in which we operate. For our U.S. operations, the federal tax rate was assumed to be 35% through 2014 and 38% thereafter and state taxes were deemed to not be material over the projection period. For our Canadian operations, the federal tax rate was assumed to be 30% in 2010, 28.5% in 2011 and 27% thereafter.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The enterprise valuation was based upon achieving the future financial results set forth in our projections, as well as the realization of certain other assumptions. The financial projections included in the enterprise valuation were limited by the information available to us as of the date of the preparation of the projections and reflected numerous assumptions concerning anticipated future performance, as well as prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize. These assumptions and the financial projections are inherently subject to significant uncertainties, as well as significant business, economic and competitive risks, many of which are beyond our control. Accordingly, there can be no assurance that the assumptions and financial projections will be achieved and actual results could vary materially. The assumptions for which there is a reasonable possibility of a variation that would significantly affect the calculated enterprise value include, but are not limited to, sales volumes, product pricing, product mix, foreign currency exchange rates, costs of raw materials and energy, achievement of operating margins and cost reductions, income tax rates, working capital changes, capital spending and overall industry conditions.
Allocation of reorganization value to assets and liabilities
The reorganization value derived from our enterprise value was assigned to our assets and liabilities in conformity with the acquisition method of accounting for business combinations pursuant to FASB ASC 805, which requires recording assets and liabilities at fair value (except for deferred income taxes and pension and OPEB projected benefit obligations). The reorganization value was assigned first to tangible and identifiable intangible assets and then the excess of net asset values over the reorganization value was recorded as an adjustment to equity. See note (19) to our Reorganized Consolidated Balance Sheet below for this allocation.
The estimated fair values of our assets and liabilities represent our best estimates and valuations, primarily based on the cost, income or market valuation approaches, as follows:
    Inventories: The fair value of our finished goods inventories was based on their estimated selling prices less the sum of selling costs, shipping costs and a reasonable profit allowance for the selling effort. The fair value of our mill stores and other supplies inventories was based on replacement cost for high-turnover items and on replacement cost less economic obsolescence for all other items. The fair values of our raw materials and work in process inventories were recorded at the Predecessor Company’s carrying values, which approximated fair value. Additionally, in the future, no inventories will be valued using the LIFO method. See Note 11, “Inventories, Net,” for the fair values of inventory by category as of December 31, 2010.
 
    Fixed assets : Except for construction in progress, the estimated fair values of our fixed assets were based on the cost approach and income approach valuation methods.
 
    The cost approach method considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility, adjusted for depreciation as of the appraisal date as described below:
    Physical deterioration – the loss in value or usefulness attributable solely to the use of the asset and physical causes such as wear and tear and exposure to the elements.
 
    Functional obsolescence – the loss in value caused by the inability of the property to adequately perform the function for which it is utilized.
 
    Technological obsolescence (a form of functional obsolescence) – the loss in value due to changes in technology, discovery of new materials and improved manufacturing processes.
 
    Economic obsolescence – the loss in value caused by external forces such as legislative enactments, overcapacity in the industry, low commodity pricing, changes in the supply and demand relationships in the marketplace and other market inadequacies.
    The cost approach relies on management’s assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our fixed assets along with assumptions regarding the age and estimated useful lives of our fixed assets.
 
    The income approach method estimates fair value based on a DCF analysis. We derived our income approach assumptions from our business plan, which was developed using several sources, including our internal budgets (which contain existing sales data based on current product lines and assumed production levels, manufacturing costs and product pricing). Our valuation model used a cash flow period of four years, with a terminal value based on a multiple of EBITDA. We used Discount Rates ranging from 13% – 15%.
 
    Construction in progress was recorded at the Predecessor Company’s carrying value, which approximated fair value.
 
    Additionally, as part of fresh start accounting, accumulated depreciation was eliminated and the estimated remaining useful lives of our fixed assets were updated. See Note 13, “Fixed Assets, Net,” for the updated remaining useful lives and the fair values of fixed assets by category as of December 31, 2010.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
    Amortizable intangible assets: In the application of fresh start accounting, we identified amortizable intangible assets related to water rights. The estimated fair value of these identifiable intangible assets was primarily based on DCF valuation methods. Additionally, as part of fresh start accounting, accumulated amortization was eliminated and the estimated remaining useful life of our amortizable intangible assets was updated. See Note 5, “Goodwill and Amortizable Intangible Assets, Net,” for the updated remaining useful life and the fair value of our identifiable intangible assets as of December 31, 2010.
    Joint ventures: The fair values of our joint ventures were based on a combination of the cost, income and market approach valuation methods.
 
    Long-term debt: The fair value of our Senior Secured Notes due 2018 was based on quoted market prices.
 
    All other assets and liabilities were recorded at the Predecessor Company’s carrying values, after adjustments resulting from the implementation of the Plans of Reorganization. The resulting carrying values approximated their fair values.
The value of our assets included in assets held for sale and our liabilities included in liabilities associated with assets held for sale was determined based on recent offers, as applicable, or the applicable method discussed above less costs to sell. The fair value of long-term debt included in liabilities associated with assets held for sale was estimated by discounting the cash flows using interest rates as of December 31, 2010 for financial instruments with similar characteristics and maturities.
The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740. See Note 21, “Income Taxes,” for additional information.
The amount of pension and OPEB projected benefit obligations recorded was determined in accordance with FASB ASC 715. See Note 20, “Pension and Other Postretirement Benefit Plans,” for a discussion of the assumptions used to determine our pension and OPEB projected benefit obligations as of December 31, 2010.
The estimates and assumptions used in the valuation of our assets and liabilities are inherently subject to significant uncertainties, many of which are beyond our control. Accordingly, there can be no assurance that the estimates, assumptions and values reflected in these valuations will be realized and actual results could vary materially.
Reorganized Consolidated Balance Sheet
The effects of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010 are presented in our Reorganized Consolidated Balance Sheet below. The adjustments set forth in the column captioned “Plans of Reorganization Adjustments” reflect the effects of the implementation of the Plans of Reorganization, including, among other things, the discharge and settlement of liabilities subject to compromise based on claims allowed by the Courts, the repayment of the Predecessor Company’s secured debt obligations, the cancellation of all equity interests in the Predecessor Company, the issuance of Successor Company common stock to holders of allowed claims in satisfaction of such claims and the incurrence of new indebtedness related to our exit financing. The adjustments set forth in the column captioned “Fresh Start Accounting Adjustments” reflect, among other things, adjustments to the carrying values of our assets and liabilities to reflect their fair values and the elimination of additional paid-in capital, deficit and accumulated other comprehensive loss as a result of the application of fresh start accounting in accordance with FASB ASC 852.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
                                                               
     
    As of December 31, 2010
            Plans of       Fresh Start          
            Reorganization       Accounting          
(In millions)   Predecessor   Adjustments       Adjustments       Successor  
 
Assets
                                         
Current assets:
                                         
Cash and cash equivalents
  $ 608     $ (279 ) (1 )   $ (10 ) (23 )   $ 319    
Accounts receivable, net
    863       (5 ) (2 )     (4 ) (23 )     854    
Inventories, net
    560                 (122 ) (18 )     438    
Assets held for sale
    2                 696   (23 )     698    
Deferred income tax assets
    16       (3 ) (3 )     34   (18 )     47    
Other current assets
    74       15   (4 )     (1 ) (23 )     88    
 
Total current assets
    2,123       (272 )         593           2,444    
 
Fixed assets, net
    3,173                 (532 ) (18 )(23)     2,641    
Amortizable intangible assets, net
    464                 (445 ) (18 )(23)     19    
Deferred income tax assets
          1,582   (3 )     154   (18 )     1,736    
Goodwill
    53                 (53 ) (19 )        
Other assets
    432       (115 ) (5 )     (1 ) (20 )(23)     316    
 
Total assets
  $ 6,245     $ 1,195         $ (284 )     $ 7,156    
 
 
                                         
Liabilities and equity (deficit)
                                         
Liabilities not subject to compromise:
                                         
Current liabilities:
                                         
Accounts payable and accrued liabilities
  $ 706     $ (129 ) (6 )   $ (9 ) (23 )   $ 568    
Debtor in possession financing
    40       (40 ) (7 )                  
Secured borrowings
    120       (120 ) (8 )                  
Short-term bank debt
    685       (685 ) (9 )                  
Current portion of long-term debt
    300       (300 ) (10 )                  
Liabilities associated with assets held for sale
                    289   (23 )     289    
 
Total current liabilities
    1,851       (1,274 )         280           857    
 
Long-term debt, net of current portion
    290       816   (11 )     (201 ) (18 )(23)     905    
Pension and other postretirement projected benefit obligations
    91       1,181   (12 )               1,272    
Deferred income tax liabilities
    101       (29 ) (13 )               72    
Other long-term liabilities
    84       (20 ) (14 )     (1 ) (18 )     63    
 
Total liabilities not subject to compromise
    2,417       674           78           3,169    
 
Liabilities subject to compromise
    8,407       (8,407 ) (15 )                  
 
Total liabilities
    10,824       (7,733 )         78           3,169    
 
Equity (deficit):
                                         
AbitibiBowater Inc. shareholders’ equity (deficit):
                                         
Predecessor common stock
    55       (55 ) (16 )                  
Successor common stock
            (16 )                  
Predecessor exchangeable shares
    173       (173 ) (16 )                 (16)
Additional paid-in capital
    2,525       3,932   (16 )     (2,748 ) (21 )     3,709   (16)
Deficit
    (6,420 )     5,180   (17 )     1,240   (21 )        
Accumulated other comprehensive loss
  (1,020 )     44   (12 )     976   (21 )        
Successor treasury stock
                                 
 
Total AbitibiBowater Inc. shareholders’ equity (deficit)
    (4,687 )     8,928           (532 )         3,709    
Noncontrolling interests
    108                 170   (22 )     278    
 
Total equity (deficit)
    (4,579 )     8,928           (362 )         3,987    
 
Total liabilities and equity (deficit)
  $ 6,245     $ 1,195         $ (284 )       $ 7,156    
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Plans of Reorganization Adjustments:
 
(1)   Reflects the cash effects of the Plans of Reorganization:
         
 
(In millions)        
 
Net proceeds from exit financing:
       
Release of restricted cash related to the Senior Secured Notes due 2018 ($850 principal amount less financing costs of $10), net of additional financing costs of $15 (Note 17)
  $ 825  
Borrowing under the ABL Credit Facility ($100 borrowed less financing fees and expenses of $16)
    84  
 
 
    909  
 
Payments of secured debt obligations, including accrued interest and fees:
       
Bowater DIP Agreement, including exit fee of $4 and fees of $1
    (45 )
Bowater’s pre-petition secured bank credit facilities, including accrued interest of $18 and fees of $1
    (357 )
ACCC’s pre-petition 13.75% Senior Secured Notes, including accrued interest of $57 and fees of $2
    (359 )
ACCC’s pre-petition senior secured term loan, including accrued interest of $17 and fees of $2
    (366 )
Secured borrowings under Abitibi’s and Donohue’s accounts receivable securitization program, including accrued interest and fees of less than $1
    (120 )
Bowater’s pre-petition floating rate industrial revenue bonds, including accrued interest of less than $1
    (34 )
 
  ( 1,281 )
 
Other payments related to the Plans of Reorganization, including other secured claims, convenience claims, administrative expense claims and priority claims
    (97 )
Release of restricted cash, net, including other amounts related to the Senior Secured Notes due 2018 held in escrow until the Emergence Date (excluding $850 principal amount less financing costs of $10 above) and return of deposits
    160  
Proceeds from the North American Free Trade Agreement (“NAFTA”) settlement (Note 22)
    130  
Repayment of borrowings under the ABL Credit Facility prior to December 31, 2010
    (100 )
 
 
  $ (279 )
 
     
(2)   Represents miscellaneous write-offs.
 
(3)   Represents adjustments to deferred income tax assets arising from changes in tax attributes as a result of the implementation of the Plans of Reorganization and the reversal of valuation allowances upon emergence from the Creditor Protection Proceedings. See Note 21, “Income Taxes.”
 
(4)   Reflects a deposit with the Monitor of $22 million for the payment of secured claims and the release of $7 million of restricted cash in lockbox accounts related to the accounts receivable securitization program.
 
(5)   Reflects: (i) the recording of deferred financing costs of $44 million associated with our exit financing, (ii) the return of deposits and release of restricted cash of $181 million for various items held either in trust with the Monitor, in escrow or in a designated account for which the restrictions were terminated on the Emergence Date, (iii) an increase in restricted cash of $28 million associated with a guarantee agreement with Alcoa (as defined and discussed in Note 17, “Liquidity and Debt – Debt – Sale of our investment in MPCo) and (iv) $6 million of miscellaneous write-offs.
 
(6)   Reflects the following items:
         
 
(In millions)        
 
Payments of accrued interest and fees on:
       
Bowater DIP Agreement
  $ (4 )
Bowater’s pre-petition secured bank credit facilities
    (18 )
ACCC’s pre-petition 13.75% Senior Secured Notes
    (57 )
ACCC’s pre-petition senior secured term loan
    (17 )
Payment of backstop commitment agreement termination fee (discussed further below)
    (15 )
Payment of claims
    (38 )
Recording of estimated liabilities for the following:
       
Outstanding disputed claims expected to be paid in cash once allowed or accepted
    12  
Professional success fees
    20  
Diversification fund in the province of Quebec (Note 20)
    2  
Reduction in current pension and OPEB projected benefit obligations
    (14 )
 
 
  $ (129 )
 
     
(7)   Reflects the repayment of the Bowater DIP Agreement.
 
(8)   Reflects the repayment of secured borrowings under the accounts receivable securitization program.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
(9)   Reflects the repayment of Bowater’s pre-petition secured bank credit facilities of $338 million and ACCC’s pre-petition senior secured term loan of $347 million.
 
(10)   Reflects the repayment of ACCC’s pre-petition 13.75% Senior Secured Notes.
 
(11)   Reflects the issuance of the Senior Secured Notes due 2018 of $850 million and the repayment of Bowater’s pre-petition floating rate industrial revenue bonds due 2029 of $34 million.
 
(12)   Pursuant to the Plans of Reorganization, pension and OPEB projected benefit obligations were retained by us. These obligations, which were previously classified as liabilities subject to compromise, were reclassified to the appropriate accounts.
 
(13)   Represents a reduction of deferred income taxes upon the deconsolidation of BCFC of $32 million (see Note 22, “Commitments and Contingencies – BCFC Bankruptcy and Insolvency Act filing”) and an increase in deferred income tax liabilities of $3 million.
 
(14)   Represents the recording of a liability for a diversification fund in each of the provinces of Quebec and Ontario of $10 million (see Note 20, “Pension and Other Postretirement Benefit Plans – Resolution of Canadian pension situation”) and a reduction in tax reserves of $30 million.
 
(15)   Reflects the reclassification of pension and OPEB projected benefit obligations to the appropriate liability accounts, as discussed above, as well as the settlement or extinguishment of all other remaining liabilities subject to compromise pursuant to the Plans of Reorganization. The disposition of the Predecessor Company’s liabilities subject to compromise is summarized as follows:
         
 
(In millions)        
 
Unsecured pre-petition debt
  $ 6,149  
Accrued interest on unsecured pre-petition debt
    176  
Accounts payable and accrued liabilities, excluding accrued interest on unsecured pre-petition debt
    388  
Pension and OPEB projected benefit obligations
    1,296  
Repudiated or rejected executory contracts
    358  
Other liabilities
    40  
 
Total liabilities subject to compromise of the Predecessor Company
    8,407  
Issuance of Successor Company common stock (a)
    (3,709 )
Reinstatement of pension and OPEB projected benefit obligations
    (1,238 )
Accrual for claims payable (b)
    (12 )
 
Gain on extinguishment of liabilities subject to compromise
  $ 3,448  
 
 
(a)   As discussed in Note 3, “Creditor Protection Proceedings,” the majority of holders of allowed unsecured claims received their pro rata share of Successor Company common stock on account of their claims, whereas the majority of holders of disputed unsecured claims will receive their pro rata share of common stock from the shares we have reserved for their benefit as and if their claims are allowed or accepted.
 
(b)   As discussed in Note 3, “Creditor Protection Proceedings,” except for certain specific claims, the outstanding general unsecured claims will be satisfied by the future distribution of shares of common stock from the reserve discussed above. For claims expected to be settled in cash, the Consolidated Balance Sheet of the Successor Company includes a total liability of approximately $35 million as of December 31, 2010 (of which $23 million was included in the Predecessor Company) for the fair value of the estimated cash settlement of such claims.
 
(16)   Reflects the cancellation of the Predecessor Company’s common stock and exchangeable shares, as well as the issuance of common stock of the Successor Company, which has an equity value of $3,709 million and was determined as follows:
         
 
(In millions)        
 
Enterprise value
  $ 3,675  
Plus:
       
Excess cash and other items
    431  
Less:
       
Fair value of post-petition debt:
       
Senior Secured Notes due 2018, including accrued interest
    (927 )
Other debt (excluding noncontrolling interest portion)
    (210 )
Joint venture-related deferred tax liability
    (21 )
Plus:
       
Adjustment for excess of allocated values of assets and liabilities over reorganization value (a)
    761  
 
Equity value of the Successor Company
  $ 3,709  
 
 
(a)   The excess of the allocated values of assets and liabilities over the reorganization value arises principally from the accounting for deferred income taxes and pension and OPEB projected benefit obligations, where the amounts determined for these items based on their respective accounting standards exceed their respective fair values included in the enterprise valuation.
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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
(17)   Reflects the following items, all of which were included in “Reorganization items, net” or “Income tax benefit” in our Consolidated Statements of Operations for the year ended December 31, 2010:
         
 
(In millions)        
 
Gain on extinguishment of liabilities subject to compromise, including unsecured pre-petition debt obligations
  $ 3,448  
Gain on settlement of NAFTA claim (Note 22)
    130  
Professional fees (a)
    (39 )
Gain on deconsolidation of BCFC (Note 22)
    19  
Gain related to changes in pension plans
    24  
Other costs
    (29 )
 
Gain due to Plans of Reorganization adjustments included in Reorganization items, net
    3,553  
Gain due to reversal of valuation allowances included in Income tax benefit (Note 21)
    1,627  
 
 
  $ 5,180  
 
 
(a)   Represents professional fees that were contractually due to certain professionals as “success” fees upon our emergence from the Creditor Protection Proceedings and were recorded as part of the effects of implementing the Plans of Reorganization.
Fresh Start Accounting Adjustments :
 
(18)   Reflects the following adjustments to the carrying value of assets and liabilities to reflect their estimated values based on the respective valuation methods discussed above:
         
 
(In millions)        
 
Inventories
  $ (122 )
Fixed assets
    (385 )
Amortizable intangible assets
    83  
Deferred income tax assets
    188  
Goodwill (see note (19) below)
    (53 )
Other assets
    5  
Long-term debt, net of current portion
    79  
Other long-term liabilities
    (1 )
 
 
(19)   The following table summarizes the reconciliation of the enterprise equity value to the reorganization value, the allocation of the reorganization value to our assets and liabilities based on the value determined pursuant to FASB ASC 805 and the resulting adjustment to goodwill:
         
 
(In millions)        
 
Enterprise value of the Successor Company
  $ 3,675  
Plus:
       
Excess cash and other items
    431  
Noncontrolling interests, including their share of debt of $70 and their share of deferred income tax liability of $21
    369  
Non-interest bearing liabilities
    1,920  
 
Reorganization value to be allocated to assets
    6,395  
Less amounts allocated to the value of:
       
Total current assets
    2,444  
Fixed assets
    2,641  
Amortizable intangible assets
    19  
Deferred income tax assets
    1,736  
Other assets
    316  
 
Excess of amounts allocated over reorganization value
    (761 )
Adjustment to enterprise equity value
    761  
 
Reorganization value not allocated
     
Less: Predecessor Company’s goodwill
    (53 )
 
Adjustment to goodwill as a result of fresh start accounting
  $ (53 )
 
 
(20)   Reflects an increase to our investments in unconsolidated joint ventures of $32 million to reflect fair value and the write-off of deferred financing costs associated with the Senior Secured Notes due 2018 of $27 million.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
 
(21)   The net adjustments to additional paid-in capital, deficit and accumulated other comprehensive loss include: (i) the adjustments required to state assets and liabilities at fair value, which resulted in a loss of $362 million that was included in Reorganization items, net in our Consolidated Statements of Operations for the year ended December 31, 2010 and (ii) the elimination of the Predecessor Company’s additional paid-in capital, accumulated other comprehensive loss and deficit pursuant to fresh start accounting.
 
(22)   Reflects the net effect of the adjustments to the fair value of assets and liabilities related to our noncontrolling interests.
 
(23)   As of December 31, 2010, we held for sale various mills and other assets, including our investment in ACH. Accordingly, in order to reflect the related assets and liabilities as held for sale in the Successor Company’s Consolidated Balance Sheet as of December 31, 2010, the reclassification of such assets and liabilities to “Assets held for sale” and “Liabilities associated with assets held for sale” are included in this column. Since we have control over ACH, our consolidated financial statements include this entity on a fully consolidated basis.
Assets that were reclassified to “Assets held for sale” were comprised of the following:
         
 
(In millions)        
 
Cash and cash equivalents
  $ 10  
Accounts receivable
    4  
Other current assets
    1  
Fixed assets (includes a reduction of $20 to reflect fair value)
    147  
Amortizable intangible assets (includes an increase of $322 to reflect fair value)
    528  
Other assets
    6  
 
 
  $ 696  
 
Liabilities that were reclassified to “Liabilities associated with assets held for sale” were comprised of the following:
         
 
(In millions)        
 
Accounts payable and accrued liabilities
  $ 9  
Long-term debt (includes an increase of $24 to reflect fair value)
    280  
 
 
  $ 289  
 
Reorganization items, net
Reorganization items, net for the years ended December 31, 2010 and 2009 were comprised of the following:
                 
 
    Predecessor
(In millions)   2010     2009  
 
Professional fees (1)
    $ 154       $ 106  
Gain due to Plans of Reorganization adjustments (2)
    (3,553 )      
Loss due to fresh start accounting adjustments (2)
    362        
Provision for repudiated or rejected executory contracts (3)
    121       225  
Charges related to indefinite idlings and permanent closures (4)
    307       242  
Gains on disposition of assets (5)(10)
    (70 )      
Write-off of debt discounts, premiums and issuance costs (6)
    666        
Revaluation of debt due to currency exchange (7)
    546        
Reversal of post-petition accrued interest on certain debt obligations (8)
    (447 )      
Gain on deconsolidation of BPCL (9)
    (26 )      
Gain on deconsolidation of a variable interest entity (“VIE”) (10)
    (16 )      
Debtor in possession financing costs (11)
    10       31  
Other (12)
    45       35  
 
 
    $ (1,901 )     $ 639  
 
(1)   Professional fees directly related to the Creditor Protection Proceedings and the establishment of the Plans of Reorganization, including legal, accounting and other professional fees, as well as professional fees incurred by our creditors. Additionally, pursuant to the Plans of Reorganization, as part of our exit financing, we had initially planned to conduct a rights offering for the issuance of convertible senior subordinated notes to holders of eligible unsecured claims. With the approval of the Courts, we entered into a backstop commitment agreement that provided for the purchase by certain investors of the convertible notes to the extent that the rights offering would have been under-subscribed. On September 21, 2010, we announced that we had elected not to pursue the rights offering. In 2010, we recorded the backstop commitment agreement termination fee of $15 million, which was paid on the Emergence Date. One of the parties to the backstop commitment agreement was Fairfax Financial Holdings Limited (“Fairfax”). See

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
    “Fresh Start Accounting” section above for additional professional fees included in Plans of Reorganization adjustments.
 
(2)   See “Fresh Start Accounting” section above.
 
(3)   Provision for repudiated or rejected executory contracts represents provision for estimated claims arising from repudiated or rejected executory contracts, primarily Abitibi’s guarantee of BPCL’s obligation under an agreement with NPower Cogen Limited, as well as supply contracts and equipment leases. See Note 3, “Creditor Protection Proceedings – Events prior to emergence from Creditor Protection Proceedings,” for additional information.
 
(4)   In 2010, represents charges primarily for accelerated depreciation and other charges related to: (i) the indefinite idling of our Saint-Fulgence, Quebec and Petit Saguenay, Quebec sawmills; (ii) the indefinite idling of our Gatineau, Quebec paper mill (for which we announced its permanent closure later in the year); (iii) the indefinite idling of a de-inking line and paper machine at our Thorold, Ontario paper mill, (iv) the permanent closure of a paper machine at our Coosa Pines, Alabama paper mill and a paper machine at our Thorold paper mill and (iv) an impairment charge related to our Lufkin, Texas paper mill to reduce the carrying value of the assets to their estimated fair value prior to the sale of these assets. In 2009, represents charges related to the indefinite idling of various paper mills and paper machines located in Canada, as well as the permanent closure of a sawmill in the United States and a chipping operation in Quebec, Canada. The fair value of all impaired assets was determined based on their estimated sale or salvage values. All of these actions were initiated subsequent to the commencement of the Creditor Protection Proceedings as part of our work towards a comprehensive restructuring plan. Accordingly, these charges were included in Reorganization items, net. Such charges for the years ended December 31, 2010 and 2009 were comprised of the following:
                 
 
    Predecessor
(In millions)   2010     2009  
 
Accelerated depreciation
    $ 251       $ 51  
Long-lived asset impairment
    10       130  
Severance and pension curtailment
    29       32  
Write-downs of inventory
    17       17  
Other
          12  
 
 
    $ 307       $ 242  
 
(5)   Represents the gains on disposition of various mills and other assets as part of our work towards a comprehensive restructuring plan, including the write-off of related asset retirement obligations. Such gains for the year ended December 31, 2010 included our Mackenzie, British Columbia paper mill and sawmills, four previously permanently closed paper mills that were bundled and sold together, our Westover, Alabama sawmill, our recycling division’s material recycling facilities located in Arlington, Houston and San Antonio, Texas, our Albertville, Alabama sawmill, our Covington, Tennessee paper mill and various other assets, all of which we sold for proceeds of approximately $80 million.
 
(6)   FASB ASC 852 requires that debt discounts and premiums, as well as debt issuance costs, be viewed as part of the valuation of the related pre-petition debt in arriving at the net carrying amount of the debt. When the debt becomes an allowed claim and the allowed claim differs from the net carrying amount of the debt, the recorded debt obligations should be adjusted to the amount of the allowed claim. In 2010, pursuant to the Courts’ approval of the respective Plan of Reorganization (which included the approval of allowed debt claims), we adjusted the net carrying amount of the Debtors’ debt obligations to the allowed amount of the claims, which resulted in a write-off of the unamortized balance of debt discounts, premiums and issuance costs.
 
(7)   For purposes of determining the amounts of allowed unsecured claims, claims filed against a CCAA filer or Chapter 11 filer denominated in a currency other than the local currency are to be translated to Canadian dollars and U.S. dollars, respectively, using the exchange rate in effect as of the date of the commencement of the Creditor Protection Proceedings for all Chapter 11 claims and for CCAA claims that existed as of the filing date, or the exchange rate in effect as of the date of the notice or event that gave rise to the claim for CCAA claims that arose after the filing date (the “fixed exchange rate”). The majority of our CCAA filers’ pre-petition unsecured debt obligations were denominated in U.S. dollars. As noted above, when the debt becomes an allowed claim and the allowed claim differs from the net carrying amount of the debt, the recorded debt obligations should be adjusted to the amount of the allowed claim. In 2010, pursuant to the Canadian Court’s sanction of the CCAA Reorganization Plan (which included the approval of allowed debt claims), we adjusted the CCAA filers’ pre-petition unsecured debt obligations to the allowed amount of the claims, which resulted in a revaluation to reflect the impact of the fixed exchange rate.
 
(8)   We had recorded post-petition accrued interest on the CCAA filers’ pre-petition unsecured debt obligations based on the expectation that such accrued interest would be a permitted claim under the CCAA Proceedings. However, pursuant to the CCAA Reorganization Plan sanctioned by the Canadian Court, the CCAA filers’ pre-petition unsecured debt

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    obligations did not include the amount of such post-petition accrued interest for distribution purposes and therefore, such accrued interest was then accounted for as not having been approved as a permitted claim. Accordingly, in the third quarter of 2010, we reversed such post-petition accrued interest as a Reorganization item and ceased accruing interest on the CCAA filers’ pre-petition unsecured debt obligations.
 
(9)   As discussed in Note 1, “Organization and Basis of Presentation – Bridgewater Administration,” we are no longer consolidating BPCL in our consolidated financial statements. At the time of the BPCL Administration filing, we had a negative basis in our investment in BPCL. Upon the deconsolidation of BPCL, we derecognized our negative investment, which resulted in a gain.
 
(10)   During the second quarter of 2010, a subsidiary that was a VIE that we had been consolidating was placed into receivership. As a result, we lost control over and the ability to influence this VIE’s operations and are no longer the primary beneficiary of this VIE. Therefore, we are no longer consolidating this VIE in our consolidated financial statements. At such date, we had a negative basis in our investment in this VIE. Upon the deconsolidation of this VIE, we derecognized our negative investment, which resulted in a gain of $16 million. Additionally, in the fourth quarter of 2010, we transferred assets and liabilities associated with certain Canadian properties to this VIE. Upon the transfer of these properties to this VIE and the assumption of the associated liabilities by this VIE, we lost control of the assets transferred and were no longer primarily responsible for the liabilities transferred and therefore deconsolidated these properties, which resulted in a gain on disposition of assets of approximately $2 million.
 
(11)   Debtor in possession financing costs were recorded in 2010 in connection with: (i) the May 5, 2010 extension, the July 15, 2010 amendment, the October 15, 2010 extension and for the exit fee related to the Bowater DIP Agreement (as defined in Note 17, “Liquidity and Debt”) and (ii) the June 11, 2010 amendment to the Abitibi and Donohue second amended and restated accounts receivable securitization program. Debtor in possession financing costs were incurred in 2009 in connection with entering into: (i) the Bowater DIP Agreement, (ii) the debtor in possession financial facility for the benefit of Abitibi and Donohue, which was terminated on December 9, 2009, and (iii) the Abitibi and Donohue second amended and restated accounts receivable securitization program. For additional information, see Note 17, “Liquidity and Debt.”
 
(12)   For the year ended December 31, 2010, “Other” primarily included: (i) the write-off of environmental liabilities related to our Newfoundland and Labrador properties that were expropriated and for which no claim was filed against us in the Creditor Protection Proceedings; (ii) environmental charges related to our estimated liability for an environmental claim filed against us by the current owner of a site previously owned by Abitibi; (iii) employee termination charges resulting from our work towards a comprehensive restructuring plan related to a workforce reduction at our Catawba, South Carolina paper mill and the departure of our former Chief Executive Officer and (iv) additional claim amounts recorded as a result of the claims reconciliation process. For the year ended December 31, 2009, “Other” included: (i) charges of $14 million for reserves for certain pre-petition receivables and (ii) impairment charges of $21 million to reduce our retained interest in three QSPEs to zero (for further information, reference is made to Note 18, “Monetization of Timber Notes”). “Other” for both periods also included interest income, which was $3 million and less than $1 million for the years ended December 31, 2010 and 2009, respectively.
In the years ended December 31, 2010 and 2009, we paid $210 million and $104 million, respectively, relating to reorganization items, which were comprised of: (i) professional fees of $139 million and $73 million, respectively, (ii) debtor in possession financing costs of $10 and $31 million, respectively, (iii) the backstop commitment agreement termination fee of $15 million in 2010 discussed above and (iv) exit financing costs of $46 million in 2010. Payments relating to professional fees and the backstop commitment agreement termination fee were included in cash flows from operating activities and payments relating to debtor in possession financing costs and exit financing costs were included in cash flows from financing activities in our Consolidated Statements of Cash Flows. Additionally, the receipt of the NAFTA settlement amount of $130 million in 2010 was included in cash flows from operating activities in our Consolidated Statements of Cash Flows (see Note 22, “Commitments and Contingencies – Extraordinary loss on expropriation of assets,” for additional information regarding the NAFTA settlement).

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Notes to Consolidated Financial Statements
Liabilities subject to compromise
Liabilities subject to compromise of the Debtors as of December 31, 2009 were comprised of the following:
         
 
    Predecessor
(In millions)   2009
 
Unsecured pre-petition debt (Note 17)
    $ 4,852  
Accrued interest on unsecured pre-petition debt
    385  
Accounts payable and accrued liabilities, excluding accrued interest on unsecured pre-petition debt
    463  
Pension and OPEB projected benefit obligations
    791  
Repudiated or rejected executory contracts
    228  
Other liabilities
    8  
 
 
    $ 6,727  
 
As of December 31, 2010, we had no liabilities subject to compromise due to our emergence from the Creditor Protection Proceedings on December 9, 2010. For additional information, see “Fresh start accounting” above.
Note 5. Goodwill and Amortizable Intangible Assets, Net
Goodwill
Goodwill by reportable segment for the years ended December 31, 2009 and 2010 was as follows:
                 
 
    Coated    
(In millions)   Papers   Total  
 
Balance as of January 1, 2009 (Predecessor)
    $ 53       $ 53  
 
Balance as of December 31, 2009 (Predecessor)
    53       53  
Fresh start accounting adjustment (1)
    (53 )     (53 )
 
Balance as of December 31, 2010 (Successor)
     $        $  
 
(1)   See Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” for a discussion of the adjustment to goodwill arising from fresh start accounting.
Goodwill of the Predecessor Company represented the excess of the purchase price over the fair value of the net assets acquired in the 2007 combination of Bowater and Abitibi, net of accumulated impairment losses of $810 million as of December 31, 2009.
Impairment of goodwill
In 2010, 2009 and 2008, we recorded zero, zero and $810 million, respectively, of non-cash goodwill impairment charges, which were recorded in “Impairment of goodwill” in our Consolidated Statements of Operations. In 2008, the goodwill impairment charge of $810 million represented $610 million for our newsprint reporting unit and $200 million for our specialty papers reporting unit, representing the full amount of goodwill associated with each of those reporting units. The fair value of our reporting units was determined based on a combination of the income approach, which estimates fair value based on future discounted cash flows, and the market approach (guideline companies method), which estimates fair value based on comparable market prices. We chose to assign a weight of 75% to the market approach and 25% to the income approach. The decline in the fair values of the newsprint and specialty papers reporting units below their carrying amounts was the result of industry and global economic conditions that sharply deteriorated in late 2008, continued decline in the demand for newsprint and specialty papers in North America leading to our idling and closure of additional production capacity in the fourth quarter of 2008 and the general decline in asset values as a result of increased market cost of capital following the global credit crisis that accelerated in late 2008. The goodwill impairment charges were not deductible for

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Notes to Consolidated Financial Statements
income tax purposes and represented a permanent book-tax difference. As a result, no tax benefit was recognized for these goodwill impairment charges.
Amortizable intangible assets, net
Amortizable intangible assets, net as of December 31, 2010 and 2009 were comprised of the following:
                                                           
       
    2010 (Successor)     2009 (Predecessor)
    Estimated   Gross                     Estimated   Gross        
    Life   Carrying   Accumulated             Life   Carrying   Accumulated    
(Dollars in millions)   (Years)   Value   Amortization   Net     (Years)   Value   Amortization   Net
       
Water rights
  40      $ 19        $        $ 19       15 – 40     $ 436       $ 27       $ 409  
Customer relationships
                          20     73       9       64  
       
 
         $ 19        $        $ 19             $ 509       $ 36       $ 473  
       
In order to operate our hydroelectric generating facilities, we draw water from various rivers in Canada. The use of such government-owned waters is governed by water power leases/agreements with the Canadian provinces, which set out the terms, conditions and fees (as applicable). Terms of these agreements typically vary from 10 to 50 years and are generally renewable, under certain conditions, for additional terms. In certain circumstances, water rights are granted without expiration dates. In some cases, the agreements are contingent on the continued operation of the related paper mill and a minimum level of capital spending in the region. We have assigned the Successor Company’s water rights an expected useful life of 40 years, which corresponds to the related hydroelectric power plants’ expected useful lives.
As of December 31, 2010, the water rights of ACH were expected to be sold with our equity interest in this entity; therefore, these assets were included in “Assets held for sale” in our Consolidated Balance Sheets as of December 31, 2010. These assets, which had a net book value of $202 million as of December 31, 2009, were included in “Amortizable intangible assets, net” in our Consolidated Balance Sheets as of December 31, 2009.
Amortization expense related to amortizable intangible assets for the years ended December 31, 2010, 2009 and 2008 was $19 million, $25 million and $31 million, respectively. Amortization expense related to amortizable intangible assets is estimated to be approximately less than $1 million per year for each of the next five years.
Note 6. Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges
Closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, for the years ended December 31, 2010, 2009 and 2008 were comprised of the following:
                         
 
    Predecessor
(In millions)   2010     2009     2008  
 
Impairment of long-lived assets, other than goodwill
     $ 2       $ 87       $ 247  
Accelerated depreciation
          21        
Impairment of assets held for sale
          84       181  
Contractual obligations and other commitments
    8             10  
Severance and other costs
    1       10       43  
 
 
     $ 11       $ 202       $ 481  
 
Impairment of long-lived assets, other than goodwill
In 2010, we recorded long-lived asset impairment charges of $2 million related to our previously permanently closed Covington facility to further reduce the carrying value of the assets to their estimated fair value, which was determined based on the mill’s estimated sales value.

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Notes to Consolidated Financial Statements
In 2009, upon review of the recoverability of certain of our indefinitely idled newsprint mill assets following a steep decline in market demand in early 2009, we recorded a long-lived asset impairment charge of $85 million. The fair value of these assets was determined based on their estimated sale or salvage values. In 2009, we also recorded long-lived asset impairment charges of $10 million, primarily related to two previously permanently closed mills, which we bundled and sold together in 2010 with two other previously permanently closed mills, to further reduce the carrying value of their assets to their current estimated fair value, which was determined based on their estimated sales values.
In 2008, permanent closures that we announced included our Baie-Comeau, Quebec recycling operations, our previously idled Donnacona, Quebec and Mackenzie paper mills, our Grand Falls, Newfoundland and Labrador newsprint mill and our Covington paper converting facility. Upon review of the recoverability of the long-lived assets at these facilities, including the capitalized asset retirement obligations recognized as a result of the closures, we recorded long-lived asset impairment charges of $249 million. The fair value of these assets was determined based on their estimated sale or salvage values plus any projected cash generated from operating the facilities through the date of closing. These impairment charges were offset by a $2 million reduction in an asset retirement obligation at our Port Alfred, Quebec facility, which was previously closed.
Accelerated depreciation
In December 2008, we announced, among other things, the indefinite idling of two paper machines at our Calhoun, Tennessee newsprint mill. At that time, we expected to recover the carrying values of these long-lived assets and accordingly, no impairment was recorded. In 2009, we reviewed the remaining useful lives of these paper machines and concluded that the estimated remaining useful lives should be reduced to zero. Accordingly, we recorded accelerated depreciation charges of $21 million to reduce their carrying values to their estimated salvage values of zero.
Impairment of assets held for sale
In 2008, we recorded long-lived asset impairment charges of $181 million related to the assets held for sale for our interest in Manicouagan Power Company (“MPCo”) to reduce the carrying value of our investment to fair value less costs to sell. The fair value of these assets was determined based on the net realizable value of the long-lived assets consistent with the terms of a non-binding agreement in principle for the sale. As discussed in Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other,” the sale of MPCo was completed in the fourth quarter of 2009. In 2009, we recorded additional long-lived asset impairment charges of $84 million related to these assets held for sale to further reduce the carrying value of our investment in MPCo to its current fair value less costs to sell to reflect the terms of the final sale and actual costs to sell.
Contractual obligations and other commitments
In 2010, we recorded an $8 million tax indemnification liability related to the 2009 sale of our investment in MPCo (see Note 22, “Commitments and Contingencies — Other representations, warranties and indemnifications”).
In 2008, we recorded $10 million in charges for noncancelable contracts at our Dalhousie, New Brunswick operations. These contracts were repudiated in 2010.
Severance and other costs
In 2010, we recorded $1 million in severance and other costs, primarily for miscellaneous adjustments to severance liabilities and asset retirement obligations, as well as other costs, primarily related to a lawsuit related to a closed mill.
In 2009, we recorded severance and other costs related to the permanent closures of our Westover sawmill and Goodwater, Alabama planer mill operations and the continued idling of our Alabama River, Alabama newsprint mill.
In 2008, we recorded severance and other costs of $31 million at our Grand Falls facility, $3 million at our Donnacona operations and $9 million for severance costs associated with workforce reductions across several facilities.
See Note 15, “Severance Related Liabilities,” for information on changes in our severance accruals.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 7. Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other
Assets held for sale and liabilities associated with assets held for sale
Assets held for sale as of December 31, 2010 and 2009 were comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
Cash and cash equivalents
     $ 10         $  
Accounts receivable, net
    4          
Other current assets
    1          
Fixed assets, net
    149         52  
Amortizable intangible assets
    528          
Other assets
    6          
       
 
     $ 698         $ 52  
       
Liabilities associated with assets held for sale as of December 31, 2010 and 2009 were comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
Accounts payable and accrued liabilities
     $ 9         $ 35  
Long-term debt
    280          
       
 
     $ 289         $ 35  
       
As of December 31, 2009, we held for sale the following assets (all of which had been approved for sale, as required, by the applicable Court or the Monitor): our Saint-Raymond, Quebec and Westover sawmills; our recycling division’s material recycling facilities located in Arlington, Houston and San Antonio, Texas; our Belgo, Quebec facility; a portion of land at our Port Alfred facility; certain assets associated with our Lufkin paper mill and other assets.
As of December 31, 2010, we held for sale the following assets: our investment in ACH, our Kenora, Ontario and Alabama River paper mills, our Saint-Fulgence and Petit Saguenay sawmills and various other assets. These assets and liabilities held for sale were carried in our Consolidated Balance Sheets at fair value (as a result of the application of fresh start accounting) less costs to sell. As of December 31, 2010, we expected to complete a sale of all of these assets within the next twelve months for amounts that equal or exceed their individual carrying values. Since we have control over ACH, our consolidated financial statements include this entity on a fully consolidated basis.
On February 11, 2011, AbiBow Canada entered into an agreement to sell its 75% equity interest in ACH. For additional information, see Note 29, “Subsequent Events.”
Net gain on disposition of assets and other
During 2010, we sold, with Court or Monitor approval, as applicable, timberlands and other assets for proceeds of $16 million, resulting in a net gain on disposition of assets of $14 million. Additionally, during 2010, as part of our work towards a comprehensive restructuring plan, we sold, with Court approval, various mills and other assets. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net.” Additionally, in 2010, we recorded a net gain of $16 million related to a customer bankruptcy settlement.
During 2009, we sold, with Court or Monitor approval, as applicable, 491,356 acres of timberlands, primarily located in Quebec, Canada and other assets, including the water system associated with our Lufkin paper mill, for proceeds of $119 million, resulting in a net gain on disposition of assets of $91 million. In addition, in 2009, we sold, with Canadian Court approval, our interest in MPCo for gross cash proceeds of Cdn$615 million ($583 million). We did not recognize a gain or loss on this sale since we had previously recorded long-lived asset impairment charges to reduce the carrying value of our investment in MPCo to its fair value less costs to sell. See Note 6, “Closure Costs, Impairment of Assets Other than Goodwill

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and Other Related Charges – Impairment of assets held for sale,” for additional information.
During 2008, we sold 46,400 acres of timberlands and other assets, including our Snowflake, Arizona newsprint mill and our Price, Quebec sawmill, for proceeds of $220 million, resulting in a net gain on disposition of assets of $49 million. Since the Snowflake mill’s assets were acquired in the 2007 combination of Bowater and Abitibi, they were already carried at fair value less costs to sell and accordingly, we did not recognize a gain or loss on this sale.
Note 8. Other (Expense) Income, Net
Other (expense) income, net for the years ended December 31, 2010, 2009 and 2008 was comprised of the following:
                         
 
    Predecessor
(In millions)   2010     2009     2008  
 
Foreign exchange (loss) gain
     $ (94 )     $ (59 )     $ 72  
Fees for waivers and amendments to accounts receivable securitization program (1)
          (23 )      
(Loss) income from equity method investments
    (3 )     (9 )     1  
Interest income (2)
    1             10  
Gain on extinguishment of debt
                31  
Loss on sale of ownership interests in accounts receivable (Note 17)
          (17 )     (20 )
Miscellaneous income (loss) (3)
    7       37       (1 )
 
 
     $ (89 )     $ (71 )     $ 93  
 
(1)   As consideration for entering into certain waivers and amendments to our former accounts receivable securitization program, we incurred fees of $23 million in 2009 prior to the commencement of the Creditor Protection Proceedings.
 
(2)   During the Creditor Protection Proceedings, we recorded our Debtors’ interest income in “Reorganization items, net” in our Consolidated Statements of Operations.
 
(3)   Miscellaneous income (loss) in 2009 included approximately $24 million of income, net from a subsidiary’s proceeds sharing arrangement related to a third party’s sale of timberlands. The related proceeds were deposited in trust with the Monitor during the Creditor Protection Proceedings and were released upon our emergence from the Creditor Protection Proceedings (see Note 12, “Restricted Cash”).
Note 9. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss as of December 31, 2010 and 2009 and the activity for the year ended December 31, 2010 was comprised of the following:
                                 
 
    Unamortized   Unamortized   Foreign    
    Prior Service   Actuarial   Currency    
(In millions)   (Costs) Credits (1)   (Losses) Gains (2)   Translation (3)(4)   Total  
 
Balance as of December 31, 2009 (Predecessor)
    $ (24 )     $ (432 )     $ 6       $   (450 )
 
Other comprehensive income (loss), net of tax of $0
    8       (598 )     20       (570 )
Plans of Reorganization adjustments (5)
    20       24             44  
Fresh start accounting adjustments (6)
    (4 )     1,006       (26 )     976  
 
Balance as of December 31, 2010 (Successor)
     $        $        $        $     
 
(1)   As of December 31, 2009, net of deferred tax provision of $16 million and net of noncontrolling interests of $2 million of net income.
 
(2)   As of December 31, 2009, net of deferred tax benefit of $64 million and net of noncontrolling interests of $6 million of net losses.
 
(3)   No tax effect was recorded for foreign currency translation since the investment in foreign net assets translated is deemed indefinitely invested. Net of noncontrolling interests of zero as of December 31, 2009.
 
(4)   Accumulated other comprehensive loss as of December 31, 2009 is net of $91 million that was transferred and included in “Closure costs, impairment of assets other than goodwill and other related charges” in our Consolidated Statements of Operations for the year ended December 31, 2009 as a result of the sale of our interest in MPCo.
 
(5)   Plans of Reorganization adjustments were a result of changes made to our defined benefit pension plans, which became effective upon

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    our emergence from the Creditor Protection Proceedings. See Note 20, “Pension and Other Postretirement Benefit Plans,” for additional information. The adjustments to unamortized prior service costs and unamortized actuarial losses are net of tax of $6 million and $7 million, respectively.
 
(6)   In connection with the application of fresh start accounting, Accumulated other comprehensive loss was eliminated. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting.”
The pension and OPEB benefit related components of other comprehensive loss for the years ended December 31, 2010, 2009 and 2008 were comprised of the following:
                                                                         
 
    Predecessor
    2010   2009   2008
    Before-           After-   Before-                   Before-           After-
    tax           tax   tax           After-tax   tax   Tax   tax
(In millions)   Amount   Taxes   Amount   Amount   Taxes   Amount   Amount   Provision   Amount
 
Prior service credit from plan amendment during period
     $    8        $           $    8       $        $        $        $        $        $   
Amortization or curtailment recognition of prior service credit included in net periodic benefit cost
                      (15 )           (15 )     (6 )     (3 )     (9 )
 
Change in unamortized prior service costs during period
    8             8       (15 )           (15 )     (6 )     (3 )     (9 )
 
Net actuarial loss arising during period
    (606 )           (606 )     (176 )           (176 )     (118 )     (3 )     (121 )
Amortization or settlement recognition of net actuarial loss
    8             8                                      
 
Change in unamortized actuarial gains and losses during period
    (598 )           (598 )     (176 )           (176 )     (118 )     (3 )     (121 )
 
 
  $    (590 )      $        $    (590 )     $   (191 )     $        $   (191 )     $   (124 )     $   (6 )     $   (130 )
 
Note 10. Income (Loss) Per Share
As discussed in Note 23, “Share Capital,” (i) all equity interests in the Predecessor Company existing immediately prior to the Emergence Date, including, among other things, all of our common stock issued and outstanding, were discharged, canceled, released and extinguished and (ii) on the Emergence Date and pursuant to the Plans of Reorganization, we issued an aggregate of 97,134,954 shares of Successor Company common stock. The weighted-average number of common shares outstanding as of December 31, 2010 assumes that the Predecessor Company common stock remained outstanding through the December 31, 2010 Convenience Date.
The weighted-average number of common shares outstanding used to calculate basic and diluted net income (loss) per share attributable to AbitibiBowater Inc. common shareholders for the years ended December 31, 2010, 2009 and 2008 was as follows:
                         
 
    Predecessor
(In millions)   2010     2009     2008  
 
Basic weighted-average number of common shares outstanding
    57.7       57.7       57.6  
Effect of potentially dilutive securities:
                       
Convertible Notes
    36.9              
Stock options
                 
Restricted stock units
                 
 
Diluted weighted-average number of common shares outstanding
    94.6       57.7       57.6  
 
For the year ended December 31, 2010, an adjustment to our basic weighted-average number of common shares outstanding of 36.9 million shares was necessary for the dilutive effect of the assumed conversion of the Convertible Notes. However, no adjustment to net income attributable to AbitibiBowater Inc. common shareholders was necessary for the year ended

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Notes to Consolidated Financial Statements
December 31, 2010 because we did not record interest expense related to the Convertible Notes as a result of the Creditor Protection Proceedings. For the years ended December 31, 2009 and 2008, no adjustments to net loss attributable to AbitibiBowater Inc. common shareholders and the diluted weighted-average number of common shares outstanding for the assumed conversion of the Convertible Notes were necessary as the impact would have been anti-dilutive.
Options to purchase 2.4 million shares, 2.9 million shares and 3.6 million shares for the years ended December 31, 2010, 2009 and 2008, respectively, were excluded from the calculation of diluted net income (loss) per share as the impact would have been anti-dilutive. In addition, less than 0.1 million, 0.1 million and 0.2 million equity-classified RSUs for the years ended December 31, 2010, 2009 and 2008, respectively, were excluded from the calculation of diluted net income (loss) per share for the same reason.
Note 11. Inventories, Net
Inventories, net as of December 31, 2010 and 2009 were comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
At fair value (Successor); at lower of cost or market (Predecessor):
                 
Raw materials and work in process
     $ 136         $ 124  
Finished goods
    184         199  
Mill stores and other supplies
    118         271  
       
 
    438         594  
Excess of current cost over LIFO inventory value
            (13 )
       
 
     $ 438         $ 581  
       
In connection with the application of fresh start accounting, inventories are no longer valued using the LIFO method. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting.” Inventories valued using the LIFO method comprised 6% of total inventories as of December 31, 2009.
In 2010, we recorded charges of $17 million for write-downs of inventory, primarily associated with our indefinitely idled Gatineau paper mill, an indefinitely idled paper machine and de-inking line at our Thorold paper mill and a permanently closed paper machine at our Coosa Pines paper mill. These charges were incurred as part of our restructuring. In 2009, we recorded charges of $34 million for write-downs of inventory associated with certain indefinitely idled paper mills and machines, as well as our Dalhousie paper mill, of which $17 million related to our restructuring. Charges that were incurred as part of our restructuring were included in “Reorganization items, net,” while charges that were not associated with our restructuring were included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested,” both in our Consolidated Statements of Operations.
Note 12. Restricted Cash
Restricted cash included in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and 2009 was comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
ULC reserve (Notes 17 and 22)
     $ 80         $ 49  
ULC DIP Facility (Note 17) (1)
            48  
Proceeds sharing arrangement related to a third-party’s sale of timberlands (1)
            27  
ACH (2)
            11  
Other (1)
            3  
       
 
     $ 80         $ 138  
       
(1)   These proceeds were held either in trust with the Monitor, in escrow or in a designated account and were released upon our emergence from the Creditor Protection Proceedings.
 
(2)   Represents cash restricted for capital expenditures, as well as reserves required under the partnership’s credit agreement. As of December 31, 2010, this restricted cash was classified in “Assets held for sale” in our Consolidated Balance Sheets. See Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other.”

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Notes to Consolidated Financial Statements
In addition, in connection with the accounts receivable securitization program, as of December 31, 2009, we had cash of approximately $18 million in lockbox accounts, which was included as restricted cash in “Other current assets” in our Consolidated Balance Sheets, and was released when the program was terminated upon our emergence from the Creditor Protection Proceedings. For additional information, see Note 17, “Liquidity and Debt.”
Note 13. Fixed Assets, Net
Fixed assets, net as of December 31, 2010 and 2009 were comprised of the following:
                           
       
    Successor       Predecessor  
    Range of Estimated             Range of Estimated      
    Useful Lives in             Useful Lives in      
(Dollars in millions)   Years   2010       Years   2009  
       
Land and land improvements
  10 – 20      $ 72       10 – 20     $ 140  
Buildings
  11 – 24     280       20 – 40     546  
Machinery and equipment
  3 – 20     1,853       5 – 20     7,851  
Hydroelectric power plants
  40     283       40     372  
Timber and timberlands
        100             88  
Construction in progress
        53             49  
Capital lease
                    49  
       
 
        2,641             9,095  
Less accumulated depreciation and amortization (1)
                    (5,198 )
       
 
         $ 2,641             $ 3,897  
       
(1)   As of December 31, 2009, included $6 million of accumulated amortization on the capital lease.
The decrease in fixed assets, net is primarily due to the application of fresh start accounting, pursuant to which fixed assets were adjusted to fair value as of December 31, 2010. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting.” In addition, the decrease is also due to the reclassification of certain fixed assets to “Assets held for sale” in our Consolidated Balance Sheets. For additional information, see Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other.”
Note 14. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31, 2010 and 2009 were comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
Trade accounts payable
  $ 271       $ 249  
Payroll, bonuses and severance payable
    99         95  
Accrued interest
    21         15  
Pension and OPEB projected benefit obligations
    35         47  
Income and other taxes payable
    36         40  
Claims payable
    35          
Other
    71         16  
       
 
  $ 568       $ 462  
       

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 15. Severance Related Liabilities
The activity in our severance related liabilities for the years ended December 31, 2009 and 2010 was as follows:
                                         
 
    2010   2009   2008   2007    
(In millions)   Initiatives   Initiatives   Initiatives   Initiatives   Total
 
Balance as of December 31, 2008 (Predecessor)
    $            $            $      34       $      21       $      55  
Charges (credits)
          45       (5 )     (3 )     37  
Payments
          (3 )     (5 )     (4 )     (12 )
Other
          1       3       3       7  
 
Balance as of December 31, 2009 (Predecessor)
          43       27       17       87  
 
Charges (credits)
    24       5             (4 )     25  
Compromise and settlement due to distribution of Successor Company common stock on account of unsecured creditor claims
    (22 )     (48 )     (29 )     (12 )     (111 )
Other
                2       (1 )     1  
 
Balance as of December 31, 2010 (Successor)
     $       2        $              $              $              $       2  
 
In 2010, we recorded employee termination costs resulting from our work towards a comprehensive restructuring plan, primarily related to: (i) the indefinite idling of our Gatineau paper mill, (ii) the indefinite idling of a paper machine and a de-inking line at our Thorold paper mill, (iii) a workforce reduction at our Catawba paper mill, (iv) the continued indefinite idling of our Dolbeau, Quebec paper mill (for which we announced its permanent closure in the third quarter of 2010), (v) the continued indefinite idling of a paper machine at our Thunder Bay, Ontario paper mill and (vi) the departure of our former Chief Executive Officer.
In 2009, we recorded employee termination costs primarily related to: (i) the indefinite idling of various paper mills and paper machines located in Canada resulting from our work towards a comprehensive restructuring plan, (ii) the continued idling of our Alabama River newsprint mill and (iii) the permanent closure of a sawmill in the United States resulting from our work towards a comprehensive restructuring plan.
In 2008, we recorded employee termination costs primarily related to the decision to close our Grand Falls newsprint mill, together with downsizings at several of our mills, as well as the departure of certain corporate executives.
Employee termination and severance costs incurred as part of our restructuring were included in “Reorganization items, net” in our Consolidated Statements of Operations. Employee termination and severance costs that were not associated with our restructuring were classified as “Cost of sales, excluding depreciation, amortization and cost of timber harvested” (manufacturing personnel), “Selling and administrative expenses” (administrative personnel) or “Closure costs, impairment of assets other than goodwill and other related charges” (mill closures) in our Consolidated Statements of Operations. The severance accruals were included in “Accounts payable and accrued liabilities” or “Liabilities subject to compromise” in our Consolidated Balance Sheets.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 16. Asset Retirement Obligations
The activity in our liability for asset retirement obligations for the years ended December 31, 2010 and 2009 was as follows:
                 
 
    Predecessor
(In millions)   2010     2009  
 
Beginning of year
     $ 55       $ 48  
Additions related to mill closures and idlings
    5       4  
Accretion expense
    2       1  
Reductions due to mills sold
    (20 )      
Write-off of liabilities for which no claim was filed against us in the Creditor Protection Proceedings
    (20 )      
Payments
    (1 )     (2 )
Compromise and settlement due to distribution of Successor Company common stock on account of unsecured creditor claims
    (3 )      
Transfer to liabilities associated with assets held for sale
          (3 )
Other
    (1 )     7  
 
End of year (2010: Successor; 2009: Predecessor)
     $ 17       $ 55  
 
These asset retirement obligations consist primarily of liabilities for landfills, sludge basins and decontamination of closed sites. The related costs are capitalized as part of land and land improvements. We have not had to legally restrict assets for purposes of settling our asset retirement obligations. The costs associated with these obligations are expected to be paid over a weighted average period of approximately eight years.
The additions related to mill closures and idlings in 2010 represented obligations associated with our permanently closed Gatineau paper mill. These obligations included soil and groundwater testing and remediation, capping of landfills and removal of chemicals and other related materials.
The additions related to mill closures and idlings in 2009 included $2 million of obligations associated with our indefinitely idled Beaupre, Quebec paper mill and $2 million of obligations associated with our previously permanently closed Lufkin facility. These obligations included soil and groundwater testing and remediation, capping of landfills and removal of chemicals and other related materials. These obligations were assumed by the buyers when these facilities were sold in 2010.
Asset retirement obligations related to our Belgo facility were transferred from “Other long-term liabilities” to “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets as of December 31, 2009 and these obligations were assumed by the buyer when this facility was sold in 2010. See Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other.”
Additionally, we have certain other asset retirement obligations for which the timing of settlement is conditional upon the closure of the related operating facility. At this time, we have no specific plans for the closure of these other facilities and currently intend to make improvements to the assets as necessary that would extend their lives indefinitely. Furthermore, the settlement dates have not been specified by law, regulation or contract. As a result, we are unable at this time to estimate the fair value of the liability because there are indeterminate settlement dates for the conditional asset retirement obligations. If a closure plan for any of these facilities is initiated in the future, the settlement date will become determinable, an estimate of fair value will be made and an asset retirement obligation will be recorded.
The asset retirement obligations were included in “Accounts payable and accrued liabilities,” “Other long-term liabilities” or “Liabilities subject to compromise” in our Consolidated Balance Sheets.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 17. Liquidity and Debt
Liquidity
Overview
As of December 31, 2010, in addition to cash and cash equivalents and cash provided by operations, our external source of liquidity was comprised of the ABL Credit Facility, which is defined and discussed below. As of December 31, 2010, we had cash and cash equivalents of approximately $319 million and had approximately $265 million of availability under the ABL Credit Facility (see “ABL Credit Facility” below for a discussion of reserves that reduce our borrowing base availability).
During the Creditor Protection Proceedings, in addition to cash and cash equivalents and cash provided by operations, our external sources of liquidity were comprised of the following (which are defined and discussed below): (i) the Bowater DIP Agreement, (ii) a debtor in possession financing facility for the benefit of Abitibi and Donohue (the “Abitibi DIP Agreement”), which, on December 9, 2009, was terminated, repaid and replaced with the ULC DIP Facility and (iii) the Abitibi and Donohue accounts receivable securitization program.
Emergence from Creditor Protection Proceedings
In connection with the implementation of the Plans of Reorganization:
    all amounts outstanding under the Bowater DIP Agreement were paid in full in cash and the facility was terminated;
 
    all amounts outstanding under the ULC DIP Facility were paid in full and the facility was terminated;
 
    all outstanding receivable interests sold under the Abitibi and Donohue accounts receivable securitization program were repurchased in cash for a price equal to the par amount thereof and the program was terminated;
 
    all amounts outstanding under our pre-petition secured financing agreements, including the Bowater secured bank credit facilities, the ACCC senior secured term loan, the ACCC 13.75% Senior Secured Notes due 2011 and the Bowater floating rate industrial revenue bonds due 2029, were paid in full in cash, including accrued interest, and the agreements were terminated;
 
    holders of allowed debt claims relating to the Debtors’ pre-petition unsecured indebtedness were allocated shares of the Successor Company’s common stock on account of their claims;
 
    we assumed by merger the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of 10.25% senior secured notes due 2018 (the “2018 Notes” or “notes”), as discussed below; and
 
    we entered into a senior secured asset-based revolving credit facility in an amount of $600 million (the “ABL Credit Facility”), as discussed below.
Proceeds from the issuance of the 2018 Notes of $850 million, borrowings under the ABL Credit Facility of $100 million, together with cash and cash equivalents at emergence, were used to pay: (i) all amounts outstanding, including accrued interest, under our secured pre-petition debt obligations and the Bowater DIP Agreement; (ii) all outstanding secured borrowings under the Abitibi and Donohue accounts receivable securitization program; (iii) administrative expense claims and priority claims; (iv) other secured and convenience claims; (v) financing costs related to the 2018 Notes and the ABL Credit Facility and (vi) other payments required upon emergence.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Debt
Short-term bank debt
Short-term bank debt as of December 31, 2010 and 2009 was comprised of the following:
                   
       
      Successor       Predecessor    
(In millions)     2010       2009    
       
ABL Credit Facility
  $       $  
Bowater pre-petition secured bank credit facilities (1) (2)
            333  
Abitibi pre-petition senior secured term loan (1)
            347  
       
 
  $       $ 680  
       
(1)   As of the Emergence Date and pursuant to the Plans of Reorganization, any amount outstanding was paid in full in cash, including accrued interest, and the facilities, including the agreements governing the obligations and all other related agreements, supplements and amendments, were canceled and terminated.
 
(2)   As of December 31, 2009, the weighted average interest rate was 8.0%.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Long-term debt
Long-term debt, including current portion, as of December 31, 2010 and 2009, was comprised of the following:
                        
       
    Successor     Predecessor
(In millions)   2010     2009
       
Secured Post-Petition Debt of AbitibiBowater Inc.:
                 
10.25% Senior Secured Notes due 2018 (principal amount of $850) (1)
  $   905       $    
 
                 
Unsecured Pre-Petition Debt of Abitibi:
                 
7.875% Notes due 2009 (2)
            8  
8.55% Notes due 2010 (2)
            371  
15.50% Senior Notes due 2010 (2)
            241  
7.75% Notes due 2011 (2)
            176  
Floating Rate Notes due 2011 (3.75% as of December 31, 2009) (2)
            176  
0% Debentures, due in installments through 2012 (2)
            8  
6.00% Notes due 2013 (2)
            277  
8.375% Notes due 2015 (2)
            364  
7.132% Notes due 2017 (3)
            239  
7.40% Debentures due 2018 (2)
            76  
7.50% Debentures due 2028 (2)
            172  
8.50% Debentures due 2029 (2)
            182  
8.85% Debentures due 2030 (2)
            334  
 
                 
Secured Pre-Petition Debt of Abitibi:
                 
13.75% Senior Secured Notes due 2011 (4)
            300  
 
                 
Unsecured Pre-Petition Debt of Bowater:
                 
9.00% Debentures due 2009 (2)
            248  
Floating Rate Senior Notes due 2010 (3.25% as of December 31, 2009) (2)
            234  
10.60% Notes due 2011 (2)
            76  
7.95% Notes due 2011 (2)
            600  
9.50% Debentures due 2012 (2)
            125  
6.50% Notes due 2013 (2)
            399  
10.85% Debentures due 2014 (2)
            141  
7.625% Recycling facilities revenue bonds due 2016 (2)
            30  
9.375% Debentures due 2021 (2)
            199  
7.75% Recycling facilities revenue bonds due 2022 (2)
            62  
7.40% Recycling facilities revenue bonds due 2022 (2)
            40  
10.50% Notes due at various dates from 2009 to 2010 (2)
            21  
10.26% Notes due at various dates from 2010 to 2011 (2)
            4  
6.50% UDAG loan agreement due at various dates from 2009 to 2010 (2)
            5  
7.40% Pollution control revenue bonds due at various dates from 2009 to 2010 (2)
            4  
10.63% Notes due 2010 (2)
            3  
 
                 
Secured Pre-Petition Debt of Bowater:
                 
Floating Rate Industrial revenue bonds due 2029 (0.32% as of December 31, 2009) (4)
            34  
 
                 
Unsecured Pre-Petition Debt of AbitibiBowater Inc.:
                 
8% (10% if paid in kind) Convertible Notes due 2013 (2)
            277  
       
Long-term debt
    905         5,426  
Capital lease obligation (5)
            39  
       
 
    905         5,465  
Less: Current portion of long-term debt (including capital lease obligation) (6)
            (305 )
Less: Debt classified as liabilities subject to compromise (Note 4)
            (4,852 )
           
Long-term debt, net of current portion
  $   905       $   308  
       
(1)   As of December 31, 2010, the unamortized premium totaled $55 million, resulting in an effective interest rate of 9.4%.
 
(2)   As of the Emergence Date and pursuant to the Plans of Reorganization, any amount outstanding was compromised and settled in shares of the Successor Company’s common stock, all obligations of the Debtors thereunder were discharged and the agreements governing the obligations, including all other related agreements, supplements, amendments and arrangements, were canceled and terminated.
 
(3)   As of December 31, 2009, this debt, which is an obligation of ACH, was classified in “Long-term debt, net of current

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
    portion” in our Consolidated Balance Sheets. As of December 31, 2010, this debt was classified in “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets. See Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other.”
 
(4)   As of the Emergence Date and pursuant to the Plans of Reorganization, any amount outstanding was paid in full in cash, including accrued interest, and the facilities, including the agreements governing the obligations and all other related agreements, supplements and amendments, were canceled and terminated.
 
(5)   As of December 31, 2009, we had a capital lease obligation related to a building and equipment lease for our BPCL cogeneration facility. As discussed in Note 1, “Organization and Basis of Presentation – Bridgewater Administration,” we are no longer consolidating BPCL in our consolidated financial statements.
 
(6)   As of December 31, 2009, the current portion of long-term debt was comprised of ACCC’s 13.75% Senior Secured Notes due 2011 of $300 million and the current portion of the capital lease obligation of $5 million.
Fair value of total debt
The fair value of our total debt was determined by reference to quoted market prices or by discounting the cash flows using current interest rates for financial instruments with similar characteristics and maturities. The fair value of our debt as of December 31, 2010 and 2009 was approximately $1.2 billion (including ACH’s long-term debt of $280 million, which was included in “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets as of December 31, 2010) and $2.5 billion, respectively.
Assets pledged as collateral
The carrying value of assets pledged as collateral for our total debt obligations was approximately $3.7 billion as of December 31, 2010.
Exit financing
10.25% senior secured notes due 2018
On December 9, 2010, AbitibiBowater Inc. and each of its material, wholly-owned U.S. subsidiaries entered into a supplemental indenture with Wells Fargo Bank, National Association, as trustee and collateral agent, pursuant to which AbitibiBowater Inc. assumed the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of the 2018 Notes, originally issued on October 4, 2010 pursuant to an indenture as of that date (as supplemented, the “indenture”). ABI Escrow Corporation was a wholly-owned subsidiary of AbitibiBowater Inc. created solely for the purpose of issuing the 2018 Notes. The notes were issued in a private placement exempt from registration under the Securities Act of 1933 (as amended, the “Securities Act”). Interest is payable on the notes on April 15 and October 15 of each year beginning on April 15, 2011, until their maturity date of October 15, 2018.
In accordance with certain conditions in the indenture, the net proceeds of the notes offering were placed into an escrow account on October 4, 2010. ABI Escrow Corporation granted the trustee, for the benefit of the holders of the notes, a continuing security interest in, and lien on, the funds deposited into escrow to secure the obligations under the indenture and the notes. Upon satisfaction of the escrow conditions, the funds deposited into escrow were released to AbitibiBowater Inc. on December 9, 2010. Following such release, we used the net proceeds to repay certain indebtedness pursuant to the Plans of Reorganization.
The notes are and will be guaranteed by our current and future wholly-owned material U.S. subsidiaries (the “guarantors”) and are secured on a first priority basis, subject to permitted liens, by the capital stock of our subsidiaries (limited to 65% of the capital stock in first tier foreign subsidiaries) now owned or acquired in the future by AbitibiBowater Inc. and the guarantors and substantially all of AbitibiBowater Inc.’s and the guarantors’ assets (other than certain excluded assets and assets that are first priority collateral in respect of the ABL Credit Facility) now owned or acquired in the future. The notes and the guarantees are also secured on a second priority basis by the collateral granted to the lenders in respect of the ABL Credit Facility on a first priority basis, including accounts receivable, inventory and cash deposit and investment accounts.
The notes rank equally in right of payment with all of AbitibiBowater Inc.’s post-emergence senior indebtedness and senior in right of payment to all of its subordinated indebtedness. The note guarantees rank equally in right of payment with all of the guarantors’ post-emergence senior indebtedness and are senior in right of payment to all of the guarantors’ post-emergence subordinated indebtedness. In addition, the notes are structurally subordinated to all existing and future liabilities (including trade payables) of our subsidiaries that do not guarantee the notes. The notes and the guarantees are also effectively junior to indebtedness under the ABL Credit Facility to the extent of the value of the collateral that secures the ABL Credit Facility on a first priority basis and to indebtedness secured by assets that are not collateral to the extent of the value of such assets.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
At any time prior to October 15, 2014, we may redeem some or all of the notes at a price equal to 100% of the principal amount plus accrued and unpaid interest plus a “make-whole” premium. We may also redeem some or all of the notes on and after October 15, 2014, at a redemption price of 105.125% of the principal amount thereof if redeemed during the twelve-month period beginning on October 15, 2014, 102.563% of the principal amount thereof if redeemed during the twelve-month period beginning on October 15, 2015, and 100% of the principal amount thereof if redeemed on or after October 15, 2016, plus, in each case, accrued and unpaid interest. We may also redeem up to 35% of the notes using the proceeds of certain equity offerings completed before October 15, 2013 at a redemption price of 110.250% of the principal amount thereof, plus accrued and unpaid interest. Prior to October 15, 2013, we may also redeem up to 10% of the notes per twelve-month period at a redemption price of 103% of the principal amount, plus accrued and unpaid interest. If we experience specific kinds of changes in control, we must offer to purchase the notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest. If we sell certain of our assets, including our interest in ACH, within six months of the Emergence Date, we must use the first $100 million of the net proceeds received from any such sales to redeem a portion of the notes at a redemption price of 105% of the principal amount plus accrued and unpaid interest. If we sell certain of our assets thereafter, and we do not use the proceeds to pay down certain indebtedness, purchase additional assets or make capital expenditures, each as specified in the indenture, we must offer to purchase the notes at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date with the net cash proceeds from the asset sale.
The terms of the indenture impose certain restrictions, subject to a number of exceptions and qualifications, on us, including limits on our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to, another person; enter into transactions with affiliates and enter into new lines of business. The indenture also contains customary events of default.
As a result of our application of fresh start accounting, the 2018 Notes were recorded at their fair value of $905 million, which resulted in a premium of $55 million, which will be amortized to interest expense using the effective interest method over the term of the notes.
In connection with the issuance of the notes, during 2010, we incurred fees of approximately $27 million, which were written off to “Reorganization items, net” in our Consolidated Statements of Operations as a result of the application of fresh start accounting (see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting”).
ABL Credit Facility
On December 9, 2010, AbitibiBowater Inc., Bowater and Abitibi-Consolidated Corp., a wholly-owned subsidiary of AbitibiBowater Inc., (collectively, the “U.S. Borrowers”) and AbiBow Canada (the “Canadian Borrower” and, together with the U.S. Borrowers, the “Borrowers”) entered into the ABL Credit Facility with certain lenders and Citibank, N.A., as administrative agent and collateral agent (the “agent”).
The ABL Credit Facility, with a maturity date of December 9, 2014, provides for an asset-based, revolving credit facility with an aggregate lender commitment of up to $600 million at any time outstanding, subject to borrowing base availability, including a $20 million swingline sub-facility and a $150 million letter of credit sub-facility. The ABL Credit Facility includes a $400 million tranche available to the Borrowers and a $200 million tranche available solely to the U.S. Borrowers, in each case subject to the borrowing base availability of those Borrowers. The ABL Credit Facility also provides for an uncommitted incremental loan facility of up to $100 million, subject to certain terms and conditions set forth in the ABL Credit Facility.
As of December 31, 2010, the Borrowers had no borrowings and $42 million of letters of credit outstanding under the ABL Credit Facility. As of December 31, 2010, the U.S. Borrowers and the Canadian Borrower had $265 million and zero, respectively, of availability under the ABL Credit Facility.
In accordance with its stated purpose, the proceeds of the ABL Credit Facility were used to fund amounts payable under the Plans of Reorganization and can be used by us for, among other things, working capital, capital expenditures, permitted acquisitions and other general corporate purposes. Upon receipt of the NAFTA settlement amount (see Note 22, “Commitments and Contingencies – Extraordinary loss on expropriation of assets”), we repaid the $100 million we had borrowed on the Emergence Date under the ABL Credit Facility.

The borrowing base availability of each borrower is subject to certain reserves, which are established by the agent in its discretion. The reserves may include dilution reserves, inventory reserves, rent reserves and any other reserves that the agent

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determines are necessary and have not already been taken into account in the calculation of the borrowing base. An additional reserve of $286 million has been established against the borrowing base of the Canadian Borrower until the adoption, by the governments of Quebec and Ontario, of regulations implementing previously-agreed funding relief applicable to contributions toward the solvency deficits in its material Canadian registered pension plans, as discussed in Note 20, “Pension and Other Postretirement Benefit Plans – Resolution of Canadian pension situation.” As a result of this reserve, the borrowing base of the Canadian Borrower will be restricted until such regulations are adopted and as a result, until such time, borrowings under the ABL Credit Facility will be primarily limited to the borrowing base availability of the U.S. Borrowers. Furthermore, if as of April 30, 2011, the regulations discussed above have not been adopted, we will be required pursuant to the ABL Credit Facility to maintain a specified minimum liquidity of at least $200 million until such time as the regulations are adopted.
Revolving loan (and letter of credit) availability under the ABL Credit Facility is subject to a borrowing base, which at any time is equal to: (a) for U.S. Borrowers, the sum of (i) 85% of eligible accounts receivable of the U.S. Borrowers plus (ii) the lesser of 65% of eligible inventory of the U.S. Borrowers or 85% of the net orderly liquidation value of eligible inventory of the U.S. Borrowers, minus reserves established by the agent and (b) for the Canadian Borrower, the sum of (i) 85% of eligible accounts receivable of the Canadian Borrower plus (ii) the lesser of 65% of eligible inventory of the Canadian Borrower or 85% of the net orderly liquidation value of eligible inventory of the Canadian Borrower, minus reserves established by the agent.
The obligations of the U.S. Borrowers under the ABL Credit Facility are guaranteed by each of the other U.S. Borrowers and certain material U.S. subsidiaries of AbitibiBowater Inc. (the “U.S. Guarantors”), and secured by first priority liens on and security interests in accounts receivable, inventory and related assets of the U.S. Borrowers and the U.S. Guarantors and second priority liens on and security interests in all of the collateral of the U.S. Borrowers and the U.S. Guarantors pledged to secure the 2018 Notes, as described above. The obligations of the Canadian Borrower under the ABL Credit Facility are guaranteed by each of the other Borrowers, the U.S. Guarantors and certain material Canadian subsidiaries of AbitibiBowater Inc. (the “Canadian Guarantors” and, together with the U.S. Guarantors, the “Guarantors”), and are secured by first priority liens on and security interests in accounts receivable, inventory and related assets of the Borrowers and the Guarantors and second priority liens on and security interests in all of the collateral of the U.S. Borrowers and the U.S. Guarantors pledged to secure the 2018 Notes.
Borrowings under the ABL Credit Facility bear interest at a rate equal to, at the Borrower’s option, the base rate, the Canadian prime rate or the Eurodollar rate, in each case plus an applicable margin. The base rate under the ABL Credit Facility equals the greater of: (i) the agent’s base rate, (ii) the Federal Funds rate plus 0.5%, (iii) the agent’s rate for certificates of deposit having a term of three months plus 0.5% or (iv) the Eurodollar rate for a one month interest period plus 1.0%. The initial applicable margin is 2.0% with respect to the base rate and Canadian prime rate borrowings and 3.0% with respect to the Eurodollar borrowings. The applicable margin is subject, in each case, to monthly pricing adjustments based on the average monthly excess availability under the ABL Credit Facility, with such adjustments commencing after the end of the second full fiscal quarter following the Emergence Date.
In addition to paying interest on the outstanding borrowings under the ABL Credit Facility, the Borrowers are required to pay a fee in respect of committed but unutilized commitments equal to 0.75% per annum initially. Commencing after the end of the second full fiscal quarter following the Emergence Date, the fee is subject to monthly pricing adjustments based on the unutilized commitment of the ABL Credit Facility over the prior month. The Borrowers are required to pay a fee equal to 0.75% per annum when the unutilized commitment of the ABL Credit Facility is greater than or equal to 50% of the total commitments and 0.50% per annum when the unutilized commitment of the ABL Credit Facility is less than 50% of the total commitments. The Borrowers must also pay a fee on outstanding letters of credit under the ABL Credit Facility at a rate equal to the applicable margin in respect of Eurodollar borrowings, plus a facing fee as agreed to in writing from time to time, and certain administrative fees.
The Borrowers are able to voluntarily repay outstanding loans and reduce unused commitments, in each case, in whole or in part, at any time without premium or penalty. The Borrowers are required to repay outstanding loans anytime the outstanding loans exceed the maximum availability then in effect. The Borrowers are also required to use net proceeds from certain significant asset sales to repay outstanding loans, but may re-borrow following such prepayments if the conditions to borrowings are met.
The ABL Credit Facility contains customary covenants for asset-based credit agreements of this type, including, among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on the existence or incurrence and repayment of indebtedness; (iii) restrictions on the existence or incurrence of liens; (iv) restrictions on making certain restricted payments; (v) restrictions on making certain investments; (vi) restrictions on certain mergers, consolidations and asset dispositions; (vii) restrictions on transactions with affiliates; (viii) restrictions on amendments or modifications to the Canadian pension and benefit plans; (ix) restrictions on modifications to material indebtedness; (x) a springing requirement for us to

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maintain a minimum consolidated fixed charge coverage ratio of 1.10 to 1.00, which is triggered anytime excess availability under the ABL Credit Facility falls below 15% of the total commitments then in effect and, following such triggering, remains in place until excess availability returns to above 15% for a period of 40 consecutive days and (xi) a springing requirement that, if as of April 30, 2011, the pension funding relief regulations discussed above have not been adopted, we will be required to maintain a specified minimum liquidity of at least $200 million until such time as the regulations are adopted. Subject to customary grace periods and notice requirements, the ABL Credit Facility also contains customary events of default.
As consideration for entering into the ABL Credit Facility, during 2010, we incurred fees of approximately $19 million, which were recorded as deferred financing costs in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and will be amortized to interest expense over the term of the facility.
During Creditor Protection Proceedings
The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations was stayed as a result of the commencement of the Creditor Protection Proceedings. As a result, unsecured pre-petition debt obligations of $4,852 million were included in “Liabilities subject to compromise” in our Consolidated Balance Sheets as of December 31, 2009. See Note 4, “Creditor Protection Proceedings Related Disclosures - Liabilities subject to compromise.” Secured pre-petition debt obligations of $980 million (consisting of ACCC’s $300 million 13.75% Senior Secured Notes due 2011, Abitibi’s $347 million pre-petition senior secured term loan and Bowater’s $333 million pre-petition secured bank credit facilities) were included in current liabilities and pre-petition secured debt obligations of $34 million (consisting of Bowater’s floating rate industrial revenue bonds due 2029) were included in “Long-term debt, net of current portion” in our Consolidated Balance Sheets as of December 31, 2009. For a discussion of the impact of the Creditor Protection Proceedings on our pre-petition debt discounts and issuance costs and the revaluation of our debt obligations due to currency exchange, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net.”
In accordance with FASB ASC 852, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured or unsecured claim. As such, during the Creditor Protection Proceedings, we continued to accrue interest on the Debtors’ pre-petition secured debt obligations and, until the third quarter of 2010, the CCAA filers’ pre-petition unsecured debt obligations. See Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” for a discussion of the reversal of post-petition accrued interest on the CCAA filers’ pre-petition unsecured debt obligations.
Interest expense recorded in our Consolidated Statements of Operations totaled $597 million in 2009 and $483 million in 2010, which included a cumulative adjustment of $43 million to increase the accrued interest on the unsecured U.S. dollar denominated debt obligations of the CCAA filers to the fixed exchange rate. See Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net,” for a discussion of the fixed exchange rate. Contractual interest expense would have been $788 million in 2009 and $714 million in 2010. During the Creditor Protection Proceedings, cash payments for interest were only made on the Bowater DIP Agreement, the Abitibi and Donohue accounts receivable securitization program, the Bowater pre-petition secured bank credit facilities, ACCC’s pre-petition senior secured term loan, Bowater’s pre-petition floating rate industrial revenue bonds due 2029, as well as the Abitibi DIP Agreement through December 9, 2009, the date such agreement was terminated. In addition, as discussed below under “Sale of our investment in MPCo,” in 2009, we also paid accrued interest to the holders of ACCC’s 13.75% Senior Secured Notes due 2011.
Financings during Creditor Protection Proceedings
Bowater DIP Agreement
On April 21, 2009, we entered into a Senior Secured Superpriority Debtor In Possession Credit Agreement (the “Bowater DIP Agreement”) among AbitibiBowater Inc., Bowater and Bowater Canadian Forest Products Inc. (“BCFPI,” formerly an indirect, wholly-owned subsidiary of Bowater), as borrowers, Fairfax, as administrative agent, collateral agent and an initial lender, and Avenue Investments, L.P., as an initial lender. Law Debenture Trust Company of New York replaced Fairfax as the administrative agent and collateral agent under the Bowater DIP Agreement.
The Bowater DIP Agreement provided for term loans in an aggregate principal amount of $206 million (the “Initial Advance”), which consisted of a $166 million term loan facility to AbitibiBowater Inc. and Bowater (the “U.S. Borrowers”) and a $40 million term loan facility to BCFPI. Following the payment of fees payable to the lenders in connection with the

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Bowater DIP Agreement, the U.S. Borrowers and BCFPI received aggregate loan proceeds of $196 million. In connection with an amendment we entered into on July 15, 2010, with the Courts’ approval, we prepaid $166 million of the outstanding principal amount of the Initial Advance on July 21, 2010, which reduced the outstanding principal balance to approximately $40 million. On the Emergence Date and pursuant to the Plans of Reorganization, the outstanding balance of approximately $40 million, plus accrued interest, was paid in full in cash and the Bowater DIP Agreement was terminated.
Borrowings under the Bowater DIP Agreement bore interest, at our election, at either a rate tied to the U.S. Federal Funds Rate (the “base rate”) or the London interbank offered rate for deposits in U.S. dollars (“LIBOR”), in each case plus a specified margin. The interest margin for base rate loans was 6.50% through April 20, 2010 and effective April 21, 2010 was 7.00%, with a base rate floor of 4.50%. The interest margin for base rate loans was reduced to 5.00% effective July 15, 2010 in connection with the July 15, 2010 amendment. The interest margin for LIBOR loans was 7.50% through April 20, 2010 and effective April 21, 2010 was 8.00%, with a LIBOR floor of 3.50%. The interest margin for LIBOR loans was reduced to 6.00% with a LIBOR floor of 2.00% effective July 15, 2010 in connection with the July 15, 2010 amendment.
As consideration for a May 5, 2010 extension, the July 15, 2010 amendment and an October 15, 2010 extension of the Bowater DIP Agreement, as well as the exit fee (which represented 2.00% of the aggregate amount of the advances and was required to be paid to the lenders upon repayment of the outstanding balance), we incurred fees totaling approximately $6 million in 2010. As consideration for entering into the Bowater DIP Agreement, during 2009, we incurred fees of approximately $14 million. All of these fees were recorded in “Reorganization items, net” in our Consolidated Statements of Operations (see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net”).
Abitibi and Donohue accounts receivable securitization program
Abitibi and Abitibi Consolidated Sales Corporation (“ACSC”), a former subsidiary of Donohue, (the “Participants”) participated in an accounts receivable securitization program (the “Program”) whereby the Participants shared among themselves the proceeds received under the Program. On June 16, 2009, with the approval of the Courts, the former accounts receivable securitization program was amended and restated in its entirety and, as further amended on June 11, 2010, with the approval of the Courts, provided for a maximum outstanding limit of $180 million (the “Purchase Limit”) for the purchase of ownership interests in the Participants’ eligible trade accounts receivable by the third-party financial institutions party to the agreement (the “Banks”). On the Emergence Date and pursuant to the Plans of Reorganization, all outstanding receivable interests sold under the Program were repurchased in cash for a price equal to the par amount thereof and the Program was terminated.
The Participants sold most of their receivables to Abitibi-Consolidated U.S. Funding Corp. (“Funding”), which was a bankruptcy-remote, special-purpose, indirect consolidated subsidiary of Donohue. On a revolving basis, Funding transferred to the agent for the Banks (the “Agent”) undivided percentage ownership interests (“Receivable Interests”) in the pool of receivables that Funding acquired from the Participants. The outstanding balance of Receivable Interests increased as new Receivable Interests were transferred to the Agent and decreased as collections reduced previously transferred Receivable Interests. The amount of Receivable Interests that could have been transferred to the Agent depended on the amount and nature of the receivables available to be transferred and could not have resulted in the outstanding balance of Receivable Interests exceeding the Purchase Limit. The pool of receivables was collateral for the Receivable Interests transferred to the Agent. The Banks could have pledged or sold their Receivable Interests, but could not have pledged or sold any receivable within the pool of receivables.
In 2009 and 2008, the transfers of Receivable Interests were accounted for as sales to the Banks in accordance with FASB ASC 860. The proceeds received from the Banks were net of an amount based on the Banks’ funding cost plus a margin, which resulted in a loss on the sale of ownership interests in accounts receivable of $17 million and $20 million in 2009 and 2008, respectively, which was included in “Other (expense) income, net” in our Consolidated Statements of Operations. Funding retained an interest in the pool of receivables acquired from the Participants. Such retained interest equaled the percentage of the pool of receivables that had not been sold as Receivable Interests to the Banks. This retained interest was recorded at cost and due to the short-term nature of the receivables, the carrying value of the retained interest approximated fair value. As of December 31, 2009, Funding’s outstanding balance of receivables acquired from the Participants was $314 million and the outstanding balance of Receivable Interests sold to the Banks was $141 million, which represented the total amount allowable at that time based on the current level and eligibility of the pool of receivables. The resulting retained balance of the pool of receivables was included in “Accounts receivable, net” in our Consolidated Balance Sheets as of December 31, 2009.
As discussed in Note 2, “Summary of Significant Accounting Policies – Recently adopted accounting guidance,” effective

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January 1, 2010, we prospectively applied new accounting guidance relating to the transfers of financial assets. As a result, transfers of the Receivable Interests to the Agent no longer qualified as sales. Beginning January 1, 2010, such transfers and the proceeds received from the Banks were accounted for as secured borrowings in accordance with FASB ASC 860. On the Emergence Date, in connection with the termination of the Program, we paid the outstanding balance of secured borrowings of approximately $120 million in full in cash to the Banks. The interest on the secured borrowings and the commitment fee for the unused portion of the Purchase Limit charged by the Banks to Funding totaled approximately $11 million in 2010, which was included in “Interest expense” in our Consolidated Statements of Operations.
Abitibi and ACSC acted as servicing agents and administered the collection of the receivables under the Program. The fees received from the Banks for servicing their Receivable Interests approximated the value of services rendered.
In connection with the Program, Abitibi and ACSC maintained lockboxes into which certain collection receipts were deposited. These lockbox accounts were in Abitibi’s or Funding’s name, but were controlled by the Banks. The cash balances in these lockbox accounts, which totaled approximately $18 million as of December 31, 2009, were included as restricted cash in “Other current assets” in our Consolidated Balance Sheets. As of result of the termination of the Program, these lockbox accounts are no longer controlled by the Banks and such cash is now classified in “Cash and cash equivalents” in our Consolidated Balance Sheets as of December 31, 2010.
As consideration for entering into the amendment to the Program on June 11, 2010, we incurred fees of approximately $4 million in 2010. As consideration for entering into the amended and restated accounts receivable securitization program on June 16, 2009, we incurred fees of approximately $11 million in 2009. All of these fees were recorded in “Reorganization items, net” in our Consolidated Statements of Operations (see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net”).
ULC DIP Facility
On December 9, 2009, Abitibi entered into a Cdn$230 million ($218 million) Super Priority Debtor-In-Possession Credit Facility (the “ULC DIP Facility”) with 3239432 Nova Scotia Company, a wholly-owned subsidiary of ACCC (the “ULC”), which was an intercompany facility that was created upon the sale of MPCo and was funded by a portion of the sale proceeds, as discussed below. On the same date, Cdn$130 million ($123 million) of the ULC DIP Facility was drawn pursuant to the Canadian Court’s approval. Loans made under the ULC DIP Facility bore no interest. On the Emergence Date and pursuant to the Plans of Reorganization, all amounts outstanding under the ULC DIP Facility were paid in full and the facility was terminated.
Subsequent draws of up to Cdn$50 million ($47.5 million, based on the exchange rate in effect on December 31, 2009) in the aggregate could have been advanced upon not less than five business days’ notice, subject to meeting certain draw down requirements and certain conditions determined by the Canadian Court, and this amount was included in “Cash and cash equivalents” in our Consolidated Balance Sheets as of December 31, 2009. The remaining Cdn$50 million ($47.5 million, based on the exchange rate in effect on December 31, 2009) could have become available only upon further order of the Canadian Court and this amount was included as restricted cash in “Other assets” in our Consolidated Balance Sheets as of December 31, 2009. The ULC maintained a reserve of approximately Cdn $80 million ($80 million, based on the exchange rate in effect on December 31, 2010) and Cdn $52 million ($49 million, based on the exchange rate in effect on December 31, 2009) as of December 31, 2010 and 2009, respectively, in connection with a guarantee agreement with Alcoa Canada Ltd. (collectively with certain affiliates, “Alcoa”), which was our partner in MPCo. This reserve was included as restricted cash in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and 2009.
Abitibi DIP Agreement
On May 6, 2009, we entered into a letter loan agreement (the “Abitibi DIP Agreement”), among Abitibi and Donohue, as borrowers, certain subsidiaries of Abitibi, as guarantors, and the Bank of Montreal, as lender, which was acknowledged by Investissement Quebec, as sponsor. On December 9, 2009, in connection with the consummation of the MPCo Transactions (as defined and discussed below), with Canadian Court approval, we repaid all amounts outstanding under the Abitibi DIP Agreement, totaling $55 million, and terminated the Abitibi DIP Agreement.
In connection with entering into and extending through December 15, 2009 the Abitibi DIP Agreement, during 2009, we incurred fees of approximately $6 million, which were recorded in “Reorganization items, net” in our Consolidated Statements of Operations (see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net”).

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Sale of our investment in MPCo
On December 9, 2009, we announced the closing of a series of transactions resulting in the sale by ACCC to HQ Manicouagan Inc., a wholly-owned direct subsidiary of Hydro-Quebec, of ACCC’s 60% interest in MPCo for gross cash proceeds of Cdn$615 million ($583 million) (the “MPCo Transactions”). We applied the proceeds from the sale as follows which, along with the MPCo Transactions, were approved by the Canadian Court and which reflect the exchange rate to U.S. dollars in effect on December 9, 2009:
    $267 million was set aside temporarily in the ULC to secure certain indemnities and undertakings provided to Alcoa under the MPCo Transactions, and the ULC entered into a guarantee agreement with Alcoa for this purpose. Of the $267 million set aside in the ULC, $218 million was used by the ULC to fund the ULC DIP Facility;
 
    $55 million was used to repay all amounts outstanding under the Abitibi DIP Agreement, $26 million of which was paid from the proceeds of the ULC DIP Facility;
 
    $113 million was used as a partial repayment of ACCC’s 13.75% Senior Secured Notes due 2011, $72 million was used to pay accrued interest on such notes and $5 million was used to cover fees related to the partial repayment of such notes;
 
    approximately $67 million was used to pay Alcoa in respect of taxes that it incurred as a result of the MPCo Transactions, as well as ACCC’s estimated transaction costs, pre-petition amounts owed to the distribution division of Hydro-Quebec by ACCC and its affiliates, including amounts owed by BCFPI, and pre-petition amounts owed to MPCo and Alcoa for electricity purchased by ACCC from MPCo and to make certain other adjustments contemplated by the MPCo Transactions; and
 
    approximately $29 million is subject to a two-year holdback by HQ Manicouagan Inc. (and guaranteed by Hydro-Quebec) and was included in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and 2009.
For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges – Impairment of assets held for sale,” and Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other – Net gain on disposition of assets and other.”
April 1, 2008 refinancings
On April 1, 2008, we completed a series of refinancing transactions, which were designed to address the debt maturities and general liquidity needs during the first half of 2008, principally at our Abitibi subsidiary. The transactions included:
    A private placement by ACCC of $413 million of 13.75% Senior Secured Notes due April 1, 2011. As discussed above, during 2009, ACCC repaid $113 million of these notes with a portion of the proceeds from the sale of our interest in MPCo, which reduced the outstanding balance to $300 million.
 
    A $400 million 364-day senior secured term loan due March 30, 2009 (“Term Loan”), with interest at LIBOR plus 800 basis points, with a 3.5% LIBOR floor. During 2008, ACCC repaid $53 million of the Term Loan, which reduced the outstanding balance to $347 million.
 
    The private exchange of a combination of $293 million principal amount of new senior unsecured 15.5% notes due July 15, 2010 of ACCC and $218 million in cash for an aggregate of $455 million of outstanding notes issued by Abitibi, ACCC and Abitibi-Consolidated Finance L.P., a wholly-owned subsidiary of Abitibi. The exchange resulted in a debt extinguishment gain of $31 million in 2008, which is included in “Other (expense) income, net” in our Consolidated Statements of Operations. This exchange represented a 2008 non-cash financing item of $211 million.
 
    Simultaneously with these transactions, AbitibiBowater Inc. consummated a private sale of $350 million of 8% convertible notes due April 15, 2013 (“Convertible Notes”) to Fairfax and certain of its designated subsidiaries. The Convertible Notes bore interest at a rate of 8% per annum (10% per annum if we elected to pay interest through the issuance of additional convertible notes with the same terms as “pay in kind”). The Convertible Notes were convertible into shares of our common stock at a conversion price of $10.00 per share (the “Conversion Price”). Since the closing price of our common stock on the issuance date (also the commitment date) of the Convertible Notes exceeded the Conversion Price by $3.00 per share, the Convertible Notes included a beneficial conversion feature. In accordance with FASB ASC 505, “Equity,” we recorded a discount on the Convertible Notes and an increase in additional paid-in capital of $105 million representing the fair value of the beneficial conversion feature. We paid $20 million of fees associated with the issuance of the Convertible Notes, of which $6 million were allocated to the beneficial conversion feature and were recorded directly to additional paid-in capital. On October

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      15, 2008, we elected to make the interest payment due on that date through the issuance of additional convertible notes. As a result, the balance as of December 31, 2009 of the Convertible Notes outstanding was $369 million.
    Abitibi’s former bank credit facility was repaid and cancelled.
Note 18. Monetization of Timber Notes
In connection with certain timberland sales transactions in 2002 and prior years, Bowater received a portion of the sale proceeds in notes receivable from institutional investors. In order to increase our liquidity, we monetized these notes receivable using QSPEs set up in accordance with FASB ASC 860. The more significant aspects of the QSPEs are as follows:
    The QSPEs are not consolidated within our financial statements. The business purpose of the QSPEs is to hold the notes receivable and issue fixed and floating rate senior notes, which are secured by the notes receivable, to third parties. The value of these debt securities is equal to approximately 90% of the value of the notes receivable. The full principal amounts of the notes receivable are backed by letters of credit issued by third-party financial institutions.
 
    Our retained interest consists principally of the net excess cash flows (the difference between the interest received on the notes receivable and the interest paid on the debt issued by the QSPE to third parties) and a cash reserve account. Fair value of our retained interests was estimated based on the present value of future excess cash flows to be received over the life of the notes, using management’s best estimate of key assumptions, including credit risk and discount rates. Our retained interest is recorded at a proportional amount of the previous carrying amount of the notes receivable and treated as interest-bearing investments.
 
    The cash reserve accounts were established at inception and are required to meet specified minimum levels throughout the life of the debt issued by the QSPEs to third-party investors. Any excess cash flows revert to us on a quarterly or semi-annual basis. The balance of the cash reserve accounts, if any, reverts to us at the maturity date of the third-party debt.
 
    With respect to Calhoun Note Holdings AT LLC and Calhoun Note Holdings TI LLC, we may be required to make capital contributions to these QSPEs from time to time in sufficient amounts so that these QSPEs will be able to comply with their covenants regarding the payment of taxes, maintenance as entities in good standing, transaction fees, contractual indemnification of the collateral agent and certain other parties, and the maintenance of specified minimum amounts in the cash reserve account. Notwithstanding these covenants, because of the expected net available cash flow to these QSPEs (interest and principal on notes receivable backed by letters of credit will be in excess of interest and principal on debt securities), we do not expect to be required to make additional capital contributions, nor have any capital contributions been required to date.
 
    No QSPEs are permitted to hold our common stock and there are no commitments or guarantees that provide for the potential issuance of our common stock. These entities do not engage in speculative activities of any description and are not used to hedge AbitibiBowater positions, and no AbitibiBowater employee is permitted to invest in any QSPE.
As discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net,” the commencement of the Creditor Protection Proceedings constituted an event of default under the note purchase agreements for three of our QSPEs (Bowater Catawba Note Holdings I LLC, Bowater Catawba Note Holdings II LLC and Bowater Saluda Note Holdings LLC), which resulted in a 200 basis point increase in the interest rate payable to the note holders. As a result, our retained interest was impaired. Accordingly, we recorded impairment charges totaling $21 million for the year ended December 31, 2009, which were included in “Reorganization items, net” in our Consolidated Statements of Operations, to reduce our retained interest in these three QSPEs to zero. We were not obligated to fund the shortfall in interest payments due to the note holders. In the fourth quarter of 2010, we transferred our interests in these three QSPEs to a third-party for the benefit of the note holders of the debt issued by these QSPEs.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The following summarizes our retained interest in the QSPEs included in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and 2009:
                   
       
    Successor     Predecessor
(In millions)   2010     2009
       
Calhoun Note Holdings AT LLC
  $   8       $   7  
Calhoun Note Holdings TI LLC
    11         11  
       
 
  $   19       $   18  
       
Note 19. Derivative Financial Instruments and Other Embedded Derivatives
Prior to the commencement of the Creditor Protection Proceedings, we utilized certain derivative financial instruments to enhance our ability to manage risk relating to cash flow exposures. Derivative financial instruments were entered into for periods consistent with related underlying cash flow exposures and did not constitute positions independent of those exposures. We did not enter into contracts for speculative purposes; however, we did, from time to time, enter into interest rate, commodity and currency derivative contracts that were not accounted for as accounting hedges. Counterparty risk was limited to institutions with long-term debt ratings of A or better for North American financial institutions or ratings of AA or better for international institutions. Hedge ineffectiveness associated with forward foreign currency exchange contracts used in all periods presented was negligible. There were no derivative financial instruments outstanding as of December 31, 2010 and 2009.
For the year ended December 31, 2008, the changes in cash flow hedges included in Accumulated other comprehensive loss were comprised of losses reclassified on matured cash flow hedges of $10 million, net of $4 million in income taxes. As of December 31, 2010 and 2009, we did not have any derivative financial instruments that qualified as cash flow hedges.
Cogeneration contract embedded derivative
Prior to the BPCL Administration, we maintained a cogeneration facility that was constructed and operated by a third party at our Bridgewater facility and were under a 15-year contract through May 31, 2015 with this third party for the purchase of steam and electricity produced at this cogeneration facility. The contract also provided for a “standing charge” to cover both the cost of construction of the cogeneration facility and other fixed expenses for the operation of the facility. The standing charge, a significant portion of which represented minimum lease payments, was fixed at inception of the contract, but was annually indexed on a formula using various indices, such as gas, electricity, heavy oil, gas oil and inflation. Termination or transfer of the contract prior to May 31, 2015 was subject to a termination charge based on the number of years remaining on the contract. This contract contained two embedded derivative features: an index forward contracts component and a call option component, which were bundled together as a single and compound embedded derivative instrument:
    In order to determine the fair value of the forward contracts component, the changes in the standing charge that resulted from changes in the indices were bifurcated and accounted for separately from the minimum lease payments portion of the standing charge. The indices were priced as index forward contracts and future cash flows based on these indices, a portion of which was not observable, were projected over the remaining term of the contract, after deduction for the minimum lease payments. The present value of the future payments on this embedded derivative component were then determined.
 
    In calculating the fair value of the call option component, we considered the termination charge mechanism as a cap on the fair value of the various components of the contract (embedded derivative and the capital lease obligation), thus in essence a “call option” (which was considered in-the-money) to terminate the contract for a determinable (i.e. strike) price. As such, the termination charge was considered a series of call options with strike prices that changed over time subject to a pre-determined contractual schedule. The fair value of the option was calculated by taking into account the difference between the total fair value of the contract obligation and the termination charge.
The embedded derivative was recorded at fair value with changes in fair value reported in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations. The carrying value of the embedded derivative was also impacted by foreign currency translation adjustments, with changes related to exchange recorded in “Accumulated other comprehensive loss” in our Consolidated Balance Sheets. For the year ended December 31, 2009, the embedded derivative’s carrying value increased by approximately $5 million, of which approximately $4 million was related to foreign currency translation and approximately $1 million was related to the change in fair value of the

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Notes to Consolidated Financial Statements
embedded derivative. For the year ended December 31, 2008, the embedded derivative’s carrying value decreased by approximately $9 million, net, of which approximately $14 million was related to foreign currency translation, which was partially offset by an increase of approximately $5 million related to the change in fair value of the embedded derivative. The embedded derivative (categorized as Level 3) was estimated to be $45 million as of December 31, 2009, and was recorded in “Other long-term liabilities” in our Consolidated Balance Sheets. As discussed in Note 1, “Organization and Basis of Presentation – Bridgewater Administration,” effective as of the date of the BPCL Administration filing, the financial position, results of operations and cash flows of BPCL are no longer consolidated in our consolidated financial statements.
Interest rate swaps
We acquired Abitibi’s outstanding interest rate swaps in the combination of Bowater and Abitibi. Abitibi had utilized interest rate swaps to manage their fixed and floating interest rate mix on their long-term debt. The interest rate swaps did not qualify for hedge accounting treatment after the combination; therefore, changes in fair value of these derivative financial instruments was recorded in “Interest expense” in our Consolidated Statements of Operations. In 2009, we terminated the remaining interest rate swaps and received cash proceeds of approximately $5 million. Approximately $2 million of pre-tax losses and $13 million of pre-tax gains were included in interest expense in 2009 and 2008, respectively.
Note 20. Pension and Other Postretirement Benefit Plans
We have multiple contributory and non-contributory defined benefit pension plans covering a significant portion of our U.S. and Canadian employees. We also sponsor a number of OPEB benefit plans (e.g., defined benefit health care and life insurance plans) for retirees at certain locations. Benefits are based on years of service and, depending on the plan, average compensation earned by employees either during their last years of employment or over their careers. Our plan assets and cash contributions to the plans have been sufficient to provide pension benefits to participants and meet the funding requirements of ERISA in the United States and, prior to the CCAA Proceedings, applicable pension benefits legislation in Canada. In connection with the CCAA Proceedings, on May 8, 2009, the Canadian Court approved a reduction in the cash contributions required for our Canadian pension plans. As a result, subsequent to that date and through the Emergence Date, the cash contributions we made to our Canadian pension plans were sufficient to meet the funding requirements for current service costs, but not for prior service costs. Suspended contributions for past service costs associated with our Canadian pension plans were estimated to be approximately $159 million on an annual basis. Prior to our emergence from the Creditor Protection Proceedings, we entered into agreements with the provinces of Quebec and Ontario relating in part to funding relief in respect of the material aggregate solvency deficits in our registered pension plans in these provinces, as further discussed below under “Resolution of Canadian pension situation.”
In addition to the previously described plans, we have a number of defined contribution plans covering substantially all of our U.S. employees and a significant portion of our Canadian employees. Under the U.S. defined contribution plans, employees are allowed to contribute to these plans and we make matching contributions. Effective April 1, 2009, the matching contribution was suspended for non-union employees but was reinstated effective January 1, 2011. In addition, under the U.S. defined contribution plans, most non-union employees also receive an automatic company contribution, regardless of the employee’s contribution. The amount of the automatic company contribution is a percentage of the employee’s pay, determined based on age and years of service. The Canadian registered defined contribution plans provide for mandatory contributions by employees and by us, as well as opportunities for employees to make additional optional contributions and receive, in some cases, matching contributions on those optional amounts. Our expense for the defined contribution plans totaled $12 million in 2010, $14 million in 2009 and $19 million in 2008.
Certain of the above plans are covered under collective bargaining agreements.
In 2007, a measurement date of September 30 was used for all of our Bowater plans, while the measurement date for our Abitibi plans was October 29, 2007. Beginning in 2008, new accounting guidance required us to change to a December 31 measurement date. In lieu of re-measuring our plan assets and projected benefit obligations as of January 1, 2008, we used the earlier measurements determined as of September 30, 2007 and October 29, 2007 for our Bowater and Abitibi plans, respectively. Net periodic benefit cost for this extended period (15 months in the case of Bowater and 14 months in the case of Abitibi) was allocated proportionately to 2007 and 2008. The portion allocated to 2007 was recorded as an adjustment to our opening deficit balance and opening accumulated other comprehensive loss balance on January 1, 2008, and the portion allocated to 2008 was recorded in our Consolidated Statements of Operations for the year ended December 31, 2008. The adoption of the measurement date provision of the new accounting guidance resulted in an increase to our January 1, 2008 opening deficit by $6 million, net of taxes of $2 million, and an increase to our January 1, 2008 opening accumulated other comprehensive loss by $11 million, net of taxes of $1 million. The increase to our accumulated other comprehensive loss

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Notes to Consolidated Financial Statements
primarily represented the additional net actuarial loss that arose from our fourth quarter of 2007 settlement and curtailment events.
The following tables include our foreign (Canada and South Korea) and domestic (U.S.) plans. The pension and OPEB projected benefit obligations of the foreign plans are significant relative to the total projected benefit obligations; however, with the exception of the health care trend rates, the assumptions used to measure the obligations of those plans are not significantly different from those used for our domestic plans.
The changes in our pension and OPEB projected benefit obligations and plan assets for the years ended December 31, 2010 and 2009 and the funded status and reconciliation of amounts recognized in our Consolidated Balance Sheets as of December 31, 2010 and 2009 were as follows:
                                 
 
    Predecessor
    Pension Plans   OPEB Plans
(In millions)   2010   2009   2010   2009
 
Change in projected benefit obligations:
                               
Projected benefit obligations as of beginning of year
  $   5,665     $   4,659     $   382     $   361  
Service cost
    41       40       4       3  
Interest cost
    350       346       23       24  
Actuarial loss
    649       451       29        
Participant contributions
    21       24       5       4  
Plan amendments
                (8 )      
Plan amendments upon emergence from the Creditor Protection Proceedings
    (22 )           (4 )      
Curtailments and settlements
    (16 )     (68 )           (2 )
Curtailments and settlements upon emergence from the Creditor Protection Proceedings
    (98 )                  
Deconsolidation of BPCL (Note 4)
    (92 )                  
Benefits paid
    (461 )     (416 )     (31 )     (29 )
Effect of foreign currency exchange rate changes
    265       629       8       21  
 
Projected benefit obligations as of end of year (2010: Successor; 2009: Predecessor)
    6,302       5,665       408       382  
 
 
                               
Change in plan assets:
                               
Fair value of plan assets as of beginning of year
    5,241       4,270              
Actual return on plan assets
    458       644              
Employer contributions
    50       158       26       25  
Participant contributions
    21       24       5       4  
Settlements
    (14 )     (41 )            
Settlements upon emergence from the Creditor Protection Proceedings
    (43 )                  
Deconsolidation of BPCL (Note 4)
    (67 )                  
Benefits paid
    (461 )     (416 )     (31 )     (29 )
Effect of foreign currency exchange rate changes
    237       602              
 
Fair value of plan assets as of end of year (2010: Successor; 2009: Predecessor)
    5,422       5,241              
 
Funded status as of end of year (2010: Successor; 2009: Predecessor)
  $   (880 )   $   (424 )   $   (408 )   $   (382 )
 
 
                               
Amounts recognized in our Consolidated Balance Sheets consisted of (2010: Successor; 2009: Predecessor):
                               
Other assets
  $   19     $   121     $       $    
Accounts payable and accrued liabilities
    (7 )     (19 )     (28 )     (28 )
Pension and OPEB projected benefit obligations
    (892 )     (54 )     (380 )     (35 )
Liabilities subject to compromise
          (472 )           (319 )
 
Net obligations recognized
  $   (880 )   $   (424 )   $   (408 )   $   (382 )
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The sum of the projected benefit obligations and the sum of the fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $5,366 million and $4,469 million, respectively, as of December 31, 2010, and were $4,261 million and $3,717 million, respectively, as of December 31, 2009. The sum of the accumulated projected benefit obligations and the sum of the fair value of plan assets for pension plans with accumulated projected benefit obligations in excess of plan assets were $4,906 million and $4,063 million, respectively, as of December 31, 2010, and were $4,010 million and $3,686 million, respectively, as of December 31, 2009. The total accumulated projected benefit obligations for all pension plans were $6,242 million and $5,380 million as of December 31, 2010 and 2009, respectively.
In May 2009, as a result of the Creditor Protection Proceedings, letters of credit totaling $74 million were drawn for the benefit of the participants of several of our pension plans, resulting in a non-cash increase in short-term bank debt of $22 million and a decrease in our net unfunded pension obligations of $74 million. The $74 million is included in the employer contributions of our pension plans for the year ended December 31, 2009 in the table above. These secured pension arrangements were terminated upon our emergence from the Creditor Protection Proceedings. Although the remaining assets will continue to be paid to participants of the terminated arrangements, the assets of $43 million and the related liabilities are no longer recognized in our Consolidated Balance Sheets.
The components of net periodic benefit cost relating to our pension and OPEB plans for the years ended December 31, 2010, 2009 and 2008 were as follows:
                                                            
 
    Predecessor
    Pension Plans   OPEB Plans
(In millions)   2010   2009   2008   2010   2009   2008       
 
Service cost
  $ 41     $ 40     $ 71     $ 4     $ 3     $ 3        
Interest cost
    350       346       340       23       24       23  
Expected return on plan assets
    (365 )     (370 )     (385 )                  
Amortization of prior service cost (credit)
    3       3       3       (7 )     (10 )     (11 )
Recognized net actuarial loss (gain)
    4       (7 )     7       3       4       6  
Curtailments, settlements and special termination benefits
    (19 )     (4 )     11             (5 )     2  
 
 
  $ 14     $ 8     $ 47     $ 23     $ 16     $ 23  
 
A detail of amounts included in “Accumulated other comprehensive loss” in our Consolidated Balance Sheets can be found in Note 9, “Accumulated Other Comprehensive Loss.” Since accumulated other comprehensive loss was eliminated as of December 31, 2010 as a result of our application of fresh start accounting, there will be no amounts amortized from accumulated other comprehensive loss into our Consolidated Statements of Operations in 2011.
The following is a summary of the special events that impacted our net periodic benefit costs as a curtailment, settlement or special termination benefit for the years ended December 31, 2010, 2009 and 2008:
                                                                
 
    Predecessor
    Pension Plans   OPEB Plans
(In millions)   2010   2009   2008   2010   2009   2008       
 
Settlements resulting from lump-sum payouts
  $ 1     $ 2     $ 1     $     $     $  
Curtailments, net and special retirement benefits resulting from indefinite idling and closure of mills and paper machines and mill-wide restructurings
    4       (6 )     4             (5 )      
Curtailments resulting from terminations following the combination of Bowater and Abitibi
                5                   2  
Curtailment resulting from an unfavorable ruling by an arbitrator in a claim for additional pension benefits
                1                    
Curtailments and settlements that arose upon our emergence from the Creditor Protection Proceedings
    (24 )                              
 
 
  $ (19 )   $ (4 )   $ 11     $     $ (5 )   $ 2        
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
In 2010, we indefinitely idled (and subsequently permanently closed) our Gatineau paper mill, which impacted approximately 330 employees. In addition, effective upon our emergence from the Creditor Protection Proceedings, the following changes were made to our pension plans:
Curtailments – Benefits for participants in the majority of our non-qualified pension plans and certain of our qualified plans were frozen so that participants will no longer earn benefits for future service. These changes resulted in an $8 million reduction in our projected benefit obligations and a corresponding decrease in our accumulated other comprehensive loss, but had a negligible impact on our 2010 net periodic benefit cost.
Settlements – Participants who elected to retain their claims against us under certain non-qualified pension plans forfeited their benefits under those plans, which resulted in a $47 million reduction in our projected benefit obligations and a $23 million decrease in our accumulated other comprehensive loss. We also recorded a settlement gain of $24 million in our 2010 net periodic benefit cost.
Plan amendments – We reduced benefits for inactive participants in the majority of our non-qualified pension plans. We also placed a cap on the participant’s annual benefits. These plan amendments resulted in a $26 million reduction in our project benefit obligations and a corresponding decrease in our accumulated other comprehensive loss, but had a negligible impact on our 2010 net periodic benefit cost. These changes will reduce future net periodic benefit cost.
Plan combinations – We replaced and combined several of our existing non-qualified plans, which had no effect on our projected benefit obligations, accumulated other comprehensive loss or net periodic benefit cost.
In 2009, we indefinitely idled our Dolbeau paper mill, our Beaupre paper mill and a paper machine at our Thunder Bay paper mill. We also permanently closed our Grand Falls newsprint mill, our Westover sawmill, our Albertville sawmill and our Goodwater planer mill operations. Approximately 1,319 employees were impacted by these events. In addition, approximately 33 employees retired at our Laurentide, Quebec paper mill following a special program introduced in 2008.
In 2008, we permanently closed our Donnacona paper mill and several employees retired from our Clermont, Quebec paper mill after a mill-wide downsizing. Approximately 295 employees were impacted by these events. In addition, certain executives retired and certain employees were terminated following the combination of Bowater and Abitibi.
Assumptions used to determine projected benefit obligations and net periodic benefit cost
The weighted-average assumptions used to determine the projected benefit obligations at the measurement dates and the net periodic benefit cost for the years ended December 31, 2010, 2009 and 2008 were as follows:
                                                          
 
    Pension Plans   OPEB Plans
    2010   2009   2008   2010   2009   2008    
 
Projected benefit obligations:
                                               
Discount rate
    5.5 %     6.4 %     7.3 %     5.6 %     6.3 %     7.0 %    
Rate of compensation increase
    0.9 %     2.3 %     3.0 %     2.3 %     2.9 %     3.0 %
Net periodic benefit cost:
                                               
Discount rate
    6.4 %     7.3 %     5.8 %     6.3 %     7.0 %     6.1 %
Expected return on assets
    6.8 %     7.3 %     7.2 %                  
Rate of compensation increase
    2.3 %     3.0 %     2.5 %     2.9 %     3.0 %     3.0 %
 
The discount rate for our domestic plans was determined by considering the timing and amount of projected future benefit payments and was based on a portfolio of long-term high quality corporate bonds of a similar duration or, for our foreign plans, a model that matches the plan’s duration to published yield curves. In determining the expected return on assets, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. In determining the rate of compensation increase, we reviewed historical salary increases and promotions, while considering current industry conditions, the terms of collective bargaining agreements with our employees and the outlook for our industry.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The assumed health care cost trend rates used to determine the projected benefit obligations for our domestic and foreign OPEB plans as of December 31, 2010 and 2009 were as follows:
                                 
   
    2010   2009
    Domestic   Foreign   Domestic   Foreign
    Plans   Plans   Plans   Plans
 
Health care cost trend rate assumed for next year
    7.2 %     4.5 %     7.2 %     6.5 %
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
    4.5 %     2.9 %     4.5 %     3.8 %
Year that the rate reaches the ultimate trend rate
    2028     2031     2028     2014
 
For the health care cost trend rates, we considered historical trends for these costs, as well as recently enacted health care legislation. Based on recent studies in Canada, it was determined that a longer period to reach the ultimate trend rate is more realistic and that the ultimate rate should follow more closely to the long-term Canadian Consumer Price Index, which results in a slightly lower ultimate rate.
Variations in this health care cost trend rate can have a significant effect on the amounts reported. A 1% change in this assumption would have had the following impact on our 2010 OPEB obligation and costs for our domestic and foreign plans:
                                                                 
   
    1% Increase   1% Decrease
(Dollars in millions)   Domestic Plans   Foreign Plans   Domestic Plans   Foreign Plans
 
Projected benefit obligation
    $ 36       15 %     $ 7       4 %     $ (29 )     (12 )%   $     (7 )   (4 )%
Service and interest costs
    $ 3       16 %     $ 1       6 %     $ (2 )     (13 )%   $     (1 )   (6 )%
 
Fair value of plan assets
The fair value of plan assets held by our pension plans as of December 31, 2010 was as follows:
                                 
   
    Successor
(In millions)   Total     Level 1     Level 2     Level 3  
 
Equity securities:
                               
U.S. companies
    $ 978       $ 946       $ 32       $  
Non-U.S. companies
    1,093       775       318        
Debt securities:
                               
Corporate and government securities
    2,861       87       2,774        
Asset-backed securities
    114             114        
Bank loans/foreign annuities
    44                   44  
Real estate
    42                   42  
Cash and cash equivalents
    242       242              
Accrued interest and dividends
    48             48        
 
 
    $ 5,422       $ 2,050       $ 3,286       $ 86  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The fair value of plan assets held by our pension plans as of December 31, 2009 was as follows:
                                 
   
    Predecessor
(In millions)   Total     Level 1     Level 2     Level 3  
 
Equity securities:
                               
U.S. companies
    $ 1,248       $ 1,219       $ 29       $  
Non-U.S. companies
    1,163       496       667        
Debt securities:
                               
Corporate and government securities
    2,296       45       2,251        
Asset-backed securities
    154             154        
Bank loans/foreign annuities
    5                   5  
Real estate
    37                   37  
Cash and cash equivalents
    296       296              
Accrued interest and dividends
    42             42        
 
 
    $ 5,241       $ 2,056       $ 3,143       $ 42  
 
Equity securities primarily include large-cap and mid-cap publicly-traded companies primarily located in the United States, Canada and other developed countries, as well as commingled equity funds invested in the same types of securities. The fair value of the equity securities is determined based on quoted market prices (Level 1) or the net asset values per share that are derived from the accumulated fair values of the equity securities within the commingled funds (Level 2).
Debt securities primarily include corporate bonds of U.S. and Canadian companies from diversified industries, bonds and treasuries issued by the U.S. government and the Canadian federal and provincial governments, mortgage-backed securities and commingled fixed income funds invested in these same types of securities. The fair value of the debt securities is determined based on quoted market prices (Level 1), market-corroborated inputs such as matrix prices, yield curves and indices (Level 2), the net asset values per share that are derived from the accumulated fair values of the debt securities within the commingled funds (Level 2) or specialized pricing sources that utilize consensus-based contributed prices and spreads (Level 3).
Real estate investments are primarily located in Canada. The fair value of the real estate is determined based on an appraisal completed by a national real estate firm. Those appraisers use several valuation concepts, including the cost approach, market approach and income approach (Level 3).
Cash and cash equivalents included approximately $52 million as of December 31, 2009 that was deposited in a refundable tax account with the Canada Revenue Agency for the benefit of former employees and retirees participating in certain of our non-qualified pension plans in Canada. As discussed above, upon our emergence from the Creditor Protection Proceedings, the remaining assets and related liabilities associated with these terminated arrangements are no longer recognized in our Consolidated Balance Sheets.
The fair value of accrued interest and dividends is determined based on market-corroborated inputs such as declared dividends and stated interest rates (Level 2).
The changes in Level 3 pension plan assets for the years ended December 31, 2010 and 2009 were as follows:
                         
 
    Bank Loans/        
    Foreign        
(In millions)   Annuities   Real Estate   Total
 
Balance as of December 31, 2008 (Predecessor)
    $ 3       $ 41       $ 44  
Actual return on assets relating to assets held as of December 31, 2009
          (2 )     (2 )
Purchases, sales and settlements, net
    2       (2 )      
 
Balance as of December 31, 2009 (Predecessor)
    5       37       42  
 
Actual return on assets relating to assets held as of December 31, 2010
          5       5  
Purchases, sales and settlements, net
    39             39  
 
Balance as of December 31, 2010 (Successor)
    $ 44       $ 42       $ 86  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Long-term strategy and objective
Our investment strategy and objective is to maximize the long-term rate of return on our plan assets within an acceptable level of risk in order to meet our current and future obligations to pay benefits to qualifying employees and their beneficiaries while minimizing and stabilizing pension benefit costs and contributions. One way we accomplish this objective is to diversify our plan investments. Diversification of assets is achieved through strategic allocations to various asset classes, as well as various investment styles within these asset classes, and by retaining multiple, experienced third-party investment management firms with complementary investment styles and philosophies to implement these allocations. Risk is further managed by reviewing our investment policies at least annually and monitoring our fund managers at least quarterly for compliance with mandates and performance measures. A series of permitted and prohibited investments are listed in our respective investment policies, which are provided to our fund managers. The use of derivative financial instruments for speculative purposes and investments in the equity or debt securities of AbitibiBowater are both prohibited.
We have established a target asset allocation for our plans based upon analysis of risk/return tradeoffs and correlations of asset mixes given long-term historical returns, prospective capital market returns, forecasted benefit payments and the forecasted timing of those payments. The targeted asset allocation of the plan assets is 50% equity securities and 50% debt and other securities, including up to 3% in short-term instruments required for near-term liquidity needs. Two-thirds of the equity securities are targeted to be invested in the U.S. and Canada, with the balance in other developed countries. Substantially all of the debt securities are targeted to be invested in the U.S. and Canada. The asset allocation for each plan is reviewed periodically and rebalanced toward the targeted asset mix when the fair value of the investments within an asset class falls outside a predetermined range.
Expected benefit payments and future contributions
The following benefit payments are expected to be paid from the plans’ net assets. The OPEB plans’ projected benefit payments have been reduced by expected Medicare subsidy receipts associated with the Medicare Prescription Drug, Improvement and Modernization Act of 2003.
                         
 
                    Expected
    Pension   OPEB   Subsidy
(In millions)   Plans   Plans   Receipts
 
2011
    $ 594       $ 30       $ 2  
2012
    447       29       2  
2013
    424       29       2  
2014
    441       29       2  
2015
    433       30       2  
2016 – 2020
    2,224       155       15  
 
We estimate our 2011 contributions to be approximately $120 million to our pension plans and approximately $28 million to our OPEB plans. These estimated contributions are approximately $100 million lower than what would have been required had we not entered into the agreements with the provinces of Quebec and Ontario discussed below.
Patient Protection and Affordable Care Act
In March 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was enacted, potentially impacting our cost to provide healthcare benefits to eligible active and retired employees. The PPACA has both short-term and long-term implications on benefit plan standards. Implementation of this legislation began in 2010 and is expected to continue in phases from 2011 through 2018.
We have analyzed this legislation to determine the impact of the required plan standard changes on our employee healthcare plans and the effect of the excise tax on high cost healthcare plans and the resulting costs and such impact, for those changes that are currently estimable, was not material to our results of operations. We have reflected the impact of the PPACA in our projected benefit obligations as of December 31, 2010.
Resolution of Canadian pension situation
AbiBow Canada, through its principal predecessor entities, ACCC and BCFPI, entered into agreements with the provinces of Quebec and Ontario in September and November of 2010, respectively (which became effective on the Emergence Date),

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Notes to Consolidated Financial Statements
relating in part to funding relief in respect of the material aggregate solvency deficits in the registered pension plans sponsored by ACCC and BCFPI in those provinces.
The agreements include a number of undertakings by AbiBow Canada, which will apply for five years from the Emergence Date. As a result, the governments of Quebec and Ontario have separately confirmed to ACCC and BCFPI their intention to adopt the funding relief regulations to provide, among other things, that AbiBow Canada’s aggregate annual contribution in respect of the solvency deficits in its material Canadian registered pension plans for each year from 2011 through 2020 are limited to the following: (i) a Cdn$50 million basic contribution; (ii) beginning in 2013, if the plans’ aggregate solvency ratio falls below a specified target for a year, an additional contribution equal to 15% of free cash flow up to Cdn$15 million per year and (iii) beginning in 2016, if the amount payable for benefits in a year exceeds a specified threshold and the plans’ aggregate solvency ratio is more than 2% below the target for that year, a supplementary contribution equal to such excess (such supplementary contribution being capped at Cdn$25 million on the first occurrence only of such an excess). Should a plan move into a surplus during the 2011 – 2020 period, it will cease to be subject to this funding relief. After 2020, the funding rules in place at the time will apply to any remaining deficit.
In addition, AbiBow Canada has undertaken in those agreements, among other things, to:
    not pay a dividend at any time when the weighted average solvency ratio of its pension plans in Quebec or Ontario is less than 80%;
 
    abide by the compensation plan detailed in the Plans of Reorganization with respect to salaries, bonuses and severance;
 
    direct at least 60% of the maintenance and value-creation investments earmarked for our Canadian pulp and paper operations to projects in Quebec and at least 30% to projects in Ontario;
 
    invest a minimum of Cdn$50 million over a two to three year construction period for a new condensing turbine at our Thunder Bay facility, subject to certain conditions;
 
    invest at least Cdn$75 million in strategic projects in Quebec over a five-year period;
 
    maintain our head office and the current related functions in Quebec;
 
    make an additional solvency deficit reduction contribution to its pension plans of Cdn$75, payable over four years, for each metric ton of capacity reduced in Quebec or Ontario, in the event of downtime of more than six consecutive months or nine cumulative months over a period of 18 months;
 
    create a diversification fund by contributing Cdn$2 million per year for five years for the benefit of the municipalities and workers in our Quebec operating regions;
 
    pay an aggregate of Cdn$5 million over five years to be used for such environmental remediation purposes instructed by the province of Ontario; and
 
    maintain and renew certain financial assurances with the province of Ontario in respect of certain properties in the province.
Note 21. Income Taxes
Income (loss) before income taxes and extraordinary item by taxing jurisdiction for the years ended December 31, 2010, 2009 and 2008 was as follows:
                         
   
    Predecessor
(In millions)   2010     2009     2008  
 
United States
    $ (1,039 )     $ (421 )     $ (118 )
Foreign
    2,208     (1,261 )     (1,925 )
 
 
    $ 1,169     $ (1,682 )     $ (2,043 )
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Income tax benefit for the years ended December 31, 2010, 2009 and 2008 was comprised of the following:
                         
   
    Predecessor
(In millions)   2010     2009     2008  
 
Federal:
                       
Current
    $       $       $  
Deferred
    400     (1 )     (32 )
 
 
    400     (1 )     (32 )
 
State:
                       
Current
                (1 )
Deferred
    70             1  
 
 
    70              
 
Foreign:
                       
Current
                 
Deferred
    1,136       123       124  
 
 
    1,136       123       124  
 
Total:
                       
Current
                (1 )
Deferred
    1,606       122       93  
 
 
    $ 1,606       $ 122       $ 92  
 
The income tax benefit attributable to income (loss) before income taxes and extraordinary item differs from the amounts computed by applying the United States federal statutory income tax rate of 35% for the years ended December 31, 2010, 2009 and 2008 as a result of the following:
                         
 
    Predecessor
(In millions)   2010   2009   2008
 
Income (loss) before income taxes and extraordinary item
    $ 1,169       $ (1,682 )     $ (2,043 )
 
                       
Income tax (provision) benefit:
                       
Expected income tax (provision) benefit
    (409 )     588       715  
Increase (decrease) in income taxes resulting from:
                       
Valuation allowance (1)
    1,166       (615 )     (331 )
Plans of Reorganization
    1,043              
Subpart F income
    (107 )            
Worthless stock (2)
          308        
Tax reserves
          45       (6 )
Goodwill (3)
                (251 )
Foreign exchange
    9       (230 )     313  
State income taxes, net of federal income tax benefit
    2       12       2  
Foreign taxes
    (72 )     30       (323 )
Other, net
    (26 )     (16 )     (27 )
 
 
  $ 1,606     $ 122     $ 92  
 
 
(1)   See “Deferred income taxes” section below for a discussion of the valuation allowance.
 
(2)   Subsequent to the commencement of Abitibi’s CCAA Proceedings, in 2009, we concluded that our investment in the common stock of Abitibi no longer had any value and therefore, we recorded a $308 million tax benefit for a worthless stock deduction, which represented the estimated tax basis in our investment in Abitibi of approximately $800 million.
 
(3)   We recorded goodwill impairment charges of $810 million during the year ended December 31, 2008. No tax benefits were provided by these charges.
In 2009, we recorded a tax recovery of approximately $141 million related to the asset impairment charges associated with our investment in MPCo while it was an asset held for sale. For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges.”

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Deferred income taxes
Based on the existence of significant negative evidence such as a cumulative three-year loss and our financial condition, we concluded that a valuation allowance was necessary on substantially all of our net deferred tax assets in 2008, 2009 and 2010 until the Emergence Date on the basis that the tax benefits would not be realized. Upon emergence from the Creditor Protection Proceedings, we evaluated the need for a valuation allowance against our net deferred tax assets and determined that post-emergence, we expect to generate sufficient taxable income in the future to realize the deferred tax assets and accordingly, determined that we do not need a valuation allowance against certain deferred tax assets. In making this determination, we primarily focused on a post-reorganization outlook, which reflects a new capital structure, new contractual arrangements and a new asset structure with new values under the application of fresh start accounting as of December 31, 2010. Management has reassessed the prior three-year operating performance and adjusted the past results to reflect that we would have had cumulative three-year profits had the changes in the Company that were effective on the Emergence Date been in place during that three-year period. The weight of this positive evidence, together with the positive evidence of our expected future performance, resulted in the conclusion by management that upon emergence from the Creditor Protection Proceedings, valuation allowances were not required for most deferred tax assets. Therefore, the valuation allowances were reversed as part of the implementation of the Plans of Reorganization and the application of fresh start accounting. As a result, we have significant net deferred tax assets recorded on the Successor Company’s Consolidated Balance Sheet as of December 31, 2010.
Deferred income taxes as of December 31, 2010 and 2009 were comprised of the following:
                   
       
    Successor     Predecessor
(In millions)   2010     2009
       
Fixed assets, net
  $       $ (119 )
Other long-term liabilities
    (31 )        
Deferred gains
    (37 )       (98 )
Other assets
    (4 )       6  
       
Deferred income tax liabilities
    (72 )       (211 )
       
Current assets and liabilities
    71         89  
Employee benefits
    416         139  
Fixed assets, net
    317          
Research and development expense pool
    264         234  
Tax credit carryforwards
    220         252  
Ordinary loss carryforwards
    598         968  
Capital loss carryforwards
    371          
Valuation allowance
    (474 )       (1,552 )
       
Deferred income tax assets
    1,783         130  
       
Net deferred income tax asset (liability)
  $ 1,711       $ (81 )
       
As of December 31, 2010, we had U.S. federal and state net operating loss carryforwards of $1,382 million and $2,344 million, respectively, and Canadian federal and provincial (excluding Quebec) net operating loss carryforwards of $354 million and Quebec net operating loss carryforwards of $573 million. In addition, $474 million of Canadian investment tax credit and expense carryforwards and $14 million of U.S. tax credit carryforwards were available to reduce future income taxes. The U.S. federal and state loss carryforwards expire at various dates up to 2029. The Canadian non-capital loss and investment tax credit carryforwards expire at various dates between 2014 and 2030. Of the U.S. tax credit carryforwards, $5 million consists of alternative minimum tax credits that have no expiration. Our U.S. federal net operating loss carryforwards are subject to the U.S. Internal Revenue Code of 1986, as amended (the “Code”) § 382 (“IRC § 382”) limitation due to an ownership change that occurred on the Emergence Date. We do not expect that this IRC § 382 limit will affect the utilization of our U.S. federal net operating loss carryforwards prior to their expiration. A valuation allowance has been recorded against certain deferred tax assets where recovery of the asset or carryforward is not likely.
The balance of the most significant tax attributes and their dates of expiration as of December 31, 2010 were as follows:
             
 
    Successor
(Dollars in millions)   Total   Expiration
 
U.S. federal ordinary loss carryforwards
  $ 1,382     2029
Canadian federal and provincial (excluding Quebec) ordinary loss carryforwards
    354     2014 2030
Quebec ordinary loss carryforwards
    573     2014 2030
Canadian undepreciated capital costs
    3,291     Indefinite
Research and development expense pool
    936     Indefinite
Canadian research and development tax credits
    474     2019 2029
Capital loss carryforward
    1,210     2014
 
Since it is more likely than not that the capital loss carryforward will not be realized, a full valuation allowance has been recorded.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
As of December 31, 2010 and 2009, we had unremitted earnings of our subsidiaries outside the U.S. totaling $50 million and $169 million, respectively, which have been deemed to be permanently invested. No deferred tax liability has been recognized with regard to such earnings. It is not practicable to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S. During 2010, we recognized $305 million of U.S. Sub-Part F taxable income from the 2009 sale of our investment in MPCo. In the future, we will have the ability to repatriate this $305 million from Canada to the U.S. as previously-taxed income on a tax-free basis.
We are required to assess whether it is more likely than not that the deferred tax assets will be realized, based on the nature, frequency and severity of recent losses, forecasted income, or where necessary, the implementation of prudent and feasible tax planning strategies. The carrying value of our deferred tax assets (tax benefits expected to be realized in the future) assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits, or in the absence of sufficient future taxable income, that we would implement tax planning strategies to generate sufficient taxable income. In making such judgments, significant weight is given to evidence that can be objectively verified.
Income tax reserves
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2010 and 2009 was as follows:
                 
   
    Predecessor
(In millions)   2010     2009  
 
Beginning of year
  $    206     $   138  
Increase (decrease) in unrecognized tax benefits resulting from:
               
Positions taken in a prior period
    2       (17 )
Positions taken in the current period
    42       105  
Settlements with taxing authorities
          (25 )
Change in Canadian foreign exchange rate
    (1 )     15  
Expiration of statute of limitations
    (58 )     (10 )
 
End of year (2010: Successor; 2009: Predecessor)
  $    191     $   206  
 
We recognize interest and penalties accrued related to unrecognized tax benefits as components of income tax benefit. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $135 million. If recognized, these items would impact our Consolidated Statements of Operations and our effective tax rate. We anticipate that the total amount of unrecognized tax benefits will decrease by approximately $55 million during the next twelve months due to certain U.S. and Canadian federal statute of limitations expiring, primarily in the third quarter of 2011. As discussed below, we expect to effectively settle the 2009 IRS audit that is currently in progress. During 2010, we reversed approximately $58 million of liabilities for unrecognized tax benefits, mainly due to certain U.S. and Canadian statute of limitations either expiring or effectively expiring due to our emergence from the Creditor Protection Proceedings.
In the normal course of business, we are subject to audits from the federal, state, provincial and other tax authorities regarding various tax liabilities. The U.S. federal statute of limitations for tax years prior to 2009 effectively expired on December 9, 2010, the date we emerged from the Creditor Protection Proceedings. We are currently under audit by the IRS for our 2009 tax year. We do not expect any changes to our reported 2009 tax loss and expect to effectively settle this audit during 2011. The Canadian taxing authorities are auditing years 2006 through 2009 for our Canadian entities. There were no significant adjustments to our tax liabilities arising from any audits over the last three years.
Any audits may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. The amount ultimately paid upon resolution of issues raised may differ from the amount accrued. We believe that taxes accrued in our Consolidated Balance Sheets fairly represent the amount of future tax liability due.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 22. Commitments and Contingencies
Creditor Protection Proceedings
For information regarding the Creditor Protection Proceedings from which we emerged on December 9, 2010, see Note 1, “Organization and Basis of Presentation – Creditor Protection Proceedings,” and Note 3, “Creditor Protection Proceedings.”
BCFC Bankruptcy and Insolvency Act filing
As part of a negotiated resolution to certain objections to the Plans of Reorganization, as reflected in the U.S. Court’s order confirming the Chapter 11 Reorganization Plan, BCFC has been dismissed from the CCAA Proceedings and is expected to be dismissed from the Chapter 11 Cases. In addition, BCFC has made an assignment for the benefit of its creditors under the Bankruptcy and Insolvency Act (Canada) (the “BIA”). BCFC appointed a trustee as its representative in the BIA filing, whose responsibilities are to prosecute its claims (including a disputed claim in the Creditor Protection Proceedings), distribute its property, if any, and others as provided by the BIA. As a result of the BIA filing, we lost control over and the ability to influence this entity. As a result, effective as of the date of the BIA filing, the financial position, results of operations and cash flows of BCFC are no longer consolidated in our consolidated financial statements. We are now accounting for BCFC using the cost method of accounting.
Extraordinary loss on expropriation of assets
On August 24, 2010, we reached a settlement agreement with the government of Canada, which was subsequently approved by the Courts, concerning the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government pursuant to the Abitibi-Consolidated Rights and Assets Act , S.N.L. 2008, c.A-1.01 (“Bill 75”). Under the agreement, the government of Canada agreed to pay AbiBow Canada Cdn$130 million ($130 million) following our emergence from the Creditor Protection Proceedings. On February 25, 2010, we had filed a Notice of Arbitration against the government of Canada under NAFTA, asserting that the expropriation was arbitrary, discriminatory and illegal. As part of the settlement agreement, we agreed to waive our legal actions and claims against the government of Canada under NAFTA.
Bill 75 was introduced following our December 4, 2008 announcement of the permanent closure of our Grand Falls, Newfoundland and Labrador newsprint mill to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The province also announced that it did not plan to compensate us for the loss of the water and timber rights, but indicated that it may compensate us for certain of our hydroelectric assets. However, it made no commitment to ensure that such compensation would represent the fair market value of such assets. As a result of the expropriation, in the fourth quarter of 2008, we recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.
In December 2010, following our emergence from the Creditor Protection Proceedings, we received the settlement amount. Since the receipt of the settlement was contingent upon our emergence from the Creditor Protection Proceedings, we recorded the settlement in “Reorganization items, net” in our Consolidated Statements of Operations for the year ended December 31, 2010.
Legal items
We are involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers’ compensation claims, Aboriginal claims and other matters. We periodically review the status of these proceedings with both inside and outside counsel. Although the final outcome of any of these matters is subject to many variables and cannot be predicted with any degree of certainty, we establish reserves for a matter (including legal costs expected to be incurred) when we believe an adverse outcome is probable and the amount can be reasonably estimated. We believe that the ultimate disposition of these matters will not have a material adverse effect on our financial condition, but it could have a material adverse effect on our results of operations in any given quarter or year.
Subject to certain exceptions, all litigation against the Debtors that arose out of pre-petition conduct or acts was subject to the automatic stay provisions of Chapter 11 and the CCAA and the orders of the Courts rendered thereunder and subject to certain exceptions, any recovery by the plaintiffs in those matters was treated consistently with all other general unsecured claims in the Creditor Protection Proceedings, i.e., to the extent a disputed general unsecured claim becomes an accepted

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Notes to Consolidated Financial Statements
claim, the claimholder would be entitled to receive a ratable amount of Successor Company common stock from the reserve established on the Emergence Date for this purpose, as discussed in Note 3, “Creditor Protection Proceedings.” As a result, we believe that these matters will not have a material adverse effect on our results of operations or financial position.
On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008 with Bill 75. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings, which payments could have a material impact on our results of operations or financial condition.
We settled certain matters on December 23, 2010 relating to Woodbridge’s March 9, 2010 motion in the U.S. Court to force ACSC to reject the partnership agreement governing ANC (an appeal of which to the U.S. Court was rejected) and our U.S. Court-approved rejection in October 2009 of an amended and restated call agreement in respect of ANI, an indirect subsidiary of Woodbridge and our former partner in ANC. ANC is the partnership that owned and operated the Augusta newsprint mill before we purchased from Woodbridge all of the issued and outstanding securities of ANI. Woodbridge’s claims for damages resulting from our rejection of the amended and restated call agreement remains a disputed general unsecured claim in the claims resolution process. If Woodbridge’s claims are successful, any award would be settled out of the share reserve and would not impact our results of operations and cash flows. The call agreement would have obligated ACSC to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. In connection with the settlement, we entered into a stock purchase agreement pursuant to which ANC acquired from Woodbridge all of the issued and outstanding voting securities of ANI. ANI owned a 47.5% interest in ANC and ACSC owned the remaining 52.5% interest. After giving effect to the transaction on January 14, 2011, ANC distributed the ANI securities to ACSC, and ANI thus became a wholly-owned subsidiary of ACSC and a wholly-owned subsidiary of ours.
Following the announcement of the permanent closure of our Donnacona paper mill, on December 3, 2008, the Centrale Syndicale Nationale (“CSN”) and the employees of the Donnacona mill filed against us, Investissement Quebec and the government of the province of Quebec a civil lawsuit before the Superior Court of the district of Quebec. The CSN and the employees also filed a grievance claim for labor arbitration on the same basis. The CSN and the employees had claimed an amount of approximately $48 million in salary through April 30, 2011, as well as moral and exemplary damages, arguing that we failed to respect the obligations subscribed in the context of a loan made by Investissement Quebec. The CSN and the employees had also claimed that Investissement Quebec and the government were solidarily responsible for the loss allegedly sustained by the employees. We settled the matter and the two related grievances in the fourth quarter of 2010 and, as a result, recognized an approximate $5 million general unsecured claim, which will be settled out of the share reserve and will not impact our cash flows.
On June 18, 2007, The Levin Group, L.P. filed a complaint against Bowater in the Supreme Court of New York, New York County, asserting claims for breach of contract and related claims relating to certain advisory services purported to have been provided by the plaintiff in connection with the combination of Bowater and Abitibi. The Levin Group sought damages of not less than $70 million, related costs and such other relief as the court deemed just and proper. As part of the Creditor Protection Proceedings, we filed a motion with the U.S. Court to reject the engagement letter entered into with The Levin Group pursuant to which The Levin Group was asserting the claims. As a result, The Levin Group filed a proof of claim for approximately $88 million in the Chapter 11 claims process, which remains a disputed general unsecured claim that will be resolved in the claims resolution process. Accordingly, to the extent The Levin Group is successful, we expect any award would be settled out of the share reserve and would not impact our results of operations and cash flows.
Since late 2001, Bowater, several other paper companies, and numerous other companies have been named as defendants in asbestos personal injury actions. These actions generally allege occupational exposure to numerous products. We have denied the allegations and no specific product of ours has been identified by the plaintiffs in any of the actions as having caused or contributed to any individual plaintiff’s alleged asbestos-related injury. These suits have been filed by approximately 1,800 claimants who sought monetary damages in civil actions pending in state courts in Delaware, Georgia, Illinois, Mississippi, Missouri, New York and Texas. Approximately 1,000 of these claims have been dismissed, either voluntarily or by summary judgment, and approximately 800 claims remain. We expect that any resulting liability would be a general unsecured claim in the claims resolution process, which would be settled out of the share reserve and would not impact our results of operations and cash flows.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Lumber duties
On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U.S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces, including Nova Scotia, being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Quebec based on historical production, and the volume quotas are not transferable between provinces. U.S. composite prices would have to rise above $355 composite per thousand board feet before the quota volume restrictions would be lifted, which had not occurred since the implementation of the 2006 Softwood Lumber Agreement.
In 2005, the province of Quebec mandated that the annual harvests of softwood timber on Crown-owned land would be reduced 20% below 2004 levels. The 20% reduction was required to be achieved, on average, for the period 2005 to 2008. In December 2006, the province of Quebec increased that reduction to 23.8% below 2004 levels for the period 2008 to 2013. These requirements did not have any material impact on our results of operations or financial position during 2008, 2009 or 2010.
In February 2009, the LCIA tribunal (formerly the London Court of International Arbitration) issued its decision on a remedy in the softwood lumber arbitration in which Canada was found to have breached the 2006 Softwood Lumber Agreement between the United States and Canada by failing to properly calculate quotas during six months of 2007. The tribunal determined that, as an appropriate adjustment to compensate for the breach, Canada must collect an additional 10 percent ad valorem export charge on softwood lumber shipments from Eastern Canadian provinces, including Quebec and Ontario, until Cdn$68.26 million has been collected or the breach is cured some other way. If Canada fails to cure the breach, the United States is authorized to impose duties up to the amount specified by the tribunal. In April 2009, the United States announced that it would impose 10 percent ad valorem customs duties on imports of softwood lumber products in response to Canada’s failure to cure the breach. We estimate that such duties will not have a significant impact on our results of operations or financial position.
Environmental matters
We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. Environmental regulations promulgated in the future could require substantial additional expenditures for compliance and could have a material impact on us, in particular, and the industry in general.
We may be a “potentially responsible party” with respect to four hazardous waste sites that are being addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“Superfund”) or the Resource Conservation and Recovery Act (“RCRA”) corrective action authority. The first two sites are on CNC timberland tracts in South Carolina. One was already contaminated when acquired, and subsequently, the prior owner remediated the site and continues to monitor the groundwater. On the second site, several hundred steel drums containing textile chemical residue were discarded by unknown persons. The third site, at our mill in Coosa Pines, contained buried drums and has been remediated pursuant to RCRA and the RCRA permit has been closed. We continue to monitor the groundwater. The fourth site is called Alternate Energy Resources and involves ANC. ANC shipped to this site less than 100,000 gallons of waste to be disposed of and ANC’s share of the remediation costs is less than 0.5%. We believe we will not be liable for any significant amounts at any of these sites.
We were charged by the Quebec Ministry of Natural Resources (“QMNR”) for penal violations related to our woodlands operations. The proposed penalties for two of these charges are above Cdn$100,000 and allege that wood volume cut in July 2005 was above the authorized allowances. A settlement has been reached with the QMNR for all of these infractions as part of the restructuring process.
As of December 31, 2010, we have recorded $4 million for environmental liabilities, which represents management’s estimate based on an assessment of relevant factors and assumptions of the ultimate settlement amounts for environmental liabilities. The amount of these liabilities could be affected by changes in facts or assumptions not currently known to management. These liabilities are included in “Accounts payable and accrued liabilities” or “Other long-term liabilities” in our Consolidated Balance Sheets.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
The activity in our environmental liabilities for the years ended December 31, 2010 and 2009 was as follows:
                 
   
    Predecessor
(In millions)   2010     2009  
 
Beginning of year
    $ 27       $ 18  
Additions
    33       11  
Payments
    (2 )     (2 )
Compromise and settlement due to distribution of Successor Company common stock on account of unsecured creditor claims
    (38 )      
Write-off of liabilities for which no claim was filed against us in the Creditor Protection Proceedings
    (15 )      
Transfer from (to) liabilities associated with assets held for sale
    2       (2 )
Foreign exchange
           
Other
    (3 )     2  
 
End of year (2010: Successor; 2009: Predecessor)
    $ 4       $ 27  
 
Other representations, warranties and indemnifications
We make representations and warranties and offer indemnities to counterparties in connection with commercial transactions like asset sales and other commercial agreements. Indemnification obligations generally are standard contractual terms, are entered into in the normal course of business and are related to contingencies that are not expected to occur at the time of the agreement. We are not able to develop an estimate of the maximum payout under these indemnification obligations, but we believe that it is unlikely that we will be required to make material payments under those arrangements and, except as otherwise noted, no material liabilities related thereto have been recognized in our consolidated financial statements.
In connection with the sale of our investment in MPCo in December 2009, we provided certain undertakings and indemnities to Alcoa, our former partner in MPCo, including an indemnity for potential tax liabilities arising from the transaction. As discussed in Note 17, “Liquidity
and Debt – Debt – Financings during Creditor Protection Proceedings – ULC DIP Facility,” the ULC maintained a reserve of approximately Cdn $80 million ($80 million, based on the exchange rate in effect on December 31, 2010) and Cdn $52 million ($49 million, based on the exchange rate in effect on December 31, 2009) as of December 31, 2010 and 2009, respectively, to secure those obligations. This reserve was included as restricted cash in “Other assets” in our Consolidated Balance Sheets as of December 31, 2010 and 2009. As discussed in Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” in 2010, we recorded an $8 million tax indemnification liability, which will be paid from this reserve in 2011. We believe it is unlikely that we will be required to make additional material payments pursuant to our undertakings and indemnities and therefore have recorded no additional liability as of December 31, 2010.
Note 23. Share Capital
Successor Company
Overview
AbitibiBowater Inc. is authorized under its certificate of incorporation, which was amended and restated on the Emergence Date, to issue up to 200 million shares of capital stock, consisting of: (i) 190 million shares of common stock, par value $0.001 per share and (ii) 10 million shares of preferred stock, par value $0.001 per share.
Preferred stock
As of December 31, 2010, no preferred shares were issued and outstanding.
Common stock
On the Emergence Date and pursuant to the Plans of Reorganization, we issued an aggregate of 97,134,954 shares of common stock and reserved 9,020,960 shares of common stock for future issuance under the AbitibiBowater Inc. 2010 Equity Incentive Plan. On December 17, 2010, 73,752,881 shares of common stock were distributed to the holders of unsecured claims as of the applicable distribution record date under the Plans of Reorganization on account of allowed unsecured creditor claims. As of December 31, 2010, we held the remaining 23,382,073 shares of common stock in reserve for the benefit of holders of disputed claims. We will make supplemental interim distributions of shares from this reserve to unsecured creditors as and if disputed claims are allowed or accepted.
Consistent with the confirmation order in respect of our and our U.S. Debtors’ Chapter 11 Reorganization Plan and applicable law, we relied on section 1145(a)(1) of Chapter 11 to exempt the issuance of these shares of common stock and their distribution to unsecured creditors from the registration requirements of the Securities Act.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Treasury stock
On December 31, 2010, AbitibiBowater Inc. issued 17,010,728 shares of unregistered common stock to Donohue as part of an internal tax restructuring contemplated by the Plans of Reorganization. The shares were issued to Donohue in exchange for all of the outstanding shares of common stock of two of Donohue’s wholly-owned subsidiaries, each of which also is an indirect wholly-owned subsidiary of ours. We accounted for these shares as treasury stock in our Consolidated Balance Sheets and since these shares were acquired by Donohue from AbitibiBowater Inc. through an intercompany transaction which was eliminated in our consolidated financial statements, there was no cost to the consolidated entity for such treasury stock. The issuance of the shares to Donohue was made without registration under the Securities Act in reliance on the exemption from registration provided under section 4(2) thereof.
Predecessor Company
Overview
As of the Emergence Date and pursuant to the Plans of Reorganization, each share of the Predecessor Company’s common stock and preferred stock and each exchangeable share, option, warrant, conversion privilege or other legal or contractual right to purchase shares of the Predecessor Company’s common stock, in each case to the extent outstanding immediately before the Emergence Date, was canceled and the holders thereof are not entitled to receive or retain any property on account thereof.
Preferred stock
The Predecessor Company was authorized to issue 10 million shares of serial preferred stock, $1 par value per share. As of December 31, 2009, no preferred shares were issued and outstanding.
Common stock
The Predecessor Company was authorized to issue 150 million shares of common stock, $1 par value per share. As of December 31, 2009, 3.0 million shares of common stock were reserved for issuance upon the exchange of ABCI exchangeable shares, 37.0 million shares of common stock were reserved for issuance upon the conversion of the Convertible Notes and 5.6 million shares of common stock were reserved for issuance upon the exercise from time to time of stock options and other share-based awards.
Exchangeable shares
ABCI had issued exchangeable shares of no par value (the “Exchangeable Shares”). The Exchangeable Shares were exchangeable at any time, at the option of the holder, on a one-for-one basis for shares of Predecessor Company common stock. As of December 31, 2009, there were 3.0 million Exchangeable Shares issued and outstanding. Holders of Exchangeable Shares had voting rights substantially equivalent to holders of our common stock and were entitled to receive dividends equivalent, on a per-share basis, to dividends paid by us on our common stock.
Dividends
We did not declare or pay any dividends on our common stock during the years ended December 31, 2010, 2009 and 2008.
Note 24. Timberland and Operating Leases and Purchase Obligations
We lease approximately 40,000 acres of timberlands under long-term leases for which aggregate lease payments were less than $1 million each year in 2010, 2009 and 2008. These lease costs are capitalized as part of timberlands included in fixed assets and are charged against income at the time the timber is harvested. In addition, we lease certain office premises, office equipment and transportation equipment under operating leases for which total expense was $17 million in 2010, $24 million in 2009 and $33 million in 2008. In the normal course of business, we have also entered into various supply agreements, guarantees, purchase commitments and cutting rights agreements (for land that we manage for which we make payments to various Canadian provinces based on the amount of timber harvested). Total expense for these agreements, guarantees and purchase commitments was $174 million in 2010, $174 million in 2009 and $362 million in 2008.
As of December 31, 2010, the future minimum rental payments under timberland and operating leases and commitments for purchase obligations were as follows:
                         
   
    Timberland   Purchase   Operating    
(In millions)   Leases   Obligations (1)   Leases, Net    
 
2011
  $     $ 20     $ 8  
2012
          19       5  
2013
          16       3  
2014
          13       2  
2015
          11       1  
Thereafter
    2       170       7  
 
 
  $ 2     $ 249       26  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
(1)   Purchase obligations include, among other things, a bridge and railroad contract for our Fort Frances, Ontario operations with commitments totaling $136 million through 2044.
Note 25. Alternative Fuel Mixture Tax Credits
During 2009, the Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, was refundable to the taxpayer. During the year ended December 31, 2009, we recorded $276 million of these credits, which were included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations. According to the Code, the tax credit expired at the end of 2009.
Note 26. Segment Information
We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments are newsprint, coated papers, specialty papers, market pulp and wood products.
None of the income or loss items following “Operating loss” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, impairment of goodwill, closure costs, impairment of assets other than goodwill and other related charges, employee termination costs, net gain on disposition of assets and other, costs associated with our unsuccessful refinancing efforts and other discretionary charges or credits are not allocated to our segments. Share-based compensation expense is, however, allocated to our segments. We also allocate depreciation expense to our segments, although the related fixed assets are not allocated to segment assets.
Only assets which are identifiable by segment and reviewed by our management are allocated to segment assets. Allocated assets include goodwill and finished goods inventory. All other assets are not identifiable by segment and are included in Corporate and Other.
Information about certain segment data as of and for the years ended December 31, 2010, 2009 and 2008 was as follows:
                                                         
 
            Coated   Specialty   Market   Wood   Corporate   Consolidated
(In millions)   Newsprint   Papers   Papers   Pulp (1)   Products   and Other   Total
 
 
                                                       
Sales
                                                       
2010 (Predecessor)
  $ 1,804     $ 482     $ 1,321     $ 715     $ 424     $     $ 4,746  
2009 (Predecessor)
    1,802       416       1,331       518       290       9       4,366  
2008 (Predecessor)
    3,238       659       1,829       626       418       1       6,771  
 
 
                                                       
Depreciation, amortization and cost of timber harvested                                            
2010 (Predecessor)
  $ 225     $ 30     $ 128     $ 49     $ 42     $ 19     $ 493  
2009 (Predecessor)
    291       28       151       52       49       31       602  
2008 (Predecessor)
    341       37       239       53       40       16       726  
 
 
                                                       
Operating (loss) income (2)
                                                       
2010 (Predecessor)
  $ (171 )   $ 31     $ (44 )   $ 137     $ 9     $ (122 )   $ (160 )
2009 (Predecessor) (3)
    (353 )     89       85       112       (56 )     (252 )     (375 )
2008 (Predecessor)
    30       126       (14 )     66       (69 )     (1,569 )     (1,430 )
 
 
                                                       
Capital expenditures
                                                       
2010 (Predecessor)
  $ 26     $ 4     $ 34     $ 7     $ 9     $ 1     $ 81  
2009 (Predecessor)
    36       3       43       9       9       1       101  
2008 (Predecessor)
    67       7       72       18       16       6       186  
 
 
                                                       
Assets (4)
                                                       
2010 (Successor)
  $ 43     $ 15     $ 52     $ 37     $ 37     $ 6,972     $ 7,156  
2009 (Predecessor)
    74       65       46       28       42       6,857       7,112  
2008 (Predecessor)
    78       76       76       51       49       7,742       8,072  
 
(1)   For the years ended December 31, 2010, 2009 and 2008, market pulp sales excluded inter-segment sales of $22 million, $17 million and $20 million, respectively.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
(2)   Corporate and Other operating loss for the years ended December 31, 2010, 2009 and 2008 included the following special items:
                         
   
    Predecessor
(In millions)   2010     2009     2008  
 
Net gain on disposition of assets and other
    $ 30       $ 91       $ 49  
Closure costs, impairment of assets other than goodwill and other related charges
    (11 )     (202 )     (481 )
Write-downs of inventory
          (17 )     (30 )
Employee termination costs
          (2 )     (43 )
Reversal of previously recorded Canadian capital tax liabilities due to new legislation
          16        
Fees for unsuccessful refinancing efforts
          (10 )      
Impairment of goodwill
                (810 )
 
 
    $ 19       $ (124 )     $ (1,315 )
 
(3)   For the year ended December 31, 2009, operating (loss) income for newsprint, coated papers, specialty papers and market pulp included $15 million, $62 million, $34 million and $165 million, respectively, for the alternative fuel mixture tax credits. Reference is made to Note 25, “Alternative Fuel Mixture Tax Credits,” for additional information.
 
(4)   The decrease in assets in 2010 compared to 2009 was primarily due to the revaluation of assets to fair value as a result of the application of fresh start accounting, the sale of assets and a decrease in cash and cash equivalents as of December 31, 2010. The decrease in assets in 2009 compared to 2008 relates primarily to planned reductions in inventory levels, the sale of assets and the impairments of long-lived assets and asset held for sale, partially offset by an increase in cash and cash equivalents.
We sell newsprint to various joint venture partners (partners with us in the ownership of certain mills we operate). Sales to our joint venture partners, which are transacted at arm’s length negotiated prices, were $294 million, $301 million and $506 million in 2010, 2009 and 2008, respectively. Amounts due from joint venture partners were $35 million and $33 million as of December 31, 2010 and 2009, respectively, and are included in “Accounts receivable, net” in our Consolidated Balance Sheets.
Sales are attributed to countries based on the location of the customer. No single customer, related or otherwise, accounted for 10% or more of our 2010, 2009 or 2008 consolidated sales. No country in the “Other countries” group in the table below exceeded 2% of consolidated sales. Sales by country for the years ended December 31, 2010, 2009 and 2008 were as follows:
                         
   
    Predecessor
(In millions)   2010     2009     2008  
 
United States
    $ 2,775       $ 2,852       $ 4,583  
 
Foreign countries:
                       
Canada
    703       508       559  
Mexico
    166       93       141  
Brazil
    156       118       202  
Italy
    128       83       92  
India
    96       34       133  
United Kingdom
    73       188       281  
Korea
    36       88       104  
Other countries
    613       402       676  
 
 
    1,971       1,514       2,188  
 
 
    $ 4,746       $ 4,366       $ 6,771  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Long-lived assets, which exclude goodwill, intangible assets, derivative financial instruments and deferred tax assets, by country, as of December 31, 2010, 2009 and 2008 were as follows:
                           
   
    Successor     Predecessor
(In millions)   2010       2009     2008  
       
United States
    $ 1,189         $ 1,449       $ 1,812  
       
Foreign countries:
                         
Canada
    1,736         2,785       2,968  
Korea
    32         102       112  
United Kingdom
            78       72  
       
 
    1,768         2,965       3,152  
       
 
    $ 2,957         $ 4,414       $ 4,964  
       
Note 27. Condensed Consolidating Financial Information
The following information is presented in accordance with Rule 3-10 of Regulation S-X and the public information requirements of Rule 144 promulgated pursuant to the Securities Act in connection with AbitibiBowater Inc.’s issuance of the 2018 Notes that are fully and unconditionally guaranteed, on a joint and several basis, by all of our 100% owned material U.S. subsidiaries (the “Guarantor Subsidiaries”). The 2018 Notes are not guaranteed by our foreign subsidiaries and our less than 100% owned U.S. subsidiaries (the “Non-guarantor Subsidiaries”).
The following condensed consolidating financial information sets forth the Balance Sheets as of December 31, 2010 and 2009 and the Statements of Operations and Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 for AbitibiBowater Inc. (the “Parent”), the Guarantor Subsidiaries on a combined basis and the Non-guarantor Subsidiaries on a combined basis. The condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries and Non-guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-guarantor Subsidiaries, using the equity method of accounting. The principal consolidating adjustments are elimination entries to eliminate the investments in subsidiaries and intercompany balances and transactions.
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Sales
  $     $ 2,761     $ 3,393     $ (1,408 )   $ 4,746  
Costs and expenses:
                                       
Cost of sales, excluding depreciation, amortization and cost of timber harvested
          2,389       2,743       (1,408 )     3,724  
Depreciation, amortization and cost of timber harvested
          133       360             493  
Distribution costs
          134       419             553  
Selling and administrative expenses
    34       36       85             155  
Reserve for receivables from subsidiaries
    (32 )                 32        
Closure costs, impairment of assets other than goodwill and other related charges
          2       9             11  
Net gain on disposition of assets and other
          (13 )     (17 )           (30 )
 
Operating (loss) income
    (2 )     80       (206 )     (32 )     (160 )
Interest expense
    (26 )     (96 )     (371 )     10       (483 )
Other (expense) income, net
    (1 )     66       29       (183 )     (89 )
Parent’s equity in income of subsidiaries
    1,652                   (1,652 )      
 
Income (loss) before reorganization items and income taxes
    1,623       50       (548 )     (1,857 )     (732 )
Reorganization items, net
    (185 )     1,274       4,848       (4,036 )     1,901  
 
Income (loss) before income taxes
    1,438       1,324       4,300       (5,893 )     1,169  
Income tax benefit (provision)
    8       461       1,145       (8 )     1,606  
 
Net income (loss) including noncontrolling interests
    1,446       1,785       5,445       (5,901 )     2,775  
Net income attributable to noncontrolling interests
                (161 )           (161 )
 
Net income (loss) attributable to AbitibiBowater Inc.
  $ 1,446     $ 1,785     $ 5,284     $ (5,901 )   $ 2,614  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Sales
  $     $ 2,519     $ 3,222     $ (1,375 )   $ 4,366  
Costs and expenses:
                                       
Cost of sales, excluding depreciation, amortization and cost of timber harvested
          2,052       2,666       (1,375 )     3,343  
Depreciation, amortization and cost of timber harvested
          147       455             602  
Distribution costs
          120       367             487  
Selling and administrative expenses
    29       74       95             198  
Reserve for receivables from subsidiaries
    410       299             (709 )      
Closure costs, impairment of assets other than goodwill and other related charges
          111       91             202  
Net gain on disposition of assets and other
          (13 )     (78 )           (91 )
 
Operating (loss) income
    (439 )     (271 )     (374 )     709       (375 )
Interest expense
    (40 )     (136 )     (464 )     43       (597 )
Other income (expense), net
    12       38       (78 )     (43 )     (71 )
Parent’s equity in loss of subsidiaries
                             
 
(Loss) income before reorganization items and income taxes
    (467 )     (369 )     (916 )     709       (1,043 )
Reorganization items, net
    (2 )     (193 )     (444 )           (639 )
 
(Loss) income before income taxes
    (469 )     (562 )     (1,360 )     709       (1,682 )
Income tax (provision) benefit
          (24 )     146             122  
 
Net (loss) income including noncontrolling interests
    (469 )     (586 )     (1,214 )     709       (1,560 )
Net loss attributable to noncontrolling interests
                7             7  
 
Net (loss) income attributable to AbitibiBowater Inc.
  $ (469 )   $ (586 )   $ (1,207 )   $ 709     $ (1,553 )
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2008 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Sales
  $     $ 4,127     $ 4,048     $ (1,404 )   $ 6,771  
Costs and expenses:
                                       
Cost of sales, excluding depreciation, amortization and cost of timber harvested
          3,483       3,065       (1,404 )     5,144  
Depreciation, amortization and cost of timber harvested
          194       532             726  
Distribution costs
          221       536             757  
Selling and administrative expenses
    36       135       161             332  
Impairment of goodwill
          235       575             810  
Closure costs, impairment of assets other than goodwill and other related charges
          28       453             481  
Net gain on disposition of assets and other
          (45 )     (4 )           (49 )
 
Operating loss
    (36 )     (124 )     (1,270 )           (1,430 )
Interest expense
    (88 )     (238 )     (495 )     115       (706 )
Other income (expense), net
    35       113       60       (115 )     93  
Parent’s equity in loss of subsidiaries
    (1,837 )                 1,837        
 
(Loss) income before income taxes and extraordinary item
    (1,926 )     (249 )     (1,705 )     1,837       (2,043 )
Income tax benefit (provision)
    32       (39 )     99             92  
 
(Loss) income before extraordinary item
    (1,894 )     (288 )     (1,606 )     1,837       (1,951 )
Extraordinary loss on expropriation of assets, net
of tax of $0
                (256 )           (256 )
Parent’s equity share of extraordinary loss recorded by a subsidiary on expropriation of assets, net of tax of $0
    (256 )                 256        
 
Net (loss) income including noncontrolling interests
    (2,150 )     (288 )     (1,862 )     2,093       (2,207 )
Net income attributable to noncontrolling interests
                (27 )           (27 )
 
Net (loss) income attributable to AbitibiBowater Inc.
  (2,150 )   $ (288 )   $ (1,889 )   $ 2,093     $ (2,234 )
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2010 (Successor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Assets
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 164     $ 155     $     $ 319  
Accounts receivable
          348       506             854  
Accounts receivable from affiliates
    40             287       (327 )      
Inventories
          158       280             438  
Assets held for sale
          15       683             698  
Deferred income tax assets
          31       16             47  
Note and interest receivable from parent
          864             (864 )      
Note receivable from affiliate
          10             (10 )      
Other current assets
          25       63             88  
 
Total current assets
    40       1,615       1,990       (1,201 )     2,444  
 
Fixed assets
          858       1,783             2,641  
Amortizable intangible assets
                19             19  
Deferred income tax assets
          439       1,297             1,736  
Note receivable from affiliate
          30             (30 )      
Investments in and advances to consolidated subsidiaries
    5,977     2,933         (8,910 )      
Other assets
          34       168       114       316  
 
Total assets
  $ 6,017     $ 5,909     $ 5,257     $ (10,027 )   $ 7,156  
 
 
                                       
Liabilities and equity
                                       
Current liabilities:
                                       
Accounts payable and accrued liabilities
  $ 26     $ 175     $ 367     $     $ 568  
Accounts payable to affiliates
    178       99             (277 )      
Note and interest payable to a subsidiary
    864                   (864 )      
Note payable to affiliate
                10       (10 )      
Liabilities associated with assets held for sale
                289             289  
 
Total current liabilities
    1,068       274       666       (1,151 )     857  
 
Long-term debt
    905                         905  
Long-term debt due to affiliates
                30       (30 )      
Pension and other postretirement projected benefit obligations
          362       910             1,272  
Deferred income tax liabilities
                72             72  
Other long-term liabilities
          32       31             63  
 
Total liabilities
    1,973       668       1,709       (1,181 )     3,169  
 
Total equity
    4,044     5,241     3,548     (8,846 )     3,987  
 
Total liabilities and equity
  $ 6,017     $ 5,909     $ 5,257     $ (10,027 )   $ 7,156  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2009 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Assets
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 418     $ 338     $     $ 756  
Accounts receivable, net
          334       310             644  
Accounts receivable from affiliates
          51       234       (285 )      
Inventories, net
          177       407       (3 )     581  
Assets held for sale
          50       2             52  
Deferred income tax assets
          20       6             26  
Note receivable from affiliate
          8             (8 )      
Other current assets
          67       46             113  
 
Total current assets
          1,125       1,343       (296 )     2,172  
 
Fixed assets, net
          1,218       2,679             3,897  
Amortizable intangible assets, net
                473             473  
Note receivable from affiliate
          30             (30 )      
Investments in consolidated subsidiaries
          3,105             (3,105 )      
Goodwill
          53                   53  
Other assets
    12       81       460       (36 )     517  
 
Total assets
  $ 12     $ 5,612     $ 4,955     $ (3,467 )   $ 7,112  
 
 
                                       
Liabilities and (deficit) equity
                                       
Liabilities not subject to compromise:
                                       
Current liabilities:
                                       
Accounts payable and accrued liabilities
  $ 6     $ 250     $ 239     $ (33 )   $ 462  
Accounts payable to affiliates
    77       209             (286 )      
Note payable to affiliate
                8       (8 )      
Debtor in possession financing
          164       42             206  
Short-term bank debt
          204       476             680  
Current portion of long-term debt
                305             305  
Liabilities associated with assets held for sale
          20       15             35  
 
Total current liabilities
    83       847       1,085       (327 )     1,688  
 
Long-term debt, net of current portion
          34       274             308  
Long-term debt due to affiliate
                30       (30 )      
Pension and other postretirement projected benefit obligations
          17       72             89  
Deferred income tax liabilities
          72       268       (233 )     107  
Other long-term liabilities
          37       134       (9 )     162  
 
Total liabilities not subject to compromise
    83       1,007       1,863       (599 )     2,354  
 
Liabilities subject to compromise
    1,025       2,962       4,141       (1,401 )     6,727  
 
Total liabilities
    1,108       3,969       6,004       (2,000 )     9,081  
 
Total (deficit) equity
    (1,096 )     1,643       (1,049 )     (1,467 )     (1,969 )
 
Total liabilities and (deficit) equity
  12     $ 5,612     $ 4,955     $ (3,467 )   $ 7,112  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2010 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Net cash provided by (used in) operating activities
  $       $ 168     $ (129 )   $     $ 39  
 
Cash flows from investing activities:
                                       
Cash invested in fixed assets
          (19 )     (62 )           (81 )
Disposition of assets
          43       53             96  
Decrease in restricted cash
          12       64             76  
Collections on note receivable from affiliate
          21             (21 )      
Increase in deposit requirements for letters of credit, net
                (3 )           (3 )
Release of pension trust assets
          8                   8  
Investment in and advances (to) from affiliates
    (850 )     100       750              
 
Net cash (used in) provided by investing activities
    (850 )     165       802       (21 )     96  
 
Cash flows from financing activities:
                                       
Decrease in secured borrowings, net
          (141 )                 (141 )
Debtor in possession financing costs
          (9 )     (1 )           (10 )
Payments of debtor in possession financing
          (166 )     (40 )           (206 )
Term loan repayments
                (347 )           (347 )
Short-term financing, net
          (204 )     (134 )           (338 )
Payments of note payable to affiliate
                (21 )     21        
Issuance of long-term debt
    850                         850  
Payments of long-term debt
          (34 )     (300 )           (334 )
Payments of financing and credit facility fees
          (33 )     (13 )           (46 )
 
Net cash provided by (used in) financing activities
    850       (587 )     (856 )     21       (572 )
 
Net decrease in cash and cash equivalents
          (254 )     (183 )           (437 )
Cash and cash equivalents:
                                       
Beginning of year
          418       338             756  
 
End of year (Successor)
  $       $ 164     $ 155     $     $ 319  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2009 (Predecessor)
                                         
   
            Guarantor     Non-guarantor     Consolidating        
(In millions)   Parent     Subsidiaries     Subsidiaries     Adjustments     Consolidated  
 
Net cash provided by (used in) operating activities
  $     $ 323     $ (277 )   $     $ 46  
 
Cash flows from investing activities:
                                       
Cash invested in fixed assets
          (28 )     (73 )           (101 )
Disposition of investment in Manicouagan Power Company
                554             554  
Disposition of other assets
          16       103             119  
Increase in restricted cash
          (12 )     (130 )           (142 )
Collections on note receivable from affiliate
          15             (15 )      
Decrease in deposit requirements for letters of credit, net
                49             49  
Cash received in monetization of derivative financial instruments
                5             5  
 
Net cash (used in) provided by investing activities
          (9 )     508       (15 )     484  
 
Cash flows from financing activities:
                                       
Cash dividends to noncontrolling interests
                (7 )           (7 )
Debtor in possession financing
          166       95             261  
Debtor in possession financing costs
          (23 )     (8 )           (31 )
Payment of debtor in possession financing
                (55 )           (55 )
Short-term financing, net
          (74 )     67             (7 )
Payments of note payable to affiliate
                (15 )     15        
Payments of long-term debt
          (1 )     (117 )           (118 )
Payments of financing and credit facility fees
          (8 )     (1 )           (9 )
 
Net cash provided by (used in) financing activities
          60       (41 )     15       34  
 
Net increase in cash and cash equivalents
          374       190             564  
Cash and cash equivalents:
                                       
Beginning of year
          44       148             192  
 
End of year
  $     $ 418     $ 338     $     $ 756  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
 
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2008 (Predecessor)
                                         
 
            Guarantor   Non-guarantor   Consolidating    
(In millions)   Parent   Subsidiaries   Subsidiaries   Adjustments   Consolidated  
 
Net cash used in operating activities
  $     $ (29 )   $ (391 )   $     $ (420 )
 
Cash flows from investing activities:
                                       
Cash invested in fixed assets
          (54 )     (132 )           (186 )
Disposition of Donohue
                350       (350 )      
Disposition of other assets
          210       10             220  
Acquisition of Donohue
          (350 )           350        
Issuance of note receivable from affiliate
    (350 )                 350        
Collection on note receivable from affiliate
                130       (130 )      
Advances (to) from affiliate
          (48 )     48              
Increase in deposit requirements for letters of credit, net
                (69 )           (69 )
Cash received in monetization of derivative financial instruments
                5             5  
Other investing activities, net
                3             3  
 
Net cash (used in) provided by investing activities
    (350 )     (242 )     345       220       (27 )
 
Cash flows from financing activities:
                                       
Cash dividends to noncontrolling interests
                (25 )           (25 )
Term loan financing
                400             400  
Term loan repayments
                (53 )           (53 )
Short-term financing, net
          75       (323 )           (248 )
Issuance of long-term debt
    350             413             763  
Issuance of note payable to affiliate
          350             (350 )      
Payment of note payable to affiliate
          (130 )           130        
Payments of long-term debt
          (1 )     (297 )           (298 )
Payments of financing and credit facility fees
          (30 )     (59 )           (89 )
Payments of equity issuance fees on Convertible Notes
          (6 )                 (6 )
 
Net cash provided by (used in) financing activities
    350       258       56       (220 )     444  
 
Net (decrease) increase in cash and cash equivalents
          (13 )     10             (3 )
Cash and cash equivalents:
                                       
Beginning of year
          57       138             195  
 
End of year
  $     $ 44     $ 148     $     $ 192  
 

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 28. Quarterly Information (Unaudited)
                                         
 
Year ended December 31, 2010 (Predecessor)   First   Second   Third   Fourth    
(In millions, except per share amounts)   Quarter   Quarter   Quarter   Quarter   Year
 
Sales
  $ 1,100     $ 1,182     $ 1,192     $ 1,272     $ 4,746  
Operating (loss) income (1)
    (110 )     (73 )     12       11       (160 )
Net (loss) income attributable to AbitibiBowater Inc.
    (500 )     (297 )     (829 )     4,240       2,614  
Basic net (loss) income per share attributable to AbitibiBowater Inc. common shareholders
    (8.68 )     (5.15 )     (14.35 )     73.48       45.30  
Diluted net (loss) income per share attributable to AbitibiBowater Inc. common shareholders
    (8.68 )     (5.15 )     (14.35 )     44.82       27.63  
 
 
 
Year ended December 31, 2009 (Predecessor)   First   Second   Third   Fourth    
(In millions, except per share amounts)   Quarter   Quarter   Quarter   Quarter   Year
 
Sales
  $ 1,113     $ 1,036     $ 1,091     $ 1,126     $ 4,366  
Operating loss (2) (3)
    (24 )     (285 )     (33 )     (43 )     (375 )
Net loss attributable to AbitibiBowater Inc.
    (218 )     (510 )     (511 )     (314 )     (1,553 )
Basic and diluted net loss per share attributable to AbitibiBowater Inc. common shareholders
    (3.78 )     (8.84 )     (8.85 )     (5.43 )     (26.91 )
 
(1)   Operating (loss) income for the year ended December 31, 2010 included the following special items:
                                         
 
    Predecessor
    First   Second   Third   Fourth    
(In millions)   Quarter   Quarter   Quarter   Quarter   Year
 
Net gain on disposition of assets and other
  $ 9     $ 4     $ 1     $ 16     $ 30  
Closure costs, impairment of assets other than goodwill and other related charges
    (5 )     (3 )     3       (6 )     (11 )
 
 
  $ 4     $ 1     $ 4     $ 10     $ 19  
 
(2)   Operating loss for the year ended December 31, 2009 included the following special items:
                                         
 
    Predecessor
    First   Second   Third   Fourth    
(In millions)   Quarter   Quarter   Quarter   Quarter   Year
 
Net gain on disposition of assets and other
  $ 52     $ 1     $ 38     $     $ 91  
Alternative fuel mixture tax credits
    33       85       83       75       276  
Closure costs, impairment of assets other than goodwill and other related charges
    (30 )     (240 )     44       24       (202 )
Write-downs of inventory
          (12 )     (5 )           (17 )
Employee termination costs
                (2 )           (2 )
Reversal of previously recorded Canadian capital tax liabilities due to new legislation
          16                   16  
Fees for unsuccessful refinancing efforts
    (6 )     (4 )                 (10 )
 
 
  $ 49     $ (154 )   $ 158     $ 99     $ 152  
 
(3)   In our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 11, 2009, in the six month period ended June 30, 2009, we classified $10 million of costs incurred in the first quarter of 2009 related to our Creditor Protection Proceedings in “Reorganization items, net,” which prior to the application of FASB ASC 852, were classified within “Selling and administrative expenses” in our Consolidated Statements of Operations in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 15, 2009.

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ABITIBIBOWATER INC.
Notes to Consolidated Financial Statements
Note 29. Subsequent Events
The following significant events occurred subsequent to December 31, 2010:
    As discussed in Note 22, “Commitments and Contingencies – Legal items,” on January 14, 2011, ANC distributed the ANI securities to ACSC, and ANI thus became a wholly-owned subsidiary of ACSC and a wholly-owned subsidiary of ours. The consideration paid by ANC consisted of: (i) a cash payment of $15 million; (ii) a secured promissory note in the principal amount of $90 million and (iii) an assignment of ANI’s pro rata portion of certain claims held by ANC.
 
    On February 11, 2011, AbiBow Canada entered into an agreement to sell its 75% equity interest in ACH to a consortium formed by a major Canadian institutional investor and a private Canadian renewable energy company. Cash proceeds for our interest will be approximately Cdn$293 million ($296 million, based on the exchange rate in effect on February 11, 2011) plus certain adjustments based on ACH’s working capital and cash available at closing, which is currently anticipated to occur in the second quarter of 2011. The closing of the transaction is subject to a number of conditions, including the receipt of applicable regulatory approvals and other third party consents, the execution of certain ancillary definitive agreements, other customary closing conditions and addressing pending or threatened litigation. The purchaser will acquire ACH with its current outstanding debt.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of AbitibiBowater Inc.
In our opinion, the accompanying consolidated balance sheet presents fairly, in all material respects, the financial position of AbitibiBowater Inc. and its subsidiaries (Successor Company) as of December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statement schedule listed in the index appearing under Item 15(a)(2) which includes the Successor Company’s parent company only condensed balance sheet as at December 31, 2010 (Financial Statement Schedule) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Successor Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Successor Company’s management is responsible for this financial statement and Financial Statement Schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Financial Statements and Assessment of Internal Control over Financial Reporting. Our responsibility is to express opinions on this financial statement, the Financial Statement Schedule and on the Successor Company’s internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
As more fully described in Notes 1, 3 and 4 to the consolidated financial statements, on September 23, 2010, the Superior Court of Canada, province of Quebec for the district of Montreal sanctioned the Successor Company’s plan of reorganization under the Companies’ Creditors Arrangement Act (CCAA Reorganization Plan) and on November 23, 2010, the United States Bankruptcy Court for the district of Delaware confirmed the Successor Company’s plan of reorganization under Chapter 11 of the Bankruptcy Code (Chapter 11 Reorganization Plan). Confirmation of the CCAA Reorganization Plan and the Chapter 11 Reorganization Plan resulted in the discharge of all claims against the predecessor company that arose before April 17, 2009 and April 16, 2009 respectively and terminates all rights and interests of equity security holders as provided for in the plans of reorganization. These plans of reorganization were substantially consummated on December 9, 2010 and the Successor Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Successor Company adopted fresh start accounting on December 31, 2010.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP (1)
Montreal, Canada
April 5, 2011
(1)   Chartered accountant auditor permit No. R24549

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of AbitibiBowater Inc.
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, changes in equity (deficit), comprehensive income (loss) and cash flows present fairly, in all material respects, the financial position of AbitibiBowater Inc. and its subsidiaries (Predecessor Company) as of December 31, 2009 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statement schedule listed in the index appearing under Item 15(a)(2) which includes the Predecessor Company’s parent company only condensed balance sheet as at December 31, 2009 and the condensed statements of operations and deficit and cash flows for each of the years in the three-year period ended December 31, 2010 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Predecessor Company’s management; our responsibility is to express an opinion on these financial statements and on the financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Notes 1, 3 and 4 to the consolidated financial statements, in 2009, the Predecessor Company and certain of its U.S. and Canadian subsidiaries filed voluntary petitions for reorganization under Chapters 11 and 15 of the United States Bankruptcy Code and Companies’ Creditors Arrangement Act in Canada. The Predecessor Company’s plans of reorganizations under Chapters 11 and 15 and the Companies’ Creditors Arrangement Act in Canada were substantially consummated on December 9, 2010 and the Predecessor Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the successor company adopted fresh start accounting.
/s/ PricewaterhouseCoopers LLP (1)
Montreal, Canada
April 5, 2011
(1)   Chartered accountant auditor permit No. R24549

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MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS AND ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Financial Statements
Management of AbitibiBowater Inc. is responsible for the preparation of the financial information included in this Annual Report on Form 10-K (“Form 10-K”). The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include amounts that are based on the best estimates and judgments of management.
Assessment of Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. AbitibiBowater Inc.’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of AbitibiBowater Inc.;
 
    provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles;
 
    provide reasonable assurance that receipts and expenditures of AbitibiBowater Inc. are being made only in accordance with the authorizations of management and directors of AbitibiBowater Inc.; and
 
    provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of AbitibiBowater Inc.’s internal control over financial reporting as of December 31, 2010. Management based this assessment on the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of AbitibiBowater Inc.’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.
Based on this assessment, management determined that, as of December 31, 2010, AbitibiBowater Inc.’s internal control over financial reporting was effective.
The effectiveness of AbitibiBowater Inc.’s internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independently registered public accounting firm, as stated in their report above.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2010. Based on that evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date in recording, processing, summarizing and timely reporting information required to be disclosed in our reports to the Securities and Exchange Commission.
Management’s Report on Internal Control over Financial Reporting
Management has issued its report on internal control over financial reporting, which included management’s assessment that the Company’s internal control over financial reporting was effective as of December 31, 2010. Management’s report on internal control over financial reporting can be found on page 140 of this Form 10-K. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2010. This report can be found on page 138 of this Form 10-K.
Changes in Internal Control over Financial Reporting
In connection with the evaluation of internal control over financial reporting, there were no changes during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On the Emergence Date, we entered into indemnification agreements with each of our directors and executive officers, including the named executive officers. The agreements provide the recipients with contractual indemnification rights consistent with our certificate of incorporation and by-laws. A form of indemnification agreement is filed as exhibit 10.31 and is incorporated herein by reference. This summary of the indemnification agreements is not complete and is qualified in its entirety by reference thereto.

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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to our definitive proxy statement for our 2011 annual meeting of stockholders to be held on June 9, 2011 (the “2011 proxy statement”), which will be filed within 120 days of the end of our fiscal year ended December 31, 2010.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our 2011 proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item that is not included below under “Equity Compensation Plan Information” is incorporated by reference to our 2011 proxy statement.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010 regarding securities to be issued on exercise of outstanding stock options or pursuant to outstanding restricted stock units and performance-based awards, and securities remaining available for issuance under our equity compensation plan. The 2010 AbitibiBowater Inc. Equity Incentive Plan is the only compensation plan with shares authorized.
                         
 
                    (c)
                    Number of securities
    (a)           remaining available for
    Number of securities   (b)   future issuance under
    to be issued upon   Weighted-average   equity compensation
    exercise of   exercise price of   plans (excluding
    outstanding options,   outstanding options,   securities reflected in
Plan category (1)
 
warrants and rights
 
warrants and rights
 
column (a))
 
Equity compensation plans approved by security holders
        $        
Equity compensation plans not approved by security holders (2)
                9,020,960  
 
Total
        $       9,020,960  
 
 
(1)   In connection with the implementation of the Plans of Reorganization, each share of the Predecessor Company’s common stock and each option, warrant, conversion privilege or other legal or contractual right to purchase shares of the Predecessor Company’s common stock, in each case to the extent outstanding immediately before the Emergence Date, was canceled and the holders thereof are not entitled to receive or retain any property on account thereof.
 
(2)   The 2010 AbitibiBowater Inc. Equity Incentive Plan was approved by the Courts pursuant to the Plans of Reorganization.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to our 2011 proxy statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to our 2011 proxy statement.

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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as a part of this Form 10-K:
      (1)  The following are included at the indicated page of this Form 10-K:
         
   
Page
 
    62  
    63  
    64  
    65  
    66  
    67  
    138  
    140  
 
       
(2) The following financial statement schedule for the years ended December 31, 2010, 2009 and 2008 is submitted:
       
 
       
Schedule I – AbitibiBowater Inc. Condensed Financial Statements and Notes
    F-1  
All other financial statement schedules are omitted because they are not applicable, not material or because the required information is included in the financial statements or notes.
       (3)  Exhibits (numbered in accordance with Item 601 of Regulation S-K):
     
Exhibit No.  
Description
2.1*
  Sanction Order, dated September 23, 2010 (incorporated by reference from Exhibit 10.1 of AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
2.2*
  Confirmation Order, dated November 23, 2010, which includes the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code , dated November 16, 2010 (as amended) (incorporated by reference from Exhibit 10.2 of AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
2.3*
  CCAA Plan of Reorganization and Compromise, dated August 2, 2010 (incorporated by reference from Exhibit 99.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed August 5, 2010, SEC File No. 001-33776).
 
   
3.1*
  Third Amended and Restated Certificate of Incorporation of AbitibiBowater Inc. (incorporated by reference from Exhibit 3(i) to AbitibiBowater Inc.’s Form 8-A filed on December 9, 2010).
 
   
3.2*
  Third Amended and Restated By-laws of AbitibiBowater Inc. (incorporated by reference from Exhibit 3(ii) to AbitibiBowater Inc.’s Form 8-A filed on December 9, 2010).
 
   
4.1*
  Indenture, dated as of October 4, 2010, between ABI Escrow Corporation and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed October 8, 2010, SEC File No. 001-33776).
 
   
4.2*
  Form of 10.25% Senior Note due 2018 (included in Exhibit 4.1).
 
   
4.3*
  Supplemental Indenture, dated as of December 9, 2010, between AbitibiBowater Inc. and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
   
4.4**
  Secured Promissory Note, dated January 14, 2011, made by Augusta Newsprint Company LLC in favor of Woodbridge International Holdings Limited.

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Exhibit No.  
Description
10.1*
  ABL Credit Agreement, dated as of December 9, 2010, among AbitibiBowater Inc., Bowater Incorporated, Abitibi-Consolidated Corp., Abitibi-Consolidated Inc., Barclays Bank PLC, JPMorgan Chase Bank, N.A., and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
10.2**
  Stock Purchase Agreement, dated as of December 23, 2010, among Woodbridge International Holdings Limited, The Woodbridge Company Limited, Abitibi Consolidated Sales Corporation, AbitibiBowater Inc., Augusta Newsprint Company and Augusta Newsprint Inc.
 
10.3*
  Securities Purchase Agreement, dated February 11, 2011, among AbiBow Canada Inc., Caisse de depot et placement du Quebec and CDP Investissements Inc., as vendors, and Infra H2O GP Partners Inc., Infra H2O LP Partners Inc. and BluEarth Renewables Inc., as the purchaser (incorporated by reference from Exhibit 2.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 17, 2011, SEC File No. 001-33776).
 
†10.4**
  AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan, effective as of December 9, 2010.
 
†10.5**
  AbitibiBowater 2010 DC Supplemental Executive Retirement Plan, effective as of December 9, 2010.
 
†10.6**
  AbitibiBowater Outside Director Deferred Compensation Plan, effective as of April 1, 2011.
 
†10.7*
  AbitibiBowater Inc. 2010 Equity Incentive Plan, effective as of December 9, 2010 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
†10.8*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Restricted Stock Unit Agreement (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).
 
†10.9*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Nonqualified Stock Option Agreement (incorporated by reference from Exhibit 10.3 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).
 
†10.10*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Employee Nonqualified Stock Option Agreement (incorporated by reference from Exhibit 10.4 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).
 
†10.11**
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Deferred Stock Unit Agreement.
 
†10.12**
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Restricted Stock Unit Agreement.
 
†10.13**
  AbitibiBowater Executive Restricted Stock Unit Plan, effective as of April 1, 2011.
 
†10.14*
  2010 AbitibiBowater Inc. Short-Term Incentive Plan (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
†10.15*
  AbitibiBowater Inc. Severance Policy - Chief Executive Officer and Direct Reports (incorporated by reference from Exhibit 10.3 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
†10.16**
  Summary of 2011 AbitibiBowater Inc. Short-Term Incentive Plan.
 
†10.17**
  Offer Letter between David J. Paterson and AbitibiBowater Inc., dated October 26, 2010.
 
†10.18**
  Separation Agreement between David J. Paterson and AbitibiBowater Inc., dated December 9, 2010.
 
†10.19**
  Offer Letter between Pierre Rougeau and AbitibiBowater Inc., dated October 26, 2010.
 
†10.20**
  Pierre Rougeau Severance Terms and Waiver and Release Agreement, dated March 25, 2011.
 
†10.21**
  Offer Letter between Alain Grandmont and AbitibiBowater Inc., dated October 26, 2010.
 
†10.22*
  Employment Agreement between Alain Grandmont and AbitibiBowater Inc., dated February 14, 2011 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 18, 2011, SEC File No. 001-33776).

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Exhibit No.  
Description
 
   
†10.23**
  Offer Letter between Yves Laflamme and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.24*
  Employment Agreement between Yves Laflamme and AbitibiBowater Inc., dated February 14, 2011 (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 18, 2011, SEC File No. 001-33776).
 
   
†10.25**
  Offer Letter between Jacques Vachon and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.26**
  Executive Employment Agreement between AbitibiBowater Inc. and Richard Garneau, dated January 1, 2011.
 
   
†10.27**
  Change in Control Agreement between AbitibiBowater Inc. and Richard Garneau, dated January 1, 2011.
 
   
†10.28**
  Employment Agreement between Alain Boivin and AbitibiBowater Inc., dated February 22, 2011.
 
   
†10.29**
  Employment Agreement between John Lafave and AbitibiBowater Inc., dated February 14, 2011.
 
   
†10.30*
  Director compensation program chart (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
   
†10.31**
  Form of Indemnification Agreement for Executive Officers and Directors.
 
   
†10.32**
  Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Ontario, dated November 10, 2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and The Province of Ontario.
 
   
†10.33**
  Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Quebec, dated September 13, 2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and The Government of Quebec.
 
   
10.34*
  Backstop Commitment Agreement, dated May 24, 2010, between AbitibiBowater Inc. and Fairfax Financial Holdings Limited, Avenue Capital Management II, L.P., Paulson Credit Opportunities Master Ltd., Barclays Bank plc, Steelhead Navigator Master, L.P., J.P. Morgan Securities Inc. and Whitebox Advisors, LLC (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed May 28, 2010, SEC File No. 001-33776).
 
   
10.35*
  First Amendment, dated July 20, 2010, to the Backstop Commitment Agreement dated May 24, 2010 between AbitibiBowater Inc. and Fairfax Financial Holdings Limited, Avenue Capital Management II, L.P., Paulson Credit Opportunities Master Ltd., Barclays Bank plc, Steelhead Navigator Master, L.P., J.P. Morgan Securities Inc. and Whitebox Advisors, LLC (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed August 5, 2010, SEC File No. 001-33776).
 
   
10.36*
  Amendment No. 6, dated as of April 12, 2010, to the Senior Secured Superpriority Debtor in Possession Credit Agreement, dated as of April 21, 2009, by and among AbitibiBowater Inc., Bowater Incorporated, Bowater Canadian Forest Products Inc., as debtors, debtors in possession and borrowers and Law Debenture Trust Company of New York, as administrative agent and collateral agent, and the lenders (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed April 16, 2010, SEC File No. 001-33776).
 
   
10.37*
  Amendment No. 1 to Second Amended and Restated Receivables Purchase Agreement, Amendment No. 1 to the Second Amended and Restated Purchase and Contribution Agreement and Amendment No. 3 to Guaranty and Undertaking Agreement, among Abitibi-Consolidated U.S. Funding Corp., Abitibi- Consolidated Inc., Abitibi Consolidated Sales Corporation and certain other subsidiaries of the Company and Citibank, N.A., as agent for the banks party thereto, dated as of June 11, 2010 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed June 17, 2010, SEC File No. 001-33776).

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Exhibit No.  
Description
 
   
10.38*
  Amendment No. 10, dated as of July 15, 2010, to the Senior Secured Superpriority Debtor in Possession Credit Agreement, dated as of April 21, 2009, by and among AbitibiBowater Inc., Bowater Incorporated, Bowater Canadian Forest Products Inc., as debtors, debtors in possession and borrowers and Law Debenture Trust Company of New York, as administrative agent and collateral agent, and the lenders (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed July 26, 2010, SEC File No. 001-33776).
 
   
10.39*
  Settlement Agreement, dated as of August 24, 2010, between AbitibiBowater Inc., Abitibi-Consolidated Company of Canada, Abitibi-Consolidated Inc. and AbitibiBowater Canada Inc. and The Government of Canada (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2010, SEC File No. 001-33776).
 
   
12.1**
  Computation of Ratio of Earnings to Fixed Charges.
 
   
21.1**
  Subsidiaries of the registrant.
 
   
23.1**
  Consent of PricewaterhouseCoopers LLP.
 
   
24.1**
  Powers of attorney for certain Directors of the registrant.
 
   
31.1**
  Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2**
  Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1**
  Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2**
  Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*   Previously filed and incorporated herein by reference.
 
**   Filed with this Form 10-K.
 
  This is a management contract or compensatory plan or arrangement.
 
(b)   The above-referenced exhibits are being filed with this Form 10-K.
 
(c)   None.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  ABITIBIBOWATER INC.

 
 
Date: April 5, 2011  By:     /s/ Richard Garneau    
      Richard Garneau   
      President and Chief Executive Officer   
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
         
Signature
 
Title
 
Date
 
       
/s/ Richard Garneau
 
Richard Garneau
  President and Chief Executive Officer
(Principal Executive Officer)
  April 5, 2011
 
       
/s/ Richard B. Evans*
 
Richard B. Evans
  Chairman, Director    April 5, 2011
 
       
/s/ William G. Harvey
 
William G. Harvey
  Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
  April 5, 2011
 
       
/s/ Joseph B. Johnson
 
Joseph B. Johnson
  Senior Vice President, Finance
and Chief Accounting Officer
(Principal Accounting Officer)
  April 5, 2011
 
       
/s/ Pierre Dupuis*
 
Pierre Dupuis
  Director    April 5, 2011
 
       
/s/ Richard D. Falconer*
 
Richard D. Falconer
  Director    April 5, 2011
 
       
/s/ Jeffrey A. Hearn*
 
Jeffrey A. Hearn
  Director    April 5, 2011
 
       
/s/ Sarah E. Nash*
 
Sarah E. Nash
  Director    April 5, 2011
 
       
/s/ Alain Rheaume*
 
Alain Rheaume
  Director    April 5, 2011
 
       
/s/ Paul C. Rivett*
 
Paul C. Rivett
  Director    April 5, 2011
 
       
/s/ Michael S. Rousseau*
 
Michael S. Rousseau
  Director    April 5, 2011
 
       
/s/ David H. Wilkins*
 
David H. Wilkins
  Director    April 5, 2011
 
*   William G. Harvey, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons that are filed herewith as Exhibit 24.
         
     
  By:     /s/ William G. Harvey   
      William G. Harvey, Attorney-in-Fact   
       
 

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Schedule I – ABITIBIBOWATER INC. CONDENSED FINANCIAL STATEMENTS AND NOTES
AbitibiBowater Inc.
(Parent Company Only)
Condensed Statements of Operations and Deficit
(In millions)
                         
 
  Predecessor
  Years Ended December 31,
    2010   2009   2008
 
Expenses:
                       
Selling and administrative expenses
  $ 34     $ 29     $ 36  
Reserve for receivables from subsidiaries (Note E)
    (32 )     410        
 
Operating loss
    (2 )     (439 )     (36 )
Interest expense (Notes B and D)
    (26 )     (40 )     (88 )
Other (expense) income, net
    (1 )     12       35  
Equity in income (loss) of subsidiaries before extraordinary item
    1,652             (1,837 )
 
Income (loss) before reorganization items, income taxes and extraordinary item
  1,623       (467 )     (1,926 )
Reorganization items, net (Note B)
  (185 )     (2 )      
 
Income (loss) before income taxes and extraordinary item
  1,438       (469 )     (1,926 )
Income tax benefit
    8             32  
 
Income (loss) before extraordinary item
  1,446       (469 )     (1,894 )
Equity share of extraordinary loss recorded by a subsidiary on expropriation of assets, net of tax of $0 (Note C)
                (256 )
 
Net income (loss)
  1,446       (469 )     (2,150 )
Deficit as of beginning of year
    (3,223 )     (2,754 )     (598 )
Elimination of Predecessor Company deficit as a result of the application of fresh start accounting
    1,777              
Cumulative adjustment to deficit for the adoption of new accounting guidance related to pension and other postretirement benefit plans, net of tax
                (6 )
 
Deficit as of end of year (2010: Successor; 2009 and 2008: Predecessor)
  $     $ (3,223 )   $ (2,754 )
 
See accompanying notes to condensed financial statements.

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Schedule I – ABITIBIBOWATER INC. CONDENSED FINANCIAL STATEMENTS AND NOTES
AbitibiBowater Inc.
(Parent Company Only)
Condensed Balance Sheets
(In millions)
                   
 
  Successor     Predecessor
    As of December 31,     As of December 31,
    2010     2009
       
Assets
                 
Accounts receivable from subsidiaries, net of an allowance of $32 as of December 31, 2009 (Note E)
  $ 40       $  
Note and interest receivable from a subsidiary, net of an allowance of $378 as of December 31, 2009 (Note E)
             
Investment in and advances to subsidiaries (Note C)
    5,977          
Deferred financing fees
            12  
       
Total assets
  $ 6,017       $ 12  
       
 
                 
Liabilities and equity (deficit)
                 
Liabilities not subject to compromise:
                 
Current liabilities:
                 
Accounts payable and accrued liabilities
  $ 26       $ 6  
Accounts payable to subsidiaries
    178         77  
Note and interest payable to a subsidiary (Note E)
    864          
       
Total current liabilities
    1,068         83  
       
Long-term debt
    905          
Long-term debt due to an affiliate (Note D)
             
       
Total liabilities not subject to compromise
    1,973         83  
       
Liabilities subject to compromise (Note B)
            1,025  
       
Total liabilities
    1,973         1,108  
       
Equity (deficit):
                 
Predecessor common stock
            55  
Successor common stock
             
Additional paid-in capital
    4,044         2,522  
Deficit
            (3,223 )
Accumulated other comprehensive loss
            (450 )
       
Total AbitibiBowater Inc. equity (deficit)
    4,044         (1,096 )
       
Total liabilities and equity (deficit)
  $ 6,017       $ 12  
       
See accompanying notes to condensed financial statements.

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Schedule I – ABITIBIBOWATER INC. CONDENSED FINANCIAL STATEMENTS AND NOTES
AbitibiBowater Inc.
(Parent Company Only)
Condensed Statements of Cash Flows
(In millions)
                         
 
  Predecessor
  Years Ended December 31,
    2010   2009   2008
 
Net cash provided by operating activities
  $     $     $  
 
Cash flows from investing activities:
                       
Investment in and advances to affiliates
    (850 )            
Issuance of note receivable to subsidiary
                (350 )
 
Net cash used in investing activities
    (850 )           (350 )
 
Cash flows from financing activities:
                       
Issuance of long-term debt
    850             350  
 
Net cash provided by financing activities
    850             350  
 
Net increase in cash and cash equivalents
                 
Cash and cash equivalents:
                       
Beginning of year
                 
 
End of year (2010: Successor; 2009 and 2008: Predecessor)
  $     $     $  
 
See accompanying notes to condensed financial statements.

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Schedule I – ABITIBIBOWATER INC. CONDENSED FINANCIAL STATEMENTS AND NOTES
AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
Note A. Organization and Basis of Presentation
The accompanying condensed financial statements, including the notes thereto, should be read in conjunction with the consolidated financial statements of AbitibiBowater Inc. included in Item 8 of this Form 10-K (“Consolidated Financial Statements”). When the term “AbitibiBowater Inc.” (also referred to as “AbitibiBowater,” “we,” “us” or “our”) is used, we mean AbitibiBowater Inc., the parent company only. All amounts are expressed in U.S. dollars, unless otherwise indicated. Defined terms in this Schedule I have the meanings ascribed to them in the Consolidated Financial Statements.
AbitibiBowater Inc. is a Delaware corporation incorporated on January 25, 2007. On October 29, 2007, Abitibi and Bowater combined in a merger of equals (the “Combination”) with each becoming a subsidiary of AbitibiBowater. The Combination resulted in AbitibiBowater becoming a holding company whose only significant asset was an investment in the common stock of Abitibi and Bowater.
For a discussion of our involvement in the Creditor Protection Proceedings, as well as our emergence from the Creditor Protection Proceedings, see Note 3, “Creditor Protection Proceedings,” to the Consolidated Financial Statements.
We applied the guidance in FASB ASC 852 in preparing our condensed financial statements, which is the same basis of presentation used in the preparation of the Consolidated Financial Statements, as discussed in Note 1, “Organization and Basis of Presentation,” and Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to the Consolidated Financial Statements. Certain prior year amounts in our condensed financial statements have been reclassified to conform to the 2010 presentation. The reclassifications had no effect on total assets, total liabilities or net income.
We elected to apply fresh start accounting effective December 31, 2010, which is the same basis of presentation used in the preparation of the Consolidated Financial Statements. The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our condensed financial statements and resulted in us becoming a new entity for financial reporting purposes. Accordingly, our condensed financial statements for periods prior to December 31, 2010 will not be comparable to our condensed financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. References to “Successor” or “Successor Company” refer to AbitibiBowater on or after December 31, 2010, after giving effect to the implementation of the Plans of Reorganization and the application of fresh start accounting. References to “Predecessor” or “Predecessor Company” refer to AbitibiBowater prior to December 31, 2010. Additionally, references to periods on or after December 31, 2010 refer to the Successor and references to periods prior to December 31, 2010 refer to the Predecessor.
Our condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty involved in the Creditor Protection Proceedings raised substantial doubt about AbitibiBowater’s ability to continue as a going concern (see Note 1, “Organization and Basis of Presentation – Basis of presentation,” to the Consolidated Financial Statements). Management believes that the implementation of the Plans of Reorganization and our emergence from the Creditor Protection Proceedings on the Emergence Date have resolved the substantial doubt and the related uncertainty about our application of the going concern basis of accounting.
Note B. Creditor Protection Proceedings Related Disclosures
Reorganization items, net
FASB ASC 852 requires separate disclosure of reorganization items such as certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred during the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting, as further detailed in Note 4, “Creditor Protection Proceedings Related Disclosures,” to the Consolidated Financial Statements. The recognition of Reorganization items, net, unless specifically prescribed otherwise by FASB ASC 852, is in accordance with U.S. GAAP.

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AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
Reorganization items, net for the years ended December 31, 2010 and 2009 were comprised of the following:
                 
 
    Predecessor
(In millions)   2010   2009
 
Professional fees (1)
  $ 18     $  
Gain due to Plans of Reorganization adjustments (2)
    (160 )      
Loss due to fresh start accounting adjustments (3)
    82        
Provision for repudiated or rejected executory contracts
    5       2  
Write-off of debt discounts and issuance costs (4)
    103        
Post-petition interest on note payable to a subsidiary (Note E)
    134        
Other
    3        
 
 
  $ 185     $ 2  
 
 
(1)   Professional fees directly related to the Creditor Protection Proceedings. Additionally, pursuant to the Plans of Reorganization, as part of our exit financing, we had initially planned to conduct a rights offering for the issuance of convertible senior subordinated notes to holders of eligible unsecured claims. With the approval of the Courts, we entered into a backstop commitment agreement that provided for the purchase by certain investors of the convertible notes to the extent that the rights offering would have been under-subscribed. On September 21, 2010, we announced that we had elected not to pursue the rights offering. In 2010, we recorded the backstop commitment agreement termination fee of $15 million, which was paid by Bowater on our behalf on the Emergence Date (see Note E, “Transactions with Related Parties”).
 
(2)   Represents the gain on extinguishment of liabilities subject to compromise of $174 million (see “Liabilities subject to compromise” below), net of $14 million of professional fees that were contractually due to certain professionals as “success” fees upon our emergence from the Creditor Protection Proceedings and were recorded as part of the effects of implementing the Plans of Reorganization.
 
(3)   Reflects the adjustments required to state assets and liabilities at fair value: (i) the write-off of deferred financing costs associated with the 2018 Notes of $27 million and (ii) the premium of $55 million recorded on the 2018 Notes (see Note D, “Financing Arrangements”).
 
(4)   FASB ASC 852 requires that debt discounts and premiums, as well as debt issuance costs, be viewed as part of the valuation of the related pre-petition debt in arriving at the net carrying amount of the debt. When the debt becomes an allowed claim and the allowed claim differs from the net carrying amount of the debt, the recorded debt obligations should be adjusted to the amount of the allowed claim. In 2010, pursuant to the U.S. Court’s approval of the Chapter 11 Reorganization Plan (which included the approval of allowed debt claims), we adjusted the net carrying amount of the Convertible Notes to the allowed amount of the claim, which resulted in a write-off of the unamortized balance of the debt discounts and issuance costs.
In the years ended December 31, 2010 and 2009, we paid no amounts relating to reorganization items (see Note E, “Transactions with Related Parties,” for additional information).
Liabilities subject to compromise
Liabilities subject to compromise primarily represented our unsecured pre-petition obligations that we expected to be subject to impairment as part of the Creditor Protection Proceedings process and as a result, were subject to settlement at lesser amounts. Generally, actions to enforce or otherwise effect payment of such liabilities were stayed by the U.S. Court. Such liabilities were classified separately from other liabilities in our Condensed Balance Sheets as “Liabilities subject to compromise” and were accounted for in accordance with our normal accounting policies except that: (i) other than our debt obligations, these liabilities were recorded at the amounts allowed or expected to be allowed as claims by the U.S. Court, whether known or potential claims, under a plan of reorganization, even if the distributions to the claimants may have been for lesser amounts and (ii) debt obligations, until they became allowed claims approved by the U.S. Court, were recorded net of unamortized debt discounts, which we ceased amortizing as a result of the Creditor Protection Proceedings. Debt discounts were viewed as valuations of the related debt until the debt obligations became allowed claims by the U.S. Court, at which time the recorded debt obligations were adjusted to the amounts of the allowed claims.
We repudiated or rejected certain pre-petition executory contracts with respect to our operations with the approval of the U.S. Court. Damages that resulted from repudiations or rejections of executory contracts were typically treated as general unsecured claims and were also classified as liabilities subject to compromise.

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AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
Liabilities subject to compromise as of December 31, 2009 were comprised of the following:
         
 
    Predecessor
(In millions)   2009  
 
Unsecured pre-petition debt (Notes D and E)
  $ 927  
Accrued interest on unsecured pre-petition debt
    94  
Accounts payable and accrued liabilities, excluding accrued interest on unsecured pre-petition debt
    2  
Repudiated or rejected executory contracts
    2  
 
 
  $ 1,025  
 
Liabilities subject to compromise did not include: (i) liabilities incurred after the commencement of the Creditor Protection Proceedings and (ii) pre-petition liabilities that we expected to be required to pay in full by applicable law, even though certain of these amounts were not paid until the Plans of Reorganization were implemented.
The disposition of the Predecessor Company’s liabilities subject to compromise is summarized as follows:
         
 
(In millions)        
 
Unsecured pre-petition debt
  $ 1,019  
Accrued interest on unsecured pre-petition debt
    232  
Accounts payable and accrued liabilities, excluding accrued interest on unsecured pre-petition debt
    5  
Repudiated or rejected executory contracts
    7  
 
Total liabilities subject to compromise of the Predecessor Company
    1,263  
Portion of Successor Company common stock issued in satisfaction of our claims (1)
    (225 )
Reinstatement of note and interest payable to a subsidiary (Note E)
    (864 )
 
Gain on extinguishment of liabilities subject to compromise
  $ 174  
 
 
(1)   As discussed in Note 3, “Creditor Protection Proceedings,” to the Consolidated Financial Statements, the majority of holders of allowed unsecured claims received their pro rata share of Successor Company common stock on account of their claims, whereas the majority of holders of disputed unsecured claims will receive their pro rata share of common stock from the shares we have reserved for their benefit as and if their claims are allowed or accepted.
Interest expense
During the Creditor Protection Proceedings, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured or unsecured claim. Since neither of these conditions applied to our pre-petition debt obligations, we ceased accruing interest on our pre-petition debt obligations. For the year ended December 31, 2010, interest expense recorded in our Condensed Statements of Operations and Deficit and contractual interest expense totaled $26 million (which included interest accrued on the 2018 Notes in the fourth quarter of 2010, as well as catch up interest expense on a note payable to a subsidiary of $5 million, as further discussed in Note E, “Transactions with Related Parties”) and $142 million, respectively. For the year ended December 31, 2009, interest expense recorded in our Condensed Statements of Operations and Deficit and contractual interest expense totaled $40 million and $142 million, respectively.

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AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
Note C. Equity Method Investments
For a discussion of the expropriation by the province of Newfoundland and Labrador of certain assets and rights at Abitibi’s Grand Falls, Newfoundland and Labrador newsprint mill under Bill 75 in 2008, as well as the settlement reached with the government of Canada in 2010, see Note 22, “Commitments and Contingencies – Extraordinary loss on expropriation of assets,” to the Consolidated Financial Statements. As a result of the expropriation, in the fourth quarter of 2008, Abitibi recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.
Our financial results for the year ended December 31, 2008 included $256 million representing our equity share of extraordinary loss recorded by Abitibi on expropriation of assets and $1,837 million, representing our share of the equity in loss of operations of subsidiaries before extraordinary item. Recognition of these losses resulted in a reported investment in our subsidiaries of zero as of December 31, 2008. Since we have no obligation to fund additional losses of our subsidiaries, we cannot report a negative investment in our subsidiaries under the equity method. Accordingly, in 2008, we did not record the full amount of our share of our subsidiaries’ losses and, in 2009, we did not record any of our share of our subsidiaries’ losses. In 2010, we recorded our share of income of our subsidiaries net of the cumulative losses that would otherwise have resulted in the reporting of a negative investment by us in prior years.
Note D. Financing Arrangements
Exit financing
10.25% senior secured notes due 2018
On December 9, 2010, we and each of our material, wholly-owned U.S. subsidiaries entered into a supplemental indenture with Wells Fargo Bank, National Association, as trustee and collateral agent, pursuant to which we assumed the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of the 2018 Notes, originally issued on October 4, 2010 pursuant to an indenture as of that date. ABI Escrow Corporation was a wholly-owned subsidiary of ours created solely for the purpose of issuing the 2018 Notes. For a discussion of the 2018 Notes, see Note 17, “Liquidity and Debt – Debt – Exit financing – 10.25% senior secured notes due 2018,” to the Consolidated Financial Statements.
As a result of our application of fresh start accounting, the 2018 Notes were recorded at their fair value of $905 million, which resulted in a premium of $55 million, which is being amortized to interest expense over the term of the 2018 Notes.
In connection with the issuance of the notes, during 2010, we incurred fees of approximately $27 million, which were written off to “Reorganization items, net” in our Condensed Statements of Operations and Deficit as a result of the application of fresh start accounting. These fees were paid by Bowater on our behalf (see Note E, “Transactions with Related Parties”).
Financial covenants
The 2018 Notes and the ABL Credit Facility impose restrictions on the ability of certain subsidiaries to transfer funds or other assets to AbitibiBowater in the form of dividends or advances. These restrictions could affect AbitibiBowater’s operations or its ability to pay dividends in the future.
Financing prior to Creditor Protection Proceedings
On April 1, 2008, AbitibiBowater consummated a private sale of $350 million of 8% convertible notes due April 15, 2013 (“Convertible Notes”) to Fairfax and certain of its designated subsidiaries. The Convertible Notes bore interest at a rate of 8% per annum (10% per annum if we elected to pay interest through the issuance of additional convertible notes with the same terms as “pay in kind”). The Convertible Notes were convertible into shares of AbitibiBowater common stock at a conversion price of $10.00 per share. On October 15, 2008, we elected to make the interest payment due on that date through the issuance of additional convertible notes. As a result, the balance as of December 31, 2009 of the Convertible Notes outstanding was $369 million.
The commencement of the Creditor Protection Proceedings constituted an event of default under the Convertible Notes, and this debt obligation became automatically and immediately due and payable by its terms, although any action to enforce such payment obligation was stayed as a result of the commencement of the Creditor Protection Proceedings. As a result, the Convertible Notes of $277 million, which was net of the unamortized discount, were included in “Liabilities subject to compromise” in our Condensed Balance Sheets as of December 31, 2009. As of the Emergence Date and pursuant to the Plans

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AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
of Reorganization, amounts outstanding under the Convertible Notes were compromised and settled in shares of the Successor Company’s common stock, all of our obligations thereunder were discharged and the agreements governing the obligations, including all other related agreements, supplements, amendments and arrangements, were canceled and terminated.
Note E. Transactions with Related Parties
On May 12, 2008, we contributed to Bowater, as additional paid-in capital, a 12.5% promissory note in the amount of $650 million due June 30, 2013, executed by us in favor of Bowater. On May 15, 2008, Bowater transferred the ownership interest it held in Bowater Newsprint South LLC to us. Interest on the note was due semi-annually. The commencement of the Creditor Protection Proceedings constituted an event of default under the note, and such note became automatically and immediately due and payable by its terms, although any action to enforce such payment obligation was stayed as a result of the Creditor Protection Proceedings. On October 15, 2008, we elected to make the interest payment due on that date through the issuance of an additional note with similar terms. For the years ended December 31, 2009 and 2008, pre-petition interest on the note was $24 million and $51 million, respectively, and was included in “Interest expense” in our Condensed Statements of Operations and Deficit. Subsequent to the commencement of the Creditor Protection Proceedings, we ceased accruing interest on the note. As of December 31, 2009, the outstanding balance of the note and accrued interest on the note totaled $725 million and was included in “Liabilities subject to compromise” in our Condensed Balance Sheets. Upon emergence from the Creditor Protection Proceedings, these liabilities were retained by us and were reclassified to “Note and interest payable to a subsidiary” in our Condensed Balance Sheets as of December 31, 2010. Additionally, it is management’s intention that Bowater will dividend this note to us in 2011. As permitted under the Plans of Reorganization, we intend to allow Bowater’s claim including all accrued interest and, therefore, the amount of this dividend will include post-petition accrued interest on the note. In 2010, we recorded catch-up interest on the note of $139 million, of which $134 million (through the Emergence Date) and $5 million (subsequent to the Emergence Date and through December 31, 2010) is included in “Reorganization items, net” and “Interest expense,” respectively, in our Condensed Statements of Operations and Deficit. As of December 31, 2010, the outstanding balance of the note and accrued interest on the note totaled $864 million and approximated fair value.
On April 1, 2008, ACCC transferred all of the outstanding common and preferred stock of Donohue to AbitibiBowater US Holding LLC (“Holding”), a direct subsidiary of ours, for a combination of notes issued or assumed by Holding. As part of this transaction, we loaned Holding $350 million, which was the amount of the proceeds from our issuance of the Convertible Notes, as discussed in Note D, “Financing Arrangements.” This note receivable was due on March 31, 2013 and bore interest at 13.75% per annum, payable semi-annually. In 2008, Holding repaid $18 million of the note, which reduced the outstanding balance to $332 million. During the years ended December 31, 2009 and 2008, pre-petition interest on the note was $13 million and $33 million, respectively, and was included in “Interest income” in our Condensed Statements of Operations and Deficit. As of December 31, 2009, the outstanding balance of the note and accrued interest was $332 million and $46 million, respectively. However, Holding was also a debtor in the Creditor Protection Proceedings and since the note and accrued interest were subject to compromise by Holding, for the year ended December 31, 2009, we recorded a reserve for the entire outstanding balance of the note and accrued interest, which was included in “Reserve for receivables from subsidiaries” in our Condensed Statements of Operations and Deficit. Upon emergence from the Creditor Protection Proceedings, the entire amount outstanding was compromised and Holding’s obligations were discharged. Accordingly, we are not entitled to any recovery.
Abitibi and Bowater provide certain corporate administrative services on our behalf and certain of our subsidiaries, including legal, finance, tax, risk management, IT, executive management, payroll and employee benefits. As such, Abitibi and Bowater have charged us a portion of their general and administrative expenses, based on specific identification or on an appropriate allocation key (e.g., sales, purchases, headcount, etc.) determined by the type of expense or department. During the years ended December 31, 2010, 2009 and 2008, Abitibi and Bowater charged us approximately $27 million, $23 million and $25 million, respectively, for certain corporate administrative expenses, which was recorded in “Selling and administrative expenses” in our Condensed Statements of Operations and Deficit.

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Table of Contents

AbitibiBowater Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
In 2010, Bowater paid on our behalf $45 million relating to reorganization items, which were comprised of: (i) the backstop commitment agreement termination fee of $15 million discussed above, (ii) the exit financing costs of $27 million discussed above and (iii) other professional fees of $3 million.
For the year ended December 31, 2008, AbitibiBowater recorded a tax benefit of $32 million, which was used to offset the current income tax liability of its U.S. subsidiaries with which it filed a consolidated U.S. income tax return. AbitibiBowater recorded an intercompany receivable for this amount, which was due from subsidiaries that were also debtors in the Creditor Protection Proceedings. Since this intercompany receivable was subject to compromise by our subsidiaries, for the year ended December 31, 2009, we recorded a reserve for the entire balance of this intercompany receivable, which was included in “Reserve for receivables from subsidiaries” in our Condensed Statements of Operations and Deficit. Upon emergence from the Creditor Protection Proceedings, our debtor subsidiaries retained these liabilities. Accordingly, in 2010, we reversed the “Reserve for receivables from subsidiaries” in our Condensed Statements of Operations and Deficit and reinstated this receivable to “Accounts receivable from subsidiaries” in our Condensed Balance Sheets as of December 31, 2010. Additionally, for the year ended December 31, 2010, AbitibiBowater recorded a tax benefit of $8 million, which will be used to offset the current income tax liability of its U.S. subsidiaries with which it files a consolidated U.S. income tax return; accordingly, we have recorded an intercompany receivable for this amount.
On December 31, 2010, AbitibiBowater issued 17,010,728 shares of unregistered common stock to Donohue as part of an internal tax restructuring contemplated by the Plans of Reorganization. The shares were issued to Donohue in exchange for all of the outstanding shares of common stock of two of Donohue’s wholly-owned subsidiaries (each of which also is an indirect wholly-owned subsidiary of ours), which have a fair value of $335 million. We recorded the issuance of these shares in additional paid-in capital in our Condensed Balance Sheets. The issuance of the shares to Donohue was made without registration under the Securities Act in reliance on the exemption from registration provided under section 4(2) thereof.
As part of the agreements that AbiBow Canada reached with the provinces of Quebec and Ontario for special funding parameters in respect of our material Canadian registered pension plans, AbiBow Canada agreed to a number of undertakings, one of which is a restriction on the payment of dividends to us. For additional information, see Note 20, “Pension and Other Postretirement Benefit Plans – Resolution of Canadian pension situation,” to the Consolidated Financial Statements.
Note F. Subsequent Events
For a discussion of significant events that occurred subsequent to December 31, 2010, see Note 29, “Subsequent Events,” to the Consolidated Financial Statements for additional information.

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EXHIBIT INDEX
     
Exhibit No.  
Description
2.1*
  Sanction Order, dated September 23, 2010 (incorporated by reference from Exhibit 10.1 of AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
2.2*
  Confirmation Order, dated November 23, 2010, which includes the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code , dated November 16, 2010 (as amended) (incorporated by reference from Exhibit 10.2 of AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
2.3*
  CCAA Plan of Reorganization and Compromise, dated August 2, 2010 (incorporated by reference from Exhibit 99.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed August 5, 2010, SEC File No. 001-33776).
 
   
3.1*
  Third Amended and Restated Certificate of Incorporation of AbitibiBowater Inc. (incorporated by reference from Exhibit 3(i) to AbitibiBowater Inc.’s Form 8-A filed on December 9, 2010).
 
   
3.2*
  Third Amended and Restated By-laws of AbitibiBowater Inc. (incorporated by reference from Exhibit 3(ii) to AbitibiBowater Inc.’s Form 8-A filed on December 9, 2010).
 
   
4.1*
  Indenture, dated as of October 4, 2010, between ABI Escrow Corporation and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed October 8, 2010, SEC File 001-33776).
 
   
4.2*
  Form of 10.25% Senior Note due 2018 (included in Exhibit 4.1).
 
   
4.3*
  Supplemental Indenture, dated as of December 9, 2010, between AbitibiBowater Inc. and Wells Fargo Bank, National Association (incorporated by reference from Exhibit 4.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
   
4.4**
  Secured Promissory Note, dated January 14, 2011, made by Augusta Newsprint Company LLC in favor of Woodbridge International Holdings Limited.
 
   
10.1*
  ABL Credit Agreement, dated as of December 9, 2010, among AbitibiBowater Inc., Bowater Incorporated, Abitibi-Consolidated Corp., Abitibi-Consolidated Inc., Barclays Bank PLC, JPMorgan Chase Bank, N.A., and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
   
10.2**
  Stock Purchase Agreement, dated as of December 23, 2010, among Woodbridge International Holdings Limited, The Woodbridge Company Limited, Abitibi Consolidated Sales Corporation, AbitibiBowater Inc., Augusta Newsprint Company and Augusta Newsprint Inc.
 
   
10.3*
  Securities Purchase Agreement, dated February 11, 2011, among AbiBow Canada Inc., Caisse de depot et placement du Quebec and CDP Investissements Inc., as vendors, and Infra H2O GP Partners Inc., Infra H2O LP Partners Inc. and BluEarth Renewables Inc., as the purchaser (incorporated by reference from Exhibit 2.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 17, 2011, SEC File No. 001-33776).
 
   
†10.4**
  AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan, effective as of December 9, 2010.
 
   
†10.5**
  AbitibiBowater 2010 DC Supplemental Executive Retirement Plan, effective as of December 9, 2010.
 
   
†10.6**
  AbitibiBowater Outside Director Deferred Compensation Plan, effective as of April 1, 2011.
 
   
†10.7*
  AbitibiBowater Inc. 2010 Equity Incentive Plan, effective as of December 9, 2010 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
†10.8*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Restricted Stock Unit Agreement (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).
 
   
†10.9*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Nonqualified Stock Option Agreement (incorporated by reference from Exhibit 10.3 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).

 


Table of Contents

     
Exhibit No.  
Description
†10.10*
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Employee Nonqualified Stock Option Agreement (incorporated by reference from Exhibit 10.4 to AbitibiBowater Inc.’s Registration Statement on Form S-8 filed January 7, 2011, SEC Registration No. 333-171602).
 
   
†10.11**
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Deferred Stock Unit Agreement.
 
   
†10.12**
  AbitibiBowater Inc. 2010 Equity Incentive Plan Form of Director Restricted Stock Unit Agreement.
 
   
†10.13**
  AbitibiBowater Executive Restricted Stock Unit Plan, effective as of April 1, 2011.
 
   
†10.14*
  2010 AbitibiBowater Inc. Short-Term Incentive Plan (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
†10.15*
  AbitibiBowater Inc. Severance Policy - Chief Executive Officer and Direct Reports (incorporated by reference from Exhibit 10.3 to AbitibiBowater Inc.’s Current Report on Form 8-K filed November 30, 2010, SEC File No. 001-33776).
 
   
†10.16**
  Summary of 2011 AbitibiBowater Inc. Short-Term Incentive Plan.
 
   
†10.17**
  Offer Letter between David J. Paterson and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.18**
  Separation Agreement between David J. Paterson and AbitibiBowater Inc., dated December 9, 2010.
 
   
†10.19**
  Offer Letter between Pierre Rougeau and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.20**
  Pierre Rougeau Severance Terms and Waiver and Release Agreement, dated March 25, 2011.
 
   
†10.21**
  Offer Letter between Alain Grandmont and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.22*
  Employment Agreement between Alain Grandmont and AbitibiBowater Inc., dated February 14, 2011 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 18, 2011, SEC File No. 001-33776).
 
   
†10.23**
  Offer Letter between Yves Laflamme and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.24*
  Employment Agreement between Yves Laflamme and AbitibiBowater Inc., dated February 14, 2011 (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed February 18, 2011, SEC File No. 001-33776).
 
   
†10.25**
  Offer Letter between Jacques Vachon and AbitibiBowater Inc., dated October 26, 2010.
 
   
†10.26**
  Executive Employment Agreement between AbitibiBowater Inc. and Richard Garneau, dated January 1, 2011.
 
   
†10.27**
  Change in Control Agreement between AbitibiBowater Inc. and Richard Garneau, dated January 1, 2011.
 
   
†10.28**
  Employment Agreement between Alain Boivin and AbitibiBowater Inc., dated February 22, 2011.
 
   
†10.29**
  Employment Agreement between John Lafave and AbitibiBowater Inc., dated February 14, 2011.
 
   
†10.30*
  Director compensation program chart (incorporated by reference from Exhibit 10.2 to AbitibiBowater Inc.’s Current Report on Form 8-K filed December 15, 2010, SEC File No. 001-33776).
 
   
†10.31**
  Form of Indemnification Agreement for Executive Officers and Directors.
 
   
†10.32**
  Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Ontario, dated November 10, 2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and The Province of Ontario.
 
   
†10.33**
  Agreement Concerning the Pulp and Paper Operations of AbiBow Canada in Quebec, dated September 13, 2010, between Bowater Canadian Forest Products Inc. and Abitibi-Consolidated Company of Canada and The Government of Quebec.

 


Table of Contents

     
Exhibit No.  
Description
10.34*
  Backstop Commitment Agreement, dated May 24, 2010, between AbitibiBowater Inc. and Fairfax Financial Holdings Limited, Avenue Capital Management II, L.P., Paulson Credit Opportunities Master Ltd., Barclays Bank plc, Steelhead Navigator Master, L.P., J.P. Morgan Securities Inc. and Whitebox Advisors, LLC (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed May 28, 2010, SEC File No. 001-33776).
 
   
10.35*
  First Amendment, dated July 20, 2010, to the Backstop Commitment Agreement dated May 24, 2010 between AbitibiBowater Inc. and Fairfax Financial Holdings Limited, Avenue Capital Management II, L.P., Paulson Credit Opportunities Master Ltd., Barclays Bank plc, Steelhead Navigator Master, L.P., J.P. Morgan Securities Inc. and Whitebox Advisors, LLC (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed August 5, 2010, SEC File No. 001-33776).
 
   
10.36*
  Amendment No. 6, dated as of April 12, 2010, to the Senior Secured Superpriority Debtor in Possession Credit Agreement, dated as of April 21, 2009, by and among AbitibiBowater Inc., Bowater Incorporated, Bowater Canadian Forest Products Inc., as debtors, debtors in possession and borrowers and Law Debenture Trust Company of New York, as administrative agent and collateral agent, and the lenders (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed April 16, 2010, SEC File No. 001-33776).
 
   
10.37*
  Amendment No. 1 to Second Amended and Restated Receivables Purchase Agreement, Amendment No. 1 to the Second Amended and Restated Purchase and Contribution Agreement and Amendment No. 3 to Guaranty and Undertaking Agreement, among Abitibi-Consolidated U.S. Funding Corp., Abitibi- Consolidated Inc., Abitibi Consolidated Sales Corporation and certain other subsidiaries of the Company and Citibank, N.A., as agent for the banks party thereto, dated as of June 11, 2010 (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed June 17, 2010, SEC File No. 001-33776).
 
   
10.38*
  Amendment No. 10, dated as of July 15, 2010, to the Senior Secured Superpriority Debtor in Possession Credit Agreement, dated as of April 21, 2009, by and among AbitibiBowater Inc., Bowater Incorporated, Bowater Canadian Forest Products Inc., as debtors, debtors in possession and borrowers and Law Debenture Trust Company of New York, as administrative agent and collateral agent, and the lenders (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Current Report on Form 8-K filed July 26, 2010, SEC File No. 001-33776).
 
   
10.39*
  Settlement Agreement, dated as of August 24, 2010, between AbitibiBowater Inc., Abitibi-Consolidated Company of Canada, Abitibi-Consolidated Inc. and AbitibiBowater Canada Inc. and The Government of Canada (incorporated by reference from Exhibit 10.1 to AbitibiBowater Inc.’s Quarterly Report on Form 10-Q filed for the quarter ended September 30, 2010, SEC File No. 001-33776).
 
   
12.1**
  Computation of Ratio of Earnings to Fixed Charges.
 
   
21.1**
  Subsidiaries of the registrant.
 
   
23.1**
  Consent of PricewaterhouseCoopers LLP.
 
   
24.1**
  Powers of attorney for certain Directors of the registrant.
 
   
31.1**
  Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2**
  Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1**
  Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2**
  Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
*   Previously filed and incorporated herein by reference.
 
**   Filed with this Form 10-K.
 
  This is a management contract or compensatory plan or arrangement.

 

EXHIBIT 4.4
SECURED PROMISSORY NOTE
     
$90,000,000   January 14, 2011
      SECURED PROMISSORY NOTE (this “ Note ”), made as of January 14, 2011 (the “ Effective Date ”), is made by AUGUSTA NEWSPRINT COMPANY LLC , a Delaware limited liability company (the “ Payor ”), in favor of WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED, an Ontario corporation (the “ Noteholder ”).
     WHEREAS, the Payor and the Noteholder, inter alios, entered into a Stock Purchase Agreement, made as of December 23, 2010 (as amended from time to time, the “ Stock Purchase Agreement ”), pursuant to which Noteholder agreed to sell, and Payor agreed to purchase, 100% of the common stock and preferred stock (the “ ANI Stock ”) of Augusta Newsprint Inc., a Delaware corporation (“ ANI ”), which is a member of and owns a 47.5% membership interest in the Payor, and this Note constitutes a portion of the purchase price therefor; and
     WHEREAS, in order to induce the Noteholder to enter into the Stock Purchase Agreement and this Note, (i) Abitibi Consolidated Sales LLC, a Delaware limited liability company (“ ACSC ”), has agreed to grant a continuing Lien on its membership interest in the Payor and all rights to payment arising therefrom, including but not limited to, distributions and profits, (ii) ANI has agreed to grant a continuing Lien on its membership interest in the Payor and all rights to payment arising therefrom, including but not limited to, distributions and profits, and (iii) the Payor has agreed to grant a continuing Lien on all of its personal and real property, whether now owned or hereafter acquired;
     NOW, THEREFORE, FOR VALUE RECEIVED, the Payor hereby promises to pay to the Noteholder the principal sum of NINETY MILLION DOLLARS ($90,000,000) (such amount, as may be reduced by repayments of principal hereunder from time to time, the “ Principal Amount ”), plus interest thereon pursuant to the terms of this Note. The parties hereto hereby agree as follows:
Article 1
Definitions
     1.1 Definitions . Capitalized terms used in this Note are used as defined in this Article 1 or elsewhere in this Note.
          “ AbiBowater ” shall mean AbitibiBowater Inc. or its reorganized successor arising out of the Proceedings.
          “ AbiBowater Mills ” shall mean, at any time, all mills, located in Canada or the United States, devoted entirely or almost entirely to the production of newsprint for which AbiBowater has absolute control, either directly or indirectly, over the operating rate and “ AbiBowater Mill ” means any of such mills.

 


 

          “ ACSC ” shall have the meaning ascribed thereto in the recitals to this Note, and references to ACSC shall include any successor by operation of law to Abitibi Consolidated Sales LLC.
          “ ACSC Collateral ” shall have the meaning ascribed thereto in Section 8.1.1 of this Note.
          “ ACSC Pledged Interests ” shall have the meaning ascribed thereto in Section 8.1.1 of this Note.
          “ ANI ” shall have the meaning ascribed thereto in the recitals to this Note, and references to ANI shall include any successor by operation of law to Augusta Newsprint Inc.
          “ ANI Collateral ” shall have the meaning ascribed thereto in Section 8.1.2 of this Note.
          “ ANI Pledged Interests ” shall have the meaning ascribed thereto in Section 8.1.2 of this Note.
          “ ANI Stock ” shall have the meaning ascribed thereto in the recitals to this Note.
          “ Affiliate ” shall mean, as to any Person, any Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and in the case of Noteholder, includes any member of the Woodbridge Group.
          “ Bankruptcy Code ” means title 11 of the United States Code, as amended from time to time.
          “ Bankruptcy Court ” means the United States Bankruptcy Court for the District of Delaware.
          “ Bankruptcy Proceedings ” means the cases filed in the Bankruptcy Court under chapter 11 of the Bankruptcy Code by AbiBowater and its affiliated debtors and debtors-in-possession, jointly administered as Case No. 09-11296.
          “ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, New York (New York), Toronto (Ontario) or Montreal (Quebec).
          “ Call Agreement ” means the Amended and Restated Call Agreement, dated as of July 1, 2004, as amended, restated, modified or supplemented from time to time, among The Woodbridge Company Limited, the Noteholder, Woodbridge International Holdings SA, ACSC and Abitibi-Consolidated Inc.
          “ Canadian Court ” means the Superior Court, Commercial Division, for the Judicial District of Montreal, Canada.

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          “ Canadian Debtors ” means, collectively, AbiBowater and those of its subsidiaries and affiliates who applied for protection from creditors in the CCAA Proceedings.
          “ CCAA ” means Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended from time to time.
          “ CCAA Proceedings ” means the proceedings for provisional relief in support of the Bankruptcy Proceedings commenced in the Canadian Court under section 18.6 of the CCAA by AbiBowater and certain of its subsidiaries.
          “ Capital Lease Obligations ” of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP.
          “ CERCLA ” shall have the meaning ascribed thereto in Section 3.7(a) of this Note.
          “ Change of Control ” shall mean (a) the occurrence of any event (whether in one or more transactions) which results in AbiBowater ceasing to own, directly or indirectly, 100% of the outstanding Equity Interests in the Payor or (b) the sale of all or substantially all of the property and assets of the Payor to any Person (excluding a merger transaction permitted pursuant to Section 5.5(a)). For the sake of greater clarity, “Change of Control” shall not apply to AbiBowater.
          “ Collateral ” shall have the meaning ascribed thereto in Section 8.1.2 of this Note.
          “ Commercial Arbitration Rules ” shall have the meaning ascribed thereto in Section 9.6 of this Note.
          “ Debtors ” means, collectively, AbiBowater and its affiliated debtors and debtors-in-possession in the Bankruptcy Proceedings.
          “ Default ” means an Event of Default or any condition or event which, with notice or lapse of time or both, would constitute an Event of Default.
          “ Default Rate ” shall mean the rate equal to 2.0% per annum in excess of the otherwise applicable rate.
          “ Distributable Cash ” shall mean, with respect to any Fiscal Year, cash flow from operating activities of the Payor calculated in accordance with GAAP, less capital expenditures in an amount not to exceed $6 million in any Fiscal Year, less interest paid under this Note; provided that, in the case of the Fiscal Year ending December 31, 2011, such Fiscal Year shall be deemed to be the period from the date of this Note to and including December 31, 2011.
          “ Distribution ” shall have the meaning ascribed thereto in Section 5.9 of this Note.
          “ Effective Date ” shall have the meaning ascribed thereto in the recitals to this Note.

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          “ Environmental Laws ” shall have the meaning ascribed thereto in Section 3.7(a) of this Note.
          “ EPA ” shall have the meaning ascribed thereto in Section 3.7(b) of this Note.
          “ Equity Interests ” means, with respect to any Person, all of the shares of capital stock of any class of, or other ownership or profit interests in, such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
          “ ERISA ” means the Employee Retirement Income Security Act of 1974.
          “ Event of Default ” shall mean the occurrence of any of the following:
          (a) the Payor’s failure to pay all amounts of principal when due and owing pursuant to the terms of Article 2 hereof;
          (b) the Payor’s failure to pay all amounts of interest within five (5) Business Days of having become due and owing pursuant to the terms of Article 2 hereof;
          (c) ACSC’s failure to pay any amounts when due and payable pursuant to the terms of the Sales Agreement and such failure shall continue for a period of ten (10) Business Days (notwithstanding any cure period with respect thereto under the Sales Agreement), provided that ordinary course adjustments to payment amounts that are made pursuant to the terms of the Sales Agreement will not give rise to an Event of Default under this clause (c) unless such adjustment amounts, to the extent in favor of the Payor, are not paid within ten (10) Business Days after such adjustments are determined;
          (d) except as set forth in clauses (a), (b) or (c) above, any Note Obligor’s failure to comply in any material respect with any of its covenants contained in any of the Settlement Documents which is continuing for fifteen (15) days or more after the earlier of (x) notice thereof is given by Noteholder to the applicable Note Obligor or (y) the date on which a Responsible Officer of the applicable Note Obligor has actual knowledge of such failure;
          (e) any representation or warranty of any Note Obligor in any of the Settlement Documents shall prove to have been false in any material respect on the date when made;
          (f) a Change of Control;
          (g) any Note Obligor shall (A) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of

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itself or of all or a substantial part of its property, (B) make a general assignment for the benefit of creditors, (C) commence a voluntary case under any state, provincial or federal bankruptcy laws (as now or hereafter in effect), (D) be adjudicated a bankrupt or insolvent, (E) file a petition seeking to take advantage of any other law providing for the relief of debtors or (F) fail to have dismissed, within sixty (60) days, any petition filed against it in any involuntary case under such bankruptcy laws;
          (h) the Payor shall fail to pay at maturity or within any applicable period of grace any Indebtedness for borrowed money in an aggregate amount in excess of $2,000,000, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound evidencing or securing Indebtedness for borrowed money in an aggregate amount in excess of $2,000,000, if the effect of any such failure is to cause such Indebtedness to become due prior to its stated maturity;
          (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment against the Payor, that, with other outstanding final judgments, undischarged, against such Person exceeds in the aggregate $2,000,000, after taking into account any insurance coverage;
          (j) (i) if the Note or any of the Security Documents shall cease to be in full force and effect, or the Noteholder’s Liens in a material portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated herein, in each case other than in accordance with the terms hereof or thereof or with the express prior written consent of the Noteholder, or (ii) any Note Obligor shall challenge the enforceability of the Note or any of the Security Documents or shall assert in writing that the Liens of the Noteholder do not have the priority contemplated herein or therein;
          (k) subject to the provisions of Section 6.3 of this Note, (i) if any of the Sales Agreement, the Stock Purchase Agreement or the Settlement Order shall be cancelled, terminated, rejected, reversed, vacated, revoked or rescinded, (ii) any action at law, suit or in equity or other legal proceeding to cancel, terminate, reject, reverse, vacate, revoke or rescind any of the Settlement Documents shall be commenced by or on behalf of any Note Obligor or any Affiliate thereof (other than a termination of any Settlement Document in accordance with its terms), (iii) any court or any other Governmental Authority of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any of the Settlement Documents is modified or amended in a manner that is adverse in any material respect to the Noteholder, or stayed, vacated or deemed illegal, invalid or unenforceable in accordance with the terms thereof, or (iv) any Note Obligor or any Affiliate thereof shall challenge the enforceability of any of the Settlement Documents or shall assert in writing or engage in any action or inaction based on any such assertions that any of the Settlement Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms;
          (l) the disallowance of (x) the allowed administrative claim held by the Payor against ACSC in the amount of $9,246,580.00 pursuant to the Agreed Order With Respect to Motion of Augusta Newsprint Company for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b)(9) [D.I. 1457] entered by the Bankruptcy Court on December 16,

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2009 or (y) any of Claim number 3612 made by the Payor in the Bankruptcy Proceedings of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $1,699.49; Claim number 3630 made by the Payor in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $1,848.01; Claim numbers 3631 and 3632 made by the Payor in the Bankruptcy Proceedings of AbitibiBowater, Inc., Case no. 09-11296, in the amounts of $25,899.02 and $85,247.34, respectively; the Claim listed on Schedule F of the Schedules of Assets and Liabilities of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $2,203.49; and Claim number 10005 made by the Payor in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $37,458,605.60; or
          (m) any material portion of the Collateral shall be seized or taken by a Governmental Authority, or the title and rights of any Note Obligor in any material portion of the Collateral shall have become the subject matter of claim, litigation, suit or other proceeding which could reasonably be expected to result in impairment or loss of the security provided hereby.
          “ Excluded Accounts ” means any payroll, employee benefits, withholding tax, escrow or other fiduciary accounts.
          “ Existing Partnership Agreement ” means the partnership agreement of Augusta Newsprint Company, a Georgia general partnership and the predecessor of the Payor, as in effect immediately prior to the date hereof.
          “ Final Maturity Date ” shall have the meaning ascribed thereto in Section 2.3 of this Note.
          “ Fiscal Year ” means the fiscal year of the Payor commencing January 1 and ending December 31.
          “ Force Majeure ” means an inability to produce or a reduced ability to produce, newsprint in consequence of such act of God, war, terrorism, strike, lock-out, labor controversy, flood, fire, explosion, drought, sabotage, riot, civil commotion, shortage of ships, trucks or railway cars, default or failure of carriers or contractors, embargoes, shortages of labor or material, or the laws, acts or orders a Governmental Authority or of any department, board or Person acting or purporting to act with governmental authority.
          “ GAAP ” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied; provided, that in the event that the Payor shall change the basis of its accounting to International Financial Reporting Standards (“IFRS”), GAAP shall mean IFRS from and after the effective date of such adoption by the Payor.

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          “ Governmental Authority ” shall mean the United States of America or any other government of any sovereign state or any political subdivision thereof, or of any political subdivision of a political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, administrative or other function of or pertaining to government.
          “ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
          “ Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following:
          (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
          (b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments, to the extent included as indebtedness in accordance with GAAP;
          (c) all net obligations of such Person under any swap contract;
          (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services, including securities repurchase agreements but excluding (x) trade accounts payable or accrued liabilities arising in the ordinary course of business; and (y) holdbacks;
          (e) all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
          (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
          (g) all guarantees of such Person in respect of any of the foregoing.
          “ Intellectual Property ” shall mean all rights arising under any applicable law with respect to patent, industrial design, copyright, trademark, service mark and other trademarks, trade name, mask work, trade secret or confidential information, and any application or registration for any of the foregoing, including any license or other right to use any of the foregoing.

7


 

          “ Interest Rate ” shall mean, for each day, (i) so long as the outstanding Principal Amount on such day is equal to or greater than $60,000,000, a rate of 8.0% per annum, (ii) so long as the outstanding Principal Amount on such day is less than $60,000,000 and equal to or greater than $30,000,000, a rate of 6.5% per annum, and (iii) so long as the outstanding Principal Amount on such day is less than $30,000,000, a rate of 5.0% per annum.
          “ Knowledge ” shall mean the actual knowledge of any member of the Partners Committee of the Payor designated by the Noteholder or any other member of the Woodbridge Group at any time prior to the Effective Date.
          “ Lien ” shall mean any lien, charge, claim, restriction, encumbrance, security interest or pledge of interest of any kind.
          “ LLC Agreement ” means the limited liability company agreement of the Payor as in effect from time to time.
          “ Material Adverse Effect ” shall mean a material adverse effect on (a) the financial condition, results of operations, assets, business or properties of the Payor, (b) Payor’s ability to duly and punctually pay or perform the Note Obligations in accordance with the terms thereof, (c) Noteholder’s Liens on a material portion of the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Noteholder’s material rights and remedies under the Security Documents.
          “ Maturity Date ” shall mean January [14], 2015, subject to extension pursuant to Section 2.3 hereof.
          “ Mortgage ” shall mean the deed of trust dated the date hereof with respect to all of the real property and fixtures of the Payor located at 2434 Doug Barnard Parkway, Augusta, Georgia 30906, in form and substance reasonably satisfactory to Noteholder.
          “ Note ” shall have the meaning ascribed thereto in the recitals to this Note.
          “ Note Obligations ” means the Principal Amount and all interest or other amounts due under the Note including, without limitation, any indemnification obligations under the Stock Purchase Agreement and this Note.
          “ Note Obligors ” means, collectively, the Payor, ACSC and ANI.
          “ Noteholder ” shall have the meaning ascribed thereto in the recitals to this Note.
          “ Operating Days ” shall have the meaning ascribed thereto in the definition of “Operating Rate”.
          “ Operating Maintenance ” shall mean any period of machine downtime resulting from mill maintenance or operating problems extending for less than 24 hours. Any period of machine downtime resulting from machine or mill maintenance extending 24 or more consecutive hours is not Operating Maintenance, and the days or portions of days after deducting the initial 24 hour period are not part of Operating Days. In mills with two or more paper

8


 

machines, such determination will be made on a machine-by-machine basis with an average for the entire mill being calculated based on the budgeted daily production of each machine.
          “ Operating Rate ” shall mean, during any particular 12-month period of any particular mill producing newsprint, a percentage determined by multiplying 100 by a fraction (i) the numerator of which is the number of days in such 12-month period in which the mill operates (“ Operating Days ”) which number shall include days of Operating Maintenance, and (ii) the denominator of which is the actual number of calendar days in any particular 12-month period.
          “ Payment Date ” shall have the meaning ascribed thereto in Section 2.2 of this Note.
          “ Payor ” shall have the meaning ascribed thereto in the recitals to this Note, and references to the Payor shall include any successor by operation of law to Augusta Newsprint Company LLC and any Person that assumes the Note Obligations in accordance with Section 5.5(a) of this Note.
          “ Payor Collateral ” shall have the meaning ascribed thereto in Section 8.1.3 of this Note.
          “ Permitted Liens ” shall mean
          (h) Liens in favor of Noteholder;
          (i) Liens in existence on the Effective Date;
          (j) Liens for taxes, assessments or other charges of any Governmental Authority not delinquent or which are being contested in good faith by appropriate proceedings diligently pursued, provided that full provision for the payment of all such taxes known to the applicable Person has been made on the books of such Person if and to the extent required by GAAP;
          (k) deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance;
          (l) deposits or pledges to secure bids, tenders, contracts, leases, statutory obligations, surety and appeal bonds and other obligations of like nature (excluding in any case, obligations incurred in connection with the borrowing of money or the payment of the deferred purchase price of property) arising in the ordinary course of business;
          (m) mechanics’, workers’, materialmen’s or other like Liens arising in the ordinary course of business with respect to obligations which are not overdue for a period of more than 30 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest (i) any proceedings commenced for the enforcement of such Liens shall have been duly suspended and (ii) full provision for the payment of such Liens has been made on the books of the applicable Person if and to the extent required by GAAP;

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          (n) imperfections of title, statutory exceptions to title, restrictive covenants, rights of way, easements, servitudes, mineral interest reservations, municipal and zoning by-laws and ordinances or similar laws or rights reserved to or vested in any Governmental Authority to control or regulate the use of any real property, general real estate taxes and assessments not yet delinquent;
          (o) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash on deposit in one or more accounts maintained, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained;
          (p) Liens arising from precautionary UCC financing statements (or analogous personal property security filings or registrations in other jurisdictions) regarding operating leases;
          (q) Liens attaching solely to cash earnest money deposits made by the Payor in connection with any letter of intent or purchase agreement entered into it in connection with an acquisition permitted hereunder;
          (r) Liens arising from the granting of a lease or license to enter into or use any asset of the Payor to any Person in the ordinary course of business that does not interfere in any material respect with the use or application by the Payor of the asset subject to such license in the business of the Payor;
          (s) Liens on insurance policies and proceeds thereof to secure premiums thereunder;
          (t) Liens arising out of judgments or awards in respect of which an appeal or proceeding for review is being diligently prosecuted, provided that (i) a stay of execution pending such appeal or proceeding for review has been obtained and (ii) full provision for the payment of such Liens has been made on the books of such Person if and to the extent required by GAAP;
          (u) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
          (v) Liens securing Indebtedness permitted by Section 5.2(j) of this Note; provided that any such Lien shall apply only to the property that is the subject of such Indebtedness;
          (w) other Liens incidental to the conduct of the Payor’s business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from the value of the Payor’s property or assets or which do not materially impair the use thereof in the operation of the Payor’s business; and
          (x) Liens arising in the ordinary course of business securing obligations in an aggregate amount outstanding at any time not in excess of $1,000,000.

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          “ Person ” shall mean an individual, partnership, corporation, limited liability company, joint venture, joint stock company, trust, unincorporated organization or a Governmental Authority.
          “ Pledged Interests ” shall have the meaning ascribed thereto in Section 8.1.2 of this Note.
          “ Principal Amount ” shall have the meaning ascribed thereto in the recitals to this Note.
          “ Proceedings ” shall mean, individually and collectively, as the case may be, the Bankruptcy Proceedings and the CCAA Proceedings.
          “ RCRA ” shall have the meaning ascribed thereto in Section 3.7(a) of this Note.
          “ Real Estate ” shall have the meaning ascribed thereto in Section 3.7(a) of this Note.
          “ Release ” has the meaning set forth in CERCLA; provided that in the event CERCLA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply as of the effective date of such amendment; and provided, further, to the extent that the laws of a state wherein the property lies establishes a meaning for “Release” which is broader than specified in CERCLA, such broader meaning shall apply.
          “ Responsible Officer ” shall mean any officer at the level of Vice President or higher of the relevant Person or, with respect to the Payor, the General Manager of the Payor, the Chief Financial Officer of the Payor, the Executive Vice President Operations and Sales of AbiBowater or the Vice President US & Pulp Operations of AbiBowater.
          “ Sales Agreement ” shall have the meaning ascribed thereto in Section 4.2.1 of this Note.
          “ SARA ” shall have the meaning ascribed thereto in Section 3.7(a) of this Note.
          “ Security Documents ” shall have the meaning ascribed thereto in the Stock Purchase Agreement and shall include any other security document or security instrument delivered pursuant to or in connection herewith or therewith.
          “ Settlement Documents ” shall mean, collectively, this Note, the Stock Purchase Agreement, the Settlement Order, the Sales Agreement and the Security Documents.
          “ Settlement Order ” means, collectively, one or more final and non-appealable orders of the Bankruptcy Court in form and substance acceptable to Noteholder approving (i) the settlement of various disputes concerning (A) the rejection of the Call Agreement, and (B) the rejection of the Existing Partnership Agreement, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure (other than the Woodbridge Claims), and (ii) the Stock Purchase Agreement and the transactions contemplated thereby, pursuant to Sections 363 and 105 of the Bankruptcy Code, and authorizing the applicable Debtors to perform all of the obligations under

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the Stock Purchase Agreement and all documents and agreements entered into in connection therewith.
          “ Stock Purchase Agreement ” shall have the meaning ascribed thereto in the recitals to this Note.
          “ Term ” shall mean that period commencing on the Effective Date and ending on the Maturity Date.
          “ Termination Date ” shall have the meaning ascribed thereto in the first paragraph of Article 4.
          “ UCC ” shall mean the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
          “ Weighted Average Operating Rate of the AbiBowater Mills ” shall mean, for any particular 12-month period, an amount determined by multiplying the Operating Rate for each AbiBowater Mill for that period by the daily production of such AbiBowater Mill and dividing the sum of the results thereof for all AbiBowater Mills by the total daily production of all AbiBowater Mills.
          “ Woodbridge Claims ” means the claims of the Noteholder, The Woodbridge Company Limited, Woodbridge International Holdings SA, or any of their affiliates, against the Debtors or the Canadian Debtors, arising from the rejection of the Call Agreement and the guarantee dated as of September 6, 2001 by Abitibi-Consolidated Inc. in favor of each of the Noteholder and Woodbridge International Holdings SA.
          “ Woodbridge Group ” shall mean (a) The Woodbridge Company Limited, (b) Affiliates of The Woodbridge Company Limited, and (c) the respective successors and assigns of The Woodbridge Company Limited or any such Affiliate, as, at such time, are controlled directly or indirectly by one or more corporations all of the shares of which are held by one or more individuals who are members of the family of the late first Lord Thomson of Fleet or trusts for their benefit.
Article 2
Interest and Principal Payments; Other Material Terms
     2.1 Interest Rate . The Payor agrees that during the Term the unpaid Principal Amount of this Note shall accrue interest at the Interest Rate. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed.
     2.2 Payment of Interest . Accrued interest on the unpaid Principal Amount of the Note shall be payable by the Payor to the Noteholder in cash quarterly in arrears (x) on the last day of

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each fiscal quarter (each, a “ Payment Date ”), commencing on March 31, 2011, and (y) on the Maturity Date.
     2.3 Payment of Principal . The Payor shall pay the Principal Amount of the Note on the Maturity Date in cash, provided that the amount to be repaid on the Maturity Date may, provided no Event of Default then exists and subject to the filing of any necessary prior written notice with applicable securities regulatory authorities as required by applicable Canadian securities laws or with the Toronto Stock Exchange as required by the rules of the Toronto Stock Exchange and the filing of a resale registration statement with the United States Securities and Exchange Commission and supplemental listing applications with the New York Stock Exchange and the Toronto Stock Exchange, be satisfied, at the election of Payor, with payment in publicly traded, freely tradeable common shares of AbiBowater in an amount of shares equal to the quotient of (x) the Principal Amount then outstanding divided by (y) 95% of the 20 trading-day volume weighted average trading price of AbiBowater common shares for the period ended five (5) Business Days prior to the Maturity Date. The Payor may elect to repay the Principal Amount in common shares of AbiBowater on a minimum of 45 days’ and a maximum of 180 days’ prior written notice to Noteholder; provided , that Noteholder may elect to reject such election in writing within 20 Business Days after receipt of such notice, but in no event less than 40 days prior to the Maturity Date. In the event Noteholder rejects the Payor’s election, the Maturity Date shall be automatically extended to the next anniversary of the Maturity Date; provided , however , that in no event shall the Maturity Date be extended beyond January [14], 2019 (the “ Final Maturity Date ”). For greater clarity, in the event the Payor elects to repay the Principal Amount in common shares of AbiBowater on the Final Maturity Date and the Noteholder rejects such election, Payor shall repay the Principal Amount in cash without further extension.
     2.4 Prepayment of Principal .
          2.4.1 The Payor shall prepay the Principal Amount of the Note in an amount equal to (x) 70% of Distributable Cash for any Fiscal Year minus (y) an amount equal to the aggregate amount of voluntary prepayments of this Note made in accordance with Section 2.4.2 of this Note during such Fiscal Year on or prior to the day that is 60 days after the end of such Fiscal Year beginning with the Fiscal Year ending December 31, 2011. Such amount shall be subject to adjustment in the amount of the Make Whole Payment to the extent an Operating Rate Deficit occurs pursuant to Section 4.2.2 hereof.
          2.4.2 In the event that 52.5% of the Estimated Partnership Cash (as defined in the Stock Purchase Agreement) is less than $15,000,000, the Payor shall prepay the Principal Amount of the Note (a) in an amount equal to the excess, if any, of (x) $15,000,000 minus 52.5% of the Estimated Partnership Cash, over (y) $15,000,000 minus 52.5% of the Final Partnership Cash Amount (as defined in the Stock Purchase Agreement) on or prior to the date that is the 5th Business Day following the Settlement Date (as defined in the Stock Purchase Agreement), and (b) in an amount equal to any cash distribution received by the Payor on account of the Administrative Claim (excluding the Transferred Administrative Claim Rights) (as such terms are defined in the Stock Purchase Agreement), to the extent not included in the calculation

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of the Estimated Partnership Cash or the Final Partnership Cash Amount, on or prior to the date that is the 5th Business Day following the receipt thereof; provided , that the sum of (i) the cash portion of the Purchase Price paid on the Closing Date (as defined in the Stock Purchase Agreement) in accordance with Section 2.2(a) of the Stock Purchase Agreement plus (ii) the aggregate amount of prepayments of the Principal Amount of the Note required to be made pursuant to this Section 2.4.2 shall not exceed $15,000,000 in the aggregate.
          2.4.3 In addition to the mandatory prepayment requirements set forth in Sections 2.4.1 and 2.4.2 above, the Payor may voluntarily prepay, in whole or in part, the unpaid Principal Amount of this Note in cash on any Payment Date without premium or penalty in an amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof (or the aggregate unpaid Principal Amount, if such amount is less than $10,000,000).
     2.5 Place and Form of Payment .
          2.5.1 All cash payments under this Note shall be made in United States dollars. The Payor shall make any cash payment due hereunder not later than 5:00 p.m. (New York time) on the day when due at the address specified in Section 9.1 below or by wire transfer of immediately available funds in accordance with wire transfer instructions provided to the Payor in accordance with Section 9.1 below. If any payment is due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.
          2.5.2 In the event of the repayment of the Principal Amount in common shares of AbiBowater in accordance with Section 2.3, the Payor will deliver or cause to be delivered to the Noteholder at the address specified in Section 9.1 below a certificate or certificates representing the number of fully paid and non-assessable AbiBowater common shares determined in accordance with Section 2.3, together with an opinion of counsel in form and substance satisfactory to the Noteholder, acting reasonably, that such shares have been duly authorized, are validly issued, non-assessable, and freely tradeable.
     2.6 Application of Payments . Any payments made by the Payor in cash hereunder shall first be applied to the payment of any accrued but unpaid interest and then to the payment of the outstanding Principal Amount.
     2.7 Setoff in Accordance with Stock Purchase Agreement . The Principal Amount of this Note or any accrued interest thereon is subject to a dollar for dollar reduction to offset all or any portion of indemnification amounts owed to any Abitibi Indemnitee (as defined in the Stock Purchase Agreement) in accordance with Section 8.9 of the Stock Purchase Agreement.
     2.8 Limited Recourse . The Noteholder agrees with the Payor, ACSC and ANI that, notwithstanding (A) that the Payor was, prior to the date hereof, a general partnership, (B) that

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ACSC and ANI are parties to this Note and (C) any other provisions in this Note, including Section 6.1 hereof, (i) with respect to any payment or performance of the Payor’s obligations hereunder and under the other Security Documents to which it is a party, the exercise of any rights and remedies in connection herewith or therewith and any breach of any representation or warranty of the Payor in connection herewith or therewith, the Noteholder shall have recourse only to the Payor and the assets of the Payor, except as described in clause (iii) below, (ii) neither ACSC nor ANI shall have any liability in respect of any obligations of the Payor hereunder or thereunder by reason of its former status as a general partner of the Payor and (iii) the Noteholder shall have no recourse to the assets of ACSC or ANI in respect of any obligations of the Payor hereunder or thereunder except for the ACSC Collateral and the ANI Collateral as expressly set forth in Article 8 of this Note.
     2.9 Taxes .
     2.9.1 Withholding Rights . The Payor shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Note such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code, or any provision of state, local or foreign tax law. To the extent that such amounts are so withheld by the Payor, such withheld and deducted amounts will be treated for all purposes of this Note and the Stock Purchase Agreement as having been paid to the Noteholder in respect of which such deduction and withholding was made by the Payor.
     2.9.2 Status of Noteholder or Assignee . The Noteholder and any assignee, if requested by the Payor, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Payor as will enable the Payor to determine whether or not such Noteholder or assignee is subject to backup withholding or information reporting requirements.
     2.9.3 Tax Forms . The Noteholder and any assignee shall deliver to the Payor (in such number of copies as shall be requested by the recipient) on or prior to the Effective Date (and from time to time thereafter upon the reasonable request of the Payor, but only if such Noteholder or assignee is legally entitled to do so), whichever of the following is applicable:
     (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party;
     (ii) duly completed copies of Internal Revenue Service Form W-8ECI or Form W-9;
     (iii) in the case of a Noteholder or assignee claiming the benefits of the exemption for portfolio interest under section 881(c) of the Internal Revenue Code: (i) a certificate to the effect that such person is not: (1) a “bank” within the meaning of section 881(c)(3)(A) of the Internal Revenue Code; (2) a “10 percent shareholder” of the Payor within the meaning of section 881(c)(3)(B) of the

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Internal Revenue Code; or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Internal Revenue Code; and (ii) two (2) duly completed copies of Internal Revenue Service Form W-8BEN; or
     (iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Payor to determine the withholding or deduction required to be made.
Article 3
Representations and Warranties
     The Payor hereby represents and warrants to the Noteholder on the date hereof that:
     3.1 Formation; Good Standing . The Payor (a) is a limited liability company duly formed, validly existing and in good standing under the laws of its jurisdiction of formation, (b) has all requisite limited liability company power to own its property and conduct its business as now conducted and as presently contemplated, and (c) is in good standing as a foreign limited liability company (or similar business entity) and is duly authorized to do business in each jurisdiction where such qualification is necessary except where failure to be so qualified would not have a Material Adverse Effect.
     3.2 Authorization . The execution, delivery and performance of this Note and the other Settlement Documents to which it is a party and the transactions contemplated hereby and thereby (w) are within the Payor’s limited liability company authority, (x) have been duly authorized by all necessary limited liability company proceedings, (y) do not and will not conflict with or result in any breach or contravention of any law to which the Payor is subject or any judgment, order, writ, injunction, license or permit applicable to the Payor, and (z) do not conflict with any provision of the LLC Agreement.
     3.3 Enforceability . The execution and delivery of this Note and the other Settlement Documents to which it is a party will result in valid and legally binding obligations of the Payor enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.
     3.4 Governmental Approvals . The execution, delivery and performance by the Payor of this Note and the Settlement Documents to which it is a party and the transactions contemplated hereby and thereby do not require the approval or consent of, or filing with, any Governmental Authority other than those already obtained and filings made under the UCC and with respect to the Mortgage.
     3.5 Title to Properties . The Payor owns all of its assets, subject to no Liens, except Permitted Liens.
     3.6 Litigation . Except with respect to the Proceedings, there are no actions, suits, proceedings or investigations of any kind pending or, to the Payor’s knowledge, threatened

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against the Payor before any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
     3.7 Environmental Compliance . Except as set forth on Schedule 3.7:
          (a) to the knowledge of the Payor, no operator of any owned or leased real property of the Payor (the “ Real Estate ”) or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act (“ RCRA ”), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“ CERCLA ”), the Superfund Amendments and Reauthorization Act of 1986 (“ SARA ”), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any and all federal, state, local or foreign law, statutes, regulations, ordinances, rules, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to waste transportation or disposal, pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to public or private wastewater systems (the “ Environmental Laws ”) that would reasonably be expected to have a Material Adverse Effect;
          (b) The Payor has not received written notice from any third party including, without limitation, any Governmental Authority relating to the Real Estate, (i) that it has been identified by the United States Environmental Protection Agency (“ EPA ”) as a potentially responsible party under CERCLA with respect to the listing of the Real Estate on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. §6903(5), any hazardous substances as defined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) and any other Hazardous Materials which any one of them has generated, transported or disposed of at or from the Real Estate has been found at any site at which a Governmental Authority has conducted or has ordered that the Payor conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Materials at or from the Real Estate that, with respect to any of clauses (i), (ii) or (iii) of this paragraph, would reasonably be expected to have a Material Adverse Effect; and
          (c) To the knowledge of the Payor and except as would not reasonably be expected to have a Material Adverse Effect, (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Materials except in accordance with applicable Environmental Laws; and no underground tank or other underground storage receptacle for Hazardous Materials is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Payor or operators of its properties, no Hazardous Materials have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) there have been no Releases or, to the knowledge of the Payor, threatened Releases of Hazardous Materials on, upon, into or from the properties of the Payor; (iv) there have been no Releases on, upon, from or into any real property in the vicinity of any of

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the Real Estate which, through soil or groundwater contamination, may have come to be located on; and (v) in addition, any Hazardous Materials that have been generated on any of the Real Estate that are regulated as hazardous have been transported offsite only by carriers having an identification number issued by the EPA (or the equivalent thereof in any foreign jurisdiction), treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the Payor’s knowledge, operating in compliance with such permits and applicable Environmental Laws.
     3.8 Taxes . Except as would not be reasonably expected to have a Material Adverse Effect, the Payor (a) has made or filed all federal income and all state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (b) has paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.
     3.9 Insurance . The Payor maintains with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such amount, in such forms and for such periods as may be reasonable and prudent.
     3.10 Solvency . The Payor is solvent, able to pay its debts as they mature, has capital sufficient to carry on its business and all businesses in which it is about to engage, and, as of the Effective Date and immediately after giving effect to the transaction contemplated hereby, the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities, including, without limitation, contingent liabilities.
     3.11 Settlement Documents . Each Note Obligor acknowledges and agrees that this Note and the other Settlement Documents to which it is a party and the transactions contemplated hereby and thereby collectively constitute a single, integrated transaction.
Article 4
Affirmative Covenants
     The Payor covenants and agrees with the Noteholder that from and after the date of this Note and until the date on which the Note Obligations have been paid in full (other than contingent claims for indemnification not yet asserted) (the “ Termination Date ”):
     4.1 Punctual Payment . The Payor will duly and punctually pay or cause to be paid the Principal Amount and all interest under this Note and all other amounts provided for in this Note, all in accordance with the terms of this Note.
     4.2 Mill Operations .

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          4.2.1 The Payor shall, prior to or contemporaneously with the execution of this Note, enter into an agreement with ACSC or, at the option of the Payor, with AbiBow US Inc. (f/k/a Bowater Incorporated), in the form attached as Exhibit A to this Note (the “ Sales Agreement ”).
          4.2.2 The Payor shall conduct its operations so that the Operating Rate of the Augusta mill for any Fiscal Year will be not less than the greater of: (a) the Weighted Average Operating Rate of the AbiBowater Mills in such calendar year; (b) 90%; and (c) the Operating Rate of the newsprint industry in the United States of America plus 3.5% (not to exceed 100%); except (i) as prevented by Force Majeure or (ii) as required to complete approved capital projects or machine or mill maintenance, including boiler and other scheduled inspections; provided that, insofar as reasonably practicable, all such capital projects and maintenance will be scheduled so as to minimize machine downtime. Compliance with the foregoing covenant shall be calculated in a manner consistent with past practice. Exhibit B to this Note sets forth some illustrative examples regarding the calculation of the minimum Operating Rate. In the event the Payor shall unintentionally operate the Augusta Mill at an Operating Rate lower than as required by this Section 4.2.2 for any Fiscal Year, the Payor shall calculate the negative effect of such deviation on Distributable Cash and, no later than 10 days after the delivery of the annual financial statements for such Fiscal Year pursuant to Section 4.12, pay to Noteholder in cash 70% of such amount pursuant to the formula set forth on Exhibit C hereto (the “ Make Whole Payment ”) as an additional prepayment of the Principal Amount of the Note pursuant to Section 2.4.1 hereof.
          4.2.3 Subject to compliance with applicable laws, including, without limitation, compliance with ERISA, the Payor shall at all times maintain the assets and conduct its operations as separate and distinct from any of the assets and operations of AbiBowater or its Affiliates, including but not limited to the observance of limited liability company formalities and maintenance of separate books and records; provided , that the Payor shall be permitted to participate in centralized cash management and other services with AbiBowater and its subsidiaries for good faith business purposes so long as accurate books and records as to the Payor’s assets are maintained and such assets are identifiable and traceable.
     4.3 Conduct of Business and Maintenance of Existence and Assets . The Payor shall (a) conduct its business according to good business practices and maintain all of its properties useful or necessary in its business in good working order and condition (reasonable wear and tear excepted and except as may be disposed of in accordance with the terms of this Note), including all licenses, patents, copyrights, design rights, tradenames, trade secrets and trademarks, and take all actions necessary to enforce and protect the validity of any Intellectual Property right or other right included in the Collateral except where failure to do any of the foregoing would not have a Material Adverse Effect; (b) keep in full force and effect its existence (except in the case of a merger in accordance with Section 5.5(a) of this Note); and (c) make all such reports and pay all such franchise and other taxes and license fees and do all such other acts and things as may be lawfully required to maintain its rights, licenses, leases, powers and franchises that are material to its business under the laws of the United States or any political subdivision thereof.

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     4.4 [Intentionally omitted]
     4.5 Payment of Indebtedness . Except where failure to do so would not have a Material Adverse Effect, the Payor shall pay, discharge or otherwise satisfy at or before maturity (subject, where applicable, to specified grace periods and, in the case of the trade payables, to normal payment practices) all its obligations and liabilities of whatever nature.
     4.6 Records and Accounts . The Payor will (a) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP, and (b) maintain, in accordance with GAAP, adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its subsidiaries, contingencies, and other reserves.
     4.7 Notices .
          (a) Defaults . The Payor will, promptly upon a Responsible Officer of the Payor becoming aware thereof, notify the Noteholder in writing of the occurrence of any Event of Default, together with a reasonably detailed description thereof, and the actions the Payor proposes to take with respect thereto. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Note or in respect of any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Payor is a party or obligor in excess of $2,500,000, whether as principal, guarantor, surety or otherwise, the Payor shall promptly give written notice thereof to the Noteholder.
          (b) Environmental Events . The Payor will promptly notify the Noteholder, in each case, subject to applicable law and confidentiality requirements, (i) upon the Payor obtaining knowledge of any material violation of any Environmental Law regarding the Real Estate or the Payor’s operations; (ii) upon the Payor obtaining knowledge of any known Release or threat of Release of any Hazardous Substance at, from, or into the Real Estate in material violation of any Environmental Laws which it reports in writing or is reportable by it in writing to any Governmental Authority; (iii) upon the Payor’s receipt of any notice of material violation of any Environmental Laws or of any Release or threatened Release of Hazardous Materials, in either case, relating to the Real Estate, including a notice or claim of liability or potential responsibility from any third party (including without limitation any Governmental Authority) and including notice of any formal inquiry, proceeding, demand, investigation or other action with regard to (A) the Payor’s, or any Person’s operation of the Real Estate, (B) contamination on, from or into the Real Estate, or (C) investigation or remediation of offsite locations at which the Payor, or any of its predecessors is alleged to have directly or indirectly Released Hazardous Materials; or (iv) upon the Payor’s obtaining knowledge that any expense or loss has been incurred by such Governmental Authority in connection with the assessment, containment, removal or remediation of any Hazardous Materials with respect to which a lien may be imposed on the Real Estate.
          (c) Notification of Claim against Collateral . Payor will, promptly, but in any event no later than five (5) Business Days upon a Responsible Officer of the Payor becoming aware thereof, notify the Noteholder in writing of any rights of setoff, claims, withholdings or

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other defenses to which a material portion of the Collateral, or the Noteholder’s rights with respect to the Collateral, are subject.
          (d) Notice of Litigation and Judgments . The Payor will give notice to the Noteholder in writing within fifteen (15) days upon a Responsible Officer of the Payor becoming aware of any pending litigation and proceedings affecting the Payor or to which the Payor is or becomes a party involving an uninsured claim against the Payor which would reasonably be expected to have a Material Adverse Effect, and stating the nature and status of such litigation or proceedings. The Payor will give notice to the Noteholder, in writing within ten (10) days of any final judgment not covered by insurance, against the Payor in an amount in excess of $5,000,000.
          (e) Notice of Violations of Law . The Payor will promptly upon a Responsible Officer of the Payor becoming aware thereof notify the Noteholder in writing if the Payor is in violation of any law, statute, regulation or ordinance of any Governmental Authority, or of any agency thereof, which violation would reasonably be expected to have a Material Adverse Effect.
     4.8 Insurance . The Payor will maintain with financially sound and reputable insurers insurance with respect to its properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in such amount, in such forms and for such periods as may be reasonable and prudent. In addition, the Payor will furnish from time to time, upon Noteholder’s request, a summary of the insurance coverage of the Payor.
     4.9 Taxes . The Payor will duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all material taxes, assessments and other governmental charges imposed upon it; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Payor shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP.
     4.10 Inspection of Properties and Books, etc . (a) The Payor shall permit the Noteholder or any of the Noteholder’s designated representatives, at the Noteholder’s sole cost and expense (unless an Event of Default exists), to visit and inspect the properties of the Payor, to examine the books of account of the Payor (and to make abstracts therefrom), and to discuss the affairs, finances and accounts of the Payor with, and to be advised as to the same by, its officers, all upon reasonable notice provided in accordance with Section 9.1 of this Note, during normal business hours and at such intervals as the Noteholder may reasonably request.
          (b) Subject to the terms and conditions of Section 4.10(a), upon the Noteholder’s reasonable request, the Payor shall arrange for the Noteholder to participate in discussions with the Payor’s accountants and the Payor, and shall authorize such accountants to disclose to the Noteholder such financial statements and other supporting financial documents and schedules, including copies of any management letter with respect to the business, financial condition and other affairs of the Payor, as the Noteholder may reasonably request.

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     4.11 Compliance with Laws, Contracts, Licenses, and Permits . Except where failure to do so will not have a Material Adverse Effect, the Payor will comply with (a) all applicable laws, including all Environmental Laws, regulations, orders, including the Settlement Order, decrees, judgments, licenses and permits, including without limitation all Environmental Permits, wherever its business is located, (b) the provisions of its organizational documents, and (c) all agreements and instruments by which it or any of its properties may be bound. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any Governmental Authority shall become necessary or required in order that the Payor may fulfill any of its obligations hereunder or under any Settlement Document to which it is a party, the Payor will promptly take or cause to be taken all reasonable steps within its power to obtain such authorization, consent, approval, permit or license.
     4.12 Annual Financial Statements . The Payor shall furnish Noteholder within one hundred and twenty (120) days after the end of each Fiscal Year, financial statements of the Payor on a consolidated basis including, but not limited to, statements of income and stockholders’ equity and cash flow from the beginning of the current Fiscal Year to the end of such Fiscal Year and the balance sheet as at the end of such Fiscal Year, all prepared in accordance with GAAP and reported upon by an independent certified public accounting firm selected by the Payor. Such financial statements shall be accompanied by a calculation of Distributable Cash for such Fiscal Year.
     4.13 Monthly Financial Statements . The Payor shall furnish Noteholder within thirty (30) days after the end of each month, monthly management reports which shall include (i) an unaudited balance sheet of the Payor on a consolidated basis and unaudited statements of income and stockholders’ equity and cash flow of the Payor on a consolidated basis reflecting results of operations from the beginning of the Fiscal Year to the end of such month and for such month, which shall be complete and correct in all material respects, subject to normal year end adjustments and the absence of footnotes, and (ii) a certificate of a Responsible Officer of the Payor as specified in clause (ii) of Section 8.3 of this Note.
     4.14 [Intentionally omitted]
     4.15 Additional Information . The Payor shall furnish Noteholder with such additional information as Noteholder shall reasonably request in order to enable Noteholder to determine whether the terms, covenants, provisions and conditions of this Note and the other Settlement Documents have been complied with by the Payor.
     4.16 Noteholder Meetings . Within 30 days of each of November 15 and May 15 of each Fiscal Year, upon reasonable prior notice, the Payor shall hold an in-person meeting with Noteholder, at which meeting the financial results and financial condition of the Payor shall be reviewed.
Article 5
Negative Covenants
     The Payor covenants and agrees with the Noteholder that from and after the date of this Note and until the Termination Date occurs:

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     5.1 Prepayment of Indebtedness . The Payor shall not, at any time, directly or indirectly, prepay any Indebtedness described in clause (a) of the definition thereof (other than the Note Obligations), or repurchase, redeem, retire or otherwise acquire any such Indebtedness in each case which Indebtedness exceeds $100,000 in aggregate principal amount in any Fiscal Year, other than Indebtedness to AbiBowater and its subsidiaries incurred pursuant to Section 5.2(b) of this Note in compliance with the applicable subordination terms.
     5.2 Indebtedness . The Payor shall not create, incur, assume or suffer to exist any Indebtedness (exclusive of trade debt) except in respect of Indebtedness to Noteholder. Notwithstanding the foregoing, the Payor may, without duplication, create, incur, assume or suffer to exist:
          (a) any Indebtedness existing on the Effective Date as set forth in Schedule 5.2 hereof, including any guarantees thereof;
          (b) intercompany loans and advances owed to AbiBowater or any of its subsidiaries, so long as such Indebtedness is unsecured and subordinated in right of payment to the Note Obligations on terms and conditions reasonably satisfactory to Noteholder;
          (c) Indebtedness (including guarantees) in respect of (i) performance, surety, bid, appeal or similar bonds, completion guarantees or similar instruments, including letters of credit and bankers acceptances (not incurred for the purpose of borrowing money), in each case provided in the ordinary course of business, (ii) hedging agreements entered into in the ordinary course of business as a risk management strategy and (iii) agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations pursuant to such agreement, incurred in connection with an acquisition or disposition permitted hereunder;
          (d) Indebtedness incurred to pay premiums for insurance policies maintained by Payor in the ordinary course of business not exceeding in aggregate the amount of such unpaid premiums;
          (e) guarantees with respect to bonds issued to support workers’ compensation, unemployment or other insurance or self-insurance obligations, and similar obligations, in each case, incurred by the Payor in the ordinary course of business;
          (f) Indebtedness in the form of any earnout or other similar contingent payment obligation incurred in connection with an acquisition permitted hereunder;
          (g) Indebtedness arising in the ordinary course of business as an account party in respect of trade letters of credit;
          (h) Indebtedness arising in the ordinary course of business in respect of netting services, overdraft protections, cash management services and otherwise in connection with deposit accounts;
          (i) guarantees in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees;

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          (j) Capital Lease Obligations and Indebtedness created, incurred or assumed in respect of the purchase, improvement, repair or construction of property; provided that such Indebtedness is created, incurred or assumed within 180 days after the earlier of (x) the placement in service of such property or (y) the final payment on such property; provided that the aggregate amount of the Indebtedness created, incurred or assumed pursuant to this clause (j) at any time outstanding shall not exceed $2,000,000; and
          (k) other Indebtedness incurred in the ordinary course of business in an aggregate principal amount at any time outstanding not in excess of $1,000,000.
     5.3 Creation of Liens . The Payor shall not create or suffer to exist any Lien on any of its property or assets now owned or hereafter acquired, except for Permitted Liens.
     5.4 Acquisitions . The Payor shall not purchase or acquire (i) all or substantially all assets (or assets of a division or business) of any other Person, or (ii) any obligations or Equity Interests of, or any other interest in, any other Person, except (a) obligations issued or guaranteed by the United States of America or Canada or any instrumentality or agency thereof, (b) commercial paper with maturities of not more than 270 days and a published rating of not less than A-1 or P-1 (or the equivalent rating), (c) certificates of time deposit and bankers’ acceptances having maturities of not more than one year and repurchase agreements backed by United States government securities or a commercial bank if (i) such bank provides cash management services to AbiBowater or any of its subsidiaries, (ii) such bank has a combined capital and surplus of at least $500,000,000, or (iii) its debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a nationally recognized investment rating agency, (d) U.S. money market funds that invest solely in obligations issued or guaranteed by the United States of America or an agency thereof, (e) demand deposits with any bank or trust company, (f) asset or stock acquisitions to which Payor is contractually obligated but not yet consummated as of the date hereof and (g) obligations and Equity Interests in any Person the issuance of which results from the bankruptcy, restructure, reorganization or similar composition of the obligations of such Person.
     5.5 Merger, Consolidation and Sale of Assets . The Payor will not:
          (a) Enter into any merger, consolidation or other reorganization with or into any other Person or permit any other Person to consolidate with or merge with it; and
          (b) Sell, lease, transfer or otherwise dispose of any of its properties or assets in a single transaction or a series of related transactions, except (i) dispositions of inventory in the ordinary course of business and equipment and other property that is damaged, worn-out or obsolete, (ii) dispositions of investments permitted under clauses (a) through (e) and (g) of Section 5.4 of this Note, (iii) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive factoring or similar arrangements, (iv) dispositions of personal property the proceeds of which are applied or intended by the Payor in good faith to be applied to acquire property or assets useful in the Payor’s business and (v) Distributions permitted under Section 5.9.

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     5.6 Nature of Business . The Payor may not change the nature of the business in which it is presently engaged, nor purchase or invest, directly or indirectly, in any assets or property other than in the ordinary course of business for assets or property which are useful in, necessary for and are to be used in its business as presently conducted.
     5.7 Amendment of Organizational Documents . The Payor may not amend, modify or waive any term or provision of its organizational documents in a manner that would reasonably be expected to be adverse to (i) the ability of the Payor to comply with its obligations under this Note and the Security Documents to which it is a party, including without limitation Section 2.4.1 of this Note, and (ii) the value of the Collateral or the ability of the Noteholder to exercise its rights and remedies with respect thereto, in each case unless required by law.
     5.8 Amendment of Sales Agreement . The Sales Agreement may not be altered, amended or otherwise changed or supplemented, or any provision or condition therein waived by any party thereto, and the Payor may not consent to any action which would require the consent of the Payor under the Sales Agreement, in each case, in a manner that would reasonably be expected to be adverse to the interests of the Payor, without the Noteholder’s prior written consent.
     5.9 Distributions . The Payor may not authorize, declare or pay, directly or indirectly, any distribution or return of any equity capital to the holders of its Equity Interests or authorize or make any other distribution, payment or delivery of property or cash to such holders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for consideration any of its Equity Interests (or any options or warrants issued by the Payor with respect to its Equity Interests), or set aside any funds for any of the foregoing purposes (collectively, a “ Distribution ”), except that (a) a Distribution of up to 30% of Distributable Cash for the prior Fiscal Year may be declared and paid at any time after the making of the required prepayment with respect to Distributable Cash for such prior Fiscal Year in accordance with Section 2.4.1, provided, that (i) no Default or Event of Default has occurred and is then continuing after giving effect to such Distribution, (ii) the representation and warranty set forth in Section 3.10 of this Note is true and correct with respect to the Payor on the date of, both immediately before and immediately after giving effect to, such Distribution, and (iii) the payment of such Distribution complies with all applicable laws; and (b) the Payor shall distribute the ANI Stock to ACSC on the Closing Date.
     5.10 Transactions with Affiliates . The Payor may not enter into, directly or indirectly, any transaction or series of related transactions, except in the ordinary course of business, with any Affiliate, other than on terms and conditions at least as favorable to the Payor as would reasonably be obtained by the Payor at that time in a comparable arm’s-length transaction with a person other than an Affiliate, except for Distributions permitted under Section 5.9.
     5.11 Limitation on Certain Restrictions . The Payor may not, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on its ability to pay a Distribution.

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Article 6
Events of Default
     6.1 If an Event of Default shall have occurred and be continuing, then, upon notice to the Payor by the Noteholder (which notice shall not be required in the case of an Event of Default pursuant to clause (g) of the definition thereof) (i) the Note, including all unpaid principal and accrued interest, shall become immediately due and payable in cash, and (ii) all unpaid amounts hereunder shall thereafter bear interest at the Default Rate (payable and calculated in accordance with Section 2.1) until the Event of Default is no longer continuing or waived by the Noteholder. If any Event of Default shall have occurred and is continuing, the Noteholder may, in addition to all other rights and remedies granted to it in this Note and in any other instrument or agreement securing, evidencing or relating to this Note, exercise all rights and remedies available to the Noteholder at law or in equity.
     6.2 The Noteholder acknowledges and agrees that, to the extent that the Noteholder, by reason of its partial ownership of the Payor through ANI before the date hereof, has Knowledge as of the Effective Date that any representation or warranty made herein or in the Mortgage by the Payor is inaccurate or untrue, no Event of Default shall arise out of such breach of representation or warranty.
     6.3 Notwithstanding anything herein to the contrary, in the event that the Stock Purchase Agreement or the Settlement Order is cancelled, terminated, rejected, reversed, vacated, revoked or rescinded, and (x) ACSC is not permitted to retain the ANI Stock, and (y) the ANI Stock is returned to the Noteholder or any of it Affiliates, such event shall be deemed not to be an Event of Default hereunder (or any Event of Default that may have previously arisen in respect of such event shall be deemed to no longer be continuing), and this Note and the Security Documents shall be canceled (without any further payments in respect of this Note or the Security Documents or damages to the Noteholder arising pursuant to the terms of this Note or the Security Documents, but for the sake of clarity, without prejudice to any other damages found to be payable to Noteholder), the Rejection Appeal and the Partnership Agreement Motion (as each such term is defined in the Settlement Motion (as defined in the Stock Purchase Agreement)) shall be reinstated, and the parties shall be returned to the status quo before entry into any of the Settlement Documents.
Article 7
[Intentionally Omitted]
Article 8
Security Agreement
     8.1 Grant of Lien .
          8.1.1 To secure the prompt and complete payment, performance and observance of all of the Note Obligations of ANC, ACSC hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Noteholder, a first priority Lien, subject to Permitted Liens, upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter

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acquired by or arising in favor of ACSC (all of which being hereinafter collectively referred to as the “ ACSC Collateral ”):
          (a) all of its membership interest in the Payor (the “ ACSC Pledged Interests ”);
          (b) all distributions and profits arising from the ACSC Pledged Interests;
          (c) all of ACSC’s right in the LLC Agreement or equivalent governing document of the Payor;
          (d) all proceeds and products of any of the foregoing, in whatever form.
          8.1.2 To secure the prompt and complete payment, performance and observance of all of the Note Obligations of ANC, ANI hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Noteholder, a first priority Lien, subject to Permitted Liens, upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of ANI (all of which being hereinafter collectively referred to as the “ ANI Collateral ”):
          (a) all of its membership interest in the Payor (the “ ANI Pledged Interests ” and together with the ACSC Pledged Interests, the “ Pledged Interests ”);
          (b) all distributions and profits arising from the ANI Pledged Interests;
          (c) all of ANI’s right in the LLC Agreement or equivalent governing document of the Payor;
          (d) all proceeds and products of any of the foregoing, in whatever form.
          8.1.3 To secure the prompt and complete payment, performance and observance of all of the Note Obligations of the Payor, the Payor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Noteholder, a first priority Lien, subject to Permitted Liens, upon all of its right, title and interest in, to and under the following property, whether now owned by or owing to, or hereafter acquired by or arising in favor of the Payor (all of which being hereinafter collectively referred to as the “ Payor Collateral ”, and together with the ACSC Collateral and the ANI Collateral, the “ Collateral ”):
          (a) all accounts, chattel paper, tangible chattel paper, commercial tort claims listed on Schedule 8.1 hereto, commodity contracts, commodity accounts, deposit accounts, securities, security accounts, security entitlements, investment property, financial assets, documents, electronic chattel paper, equipment, fixtures, general intangibles, goods, health-care insurance receivables, instruments, promissory notes, inventory, investment property, letter of credit rights and supporting obligations, payment intangibles and software (in each case, as defined in the UCC);

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          (b) all intellectual property of the Payor;
          (c) all owned real property of the Payor;
          (d) all of the Payor’s ledger sheets, ledger cards, files, correspondence, records, books of account, business papers, computers, computer software, computer programs, tapes, disks and documents relating to clause (a), (b) or (c) of this Section 8.1.3; and
          (e) all proceeds and products of property described in clause (a), (b) or (c) of this Section 8.1.3) in whatever form, including, but not limited to: cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, insurance proceeds (including hazard, flood and credit insurance), negotiable instruments and other instruments for the payment of money, chattel paper, security agreements, documents, eminent domain proceeds, condemnation proceeds and tort claim proceeds, and with respect to intellectual property, proceeds of any claim against third parties in respect thereto, including for past, present or future infringement or any dilution of any trademark or for injury to the goodwill associated with any trademark;
provided , however that the foregoing shall not include any permit, lease, license, contract, instrument or other agreement held by Payor that validly prohibits the creation by Payor of a security interest thereon or requires the consent of any person other than the Payor as a condition to the creation of such security interest, or any permit, lease, license, contract, instrument or other agreement held by Payor to the extent that any applicable law prohibits the creation of a security interest thereon, but only, in each case, to the extent, and for so long as, such prohibition is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other applicable law, and subject in all cases to Payor’s obligation to use commercially reasonable efforts to obtain consent to the creation of a security interest in favor of Noteholder in any such permit, lease, license, contract, instrument or other agreement.
     8.2 Distributions; Voting . So long as no Event of Default shall have occurred and be continuing, each of ACSC and ANI shall be entitled, subject to Section 5.9 of this Note, to distributions paid in respect of the Pledged Interests, to vote the Pledged Interests and to give consents, waivers and ratifications in respect of the Pledged Interests; provided, however, that no vote shall be cast or consent, waiver or ratification given by ACSC or ANI if the effect thereof would conflict with the rights of the Noteholder hereunder or any other Settlement Document, or be inconsistent with or result in any violation of any of the provisions of this Note or any other Settlement Document. All such rights of ACSC and ANI to receive cash distributions and to vote and give consents, waivers and ratifications with respect to the Pledged Interests shall cease while an Event of Default shall have occurred and be continuing if the Noteholder shall deliver notice thereof to ACSC and ANI referring to this Section 8.2.
     8.3 Perfection . Each Note Obligor, as applicable, shall take all commercially reasonable action that may be necessary or reasonably desirable, or that Noteholder may reasonably request, so as at all times to maintain the validity, perfection, enforceability and priority of Noteholder’s security interest in and Lien on the Collateral or to enable Noteholder to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, promptly discharging all Liens on the Collateral other than Permitted Liens; provided , that

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with respect to the perfection of the Noteholder’s security interest in and Lien on the Collateral, the Note Obligors’ obligations shall be limited to the following: (i) in the case of all Collateral in which a security interest may be perfected by filing a financing statement under the UCC, the completion of such filings in the appropriate filing offices, (ii) in the case of all Collateral consisting of instruments, certificated securities, registered intellectual property, letter of credit rights, commercial tort claims, deposit accounts, commodity accounts and securities accounts, the Payor shall provide, at the time it delivers its monthly management reports pursuant to Section 4.13, a certificate of a Responsible Officer of the Payor describing any such Collateral that was acquired by the Payor since the date the immediately precedent monthly management report was delivered under Section 4.13 and upon Noteholder’s reasonable request in connection therewith, (A) in the case of instruments in an outstanding principal amount equal to or greater than $1,000,000 and certificated securities, deliver such instruments and certificated securities to Noteholder, properly endorsed for transfer in blank, (B) in the case of registered intellectual property, deliver promptly executed short form security agreements for filing with the United States Copyright Office or United States Patent and Trademark Office, as applicable, in form and substance reasonably satisfactory to Noteholder, (C) in the case of letter of credit rights in an amount equal to or greater than $1,000,000 that are not supporting obligations, use commercially reasonable efforts to obtain the consent to the assignment of proceeds of the relevant letter of credit by the issuer or any nominated person in respect thereof, (D) in the case of commercial tort claims, deliver to Noteholder a supplement to Schedule 8.1 hereto containing a specific description of such commercial tort claim and (E) in the case of deposit accounts, commodity accounts and securities accounts (other than Excluded Accounts), use commercially reasonable efforts to as promptly as reasonably practicable provide “control” (as defined in the UCC) over such accounts pursuant to an agreement with the applicable deposit bank, commodity intermediary or securities intermediary in form and substance reasonably satisfactory to Noteholder, and (iii) in respect of any assets (excluding broke) with an aggregate fair value in excess of $250,000 held on premises owned by any third party, use commercially reasonable efforts to as promptly as reasonably practicable cause such third party to enter into warehousing or landlord waivers in favor of Noteholder. By its signature hereto, each Note Obligor hereby authorizes Noteholder to file one or more financing, continuation or amendment statements pursuant to the UCC as in effect in any jurisdiction in each jurisdiction and with such filing offices that Noteholder deems necessary or desirable in order to perfect its security interests in all or any portion of the Collateral owned by such Note Obligor. With respect to Payor, such financing statements may describe the collateral in the same manner as described in this Note or as “all assets whether now owned or hereafter acquired” or words of similar meaning. All charges, expenses and fees Noteholder may incur in doing any of the foregoing, and any local taxes relating thereto, shall be borne by the Noteholder.
     8.4 Representations and Warranties . (a) Each of ACSC and ANI represents and warrants that as of the date hereof:
     (i) The execution, delivery and performance of this Note and the other Settlement Documents to which it is a party and the transactions contemplated hereby and thereby (w) are within such Person’s corporate or limited liability company authority, as applicable, (x) have been duly authorized by all necessary corporate or limited liability company proceedings, as applicable, (y) do not and will not conflict with or result in any breach or contravention of any law to which

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ACSC or ANI are subject or any judgment, order, writ, injunction, license or permit applicable to such Persons, and (z) do not conflict with any provision of their charter, by-laws or similar governing documents.
     (ii) The execution and delivery of this Note and the other Settlement Documents to which it is a party will result in valid and legally binding obligations of each of ACSC and ANI enforceable against them in accordance with the respective terms and provisions hereof and thereof, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.
     (iii) It will derive substantial direct and indirect benefits from the issuance of the Note and the transactions contemplated by the Stock Purchase Agreement.
          (b) Each of the Payor, ACSC and ANI represents and warrants that as of the date hereof:
     (i) No effective security agreement, financing statement, equivalent security or Lien instrument or continuation statement covering all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Noteholder pursuant to this Note and Permitted Liens.
     (ii) This Note is effective to create a valid and continuing Lien on and, upon the filing of the appropriate financing statements, a perfected Lien in favor of the Noteholder on the Collateral with respect to which a Lien may be perfected by filing pursuant to the UCC. Such Lien is prior to all other Liens, subject to Permitted Liens, and is enforceable as such as against any and all creditors of and purchasers from the applicable Note Obligor.
     (iii) The Mortgage is effective to create a valid and continuing Lien on and, upon registration thereof in the appropriate office, a perfected Lien in favor of the Noteholder on the collateral described therein. Such Lien is prior to all other Liens, subject to Permitted Liens, and is enforceable as such as against any and all creditors of and purchasers from the Payor.
     8.5 Covenants . Each of ACSC and ANI covenants and agrees with the Noteholder that from and after the date of this Note and until the Termination Date occurs:
          (a)  Additional Equity Interests . In the event either Person shall acquire (i) any additional Equity Interests of the Payor (but excluding any debt security convertible into or exchangeable for Equity Interests of the Payor), or (ii) any security exchangeable for or convertible into Equity Interests of the Payor (but excluding any debt security convertible into or exchangeable for Equity Interests of the Payor), whether by purchase, dividend, distribution, stock split or otherwise, then such interest or other securities shall be subject to the Lien granted to the Noteholder under this Note.

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          (b)  Treatment and Certification of Equity Interests . Each of ACSC and ANI will not elect to (x) treat Pledged Interests as securities as contemplated by the definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of UCC or (y) certificate its Pledged Interests.
          (c)  Notification of Claim against Collateral . ACSC or ANI, as applicable will, promptly, but in any event no later than five (5) Business Days upon a Responsible Officer of the Payor becoming aware thereof, notify the Noteholder in writing of any rights of setoff, claims, withholdings or other defenses to which a material portion of the Collateral, or the Noteholder’s rights with respect to a material portion of the Collateral, are subject.
          (d)  Limitation on Liens on Collateral . ACSC and ANI will not create, permit or suffer to exist, and will defend the Pledged Interests against, and take such other action as is necessary to remove, any Lien on the Pledged Interests, except to the extent such Lien is in favor of the Noteholder or Permitted Liens.
          (e)  Limitations on Disposition . ACSC and ANI will not sell, lease, transfer or otherwise dispose of any of the Pledged Interests.
          (f)  Notices . Each of the Note Obligors will advise the Noteholder promptly, in reasonable detail, upon learning (i) of any Lien or claim made or asserted against a material portion of the Collateral, and (ii) of the occurrence of any other event which would have a material adverse effect on the value of the Collateral or on the Liens created hereunder.
     8.6 Remedies; Rights Upon Default . If an Event of Default shall have occurred and be continuing, the Noteholder shall thereafter have the following rights and remedies (to the extent permitted by applicable law) in addition to the rights and remedies of a secured party under the UCC, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, at such time or times as the Noteholder deems expedient:
          (a) the Noteholder may vote any or all of the Pledged Interests (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including, without limitation, if the Noteholder so elects, for the liquidation of the assets of the Payor, and give all consents, waivers and ratifications in respect of the Pledged Interests and otherwise act with respect thereto as though it were the outright owner thereof (each of ACSC and ANI hereby irrevocably constituting and appointing the Noteholder the proxy and attorney-in-fact of such Person, with full power of substitution, to do so during the term of this Note);
          (b) the Noteholder may demand, sue for, collect or make any compromise or settlement the Noteholder deems suitable in respect of any Collateral;
          (c) the Noteholder may sell, resell, assign and deliver, or otherwise dispose of any or all of the Collateral, for cash or credit or both and upon such terms at such place or places, at such time or times and to such entities or other persons as the Noteholder thinks expedient, all without demand for performance by any Note Obligor or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; and

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          (d) the Noteholder may cause all or any part of the Pledged Interests held by it to be transferred into its name or the name of its nominee or nominees.
     8.7 Sale of Collateral . In the event of any sale or other disposition of the Collateral and to the extent that any notice thereof is required to be given by law, the Noteholder shall give to the Note Obligors at least ten (10) Business Days’ prior authenticated notice of the time and place of any public sale or other disposition of the Collateral or of the time after which any private sale or any other intended disposition is to be made. Each of the Note Obligors, hereby acknowledges that ten (10) Business Days’ prior written notice of such sale or other disposition shall be reasonable notice. The Noteholder may enforce its rights hereunder without any other notice and without compliance with any other condition precedent now or hereafter imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by each of the Note Obligors to the fullest extent permitted by law). The Noteholder may buy or otherwise acquire any part or all of the Collateral at any public sale or other disposition and if any part or all of the Collateral is of a type customarily sold or otherwise disposed of in a recognized market or is of the type which is the subject of widely-distributed standard price quotations, the Noteholder may buy or otherwise acquire at private sale or other disposition and may make payments thereof by any means. Any proceeds of any sale or other disposition of the Collateral remaining after the occurrence of the Termination Date shall be promptly paid over to the applicable Note Obligor.
     8.8 Release of Collateral . Noteholder agrees that it shall (i) release its Lien on all of the Collateral upon occurrence of the Termination Date and (ii) release its Lien on any Collateral that is sold or to be sold as part of or in connection with any sale or other disposition permitted under this Note. If any Collateral is so released, Noteholder agrees that it will promptly execute and deliver or authorize the filing of appropriate documentation to evidence such release as the applicable Note Obligor may reasonably request.
     8.9 Reinstatement . This Note shall remain in full force and effect and continue to be effective should any petition be filed by or against any Note Obligor for liquidation or reorganization, should any Note Obligor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Note Obligor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Note Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Note Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Note Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
     8.10 Consent to Liens . Each of ACSC and ANI hereby consent to each Lien granted pursuant to Section 8.1 of this Note, notwithstanding any restriction set forth in the LLC Agreement with respect to the granting of any Lien hereunder or any enforcement action which Noteholder may take in respect of such Lien, and agree that ACSC and ANI comprise all of the members of the Payor after giving effect to the transactions contemplated by the Stock Purchase Agreement.

32


 

Article 9
Miscellaneous
     9.1 Notices . All notices or other communications to be given or delivered under or by reason of the provisions of this Note shall be given in writing and shall be delivered personally, or mailed by certified or registered mail, return receipt requested and postage prepaid, or sent via a recognized overnight courier (with signed receipt) at the address set forth below (or to such other address as the Payor, ACSC, ANI or the Noteholder may designate by written notice) or via any form of electronic transmission:
     
if to the Note Obligors, to:
  c/o Abitibi Consolidated Sales LLC
 
  1155 Metcalfe Street, Suite 800 
 
  Montreal, Quebec
 
  H3B 5H2 
 
  Attn: Executive Vice President,
 
  Operations and Sales
 
  Facsimile: 514.394.2241 
 
  With a copy to: Vice President Legal Affairs
 
  Facsimile: 514.394.3644 
 
   
 
  With a copy to:
 
   
 
  Paul, Weiss, Rifkind, Wharton & Garrison LLP
 
  1285 Avenue of the Americas
 
  New York, NY 10019-6064 
 
  Attn: Ariel J. Deckelbaum
 
  Facsimile: 212.492.0546 
 
   
if to the Noteholder, to:
  Woodbridge International Holdings Limited
 
  65 Queen Street West
 
  Toronto, Ontario M5H 2M8 
 
  Attn: Gregory Dart
 
  Facsimile: 416.365.9293 
 
   
 
  With a copy to:
 
   
 
  Torys LLP
 
  79 Wellington Street West
 
  Suite 3000, Box 270 
 
  TD Centre
 
  Toronto, Ontario M5K 1N2 
 
  Attn: Michael J. Siltala
 
  Facsimile: 416.865.7380 

33


 

     9.2 Waiver and Consent . The Note Obligors: (a) except for any notice expressly required by the terms of the Note or the Security Documents, waive presentment, demand, protest, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to the Note Obligors in connection with the delivery, acceptance, performance, default or enforcement of this Note or any other documents executed in connection with this Note and (b) consent to all waivers of any term hereof or of the other Security Documents, or the failure to act on the part of Noteholder, or any indulgence shown by the Noteholder (without notice to or further assent from the Note Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by the Noteholder shall in any way affect or impair the obligations of the Note Obligors or be construed as a waiver by the Noteholder of, or otherwise affect, any of the Noteholder’s rights under this Note or under any of the other Security Documents.
     9.3 Assignment and Amendment . Neither this Note nor any of the rights, interests or obligations hereunder shall be assigned, transferred or negotiated by one party to this Note without the prior consent of the other party to this Note; provided, however, Noteholder may assign its rights and interests in this Note to any Affiliate. Upon notice of any assignment by Noteholder as permitted hereunder, the Payor shall record the details of such assignment and transfer, including the name and address of such assignee, in a register and maintain such register in its principal place of business. The foregoing requirements are intended to result in this Note being in “registered form” within the meaning of United States Treasury Regulations Section 1.871-14(c) and Sections 163(f), 871(h) and 881(c) of the Code, and shall be interpreted and applied in a manner consistent therewith. No term of this Note may be amended without the written consent of each Note Obligor and the Noteholder.
     9.4 Taxes . The Payor agrees to pay any stamp or other documentary taxes which may be payable in connection with the execution or delivery of this Note.
     9.5 Expenses . Except as otherwise expressly provided herein, each of the parties hereto shall pay its own expenses in connection herewith and the other Settlement Documents. The Payor agrees to pay or reimburse Noteholder for all reasonable and documented out-of-pocket costs and expenses incurred by Noteholder after the Closing Date in connection with the enforcement or attempted enforcement of this Note or any Security Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Note Obligations and during any legal proceeding, including any proceeding under any debtor relief law), including, in each case, the reasonable fees and expenses of external counsel. All amounts due under this Section 9.5 shall be payable within five (5) Business Days after demand therefor. The agreements in this Section shall survive the termination of this Note and repayment of all the other Note Obligations.
     9.6 Governing Law; Venue . This Note shall be governed by, and interpreted and enforced in accordance with, the Laws in force in the State of New York (excluding any conflict of laws rule or principle which might refer such questions to the laws of another jurisdiction). All

34


 

disputes, disagreements, controversies, questions or claims arising out of or relating to this Note, including, without limitation, with respect to its formation, execution, validity, application, interpretation, performance, breach, termination or enforcement, shall be determined by arbitration administered by the American Arbitration Association under its commercial arbitration rules (the “ Commercial Arbitration Rules ”) provided that:
          (a) any hearing in the course of the arbitration shall be held in New York, New York in the English language;
          (b) if the parties are able to agree in writing to a single arbitrator within twenty (20) days, the number of arbitrators shall be one; otherwise, each party shall select one arbitrator and those two arbitrators shall select a third arbitrator, and the tree arbitrators so chosen shall serve as the arbitrators of such dispute;
          (c) any award or determination of the arbitrator shall be final and binding on the parties and there shall be no appeal on any ground, including, for greater certainty, on the ground of alleged errors of Law;
          (d) despite Article M-10 of the Commercial Arbitration Rules, the arbitrator shall not, without the written consent of all parties to the arbitration, retain any expert;
          (e) all costs and expenses of arbitration shall be split equally between the parties hereto; and
          (f) all matters in relation to the arbitration shall be kept confidential to the full extent permitted by Law, and no individual shall be appointed as an arbitrator unless he or she agrees in writing to be bound by this dispute resolution provision.
     9.7 Counterparts . This Note may be executed in several counterparts, each of which will be deemed original but all of which will constitute one and the same instrument. Any proof of execution, however, will require production of only one copy signed by the party to be charged.
     9.8 Confidentiality . Noteholder agrees to keep confidential all non-public information provided to it by or on behalf of any Note Obligor pursuant to or in connection with this Note or any of the Security Documents; provided that nothing herein shall prevent Noteholder from disclosing any such information (a) subject to an agreement to comply with the provisions of this Section 9.8, to any Affiliate of the Noteholder who is an actual or prospective transferee permitted under Section 9.3, (b) to its employees, directors, officers, agents, attorneys, accountants and other professional advisors on a need-to-know basis, (c) upon the request or demand of any Governmental Authority, (d) in response to any order of any court or other Governmental Authority or as may otherwise be required under applicable law or (e) in connection with the exercise of any remedy hereunder or any Security Document.
[signature page follows]

35


 

     IN WITNESS WHEREOF, the Note Obligors and the Noteholder have executed and delivered this Note as of the date hereof.
             
    AUGUSTA NEWSPRINT COMPANY LLC    
    as Payor    
 
           
 
  By:   ABITIBI CONSOLIDATED SALES
LLC, as Manager
   
 
           
 
  By:   ABITIBIBOWATER, INC.,
as Sole Member
   
 
           
 
  By:   /s/ Pierre Rougeau
 
Name: Pierre Rougeau
   
 
      Title: Executive Vice President,
Sales and Operations
   
Signature Page to Secured Promissory Note

 


 

             
    WOODBRIDGE INTERNATIONAL
HOLDINGS LIMITED
   
    as Noteholder    
 
           
 
  By:   /s/ Gregory J. Dart
 
Name: Gregory J. Dart
   
 
      Title: Vice President    
Signature Page to Secured Promissory Note

 


 

             
    ABITIBI CONSOLIDATED SALES LLC    
 
           
 
  By:   ABITIBIBOWATER, INC.,
as Sole Member
   
 
           
 
  By:   /s/ Pierre Rougeau
 
Name: Pierre Rougeau
   
 
      Title: Executive Vice President,
Sales and Operations
   
 
           
    AUGUSTA NEWSPRINT INC.    
 
           
 
  By:   /s/ Jacques P. Vachon
 
Name: Jacques P. Vachon
   
 
      Title: Vice President and Secretary    
Signature Page to Secured Promissory Note

 


 

Schedule 3.7
Environmental Compliance
1. In the 1990’s, the Payor shipped used oil and a small amount of chlorinated solvent to the AER hazardous waste storage and management site in Augusta, Georgia. The site closed, went into bankruptcy and became a superfund site. The Payor is part of the Potential Responsible Party group.
2. In 2009, the Payor voluntarily disclosed to U.S. EPA and Georgia EPD, the discovery of reporting discrepancies under the Emergency Planning and Community Right-to-Know Act of 1986 (“ EPCRA ”) section 313 for reporting years 2004 thru 2007. Corrections were submitted for lead, dioxin and dioxin-like compounds and methanol. The U.S. EPA corrected the federal database to reflect these changes. Neither Georgia EPD nor U.S. EPA has issued a Notice of Violation or investigated the matter further as of the date hereof.
Disclosure on this schedule is not to be construed as an admission by the Payor that the item herein disclosed is material.

 


 

EXHIBIT A
Sales Agreement

 


 

EXHIBIT B
Examples
The following examples are illustrative of the application of the minimum Operating Rate formula in Section 4.2.2 of the Note. In each example, the minimum Operating Rate generated by the formula (i.e. the greater of (i) the Weighted Average Operating Rate of the AbitibiBowater Mills in such calendar year, (ii) 90% and (iii) the Operating Rate of the newsprint industry in the United States of America plus 3.5%) is referred to as “MOR”. It is also assumed that the year has 365 days; that the total of 14 days for approved capital projects and mill maintenance can be scheduled to overlap by 3 days for a total of 11 days elapsed time; and that a Force Majeure event involving 3 days downtime occurs sometime during the year.
Example 1
         
MOR                     90%
       
 
       
mill maintenance & boiler inspection
  4 days}    
 
       
approved capital projects
  10 days}   11 days
 
       
Force Majeure event
  3 days    
The mill is required to operate a minimum of 328.5 days (365 x. 9).
Up to 36.5 days (365-328.5) downtime is permitted and this is more than ample to schedule and complete approved capital projects and mill maintenance. Accordingly, downtime for approved capital projects and mill maintenance must be scheduled within the 36.5 days downtime permitted. Up to 25.5 days could be scheduled for market related downtime (36.5-11). Subject to scheduling difficulties, the 36.5 days downtime would also be sufficient to recover from the Force Majeure event.
If all 36.5 days downtime have been taken before an unforeseen Force Majeure event occurs later in the year, permitted downtime would increase to 39.5 days (36.5 + 3). If less than 36.5 days downtime have been taken when the Force Majeure event occurs, there would be no incremental downtime due to Force Majeure, except to the extent that any remaining approved capital projects or mill maintenance work and work related to the Force Majeure event could not be completed within the 36.5 days.
Example 2
         
MOR                    95%
       
 
       
mill maintenance & boiler inspection
  4 days}    
 
       
approved capital projects
  10 days}   11 days
 
       
Force Majeure event
  3 days    

 


 

The mill is required to operate a minimum of 346.8 days (365 x. 95).
Up to 18.2 days (365-346.8) downtime is permitted and this is more than ample to schedule and complete approved capital projects and mill maintenance. Accordingly, downtime for approved capital projects and mill maintenance must be scheduled within the 18.2 days downtime permitted. Up to 7.2 days could be scheduled for market related downtime (18.2 — 11). Subject to scheduling difficulties, the 18.2 days downtime would also be sufficient to recover from the Force Majeure event.
If all 18.2 days downtime have been taken before an unforeseen Force Majeure event occurs later in the year, permitted downtime would increase to 21.2 days (18.2 + 3). If less than 18.2 days downtime have been taken when the Force Majeure event occurs, there would be no incremental downtime due to Force Majeure, except to the extent that any remaining approved capital projects or mill maintenance work and work related to the Force Majeure event could not be completed within the 18.2 days.
Example 3
         
MOR                    99%
       
 
       
mill maintenance & boiler inspection
  4 days}    
 
       
approved capital projects
  10 days}   11 days
 
       
Force Majeure event
  3 days    
The mill is required to operate a minimum of 361.4 days (365 x. 99). However, this is insufficient to complete approved capital projects and mill maintenance requiring 11 days in total. Accordingly, the mill is required to operate a minimum of 354 days (365-11).
Up to 11 days (365 — 354) downtime is permitted. Accordingly, approved capital projects and mill maintenance must be scheduled within the 11 days downtime permitted. No incremental days could be scheduled for market related downtime. Subject to scheduling difficulties, it may be possible to recover from the Force Majeure event within the 11 days of scheduled downtime.
If all 11 days downtime have been taken before an unforeseen Force Majeure event occurs later in the year, permitted downtime would increase to 14 days (11+3). If less than 11 days downtime have been taken when the Force Majeure event occurs, there would be no incremental downtime due to Force Majeure, except to the extent that any remaining approved capital projects or mill maintenance work and work related to the Force Majeure event could not be completed within the 11 days.

 


 

Example 4
         
MOR 102% (i.e. U.S. 98.5% + 3.5%)
       
 
       
mill maintenance & boiler inspection
  4 days}    
 
       
approved capital projects
  10 days}   11 days
 
       
Force Majeure event
  3 days    
The mill is required to operate a minimum of 372.3 days (365 x 1.02). However, this exceeds the number of calendar days in the year and is also insufficient to carry out approved capital projects and mill maintenance requiring 11 days in total. Accordingly, the mill is required to operate a minimum of 354 days (365-11).
In all other respects Example 4 is the same as Example 3.

 


 

EXHIBIT C
Mill Operations
For purposes of Section 4.2.2 of this Note, the amount of the Make-Whole Payment in the event of an Operating Rate Deficit shall be calculated in accordance with the following formula:
Make Whole Payment = (Operating Rate Deficit X 365 days X Average Tonnes per Day X Average Margin per Tonne) X 70%
Whereby:
“Operating Rate Deficit” shall mean the minimum Operating Rate (in percentage) for any given Fiscal Year required in accordance with Section 4.2.2 of this Note less the actual Operating Rate of the Augusta mill for such Fiscal Year (in percentage).
“Average Tonnes per Day” shall mean the average number of tonnes produced by the Augusta mill per Operating Day in any given Fiscal Year.
“Average Margin per Tonne” shall mean the weighted average Mill Net (as defined below) of the Augusta Mill in any given Fiscal Year less sales commissions (including the Discounts to ACSC pursuant to the Sales Agreement (as defined therein)) minus the weighted average cash manufacturing costs per tonne.
“Mill Net” shall mean the selling price billed by AbitibiBowater to the Augusta customers net of all discounts and/or allowances granted to such customers for newsprint per tonne minus all costs incurred in connection with the transfer of newsprint from the Augusta mill to an Augusta customer including, without limitation, transportation costs and warehousing.

 

EXHIBIT 10.2
Execution Copy
WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED ,
a corporation incorporated under the laws of the Province of
Ontario
- and -
THE WOODBRIDGE COMPANY LIMITED , a corporation
incorporated under the laws of the Province of Ontario
- and -
ABITIBI CONSOLIDATED SALES CORPORATION , a
corporation incorporated under the laws of the State of Delaware
- and -
ABITIBIBOWATER INC. , a corporation incorporated under the
laws of the State of Delaware (solely for the purpose of the
provisions stated herein)
- and -
AUGUSTA NEWSPRINT COMPANY , a Georgia partnership
- and-
AUGUSTA NEWSPRINT INC. , a corporation incorporated
under the laws of the State of Delaware
 
STOCK PURCHASE AGREEMENT
 
December 23, 2010


 

 

TABLE OF CONTENTS
         
ARTICLE 1
       
DEFINITIONS AND SCHEDULES
    2  
1.1 Definitions
    2  
1.2 Schedules
    11  
 
       
ARTICLE 2
       
PURCHASE AND SALE
    12  
2.1 Purchase and Sale
    12  
2.2 Purchase Price
    12  
2.3 Payment Instructions
    13  
2.4 Closing
    13  
2.5 Distribution
    13  
2.6 Intercompany Payables and Receivables
    13  
2.7 Redemption of ANI Preferred Stock
    13  
2.8 Assignment of Bankruptcy Claims
    13  
2.9 Assignment of Administrative Claim
    14  
2.10 Wood Fraud Claim Payment
    14  
2.11 Distribution Adjustment
    15  
2.12 Adjustment Payment
    16  
2.13 Withholding Rights
    16  
 
       
ARTICLE 3
       
CONDITIONS TO CLOSING
    16  
3.1 Mutual Conditions
    16  
3.2 Additional Conditions to ACSC and AbitibiBowater’s Obligations
    16  
3.3 Additional Conditions to Woodbridge’s Obligations
    17  
3.4 Unsatisfied Closing Conditions
    17  
3.5 Releases
    18  
 
       
ARTICLE 4
       
COVENANTS
    18  
4.1 Further Actions
    18  
4.2 Settlement Motion
    19  
4.3 Conduct of Business
    19  
4.4 Bank Account
    20  
4.5 WIHSA Share Transfer
    20  
4.6 Notice of Withdrawal of Appeal
    20  
4.7 Resignation of Directors and Officers of ANI
    20  

- ii -


 

TABLE OF CONTENTS
         
4.8 LLC Conversion
    20  
 
       
ARTICLE 5
       
REPRESENTATIONS AND WARRANTIES
    21  
5.1 ACSC and AbitibiBowater Representations and Warranties
    21  
5.2 Woodbridge and Woodbridge Parent Representations and Warranties
    23  
5.3 Woodbridge Representations and Warranties Regarding ANI
    25  
5.4 Survival of Representations and Warranties
    30  
 
       
ARTICLE 6
       
TAX MATTERS
    30  
6.1 ANI Pre-Closing Tax Returns
    30  
6.2 ANI Straddle Period Returns
    31  
6.3 Cooperation
    31  
6.4 Indemnified Taxes
    32  
6.5 Amended Tax Returns
    32  
6.6 Pre-Closing Period Tax Refund
    33  
6.7 Audits and Proceedings
    33  
6.8 Termination of Tax Sharing Agreements
    34  
6.9 Taxes and Fees
    34  
6.10 Tax Attributes
    34  
 
       
ARTICLE 7
       
DISPUTE RESOLUTION
    34  
7.1 Commercial Arbitration
    34  
7.2 Proposed Adjustment Disputes
    35  
 
       
ARTICLE 8
       
INDEMNIFICATION
    35  
8.1 Indemnification by Woodbridge and Woodbridge Parent
    35  
8.2 Indemnification by ACSC and AbitibiBowater
    36  
8.3 Indemnification by ACSC and AbitibiBowater of Woodbridge Indemnitees
    36  
8.4 Indemnification by Woodbridge and Woodbridge Parent of Abitibi Indemnitees
    37  
8.5 Resolution of Indemnification Claims
    37  
8.6 Indemnification for Tax Contests
    39  
8.7 Limitations on Liability
    39  
8.8 Indemnification Payment
    39  

- iii-


 

TABLE OF CONTENTS
         
ARTICLE 9
       
GENERAL
    39  
9.1 Assignment
    39  
9.2 Notices
    39  
9.3 Governing Law
    42  
9.4 Time of Performance
    42  
9.5 Entire Agreement
    42  
9.6 Amendment
    43  
9.7 Time of the Essence
    43  
9.8 Waiver
    43  
9.9 Further Assurances
    43  
9.10 Costs and Expenses
    43  
9.11 Currency
    43  
9.12 Confidentiality
    43  
9.13 Counterparts
    43  
9.14 Sections and Headings
    44  
9.15 Successors and Assigns
    44  
9.16 Availability of Equitable Relief; Specific Performance
    44  

- iv -


 

 

           STOCK PURCHASE AGREEMENT made as of the 23rd day of December, 2010
BETWEEN:
WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED , a corporation incorporated under the laws of the Province of Ontario
- and -
THE WOODBRIDGE COMPANY LIMITED , a corporation incorporated under the laws of the Province of Ontario
- and -
ABITIBI CONSOLIDATED SALES CORPORATION , a corporation incorporated under the laws of the State of Delaware
- and -
ABITIBI BOWATER INC. , a corporation incorporated under the laws of the State of Delaware
- and -
AUGUSTA NEWSPRINT COMPANY , a Georgia partnership
- and-
AUGUSTA NEWSPRINT INC. , a corporation incorporated under the laws of the State of Delaware
      WHEREAS Woodbridge owns (beneficially and of record) all of the outstanding ANI Preferred Stock;
      AND WHEREAS WIHSA owns (beneficially and of record) all of the outstanding ANI Common Stock;
      AND WHEREAS , prior to the Closing, Woodbridge Parent will cause WIHSA to sell, transfer and assign all of its rights, title and interest in all of the outstanding ANI Common Stock to Woodbridge;
      AND WHEREAS as of the Closing, Woodbridge will own all of the outstanding ANI Preferred Stock and ANI Common Stock;


 

- 2 -

      AND WHEREAS ANI owns a 47.5% interest in the Partnership and ACSC owns a 52.5% interest in the Partnership;
      AND WHEREAS Woodbridge Parent is the indirect parent company of Woodbridge and AbitibiBowater is the indirect parent company of ACSC;
      AND WHEREAS the Debtors have commenced the Bankruptcy Proceedings and Canadian Debtors have commenced the CCAA Proceedings;
      AND WHEREAS Woodbridge wishes to sell, transfer and assign, and the Partnership wishes to purchase, the Purchase Stock, on and subject to the terms and conditions set forth in this Agreement;
      AND WHEREAS in connection with the Bankruptcy Proceedings, AbitibiBowater has filed the Settlement Motion pursuant to which AbitibiBowater and ACSC is seeking the approval of the Bankruptcy Court of (i) the terms of settlement of various disputes concerning (A) the rejection of the Call Agreement and (B) the motion to compel rejection of the Partnership Agreement, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure (other than the Woodbridge Claims), and (ii) this Agreement and the transactions contemplated hereby, pursuant to Sections 363 and 105 of the Bankruptcy Code, and authority for the applicable Debtors to perform all of the obligations under this Agreement and all documents and agreements entered into in connection herewith;
      NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND SCHEDULES
1.1 Definitions . Wherever used in this Agreement, unless the context otherwise requires, the following terms have the following meanings, respectively:
“AbitibiBowater” means AbitibiBowater Inc., a corporation incorporated under the laws of the State of Delaware, and references to AbitibiBowater shall include any successor by operation of law to AbitibiBowater Inc.
“AbitibiBowater Release” means the release in the form attached hereto as Schedule C.
“Accounting Firm ” has the meaning set forth in Section 2.11(b).
“Action or Proceeding” means any action, suit, hearing, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit, whether civil, criminal, administrative or otherwise. For purposes of this Agreement, “pending” Actions and Proceedings include written demands, claims, notices of violations or demand letters.


 

- 3 -

“ACSC” means Abitibi Consolidated Sales Corporation, a corporation incorporated under the laws of the State of Delaware, and references to ACSC shall include any successor by operation of law to Abitibi Consolidated Sales Corporation.
“Adjustment Payment ” has the meaning set forth in Section 2.12.
“Administrative Claim” means the allowed administrative claim held by the Partnership against ACSC in the amount of $9,246,580.00 pursuant to the Agreed Order With Respect to Motion of Augusta Newsprint Company for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b)(9) [D.I. 1457] entered by the Bankruptcy Court on December 16, 2009.
“Administrative Claim Assignment ” has the meaning set forth in Section 2.9.
“Agreement”, “this Agreement”, “the Agreement”, “hereto”, “hereof”, “herein”, “hereby”, “hereunder”, and similar expressions mean and refer to this Agreement, including the recitals, as amended, supplemented, restated or replaced from time to time (including the Schedules hereto, unless indicated to the contrary by the text), and the expressions “Article”, “Section” and “Schedule” followed by a number or letter mean and refer to the specified article, section or schedule of this Agreement.
“ANI” means Augusta Newsprint Inc., a corporation incorporated under the laws of the State of Delaware, and references to ANI shall include any successor by operation of law to Augusta Newsprint Inc.
“ANI Class A Preferred Stock” means the outstanding Class A preferred stock, par value $0.01 per share, in the share capital of ANI.
“ANI Class B Preferred Stock” means the outstanding Class B preferred stock, par value $0.01 per share, in the share capital of ANI.
“ANI Common Stock” means the outstanding common stock, par value $0.01 per share, in the share capital of ANI.
“ANI Financial Statements” has the meaning set forth in Section 5.3(i).
“ANI Preferred Stock” means the ANI Class A Preferred Stock and the ANI Class B Preferred Stock.
“ANI Redemption Amount ” has the meaning set forth in Section 2.7.
“Approval Date” means the date on which the Settlement Order is approved by the Bankruptcy Court.
“Assets and Properties” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), operated, owned or leased by such Person, including cash, cash equivalents,


 

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Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and intellectual property.
“Bankruptcy Claims” means the following Claims made, filed, scheduled or otherwise asserted by or on behalf of the Partnership in the Bankruptcy Proceedings: Claim number 3612 made by the Partnership in the Bankruptcy Proceedings of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $1,699.49; Claim number 3630 made by the Partnership in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $1,848.01; Claim numbers 3631 and 3632 made by the Partnership in the Bankruptcy Proceedings of AbitibiBowater, Inc., Case no. 09-11296, in the amounts of $25,899.02 and $85,247.34, respectively; the Claim listed on Schedule F of the Schedules of Assets and Liabilities of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $2,203.49; and Claim number 10005 made by the Partnership in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $37,458,605.69.
“Bankruptcy Claims Assignment ” has the meaning set forth in Section 2.8.
“Bankruptcy Code” means title 11 of the United States Code, as amended from time to time.
“Bankruptcy Court” means the United States Bankruptcy Court for the District of Delaware, or such other court that exercises jurisdiction over the Bankruptcy Proceedings.
“Bankruptcy Proceedings” means the cases filed in the Bankruptcy Court under chapter 11 of the Bankruptcy Code by AbitibiBowater and its affiliated debtors and debtors-in-possession, jointly administered as Case No. 09-11296.
“Business Day” means a day of the year, other than a Saturday or a Sunday, on which banks are generally open for business in each of Montreal, Quebec, Toronto, Ontario, and New York, New York.
“Call Agreement” means the Amended and Restated Call Agreement, dated as of July 1, 2004, among Woodbridge, WIHSA, Woodbridge Parent, ACSC and Abitibi-Consolidated Inc., as amended or supplemented pursuant to amendments made as of May 27, 2005 and February 23, 2007, respectively.
Canadian Court ” means the Superior Court, Commercial Division, for the Judicial District of Montreal, Canada.
Canadian Debtors ” means, collectively, AbitibiBowater and those of its subsidiaries and affiliates who applied for protection from creditors in the CCAA Proceedings.
CCAA ” means Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended from time to time.


 

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CCAA Proceedings ” means the proceedings for provisional relief in support of the Bankruptcy Proceedings commenced in the Canadian Court under section 18.6 of the CCAA by AbitibiBowater and certain of its subsidiaries.
“Claim Notice” has the meaning set forth in Section 8.5(a).
“Claim” has the meaning ascribed to such term in Section 1.01(5) of the Bankruptcy Code.
“Closing” means the consummation of the purchase and sale of the Purchase Stock pursuant to this Agreement.
“Closing Date” means the first fourteenth day of a month following the Approval Date, or such other date as the parties shall agree in writing, provided that, if the fourteenth day of the month is not a Business Day, the Closing Date shall be the first Business Day immediately preceding the fourteenth day. Notwithstanding the foregoing, in no event shall the Closing Date be earlier than January 14, 2011.
“Closing Date Cash Statement ” has the meaning set forth in Section 2.11(a).
“Closing Time” means 10:00 a.m. (New York time) on the Closing Date.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, and any anomalous provisions of state law, and any successor legislation to the foregoing.
“Commercial Arbitration Rules” has the meaning set forth in Section 7.1.
“Conditions” means the presence of any Regulated Material in, on, under, above, or emanating from the real property on which the mill operated by the Partnership is situated, where the presence of such Regulated Material does not arise from or pertain to Operations.
“Contract” means any agreement, instrument, lease, deed, evidence of indebtedness, mortgage, indenture, security agreement or other contract or understanding (whether written or oral) and “Contractual” means arising under any such Contract.
“Debtors” means, collectively, AbitibiBowater and its affiliated debtors and debtors-in-possession in the Bankruptcy Proceedings.
“Encumbrance” means any encumbrance of any kind whatever and includes a security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust, right of set-off, adverse claim, or any other Option, right or claim of others of any kind whatever, whether Contractual, statutory or otherwise arising.
“Environmental Damages” means any Loss arising from any investigation, notice, violation, demand, allegation, suit, proceeding, order or claim made by any third party or Governmental or Regulatory Authority that arises from or pertains to any Environmental


 

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Law or the Release or threatened Release of any Regulated Material, including claims for personal injury, emotional distress, medical monitoring, property damage, trespass, nuisance, negligence, strict liability, diminution in property value, compensatory damages, natural resource damages, investigation or Remediation costs.
“Environmental Law” means any Law relating to environmental health and safety matters, pollution or protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), investigation or Remediation of contaminated sites or the protection of human health and safety from environmental hazards, including any Law or permit relating to Releases or threatened Releases of Regulated Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, handling or Remediation of Regulated Materials, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, and state Laws, whether or not they embody a delegation of authority under federal Laws.
“Equity Holder” means (i) in the case of a corporation, a stockholder, (ii) in the case of a general or limited partnership, a partner, (iii) in the case of a limited liability company, a member, and (iv) in the case of any other Person other than an individual, a holder of comparable equity interests therein.
“Equity Interest” means (i) in the case of a corporation, shares of stock, (ii) in the case of a general or limited partnership, partnership units or interests, (iii) in the case of a limited liability company, membership units or interests, and (iv) in the case of any other Person other than an individual, the comparable equity interests therein.
    ERISA ” means the Employee Retirement Income Security Act of 1974.
    ERISA Affiliate ” means, with respect to any Person, any other Person that is or may be treated as a single employer together with such first Person within the meaning of Section 4001 of ERISA or Section 414(b), (c) (m) or (o) of the Code.
ERISA Affiliate Liability ” means any actual or contingent obligation, liability or expense of ANI or any of its subsidiaries to, under or in respect of any employee benefit plan under any statute or regulation that imposes liability on a so-called “controlled group” basis (as used in Sections 52 and 414 of the Code) including by reason of ANI’s affiliation with any of its ERISA Affiliates or ACSC being deemed a successor to any ERISA Affiliate of Woodbridge or its subsidiaries.
“Estimated Closing Date Cash Statement ” has the meaning set forth in Section 2.5.
“Estimated Partnership Cash” has the meaning set forth in Section 2.5.
“Final Order” means a final and non-appealable order of the Bankruptcy Court.
“Final Partnership Cash Amount ” has the meaning set forth in Section 2.11(b).


 

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“GAAP” means United States generally accepted accounting principles, consistently applied throughout the specified period.
“Governmental or Regulatory Authority ” means any court, tribunal, arbitrator, board, bureau, department, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.
“HSR” means the Hart-Scott-Rodino Antitrusts Improvement Act of 1976, as amended.
“Indemnified Party” and “Indemnifying Party” have the respective meanings set forth in Section 8.5(a).
“Indemnified Taxes” has the meaning set forth in Section 6.4.
“Indemnity Notice” has the meaning set forth in Section 8.5(c).
“Interim Period” has the meaning set forth in Section 6.4.
“Investment Assets” means all debentures, notes and other evidences of indebtedness, Equity Interests (including Options for Equity Interests or other securities), interests in joint ventures, mortgage loans and other investment or portfolio assets owned beneficially, whether or not of record.
“know” or “knowledge” means, with respect to any Person, the actual knowledge of such Person or, if not a natural Person, its Managing Persons, in each case after reasonable inquiry.
“Laws” means all laws (including common law), statutes, rules (including rules of relevant stock exchanges or similar self-regulatory organizations), regulations, ordinances, and other pronouncements having the effect of law, policies and directives of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.
“Liabilities” means all indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, known or unknown, fixed or otherwise, or whether due or to become due).
“Licenses” means all identification numbers, licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents required by any Laws administered by any Governmental or Regulatory Authority.
“LLC Conversion” has the meaning set forth in Section 4.8.
“Loss” means any and all damages, fines, fees, penalties, deficiencies, losses and reasonable expenses, including reasonable fees and expenses of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim,


 

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default or assessment (such fees and expenses to include all fees and expenses incurred in connection with the defense of any third party claims).
“Managing Persons” means, to the extent applicable, (i) in the case of a corporation, its directors and Senior Officers, (ii) in the case of a general or limited partnership, its general partners and their respective Senior Officers, (iii) in the case of a limited liability company, its managers or managing members, and any Senior Officers, and (iv) in the case of any other Person other than an individual, Persons holding like positions or performing like functions.
“Measurement Time ” means 11:59 p.m. as of the day immediately prior to the Closing Date.
“Notice” has the meaning set forth in Section 9.2.
“Operations” means any conduct or activity of the Partnership.
“Option” with respect to any Person means any security, right, subscription, warrant, option, “phantom” stock right, stock appreciation right, convertible security or other Contract that gives the right to (i) purchase or otherwise receive (including pursuant to a right of first refusal or offer) or be issued any Equity Interest of such Person or any security of any kind convertible into or exchangeable or exercisable for any Equity Interest of such Person, or (ii) receive any benefits or rights similar to any rights enjoyed by or accruing to the holder of Equity Interests of such Person, including any rights to participate in the equity and income or in the election of Managing Persons.
“Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).
“Organizational Documents” means with respect to any Person that is a corporation, its articles or certificate of incorporation or memorandum and articles of association, as the case may be, and bylaws; with respect to any Person that is a partnership, its certificate of partnership and partnership agreement; with respect to any Person that is a limited liability company, its certificate of formation and limited liability company or operating agreement; and, with respect to any other Person other than an individual, its comparable organizational documents.
“Partnership” means Augusta Newsprint Company, a Georgia partnership, established pursuant to the Partnership Agreement, and references to the Partnership shall include any successor by operation of law to Augusta Newsprint Company, or any successor entity following the LLC Conversion.
“Partnership Agreement” means the partnership agreement establishing and governing the Partnership, dated as of August 17, 1981, as amended or supplemented from time to time.
“Partnership Cash” means the cash balance of the Partnership as of the Measurement Time, it being understood and agreed that it is anticipated that payment for newsprint


 

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purchased by ACSC from the Partnership for the preceding month will be received on the first or second Business Day following the day on which the Measurement Time occurs and such amount shall not be included in the determination of Partnership Cash at the Measurement Time.
“Partnership Interest” means the 47.5% interest in the Partnership held by ANI.
“Person” means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, or Governmental or Regulatory Authority, however designated or constituted.
“Pre-Closing Periods” has the meaning set forth in Section 6.4.
“Proposed Final Partnership Cash Amount ” has the meaning set forth in Section 2.11(a).
“Purchase Price ” has the meaning set forth in Section 2.2, adjusted pursuant thereto and pursuant to Section 2.11.
“Purchase Stock” means, collectively, the ANI Common Stock and the ANI Preferred Stock.
“Regulated Material” means any contaminants, chemicals, wastes, petroleum, petroleum hydrocarbons, petroleum products and compounds containing them (including kerosene, fuel oil, gasoline, diesel fuel, and fuel additives), explosives, flammable materials, radioactive materials, polychlorinated biphenyls, lead and lead-based paint, asbestos or asbestos-containing materials, underground or aboveground storage tanks (whether empty or containing any substance), ozone depleting substances, and any and all other substances or contaminants (whether solid, liquid or gas) now or in the future regulated by any Environmental Law.
“Release” means any release, deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposal, or other movement of any Regulated Material.
“Remediation” means any activity, response, removal or corrective action to cleanup, decontaminate, contain or otherwise address any Regulated Material, any action to prevent, cure or mitigate any Release or threatened Release, any action to comply with any Environmental Law, and any inspection, investigation, study, monitoring, assessment, audit, sampling, testing, analysis or other evaluation relating to any Regulated Material.
“Secured Promissory Note” has the meaning set forth in Section 2.2.
“Security Documents” means all documents listed in Section B(II) of Schedule D.


 

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“Senior Officer” means, in respect of any party, any senior officer of such party, which shall include the president, treasurer, secretary and any other senior or executive vice-president thereof (or any comparable authorized person).
“Settlement Date ” has the meaning set forth in Section 2.11(c).
“Settlement Motion” has the meaning set forth in Section 4.2.
“Settlement Order” means, collectively, one or more Final Orders of the Bankruptcy Court approving (i) the settlement of various disputes concerning (A) the rejection of the Call Agreement and (B) the motion to compel rejection of the Partnership Agreement, pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure (other than the Woodbridge Claims), and (ii) this Agreement, and the transactions contemplated hereby, pursuant to Sections 363 and 105 of the Bankruptcy Code, and authorizing the applicable Debtors to perform all of the obligations under this Agreement, and all documents and agreements entered into in connection herewith, which Final Orders shall be in form and substance reasonably acceptable to Woodbridge.
“Tax” or “Taxes” means all federal, state, local or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank interests, withholding, payroll, employment, excise, sales, use, property, alternative or add-on minimum, transfer, environmental or other taxes, assessments, duties, fees, levies, customs or other governmental charges of any nature whatever, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto.
“Taxing Authority” means any Governmental or Regulatory Authority having or purporting to exercise jurisdiction with respect to any Tax.
“Tax Returns” means any returns, reports or statements (including any information returns, claims for refunds, amended returns or declarations of estimated Tax) required to be filed with respect to a particular Tax and any schedules or attachment thereto.
“Third Party Claim” has the meaning set forth in Section 8.5(a).
“TNI” means Thomson Newsprint Inc., a corporation incorporated under the laws of the State of Florida, and references to TNI shall include any successor by operation of law to Thomson Newsprint Inc.
“Transmission” has the meaning set forth in Section 9.2.
“WIHSA” means Woodbridge International Holdings S.A., and references to WIHSA shall include any successor by operation of law to Woodbridge International Holdings S.A..
“WIHSA Transfer Agreement” means the agreement substantially in the form of Schedule F hereto, to be entered into between WIHSA and Woodbridge pursuant to


 

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which, prior to the Closing, WIHSA will sell, transfer and assign to Woodbridge all of the outstanding ANI Common Stock.
“Wood Fraud Claim” means claim number 005-112442 held by AbitibiBowater against Chartis Insurance Company of Canada, under policy number 138-21-37, in the net amount of Canadian $1,469,282.04.
“Wood Fraud Claim Payment” means amounts received by the Partnership from time to time in satisfaction of the Wood Fraud Claim.
“Woodbridge” means Woodbridge International Holdings Limited, and references to Woodbridge shall include any successor by operation of law to Woodbridge International Holdings Limited.
“Woodbridge Claims” has the meaning set forth in Section 4.2.
“Woodbridge Indemnitees” has the meaning set forth in Section 8.3.
“Woodbridge Parent” means The Woodbridge Company Limited, and references to Woodbridge Parent include any successor by operation of law to The Woodbridge Company Limited.
“Woodbridge Release” means the release in the form attached hereto as Schedule B.
     Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; and (iii) the phrases “include” and “including” shall mean “include without limitation” and “including without limitation”. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.
1.2 Schedules . The following Schedules and Exhibits are attached to and incorporated into this Agreement:
         
Schedule A
    Form of Secured Promissory Note
Schedule B
    Form of Woodbridge Release
Schedule C
    Form of AbitibiBowater Release
Schedule D
    Closing Deliveries
Schedule E
    Form of Settlement Motion
Schedule F
    Form of WIHSA Transfer Agreement
Schedule G
    Form of Assignment and Assumption of Bankruptcy Claims Agreement
Schedule H
    Form of Assignment and Assumption of Administrative Claim Agreement
Schedule I
    Known Environmental Conditions


 

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ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale . Subject to the terms of this Agreement, at the Closing, Woodbridge shall sell, transfer and assign and the Partnership shall purchase, the Purchase Stock, constituting all of the issued and outstanding stock in the share capital of ANI, free and clear of all Encumbrances.
2.2 Purchase Price . The Purchase Price shall consist of the following:
  (a)   An amount in cash equal to the lesser of (i) fifteen million dollars ($15,000,000) and (ii) 52.5% of the Estimated Partnership Cash, payable by the Partnership at the Closing; plus
 
  (b)   a secured, first priority promissory note issued, at the Closing, by the Partnership, payable to Woodbridge in the aggregate original principal amount of ninety million dollars ($90,000,000), plus the excess, if any, of fifteen million dollars ($15,000,000) over 52.5% of the Estimated Partnership Cash (the “ Secured Promissory Note ”); plus
 
  (c)   an assignment of 47.5% of the Partnership’s right, title and interest in and to the Bankruptcy Claims pursuant to Section 2.8 hereof, except to the extent such claims are paid to the Partnership in cash prior to the Measurement Time;
 
  (d)   an assignment of 47.5% of the Partnership’s right, title and interest in and to the Administrative Claim pursuant to Section 2.9 hereof, except to the extent such claims are paid to the Partnership in cash prior to the Measurement Time; plus
 
  (e)   an amount in cash equal 47.5% of any Wood Fraud Claim Payments received by the Partnership from time to time to the extent such amount was not distributed by the Partnership to ANI on or prior to the Closing Date, including pursuant to Section 2.5 hereof.
The Secured Promissory Note shall be in substantially the form attached hereto as Schedule A. In connection with the purchase of the Purchase Stock and the issuance of the Secured Promissory Note, ACSC, ANI and the Partnership shall enter into the applicable Security Documents as of the Closing and the Partnership shall deliver (i) a certificate of a senior officer of each of the Partnership and ACSC as to the solvency of the Partnership and (ii) an opinion dated the Closing Date, from counsel to ANI, ACSC and the Partnership as to enforceability and perfection. The Purchase Price shall be allocated as to two hundred dollars ($200) to the ANI Common Stock and the remainder to the ANI Preferred Stock.


 

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2.3 Payment Instructions . Woodbridge shall deliver to the Partnership no later than two (2) Business Days before the anticipated Closing Date a notice which shall contain payment instructions.
2.4 Closing . The Closing shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019-6064 at the Closing Time, or at such other location as the parties may agree in writing.
2.5 Distribution . No later than five (5) Business Days prior to the Closing Date, ACSC shall deliver a notice to Woodbridge (the “ Estimated Closing Date Cash Statement ”) which shall set forth its good faith estimate of the Partnership Cash (the “Estimated Partnership Cash” ). On the Business Day immediately prior to the Closing, ACSC and ANI shall cause the Partnership to, and the Partnership shall, distribute to ANI 47.5% of the Estimated Partnership Cash.
2.6 Payables and Receivables . Immediately prior to the Closing, ANI shall apply a portion of the distribution of the Estimated Partnership Cash received by ANI pursuant to Section 2.5 hereof to repay any outstanding accounts payable, and shall collect or eliminate any accounts receivable.
2.7 Redemption of ANI Preferred Stock . Immediately prior to the Closing, ANI shall redeem, in exchange for an aggregate amount equal to the sum of the amount of Estimated Partnership Cash received by ANI pursuant to Section 2.5 hereof plus the amount of the available cash in ANI, if any, after the settlement of its accounts payable and accounts receivable pursuant to Section 2.6 (the “ ANI Redemption Amount ”), that number of shares of outstanding ANI Class A Preferred Stock that can be redeemed for the Class A Redemption Amount (as defined in ANI’s Amended and Restated Certificate of Incorporation) per share with the ANI Redemption Amount.
2.8 Assignment of Bankruptcy Claims .
  (a)   Subject to Section 2.8(b), prior to Closing, except to the extent that the Bankruptcy Claims are paid to the Partnership in cash prior to the Measurement Time, pursuant to an Assignment and Assumption in the form attached hereto as Schedule G, ACSC and ANI shall cause the Partnership to, and the Partnership shall, assign, grant, convey and transfer to Woodbridge, 47.5% of the Partnership’s right, title and interest in and to the Bankruptcy Claims (the “ Bankruptcy Claims Assignment ”), which shall include, without limitation or offset, 47.5% of ((i) through (iv) below collectively, the “ Transferred Bankruptcy Claims Rights ”):
  (i)   the Bankruptcy Claims;
  (ii)   the Partnership’s right, title and interest in and to the Bankruptcy Claims, including all agreements, instruments, subscriptions, statements, proofs of claim, proofs of investment and other documents evidencing, or supporting the Bankruptcy Claims and any agreements, stipulations, or


 

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      other settlement rights or documentation relating to the allowance or disallowance of the Bankruptcy Claims;
  (iii)   the Partnership’s right to receive principal, interest, fees, expenses, damages and other amounts in respect of, or in connection with, the Bankruptcy Claims; and
  (iv)   cash, securities, instruments, proceeds, collateral, guarantees and/or other property distributed, received or paid from and after the Closing, on account of, or exchanged in return for the Bankruptcy Claims.
  (b)   Prior to the first distribution in respect of Bankruptcy Claims to be made in shares of AbitibiBowater, each of AbitibiBowater, ACSC and the Partnership shall take all necessary actions so that such distribution shall be deferred until as promptly as practicable following the Closing and the rights thereto (as to 47.5%) shall be assigned to Woodbridge pursuant to the Bankruptcy Claims Assignment.
2.9 Assignment of Administrative Claim . Prior to Closing, except to the extent that the Administrative Claim is paid to the Partnership in cash prior to the Measurement Time, pursuant to an Assignment and Assumption in the form attached hereto as Schedule H, ACSC and ANI shall cause the Partnership to, and the Partnership shall, assign, grant, convey and transfer to Woodbridge, 47.5% of the Partnership’s right, title and interest in and to the Administrative Claim (the “ Administrative Claim Assignment ”), which shall include, without limitation or offset, 47.5% of ((a) through (d) below collectively, the “ Transferred Administrative Claim Rights ”):
  (a)   the Administrative Claim;
 
  (b)   the Partnership’s right, title and interest in and to the Administrative Claim, including all agreements, instruments, subscriptions, statements, proofs of claim, proofs of investment and other documents evidencing, or supporting the Administrative Claim and any agreements, stipulations, or other settlement rights or documentation relating to the allowance or disallowance of the Administrative Claim;
 
  (c)   the Partnership’s right to receive principal, interest, fees, expenses, damages and other amounts in respect of, or in connection with, the Administrative Claim; and
 
  (d)   cash, securities, instruments, proceeds, collateral, guarantees and/or other property distributed, received or paid from and after the Closing, on account of, or exchanged in return for the Administrative Claim.
2.10 Wood Fraud Claim Payment . Except to the extent that the Wood Fraud Claim is paid to the Partnership in cash prior to the Measurement Time, the Partnership shall pay the amount that is 47.5% of any Wood Fraud Claim Payment to Woodbridge or as Woodbridge otherwise directs


 

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as soon as practicable after such time as such Wood Fraud Claim Payment is received by the Partnership. Payments pursuant to this Section 2.10 shall satisfy the amount payable under Section 2.2(e).
2.11 Distribution Adjustment .
  (a)   Not later than 60 days after the Closing Date, ANI shall cause a statement (the “ Closing Date Cash Statement ”) setting forth the amount of the Partnership Cash (the “ Proposed Final Partnership Cash Amount ”) to be prepared and delivered to Woodbridge. The Closing Date Cash Statement shall be prepared in accordance with the normal procedures of the Partnership.
 
  (b)   If Woodbridge notifies ANI that it agrees with the Proposed Final Partnership Cash Amount within 20 days after receipt of the Closing Date Cash Statement or, within such 20-day period, fails to deliver notice to ANI that it disagrees with the Proposed Final Partnership Cash Amount or that it believes an error is contained in the Closing Date Cash Statement, the Proposed Final Partnership Cash Amount shall be conclusive and binding on the parties to this Agreement and the parties shall be deemed to have agreed thereto, in the first case, on the date ANI receives the notice and, in the second case, on such 20 th day. If Woodbridge notifies ANI that it disagrees with the Proposed Final Partnership Cash Amount or believes that an error is contained in the Closing Date Cash Statement within the 20 - day period immediately following the delivery required under Section 2.11(a), then ANI and Woodbridge shall meet and attempt, in good faith, to resolve their differences with respect to such matters and determine the amount of the Partnership Cash within 30 days after ANI’s receipt of Woodbridge’s notice of disagreement. If Woodbridge and ANI cannot agree within such 30-day period, then Deloitte Financial Advisory Services LLP (the “ Accounting Firm ”), acting as an expert shall be retained by the parties to determine the amount of Partnership Cash (the expense of such determination by the Accounting Firm to be shared equally among ANI and Woodbridge). ANI and Woodbridge shall use commercially reasonable efforts to cause the Accounting Firm to determine the amount of Partnership Cash in accordance with the normal procedures of the Partnership. The amount of Partnership Cash as determined by such accounting firm shall not be greater than the amount proposed by Woodbridge or lesser than the amount proposed by ANI. The amount of the Partnership Cash as determined (or deemed determined) by the parties or by the Accounting Firm pursuant to this Section 2.11(b), shall be conclusive of the amount of the Partnership Cash (the amount of the Partnership Cash as so determined, the “ Final Partnership Cash Amount ”).
 
  (c)   On the 5th Business Day following the date on which the Final Partnership Cash Amount is determined pursuant to Section 2.11(b)(the “ Settlement Date ”), the payment contemplated by Section 2.12 shall be made.


 

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2.12 Adjustment Payment . On the Settlement Date, either (i) Woodbridge shall pay to the Partnership in immediately available funds the amount, if any, by which 47.5% of the Estimated Partnership Cash exceeds 47.5% of the Final Partnership Cash Amount, or (ii) the Partnership shall pay to Woodbridge in immediately available funds the amount, if any, by which 47.5% of the Final Partnership Cash Amount exceeds 47.5% of the Estimated Partnership Cash Amount (any such payment, the “ Adjustment Payment ”). Woodbridge shall deliver to the Partnership, or the Partnership shall deliver to Woodbridge, as applicable, no later than two (2) Business Days before the Settlement Date, a notice which shall contain payment instructions.
2.13 Withholding Rights . The Partnership shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax law. To the extent that such amounts are so withheld by the Partnership, such withheld and deducted amounts will be treated for all purposes of this Agreement as having been paid to the holders of the Partnership Interest in respect of which such deduction and withholding was made by the Partnership.
ARTICLE 3
CONDITIONS TO CLOSING
3.1 Mutual Conditions . Subject to Section 3.2 and 3.3, the Parties’ obligation to effect the Closing shall be subject to the fulfillment (or express written waiver), at or prior to Closing of the following conditions:
  (a)   there shall be no Order or Law prohibiting the purchase and sale of the Purchase Stock;
 
  (b)   any waiting period (and any extension thereof) under The notification required by Section X of the Final Judgment in United States of America v. Abitibi-Consolidated Inc. and Bowater Incorporated , Case No. 07-1912, 15-17 (D.D.C. Nov. 6, 2008) (the “ DOJ Order ”) applicable to the transaction shall have expired or shall have been terminated;
 
  (c)   the effective date of the Chapter 11 plans for AbitibiBowater and its affiliated debtors and debtors-in-possession shall have occurred; and
 
  (d)   the Settlement Order shall have been approved and entered by the Bankruptcy Court.
3.2 Additional Conditions to ACSC’s and the Partnership’s Obligations . The obligation of ACSC and the Partnership to effect the Closing shall be subject to the fulfillment (or express written waiver by ACSC and AbitibiBowater), at or prior to Closing of the following conditions:
  (a)   the representations and warranties of (i) Woodbridge and Woodbridge Parent contained in Section 5.2 shall be true and correct when made and as of the Closing Date as though restated on the Closing Date and (ii) Woodbridge,


 

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      Woodbridge Parent and ANI contained in Section 5.3 shall be true and correct when made and as of the Closing Date as though restated on the Closing Date;
  (b)   Woodbridge shall have delivered to the Partnership a certificate or certificates, in compliance with Treasury Regulations Section 1.1445-2, certifying that the transactions contemplated hereby are exempt from withholding under Section 1445 of the Code;
 
  (c)   Woodbridge and Woodbridge Parent shall have delivered the closing documents set forth on Schedule D that are required to be delivered by Woodbridge and/or Woodbridge Parent, in form and substance reasonably acceptable to ACSC and AbitibiBowater;
 
  (d)   all covenants contained in this Agreement to be performed by Woodbridge, Woodbridge Parent or ANI at or prior to the Closing Time shall have been performed in all material respects; and
 
  (e)   as of immediately prior to the Closing Time, Woodbridge shall own (beneficially and of record) all of the ANI Common Shares, free and clear of all Encumbrances.
3.3 Additional Conditions to Woodbridge’s Obligations . Woodbridge and Woodbridge Parent’s obligation to effect the Closing shall be subject to the fulfillment (or express written waiver by Woodbridge and Woodbridge Parent), at or prior to Closing of the following conditions:
  (a)   the representations and warranties of ACSC and AbitibiBowater contained in Section 5.1 shall be true and correct when made and as of the Closing Date as though restated on the Closing Date;
 
  (b)   ACSC, AbitibiBowater and the Partnership shall have delivered (i) the closing documents set forth on Schedule D that are required to be delivered by ACSC, AbitibiBowater and/or the Partnership, and (ii) the Security Documents, in each case in form and substance reasonably acceptable to Woodbridge and Woodbridge Parent;
 
  (c)   all covenants contained in this Agreement to be performed by ACSC, the Partnership and AbitibiBowater at or prior to the Closing Time shall have been performed in all material respects; and
 
  (d)   the Bankruptcy Claim and the Administrative Claim shall be allowed in the full amount as asserted or claimed by the Partnership.
3.4 Unsatisfied Closing Conditions .
  (a)   In the event that (i) the transactions contemplated by this Agreement shall not have been consummated on or prior to March 31, 2011; and (ii) the party seeking to terminate this Agreement pursuant to this Section 3.4(a) shall not


 

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      have breached in material respect any obligation under this Agreement in any manner that shall have proximately caused the failure to consummate the transactions contemplated by this Agreement prior to March 31, 2011, then this Agreement may be terminated by such party.
  (b)   In the event that either party shall have breached any of its representations, warranties, covenants or agreements and such breach is not cured within 20 Business Days of notice to such party by the other party, then this Agreement may be terminated by such other party, provided such other party is not then in breach of its representations, warranties, covenants or agreements where such other party’s breach would give such first party the right to terminate this Agreement pursuant to this Section 3.4(b).
 
  (c)   For the purposes of this Section 3.4, (i) AbitibiBowater and ACSC collectively shall be deemed one party and (ii) Woodbridge Parent, Woodbridge and ANI collectively shall be deemed one party.
 
  (d)   If this Agreement is terminated pursuant to this Section 3.4 all further obligations of the parties under or pursuant to this Agreement shall terminate without further liability of any party to the other except for the provisions of (i) this Section 3.4(d) (Unsatisfied Closing Conditions), (ii) Article 7 (Dispute Resolution) and (iii) Article 9 (Miscellaneous); provided , that neither the termination of this Agreement nor anything in this Section 3.4(d) shall relieve any party from Liability for any breach of this Agreement occurring prior to such termination hereof.
3.5 Releases . At the Closing Time:
  (a)   ACSC, AbitibiBowater and the Partnership shall deliver the Woodbridge Release (attached hereto as Schedule B) to Woodbridge; and
 
  (b)   Woodbridge and Woodbridge Parent shall deliver the AbitibiBowater Release (attached hereto as Schedule C) to ACSC.
ARTICLE 4
COVENANTS
4.1 Further Actions . Each of ACSC and Woodbridge shall use all commercially reasonable efforts to complete the transaction contemplated hereby, including (a) completing all necessary filings and notices (b) providing such information as may be requested by Governmental or Regulatory Authorities, and (c) pursuing the termination of any applicable waiting period under the notification required by Section X of the DOJ Order. In connection with the foregoing, each of ACSC and Woodbridge shall cooperate with each other and keep the other informed with respect to such effort.


 

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4.2 Settlement Motion . On December 1, 2010, AbitibiBowater filed with the Bankruptcy Court a motion and order (the “ Settlement Motion ”) seeking entry of the Settlement Order in the form of Schedule E. AbitibiBowater shall consult and cooperate with Woodbridge, and consider in good faith the views of Woodbridge, with respect to any modifications to the Settlement Motion or Settlement Order. The Settlement Motion shall not seek to affect in any way the claims of Woodbridge, Woodbridge Parent, WIHSA, or any of their affiliates, against the Debtors or the Canadian Debtors, arising from the rejection of the Call Agreement and the guarantee dated as of September 6, 2001 by Abitibi-Consolidated Inc. in favor of each of Woodbridge and WIHSA (all such claims, the “ Woodbridge Claims ”). For the avoidance of doubt, the Woodbridge Claims, and all rights thereto and thereunder, are preserved.
4.3 Conduct of Business .
  (a)   From the date hereof until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, ACSC and ANI shall cause the Partnership to, and the Partnership shall, conduct the business of the Partnership in all material respects in the ordinary course of business on a basis consistent with past practice, and use commercially reasonable efforts to preserve its business operation, including the services of its officers and employees, and its business relationships with customers, suppliers and others having business dealings with the Partnership. By way of amplification and not of limitation, from the date hereof until the Closing Date, ACSC and ANI shall cause the Partnership to, and the Partnership shall, refrain from (i) shortening or lengthening the customary payment cycles of the Partnership with respect to accounts payable and accounts receivable, (ii) changing customary payment terms of the Partnership with respect to accounts receivable and accounts payable, and (iii) changing the customary inventory management practices of the Partnership.
 
  (b)   From the date hereof until the earlier of the Closing or the termination of this Agreement in accordance with its terms, ANI shall not, and Woodbridge shall cause ANI not do any of the following:
  (i)   enter into any Contract;
  (ii)   (A) issue, sell, transfer, pledge, grant, dispose of, encumber or deliver (whether through the issuance or granting of any options, warrants, commitments, subscriptions, rights to purchase or otherwise) any equity securities of any class or any securities convertible into or exercisable or exchangeable for voting or equity securities of any class (except for the issuance of certificates in replacement of lost certificates) or (B) adjust, split, combine, or reclassify any of its equity securities;
  (iii)   redeem, purchase or otherwise acquire any outstanding shares of the capital stock of ANI, other than as contemplated by Section 2.7 of this Agreement.


 

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  (iv)   acquire in any manner any Assets or Properties;
  (v)   mortgage, pledge or subject to any Encumbrances, any of its Assets or Properties;
  (vi)   amend or restate, or propose to amend or restate, any Organizational Document of ANI;
  (vii)   merge or consolidate with or into any other Person or dissolve or liquidate;
  (viii)   incur or assume any Liabilities, assume, guarantee, endorse or otherwise become liable or responsible for the Liabilities of any other Person;
  (ix)   lease, sell or otherwise dispose of any Assets or Properties, other than as contemplated by Section 2.6 of this Agreement;
  (x)   commence or settle any claim, action or proceeding; or
  (xi)   agree in writing or otherwise to do anything contained in this clause (b).
4.4 Bank Account . ANI shall close its account at UBS in New York, New York as soon as practicable after the Closing.
4.5 WIHSA Share Transfer . Woodbridge Parent shall cause WIHSA to enter into the WIHSA Transfer Agreement and pursuant thereto to transfer all right, title and interest in the ANI Common Shares, free and clear of all Encumbrances, to Woodbridge prior to the Closing Time. Woodbridge Parent covenants and agrees to cause WIHSA not to sell, transfer or assign or subject to (or fail to object to the imposition of) any Encumbrance upon, the ANI Common Shares to any other Person.
4.6 Notice of Withdrawal of Appeal . Within five (5) Business Days of the Closing Date, Woodbridge and Woodbridge Parent shall, and shall cause WIHSA to, take such action as is necessary to withdraw with prejudice the Appeal filed on November 3, 2009, with the District Court for the District of Delaware (Case No. 1:09-cv-00907-LPS) from the Order Authorizing the Rejection of a Certain Call Agreement entered on the docket (Docket No. 1200) in the Bankruptcy Proceedings on October 27, 2009.
4.7 Resignation of Directors and Officers of ANI . Prior to the Closing, Woodbridge shall obtain the resignation of all directors and officers of ANI and releases from such individuals of all claims they may have against ANI in a form satisfactory to ACSC, which shall be no less favorable than the release set forth on Schedule C.
4.8 LLC Conversion . Immediately prior to the Closing, the Partnership may elect to, and, in such case, the parties shall take all reasonable action and execute such documents as reasonably necessary to, effect a conversion of the Partnership from a Georgia partnership to a Delaware limited liability company in accordance with Georgia and Delaware law (such conversion, the “ LLC Conversion ”).


 

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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 ACSC and AbitibiBowater Representations and Warranties .
     Subject, as applicable, to entry of the Settlement Order and the application of the Bankruptcy Code in the Bankruptcy Proceedings, each of ACSC and AbitibiBowater hereby jointly and severally represents and warrants in respect of itself and the Partnership (except with respect to the representations and warranties in Section 5.1(f)(iii), which representations and warranties are made solely by ACSC in respect of itself and the Partnership and not by AbitibiBowater) to each of Woodbridge and Woodbridge Parent as follows as at the date hereof and as of the Closing Date, and each of ACSC and AbitibiBowater acknowledge that each of Woodbridge and Woodbridge Parent is relying on such representations and warranties in connection with entering into this Agreement:
  (a)   in the case of ACSC and AbitibiBowater, it is a corporation duly and validly incorporated under the laws of the jurisdiction of its incorporation and, in the case of the Partnership, it is a partnership, or, in the case of a LLC Conversion, at the Closing, will be a limited liability company, duly formed and validly existing under the laws of its jurisdiction of formation;
 
  (b)   it has the requisite power and authority to own its Assets and Properties and to carry on its business as currently conducted;
 
  (c)   in the case of ACSC and AbitibiBowater, it has the corporate power and corporate capacity and, in the case of the Partnership, has the partnership power and partnership capacity, or at Closing, if applicable, it will have the limited liability company power and limited liability company capacity, to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (d)   in the case of ACSC and AbitibiBowater, it has taken all corporate action and, in the case of the Partnership, it has taken all partnership action, or at Closing, if applicable, it will have taken all limited liability company action, necessary to duly and validly authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (e)   this Agreement and each of the documents entered into in connection herewith have been duly and validly executed and delivered by it, and constitute legal, valid and binding obligations of it enforceable against it in accordance with their respective terms, subject to the fact that (i) specific performance, injunctive relief and other equitable remedies are discretionary and may not be available where damages are considered an adequate remedy and (ii)


 

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      enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction, moratorium, arrangement and other similar Laws generally affecting the enforceability of creditors’ rights and remedies generally and general principles of equity;
  (f)   none of the execution and delivery of, or the observance and performance by it of any covenant or obligation under this Agreement and the documents entered into in connection herewith and the consummation of the transactions contemplated hereby:
  (i)   conflicts with or results in a violation or breach of any of the terms, conditions or provisions of its Organizational Documents;
  (ii)   conflicts with or results in a violation or breach of any term or provision of any applicable Law or Order applicable to it or to its Assets and Properties;
  (iii)   (A) conflicts with or results in a violation or breach of, (B) constitutes (with or without notice or lapse of time or both) a default under, (C) requires it to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (D) results in, or gives to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (E) results in or gives to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (F) results in the creation or imposition of any Encumbrance upon its Assets and Properties under, any material Contract to which it is a party or by which its material Assets and Properties are bound or affected, other than the Secured Promissory Note or the Security Documents; or
      except, in the case of (ii) and (iii) above, as required pursuant to the DOJ Order and for such defaults, violations, actions and notifications that would not reasonably be expected to, individually or in the aggregate, materially delay or prevent, the performance by ACSC or the Partnership of any of its obligations hereunder or the Partnership’s obligations under the Secured Promissory Note;
 
  (g)   other than pursuant to the DOJ Order, in connection with the sale of the Purchase Stock, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority is required by it in connection with the execution, delivery and performance of this Agreement or any of the documents being entered into in connection herewith or the consummation of the transactions contemplated hereby or thereby, except for such defaults, violations, actions and notifications that would not reasonably be expected to, individually or in the aggregate, materially delay or prevent, the performance by ACSC or the Partnership of any of its obligations hereunder or the Partnership’s obligations under the Secured Promissory Note; and


 

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  (h)   it has not taken and agrees it will not take any action that would cause any other party hereto to become liable to any claim or demand for a brokerage commission, finders fee or other similar payment.
5.2 Woodbridge and Woodbridge Parent Representations and Warranties . Each of Woodbridge and Woodbridge Parent hereby jointly and severally represents and warrants (except with respect to the representations and warranties in Section 5.2(g)(iii), which representations and warranties are made solely by Woodbridge and not by Woodbridge Parent) to each of the Partnership, ACSC and AbitibiBowater as follows as at the date hereof and as of the Closing Date, and each of Woodbridge and Woodbridge Parent acknowledge that each of the Partnership, ACSC and AbitibiBowater is relying on such representations and warranties in connection with entering into this Agreement:
  (a)   it is a corporation duly and validly incorporated under the laws of the jurisdiction of its incorporation;
 
  (b)   no Actions or Proceedings have been taken or authorized by it, or to the best of its knowledge, by any other Person, with respect to bankruptcy, insolvency, liquidation, reconstruction, moratorium, dissolution or winding-up or other similar Actions or Proceedings of or affecting it;
 
  (c)   it has the requisite power and authority to own its Assets and Properties and to carry on its business as currently conducted;
 
  (d)   it has the corporate power and corporate capacity to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (e)   it has taken all corporate action necessary to duly and validly authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (f)   this Agreement and each of the documents entered into in connection herewith have been duly and validly executed and delivered by it, and constitute legal, valid and binding obligations of it enforceable against it in accordance with their respective terms, subject to the fact that (i) specific performance, injunctive relief and other equitable remedies are discretionary and may not be available where damages are considered an adequate remedy and (ii) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction, moratorium, arrangement and other similar Laws generally affecting the enforceability of creditors’ rights and remedies generally and general principles of equity;


 

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  (g)   none of the execution and delivery of, or the observance and performance by it of any covenant or obligation under this Agreement and the documents entered into in connection herewith and the consummation of the transactions contemplated hereby:
  (i)   conflicts with or results in a violation or breach of any of the terms, conditions or provisions of its Organizational Documents;
  (ii)   conflicts with or results in a violation or breach of any term or provision of any applicable Law or Order applicable to it or to its Assets and Properties; or
  (iii)   (A) conflicts with or results in a violation or breach of, (B) constitutes (with or without notice or lapse of time or both) a default under, (C) requires it to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (D) results in, or gives to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (E) results in or gives to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (F) results in the creation or imposition of any Encumbrance upon its Assets and Properties under, any Contract to which it is a party or by which its Assets and Properties are bound or affected,
except, in the case of (ii) and (iii) above, for such defaults, violations, actions and notifications that would not reasonably be expected to, individually or in the aggregate, materially delay or prevent, the performance by Woodbridge of any of its obligations hereunder;
  (h)   other than filings under, and waiting periods mandated by HSR in connection with the sale of the Purchase Stock, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority is required by it in connection with the execution, delivery and performance of this Agreement or any of the documents being entered into in connection herewith or the consummation of the transactions contemplated hereby or thereby, except for such defaults, violations, actions and notifications that would not reasonably be expected to, individually or in the aggregate, materially delay or prevent, the performance by Woodbridge of any of its obligations hereunder; and
 
  (i)   it has not taken and agrees it will not take any action that would cause any other party hereto to become liable to any claim or demand for a brokerage commission, finders fee or other similar payment.


 

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5.3 Woodbridge, Woodbridge Parent and ANI Representations and Warranties Regarding ANI . Woodbridge, Woodbridge Parent and ANI hereby jointly and severally represents and warrants to the Partnership, ACSC and AbitibiBowater as follows as at the date hereof and as of the Closing Date and acknowledges that each of the Partnership, ACSC and AbitibiBowater is relying on such representations and warranties in connection with entering into this Agreement:
  (a)   ANI is a corporation duly and validly incorporated and existing in good standing under the laws of the State of Delaware;
 
  (b)   ANI is duly qualified, Licensed or admitted to transact business as a foreign corporation, and is in good standing, in the State of Georgia, which is the only jurisdiction in which the ownership, use or leasing of the Assets and Properties of ANI, or the conduct and nature of the business of ANI, makes such qualification, Licensing or admission necessary;
 
  (c)   ANI has the corporate power and corporate capacity to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (d)   ANI has taken all corporate action necessary to duly and validly authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the documents being entered into in connection herewith, and to consummate the transactions contemplated hereby and thereby;
 
  (e)   this Agreement and each of the documents entered into in connection herewith have been duly and validly executed and delivered by ANI, and constitute legal, valid and binding obligations of it enforceable against it in accordance with their respective terms, subject to the fact that (i) specific performance, injunctive relief and other equitable remedies are discretionary and may not be available where damages are considered an adequate remedy and (ii) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction, moratorium, arrangement and other similar Laws generally affecting the enforceability of creditors’ rights and remedies generally and general principles of equity;
 
  (f)   none of the execution and delivery of, or the observance and performance by ANI of any covenant or obligation under this Agreement and the documents entered into in connection herewith and the consummation of the transactions contemplated hereby or thereby:
  (i)   conflicts with or results in a violation or breach of any of the terms, conditions or provisions of ANI’s Organizational Documents;


 

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  (ii)   conflicts with or results in a violation or breach of any term or provision of any applicable Law or Order applicable to ANI or to ANI’s Assets and Properties; or
  (iii)   (A) conflicts with or results in a violation or breach of, (B) constitutes (with or without notice or lapse of time or both) a default under, (C) requires it to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (D) results in or gives to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (E) results in or gives to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (F) results in the creation or imposition of any Encumbrance upon ANI’s Assets and Properties under, any Contract to which ANI is a party or by which ANI’s Assets and Properties are bound or affected;
  (g)   ANI has the requisite power and authority to own its Assets and Properties;
 
  (h)   ANI has no outstanding Liabilities of any kind other than (i) Liabilities to the other partners in the Partnership under the terms of the Partnership Agreement, (ii) the contingent Liabilities of a general partner arising directly and exclusively from the operation and business of the Partnership, (iii) Liabilities for Taxes not yet due for which Woodbridge has agreed to reimburse or indemnify ACSC under this Agreement (provided, however neither Woodbridge nor Woodbridge Parent has any obligation to reimburse or indemnify ACSC for Liabilities for Taxes in respect of which Abitibi-Consolidated Corp. agreed to indemnify ANI pursuant to the Indemnity Agreement made as of February 23, 2007 between Abitibi-Consolidated Corp., ANI and ACSC).
 
  (i)   The financial statements delivered to ACSC as of the date hereof, which are the last annual financial statements of ANI prior to the Closing Date (the “ ANI Financial Statements ”), are true and complete copies of the financial statements of ANI as at the dates provided therein. The ANI Financial Statements have been prepared in accordance with GAAP, and fairly present the financial condition, results of operations, changes in equity and cash flows of ANI as of the date thereof and for the period covered thereby, except for changes to such amounts resulting from (A) distributions (x) by the Partnership to ANI, (y) as contemplated by Section 2.5 of this Agreement and (z) as contemplated by Section 2.6 of this Agreement and (B) the redemption contemplated by Section 2.7 of this Agreement. Since the date of the ANI Financial Statements there has not been any change or any event or development, except for such change, event or development contemplated by this Agreement, which, individually or together with other such events, could reasonably be expected to result in a change in the condition, financial or otherwise, of ANI;


 

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  (j)   ANI has no Assets or Properties other than the Partnership Interest. Except for the Partnership Agreement, there are no other Contracts to which ANI is a party or by which ANI or its Assets and Properties are bound as of the date hereof and at the Closing Date;
 
  (k)   no Actions or Proceedings have been taken or authorized by ANI, Woodbridge, WIHSA or Woodbridge Parent, or to the best of ANI’s, Woodbridge’s, WIHSA’s or Woodbridge Parent’s knowledge, by any other Person, with respect to bankruptcy, insolvency, liquidation, reconstruction, moratorium, dissolution or winding-up or other similar Actions or Proceedings of or affecting ANI, other than the Bankruptcy Proceedings;
 
  (l)   there are no Actions or Proceedings pending or threatened to the best of ANI’s, Woodbridge’s, WIHSA’s or Woodbridge Parent’s knowledge against ANI, or affecting ANI’s Assets and Properties;
 
  (m)   ANI is and has at all times been, in compliance in all material respects with all Licenses, Laws and Orders applicable to it;
 
  (n)   ANI has never had and now has no employees;
 
  (o)   ANI has no direct or indirect, contingent or otherwise, ERISA Affiliate Liability or any other liability that is imposed on a controlled group basis;
 
  (p)   attached hereto as Exhibit A is a true and complete copy of the Certificate of Incorporation of ANI as in effect on the date hereof;
 
  (q)   attached hereto as Exhibit B is a true and complete copy of the By-laws of ANI as in effect on the date hereof;
 
  (r)   Woodbridge has provided ACSC with access to true and correct copies of the transfer ledgers and minute books of ANI, which accurately reflect all issues and transfers of Equity Interests prior to the date hereof and all actions taken by the directors and stockholders of ANI prior to the date hereof;
 
  (s)   except for its interest in the Partnership, ANI neither owns, nor has it heretofore owned, directly or indirectly, any Equity Interest in, or any Option with respect to any Equity Interest in, any Person;
 
  (t)   ANI is the sole legal and beneficial owner of the Partnership Interest, free of all Encumbrances;
 
  (u)   all of the shares of Purchase Stock (i) have been duly authorized and validly issued, (ii) are fully paid and non-assessable, and (iii) have not been issued in violation of pre-emptive, subscription or other rights or of any Law or Order; the authorized capital of ANI is 20,000 shares of ANI Class A Preferred Stock, 20,000 shares of ANI Class B Preferred Stock and 20,000 shares of ANI Common Stock; and the Purchase Stock constitute all of the issued and


 

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      outstanding Equity Interests of ANI; and no Person has an Option to purchase any of the Equity Interests of ANI (other than pursuant to the WIHSA Transfer Agreement);
  (v)   Woodbridge (together with WIHSA, from which Woodbridge will acquire all of the outstanding ANI Common Stock prior to Closing pursuant to the WIHSA Transfer Agreement) is the sole legal and beneficial owner of the Purchase Stock, free and clear of all Encumbrances, and upon the delivery of certificates evidencing the Purchase Stock to ACSC, duly endorsed in blank, ACSC shall acquire good and marketable legal and beneficial title to the Purchase Stock, free and clear of all Encumbrances; no Person has an Option to purchase any of the Purchase Stock (other than Woodbridge pursuant to the WIHSA Transfer Agreement); there are no Actions or Proceedings pending or threatened with respect to any of the Purchase Stock, Woodbridge’s or WIHSA’s, as applicable, ownership of the Purchase Stock or Woodbridge’s or WIHSA’s, as applicable, right to sell the Purchase Stock and there is no basis for any such Action or Proceeding; and no Person enjoys any right of first refusal, right of first opportunity, tag along/drag along right or similar right with respect to the Purchase Stock;
 
  (w)   the Purchase Stock is not subject to any voting trust agreement or other Contract relating to the voting or transfer of the Purchase Stock (other than the WIHSA Transfer Agreement);
 
  (x)   ANI conducts no business, and at no time has conducted any business or operations or pursued any activities, other than the holding of the Partnership Interest;
 
  (y)   except as disclosed in writing by Woodbridge to ACSC prior to the date hereof:
  (i)   all Tax Returns that are required to be filed with respect to ANI have been filed. All such Tax Returns were correct and complete in all material respects. All Taxes owed by ANI (whether or not shown on any Tax Return) have been paid. ANI is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where ANI does not file Tax Returns that ANI is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the Assets or Properties of ANI that arose in connection with any failure (or alleged failure) to pay any Tax;
  (ii)   ANI has withheld and timely paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party;
  (iii)   there is no dispute or claim concerning any Tax Liability of ANI either (A) claimed or raised by any Taxing Authority in writing, or (B) as to


 

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      which Woodbridge and their respective directors and officers (and other Persons responsible for their Tax matters) has knowledge. Woodbridge has delivered to ACSC correct and complete copies of all United States federal income Tax Returns for the years ended June 30, 2010, June 30, 2009 and June 30, 2008, and all Georgia state income Tax Returns for the years ended June 30, 2010, June 30, 2009 and June 30, 2008. There have been no audits of ANI by any Taxing Authority;
  (iv)   ANI has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency and no request for any such waiver or extension is currently pending;
  (v)   ANI has not filed a consent under Code Section 341(f) concerning collapsible corporations. ANI has not made any payments, is not obligated to make any payments, and is not a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. ANI is not a party to any Tax allocation or sharing agreement. ANI (A) has not been a member of an Affiliated Group (as defined in Code Section 1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was ANI), or (B) has no Liability for the Taxes of any other Person under Code Reg. Section 1.1502-6 or 1.1502-78, as a transferee or successor, by contract, or otherwise;
  (vi)   ANI has not constituted a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for tax-free treatment under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with this acquisition;
  (vii)   except for income recognized by ANI attributable to any transactions entered into by ACSC, its affiliates or ANI after the Closing Date or occurring after the Closing Date, ANI will not be required to include in a taxable period ending after the Closing Date taxable income attributable to income that accrued in a taxable period prior to the Closing Date but was not recognized for Tax purposes in such prior taxable period (or to exclude from taxable income in a taxable period ending after the Closing Date any deduction the recognition of which was accelerated from such taxable period to a taxable period prior to the Closing Date) as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting, Section 481 of the Code or Section 108(i) of the Code or comparable provisions of state, local or foreign Tax law; and


 

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  (viii)   ANI has not executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of state, local or foreign Tax law, and is not subject to any private letter ruling of the IRS or comparable ruling of any other Governmental Authority;
  (z)   ANI has not taken and agrees it will not take any action that would cause any other party hereto to become liable to any claim or demand for a brokerage commission, finders fee or other similar payment.
5.4 Survival of Representations and Warranties . The representations and warranties set out in this Agreement shall terminate on the date that is eighteen (18) months following the Closing Date, except that the representations and warranties contained in Sections 5.3(h), 5.3(i), 5.3(j), 5.3(n), 5.3(o), 5.3(p), 5.3(q), 5.3(r), 5.3(s), 5.3(t), 5.3(u), 5.3(v), 5.3(w), 5.3(x) and 5.3(y) shall survive indefinitely. For greater certainty, other than those representations and warranties contained in Section 5.3(y)(vii) and 5.3(y)(viii), the representations and warranties made refer only to pre-closing activities of ANI and are not intended to serve as representations and warranties regarding, or a guarantee of, nor can they be relied upon with respect to, Taxes attributable to any Tax period (or portion thereof) beginning after or any Tax position taken after, the Closing Date.
ARTICLE 6
TAX MATTERS
     The following provisions shall govern the allocation of responsibility as between the Partnership and ACSC, on the one hand, and Woodbridge and Woodbridge Parent, on the other hand, for certain Tax matters following the Closing Date (references in this Article 6 to (x) ACSC shall be deemed to include the Partnership and (y) Woodbridge shall be deemed to include Woodbridge Parent):
6.1 ANI Pre-Closing Tax Returns . Woodbridge shall cause to be prepared, in a manner consistent with past practice, all Tax Returns for ANI required for the fiscal period ending on the Closing Date and for all other periods ending prior to the Closing Date. Woodbridge shall permit ACSC to review and comment on each such Tax Return required to be filed after the Closing Date described in the preceding sentence prior to filing (and shall deliver each such return to ACSC at least thirty (30) days prior to the date such Tax Return is required to be filed), and ACSC shall cause each such Tax Return to be filed on a timely basis. If ACSC disputes any item on such Tax Return, it shall notify Woodbridge of such disputed item (or items) and the basis for its objection. The parties shall act in good faith to resolve any such dispute prior to the date on which the relevant Tax Return is required to be filed. If the parties cannot resolve any disputed item, the item in question shall be resolved by the Accounting Firm as set forth in Section 2.11(b). The fees and expenses of the Accounting Firm shall be borne equally by Woodbridge and ACSC. Woodbridge shall be responsible for and shall reimburse ACSC for Taxes of ANI reflected on such Tax Returns within five (5) Business Days after payment by ACSC or ANI of such Taxes.


 

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6.2 ANI Straddle Period Returns . ACSC shall prepare or cause to be prepared and file or cause to be filed on a timely basis any Tax Returns of ANI for Tax periods which begin before the Closing Date and end after the Closing Date (“ straddle periods ”). Unless otherwise required by law, such Tax Returns shall be prepared on a basis consistent with the last previous such Tax Returns. ACSC will use an acquisition structure which will cause the ANI Tax year to close for United States federal tax purposes on the Closing Date. ACSC shall permit Woodbridge to review and comment on each such Tax Return prior to filing (and shall deliver each such Tax Return to Woodbridge at least thirty (30) days prior to the date such Tax Return is required to be filed). If Woodbridge disputes any item on such Tax Return, it shall notify ACSC of such disputed item (or items) and the basis for its objection. The parties shall act in good faith to resolve any such dispute prior to the date on which the relevant Tax Return is required to be filed. If the parties cannot resolve any disputed item, the item in question shall be resolved by an independent accounting firm selected in accordance with the procedures set forth in Section 6.1(b). The fees and expenses of such accounting firm shall be borne equally by Woodbridge and ACSC. Woodbridge shall pay to ACSC within five (5) Business Days after the date on which Taxes are paid by ACSC or ANI with respect to such straddle periods an amount equal to the portion of such Taxes that relates to the portion of such straddle period ending on the Closing Date. For purposes of this Section 6.2, in the case of any Taxes that are imposed on a periodic basis and are payable for a straddle period, the portion of such Tax which relates to the portion of such straddle period ending on the Closing Date shall (x) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire straddle period multiplied by a fraction the numerator of which is the number of days in the portion of such straddle period ending on the Closing Date and the denominator of which is the number of days in the entire straddle period, and (y) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant straddle period ended on the Closing Date. Any credits relating to a straddle period shall be taken into account as though the relevant straddle period ended on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of ANI, provided that the practice of ANI is not inconsistent with the books and records of the Partnership.
6.3 Cooperation. Woodbridge, ANI and ACSC shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Article 6 and in connection with any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Woodbridge, ANI and ACSC agree (a) to retain all books and records with respect to Tax matters pertinent to ANI relating to any Tax period beginning before the Closing Date until the expiration of the statutory period of limitations (and, to the extent notified by ACSC or Woodbridge, any extensions thereof) of the respective Tax periods, and to abide by all record retention agreements entered into with any Taxing Authority, and (b) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, ACSC or Woodbridge, as the case may be, shall allow the other party to take possession of such books and records. ACSC and Woodbridge further agree, upon request, to use


 

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all commercially reasonable efforts to obtain any certificate or other document from any Taxing Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby). ACSC and Woodbridge further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Section 6043 of the Code and all Treasury Regulations promulgated thereunder.
6.4 Indemnified Taxes . Subject to the limitations set forth in this Section 6.4, after the Closing Date, Woodbridge and Woodbridge Parent hereby agree jointly and severally to indemnify and hold harmless each of ACSC and ANI against the following amounts (including any Loss incurred in contesting or otherwise in connection with any such amounts (collectively, the “ Indemnified Taxes ”)): (i) Taxes imposed on or required to be withheld by ANI with respect to any Tax period ending on or before the Closing Date; (ii) with respect to any straddle period, Taxes imposed on or required to be withheld by ANI which are allocable, pursuant to Section 6.2 above, to the portion of such straddle period ending at the end of the day on the Closing Date (an “ Interim Period ”) (Interim Periods and any Tax periods that end on or prior to the Closing Date being referred to collectively hereinafter as “ Pre-Closing Periods ”); (iii) Taxes imposed on ANI pursuant to Treasury Regulations Section 1.1502-6, 1.1502-78 or any similar provision under any Law, as a result of ANI being or having been a member of any group of companies with which ANI files or has filed a Tax Return on a consolidated, combined or unitary basis for a taxable year or period (or portion thereof) ending on or before the Closing Date; (iv) without duplication, Taxes imposed on ACSC or ANI as a result of (x) a breach of a representation or warranty set forth in Section 5.3(x) of this Agreement or (y) a breach of a covenant or agreement set forth Article 6 of this Agreement; provided, that for purposes of this Section 6.4(iii), any breach of a representation, warranty, covenant or agreement shall be determined without reference to any materiality qualifier with respect thereto; (v) Taxes arising out of any transactions contemplated by this Agreement and (vi) Taxes or other payments required to be paid after the date hereof by ANI to any party under any Tax Sharing Agreement (whether written or not) or by reason of being a successor-in-interest or transferee of another entity. Woodbridge and Woodbridge Parent shall pay any Tax indemnity required to be paid pursuant to this Section 6.4 within fifteen (15) days of receipt of written request therefor from ANI or ACSC describing in reasonable detail the Indemnified Taxes which are the subject of and basis for such Tax indemnity and the computation of the amount so payable; provided , that if Indemnified Taxes are being contested in accordance with Section 6.7, Woodbridge and Woodbridge Parent shall pay any required Tax indemnity within fifteen (15) days of final resolution of such contest. The indemnification provided in this Section 6.4 in respect of any particular Tax Period shall terminate on the date that is 60 days following the expiration of the applicable statutory period of limitations for that Tax period. Notwithstanding anything to the contrary in this Section 6.4, neither Woodbridge nor Woodbridge Parent shall have any obligation to reimburse or indemnify ACSC or ANI for Liabilities for Taxes in respect of which Abitibi-Consolidated Corp. agreed to indemnify ANI pursuant to the Indemnity Agreement made as of February 23, 2007 between Abitibi-Consolidated Corp., ANI and ACSC.
6.5 Amended Tax Returns . Except to the extent required by Law, neither ACSC nor ANI will amend or adjust any Tax Return of ANI for any Tax period ending on or before the Closing Date or any straddle period without the prior written consent of Woodbridge, which consent maybe


 

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withheld in the reasonable discretion of Woodbridge; provided , that if the amended Tax Return is to be filed solely to claim a refund arising as a result of the carryback of a tax attribute from either a Pre-Closing Tax Period or a Post-Closing Tax Period, such consent may be withheld only if such amended Tax Return would have an adverse effect on Woodbridge.
6.6 Pre-Closing Period Tax Refund. Any Tax refund relating to a Pre-Closing Period of ANI shall be the property of Woodbridge and, if received by ANI or ACSC, shall be paid or caused to be paid to Woodbridge within fifteen (15) Business Days following receipt thereof, except for any such Tax refunds attributable to the carry back of losses arising in any Tax period beginning on or after the Closing Date. For the purpose of this Section 6.6, a refund shall include actual receipt of a refund or interest, as well as a credit or offset of or against any other actual or estimated Tax liability or any other interest or penalties on such Tax liability.
6.7 Audits and Proceedings.
  (a)   After the Closing Date, ANI and ACSC shall promptly notify Woodbridge, or Woodbridge shall promptly notify ANI and ACSC, in writing, of any written notice by a Taxing Authority of a proposed Tax assessment or claim against ANI or an audit or administrative or judicial proceeding involving ANI which, would reasonably be expected to give rise to indemnification under Section 6.4 (“ Tax Contest ”); provided , however , that failure to give prompt written notice of any such claim shall bar indemnification hereunder only to the extent such failure materially prejudices Woodbridge.
 
  (b)   Except as provided in Section 6.7(c) below, in the case of a Tax Contest that relates to any Pre-Closing Period, Woodbridge shall have the right, at its own expense, to control the conduct of such a Tax Contest (including any settlement or litigation), provided that ANI and ACSC also may participate in any such a Tax Contest at their own expense and, if Woodbridge does not assume the defense of any such a Tax Contest, ANI or ACSC may defend the same in such manner as it may deem appropriate, including settling such a Tax Contest, without any effect on any right to indemnification under Section 6.4.
 
  (c)   Woodbridge and ACSC may each participate in a Tax Contest relating to a straddle period, and such Tax Contest shall be controlled by Woodbridge or ACSC, whichever group would bear the burden of the greatest portion of any potential Tax adjustment to which the Tax Contest relates.
 
  (d)   All indemnification payments for Losses made pursuant to this Article 6 shall be made on an after-Tax basis. Accordingly, in determining the amount of any indemnification payment for a Loss suffered or incurred by an indemnitee hereunder, the amount of such Loss shall be (i) increased to take into account any additional Tax cost incurred by the indemnitee arising from the receipt of indemnification payments and (ii) decreased to take into account any deduction, credit or other Tax benefit actually realized by the indemnitee with respect to such Loss (“ Tax Costs ”). In computing the amount of any such Tax Cost or Tax Benefit, the indemnitee shall be deemed to recognize all other


 

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      items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnification payment hereunder or the incurrence or payment of any indemnified Loss; provided , that, if a Tax Cost or Tax Benefit is not realized in the taxable period during which an indemnifying party makes an indemnification payment or the indemnitee incurs or pays any Loss, the parties hereto shall thereafter make payments to one another at the end of each subsequent taxable period to reflect the net Tax Costs and Tax Benefits realized by the parties hereto in each such subsequent taxable period.
6.8 Termination of Tax Sharing Agreements . All tax sharing agreements or similar agreements with respect to or involving ANI shall be terminated as of immediately prior to the Closing Date and, from and after the Closing Date, ANI shall not be bound thereby or have any Liability thereunder.
6.9 Taxes and Fees . All transfer, documentary, stamp, registration and other similar Taxes and fees (including any penalties and interest) incurred in connection with this Agreement, shall be paid by Woodbridge when due, and Woodbridge will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, stamp, registration and other similar Taxes and fees, and, if required by applicable Law, ACSC will, and will cause its affiliates to, join in the execution of any such Tax Returns and other documentation.
6.10 Tax Attributes . If ANI has, as of the Closing Date, any available carryovers of net operating losses, credits or other tax attributes, ACSC agrees that after the Closing Date it will not cause or permit ANI to relinquish or waive the ability to carry back (to the extent permitted by applicable law) any such losses, credits or other tax attributes to any Pre-Closing Period for the purpose of reducing the amount of Indemnified Taxes for which Woodbridge may be liable pursuant to Section 6.4.
ARTICLE 7
DISPUTE RESOLUTION
7.1 Commercial Arbitration . Subject to Section 7.2, all disputes, disagreements, controversies, questions or claims arising out of or relating to this Agreement and all other agreements entered into pursuant to the terms of this Agreement, including with respect to its, or their, formation, execution, validity, application, interpretation, performance, breach, termination or enforcement, shall be determined by arbitration administered by the American Arbitration Association under its commercial arbitration rules (the “ Commercial Arbitration Rules ”) provided that:
  (a)   any hearing in the course of the arbitration shall be held in New York, New York in the English language;
 
  (b)   if the parties are able to agree in writing to a single arbitrator within twenty (20) days of the institution of any arbitration hereunder, the number of


 

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      arbitrators shall be one; otherwise, each party shall select one arbitrator and those two arbitrators shall select a third arbitrator, and the three arbitrators so chosen shall serve as the arbitrators of such dispute;
  (c)   any award or determination of the arbitrator shall be final and binding on the parties and there shall be no appeal on any ground, including, for greater certainty, on the ground of alleged errors of Law;
 
  (d)   despite Article M-10 of the Commercial Arbitration Rules, the arbitrator shall not, without the written consent of all parties to the arbitration, retain any expert;
 
  (e)   all costs and expenses of arbitration shall be split equally between the parties hereto; and
 
  (f)   all matters in relation to the arbitration shall be kept confidential to the full extent permitted by Law, and no individual shall be appointed as an arbitrator unless he or she agrees in writing to be bound by this dispute resolution provision.
7.2 Proposed Adjustment Disputes . Section 7.1 shall not apply in respect of any Proposed Adjustment, which dispute is governed by Section 2.11, or any Tax Dispute, which shall be governed by Section 6.1.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Woodbridge and Woodbridge Parent .
  (a)   Woodbridge and Woodbridge Parent hereby agree jointly and severally, to indemnify and to hold ACSC, AbitibiBowater and the Partnership harmless from and against any and all Loss (other than Losses indemnified pursuant to Section 6.4) suffered or incurred by ACSC, AbitibiBowater or the Partnership (and following the Closing, ANI) in connection with or arising from:
  (i)   any breach by Woodbridge or Woodbridge Parent of any of its covenants or agreements in this Agreement or any failure by Woodbridge or Woodbridge Parent to perform any of its obligations in this Agreement; and
  (ii)   any breach of any warranty or the inaccuracy of any representation of Woodbridge or Woodbridge Parent contained in this Agreement.
  (b)   The indemnifications provided for in Section 8.1(a)(i) shall continue indefinitely. The indemnifications provided for in Section 8.1(a)(ii) shall terminate on the date that is eighteen (18) months following the Closing Date


 

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      (and no claims may be made by ACSC, AbitibiBowater or the Partnership (and following the Closing, ANI) under Section 8.1(a)(ii) thereafter), except that the indemnification by Woodbridge and Woodbridge Parent shall continue indefinitely as to the representations and warranties contained in Sections 5.3(h), 5.3(i), 5.3(j), 5.3(n), 5.3(o), 5.3(p), 5.3(q), 5.3(r), 5.3(s), 5.3(t), 5.3(u), 5.3(v), 5.3(w), 5.3(x) and 5.3(y).
8.2 Indemnification by ACSC and AbitibiBowater.
  (a)   ACSC and AbitbiBowater hereby agree to indemnify and to hold Woodbridge and Woodbridge Parent harmless from and against any and all Loss suffered or incurred by Woodbridge or Woodbridge Parent in connection with or arising from:
  (i)   any breach by ACSC, the Partnership or AbitibiBowater of any of its covenants or agreements in this Agreement or any failure by ACSC, the Partnership or AbitibiBowater to perform any of its obligations in this Agreement; and
  (ii)   any breach of any warranty or the inaccuracy of any representation of ACSC or AbitibiBowater contained or referred to in this Agreement.
  (b)   The indemnifications provided for in Section 8.1(a)(i) shall continue indefinitely. The indemnifications provided for in Section 8.2(a)(ii) shall terminate on the date that is eighteen (18) months following the Closing Date (and no claims may be made by Woodbridge or Woodbridge Parent under Section 8.2(a)(ii) thereafter).
8.3 Indemnification by ACSC and AbitibiBowater of Woodbridge Indemnitees . ACSC and AbitibiBowater hereby agree jointly and severally, at any time or times after the Closing Date, to indemnify Woodbridge, Woodbridge Parent and all direct and indirect subsidiaries of Woodbridge Parent including Thomson Reuters Corporation and TNI, and each present and former director, officer, agent, servant, and employee of each such entity, including any persons who have maintained a position on the management committee of the Partnership (collectively, the “ Woodbridge Indemnitees ”), harmless from and against:
  (a)   52.5% of any and all Environmental Damages incurred by the Woodbridge Indemnitees that arise from or pertain to Conditions or Operations known to the parties as listed on Schedule I hereto; and
 
  (b)   100% of
  (i)   any and all Environmental Damages incurred by the Woodbridge Indemnitees arising from or pertaining to Conditions or Operations that are not covered under clause (a); and


 

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  (ii)   any and all Losses and Liabilities incurred by the Woodbridge Indemnitees arising directly or indirectly by reason of or as a consequence of the Operations of the Partnership.
  (c)   The indemnifications provided in Section 8.3(a) and 8.3(b) shall continue indefinitely.
8.4 Indemnification by Woodbridge and Woodbridge Parent of Abitibi Indemnitees .
  (a)   Woodbridge and Woodbridge Parent hereby agree jointly and severally, at any time or times after the Closing Date, to indemnify ACSC, AbitibiBowater, the Partnership, ANI and all direct and indirect subsidiaries of AbitibiBowater, and each present and former director, officer, agent, servant, employee of each such entity, including any persons who have maintained a position on the management committee of the Partnership (collectively, the “ Abitibi Indemnitees ”), harmless from and against 47.5% of any and all Environmental Damages incurred by the Abitibi Indemnitees that that arise from or pertain to Conditions or Operations known to the parties as listed on Schedule I hereto.
 
  (b)   The indemnifications provided in Section 8.4(a) shall continue indefinitely.
8.5 Resolution of Indemnification Claims . All claims for indemnification under this Article 8 will be asserted and resolved as follows:
  (a)   The party claiming indemnification (the “ Indemnified Party ”) in respect of, arising out of or involving a claim or demand made by a third party against the Indemnified Party (a “ Third Party Claim ”) shall deliver notice (a “ Claim Notice ”) to the other party (the “ Indemnifying Party ”) within twenty (20) days after receipt by such Indemnified Party of written notice of the Third Party Claim; provided, however, that failure to give such Claim Notice shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure.
  (b)   If a Third Party Claim is made against an Indemnified Party, the Indemnifying Party shall have the right to assume the defense of such Third Party Claim with counsel selected by the Indemnifying Party. Should the Indemnifying Party so assume the defense of a Third Party Claim, except as provided in this Section 8.5(b), the Indemnifying Party shall not be liable to the Indemnified Party for legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof. If the Indemnifying Party assumes such defense, the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party. If (i) the Indemnifying Party shall not assume the defense of a Third Party Claim within thirty (30) days of any Claim Notice, or (ii) legal counsel for the Indemnified Party notifies the Indemnifying Party that there are or may be legal defenses available to the Indemnified Party


 

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      that are different from or additional to those available to the Indemnifying Party, that, if the Indemnified Party and the Indemnifying Party were to be represented by the same counsel, would constitute a conflict of interest for such counsel or prejudice prosecution of the defenses available to such Indemnified Party, or (iii) if the Indemnifying Party shall assume the defense of a Third Party Claim and fail to prosecute such defense with reasonable diligence following notice of such failure by the Indemnified Party, then in each such case the Indemnified Party, by notice to the Indemnifying Party, may employ its own counsel and the Indemnifying Party shall be liable for the reasonable fees, charges and disbursements of one counsel employed by the Indemnified Party and the Indemnified Party shall be promptly reimbursed for any such fees, charges and disbursements, as and when incurred. Whether the Indemnifying Party or the Indemnified Party controls the defense of any Third Party Claim, the parties shall cooperate in the defense thereof. Such cooperation shall include the retention and provision to the counsel of the controlling party of records and information that are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Indemnifying Party shall have the right to settle, compromise or discharge a Third Party Claim (other than any such Third Party Claim in which criminal conduct is alleged) without the Indemnified Party’s consent if such settlement, compromise or discharge (i) constitutes a complete and unconditional discharge and release of the Indemnified Party (and, if Woodbridge is the Indemnifying Party, of ANI and the Partnership), and (ii) provides for no relief other than the payment of monetary damages and such monetary damages are paid in full by the Indemnifying Party. No Third Party Claim may be settled by the Indemnified Party without the written consent of the Indemnifying Party.
  (c)   If any Indemnified Party should have a claim under Article 8 against any Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver notice (an “ Indemnity Notice ”) within thirty (30) days after an Indemnified Party first obtains knowledge of any claim that the Indemnified Party has determined has given or could reasonably be expected to give rise to a right of indemnification under this Agreement describing in reasonable detail the facts giving rise to any claim for indemnification hereunder and shall include in such Indemnity Notice (if then known) the amount or the method of computation of the amount of the Loss relating to such claim, and a reference to the provision of this Agreement upon which such claim is based. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party’s rights hereunder except to the extent that an Indemnifying Party shall have been actually prejudiced as a result of such failure. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim described in such Indemnity Notice, the Loss in the amount specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Article 8 and the Indemnifying Party shall pay such amount to the Indemnified


 

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      Party on demand. If the Indemnifying Party disputes its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within thirty (30) days of the Indemnity Notice, such dispute shall be resolved in accordance with Article 7 hereof.
8.6 Indemnification for Tax Contests . If there shall be any conflicts between the provisions of this Article 8 and Article 6, the provisions of Article 6 shall control with respect to Tax contests.
8.7 Limitations on Liability . Except for remedies that cannot be waived as a matter of law and injunctive or provisional relief, from and after the Closing, none of the parties hereto shall be liable or responsible in any manner whatsoever to any other party, whether for indemnification or otherwise, except for the indemnity obligations expressly provided in this Agreement, which provide the exclusive remedies and causes of action of the parties hereto with respect to any matter arising out of or in connection with this Agreement.
8.8 Indemnification Payment . ACSC and the Partnership, on the one hand, and Woodbridge, on the other hand, agree that for purposes of computing the amount of any indemnification payment under Article 6 or this Article 8, any such indemnification payment shall be treated as an adjustment to the Purchase Price for all Tax purposes.
8.9 To the extent ACSC, AbitibiBowater, the Partnership or any other Abitibi Indemnitee shall be entitled to indemnification pursuant to this Article 8 and payment in respect of such indemnification is not made within five (5) Business Days of written notice thereof, ACSC shall have the right, at its election (in its sole and absolute discretion) to offset all or any portion of the amount of such indemnification against the principal or interest payable on the Secured Promissory Note pursuant to Section 2.2(b), payable by the Partnership as of or following such date.
ARTICLE 9
GENERAL
9.1 Assignment . No party shall assign this Agreement or any of its rights and benefits hereunder without the written consent of all other parties.
9.2 Notices . Any notice or other communication (a “ Notice ”) required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if hand delivered (including by commercial courier) during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below, sent by facsimile transmission that produces a paper record (a “ Transmission ”), charges prepaid and confirmed by prepaid first class mail.


 

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In the case of a Notice to Woodbridge, addressed to it at:
 
   
 
  Woodbridge International Holdings Limited
 
  65 Queen Street West
 
  Suite 2400 
 
  Toronto, Ontario
 
  M5H 2M8 
 
 
  Attention: Gregory J. Dart
 
   
 
  Facsimile No.:                    416.365.9293 
 
   
In the case of a Notice to Woodbridge Parent, addressed to it at:
 
 
  The Woodbridge Company Limited
 
  65 Queen Street West
 
  Suite 2400 
 
  Toronto, Ontario
 
  M5H 2M8 
 
 
  Attention: Gregory J. Dart
 
   
 
  Facsimile No.:                    416.365.9293 
 
   
With a copy of any Notice sent to Woodbridge or Woodbridge Parent to:
 
   
 
  Torys LLP
 
  79 Wellington Street West
 
  Suite 3000, Box 270 TD Centre
 
  Toronto, Ontario M5K 1N2 
 
   
 
  Attention: Michael J. Siltala
 
   
 
  Facsimile No.:                    416.865.7380 


 

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In the case of a Notice to ACSC, addressed to it at:
 
 
  Abitibi Consolidated Sales Corporation
 
  1155 Metcalfe Street, Suite 800 
 
  Montreal, Quebec
 
  H3B 5H2 
 
   
 
  Attention: Executive Vice President Operations and Sales
 
   
 
  Facsimile No.:                    514.394.2241 
 
   
In the case of a Notice to AbitibiBowater, addressed to it at:
 
 
  AbitibiBowater Inc.
 
  1155 Metcalfe Street, Suite 800 
 
  Montreal, Quebec
 
  H3B 5H2 
 
   
 
  Attention: Executive Vice President Operations and Sales
 
   
 
  Facsimile No.:                    514.394.2241 
 
   
With a copy of any Notice sent to ACSC, AbitibiBowater, the Partnership or, following the Closing, ANI to:
 
   
 
  AbitibiBowater Inc.
 
  1155 Metcalfe Street, Suite 800 
 
  Montreal, Quebec
 
  H3B 5H2 
 
  Attention: Vice President Legal Affairs
 
   
 
  Facsimile No.:                    514.394.3644 
 
   
 
  and to
 
   
 
  Paul, Weiss, Rifkind, Wharton & Garrison LLP
 
  1285 Avenue of the Americas
 
  New York, NY 10019-6064 
 
  Attention: Ariel J. Deckelbaum
 
   
 
  Facsimile No.:                     212.757.3990 


 

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In the case of a Notice to the Partnership, addressed to it at:
 
 
  Augusta Newsprint Company
 
  c/o AbitibiBowater
 
  1155 Metcalfe Street, Suite 800 
 
  Montreal, Quebec
 
  H3B5H2 
 
   
 
  Attention: Executive Vice President Operations and Sales
 
   
 
  Facsimile No.:                    514.394.3644 
 
   
In the case of any pre-Closing Notice to Augusta Newsprint Inc., addressed to it at:
 
 
  Woodbridge International Holdings Limited
 
  65 Queen Street West
 
  Suite 2400 
 
  Toronto, Ontario
 
  M5H 2M8 
 
   
 
  Attention: Gregory J. Dart
 
   
 
  Facsimile No.:                    416.365.9293 
Any Notice given or made in accordance with this Section shall be deemed to have been given or made and to have been received:
  (i)   on the day it was delivered, if delivered as aforesaid; or
  (ii)   on the day of sending, if sent by Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof.
Any party may from time to time change its address for Notice by giving notice to each other party in accordance with the provisions of this Section.
9.3 Governing Law . This Agreement shall be governed by, and interpreted and enforced in accordance with, the Laws in force in the State of New York (excluding any conflict of laws rule or principle which might refer such questions to the Laws of another jurisdiction).
9.4 Time of Performance . If anything is required to be done or any action is required to be taken pursuant to the Agreement on or by a specified date which is not a Business Day, then such action shall be valid if taken on or by the next succeeding Business Day.
9.5 Entire Agreement . This Agreement, the Settlement Order, the Secured Promissory Note and all Schedules and Exhibits hereto and all related documents constitute the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, negotiations, discussions and understandings, written or oral, between the parties.


 

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9.6 Amendment . This Agreement may be amended, modified or supplemented only by a written agreement signed by each of the parties hereto.
9.7 Time of the Essence . Time shall be of the essence of this Agreement and each of its provisions.
9.8 Waiver . Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the party giving it, and only in the specific instance and for the specific purpose for which it has been given. No failure on the part of any party to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right. No exercise or partial exercise of any such right shall preclude any other or further exercise of such right or the exercise of any other right.
9.9 Further Assurances . Each party hereto shall do all such acts and shall execute and deliver all such further agreements, documents, conveyances, deeds, assignments, transfers, instruments and the like, and shall cause the doing of all such acts and the execution and delivery of all such further items as are within its power and as any other party may in writing at any time and from time to time reasonably request, in order to give full effect to the provisions and intent of this Agreement.
9.10 Costs and Expenses . Each party shall pay all costs and expenses incurred by it in connection with entering into this Agreement and completing the transactions provided for herein; provided that the costs, fees and expenses charged or paid in connection with HSR filings in connection with the purchase of the Purchase Stock and the completion of such transaction shall be paid in equal portions by ACSC and Woodbridge.
9.11 Currency . Unless specified otherwise, all statements of or references to dollar amounts in this Agreement are to lawful money of the United States.
9.12 Confidentiality . No party shall make any public statement or issue any press release concerning or otherwise disclose the transactions contemplated by this Agreement except as may be necessary to comply with the requirements of all applicable Laws and the requirements of the Bankruptcy Court in connection with the Bankruptcy Proceedings. If any such public statement or release is so required, to the extent practicable, the party making such disclosure shall consult the other party prior to making such statement or release and the parties shall use reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory to both parties provided that, if such consultation is not practicable, such first party shall be entitled to finally determine the timing and content of such disclosure, but shall use reasonable efforts to cause such disclosure to be redacted to the extent requested by the other.
9.13 Counterparts . This Agreement may be executed in counterparts. Each executed counterpart shall be deemed to be an original and all counterparts taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile, pdf or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.


 

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9.14 Sections and Headings . The division of this Agreement into articles, sections and clauses or other divisions and the insertions of headings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.
9.15 Successors and Assigns . Without limiting Section 9.1, this Agreement shall be binding upon and enure to the benefit of the parties hereto, their respective successors by operation of law (including any successor by reason of amalgamation or statutory arrangement of either party) and permitted assigns, and shall be binding upon any chapter 7 or chapter 11 trustee or receiver appointed in the Bankruptcy Proceedings or in any subsequent case under the Bankruptcy Code or any similar receiver in the CCAA Proceedings or subsequent proceedings under the CCAA or the Canadian Bankruptcy and Insolvency Act.
9.16 Availability of Equitable Relief; Specific Performance . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, subject to the limitations set forth in this Section 9.16, each of the Parties shall, without the posting of bond or other security (any requirement for which the Parties hereby waive), be entitled to equitable relief to prevent or remedy breaches of this Agreement, without the proof of actual damages, including in the form of an injunction or injunctions or orders for specific performance in respect of such breaches. Each Party agrees to waive any requirement for the security or posting of any bond in connection with any such equitable remedy. Each Party further agrees that the only permitted objections that it may raise in response to any action for such equitable relief is that it contests the existence of a breach or threatened breach of the provisions of this Agreement and no Party will allege, and each Party hereby waives the defense or counterclaim, that there is an adequate remedy at Law except as expressly provided in this Section 9.16. For the avoidance of doubt, the Parties agree that specific performance shall not constitute the sole and exclusive remedy of the Parties, whether at Law or equity, for any and all breaches after Closing of the terms and conditions of this Agreement. In no event shall any Party be liable for special, exemplary, consequential or punitive damages.
[ Remainder of page intentionally left blank ]


 

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          IN WITNESS WHEREOF the parties hereto have duly signed and delivered this Agreement as of the date first above written.
         
  WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED
 
 
  By:   /s/ Gregory J. Dart    
    Authorized Officer   
       
 
  THE WOODBRIDGE COMPANY LIMITED
 
 
  By:   /s/ Gregory J. Dart    
    Authorized Officer   
       
 
  ABITIBI CONSOLIDATED SALES CORPORATION
 
 
  By:   /s/ Pierre Rougeau    
    Name:   Pierre Rougeau   
    Title:   President   
 
  ABITIBIBOWATER INC.
 
 
  By:   /s/ Pierre Rougeau    
    Name:   Pierre Rougeau   
    Title:   Executive Vice President, Operations and Sales   
 


 

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    AUGUSTA NEWSPRINT COMPANY    
 
           
 
  By:   ABITIBI CONSOLIDATED SALES CORPORATION
its General Partner
   
 
           
 
  By:   /s/ Pierre Rougeau
 
Name: Pierre Rougeau
   
 
      Title: President    
 
           
    AUGUSTA NEWSPRINT INC.    
 
           
 
  By:   /s/ Gregory J. Dart
 
Authorized Officer
   


 

 

SCHEDULE A
FORM OF SECURED PROMISSORY NOTE
See Exhibit 4.4 of AbitibiBowater Inc.’s Form 10-K
for the fiscal year ended December 31, 2010.


 

 

SCHEDULE B
FORM OF WOODBRIDGE RELEASE
1.            For purposes hereof, the following terms have the respective definitions set forth below:
  a.   “Stock Purchase Agreement” means that certain Stock Purchase Agreement by and among the Releasors, Woodbridge, Woodbridge Parent and Augusta Newsprint Inc. made as of n , 2010 and/or any document entered into in connection therewith.
 
  b.   “Demands” means all Actions and Proceedings, causes of action, suits, debts, losses, expenses, judgments, damages, obligations, Liabilities, dues, accounts, bonds, covenants, Contracts, claims, contributions, indemnifications, executions and demands whatsoever.
 
  c.   “Releasees” means The Woodbridge Company Limited (“ Woodbridge Parent ”), Woodbridge International Holdings Limited (“ Woodbridge ”), and all of the other direct and indirect subsidiaries of Woodbridge Parent (collectively, the “ Corporations ”), each present and former director, officer, agent, servant and employee of the Corporations including, without limitation, any of such persons who have maintained a position on the management committee of the Partnership, and each of their respective successors, assigns, heirs, executors, estate trustees, personal representatives and administrators, as applicable.
 
  d.   “Releasors” means the undersigned companies, including for these purposes their respective successors by operation of law.
 
  e.   Terms capitalized herein but not defined herein shall have the respective meanings set forth in the Stock Purchase Agreement.
2.            In consideration of the transactions contemplated by the Stock Purchase Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Releasors hereby acknowledges and agrees and unconditionally and irrevocably, fully, finally and forever releases, waives, acquits and discharges each of the Releasees from any and all Demands (or facts upon which such Demand could be premised) of any kind or character that the Releasors ever had, now have or may hereafter have, and each of them, whether, now known or unknown, suspected or unsuspected or claimed, in contract, at law or in equity, against the Releasees, or any of them, for or by reason of, or in any way arising out of any cause, matter or thing existing from the beginning of the world up to the date hereof relating to, or arising directly or indirectly by reason of or as a consequence of, the Operations of the Partnership.
3.            Notwithstanding anything provided for herein, this release shall not in any way limit or restrict the rights of the Releasors (i) to make a claim against, or to require indemnification by Woodbridge pursuant to and subject to the terms and conditions of the


 

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Stock Purchase Agreement or any documents delivered in connection with the transactions contemplated thereby or (ii) in connection with the Secured Promissory Note.
4.            Each Releasor hereby represents, warrants and covenants that (a) such Releasor has not heretofore made or filed and will not make or file any allegations or any Action against any of the Releasees in connection with, based upon or arising out of any claim released and discharged pursuant to this AbitibiBowater Release, and (b) the undersigned cannot, have not and will not assign to any Person any claim or rights including any claim (or part thereof) released or discharged pursuant to this AbitibiBowater Release. Each Releasor hereby acknowledges that the consent and waiver made by such Releasor pursuant to this AbitibiBowater Release is voluntary, that it has been carefully considered and that such Releasor has consulted with counsel or has been advised it should do so in connection therewith.
[Signature Page Follows]


 

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          DATED:
         
  ABITIBI CONSOLIDATED SALES CORPORATION
 
 
  By:      
    Name:      
    Title   
 
  ABITIBIBOWATER INC.
 
 
  By:      
    Name:      
    Title:      
 
  AUGUSTA NEWSPRINT INC.
 
 
  By:      
    Name:      
    Title:      
 
  AUGUSTA NEWSPRINT COMPANY
 
 
  By:      
    Name:      
    Title:      
 


 

 

SCHEDULE C
FORM OF ABITIBIBOWATER RELEASE
1.            For purposes hereof, the following terms have the respective definitions set forth below:
  a.   “Stock Purchase Agreement” means that certain Stock Purchase Agreement by and among the Releasors, ACSC, AbitibiBowater, Augusta Newsprint Company and ANI made as of n , 2010 and/or any document entered into in connection therewith.
 
  b.   “Demands” means all Actions and Proceedings, causes of action, suits, debts, losses, expenses, judgments, damages, obligations, Liabilities, dues, accounts, bonds, covenants, Contracts, claims, contributions, indemnifications, executions and demands whatsoever.
 
  c.   “Releasees” means AbitibiBowater Inc. (“ AbitibiBowater ”), Abitibi Consolidated Sales Corporation (“ ACSC ”), Augusta Newsprint Inc. (“ ANI ”) and all of the other direct and indirect subsidiaries of AbitibiBowater (collectively, the “ Corporations ”) the Partnership and each present and former director, officer, agent, servant and employee of the Corporations or the Partnership including, without limitation, any of such persons who have maintained a position on the management committee of the Partnership, and each of their respective successors, assigns, heirs, executors, estate trustees, personal representatives and administrators, as applicable.
 
  d.   “Releasors” means the undersigned companies, including for these purposes their respective successors by operation of law.
 
  e.   Terms capitalized herein but not defined herein shall have the respective meanings set forth in the Stock Purchase Agreement.
2.            In consideration of the transactions contemplated by the Stock Purchase Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Releasors hereby acknowledges and agrees and unconditionally and irrevocably, fully, finally and forever releases, waives, acquits and discharges each of the Releasees from any and all Demands (or facts upon which such Demand could be premised) of any kind or character that the Releasors ever had, now have or may hereafter have, and each of them, whether, now known or unknown, suspected or unsuspected or claimed, in contract, at law or in equity, against the Releasees, or any of them, for or by reason of, or in any way arising out of any cause, matter or thing existing from the beginning of the world up to the date hereof relating to, or arising directly or indirectly by reason of or as a consequence of, the Operations of the Partnership.
3.            Notwithstanding anything provided for herein, this release shall not in any way limit or restrict the rights of the Releasors (i) to make a claim against, or require


 

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indemnification by, either AbitibiBowater and ACSC pursuant to and subject to the terms and conditions of the Stock Purchase Agreement or any documents delivered in connection with the transactions contemplated thereby; (ii) in connection with the Secured Promissory Note; (iii) in connection with the Administrative Claim; (iv) in connection with the Bankruptcy Claim; or (v) in connection with the Woodbridge Claims.
4.            Each Releasor hereby represents, warrants and covenants that (a) such Releasor has not heretofore made or filed and will not make or file any allegations or any Action against any of the Releasees in connection with, based upon or arising out of any claim released and discharged pursuant to this AbitibiBowater Release, and (b) the undersigned cannot, have not and will not assign to any Person any claim or rights including any claim (or part thereof) released or discharged pursuant to this AbitibiBowater Release. Each Releasor hereby acknowledges that the consent and waiver made by such Releasor pursuant to this AbitibiBowater Release is voluntary, that it has been carefully considered and that such Releasor has consulted with counsel or has been advised it should do so in connection therewith.
[Signature Page Follows]


 

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          DATED:
         
  WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED
 
 
  By:      
       
 
THE WOODBRIDGE COMPANY LIMITED
 
 
  By:      
       
       
 


 

 

SCHEDULE D
CLOSING DELIVERIES
A. Woodbridge Closing Deliveries
1.   The Purchase Stock, together with a stock power with respect to the Purchase Stock executed in blank;
 
2.   certificates from the appropriate authorities, dated not more than ten (10) Business Days prior to the Closing Date, to the effect that each of Woodbridge, Woodbridge Parent and ANI each is in good standing in their jurisdiction of incorporation;
 
3.   a certificate dated not more than ten (10) Business Days prior to the Closing Date from the Secretary of State of the State of Georgia to the effect that ANI is duly qualified as a foreign corporation and in good standing in Georgia;
 
4.   the AbitibiBowater Release;
 
5.   a certificate of a Senior Officer of each of Woodbridge and Woodbridge Parent to the effect that all of the representations and warranties made by each of Woodbridge and Woodbridge Parent are true and correct in all respects and that each of Woodbridge and Woodbridge Parent has complied with all covenants required to be complied with by it prior to Closing in all material respects;
 
6.   at least two (2) Business Days prior to the Closing Date, the notice contemplated by Section 2.3;
 
7.   the resignations of all directors and officers of ANI and releases from such individuals from all claims ANI, as contemplated by Section 3.5 of the Agreement;
 
8.   the Assignment and Assumption of Bankruptcy Claims Agreement;
 
9.   the Assignment and Assumption of Administrative Claim Agreement; and
 
10.   all other documents reasonably required to be delivered by Woodbridge to ACSC in connection with the purchase and sale of the Purchase Stock.
B(I). Partnership, ACSC and AbitibiBowater Closing Deliveries
1.   In immediately available funds, an amount equal to the lesser of (i) fifteen million dollars ($15,000,000) and (ii) 52.5% of the Estimated Partnership Cash;
 
2.   the Secured Promissory Note;
 
3.   at least five (5) Business Days prior to the Closing Date, the Estimated Closing Date Cash Statement;


 

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4.   a certificate dated not more than ten (10) Business Days prior to the Closing Date from the appropriate authorities, to the effect that each of ACSC and AbitibiBowater is in good standing in their jurisdictions of incorporation;
 
5.   the Woodbridge Release;
 
6.   a certificate of a Senior Officer of each of the Partnership, ACSC and AbitibiBowater to the effect that all of the representations and warranties made by each of the Partnership, ACSC and AbitibiBowater are true and correct in all respects and that each of the Partnership, ACSC and AbitibiBowater has complied with all covenants required to be complied with by it prior to Closing in all material respects;
 
7.   a certified copy of the Settlement Order;
 
8.   the Assignment and Assumption of Bankruptcy Claims Agreement;
 
9.   the Assignment and Assumption of Administrative Claim Agreement; and
 
10.   all other documents reasonably required to be delivered by the Partnership and ACSC to Woodbridge in connection with the purchase and sale of the Purchase Stock.
B(II). Security Documents
1.   Form UCC-1 financing statements naming ACSC and ANI as debtor and Woodbridge as secured party in proper form for filing in the appropriate filing office.
 
2.   Deed of Trust, dated as of the Closing Date, with respect to all of the real property and fixtures of the Partnership located at 2434 Doug Barnard Parkway, Augusta, Georgia 30906, including an assignment of leases and rents, in form and substance reasonably satisfactory to Noteholder.
 
3.   Form UCC-1 financing statements naming the Partnership as debtor and Woodbridge as secured party in proper form for filing in the appropriate filing offices.
 
4.   Deposit account control agreements with respect to the Partnership’s accounts, other than Excluded Accounts.


 

 

SCHEDULE E
FORM OF SETTLEMENT MOTION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
             
 
    )      
 
           
In re:
    )     Chapter 11
 
 
    )      
 
           
ABITIBIBOWATER INC., et al ., 1
    )     Case No. 09-11296 (KJC)
 
           
 
    )     Jointly Administered
 
Debtors.
    )      
 
           
 
    )     Hearing Date: December 22, 2010 at 1:00 p.m. (ET)
Objection Deadline: December 15, 2010 at 4:00 p.m.
 
          (ET)
 
    )      
DEBTORS’ MOTION FOR AN ORDER PURSUANT TO SECTIONS 105
AND 363(b) OF THE BANKRUPTCY CODE AND FEDERAL RULE OF
BANKRUPTCY PROCEDURE 9019: (I) APPROVING A SETTLEMENT
AND COMPROMISE BETWEEN WOODBRIDGE INTERNATIONAL HOLDINGS
LIMITED, THE WOODBRIDGE COMPANY LIMITED, ABITIBI CONSOLIDATED
SALES CORPORATION, ABITIBIBOWATER INC., AUGUSTA NEWSPRINT
 
1   The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: AbitibiBowater Inc. (6415), AbitibiBowater US Holding 1 Corp. (N/A), AbitibiBowater US Holding LLC (N/A), AbitibiBowater Canada Inc. (N/A), Abitibi-Consolidated Alabama Corporation (4396), Abitibi-Consolidated Corporation (9050), Abitibi-Consolidated Finance LP (4528), Abitibi Consolidated Sales Corporation (7144), Alabama River Newsprint Company (7247), Augusta Woodlands, LLC (9050), Bowater Alabama LLC (7106), Bowater America Inc. (8645), Bowater Canada Finance Corporation (N/A), Bowater Canadian Forest Products Inc. (N/A), Bowater Canadian Holdings Incorporated (N/A), Bowater Canadian Limited (N/A), Bowater Finance Company Inc. (1715), Bowater Finance II LLC (7886), Bowater Incorporated (1803), Bowater LaHave Corporation (N/A), Bowater Maritimes Inc. (N/A), Bowater Newsprint South LLC (1947), Bowater Newsprint South Operations LLC (0168), Bowater Nuway Inc. (8073), Bowater Nuway Mid-States Inc. (8290), Bowater South American Holdings Incorporated (N/A), Bowater Ventures Inc. (8343), Catawba Property Holdings, LLC (N/A), Coosa Pines Golf Club Holdings LLC (8702), Donohue Corp. (9051), Lake Superior Forest Products Inc. (9305) and Tenex Data Inc. (5913). The Debtors’ corporate headquarters are located at, and the mailing address for each Debtor is, 1155 Metcalfe Street, Suite 800, Montreal, Quebec H3B 5H2, Canada.

 


 

COMPANY AND AUGUSTA NEWSPRINT INC.; (II) AUTHORIZING ABITIBI
CONSOLIDATED SALES CORPORATION
TO PURCHASE AN INTEREST IN THE AUGUSTA NEWSPRINT

COMPANY; AND (III) GRANTING RELATED RELIEF
          AbitibiBowater Inc. (“ AbitibiBowater ”) and its affiliated debtors and debtors-in-possession in the above-captioned cases (each a “ Debtor ,” and collectively, the “ Debtors ”), by and through their undersigned counsel, hereby move (the “ Motion ”) this Court, pursuant to sections 105 and 363(b) of title 11 of the United States Code (the “ Bankruptcy Code ”) and Rule 9019 of the Federal Rules of Bankruptcy Procedure (the “ Bankruptcy Rules ”), for entry of an order substantially in the form attached hereto as Exhibit A (the “ Order ”): (i) authorizing the Debtors to enter into a settlement and compromise with Woodbridge International Holdings Limited (“ WIHL ”), The Woodbridge Company Limited (“ TWCL ”), Augusta Newsprint Company (“ Augusta ”) and Augusta Newsprint Inc. (“ ANI ” and along with WIHL, TWCL, Augusta, AbitibiBowater, Abitibi Consolidated Sales Corporation (“ ACSC ”), the “ Parties ”) with respect to various disputes among the Parties; (ii) in furtherance of that settlement and compromise, authorizing ACSC to purchase all of the outstanding shares of the common and preferred stock of ANI, which would result in the transfer of ANI’s 47.5% interest in Augusta, pursuant to a certain stock purchase agreement, substantially in the form attached hereto as Exhibit B (the “ Stock Purchase Agreement ”), and to enter into a certain Note (defined below) for the partial payment of the purchase price for such stock and granting of liens thereunder; and (iii) granting related relief. In support of this Motion, the Debtors respectfully represent as follows:
JURISDICTION
          1. This Court has jurisdiction to hear this Motion under 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

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          2. The statutory predicates for the relief requested herein are sections 105(a) and 363(b) of the Bankruptcy Code and Bankruptcy Rule 9019.
BACKGROUND
General Background
          3. AbitibiBowater (together with its subsidiaries and affiliates, the “ Company ”) is incorporated in Delaware and headquartered in Montreal, Quebec. The Company is the world’s largest producer of newsprint by capacity and one of the largest publicly traded pulp and paper manufacturers worldwide. It produces an extensive range of commercial printing papers, market pulp and wood products, serving customers in over 90 countries. The Company is also among the world’s largest recyclers of newspapers and magazines, and has third-party certified 100% of its managed woodlands to sustainable forest management standards. The Company owns and operates 19 pulp and paper facilities and 24 wood products facilities located in the United States, Canada and South Korea. Employing around 11,900 people, the Company realized sales of approximately $4.4 billion 2 in 2009.
          4. The Company’s financial performance depends primarily on the market demand for its products and the prices at which they can be sold. These products are globally traded commodities, and as such, the balance between supply and demand drives their pricing and shipment levels. Supply and demand, in turn, are affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. The recent downturn in the global economy has resulted in an unprecedented decline in demand for newsprint, the Company’s primary product. In addition, substantial price competition and volatility in the pulp and paper industry, along with
 
2   All monetary figures are presented in U.S. dollars unless specifically noted otherwise.

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negative trends in advertising, electronic data transmission and storage and continued expansion of the Internet, have exacerbated downward pressure on revenue. At the same time, the global credit markets suffered a significant contraction, including the failure of some large financial institutions, which has resulted in a severe decline in the credit markets and overall availability of credit. These market disruptions, as well as the Company’s high debt levels and the overall weakness in consumer demand, have adversely impacted the Company’s financial performance and have necessitated the commencement of these Chapter 11 Cases and coordinated Canadian filings.
          5. Specifically, on April 16, 2009 (the “ Petition Date ”), certain of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code (the “ Chapter 11 Cases ”). 3 On April 17, 2009, certain of the Debtors (the “ Cross-Border Debtors ”) 4 and non-debtor subsidiaries of AbitibiBowater (the “ CCAA Debtors ” and together with the Cross-Border Debtors, the “ Canadian Debtors ”) 5 applied for protection from their creditors under Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “ CCAA ”), in the Superior Court, Commercial Division, for the Judicial District of Montreal, Canada (the “ Canadian Court ” and the filing, the “ Canadian Proceedings ”). Two of the CCAA
 
3   The SPV Debtors commenced their Chapter 11 Cases on December 22, 2009.
 
4   The Cross-Border Debtors are: Bowater Canada Finance Corporation, Bowater Canadian Holdings Incorporated, AbitibiBowater Canada Inc., Bowater Canadian Forest Products Inc., Bowater Maritimes Inc., Bowater LaHave Corporation and Bowater Canadian Limited.
 
5   The CCAA Debtors are: Bowater Mitis Inc., Bowater Guerette Inc., Bowater Couturier Inc., Alliance Forest Products (2001) Inc., Bowater Belledune Sawmill Inc., St. Maurice River Drive Company, Bowater Treated Wood Inc., Canexel Hardboard Inc., 9068-9050 Quebec Inc., Bowater Canada Treasury Corporation, Bowater Canada Finance Limited Partnership, Bowater Shelburne Corporation, 3231078 Nova Scotia Company, Bowater Pulp and Paper Canada Holdings Limited Partnership, Abitibi-Consolidated Inc., Abitibi-Consolidated Company of Canada, Abitibi-Consolidated Nova Scotia Incorporated, 32117925 Nova Scotia Company, Terra-Nova Explorations Ltd., The Jonquiere Pulp Company, The International Bridge and Terminal Company, Scramble Mining Limited, 9150-3383 Quebec Inc., Star Lake Hydro Partnership, Saguenay Forest Products Inc., 3224112 Nova Scotia Limited, La Tuque Forest Products Inc., Marketing Donohue Inc., Abitibi-Consolidated Canadian Office Products Holdings Inc., 3834328 Canada Inc., 6169678 Canada Incorporated, 4042410 Canada Inc., Donohue Recycling and 1508756 Ontario Inc.

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Debtors — Abitibi-Consolidated Inc. (“ ACI ”) and Abitibi-Consolidated Company of Canada (“ ACCC ” and together with ACI, the “ Chapter 15 Debtors ”) — thereafter filed petitions for recognition under chapter 15 of the Bankruptcy Code (the “ Chapter 15 Cases ”) in this Court seeking relief in support of the Canadian Proceedings. AbitibiBowater and certain of the Debtors also filed for ancillary relief in Canada seeking relief in support of the Chapter 11 Cases in Canada under the Canadian equivalent of chapter 15, section 18.6 of the CCAA. 6
          6. On April 28, 2009, the Office of the United States Trustee for the District of Delaware appointed a statutory Creditors Committee of unsecured creditors (the “ Creditors Committee ”) in these Chapter 11 Cases pursuant to section 1102 of the Bankruptcy Code.
          7. On August 2, 2010, the Debtors filed the Debtors’ Second Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the “ Plan ”) as well as the Disclosure Statement for Debtors’ Second Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (the “ Disclosure Statement ”).
          8. On August 3, 2010, the Court entered an order approving the Disclosure Statement and scheduling a hearing to consider confirmation of the Plan for September 24, 2010 at 10:00 a.m. (ET), which was continued for several dates thereafter (the “ Confirmation Hearing ”). On November 22, 2010, the Court rendered an Opinion on Confirmation confirming the Plan and on November 23, 2010, the Court entered its Finding of Facts, Conclusions of Law and Order Confirming Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (As Amended). The Effective Date for the Plan has yet to occur.
 
6   The Debtors who obtained section 18.6 relief are: AbitibiBowater Inc., AbitibiBowater US Holding 1 Corp., Bowater Ventures Inc., Bowater Incorporated, Bowater Nuway Inc., Bowater Nuway-Midstates, Inc., Catawba Property Holdings LLC, Bowater Finance Company Inc., Bowater South American Holdings Incorporated, Bowater America Inc., Lake Superior Forest Products Inc., Bowater Newsprint South LLC, Bowater Newsprint South Operations LLC, Bowater Finance II, LLC, Bowater Alabama LLC and Coosa Pines Golf Club Holdings LLC.

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Augusta Newsprint Company
          9. Augusta is a partnership that owns and operates a newsprint mill in Augusta, Georgia. AbitibiBowater’s indirect subsidiary, ACSC, and an unrelated third party, ANI, an indirect subsidiary of TWCL (together with WIHL and Woodbridge International Holdings S.A., “ Woodbridge ”), own 52.5% and 47.5% of the partnership interests in Augusta, respectively. ACSC manages the facility. Pursuant to the governing agreements, Augusta sells 100% of its product to ACSC at arm’s length market-determined rates, but otherwise operates as an independent company with its own employees and accounting systems. Augusta was created, and is governed, by that certain partnership agreement dated as of August 17, 1981 (as amended on December 23, 1981, June 23, 1987, September 15, 1989, June 9, 1997, October 8, 1997, September 30, 1999, September 6, 2001 and July 1, 2004, the “ Partnership Agreement ”).
          10. On June 15, 2009, the Debtors moved to reject a certain call agreement (the “ Call Agreement ”) in respect of Augusta. The Call Agreement obligated ACSC to either buy-out its partner at a price well above market, or risk losing all of its equity in the partnership pursuant to forced sale provisions in the Call Agreement.
          11. The Bankruptcy Court conducted a hearing on the rejection motion on September 11, 2009, and on October 27, 2009, the Bankruptcy Court issued a decision authorizing the Debtors’ rejection of the Call Agreement (the “ Rejection Order ”). On November 3, 2009, Woodbridge filed its notice of appeal of the Bankruptcy Court’s order (the “ Rejection Appeal ”). The appeal is currently pending in the District Court for Delaware. If the Bankruptcy Court’s judgment is not upheld and a forced sale is consummated, the Debtors could lose their equity in Augusta.

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          12. On March 9, 2010, Woodbridge filed a motion in the Bankruptcy Court to compel ACSC to reject the Partnership Agreement (the “ Augusta Partnership Motion ”). If ACSC were forced to reject the Partnership Agreement, the future of the Augusta mill would be uncertain, including the possibility of a dissolution of the partnership. The Debtors filed an objection to the Augusta Partnership Motion on April 9, 2010. The Augusta Partnership Motion is now pending before the Bankruptcy Court.
The Stock Purchase Agreement
          13. The Debtors and Woodbridge have been in discussions to determine whether a consensual resolution of the various issues surrounding the Partnership Agreement could be reached. The Parties recently reached an agreement settling most of the outstanding disputes among them and, in connection therewith, ACSC has agreed to purchase all of Woodbridge’s interest in Augusta. The form of the Stock Purchase Agreement pursuant to which ACSC will purchase Woodbridge’s interest is set forth as Exhibit B annexed hereto. 7
          14. This Motion does not seek to affect in any way the claims of Woodbridge or any of their affiliates, against the Debtors or the Canadian Debtors, arising from the rejection of the Call Agreement and the guarantee dated as of September 6, 2001 by ACI in favor of each of WIHL and Woodbridge International Holdings S.A. (all such claims, the “ Woodbridge Claims ”). For the avoidance of doubt, the Woodbridge Claims, and all rights thereto and thereunder, are preserved. The Woodbridge Claims will be addressed in the claims processes administered by the Bankruptcy Court and the Canadian Court.
 
7   The descriptions of the Stock Purchase Agreement in this Motion are for summary purposes only and shall in no way operate to alter, modify, or contradict the terms of the actual Stock Purchase Agreement. Unless otherwise defined herein, all capitalized terms shall have the meanings ascribed to them in the Stock Purchase Agreement.

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          15. Through the Stock Purchase Agreement, Woodbridge has agreed to sell to ACSC its common and preferred stock in ANI, which holds a 47.5% interest in Augusta. In consideration for the sale, among other things, ACSC will pay an amount in cash equal to the lesser of (i) $15,000,000 and (ii) 52.5% of the Partnership Cash (as defined in the Stock Purchase Agreement), and Augusta will issue a secured first-priority note (the “ Note ”) in favor of WIHL in the principal amount of $90 million plus the excess, if any, of $15,000,000 over 52.5% of the Partnership Cash. The Note will have a maturity date occurring on the fourth anniversary of the issue date of the Note, subject to extension in certain circumstances as set forth in the Note. The Note will accrue interest at (i) a rate of 8% per annum so long as the outstanding Principal Amount (as defined in the Note) on such day is equal to or greater than $60,000,000, (ii) a rate of 6.5% per annum so long as the outstanding Principal Amount on such day is less than $60,000,000 and equal to or greater than $30,000,000, and (iii) a rate of 5.0% per annum so long as the outstanding Principal Amount on such day is less than $30,000,000.
          16. To induce WIHL to enter into the Stock Purchase Agreement, the Note will be secured as follows: (i) ACSC has agreed to grant a continuing Lien on its partnership interest in Augusta and all rights to payment arising therefrom, including but not limited to, distributions and profits, all of its rights in the Partnership Agreement or other governing documents and proceeds of the foregoing, (ii) ANI has agreed to grant a continuing Lien on its partnership interest in Augusta, all rights to payment arising therefrom, including but not limited to, distributions and profits, all of its rights in the Partnership Agreement or other governing documents, and proceedings of the foregoing, and (iii) Augusta has agreed to grant a continuing Lien on all of its personal and real property, whether now owned or hereafter acquired.

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          17. In addition to the cash and Note, the Purchase Price for the sale of ANI’s interest will also include the assignment to Woodbridge of 47.5% of Augusta’s rights, title and interest to (i) certain Bankruptcy Claims against AbitibiBowater and certain of the Debtors in the aggregate amount of $37,575,503.04, and (ii) an Administrative Claim against ACSC in the amount of $9,246,580, all of which are set forth in the Stock Purchase Agreement and are Allowed Claims (as defined in the Plan) in the Chapter 11 Cases. Finally, the parties have agreed to indemnify each other for certain liabilities as set forth in the Stock Purchase Agreement.
RELIEF REQUESTED
          18. By this Motion, the Debtors request the entry of an order under sections 363(b) and 105(a) of the Bankruptcy Code and Rule 9019 of the Bankruptcy Rules authorizing and approving the Debtors’ settlement and compromise of various disputes arising from or relating to the Augusta partnership.
          19. Further, the Debtors seek entry of an order pursuant to sections 105 and 363(b) of the Bankruptcy Code authorizing and approving the Debtors’ entry into the Stock Purchase Agreement, the Note and related documents.
          20. Under either the standard by which the Court considers the approval of compromises or settlements, or the standard by which the Court considers approval of the use of estate property outside of the ordinary course of business, sufficient grounds exist to approve the Debtors’ compromise with Woodbridge, including ACSC’s entry into the Stock Purchase Agreement, the Note and related documents.
A. Bankruptcy Rule 9019

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          21. Bankruptcy Rule 9019(a) provides that “on motion by the trustee and after notice and a hearing, the Court may approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). Under Bankruptcy Rule 9019(a), the Court has the authority to approve a settlement if it is fair and equitable and in the best interests of the estate. See In re Louise’s Inc., 211 B.R. 798 (D. Del. 1997); Fischer v. Pereira (In re 47-49 Charles St., Inc.), 209 B.R. 618, 620 (S.D.N.Y. 1997). The settlement of time-consuming and burdensome litigation, especially in the bankruptcy context, is encouraged. See In re Penn Central Transp. Co., 596 F.2d 1102 (3d Cir. 1979) (“administering reorganization proceedings in an economical and practical manner it will often be wise to arrange the settlement of claims”) (quoting In re Protective Comm. for Indep. Stockholders of TMT Ferry, Inc. v . Anderson, 390 U.S. 414, 424 (1968)), see also In re Sassalos, 160 B.R. 646, 653 (D. Or. 1993) (stating that “compromises are favored in bankruptcy, and the decision of the bankruptcy judge to approve or disprove a compromise rests in the sound discretion of the judge.”) In determining the fairness and equity of a compromise in bankruptcy, the United States Court of Appeals for the Third Circuit has stated that it is important that the bankruptcy court “apprise itself of all facts necessary to form an intelligent and objective opinion of the probabilities of ultimate success should the claims be litigated. .. and estimate the complexity, expense and likely duration of such litigation, and other factors relevant to a full and fair assessment of the [claims].” Penn Central, 596 F.2d at 1153.
          22. More recently, the Third Circuit Court of Appeals enumerated the following four-factor test to be used in deciding whether a settlement should be approved: “(1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved and the expense, inconvenience and delay necessarily attending it; and

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(4) the paramount interest of creditors.” Will v. Northwestern Univ. (In re Nutraquest, Inc.) , 434 F.3d 639, 644 (3d Cir. 2006).
          23. Approval of a proposed settlement is within the “sound discretion” of the bankruptcy court. See In re Neshaminy Office Bldg. Assocs. , 62 B.R. 798, 803 (E.D. Pa. 1986). The bankruptcy court should not substitute its judgment for that of the debtor. Id. The court is not to decide numerous questions of law or fact raised by litigation, but rather should canvass the issues to see whether the settlement falls below the lowest point in the range of reasonableness. See In re W.T. Grant & Co. , 699 F.2d 599, 608 (2d Cir. 1983), cert. denied , 464 U.S. 22 (1983); see also In re Sea Containers Ltd. , 2008 WL 4296562, at *5 (Bankr. D. Del. Sept. 19, 2008).
          24. Entry into the Stock Purchase Agreement and Note as part of a compromise with Woodbridge resolves several contested matters between the parties. Approval of this Motion will effectively moot the Rejection Appeal and the Augusta Partnership Motion, as Woodbridge will no longer be a partner in the Augusta partnership. Once an order is entered approving this Motion, Woodbridge will withdraw the Rejection Appeal and the Augusta Partnership Motion. 8
          25. Based on the anticipated cost of further litigation with Woodbridge with respect to the Rejection Appeal and the Augusta Partnership Motion, the risk of a ruling adverse to the Debtors in connection with either of those matters, and the likelihood of additional litigation with Woodbridge (including possible partnership dissolution proceedings in Georgia), the Debtors determined that a compromise with Woodbridge is in the best interest of the Debtors, their estates and their creditors.
 
8   While the Rejection Appeal will be resolved by entry of an order approving this Motion, Woodbridge will retain its right to assert the damages arising from the rejection of the Call Agreement and the guarantee dated as of September 6, 2001 by ACI in favor of each of WIHL and Woodbridge International Holdings S.A., and the Debtors will retain their rights to object to the same.

11


 

B. Bankruptcy Code §363
          26. Section 363(b) provides in relevant part that “[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.” A court can authorize a debtor to use property of the estate pursuant to section 363(b)(1) of the Bankruptcy Code when such use is an exercise of the debtor’s sound business judgment and when the use of the property is proposed in good faith and for value. See In re Delaware & Hudson R.R. Co. , 124 B.R. 169, 176 (D. Del. 1991) (explaining that the Third Circuit has adopted the “sound business purpose” test to evaluate motions brought pursuant to section 363(b)); see also In re Abbotts Dairies of Pennsylvania, Inc. , 788 F.2d 143 (3d Cir. 1986). In addition, section 105(a) of the Bankruptcy Code further authorizes “[t]he court [to] issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code].” 11 U.S.C. § 105(a).
          27. The debtor has the burden to establish that a valid business purpose exists for the use of estate property in a manner that is not in the ordinary course of business. See In re Lionel Corp. , 722 F.2d 1063, 1070-71 (2d Cir. 1983). Once the debtor has articulated a valid business purpose, however, a presumption arises that the debtor’s decision was made on an informed basis, in good faith and in the honest belief the action was in the best interest of the company. See In re Integrated Resources, Inc. , 147 B.R. 650, 656 (S.D.N.Y. 1992).
          28. The Debtors submit that good business reasons justify the Debtors’ entry into the Stock Purchase Agreement and Note as part of a compromise and resolution between the Debtors and Woodbridge, and that entry into the Stock Purchase Agreement and Note is in the best interests of the Debtors’ estates. Specifically, the Stock Purchase Agreement allows ACSC

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to obtain 100% ownership of Augusta, which supplies newsprint to ACSC and is a profitable enterprise, at a fair and reasonable price. The Note is an integral part of the purchase price under the Stock Purchase Agreement.
          29. Further, the Debtors determined in their business judgment that reaching a resolution with Woodbridge on these various issues was an important component to maximizing the value of the Debtors’ estates for the benefit of all creditors. The Debtors have determined that, rather than litigating with Woodbridge regarding the assumption of the Partnership Agreement and (presuming the Debtors’ victory on that point) continuing as a partner in Augusta post-confirmation, acquiring a 100% interest in Augusta pursuant to the terms of the Stock Purchase Agreement is a more sound business decision. Thus, the Debtors entered into the Stock Purchase Agreement and Note for a valid business purpose, in good faith and in the honest belief that the action was in the best interests of the Debtors.
NOTICE
          30. Notice of this Motion has been provided to the following parties, or, in lieu thereof, their counsel: (a) counsel to the Official Committee of Unsecured Creditors; (b) the Office of the United States Trustee; (c) counsel to the agents for the Debtors’ prepetition secured bank facilities; (d) counsel to the agent for the Debtors’ postpetition lenders; (e) counsel to the agent for the Debtors’ securitization facility; (f) counsel to ANI and Woodbridge; (g) the Monitor appointed in the Canadian Proceeding; and (h) those parties entitled to notice pursuant to Bankruptcy Rule 2002, in accordance with Local Rule 2002-1(b). The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.

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PRIOR REQUEST FOR RELIEF
          31. No previous requests for the relief requested herein have been made to this Court.
          WHEREFORE, the Debtors respectfully request that this Court grant (i) the relief requested herein by entering an order in the form attached hereto as Exhibit A authorizing the Debtors to enter into the Stock Purchase Agreement to purchase Woodbridge’s interest in Augusta and the Note, including the granting of liens thereunder, and (ii) such other and further relief as this Court deems just and appropriate.
Dated: Wilmington, Delaware            YOUNG CONAWAY STARGATT & TAYLOR, LLP December __, 2010
         
 
 
 
Pauline K. Morgan (No. 3650)
   
 
  Sean T. Greecher (No. 4484)    
 
  Andrew L. Magaziner (No. 5426)    
 
  The Brandywine Building    
 
  1000 West Street, 17th Floor    
 
  Wilmington, Delaware 19801     
 
  Telephone: (302) 571-6600     
 
  Facsimile: (302) 571-1253     
 
       
 
  - and -    
 
       
 
  PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP    
 
  Jeffrey D. Saferstein    
 
  Kelley A. Cornish    
 
  Alice Belisle Eaton    
 
  1285 Avenue of the Americas    
 
  New York, New York 10019-6064     
 
  Telephone: (212) 373-3000     
 
  Facsimile: (212) 757-3990     
 
  Counsel for the Debtors and Debtors-in-Possession    

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EXHIBIT A

 


 

EXHIBIT B

 


 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
             
 
    )      
 
           
In re:
    )     Chapter 11
 
           
 
    )      
 
           
ABITIBIBOWATER INC., et al ., 9
    )     Case No. 09-11296 (KJC)
 
           
 
    )     Jointly Administered
 
           
Debtors.
    )      
 
           
 
    )     Ref. Docket No. ____________
 
           
 
    )      
ORDER PURSUANT TO SECTIONS 105 AND 363(b) OF THE BANKRUPTCY CODE
AND FEDERAL RULE OF BANKRUPTCY PROCEDURE 9019:
(I) APPROVING A SETTLEMENT AND COMPROMISE BETWEEN WOODBRIDGE
INTERNATIONAL HOLDINGS LIMITED, WOODBRIDGE COMPANY LIMITED,
ABITIBI CONSOLIDATED SALES CORPORATION, ABITIBIBOWATER INC.,
AUGUSTA NEWSPRINT COMPANY AND AUGUSTA NEWSPRINT INC.; (II)
AUTHORIZING ABITIBI CONSOLIDATED SALES CORPORATION TO PURCHASE
AN INTEREST IN THE AUGUSTA
NEWSPRINT COMPANY; AND (II) GRANTING RELATED RELIEF
 
9   The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: AbitibiBowater Inc. (6415), AbitibiBowater US Holding 1 Corp. (N/A), AbitibiBowater US Holding LLC (N/A), AbitibiBowater Canada Inc. (N/A), Abitibi-Consolidated Alabama Corporation (4396), Abitibi-Consolidated Corporation (9050), Abitibi-Consolidated Finance LP (4528), Abitibi Consolidated Sales Corporation (7144), Alabama River Newsprint Company (7247), Augusta Woodlands, LLC (9050), Bowater Alabama LLC (7106), Bowater America Inc. (8645), Bowater Canada Finance Corporation (N/A), Bowater Canadian Forest Products Inc. (N/A), Bowater Canadian Holdings Incorporated (N/A), Bowater Canadian Limited (N/A), Bowater Finance Company Inc. (1715), Bowater Finance II LLC (7886), Bowater Incorporated (1803), Bowater LaHave Corporation (N/A), Bowater Maritimes Inc. (N/A), Bowater Newsprint South LLC (1947), Bowater Newsprint South Operations LLC (0168), Bowater Nuway Inc. (8073), Bowater Nuway Mid-States Inc. (8290), Bowater South American Holdings Incorporated (N/A), Bowater Ventures Inc. (8343), Catawba Property Holdings, LLC (N/A), Coosa Pines Golf Club Holdings LLC (8702), Donohue Corp. (9051), Lake Superior Forest Products Inc. (9305) and Tenex Data Inc. (5913). The Debtors’ corporate headquarters are located at, and the mailing address for each Debtor is, 1155 Metcalfe Street, Suite 800, Montreal, Quebec H3B 5H2, Canada.

 


 

          Upon the Motion 10 (the “ Motion ”) of AbitibiBowater, Inc. (“ AbitibiBowater ”) and its affiliated debtors and debtors-in-possession in the above captioned cases (collectively, the “ Debtors ”), requesting entry of an order (the “ Order ”), pursuant to sections 105 and 363(b) of title 11 of the United States Code (the “ Bankruptcy Code ”) and Rule 9019 of the Federal Rules of Bankruptcy Procedure (the “ Bankruptcy Rules ”): (i) authorizing the Debtors to enter into a settlement and compromise with Woodbridge with respect to various disputes among the parties, (ii) in furtherance of that settlement and compromise, authorizing ACSC to purchase all of the outstanding shares of the common and preferred stock of ANI, which would result in the transfer of ANI’s 47.5% interest in Augusta; and it appearing that the relief requested in the Motion is in the best interests of the Debtors’ estates, their creditors and other parties in interest; and it appearing that this Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334; and it appearing that the Motion is a core proceeding pursuant to 28 U.S.C.§ 157(b); and it appearing that venue is proper before this Court pursuant to 28 U.S.C.§§ 1408 and 1409; and adequate notice of the Motion and opportunity for objection having been given; and this Court having reviewed and considered the Motion and any objections thereto; and it appearing that no other notice need be given; and it further appearing that the legal and factual bases set forth in the Motion establish just cause for the relief granted herein; and after due deliberation and sufficient cause therefor:
IT IS HEREBY FOUND AND DETERMINED THAT:
          A. This Court has core jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b) and 1334 and this matter is a core proceeding that the Court can determine pursuant to 28 U.S.C. § 157(b). Venue is proper before this Court pursuant to 28 U.S.C.§§ 1408 and 1409.
 
10   Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion.

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          B. The Debtors have articulated good and sufficient cause for, among other things, the purchase of Woodbridge’s interest in ANI and subsequent ownership of ANI’s 47.5% interest in Augusta by ACSC pursuant to which ACSC shall thereafter be the sole member of Augusta with all powers, rights and privileges of ownership attendant thereto.
          C. Good and sufficient notice of the relief sought in the Motion has been given and no further notice is required.
          D. The Stock Purchase Agreement and Note were negotiated at arm’s length and entered into in good faith by the Parties and are fair, reasonable and appropriate and benefit the Debtors’ estates, their creditors and other parties in interest.
          E. The Debtors have demonstrated a compelling and sound business justification for authorizing the relief requested in the Motion.
IT IS HEREBY ORDERED AND ADJUDGED THAT:
          1. The Motion is granted. Any objection not made to the Motion is waived. Any objection made to the Motion is overruled with prejudice.
          2. The Debtors are authorized to enter into the Stock Purchase Agreement and the Note. The Debtors are authorized to take any and all actions necessary or appropriate to implement the Stock Purchase Agreement and the Note, in accordance with the terms thereof and with the agreement of the Parties thereto.
          3. The Debtors are authorized and empowered to, and may in their discretion take any action and perform any act necessary to implement and effectuate the terms of this Order, the Stock Purchase Agreement or the Note.
          4. The Bankruptcy Claims and Administrative Claims shall be Allowed Claims in the Chapter 11 Cases.

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          5. This Order is binding upon the Debtors, all creditors of the Debtors, any subsequent trustees that may be appointed and all parties in interest.
          6. Except as otherwise provided in the Stock Purchase Agreement, this Court shall retain jurisdiction over the Debtors and Woodbridge with respect to any matters, claims, rights or disputes arising from or related to the Motion or the implementation of this Order.
Dated: Wilmington, Delaware
     December __ ,2010
         
 
 
 
Honorable Kevin J. Carey
   
 
  Chief United States Bankruptcy Judge    

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SCHEDULE F
FORM OF WIHSA TRANSFER AGREEMENT
INDENTURE made as of the n day of n , 2011
B E T W E E N:
WOODBRIDGE INTERNATIONAL HOLDINGS S.A. , a corporation incorporated under the laws of Luxembourg
(hereinafter referred to as the “ Vendor ”)
                    OF THE FIRST PART
- and -
WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED , a corporation incorporated under the laws of the Province of Ontario
(hereinafter referred to as the “ Purchaser ”)
                    OF THE SECOND PART
           WHEREAS pursuant to that certain stock purchase agreement made as of n among the Purchaser, The Woodbridge Company Limited, Abitibi Consolidated Sales Corporation, AbitibiBowater Inc., Augusta Newsprint Company and Augusta Newsprint Inc., the Vendor wishes to sell to the Purchaser and the Purchaser wishes to purchase from the Vendor on the date hereof all of the shares of common stock of ANI held by the Vendor (the “ ANI Common Stock ”), free and clear of all encumbrances;
           NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the parties hereto agree as follows:
5. Subject to the terms and conditions herein contained, the Vendor hereby sells, transfers and assigns to the Purchaser and the Purchaser hereby purchases all the Vendor’s right, title and interest in and to the ANI Common Stock, free and clear of all encumbrances.
6. The aggregate purchase price for the ANI Common Stock shall be US$200 (the “ Purchase Price ”), such amount being equal to the aggregate fair market value of the ANI

 


 

Common Stock on the date hereof and shall be paid and satisfied in full by delivery by the Purchaser to the Vendor of a cheque or bank draft in the amount of the Purchase Price.
7. The Vendor hereby declares that, as to any of the ANI Common Stock, the title to which may not have passed to the Purchaser by virtue of this Indenture or any transfer or assignment which may be executed and delivered pursuant to the provisions hereof on the date hereof or from time to time thereafter, the Vendor will hold such ANI Common Stock in trust for the Purchaser to transfer and assign the same as the Purchaser may from time to time direct.
8. The Vendor covenants with the Purchaser to execute and deliver to the Purchaser at any time after the date hereof when requested to do so by the Purchaser all such further documents or instruments and to do such further things as may be necessary to effect the purpose of this Indenture and to carry out its provisions and to vest the ANI Common Stock fully in the Purchaser.
9. The Vendor hereby constitutes and appoints the Purchaser, its successors and assigns, the true and lawful attorney of the Vendor for and in the name of or otherwise on behalf of the Vendor with full power of substitution to do and execute all deeds, matters and things whatsoever necessary for the assignment, transfer and/or conveyance of any interest in the ANI Common Stock to the Purchaser, its successors and assigns.
10. This Indenture shall be construed in accordance with the laws of the Province of Ontario, which shall be the forum with respect to any and all actions or suits brought with respect hereto.
11. This Indenture shall enure to the benefit of and be binding upon the successors and assigns of the parties hereto.
[Signature page follows]

 


 

             
    WOODBRIDGE INTERNATIONAL HOLDINGS S.A.    
 
           
 
  By:        
 
     
 
   
 
           
 
  By:        
 
     
 
   
 
           
    WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED    
 
           
 
  By:        
 
     
 
   

 


 

SCHEDULE G
FORM OF ASSIGNMENT AND ASSUMPTION OF
BANKRUPTCY CLAIMS AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
          ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of [______________], (this “ Agreement ”) by and between Augusta Newsprint Company, a Georgia partnership (the “ Assignor ”), Woodbridge International Holdings Limited, an Ontario corporation (the “ Assignee ”), and Abitibi Consolidated Sales Corporation, a Delaware corporation (“ ACSC ”).
          WHEREAS, the Assignor, the Assignee and ACSC have entered into that certain Stock Purchase Agreement, dated as of [_________], 2010 (the “ Stock Purchase Agreement ”), by and among the Assignor, the Assignee, ACSC, AbitibiBowater Inc., a Delaware corporation (“ AbitibiBowater ”), The Woodbridge Company Limited, an Ontario corporation (“ Woodbridge Parent ”), and Augusta Newsprint Inc., a Delaware corporation (“ ANI ”). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement;
          WHEREAS, this Agreement is being delivered pursuant to Section 2.8 of the Stock Purchase Agreement; and
          WHEREAS, pursuant to and in accordance with the terms and conditions of this Agreement and the Stock Purchase Agreement, the Assignor will assign, grant, convey and transfer to the Assignee, 47.5% of the Assignor’s right, title and interest in and to the following claims made, filed, scheduled or otherwise asserted by or on behalf of the Assignor in the cases filed in the Bankruptcy Court under chapter 11 of the Bankruptcy Code by AbitibiBowater and its affiliated debtors and debtors-in-possession, jointly administered as Case No. 09-11296 (the “ Bankruptcy Proceedings ”): Claim number 3612 made by the Assignor in the Bankruptcy Proceedings of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $1,699.49; Claim number 3630 made by the Assignor in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $1,848.01; Claim numbers 3631 and 3632 made by the Assignor in the Bankruptcy Proceedings of AbitibiBowater; Case no. 09-11296, in the amounts of $25,899.02 and $85,247.34, respectively; the Claim listed on Schedule F of the Schedules of Assets and Liabilities of Alabama River Newsprint Company, Case no. 09-11301, in the amount of $2,203.49; and Claim number 10005 made by the Assignor in the Bankruptcy Proceedings of Abitibi-Consolidated Corporation, Case no. 09-11302, in the amount of $37,458,605.69 (such claims, collectively, the “ Bankruptcy Claims ”).
          NOW THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and upon the terms and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
     1.  Assignment . Pursuant to and in accordance with the terms and conditions of this Agreement and the Stock Purchase Agreement, effective as of the date hereof, the Assignor

 


 

hereby assigns, grants, conveys and transfers to the Assignee, 47.5% of the Assignor’s right, title and interest in and to the Bankruptcy Claims, which shall include, without limitation or offset, 47.5% of ((a) through (d) below, the “ Transferred Bankruptcy Claims Rights ”):
  (a)   the Bankruptcy Claims;
 
  (b)   the Assignor’s right, title and interest in and to the Bankruptcy Claims, including all agreements, instruments, subscriptions, statements, proofs of claim, proofs of investment and other documents evidencing, or supporting the Bankruptcy Claims and any agreements, stipulations, or other settlement rights or documentation relating to the allowance or disallowance of the Bankruptcy Claims;
 
  (c)   the Assignor’s right to receive principal, interest, fees, expenses, damages and other amounts in respect of, or in connection with the Bankruptcy Claims; and
 
  (d)   cash, securities, instruments, proceeds, collateral, guarantees and/or other property distributed, received or paid from and after the Closing, on account of, or exchanged in return for the Bankruptcy Claims;
provided, however , that the Transferred Bankruptcy Claims Rights shall exclude any Bankruptcy Claims to the extent such claims are paid in cash to the Assignor prior to the Measurement Time.
     3.  Assumption . Effective as of the date hereof, the Assignee hereby accepts the assignment, grant, conveyance and transfer of the Transferred Bankruptcy Claims Rights.
     4.  Absolute Assignment . This Agreement shall be deemed an absolute and unconditional assignment of the Transferred Bankruptcy Claims Rights for the purpose of collection and satisfaction, and shall not be deemed to create a security interest. If the total amount of the Bankruptcy Claims is more than the aggregate amount of those claims set forth in the definition of Bankruptcy Claims in this Agreement or the Stock Purchase Agreement, the Assignee shall nevertheless be deemed the owner of the Bankruptcy Claims to the extent of the Transferred Bankruptcy Claims Rights, subject to the terms of this Agreement and the Stock Purchase Agreement, and shall be entitled to identify itself as owner of the Bankruptcy Claims to the extent of the Transferred Bankruptcy Claims Rights on the records of the Bankruptcy Court.
     5.  Further Assurances . The Assignor covenants and agrees to take such actions and execute and deliver to the Assignee such further assignments or other transfer documents as the Assignee may reasonably request to effectively assign, grant, transfer and convey and to evidence such assignment, transfer, grant and conveyance of, the Transferred Bankruptcy Claims Rights, in each case, at the sole cost and expense of the Assignee and in conformity with the applicable conditions, terms and provisions of the Stock Purchase Agreement.
     6.  Benefit and Binding Effect . Except as provided and in conformity with assignments permitted herein, no party hereto may assign any of its right or obligations under this Agreement without the written consent of the other parties hereto. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.

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     7.  Counterparts . This Agreement may be executed in counterparts. Each executed counterpart shall be deemed to be an original and all counterparts taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile, pdf or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.
[ Signature page follows]

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the ___day of __________, 20_.
             
    ASSIGNOR :    
 
           
    AUGUSTA NEWPRINT CORPORATION    
 
           
 
  By:        
 
     
 
Name:
   
 
      Title:    
 
           
    ASSIGNEE :    
 
           
    WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED    
 
           
 
  By:        
 
     
 
Name:
   
 
      Title:    
 
           
    ACSC    
 
           
    ABITIBI CONSOLIDATED SALES CORPORATION    
 
           
 
  By:        
 
     
 
Name:
   
 
      Title:    

 


 

SCHEDULE H
FORM OF ASSIGNMENT AND ASSUMPTION OF
ADMINISTRATIVE CLAIM AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
          ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of [______________], (this “ Agreement ”) by and between Augusta Newsprint Company, a Georgia partnership (the “ Assignor ”), Woodbridge International Holdings Limited, an Ontario corporation (the “ Assignee ”), and Abitibi Consolidated Sales Corporation, a Delaware corporation (“ ACSC ”).
          WHEREAS, the Assignor, the Assignee and ACSC have entered into that certain Stock Purchase Agreement, dated as of [_________], 2010 (the “ Stock Purchase Agreement ”), by and among the Assignor, the Assignee, ACSC, AbitibiBowater Inc., a Delaware corporation (“ AbitibiBowater ”), The Woodbridge Company Limited, an Ontario corporation (“ Woodbridge Parent ”), and Augusta Newsprint Inc., a Delaware corporation (“ ANI ”). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Stock Purchase Agreement;
          WHEREAS, this Agreement is being delivered pursuant to Section 2.9 of the Stock Purchase Agreement; and
          WHEREAS, pursuant to and in accordance with the terms and conditions of this Agreement and the Stock Purchase Agreement, the Assignor will assign, grant, convey and transfer to the Assignee, 47.5% of the Assignor’s right, title and interest in and to the allowed administrative claim held by the Assignor against ACSC in the amount of $9,246,580.00 pursuant to the Agreed Order With Respect to Motion of Augusta Newsprint Company for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b)(9) [D.I. 1457] entered by the Bankruptcy Court on December 16, 2009 (the “ Administrative Claim ”).
          NOW THEREFORE, in consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and upon the terms and subject to the conditions set forth herein, the parties hereto hereby agree as follows:
1.   Assignment . Pursuant to and in accordance with the terms and conditions of this Agreement and the Stock Purchase Agreement, effective as of the date hereof, the Assignor hereby assigns, grants, conveys and transfers to the Assignee, 47.5% of the Assignor’s right, title and interest in and to the Administrative Claim, which shall include, without limitation or offset, 47.5% of ((a) through (d) below, the “ Transferred Administrative Claim Rights ”):
  (a)   the Administrative Claim;
 
  (b)   the Assignor’s right, title and interest in and to the Administrative Claim, including all agreements, instruments, subscriptions, statements, proofs of claim,

 


 

      proofs of investment and other documents evidencing, or supporting the Administrative Claim and any agreements, stipulations, or other settlement rights or documentation relating to the allowance or disallowance of the Administrative Claim;
   (c)   the Assignor’s right to receive principal, interest, fees, expenses, damages and other amounts in respect of, or in connection with the Administrative Claim; and
   (d)   cash, securities, instruments, proceeds, collateral, guarantees and/or other property distributed, received or paid from and after the Closing, on account of, or exchanged in return for the Administrative Claim;
provided, however , that the Transferred Administrative Claim Rights shall exclude any Administrative Claim to the extent such claim is paid in cash to the Assignor prior to the Measurement Time.
     2.  Assumption . Effective as of the date hereof, the Assignee hereby accepts the assignment, grant, conveyance and transfer of the Transferred Administrative Claim Rights.
     3.  Absolute Assignment . This Agreement shall be deemed an absolute and unconditional assignment of the Transferred Administrative Claim Rights for the purpose of collection and satisfaction, and shall not be deemed to create a security interest. If the total amount of the Administrative Claim is more than the aggregate amount of that claim set forth in the definition of Administrative Claim in this Agreement or the Stock Purchase Agreement, the Assignee shall nevertheless be deemed the owner of the Administrative Claim to the extent of the Transferred Administrative Claim Rights, subject to the terms of this Agreement and the Stock Purchase Agreement, and shall be entitled to identify itself as owner of the Administrative Claim to the extent of the Transferred Administrative Claim Rights on the records of the Bankruptcy Court.
     4.  Further Assurances . The Assignor covenants and agrees to take such actions and execute and deliver to the Assignee such further assignments or other transfer documents as the Assignee may reasonably request to effectively assign, grant, transfer and convey and to evidence such assignment, transfer, grant and conveyance of, the Transferred Administrative Claim Rights, in each case, at the sole cost and expense of the Assignee and in conformity with the applicable conditions, terms and provisions of the Stock Purchase Agreement.
     5.  Benefit and Binding Effect . Except as provided and in conformity with assignments permitted herein, no party hereto may assign any of its right or obligations under this Agreement without the written consent of the other parties hereto. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.
     6.  Counterparts . This Agreement may be executed in counterparts. Each executed counterpart shall be deemed to be an original and all counterparts taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile, pdf or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

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[ Signature page follows]

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the ___day of __________, 20_.
         
  ASSIGNOR :

AUGUSTA NEWPRINT CORPORATION
 
 
  By:      
    Name:      
    Title:      
 
  ASSIGNEE :

WOODBRIDGE INTERNATIONAL HOLDINGS LIMITED
 
 
  By:      
    Name:      
    Title:      
 
  ACSC

ABITIBI CONSOLIDATED SALES CORPORATION
 
 
  By:      
    Name:      
    Title:      
 

 


 

SCHEDULE I
  1.   In the 1990’s, the Partnership shipped used oil and a small amount of chlorinated solvent to the AER hazardous waste storage and management site in Augusta, Georgia. The site closed, went into bankruptcy and became a superfund site. The Partnership is part of the Potential Responsible Party group.
  2.   In 2009, the Partnership voluntarily disclosed to U.S. EPA and Georgia EPD, the discovery of reporting discrepancies under the Emergency Planning and Community Right-to-Know Act of 1986 (“ EPCRA ”) section 313 for reporting years 2004 thru 2007. Corrections were submitted for lead, dioxin and dioxin-like compounds and methanol. The U.S. EPA corrected the federal database to reflect these changes. Neither Georgia EPD nor U.S. EPA has issued a Notice of Violation or investigated the matter further as of the date hereof.

 


 

EXHIBIT A
CERTIFICATE OF INCORPORATION OF ANI

 


 

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AUGUSTA NEWSPRINT INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
     Augusta Newsprint Inc., a corporation existing under the laws of the State of Delaware (the “Corporation”), does hereby certify as follows:
     (a) the name of the Corporation is Augusta Newsprint Inc.;
     (b) the Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on the 2nd day of July 2001;
     (c) this Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware, (i) the Board of Directors of the Corporation having duly adopted a resolution approving such amendment and declaring its advisability at a meeting of the Board of Directors of the Corporation duly called and held on November 5, 2001 and (ii) in lieu of a meeting and vote of the stockholders, the holders of all the capital stock of the Corporation duly consented in writing to the adoption of such amendment; and
     (d) the Certificate of Incorporation of the Corporation is hereby amended and restated to read in full as follows:

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AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AUGUSTA NEWSPRINT INC.
     THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, hereby certifies as follows:
     FIRST: The name of the corporation is Augusta Newsprint Inc. (the “Corporation”).
     SECOND: The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, which address is located in the County of New Castle, and the name of the Corporation’s registered agent at such address is Corporation Service Company.
     THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “Act”).
     FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue is Sixty Thousand (60,000) shares, consisting of Twenty Thousand (20,000) shares of Common Stock, par value $0.01 per share (the “Common Stock”), Twenty Thousand (20,000) shares of Class A preferred stock, par value $0.01 per share (the “Class A Preferred Stock”) and Twenty Thousand (20,000) shares of Class B preferred stock, par value $0.01 per share (the “Class B Preferred Stock” and, together with the Class A Preferred Stock, the “Preferred Stock”).
A. PREFERRED STOCK
     The voting powers, preferences and rights (and the qualifications, limitations, or restrictions thereof) of the Class A Preferred Stock and Class B Preferred Stock are as follows:
     1. Voting . Except as may be otherwise provided by law, the holders of Preferred Stock shall vote together and with the holders of all other classes of stock of the Corporation which have a voting right, as a single class, on all actions to be taken by the stockholders of the Corporation, other than at meetings of holders of another class of shares. Each share of Preferred Stock shall entitle the holder thereof to one vote per share on each such action.
     2. Dividends . The holders of each of the Class A Preferred Stock and Class B Preferred Stock shall be entitled to receive, and the Corporation shall pay thereon any dividend declared by the Board of Directors of the Corporation out of moneys of the Corporation properly applicable to the payment of dividends, provided that the dividend rate on each of the Class A

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Preferred Stock and Class B Preferred Stock (the “Dividend Rate”) in any fiscal year shall not exceed on a per annum basis the aggregate of eight percent (8%) plus, for dividends declared in fiscal years of the Corporation subsequent to June 30, 2002, any Carry Forward Amount (as defined below) (such aggregate amount being, the “Maximum Dividend Rate”).
     The Dividend Rate for a share of Class A Preferred Stock will be applied to the amount of ten thousand Canadian dollars (Cdn $10,000) (the “Class A Redemption Amount” of a share of Class A Preferred Stock). The Dividend Rate for a share of Class B Preferred Stock will be applied to the amount of six thousand U.S. dollars (U.S. $6,000) (the “Class B Redemption Amount” of a share of Class B Preferred Stock).
     Dividends which are declared pursuant to this subsection A(2) shall be payable in Canadian or U.S. dollars as determined by the Board of Directors and at an exchange rate determined by the Board of Directors at the time of declaration.
     In the event that the Board of Directors does not declare a dividend for either the Class A Preferred Stock or Class B Preferred Stock for a year or declares a dividend for either the Class A Preferred Stock or Class B Preferred Stock for a year which is at a Dividend Rate that is less than the Maximum Dividend Rate for such year for the Class A Preferred Stock or Class B Preferred Stock, as applicable, the shortfall shall constitute the “Carry Forward Amount” for determining the Maximum Dividend Rate of the subsequent year for the Class A Preferred Stock or Class B Preferred Stock, as applicable.
     The Carry Forward Amount with respect to each outstanding share of Preferred Stock shall be calculated from the date immediately following the earlier of the date:
  (i)   on which such share of Preferred Stock was first issued by the Corporation, or
  (ii)   on which any Predecessor Share (as defined below) was first issued by the Corporation. The term “Predecessor Share” shall mean the share of Preferred Stock which was originally issued by the Corporation and which, directly or indirectly through one or more conversions, was subsequently converted into such outstanding share of Preferred Stock.
     Declared dividends on shares of Preferred Stock shall be payable on the day determined by the Board of Directors of the Corporation.

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     In the case of shares of Preferred Stock outstanding for less than a full fiscal year of the Corporation at the time of a dividend payment, dividends shall be pro rated based upon the portion of each year during which such shares of Preferred Stock are outstanding.
     For greater certainty, a dividend may be declared and paid on shares of Preferred Stock in accordance with the terms of this Amended and Restated Certificate of Incorporation notwithstanding that a dividend has, or has not been declared and paid on shares of Common Stock.
     3. Redemption at the Option of the Holder . Subject to the provisions of this subsection A(3) and subsection A(5) and the Act, a holder of shares of Preferred Stock shall be entitled to require the Corporation to redeem at any time and from time to time all or any of the shares of Preferred Stock registered in the name of such holder on the books of the Corporation by tendering to the Corporation at its registered office the certificate or certificates representing the Preferred Stock which such holder desires to have the Corporation redeem together with a written request specifying that such holder desires to have all or a specified number and class of the shares of Preferred Stock represented by such certificate or certificates redeemed by the Corporation. After receipt of the share certificate or certificates representing the shares of Preferred Stock which the holder desires the Corporation to redeem together with a request for redemption specified above (if such notice is not waived), the Corporation shall, on such redemption date as may be specified by the Corporation (the “Redemption Date”) but being not later than thirty (30) days following such receipt, redeem such shares of Preferred Stock by paying to such registered holder for each share of Class A Preferred Stock or share of Class B Preferred Stock to be redeemed, the Class A Redemption Amount or Class B Redemption Amount, as applicable, plus all dividends declared and unpaid thereon to and including the Redemption Date (the “Class A Redemption Price” of a share of Class A Preferred Stock and the “Class B Redemption Price” of a share of Class B Preferred Stock, as applicable). Such payment shall be made to each holder by check payable in Canadian dollars for shares of Class A Preferred Stock and in U.S. dollars for shares of Class B Preferred Stock, provided that the payment may be made in such other manner and in such other currency as is acceptable to the holder. The shares of Preferred Stock shall be redeemed on the Redemption Date. From and after the Redemption Date such shares of Preferred Stock shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the holders thereof shall not be entitled to exercise any of the other rights of a holder in respect

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thereof unless payment of the Class A Redemption Price or Class B Redemption Price, as applicable, shall not be made on the Redemption Date, in which event the rights of the holder shall remain unaffected. If a part only of the shares of Preferred Stock represented by any certificate shall be redeemed, a new certificate representing the balance of such shares of Preferred Stock shall be issued to the holder thereof at the expense of the Corporation upon the presentation and surrender of the first mentioned certificate.
     4. Redemption at the Option of the Corporation . Subject to the provisions of this subsection A(4) and subsection A(5) and the Act, the Corporation may upon giving written notice as hereinafter provided, redeem at any time the whole or from time to time any part of the then outstanding shares of Class A Preferred Stock or Class B Preferred Stock on payment for each share to be redeemed at the Class A Redemption Price or Class B Redemption Price, as applicable, thereof. In case a part only of the shares of Preferred Stock is at any time to be redeemed, the shares so to be redeemed may be selected by lot in such manner as the directors of the Corporation in their sole discretion shall by resolution determine or redemption may be effected on a pro rata basis disregarding fractions. In any case of redemption of shares of Preferred Stock under this subsection A(4), the Corporation shall at least ten (10) days (which period may be waived by the holders) before the Redemption Date deliver to each person who is a registered holder of Preferred Stock to be redeemed a written notice of the intention of the Corporation to redeem such shares of Preferred Stock. Such notice shall set out the number and class of shares of Preferred Stock held by the person to whom it is addressed which are to be redeemed, the Class A Redemption Price or Class B Redemption Price, as applicable, and the Redemption Date. On or after the Redemption Date, the Corporation shall pay or cause to be paid to or to the order of the registered holders of the Class A Preferred Stock or Class B Preferred Stock to be redeemed the Class A Redemption Price or Class B Redemption Price, as applicable, of such shares on presentation and surrender, at the registered office of the Corporation or at any other place or places specified in such notice of redemption, of the certificate or certificates representing the shares of Preferred Stock so called for redemption. Such payment shall be made to each holder by check payable in Canadian dollars for shares of Class A Preferred Stock and in U.S. dollars for shares of Class B Preferred Stock, provided that the payment may be made in such other manner and in such other currency as is acceptable to the holder. From and after the Redemption Date, the shares of Preferred Stock called for redemption shall cease to be entitled to dividends or any other participation in the assets of the

5


 

Corporation and the holders thereof shall not be entitled to exercise any of the other rights of shareholders in respect thereof unless payment of the Class A Redemption Price or Class B Redemption Price, as applicable, shall not be made upon presentation and surrender of the certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected. If a part only of the shares of Preferred Stock represented by any certificate shall be redeemed, a new certificate representing the balance of such shares of Preferred Stock shall be issued to the holder thereof at the expense of the Corporation upon presentation and surrender of the first mentioned certificate.
     5. Redemption Subject to Laws . If the Corporation does not have sufficient funds legally available to redeem all shares to be redeemed on a Redemption Date, then it shall redeem shares of Preferred Stock pro rata (based on the portion of the aggregate Class A Redemption Price and Class B Redemption Price, as applicable, payable to each holder of shares of Preferred Stock to be redeemed) and shall redeem the remaining shares pro rata as soon as sufficient funds are legally available.
     6. Liquidation, Dissolution or Winding Up . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation or in the event of any other distribution of assets of the Corporation among its stockholders for the purpose of winding up its affairs, the holders of the Class A Preferred Stock and Class B Preferred Stock shall be entitled to receive from the property and assets of the Corporation a sum equal to the Class A Redemption Price or Class B Redemption Price, as applicable, for each share of the Class A Preferred Stock or Class B Preferred Stock held by them respectively, the whole before any amount shall be paid by the Corporation or any property or assets of the Corporation shall be distributed to holders of the shares of Common Stock or the shares of any other class of stock ranking junior to the Preferred Stock in liquidation preference. After payment to the holders of the Preferred Stock of the amounts payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation.
     7. Conversion of Class A Preferred Stock . Subject to the provisions of this subsection A(7) and upon written notice to the Corporation as set forth in subsection A(9), a holder of Class A Preferred Stock shall be entitled to require the Corporation to convert at any time and from time to time all or any of the shares of Class A Preferred Stock registered in the name of such holder on the books of the Corporation into shares of Class B Preferred Stock on the basis that each share of Class A Preferred Stock to be

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converted will be converted into that number of shares of Class 3 Preferred Stock equal to the product obtained when 1 2/3 is multiplied by the value of a Canadian dollar expressed in U.S. dollars as at the Conversion Date (as defined below) based on a fair market exchange rate as determined by the Board of Directors of the Corporation.
     8. Conversion of Class B Preferred Stock . Subject to the provisions of this subsection A(8) and upon written notice to the Corporation as set forth in subsection A(9), a holder of Class B Preferred Stock shall be entitled to require the Corporation to convert at any time and from time to time all or any of the shares of Class B Preferred Stock registered in the name of such holder on the books of the Corporation into shares of Class A Preferred Stock on the basis that each share of Class B Preferred Stock to be converted will be converted into that number of shares of Class A Preferred Stock equal to the product obtained when 0.6 is multiplied by the value of a U.S. dollar expressed in Canadian dollars as at the Conversion Date (as defined below) based on a fair market exchange rate as determined by the Board of Directors of the Corporation.
     9. Notice of Conversion . In order to convert shares of Preferred Stock pursuant to subsections A(7) or A(8), a holder of shares of Preferred Stock shall tender to the Corporation at its registered office the certificate or certificates representing the Preferred Stock which such holder desires to have the Corporation convert together with a written request specifying that such holder desires to have all or a specified number and class of shares of Preferred Stock represented by such certificate or certificates converted by the Corporation on a certain date (the “Conversion Date”). After receipt of the share certificate or certificates representing the shares of Preferred Stock which the holder desires the Corporation to convert together with a request for conversion specified above (if such notice is not waived), the Corporation shall, on such Conversion Date, convert such shares of Preferred Stock. The shares of Preferred Stock shall be converted on the Conversion Date. If a part only of the shares of Preferred Stock represented by any certificate shall be converted, a new certificate representing the balance of such shares of Preferred Stock shall be issued to the holder thereof at the expense of the Corporation upon the presentation and surrender of the first mentioned certificate.
     10. Subdivisions, Consolidations and Reclassification . Neither class of Preferred Stock shall be subdivided, consolidated, reclassified or otherwise changed unless contemporarily therewith the other class of Preferred Stock shall be correspondingly

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subdivided, consolidated, reclassified or otherwise changed on the same basis.
     11. Fractional Shares . The shares of Preferred Stock may be issued in fractions of a share up to six decimal places.
     12. Other Rights . Except as otherwise set forth herein, the Class A Preferred Stock and the Class B Preferred Stock shall be equal in all respects.
B. COMMON STOCK
     The voting powers, preferences and rights (and the qualifications, limitations, or restrictions thereof) of the Common Stock are as follows:
     1. Voting Rights . Except as may be otherwise provided by law, the holders of Common Stock shall vote together and with the holders of all other classes of stock of the Corporation which have a voting right, as a single class, on all actions to be taken by the stockholders of the Corporation, other than at meetings of holders of another class of shares. Each share of Common Stock shall entitle the holder thereof to one vote per share on each such action.
     2. Dividends . The holders of the Common Stock shall be entitled to receive, and the Corporation shall pay thereon, any dividends declared by the Board of Directors of the Corporation in respect of the Common Stock out of moneys properly applicable to the payment of dividends.
     For greater certainty, a dividend may be declared and paid on shares of Common Stock in accordance with the terms of this Amended and Restated Certificate of Incorporation notwithstanding that a dividend has, or has not been declared and paid on shares of Preferred Stock.
     3. Liquidation Rights . Subject to the prior and superior right of the Preferred Stock and any other class of stock ranking senior to the Common Stock in liquidation preference, if any, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation or any other distribution of the assets of the Corporation among its stockholders for the purposes of winding up its affairs, the holders of Common Stock shall be entitled to receive the remaining property and assets of the Corporation. Such property and assets shall be paid to the holders of Common Stock pro rata on the basis of the number of shares of Common Stock held by each of them.
     FIFTH: Subject to the provisions of the Act, the number of Directors of the Corporation shall be determined as provided by the By-Laws of the Corporation.

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     SIXTH: To the fullest extent permitted by Section 145 of the Act, or any comparable successor law, as the same may be amended and supplemented from time to time, the Corporation (i) may indemnify all persons whom it shall have power to indemnify thereunder from and against any and all of the expenses, liabilities or other matters referred to in or covered thereby, (ii) shall indemnify each such person if he or she is or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or because he or she was serving the Corporation or any other legal entity in any capacity at the request of the Corporation while a director, officer, employee or agent of the Corporation and (iii) shall pay the expenses of such a current or former director, officer, employee or agent incurred in connection with any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding. The indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those entitled to indemnification or advancement of expenses may be entitled under any by-law, agreement, contract or vote of stockholders or disinterested directors or pursuant to the direction (however embodied) of any court of competent jurisdiction or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
     SEVENTH: In furtherance and not in limitation of the general powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation, except as specifically stated therein.
     EIGHTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the Act or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the Act, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of the Corporation, as the case may be, and also on the Corporation.
     NINTH: Except as otherwise required by the laws of the State of Delaware, the stockholders and directors shall have the power to hold their meetings and to keep the books, documents and papers of the Corporation outside of the State of Delaware, and the Corporation shall have the power to have one or more offices within or without the State of Delaware, at such places as may be from time to time designated by the By-Laws or by resolution of the stockholders or Board of Directors of the Corporation.

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     TENTH: Elections of directors need not be by ballot unless the By-Laws of the Corporation shall so provide.
     ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all right; conferred upon stockholders herein are granted subject to this reservation.
     TWELFTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Act, or (iv) for any transaction from which the director derived any improper personal benefit. If the Act is amended to further eliminate or limit the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Act, as so amended. Any repeal or modification of this Article TWELFTH by the stockholders of the Corporation shall be by the affirmative vote of the holders of not less than eighty percent (80%) of the outstanding shares of each class of stock of the Corporation and entitled to vote in the election of directors, considered for the purposes of this Article TWELFTH as one class, shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
     THIRTEENTH: The name and address of the incorporator is Darren D. Baccus, Torys, 237 Park Avenue, New York, New York 10017.
     IN WITNESS WHEREOF, the undersigned, does hereby execute this Amended and Restated Certificate of Incorporation as of the day of November, 2001.
         
     
  /s/ Joseph J. Romagnoli    
  Name:   Joseph J. Romagnoli   
  Title:   Secretary   
 

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CERTIFICATE OF INCORPORATION
OF
AUGUSTA NEWSPRINT INC.
     THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the provisions of the General Corporation Law of the State of Delaware, hereby certifies as follows:
     FIRST: The name of the corporation is Augusta Newsprint Inc. (the “Corporation”).
     SECOND: The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, which address is located in the County of New Castle, and the name or the Corporation’s registered agent at such address is Corporation Service Company.
     THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
     FOURTH: The total number of shares of all classes of stock which the Corporation has authority to issue is Thirty Three Thousand (33,000) shares, consisting of Twenty Thousand (20,000) shares of Common Stock, par value $0.01 per share (the “Common Stock”), and Thirteen Thousand (13;000) shares of Preferred Stock, par value $0.01 per share (the “Preferred Stock”), which Preferred Stock shall have such designations, powers, preferences and rights as may be authorized by the Board of Directors from time to time.
A. PREFERRED STOCK
   The voting powers, preferences and rights (and the qualifications, limitations, or restrictions thereof) of the Preferred Stock are as follows:
     1. Voting . Except as may be otherwise provided in these terms of the Preferred Stock or by law, the holders of Preferred Stock shall vote together and with the holders of all other classes of stock of the Corporation which have a voting right, as a single class, on all actions to be taken by the stockholders of the Corporation, other than at meetings of holders of another class of shares. Each share or Preferred Stock shall entitle the holder thereof to one vote per share on each such action.
     2. Dividends . The holders of the Preferred Stock shall be entitled to receive, and the Corporation shall pay thereon any dividend declared by the Board of Directors of the Corporation out of moneys of the Corporation properly applicable to the payment of dividends, provided that the dividend rate on the Preferred Stock (the “Dividend Rate”) in any fiscal year shall not exceed on a per annum basis the aggregate of eight percent (8%) plus, for dividends declared in fiscal years of the Corporation subsequent to June 30, 2002, any Carry Forward Amount (as defined below) (such aggregate amount being, the “Maximum Dividend Rate”).

 


 

The Dividend Rate for a share of Preferred Stock will be applied to the amount of ten thousand Canadian dollars (Cdn $10,000) (the “Redemption Amount” of a share of Preferred Stock).
     Dividends which are declared pursuant to this Section 2 shall be payable in Canadian dollars, however the Board of Directors may elect to pay such dividend in U.S. dollars at an exchange rate determined by the Board of Directors.
     In the event that the Board of Directors declares a dividend for a year which is at a Dividend Rate that is less than the Maximum Dividend Rate for such year, the shortfall shall constitute the “Carry Forward Amount” for determining the Maximum Dividend Rate of the subsequent year.
     Declared dividends on shares of Preferred Stock shall be payable on the day determined by the Board of Directors of the Corporation.
     In the case of shares of Preferred Stock outstanding for less than a full fiscal year of the Corporation at the time of a dividend payment, dividends shall be pro rated based upon the portion of each year during which such shares of Preferred Stock are outstanding.
     For greater certainty, a dividend may be declared and paid on shares of Preferred Stock in accordance with the terms of this Certificate notwithstanding that a dividend has, or has not been declared and paid on shares of Common Stock.
     3. Redemption at the Option of the Holder . Subject to the provisions of this clause 3 and clause 5 and the General Corporation Law of the State of Delaware (the “Act”), a holder of shares of Preferred Stock shall be entitled to require the Corporation to reject at any time all or any of the shares of Preferred Stock registered in the name of such holder on the books of the Corporation by tendering to the Corporation at its registered office the certificate or certificates representing the Preferred Stock which such holder desires to have the Corporation redeem together with a written request specifying that such holder desires to have all or a specified number of the shares of Preferred Stock represented by such certificate or certificates redeemed by the Corporation. After receipt of the share certificate or certificates representing the shares of Preferred Stock which the holder desires the Corporation to redeem together with a request for redemption specified above (if such notice is not waived), the Corporation shall, on such redemption date as may be specified by the Corporation (the “Redemption Date”) but being not later than thirty (30) days following such receipt, redeem such shares of Preferred Stock by paying to such registered holder for each share

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of Preferred Stuck to be redeemed the Redemption Amount thereof plus all dividends declared and unpaid thereon to and including the Redemption Date (the “Redemption Price” of a share of Preferred Stock). Such payment shall he made by cheque payable in Canadian dollars. The shares of Stock shall be redeemed on the Redemption Date. From and after the Redemption Date such shares of Preferred Stock shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the holders thereof shall not be entitled to exercise any of the other rights of a holder in respect thereof unless payment of the Redemption Price shall not be made on the Redemption Date, in which event the rights of the holder shall remain unaffected. If a part only of the shares of Preferred Stock represented by any certificate shall be redeemed, a new certificate representing the balance of such shares of Preferred Stock shall be issued to the holder thereof at the expense of the Corporation upon the presentation and surrender of the first mentioned certificate.
     4. Redemption at the Option of the Corporation . Subject to the provisions of this clause 4 and clause 5 and the Act, the Corporation may upon giving notice as hereinafter provided, redeem at any time the whole or from time to time any part of the then outstanding shares of Preferred Stock on payment for each share to be redeemed at the Redemption Price thereof. In case a part only of the shares of Preferred Stock is at any time to be redeemed, the shares so to be redeemed may be selected by lot in such manner as the directors of the Corporation in their sole discretion shall by resolution determine or redemption may be effected on a pro rain basis disregarding fractions. In any case of redemption of shares of Preferred Stock under this clause 4, the Corporation shall at least ten (10) days (which period may be waived by the holders) before the Redemption Date deliver to each person who is a registered holder of Preferred Stock to be redeemed a notice in writing of the intention of the Corporation to redeem such shares of Preferred Stock. Such notice shall set out the number of shares of Preferred Stock held by the person to whom it is addressed which are to be redeemed, the Redemption Price and the Redemption Date. On or after the Redemption Date, the Corporation shall pay or cause to be paid to or to the order of the registered holders of the Preferred Stock to be redeemed the Redemption Price of such shares on presentation and surrender, at the registered office of the Corporation or at any other place or places specified in such notice of redemption, of the certificate or certificates representing the shares of Preferred Stock so called for redemption. Such payment shall be made by cheque payable in Canadian dollars. From and after the Redemption Date, the shares of Preferred Stock called for redemption shall cease to be entitled

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to dividends or any other participation in the assets of the Corporation and the holders thereof shall not be entitled to exercise any of the other rights of shareholders in respect thereof unless payment of the Redemption Price shall not be made upon presentation and surrender of the certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected. If a part only of the shares of Preferred Stock represented by any certificate shall be redeemed, a new certificate representing the balance of such shares of Preferred Stock shall be issued to the holder thereof at the expense of the Corporation upon presentation and surrender of the first mentioned certificate.
     5. Redemption Subject to Laws . If the Corporation does not have sufficient funds legally available to redeem all shares to be redeemed on a Redemption Date, then it shall redeem shares of Preferred Stock pro rata (based on the portion of the aggregate Redemption Price payable to each holder of shares of Preferred Stock to be redeemed) and shall redeem the remaining shares pro rata as soon as sufficient funds are legally available.
     6. Liquidation, Dissolution or Winding Up . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation or in the event of any other distribution of assets of the Corporation among its Stockholders for the purpose of winding up its affairs, the holders of the Preferred Stock shall be entitled to receive from the property and assets of the Corporation a sum equal to the Redemption Price for each share of the Preferred Stock held by them respectively, the whole before any amount shall be paid by the Corporation or any property or assets of the Corporation shall be distributed to holders of the shares of Common Stock or the shares of any other class of stock ranking junior to the Preferred Stock in liquidation preference. After payment to the holders of the Preferred Stock of the amounts payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation.
B. COMMON STOCK
     The voting powers, preferences and rights (and the qualifications, limitations, or restrictions thereof) of the Common Stock are as follows:
     1. Voting Rights . Except as may be otherwise provided in these terms of the Common Stock or by law, the holders of Common Stock shall vote together and with the holders of all other classes of stock of the Corporation which have a voting right, as a single class, on all actions to be taken by the stockholders of the Corporation, other than at meetings of holders

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of another class of shares. Each share of Common Stock shall entitle the holder thereof to one vote per share on each such action.
     2. Dividends . The holders of the Common Stock shall be entitled to receive, and the Corporation shall pay thereon, any dividends declared by the Board of Directors of the Corporation out of moneys properly applicable to the payment of dividends.
     For greater certainty, a dividend may be declared and paid on shares of Common Stock in accordance with the terms of this Certificate notwithstanding that a dividend has, or has not been declared and paid on shares of Preferred Stock.
     3. Liquidation Rights . Subject to the prior and superior right of the Preferred Stock and any other class of stock ranking senior to the Common Stock in liquidation preference, if any, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs or the Corporation or any other distribution of the assets of the Corporation among its Stockholders for the purposes of winding up its affairs, the holders of Common Stock shall be entitled to receive the remaining property and assets of the Corporation. Such property and assets shall be paid to the holders of Common Stock pro rata on the basis of the number of shares of Common Stock held by each of them.
     4. Merger, Consolidation, Sale of Assets . Subject to the prior and superior rights of the Preferred Stock, if any, in the event of any merger or consolidation of the Corporation with or into another corporation in which the Corporation shall not survive, or the sale or transfer of all or substantially all of the assets of the Corporation to another entity, or a merger or consolidation in which the Corporation shall be the surviving entity but its Common Stock is exchanged for stock, securities or property of another entity, the holders of Common Stock shall be entitled to receive all cash, securities and other property received by the Corporation pro rata on the basis of the number of shares of Common Stock held by each of them.
     5. Residual Rights . All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary in this Certificate of Incorporation, as it may from time to time be amended or supplemented, including without limitation any supplement effected pursuant to a certificate of designations, shall be vested in the Common Stock.
     FIFTH: Subject to the provisions of the Act, the number of Directors of the Corporation shall be determined as provided by the By-Laws of the Corporation.
     SIXTH: To the fullest extent permitted by Section 145 of the Delaware General Corporation Law, or any comparable successor law, as the same may be amended and

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supplemented from time to time, the Corporation (i) may indemnify all persons whom it shall have power to indemnify thereunder from and against any and all of the expenses, liabilities or other matters referred to in or covered thereby, (ii) shall indemnify each such person if he is or is threatened to be made a party to an action, suit or proceeding by reason of the fact that he is or was a director, officer, employee or agent of the Corporation or because he was serving the Corporation or any other legal entity in any capacity at the request of the Corporation while a director, officer, employee or agent of the Corporation and (iii) shall pay the expenses of such a current or former director, officer, employee or agent incurred in connection with any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding. The indemnification and advancement of expenses provided for herein shall not be deemed exclusive of any other rights to which those entitled to indemnification or advancement of expenses may be entitled under any by-law, agreement, contract or vote of stockholders or disinterested Board of Directors or pursuant to the direction (however embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continuo as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
     SEVENTH: In furtherance and not in limitation of the general powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the Corporation, except as specifically stated therein.
     EIGHTH: Except as otherwise required by the laws of the State of Delaware, the stockholders and directors shall have the power to hold their meetings and to keep the book, documents and papers of the Corporation outside of the State of Delaware, and the Corporation shall have the power to have one or more offices within or without the State of Delaware, at such places as may be from time to time designated by the By-Laws or by resolution of the stockholders or Board of Directors of the Corporation.
     NINTH: Elections of directors need not be by ballot unless the By-Laws of the Corporation shall so provide.
     TENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
     ELEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for the unlawful payment of dividends or unlawful stock purchases under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived any improper personal benefit, if the Act is amended to further eliminate or limit the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Act, as so amended. Any repeal or modification of this Article by the stockholders of the Corporation shall be by the affirmative vote of the holders of not less than eighty percent (80%) of the outstanding shares of each class of stock of the Corporation and entitled to vote in the election of directors,

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considered for the purposes of this Article ELEVENTH as one class, shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
     TWELFTH: The name and address of the incorporator is Alexandra Kau, Tory’s, 237 Park Avenue, New York, New York 10017.
     IN WITNESS WHEREOF, the undersigned, being the incorporator hereinabove named, does hereby execute this Certificate of Incorporation this 2nd day of July, 2001.
         
     
  /s/ Alexandra Kau    
  Alexandra Kau   
  Incorporator   
 

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EXHIBIT B
BY-LAWS OF ANI

 


 

AUGUSTA NEWSPRINT INC.
BY-LAWS
ARTICLE I
Offices
          The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places, both within and without the State of Delaware, as may from time to time be designated by the Board of Directors.
ARTICLE II
Books
          The books and records of the Corporation may be kept (except as otherwise provided by the laws of the State of Delaware) outside of the State of Delaware and at such place or places as may from time to time be designated by the Board of Directors.
ARTICLE III
Stockholders
          Section 1. Annual Meetings . The annual meeting of the stockholders of the Corporation for the election of Directors and the transaction of such other business as may properly come before said meeting shall be held at the principal business office of the Corporation or at such other place or places either within or without the State of Delaware as may be designated by the Board of Directors and stated in the notice of the meeting, on the first Monday of June in each year, if not a legal holiday, and, if a legal holiday, then on the next day

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not a legal holiday, at 10:00 o’clock in the forenoon, or such other day and time as shall be determined by the Board of Directors.
          Written notice of the place designated for the annual meeting of the stockholders of the Corporation shall be delivered personally or mailed to each stockholder entitled to vote thereat not less than ten (10) and not more than sixty (60) days prior to said meeting, but at any meeting at which all stockholders shall be present, or of which all stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. If mailed, said notice shall be directed to each stockholder at such stockholder’s address as the same appears on the stock ledger of the Corporation unless such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for such stockholder be mailed to some other address, in which case it shall be mailed to the address designated in such request.
          Section 2. Special Meetings . Special meetings of the stockholders of the Corporation shall be held whenever called in the manner required by the laws of the State of Delaware for purposes as to which there are special statutory provisions, and for other purposes whenever called by resolution of the Board of Directors, or by the President, or by the holders of a majority of the outstanding shares of capital stock of the Corporation the holders of which are entitled to vote on matters that are to be voted on at such meeting. Any such special meeting of stockholders may be held at the principal business office of the Corporation or at such other place or places, either within or without the State of Delaware, as may be specified in the notice thereof. Business transacted at any special meeting of stockholders of the Corporation shall be limited to the purposes stated in the notice thereof.

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          Except as otherwise expressly required by the laws of the State of Delaware, written notice of each special meeting, stating the day, hour and place, and in general terms the business to be transacted thereat, shall be delivered personally or mailed to each stockholder entitled to vote thereat not less than ten (10) and not more than sixty (60) days prior to said meeting, but at any special meeting at which all stockholders shall be present, or of which all stockholders not present have waived notice in writing, the giving of notice as above described may be dispensed with. If mailed, said notice shall be directed to each stockholder at such stockholder’s address as the same appears on the stock ledger of the Corporation unless such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for such stockholder be mailed to some other address, in which case it shall be mailed to the address designated in said request.
          Section 3. List of Stockholders . The officer of the Corporation who shall have charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

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          Section 4. Quorum . At any meeting of the stockholders of the Corporation, except as otherwise expressly provided by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws, there must be present, either in person or by proxy, in order to constitute a quorum, stockholders owning a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at said meeting. At any meeting of stockholders at which a quorum is not present, the holders of, or proxies for, a majority of the stock which is represented at such meeting, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
          Section 5. Organization . The President, or in the President’s absence any Vice President, shall call to order meetings of the stockholders and shall act as chairman of such meetings. The Board of Directors or the stockholders may appoint any stockholder or any Director or officer of the Corporation to act as chairman of any meeting in the absence of the President and all of the Vice Presidents.
          The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting.
          Section 6. Voting . Except as otherwise provided in the Certificate of Incorporation or these By-Laws, each stockholder of record of the Corporation shall, at every

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meeting of the stockholders of the Corporation, be entitled to one (1) vote for each share of stock standing in such stockholder’s name on the books of the Corporation on any matter on which such stockholder is entitled to vote, and such votes may be cast either in person or by proxy, appointed by an instrument in writing, subscribed by such stockholder or by such stockholder’s duly authorized attorney, and filed with the Secretary before being voted on, but no proxy shall be voted after three (3) years from its date, unless said proxy provides for a longer period. If the Certificate of Incorporation provides for more or less than one (1) vote for any share of capital stock of the Corporation, on any matter, then any and every reference in these By-Laws to a majority or other proportion of capital stock shall refer to such majority or other proportion of the votes of such stock.
          The vote on all elections of Directors and on any other questions before the meeting need not be by ballot, except upon demand of any stockholder.
          When a quorum is present at any meeting of the stockholders of the Corporation, the vote of the holders of a majority of the capital stock entitled to vote at such meeting and present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, under any provision of the laws of the State of Delaware or of the Certificate of Incorporation, a different vote is required in which case such provision shall govern and control the decision of such question.
          Section 7. Consent . Except as otherwise provided by the Certificate of Incorporation, whenever the vote of the stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provision of the laws of the State of Delaware or of the Certificate of Incorporation, such corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth

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the action so taken, shall be signed by the holders of outstanding capital stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented thereto in writing.
          Section 8. Judges . At every meeting of the stockholders of the Corporation at which a vote by ballot is taken, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions touching the qualifications of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by, two (2) judges. Said judges shall be appointed by the Board of Directors before the meeting, or, if no such appointment shall have been made, by the presiding officer of the meeting. If for any reason any of the judges previously appointed shall fail to attend or refuse or be unable to serve, judges in place of any so failing to attend, or refusing or unable to serve, shall be appointed in like manner.
ARTICLE IV
Directors
          Section 1. Number, Election and Term of Office . The business and affairs of the Corporation shall be managed by the Board of Directors. The number of Directors which shall constitute the whole Board shall be between one (1) and nine (9). Within such limits, the number of Directors may be fixed from time to time by vote of the stockholders or of the Board of Directors, at any regular or special meeting, subject to the provisions of the Certificate of Incorporation. Directors need not be stockholders. Directors shall be elected at the annual meeting of the stockholders of the Corporation, except as provided in Section 2 of this Article, to

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serve until the next annual meeting of stockholders and until their respective successors are duly elected and have qualified.
     In addition to the powers by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation as are not by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws required to be exercised or done by the stockholders.
          Section 2. Vacancies and Newly Created Directorships . Except as hereinafter provided, any vacancy in the office of a Director occurring for any reason other than the removal of a Director pursuant to Section 3 of this Article, and any newly created Directorship resulting from any increase in the authorized number of Directors, may be filled by a majority of the Directors then in office or by a sole remaining Director. In the event that any vacancy in the office of a Director occurs as a result of the removal of a Director pursuant to Section 3 of this Article, or in the event that vacancies occur contemporaneously in the offices of all of the Directors, such vacancy or vacancies shall be filled by the stockholders of the Corporation at a meeting of stockholders called for the purpose. Directors chosen or elected as aforesaid shall hold office until the next annual meeting of stockholders and until their respective successors are duly elected and have qualified.
          Section 3. Removals . At any meeting of stockholders of the Corporation called for the purpose, the holders of a majority of the shares of capital stock of the Corporation entitled to vote at such meeting may remove from office, with or without cause, any or all of the Directors.
          Section 4. Regular Meetings . Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of

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Delaware, as shall from time to time be determined by resolution of the Board. The Board of Directors may appoint any Director or office of the Corporation to act as chairman of any meeting of the Board of Directors.
          Section 5. Special Meetings . Special meetings of the Board of Directors may be called by the President or any two Directors on notice given to each Director, and such meetings shall be held at the principal business office of the Corporation or at such other place or places, either within or without the State of Delaware, as shall be specified in the notices thereof.
          Section 6. Annual Meetings . The first meeting of each newly elected Board of Directors shall be held as soon as practicable after each annual election of Directors and on the same day, at the same place at which regular meetings of the Board of Directors are held, or at such other time and place as may be provided by resolution of the Board. Such meeting may be held at any other time or place which shall be specified in a notice given, as hereinafter provided, for special meetings of the Board of Directors.
          Section 7. Notice . Notice of any meeting of the Board of Directors requiring notice shall be given to each Director by mailing the same, addressed to the director at such director’s residence or usual place of business, at least forty-eight (48) hours, or shall be sent to such director at such place by facsimile transmission, courier, telegraph, cable or wireless, or shall be delivered personally or by telephone, at least twelve (12) hours, before the time fixed for the meeting. At any meeting at which every Director shall be present or at which all Directors not present shall waive notice in writing, any and all business may, be transacted even though no notice shall have been given.
          Section 8. Quorum . At all meetings of the Board of Directors, the presence of a majority of the Directors constituting the Board shall constitute a quorum for the transaction

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of business. Except as may be otherwise specifically provided by the laws of the State of Delaware, the Certificate of Incorporation or these By-Laws, the affirmative vote of a majority of the Directors present at the time of such vote shall be the act of the Board of Directors if a quorum is present. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
          Section 9. Consent . Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board.
          Section 10. Telephonic Meetings . Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting.
          Section 11. Compensation a Directors . Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board, provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.

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          Section 12. Resignations . Any Director of the Corporation may resign at any time by giving written notice to the Board of Directors or to the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, acceptance of such resignation shall not be necessary to make is effective.
ARTICLE V
Officers
          Section 1. Number, Election and Term of Office . The officers of the Corporation shall be a President, a Secretary and an Assistant Secretary, and may at the discretion of the Board of Directors include one or more Vice Presidents and Assistant Treasurers. The officers of the Corporation shall be elected annually by the Board of Directors at its meeting held immediately after the annual meeting of the stockholders, and shall hold their respective offices until their successors are duly elected and have qualified. Any number of offices may be held by the same person. The Board of Directors may from time to time appoint such other officers and agents as the interest of the Corporation may require and may fix their duties and terms of office.
          Section 2. President . The President shall be the chief executive officer of Corporation and shall have general and active management of the business of the Corporation, and shall see that all orders and resolutions of the Board are carried into effect. The President shall ensure that the books, reports, certificates and other records of the Corporation are kept, made or filed in accordance with the laws of the State of Delaware. The President shall preside at all meetings of the Board of Directors and at all meetings of the stockholders unless all of the directors authorize another director to preside at a meeting. The President shall cause to be

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called regular and special meetings of the stockholders and of the Board of Directors in accordance with these By-Laws. The President may sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board of Directors or by the By-Laws to some other officer or agent of the Corporation or where any of them shall be required by law otherwise to be signed, executed or delivered. The President may sign, with the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certificates of stock of the Corporation. The President shall appoint and remove, employ and discharge, and fix the compensation of all servants, agents, employees and clerks of the Corporation other than the duly elected or appointed officers, subject to the approval of the Board of Directors. In addition to the powers and duties expressly conferred upon the President by these By-Laws, the President shall, except as otherwise specifically provided by the laws of the State of Delaware, have such other powers and duties as shall from time to time be assigned to the President by the Board of Directors.
          Section 3. Vice Presidents . The Vice Presidents shall perform such duties as the President or the Board of Directors shall require. Any Vice President shall, during the absence or incapacity of the President, assume and perform the President’s duties.
          Section 4. Secretary . The Secretary may sign all certificates of stock of the Corporation. The Secretary shall record all the proceedings of the meetings of the Board of Directors and of the stockholders of the Corporation in books to be kept for that purpose. The secretary shall have custody of the seal of the Corporation and may affix the same to any instrument requiring such seal when authorized by the Board of Directors, and when so affixed the Secretary may attest the same by the Secretary’s signature. The Secretary shall keep the

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transfer books, in which all transfers of the capital stock of the Corporation shall be registered, and the stock books, which shall contain the names and addresses of all holders of the capital stock of the Corporation and the number of shares held by each; and the Secretary shall keep such stock and transfer books open daily during business hours to the inspection of every stockholder and for transfer of stock. The Secretary shall notify the Directors and stockholders of their respective meetings as required by law or by these By-Laws, and shall perform such other duties as may be required by law or by these By-Laws, or which may be assigned to the Secretary from time to time by the Board of Directors.
          Section 5. Assistant Secretaries . The Assistant Secretaries shall, during the absence or incapacity of the Secretary, assume and perform all functions and duties which the Secretary might lawfully do if present and not under any incapacity.
          Section 6. Treasurer . The Treasurer shall have charge of the funds and securities of the Corporation. The Treasurer may sign all certificates of stock. The Treasurer shall keep full and accurate accounts of all receipts and disbursements of the Corporation in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, and shall render to the President or the Directors, whenever they may require it, an account of all the Treasurer’s transactions as Treasurer and an account of the business and financial position of the Corporation.
          Section 7. Assistant Treasurers . The Assistant Treasurers shall, during the absence or incapacity of the Treasurer, assume and perform all functions and duties which the Treasurer might lawfully, do if present and not under any incapacity.

12


 

          Section 8. Treasurer’s Bond . The Treasurer and Assistant Treasurers shall, if required so to do by the Board of Directors, each give a bond (which shall be renewed every six (6) years) in such sum and with such surety or sureties as the Board of Directors may require.
          Section 9. Transfer of Duties . The Board of Directors in its absolute discretion may transfer the power and duties, in whole or in part, of any officer to any other officer, or persons, notwithstanding the provisions of these By-Laws, except as otherwise provided by the laws of the State of Delaware.
          Section 10. Vacancies . If the office of President, Vice President, Secretary or Treasurer, or of any other officer or agent becomes vacant for any reason, the Board of Directors may choose a successor to hold office for the unexpired term.
          Section 11. Removals . At any meeting of the Board of Directors called for each purpose, any officer or agent of the Corporation may be removed from office, with or without cause, by the affirmative vote of a majority of the Board of Directors.
          Section 12. Compensation of Officers . The officers shall receive such salary or compensation as may be determined by the Board of Directors.
          Section 13. Resignations . Any officer or agent of the Corporation may resign at any time by giving written notice to the Board of Directors or to the President or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

13


 

ARTICLE VI
Contracts, Checks and Notes
          Section 1. Contracts . Unless the Board of Directors shall otherwise specifically direct, all contracts of the Corporation shall be executed in the name of the Corporation by the President.
          Section 2. Checks and Notes . All checks, drafts, bills of exchange and promissory notes and other negotiable instruments of the Corporation shall be signed by such officers or agents of the Corporation as may be designated by the Board of Directors.
ARTICLE VII
Stock
          Section 1. Certificates of Stock . The certificates for shares of the stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be prepared or approved by the Board of Directors. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the secretary or an Assistant Secretary certifying the number of shares owned by the stockholder and the date of issue; and no certificate shall be valid unless so signed. All certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued.
          Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if the officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of issue.

14


 

          All certificates surrendered to the Corporation shall be cancelled and, except in the case of lost or destroyed certificates, no new certificates shall be issued until the former certificates for the same number of shares of the same class of stock shall have been surrendered and cancelled.
          Section 2. Transfer of Stock . Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
ARTICLE VIII
Registered Stockholders
          The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware.
ARTICLE IX
Lost Certificates
     Any person claiming a certificate of stock to be lost or destroyed, shall make an affidavit or affirmation of the fact and advertise the same in such manner as the Board of Directors may require, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or such person’s legal representative, to give the Corporation a bond in a

15


 

sum sufficient, in the opinion of the Board of Directors, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond when, in the judgment of the Directors, it is proper so to do.
ARTICLE X
Fixing of Record Date
          In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE XI
Dividends
          Subject to the relevant provisions of the Certificate of Incorporation, dividends upon the capital stock of the Corporation may be declared by the Board of Directors as any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in

16


 

shares of the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation.
          Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE XII
Waiver of Notice
          Whenever any notice whatever is required to be given by statute or under the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be equivalent thereto.
ARTICLE XIII
Seal
          The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.”

17


 

ARTICLE XIV
Amendments
          Subject to the provisions of the Certificate of Incorporation, these By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment or repeal of the By-Laws or of adoption of new By-Laws be contained in the notice of such special meeting.

18

EXHIBIT 10.4
AbitibiBowater
2010 Canadian DB Supplemental Executive Retirement Plan
Effective December 9, 2010

 


 

TABLE OF CONTENTS
         
    Page
ARTICLE 1 INTRODUCTION
    1  
 
       
1.1 Plan Introduction
    1  
1.2 Plan Purpose
    1  
1.3 409A Compliance
    1  
 
       
ARTICLE 2 DEFINITIONS
    2  
 
       
2.1 “Actuarial Equivalent Value”
    2  
2.2 “Active Participant”
    2  
2.3 “Additional Voluntary Contribution”
    2  
2.4 “Average Pensionable Earnings”
    2  
2.5 “Basic Pension”
    3  
2.6 “Beneficiary”
    4  
2.7 “Company”
    5  
2.8 “Continuous Service”
    5  
2.9 “Credited Service”
    5  
2.10 “Creditor Protection Proceedings”
    5  
2.11 “Deferred Vested Participant”
    5  
2.12 “Disability”
    5  
2.13 “Early Retirement Date”
    6  
2.14 “Effective Date”
    6  
2.15 “Emergence”
    6  
2.16 “Employer”
    6  
2.17 “Final Accrual Date”
    6  
2.18 “Legacy Participant”
    6  
2.19 “MSBA”
    6  
2.20 “Normal Retirement Date”
    6  
2.21 “Participant”
    6  
2.22 “Plan”
    6  
2.23 “Plan Administrator”
    6  
2.24 “Prior Plan”
    6  
2.25 “Reorganization Plan”
    6  
2.26 “Registered Pension Plan”
    6  
2.27 “Retirement Benefit”
    6  
2.28 “Spouse”
    7  
 
       
ARTICLE 3 ELIGIBILITY AND PARTICIPATION
    8  
 
       
3.1 Eligibility for Participation
    8  
3.2 Participation
    8  
 
       
ARTICLE 4 RETIREMENT BENEFITS
    10  
 
       
4.1 Status of Retirement Benefits
    10  
4.2 Payment of Plan Benefits
    10  
4.3 Amount of Retirement Benefits
    10  

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TABLE OF CONTENTS
(continued)
         
    Page
4.4 Normal Retirement Benefits
    12  
4.5 Early Retirement Benefits
    12  
4.6 Disability Payments
    13  
4.7 Form of Pension
    13  
4.8 Death Before Retirement
    15  
4.9 Termination of Employment
    16  
4.10 Increase in Benefits
    18  
4.11 Commutation of Benefits
    18  
4.12 Service Outside Canada
    18  
4.13 Conditions for Payment
    19  
4.14 Right of Offset
    20  
4.15 Taxes; Compliance with §409A
    21  
 
       
ARTICLE 5 PLAN ADMINISTRATION
    23  
 
       
5.1 Plan Administration and Interpretation
    23  
5.2 Powers, Duties, Procedures
    23  
5.3 Information
    23  
5.4 Indemnification of Plan Administrator
    23  
5.5 Claims Procedure
    23  
 
       
ARTICLE 6 AMENDMENT AND TERMINATION
    26  
 
       
6.1 Authority to Amend and Terminate
    26  
6.2 Existing Rights
    26  
 
       
ARTICLE 7 MISCELLANEOUS
    27  
 
       
7.1 Funding
    27  
7.2 General Creditor Status
    27  
7.3 No Assignment
    27  
7.4 Notices and Communications
    27  
7.5 Limitation of Participant’s Rights
    27  
7.6 Participants Bound
    28  
7.7 Receipt and Release
    28  
7.8 Governing Law and Severability
    28  
7.9 Headings
    28  

ii


 

AbitibiBowater
2010 Canadian DB Supplemental Executive Retirement Plan
Effective December 9, 2010
ARTICLE 1
INTRODUCTION
      1.1 Plan Introduction .
     (a) In April 2009, AbitibiBowater Inc. (the “Company”) and its U.S. and Canadian subsidiaries (the “AbitibiBowater Entities”) filed voluntary petitions seeking relief pursuant to Chapter 11 of the United States Bankruptcy Code and/or applied for protection from their creditors under Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C36, as amended (collectively, the “Creditor Protection Proceedings”). The Company and/or certain of its subsidiaries later filed proposed plans of reorganization in the Creditor Protection Proceedings (collectively, the “Reorganization Plan”). The Reorganization Plan was approved by the creditors of the AbitibiBowater Entities and the Canadian and U.S. courts. As a result, the AbitibiBowater Entities have emerged from the Creditor Protection Proceedings on December 9, 2010 (the “Emergence”).
     (b) Pursuant to the Reorganization Plan, the Prior Plan was terminated coincident with Emergence. On December 9, 2010, the Company adopted and established the AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan (the “Plan”), as may be amended from time to time. Further and pursuant to the Reorganization Plan, the Plan reinstates certain benefits on behalf of certain eligible employees and former employees of the Employer, and their Beneficiaries, if the requirements of Section 3.1(a) are met. The reinstated benefits are substantially similar to the retirement benefits eliminated with the termination of the Prior Plan, subject to reductions and limitations as set forth in the Reorganization Plan and incorporated herein.
      1.2 Plan Purpose . The purpose of the Prior Plan was to provide certain eligible employees of the Employer with an enhanced retirement benefit that supplemented the retirement benefits provided to such eligible employees under the Registered Pension Plan of the Employer. The purpose of the Plan is to reinstate a portion of the benefits of the Prior Plan to certain Participants and Beneficiaries, as provided in the Reorganization Plan and described herein. For the avoidance of doubt, no retirement benefits accrued under any plan other than the Prior Plan are reinstated under, or shall be paid pursuant to, this Plan.
      1.3 409A Compliance . The portions of the Plan governing Participants who are subject to Section 409A of the Internal Revenue Code of 1986 and any regulations issued thereunder (the “Code”) are intended to comply with the provisions of Code Section 409A with respect to all amounts credited to and deferred under the Plan on behalf of such Participants on and after the Effective Date. The Plan shall be interpreted, administered and operated as necessary to comply with the requirements of Code Section 409A and applicable Treasury Regulations. The Company reserves the right to amend or modify the Plan in order to comply with regulations promulgated by the Department of Treasury under Code Section 409A.

 


 

ARTICLE 2
DEFINITIONS
     Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:
      2.1 “Actuarial Equivalent Value” means a value deemed to be equal to another value, as determined on a basis of the Plan provisions in effect on the date such determination is being made. The Actuarial Equivalent Value of a benefit of a Participant under this Plan shall be determined in the same manner and using the same assumptions as those used or that would be used for purposes of calculating the commuted value of termination of employment benefits under the Registered Pension Plan under which the Participant is entitled to receive benefits following his termination of employment or retirement from the Employer. For greater certainty, in determining the Actuarial Equivalent Value of a benefit, account shall not be taken of the income tax consequences that would arise to the recipient of the benefit.
      2.2 “Active Participant” means an individual who meets the requirements of Section 3.1(b) for participation in the Plan and who maintains an accrued benefit under the Plan.
      2.3 “Additional Voluntary Contribution” means a contribution, other than a required contribution, which may be made by a Participant under a Registered Pension Plan.
      2.4 “Average Pensionable Earnings” means, in respect of a Participant:
     (a) For years of Continuous Service before January 1, 2009, the sum of:
     (i) the average of the Participant’s monthly Earnings (as defined in subsection 2.4(c)(i)) during the 60 consecutive months within the 120 months of Continuous Service immediately preceding the earliest of his retirement, his termination of employment or the Final Accrual Date during which such Earnings were the highest, multiplied by 12; plus
     (ii) the average of the Participant’s annual Incentive Award (as defined in subsection 2.4(c)(ii)) earned in the five years, whether consecutive or not, within the 10 years of continuous employment immediately preceding the earliest of his retirement, disability, his termination of employment or the Final Accrual Date, during which such annual Incentive Award was the highest.
     (b) For years of Continuous Service on and after January 1, 2009, the average of the Participant’s Earnings plus Incentive Award, during the five consecutive calendar years within the 10 years of Continuous Service immediately preceding the earliest of his retirement, his termination of employment or the Final Accrual Date, during which such Earnings plus Incentive Award were the highest. The Incentive Award taken into consideration is the one paid during the year and is capped at 125% of the Participant’s target incentive award for the year in question.
     For purposes of this Section 2.4, if at the time the calculation of Average Pensionable Earnings is made, a Participant has less than five years of Continuous Service, his Average

2


 

Pensionable Earnings shall be the average Earnings calculated over the actual number of years of his Continuous Service plus the average of his Incentive Award during such period.
     (c) For purposes of this Section 2.4:
     (i) “Earnings” means the Participant’s base salary on which is based his remuneration received from the Company. With respect to periods of Credited Service during which the Participant does not actually receive remuneration from the Company, Earnings mean the Participant’s base salary on which such remuneration would have been based. However, such deemed Earnings shall not exceed the amount of compensation that is prescribed for this purpose under Section 8507 of the Regulations under the Income Tax Act.
     (ii) “Incentive Award” means the incentive award paid to a Participant under the Employer’s regular incentive plans or programs adopted by the Company from time to time or the incentive award paid under the 2010 Short Term Incentive Plan while employed with an Employer, regardless of whether a Participant is eligible for and exercises any right to defer an Incentive Award under any plan or program of the Company. Incentive Award does not include any other cash incentive, non-recurring (including any restructuring awards under the Emergence Recognition Plan) or multi-year incentive award, unless authorized by the Plan Administrator.
      2.5 “Basic Pension” means the lifetime annual pension which the Participant would otherwise be entitled to receive from time to time pursuant to the Registered Pension Plan, in regards to the period of Credited Service recognized for purposes of this Plan or that would be so recognized for purposes of this Plan in absence of the 35 year limit on Credited Service (as set forth in the definition of Credited Service), but limited to the period of Credited Service actually recognized in the Registered Pension Plan. It shall be assumed that such annual pension is payable from the same date as supplementary benefits commence to be paid under this Plan and is calculated on the basis of the following assumptions:
     (i) where the Registered Pension Plan is a defined benefit pension plan:
  (A)   the annual pension is in the form of a pension payable under the normal form provided for under the Registered Pension Plan, or if the Participant elected an optional form in accordance with Section 4.7(c), the annual pension payable under such optional form;
 
  (B)   the Participant has made no Additional Voluntary Contribution;
 
  (C)   the additional pension that is or would be provided by any excess contributions shall be included regardless of whether the Participant elected to receive payment of the excess contribution in cash; and
 
  (D)   the amount of the Basic Pension shall be determined according to the formula under the Registered Pension Plan regardless of any

3


 

      reduction in benefits that may be applied, by operation of statute or otherwise, as a result of the funded status of such Registered Pension Plan on the date of such determination (it being understood that, where the Registered Pension Plan is a defined benefit pension plan, the foregoing assumption shall also be applicable to the determination of the amount of survivor pension payable to the Spouse under the Registered Pension Plan following the death of the Participant (or any survivor pension that would have been payable had the benefits under the Registered Pension Plan not been commuted) as referred to in Section 4.7(a)(ii), and any amount payable under the Registered Pension Plan to the Participant’s estate or any designated Beneficiary following the death of the Participant (or any amount that would have been payable had the benefits under the Registered Pension Plan not been commuted) as referred to in Section 4.7(a)(ii)); and
     (ii) where the Registered Plan is a defined contribution pension plan, and subject to clause (iii), an annual pension which is the Actuarial Equivalent Value, based on the assumptions and the normal form of pension described in clause (i), of the amount accumulated by the Participant under the Registered Pension Plan, excluding his Additional Voluntary Contributions, as of the date of his retirement, death or termination of employment with the Employer (for greater certainty, the normal form shall be a lifetime joint and 60% survivor pension for a Participant with a Spouse and the normal form shall be a lifetime pension with a guarantee of a minimum of 120 monthly payments for a Participant without a Spouse); and
     (iii) in the case of a Participant who is a former Abitibi-Price Inc. employee who held a MSBA and who elected to convert his defined benefit entitlement under Abitibi-Price Inc.’s Registered Pension Plan to a defined contribution entitlement, a list of such Participants being attached hereto as Appendix B, the Basic Pension in respect of such Participant shall be determined as if the Participant had elected to not convert his defined benefit entitlement under Abitibi-Price Inc.’s Registered Pension Plan and such defined benefit entitlement has been determined in accordance with the provisions in effect on January 1, 1996 of the Abitibi-Price Inc.’s Registered Pension Plan and in accordance with the assumptions and the form of pension described in clause (i); and
     (iv) in all cases, where a Participant’s entitlement under the Registered Pension Plan has been divided between the Participant and his Spouse or former Spouse as a result of divorce, separation or annulment of marriage, his Basic Pension shall be determined as if no such division of his entitlement had occurred.
      2.6 “Beneficiary” means (i) for a Legacy Participant, the individual or entity identified as the Legacy Participant’s Beneficiary at the time the Legacy Participant’s retirement benefit under the Prior Plan went into pay status, which payment of benefit was suspended as a result of the Creditor Protection Proceedings, and (ii) for a Deferred Vested Participant or an Active Participant, any individual or entity designated as the Participant’s Beneficiary under the Plan. If there is no Beneficiary designated under this Plan, then the Participant’s Beneficiary

4


 

shall be the Participant’s Beneficiary designated under the Prior Plan. If there is no Beneficiary designated under the Prior Plan, then the Participant’s Beneficiary shall be the Participant’s Spouse, if then living at the time of the Participant’s death, and if none, then the Participant’s estate.
      2.7 “Company” means AbitibiBowater Inc., a Delaware corporation, or any successor corporation thereto. The Company may also mean a predecessor corporation thereto where the context so requires.
      2.8 “Continuous Service” means a Participant’s uninterrupted period of employment, with the Employer or with a predecessor company, deemed to have commenced on the first day of the month coinciding with or immediately following the Participant’s hiring date by the Employer, or deemed to have commenced on the Participant’s hiring date by such predecessor company, as the case may be. For such purpose, a predecessor company means Donohue Inc. or any other company considered to be a predecessor company for such purpose. The Continuous Service of a Participant shall not be interrupted as a result of any absence due to disability, which was approved by the Employer, or due to temporary absence other than as a result of disability, which was approved by the Employer. For Participants hired on or after January 1, 2002, Continuous Service means a Participant’s uninterrupted period of employment with the Employer deemed to have commenced on the Participant’s hiring date. Continuous Service shall be measured in years with proportional allowance for non-completed years.
      2.9 “Credited Service” means the Participant’s period of Continuous Service following the Participant’s hiring date by the Employer. For greater certainty, Credited Service shall not include any period of service recognized as credited service under any other unregistered pension plan sponsored by the Employer other than this Plan. Credited Service shall not include any period of service after the Final Accrual Date.
     Before the Effective Date, the Employer also recognized, for certain Participants who were previously employed by Donohue Inc., certain newly hired Participants or any short service Participants, additional service for purposes of calculating the Participant’s Continuous and Credited Service, such additional service being as described in Appendix A hereto, with such additional service to be vested only on the dates specified in Appendix A.
     Credited Service shall be measured in years with proportional allowance for non-completed years. Total years of Credited Service under this Plan and under all other unregistered or nonqualified pension plans sponsored by the Employer shall not exceed 35.
      2.10 “Creditor Protection Proceedings” is defined in Section 1.1(a).
      2.11 “Deferred Vested Participant” means an individual who meets the requirements of Section 3.1(c) for participation in the Plan and who maintains an accrued benefit under the Plan, or the Beneficiary of such an individual who died before the Effective Date.
      2.12 “Disability” means the Participant is eligible to receive disability benefits under the short-term or long-term disability plan maintained by the Employer, as more fully described in Section 4.6.

5


 

      2.13 “Early Retirement Date” means the first day of the month coincident with or next following the date on which the Participant elects to retire early in accordance with Section 4.5, provided he has met the age and service requirements set forth in Section 4.5.
      2.14 “Effective Date” means December 9, 2010, the date of Emergence.
      2.15 “Emergence” is defined in Section 1.1(a).
      2.16 “Employer” means AbiBow Canada Inc. and each other entity affiliated with the Company that is a participating employer under the Plan, and their successors.
      2.17 “Final Accrual Date” means December 31, 2010.
      2.18 “Legacy Participant” means an individual who meets the requirements of Section 3.1(d)(i) for participation in the Plan, or the Beneficiary of a former employee described in Section 3.1(d)(ii), and in either case who maintains an accrued benefit under the Plan.
      2.19 “MSBA” means a Management Supplementary Benefit Agreement, which is an individual supplementary benefits agreement with an Executive Employee who was a former employee of Abitibi-Price Inc.
      2.20 “Normal Retirement Date” means the first day of the month coincident with or next following the month in which a Participant attains age 65.
      2.21 “Participant” means each of an Active Participant, a Deferred Vested Participant or a Legacy Participant.
      2.22 “Plan” means this AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan.
      2.23 “Plan Administrator” means the Human Resources and Compensation/Nominating and Governance Committee of the Board of Directors of the Company (the “HRC/NGC”) or its delegate.
      2.24 “Prior Plan” means the Canadian Supplemental Executive Retirement Plan (SERP) for Executive Employees of Abitibi-Consolidated Inc.
      2.25 “Reorganization Plan” is defined in Section 1.1(a).
      2.26 “Registered Pension Plan” means any one or more pension plans sponsored by the Employer or its affiliates and registered with Canada Revenue Agency. When used in respect of a Participant, this expression shall refer to the one or more Registered Pension Plans under which such Participant is entitled to receive benefits following his termination of employment, death or retirement from the Employer with regards to the period of Credited Service which is recognized under this Plan.
      2.27 “Retirement Benefit” means the retirement benefit payable to a Participant or Beneficiary under the Plan.

6


 

      2.28 “Spouse” means the person who satisfies the definition of spouse as defined under the Registered Pension Plan of which the Participant is a member at the time the spousal status needs to be determined, or would have been a member had his benefits not been commuted or paid in a lump sum. Spousal status shall be determined on the day preceding the date of death of the Participant or on the day when the Participant commences receiving his Retirement Benefit hereunder (or, for a Legacy Participant, first began receiving his retirement benefits under the Prior Plan), whichever occurs first.

7


 

ARTICLE 3
ELIGIBILITY AND PARTICIPATION
      3.1 Eligibility for Participation .
     (a) An employee or former employee of the Employer, or Beneficiary of a deceased former employee, shall be eligible to participate in the Plan as an Active Participant, a Deferred Vested Participant or a Legacy Participant as set forth in this Section 3.1 if such individual:
     (i) was a participant in and had accrued a retirement benefit under the Prior Plan, or a Beneficiary of a deceased participant who had accrued such a benefit, as of the Effective Date, which retirement benefit was not paid under the Prior Plan before its termination; and
     (ii) waived and forfeited any and all claims he had or may have had in the Creditor Protection Proceedings in respect of the Prior Plan or any other Terminated Retirement Plan as defined in the Reorganization Plan.
     (b) An individual shall be an Active Participant if such individual meets the requirements of paragraph (a), such individual is an active employee of the Employer on the Effective Date and maintained a retirement benefit under the Prior Plan as of the Effective Date.
     (c) An individual shall be a Deferred Vested Participant if such individual meets the requirements of paragraph (a), such individual is a former employee of the Employer on the Effective Date and earned a deferred vested retirement benefit under the Prior Plan as of the Effective Date.
     (d) An individual shall be a Legacy Participant if such individual either:
     (i) meets the requirements of paragraph (a) and such individual is a former employee of the Employer who was in pay status and receiving a retirement benefit under the Prior Plan when the Creditor Protection Proceedings commenced; or
     (ii) is the Beneficiary of a former employee who died before the Effective Date, and either such Beneficiary was receiving survivorship benefits under the Prior Plan when the Creditor Protection Proceedings commenced, or would have begun receiving survivorship benefits on or after the date the Creditor Protection Proceedings commenced but for the Creditor Protection Proceedings.
     (e) Notwithstanding anything in the Plan to the contrary, Plan participation shall be frozen and no Employees shall be first eligible to participate in the Plan on or after the Effective Date.
      3.2 Participation . An individual described in Section 3.1 shall participate in the Plan as an Active Participant, a Deferred Vested Participant or a Legacy Participant as of the Effective Date and shall have the retirement benefit he accrued under the Prior Plan reinstated under the Plan as of the Effective Date, subject to any reductions described in Article 4. A Participant (or

8


 

Beneficiary) shall cease to be a Participant (or Beneficiary) in the Plan when the individual has received a complete distribution of his Retirement Benefits payable under the Plan.

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ARTICLE 4
RETIREMENT BENEFITS
      4.1 Status of Retirement Benefits .
     (a) Pursuant to the Reorganization Plan, all Deferred Vested Participants and Legacy Participants (and Beneficiaries) shall have a Retirement Benefit payable under the Plan. All Deferred Vested Participants and Legacy Participants are identified in Exhibit A.
     (b) Pursuant to the Reorganization Plan, all Active Participants shall have a Retirement Benefit payable under the Plan. All Active Participants are identified in Exhibit B. Retirement Benefit amounts for such actively employed Participants shall be determined using Average Pensionable Earnings and Credited Service as of the Final Accrual Date. No further benefits shall accrue with compensation increases or service earned after the Final Accrual Date.
      4.2 Payment of Plan Benefits .
     (a) Retirement Benefit payments to a Participant or Beneficiary under the Plan shall be made in accordance with the terms of the Reorganization Plan, as set forth below.
     (b) Retirement benefit payments made to a Participant under the Prior Plan and which were suspended pursuant to the Creditor Protection Proceedings, or payments that should have begun to a Participant under the Prior Plan which did not begin as a result of the Creditor Protection Proceedings (whether as monthly benefit payments or a lump sum benefit payment), shall resume or begin to be paid as soon as administratively feasible to such Participant in accordance with the Plan and the Reorganization Plan; provided, that such benefits shall be reduced and/or limited in accordance with the Reorganization Plan as set forth in the Plan. No adjustment shall be made for any monthly benefit payments that were suspended or missed during the Creditor Protection Proceedings No interest shall be paid with respect to any benefit payments (whether as monthly benefit payments or a lump sum benefit payment) that were suspended, missed or delayed as a result of the Creditor Protection Proceedings.
     (c) All Retirement Benefits shall be calculated and paid in Canadian dollars.
      4.3 Amount of Retirement Benefits .
     (a) An Active Participant shall be entitled to a Retirement Benefit under this Plan based upon the Participant’s Average Pensionable Earnings and years of Credited Service determined as of the Final Accrual Date and calculated in accordance with Section 4.4 or 4.5.
     (b) A Deferred Vested Participant shall be entitled to a Retirement Benefit under this Plan based upon the Participant’s Average Pensionable Earnings and years of Credited Service determined as of the date of the Participant’s termination of employment with the Employer and calculated as follows:
     (i) the Retirement Benefit shall be initially calculated in accordance with Section 4.4 or 4.5;

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     (ii) the amount determined in clause (i) shall be reduced in each year as described in Section 4.3(d).
     (c) A Legacy Participant shall be entitled to payment of a Retirement Benefit under the Plan, which benefit shall be calculated as follows:
     (i) the Retirement Benefit shall be initially calculated as equal to the monthly retirement benefit payment the Participant was receiving (or would have been receiving) under the Prior Plan that was suspended pursuant to the Creditor Protection Proceedings;
     (ii) the amount determined in clause (i) shall be reduced in each year as described in Section 4.3(d).
     (d) The reduction referred to in subsections 4.3(b)(ii) and 4.3(c)(ii) shall be calculated as follows:
     (i) First, calculate the sum of the annual benefit payable to the Participant for the year under this Plan plus the annual benefit payable to the Participant under all other unregistered (in Canada) or non-qualified (in the United States) retirement plans maintained by any Debtor or Reorganized Debtor as defined for purposes of Supplement 7A-2 to the Plan of Reorganization approved in the Creditor Protection Proceedings (the “Other Plans”).
     (ii) Second, calculate the lesser of (A) the total annual benefit determined in clause (i) multiplied by 90% or (B) Canadian $50,000.
     (iii) Third, subtract from the amount determined in clause (ii) the total amount of benefits payable under each of the Other Plans that is or was funded or secured in whole or part by a trust fund, letter of credit, or similar method, multiplied by the percentage of such Other Plan that was so funded or secured (the “Secured Benefits”).
     (iv) Fourth, the total benefit payable under this Plan, and all benefits payable under all Other Plans that are not Secured Benefits (the “Unsecured Benefits”), shall be reduced proportionately until the total sum of the Unsecured Benefits is equal to the amount determined in clause (iii).
     (v) The limitation of this Section 4.3(d) shall be applied separately to each year based upon the amount of benefits actually payable to the Participant under this Plan and all Other Plans in such year; provided that if any benefit is paid in the form of a lump sum, such benefit shall be taken into account in the form of the annual amount that would have been paid in each year if it had not been paid as a lump sum. The Plan Administrator may make such adjustments as it may determine to be appropriate to accomplish the purposes of the Plan of Reorganization.
     (e) The Plan Administrator shall calculate the Retirement Benefits payable to each Participant pursuant to this Section 4.3 and shall include such amounts in Exhibit A or Exhibit B, as applicable, and shall adjust such amounts as required, including but not limited to any

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adjustments required by the Reorganization Plan, or to reflect differences between the amounts expected to be paid in settlement of any Secured Benefits and the amount actually paid.
      4.4 Normal Retirement Benefits .
     (a) A Participant who retires on his Normal Retirement Date shall be entitled to receive a Retirement Benefit payable in equal monthly installments commencing on his Normal Retirement Date in an amount equal to the excess, if any, of (i) over (ii):
     (i) 2% of the Participant’s Average Pensionable Earnings multiplied by his number of years of Credited Service; and
     (ii) his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted, the Basic Pension he would have received if such commutation had not taken place.
     (b) In the event a Participant remains in the employ of the Employer after his Normal Retirement Date, he shall be entitled to receive a Retirement Benefit payable in equal monthly installments and commencing on the first day of the month following his actual termination date, equal to the amount determined in accordance with paragraph (a), and based on his Credited Service and Average Pensionable Earnings as of the earlier of his Normal Retirement Date or the Final Accrual Date, and his Basic Pension as of the earlier of his actual retirement date or the Final Accrual Date.
      4.5 Early Retirement Benefits .
     (a) A Participant may elect to retire before his Normal Retirement Date provided he is then at least 55 years of age and has completed at least two years of Continuous or Credited Service. Retirement Benefits will begin as of his elected Early Retirement Date.
     (b) If a Participant is at least 58 years of age and the sum of his age and years of Continuous or Credited Service totals at least 80, the Participant shall be entitled to an annual Retirement Benefit, payable in equal monthly installments, determined in accordance with Section 4.4 and commencing on his Early Retirement Date.
     (c) A Participant other than a Participant referred to in paragraph (b) who retires under this Section shall be entitled to receive an annual Retirement Benefit payable in equal monthly installments and commencing on his elected Early Retirement Date in an amount equal to the excess, if any, of (i) over (ii) below:
     (i) 2% of his Average Pensionable Earnings multiplied by his number of years of Credited Service, such amount to be reduced by 0.5% multiplied by the number of months that his elected Early Retirement Date precedes:
  (A)   if the Participant has completed at least 20 years of Continuous or Credited Service, the date at which the Participant would first have qualified for an unreduced Retirement Benefit in accordance with paragraph (b) had he continued in the Plan; or

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  (B)   if the Participant has not completed 20 years of Continuous or Credited Service, age 65.
     (ii) his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted or paid in a lump sum, the Basic Pension he would have received if such commutation or lump sum payment had not taken place.
     (d) Where in addition to his Basic Pension, the Participant is entitled to receive a bridging benefit under the Registered Pension Plan, the amount of his Retirement Benefit shall be further reduced by the annual amount of such bridging benefit during the period for which such bridging benefit continues to be paid.
      4.6 Disability Payments .
     (a) During a period of disability entitling the Participant to either receive disability benefits under the short-term or long-term disability plan maintained by his Employer from time to time in which he participates, such Participant shall continue to accrue Credited Service for the purpose of this Plan through the Final Accrual Date. During such period, the Participant shall be deemed to receive a base salary equal to the annual rate of base salary he was receiving immediately before his becoming disabled.
     (b) If the Participant for any reason ceases to be eligible to receive benefits under the short-term or long-term disability plan maintained by the Employer before his Normal Retirement Date and within such period as determined by the Company:
     (i) the Participant returns to active employment with the Employer, then at the date of his subsequent termination, death or retirement, the Participant shall be entitled to Retirement Benefits calculated in accordance with the provisions of this Plan, taking into account the provisions of paragraph (a) above, or
     (ii) the Participant does not return to active employment with the Employer, then he will be deemed to have terminated his employment or retired for the purposes of the Plan as of the day he ceases to be eligible to receive benefits from the disability plans maintained by the Employer and his Retirement Benefits shall be calculated based on the provisions of this Plan, taking into account the provisions of paragraph (a) above.
     (c) A Participant whose period of disability continues until his Normal Retirement Date shall be deemed to have retired on his Normal Retirement Date for the purpose of this Plan.
     (d) In the event of the death of a Participant while in receipt of disability benefits as provided in this Section, the benefits payable under this Plan shall be determined in accordance with the terms of Section 4.8 as if the Participant died while in service of the Employer.
      4.7 Form of Pension .
     (a) The Retirement Benefit payable to a Participant under this Plan shall be paid during the lifetime of the Participant. Following the death of the Participant while in receipt of such Retirement Benefit, the Participant’s Spouse shall be entitled to receive during his lifetime

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an annual supplementary survivor allowance, payable in equal monthly installments, and commencing on the first day of the month following the month in which the Participant dies, equal to the excess of (i) over (ii) below:
     (i) 50% of the Retirement Benefit that would have been payable to the Participant under this Plan at the time of his death, if such Retirement Benefit had not been reduced by the Participant’s Basic Pension;
     (ii) any survivor pension payable to the Spouse under the Registered Pension Plan following the death of the Participant, or any survivor pension that would have been payable had the benefits under the Registered Pension Plan not been commuted or paid in a lump sum. Where the Registered Pension Plan is a defined contribution pension plan, and subject to Section 2.5(iii), the survivor pension payable to the Spouse shall be equal to 60% of the Participant’s Basic Pension.
     (b) If a Participant does not have a Spouse at the start of his Retirement Benefits and dies before 120 monthly payments of his Retirement Benefits have been paid to him, his Beneficiary or, if there is no Beneficiary, his estate shall receive a lump sum which is the Actuarial Equivalent of the excess of (i) over (ii) below:
     (i) the balance of the 120 monthly payments of the Retirement Benefits that would have been payable to the Participant under this Plan at the time of his death if such supplementary allowance had not been reduced by the Participant’s Basic Pension;
     (ii) any amount payable under the Registered Pension Plan to his estate or any designated Beneficiary following the death of the Participant, or any amount that would have been payable had the benefits under the Registered Pension Plan not been commuted or paid in a lump sum. Where the Registered Pension Plan is a defined contribution pension plan and subject to Section 2.5(iii), the amount that would have been payable to his estate or any designated Beneficiary following the death of the Participant, had the Participant elected to receive his Basic Pension as a life annuity with 120 payments guaranteed.
     (c) Instead of receiving his Retirement Benefit in accordance with the normal form of payment described in paragraphs (a) and (b), a Participant may elect to receive his Retirement Benefits payable under this Plan under one of the optional forms of payment determined by the Company as eligible for the purpose of this Plan. In such a case, the Participant must elect the same optional form of payment for purpose of his benefits under the Registered Pension Plan. However, in the case where the Registered Pension Plan is a defined contributions pension plan, and subject to Section 2.5(iii), the Participant will be deemed to have elected the same form of payment that is elected for purposes of this Plan. If the Participant elects an optional form of payment, then the amount of his Retirement Benefit, before applying the offset for his Basic Pension, shall be adjusted on an Actuarial Equivalent Value basis.
     (d) Notwithstanding any provision in the Plan to the contrary, the Retirement Benefit payable to a Legacy Participant shall be paid in the same form it was being paid before commencement of the Creditor Protection Proceedings, and the Retirement Benefit paid to a

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Deferred Vested Participant whose Retirement Benefit would have commenced during the Creditor Protection Proceedings shall be paid in the same form it would have been paid had it so commenced.
      4.8 Death Before Retirement .
     (a)  Death after Age 55 but Before Retirement .
     (i) In the event that a Participant dies while actively employed with the Employer after having reached age 55 and having completed at least two years of Continuous or Credited Service, his Spouse shall be entitled to receive an annual supplementary survivor allowance determined in accordance with Section 4.7(a) as if the Participant had retired immediately before the date of his death and, in the case of a Legacy Participant who retired before January 1, 2005, had not elected an optional form of pension in accordance with Section 4.7(c). However, with respect to Section 4.7(a)(ii), where the survivor benefit under the Registered Pension Plan is payable in a lump sum, the survivor pension payable to the Spouse shall be equal to the pension that could be provided by such lump sum, calculated on an Actuarial Equivalent Value basis over the survivor’s lifetime.
     (ii) In the event of there being no Spouse at the time of death of a Participant referred to in clause (i), his Beneficiary shall receive a lump sum equal to the lump sum that would otherwise have been payable under this Plan to the Participant’s estate as would be determined under Section 4.7(b) if the Participant had retired immediately before the date of his death. However, with respect to Section 4.7(b)(ii), where the benefit payable to the designated Beneficiary or estate under the Registered Pension Plan is payable in a lump sum, any amount payable to the Beneficiary shall be equal to such lump sum.
     (iii) In the event that a Participant who has terminated his employment and who is entitled to a deferred Retirement Benefit in accordance with Section 4.9 dies after having reached age 55 and before payment of the deferred Retirement Benefit begins, his Spouse shall be entitled to receive an annual supplementary survivor allowance determined in accordance with the Section 4.7(a) as if the Participant requested payment his deferred Retirement Benefit to commence on the first day of the calendar month immediately preceding or coinciding with his date of death. In the event there is no Spouse at the time of death, his estate shall receive a lump sum equal to the lump sum that would otherwise have been payable under the Plan to the Participant’s estate as would be determined under Section 4.7(b) as if the Participant had requested payment commencement of his deferred Retirement Benefit on the first day of the calendar month immediately preceding or coinciding with his date of death.
     (b)  Death Before Age 55
     (i) In the event that a Participant dies while in service of the Employer before having reached age 55 but after having completed at least two years of Continuous or Credited Service, his Spouse or, in the absence of a Spouse, his estate, shall receive a

15


 

lump sum payment that is the Actuarial Equivalent of the deferred Retirement Benefit that would otherwise have been payable under the Plan to the Participant, determined under Section 4.9(a) as if the Participant had voluntarily terminated his employment with the Employer.
     (ii) In the event that a Participant who has terminated his employment and who is entitled to a deferred Retirement Benefit in accordance with the applicable provision in Section 4.9 dies before having reached age 55, his Spouse or, in the absence of a Spouse, his estate, shall receive a lump sum payment of the deferred Retirement Benefit.
     (c) No benefit shall be payable under this Plan following the death of a Participant before having reached age 55 if he has not completed at least two years of Continuous or Credited Service.
      4.9 Termination of Employment .
  (a)   Voluntary Termination after Two Years of Continuous or Credited Service .
 
      A Participant who terminates his service with the Employer on a voluntary basis before his 55th birthday and after he has completed at least two years of Continuous or Credited Service shall be entitled to receive a deferred Retirement Benefit, the amount of which shall be determined as provided hereunder.
 
      The Participant may request that payment commencement of his deferred Retirement Benefit start on the first day of any calendar month during the period between his attainment of age 55 and his Normal Retirement Date. The amount of the deferred Retirement Benefit payable, shall be established based on the elected payment commencement date as follows:
          (i) if the payment commencement date is the Participant’s Normal Retirement Date:
  (A)   2% of his Average Pensionable Earnings multiplied by his number of years of Credited Service; less
 
  (B)   his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted, the Basic Pension he would have received if such commutation had not taken place.
          (ii) If the payment commencement date is before the Participant’s Normal Retirement Date:
  (A)   2% of his Average Pensionable Earnings multiplied by his number of years of Credited Service, such amount to be reduced by 0.5% multiplied by the number of months the payment commencement date precedes the Participant’s Normal Retirement Date; less

16


 

  (B)   his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted, the Basic Pension he would have received if such commutation had not taken place.
    The deferred Retirement Benefit shall be paid in the same form and in the same manner as the Retirement Benefit that would have been payable if the Participant had retired on his Normal Retirement Date.
  (b)   Involuntary Termination after Two Years of Continuous or Credited Service .
      A Participant who, before his 55th birthday and provided he has then completed at least 2 years of Continuous or Credited Service, ceases to be employed by the Employer as a result of the termination of his employment initiated by the Employer for any reason other than for cause, shall be entitled to receive a deferred Retirement Benefit the amount of which shall be determined as provided hereunder.
      The Participant may request that payment commencement of his deferred Retirement Benefit start the first day of any calendar month during the period between his attainment of age 55 and his “Unreduced Early Retirement Date.” For such purpose, the Participant’s Unreduced Early Retirement Date shall correspond to the earliest date he could have been entitled to an unreduced early Retirement Benefit as provided in Section 4.5(b), established as if his termination of employment had not occurred.
      The amount of the deferred Retirement Benefit payable, shall be established based on the payment commencement date as follows:
      (i) if the payment commencement date is the Participant’s Unreduced Early Retirement Date:
  (A)   2% of his Average Pensionable Earnings multiplied by his number of years of Credited Service; less
 
  (B)   his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted, the Basic Pension he would have received if such commutation had not taken place.
      (ii) If the payment commencement date is before the Participant’s Unreduced Early Retirement Date:
  (A)   2% of his Average Pensionable Earnings multiplied by his number of years of Credited Service, such amount to be reduced by 0.5% multiplied by the number of months the payment commencement date precedes the Participant’s Unreduced Early Retirement Date; less

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  (B)   his Basic Pension from the Registered Pension Plan, or where such Basic Pension has been commuted, the Basic Pension he would have received if such commutation had not taken place.
      The deferred Retirement Benefit shall be paid in the same form and in the same manner as the Retirement Benefit that would have been payable if the Participant had retired on his Normal Retirement Date.
      (c) No benefit shall be payable under this Plan to a Participant who ceases to be in the employ of the Employer before his 55th birthday:
     (i) as a result of the termination of his employment by the Employer for cause, or
     (ii) as a result of the termination of his employment for any reason before having completed at least two years of Continuous or Credited Service.
      4.10 Increase in Benefits .
     (a) Any ad hoc increases in the pension payments made under the Registered Pension Plan to a retired Participant, or in the case of his death, to his surviving Spouse, will not have the effect of reducing benefits otherwise payable under this Plan.
     (b) Any automatic annual increases in the pension payments made under the Registered Pension Plan, or deemed to have been made if the benefits have been commuted, to a retired Participant, or in the case of his death, to his surviving Spouse, will have the effect of reducing benefits otherwise payable under this Plan. In the case of a Deferred Vested or Legacy Participant, the amount of the reduction shall be calculated by taking into account the provisions of Section 4.3(d).
      4.11 Commutation of Benefits .
     (a) Any Retirement Benefit or deferred Retirement Benefit payable under this Plan in the form of monthly payments may, at the discretion of the Plan Administrator and subject to the approval of the Participant or, following his death, of his Spouse, may be paid in a lump sum or installments calculated in accordance with the Company’s policy.
     (b) Notwithstanding paragraph (a), Retirement Benefits that do not exceed a specified amount may be paid in a lump sum or installments without the Participant’s consent, which amount shall be determined by the Plan Administrator from time to time in a manner that is consistent with practice under the Registered Pension Plans.
     (c) Except as otherwise provided herein, the Retirement Benefits provided under this Plan shall not be capable of surrender or commutation.
      4.12 Service Outside Canada . In the event that a Participant’s employment includes periods of service with the Employer in Canada (“Canadian Service”) and periods of service in another country with any affiliated company, any subsidiary or associated company of the

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Company (“Non Canadian Service”), for the determination of the Participant’s Retirement Benefits hereunder, the following provisions shall apply:
     (a) The Participant’s Credited Service shall include his periods of Non Canadian Services during which he continued to accrue credited service under the Registered Pension Plan plus any other period of Non Canadian Service through the Final Accrual Date as approved by the Company.
     (b) For purposes of calculating the Participant’s Average Pensionable Earnings, the Participant’s Earnings and Incentive Award for his Non Canadian Service shall be established in accordance with the administrative policies and practices of the Company.
      4.13 Conditions for Payment .
     (a) Notwithstanding anything herein contained to the contrary, for Participants who are Grade 40 or above upon their date of termination of employment, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or during a period of 12 months following his termination of employment or retirement, the Participant, directly or indirectly, without the consent of AbitibiBowater Inc.:
     (i) engages in or becomes interested, whether on his own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, partner, principal, agent, advisor, financial backer, shareholder (except as a passive investor in a public company), or in any other capacity whatsoever, in a North American business which may fairly be regarded as being in competition with the Business of AbitibiBowater (as defined below); or
     (ii) assists financially or in any manner whatsoever any person, firm, association or company, whether as principal, agent, officer, employee, manager, advisor, financial backer, shareholder (except as a passive investor in a public company), or in any capacity whatsoever to enter into, develop, carry on or maintain a North American business which may fairly be regarded as being in competition with the Business of AbitibiBowater.
For the purposes of this Plan, “Business of AbitibiBowater” means the manufacture, sale and/or dealing in newsprint, commercial printing papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by AbitibiBowater or by any of its subsidiaries and affiliates in the context of the above described activities as of the date of the Participant’s termination of employment.
     (b) Notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or at any time thereafter, the Participant discloses any trade secrets or other Confidential Information (as defined below) with regard to the Business of AbitibiBowater at any time, directly or indirectly, to any third party or otherwise use such Confidential Information for his or their own benefit or the benefit of others for a period of 5

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years following the date of the Participant’s termination of employment. “Confidential Information” means all valuable and/or proprietary information in any form belonging to or pertaining to AbitibiBowater and its subsidiaries, affiliates, customers and vendors, that would be useful to AbitibiBowater’s competitors or otherwise damaging to AbitibiBowater (or its subsidiaries or affiliates) if disclosed. Confidential Information may include, but is not necessarily limited to: (i) the identity of AbitibiBowater’s (or subsidiaries or affiliates) customers or potential customers, their purchasing histories, and the terms or proposed terms upon which it or they offer or may offer its products and services to such customers, (ii) the identity of any of AbitibiBowater’s or its subsidiaries’ or affiliates’ vendors or potential vendors, and the terms or proposed terms upon which it or they may purchase products and services from such vendors, (iii) technology and methods used their products and services or planned products and services, (iv) the terms and conditions upon which AbitibiBowater (or its subsidiaries and affiliates) employs its employees and contracts with independent contractors, (v) marketing and/or business plans and strategies, and (vi) financial reports and analyses regarding AbitibiBowater’s revenues, expenses, profitability and operations. However, Confidential Information does not include information which is or becomes generally available to the public other than as a result of disclosure by the Participant.
     (c) Notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or for a period of 12 months following the date of the Participant’s termination of employment, except with the Company’s prior written consent, the Participant, on his own or in conjunction with or on behalf of any other person, directly or indirectly, solicits, assists in soliciting, accepts, or facilitates the acceptance of business (which may fairly be regarded as being in competition with the Business of AbitibiBowater) of any person (i) to whom AbitibiBowater or its subsidiaries or affiliates has supplied goods or services at any time prior to the date of termination of employment or (ii) with whom AbitibiBowater or its subsidiaries or affiliates has had any negotiations or discussions regarding the possible supply of goods or services prior to the date of termination of employment.
     (d) Further, notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or at any time thereafter the Participant, directly or indirectly, disparages, defames or speaks negatively about AbitibiBowater or any of its subsidiaries, affiliates, customers or related entities, or its products and services, or if the Participant disparages, subverts, discloses or discusses any detail or aspect of the professional careers or personal lives of any director, officer or employee of AbitibiBowater or its subsidiaries or affiliates for any reason whatsoever, except as may be required by law.
      4.14 Right of Offset . The Company and any Employer shall have the right to offset any amounts payable to a Participant under the Plan to reimburse the Company, or any of its subsidiaries or affiliates, for liabilities or obligations of the Participant to the Company or such subsidiary or affiliate, including any amounts misappropriated by the Participant.

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      4.15 Taxes; Compliance with §409A .
     (a) All Retirement Benefits under this Plan are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to the Income Tax Act (Canada) and any other applicable law.
     (b) In the case of a Participant who is a citizen or resident of the United States for federal income tax purposes (a “US Taxpayer”) during any year in which he has a vested right to a Retirement Benefit under this Plan, the provisions of this Section 4.15(b) shall apply for purposes of satisfying §409A of the United States Internal Revenue Code (“§409A”).
     (i) For purposes of this Section 4.15(b), a “§409A Benefit” shall mean any Retirement Benefit payable to a US Taxpayer except to the extent such Retirement Benefit (A) was accrued and vested on December 31, 2004, under the Prior Plan (and was not materially modified after October 3, 2004), (B) if paid to the Participant in the year in which the Retirement Benefit vested, would have been excluded from his taxable income under any of the provisions listed in Treasury Regulation §1.409A-1(b)(8)(ii), or (C) is otherwise determined by the Plan Administrator to not be subject to §409A. If only a portion of the Participant’s Retirement Benefit constitutes a §409A Benefit, the remaining portion of his Retirement Benefit shall be paid in accordance with the terms of the Plan without regard to this Section 4.15(b).
     (ii) The §409A Benefit of a Participant who terminates employment prior to his Normal Retirement Date shall commence on the first day of the month following his termination of employment in accordance with Section 4.5 if he had attained the age of 55 and completed at least two years of Continuous Service on the date of termination, and otherwise shall commence on the first day of the month following the later of his fifty-fifth birthday or date of termination in accordance with Section 4.9. The Participant shall not be eligible to elect any other commencement date. If as a result of this Section 4.15(b)(ii) payment commences on a date other than the date on which payment of his Registered Pension Plan benefit commences, the amount of his benefit shall be calculated as if payment of the Registered Pension Plan had commenced on the same date.
     (iii) A Participant may elect payment of his §409A Benefit in an optional form pursuant to Section 4.7(c) only if the optional form is an actuarially equivalent life annuity as defined in Treasury Regulation §1.409A-2(b)(2)(ii).
     (iv) In the case of a pre-retirement death benefit payable pursuant to Section 4.8, to the extent such death benefit is based on a §409A Benefit, the following rules shall apply:
  (A)   if the benefit is payable to the Participant’s surviving Spouse (or if subparagraph (C) applies), such benefit shall be paid as an annuity if the Participant had attained the age of 55 prior to his death, and otherwise shall be paid in a lump sum, regardless of whether it is paid pursuant to Section 4.8(a) or 4.8(b);

21


 

  (B)   if the individual receiving the benefit was the Participant’s Spouse for less than one year on the date of the Participant’s death, any benefit that would otherwise be payable to his surviving Spouse as an annuity shall be paid in a lump sum; and
 
  (C)   if the Participant’s Spouse stopped being the Participant’s Spouse less than one year before the Participant’s death, the benefit that would otherwise have been paid in a lump sum to the Participant’s estate shall be paid in a life annuity to the person who is the residuary legatee of the Participant’s estate.
     (v) A §409A Benefit shall be commutated and paid in a lump sum (but not installments) only if all §409A Benefits payable to the Participant under nonqualified defined benefit plans maintained by the Company and any member of its controlled group (as defined in Treasury Regulation §1.409A-1(g)) are simultaneously paid in a lump sum, the total amount so paid does not exceed the limit then in effect under §402(g)(1)(B) of the Internal Revenue Code, and the payment otherwise satisfies the requirements of Treasury Regulation §1.409A-3(j)(4)(v).
     (vi) Whenever any payment is conditioned upon a termination of employment, the term “termination of employment” (or any variation) shall be interpreted to mean a separation from service as defined in §409A. If a Participant incurs a termination of employment that does not constitute a separation from service, payment of the Participant’s §409A Benefit shall be deferred until the Participant incurs a separation from service (or six months thereafter if Section 4.15(b)(viii) applies).
     (vii) If on the date on which a Participant incurs a separation from service the Participant is a “specified employee” as defined in §409A, payment of any §409A Benefit that becomes payable by reason of such separation from service shall commence not earlier than the first day of the seventh month following the month in which the separation from service occurs, and any §409A Benefit payments that would otherwise have been paid prior to such date shall be accumulated and paid on such date, without interest or other adjustment.
     (viii) The Plan Administrator shall use its best efforts to interpret and administer the Plan in accordance with §409A to the extent applicable, and to the maximum extent permitted by law the applicable provisions of §409A shall be deemed incorporated herein and shall control over any contrary provision of the Plan. Notwithstanding the foregoing, in no event shall the Company, any Employer, or any other person have any liability to any Participant by reason of any penalty or additional tax that may be imposed on such Participant by reason of §409A.

22


 

ARTICLE 5
PLAN ADMINISTRATION
      5.1 Plan Administration and Interpretation . The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, Beneficiary, deceased Participant or other person having or claiming to have any interest under the Plan. Benefits under the Plan shall be paid only if the Plan Administrator decides in its discretion that the Eligible Employee, Participant or Beneficiary is entitled to them. Notwithstanding any other provision of the Plan to the contrary, the Plan Administrator shall have complete discretion to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual serving as Plan Administrator who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by a Participant, a Beneficiary, the Company, the Employer or a trustee (if any).
      5.2 Powers, Duties, Procedures . The Plan Administrator shall have such powers and duties, may adopt such rules, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties and shall follow such claims and appeal procedures with respect to the Plan (subject to the requirements of Section 5.5) as the Plan Administrator may establish. The Plan Administrator or individuals acting on its behalf shall receive reimbursement for any reasonable business expense incurred in the performance of the foregoing duties.
      5.3 Information . To enable the Plan Administrator to perform its functions, the Company and Employer shall supply full and timely information to the Plan Administrator on all matters relating to the compensation of Participants, their employment, retirement, death, termination or employment, Disability, and such other pertinent facts as the Plan Administrator may require. Any Participant or Spouse entitled to benefits hereunder shall, upon request, furnish proof of age satisfactory to the Plan Administrator. In the case that the age of the Participant or his Spouse is found to be inexact, the Plan Administrator is authorized to adjust benefits.
      5.4 Indemnification of Plan Administrator . The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer or employee who serves as Plan Administrator (including any such individual who will have served as Plan Administrator of the Plan) against all liabilities, damages, costs and expenses (including reasonable attorneys’ fees and amounts paid in settlement of any claims approved by the Company in writing in advance) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.
      5.5 Claims Procedure . A Participant or Beneficiary shall have the right to file a claim, inquire if he has any right to benefits and the amounts thereof or appeal the denial of a claim.

23


 

     (a)  Initial Claim . A claim shall be considered as having been filed when a written communication is made by the Participant, Beneficiary or his authorized representative to the attention of the Plan Administrator (the “claimant”). The Plan Administrator shall notify the claimant in writing within 90 days after receipt of the claim if the claim is wholly or partially denied. If an extension of time beyond the initial 90-day period for processing the claim is required, written notice of the extension shall be provided to the claimant before the expiration of the initial 90-day period. In no event shall the period, as extended, exceed 180 days. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render a final decision. Written claims for benefit payments must be made within twelve months of the later of the Participant’s retirement or termination of employment for any reason or the Effective Date of the Plan. A claim shall be considered untimely filed and denied if received more than twelve months from such later date.
     (b)  Content of Denial . Notice of a wholly or partially denied claim for benefits shall be in writing in a manner calculated to be understood by the claimant and shall include:
     (i) the reason or reasons for denial;
     (ii) specific reference to the Plan provisions on which the denial is based;
     (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
     (iv) an explanation of the Plan’s claim appeal procedure.
     (c)  Right to Review . If a claim is wholly or partially denied, the claimant may file an appeal requesting the Plan Administrator to conduct a full and fair review of his claim. An appeal must be made in writing no more than 60 days after the claimant receives written notice of the denial. The claimant may review or receive copies, upon request and free of charge, any documents, records or other information determined by the Plan Administrator to be relevant to the claimant’s claim. The claimant may also submit written comments, documents, records and other information relating to his claim. The Plan Administrator shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim. The decision of the Plan Administrator regarding the appeal shall be given to the claimant in writing no later than 60 days following receipt of the appeal. However, if the Plan Administrator, in its sole discretion, grants a hearing, or there are special circumstances involved, the decision shall be given no later than 120 days after receiving the appeal. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant before the commencement of the extension. The decision shall be written in a manner calculated to be understood by the claimant and include:
     (i) specific reasons for the decision;
     (ii) specific references to the pertinent Plan provisions on which the decision is based; and

24


 

     (iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records or other information relevant to the claimant’s claim.
     (d)  Form of Notice and Decision . Any notice or decision by the Plan Administrator under this Section may be furnished electronically.
     (e)  Exhaustion of Administrative Remedy . Notwithstanding any provision in the Plan to the contrary, no employee, Participant or Beneficiary may bring any legal or administrative claim or cause of action against the Plan, the Plan Administrator or the Employer in court or any other venue until the employee, Participant or Beneficiary has exhausted its administrative remedies under this Section.
     (f)  Statute of Limitations . Notwithstanding any provision in the Plan to the contrary, a Participant, Spouse or other Beneficiary must file any written claim for benefits with the Plan Administrator within one year from the date on which the Participant, Spouse or other Beneficiary knows, or with the exercise of reasonable diligence would know, of the basis for the claim, but, in the case of a claim based upon an alleged error in the amount of benefits, in no event later than one year from the date on which the first allegedly mistaken payment is made. Any written claim submitted to the Plan Administrator after such date shall be void and denied as untimely. Further, in order for a claimant to initiate any action for any benefit under the Plan before any court or before any administrative agency or quasi-judicial tribunal, such claimant must have first filed a claim for such benefit and requested review of any adverse decision on such claim in accordance with this Section and any procedures established by the Plan Administrator pursuant to this Section. Any such action must be initiated not more than 180 days after receipt of an adverse claim decision on review, except as otherwise required by applicable law.
     (g)  Suspension of Payment . If the Plan Administrator is in doubt concerning the entitlement of any person to any payment claimed under the Plan, the Employer may suspend payment until satisfied as to the person’s entitlement to the payment. Notwithstanding the foregoing, no Participant or Beneficiary may bring a claim for Plan benefits to arbitration, court or through any other legal action or process until the administrative claims process of this Section has been exhausted.

25


 

ARTICLE 6
AMENDMENT AND TERMINATION
      6.1 Authority to Amend and Terminate .
     (a) The Plan reserves to the Plan Administrator the right to amend or terminate the Plan at any time, without notice, subject to Section 6.2. Any amendment or termination of the Plan shall be effected by resolution of the Plan Administrator or its authorized delegate. Except as provided in paragraph (b), retirement benefits shall continue to be paid under the Plan as such amounts would otherwise have been distributed in accordance with the terms of the Plan.
     (b) Upon termination of the Plan, the following provisions shall apply:
     (i) an Active Participant who has reached 55 years of age shall be deemed, for the purpose of this Plan, to have retired on the date of termination of the Plan (the “Termination Date”), and shall be entitled to Retirement Benefits determined in accordance with Section 4.4 or 4.5, as the case may be;
     (ii) an Active Participant who has not yet reached age 55 shall be deemed, for the purpose of this Plan, to have terminated his employment on the Termination Date as a result of an Employer initiated termination of employment and shall be entitled to Retirement Benefits determined in accordance with Section 4.9(b);
     (iii) the Retirement Benefits to which a Participant is entitled to, or deemed to be entitled to, under clause (i) or (ii), as the case may be, shall be paid in a lump sum amount equal to the Actuarial Equivalent Value of such Retirement Benefits; and
     (iv) the obligations of the Participant pursuant to Section 4.13 shall be waived as of the Termination Date.
      6.2 Existing Rights . No amendment or termination of the Plan shall materially adversely affect the rights of any Participant with respect to retirement benefits payable under the Plan in accordance with the Reorganization Plan. Notwithstanding the foregoing, the Plan Administrator may amend the Plan as necessary to address changes in applicable law.

26


 

ARTICLE 7
MISCELLANEOUS
      7.1 Funding . As provided in the Reorganization Plan, Retirement Benefits under the Plan shall not be funded or secured by a trust fund, letter of credit, or any other method, notwithstanding the practice under the Prior Plan. The Company or Employer may in the future, but shall in no event be required to, secure Retirement Benefits, except for Participants who have elected in writing to be excluded for tax purpose. The full cost of the Retirement Benefits shall be paid by the Employer or the Company, and no contributions shall be required from a Participant.
      7.2 General Creditor Status . The Plan constitutes a mere promise by the Company and an Active Participant’s respective Employer to make payments in accordance with the terms of the Plan and Participants and Beneficiaries shall have the status of general unsecured creditors solely of the Employer employing the Participant. An Active Participant’s Employer shall be principally liable for payment of the Active Participant’s Retirement Benefits under the Plan, and AbitibiBowater Inc. shall be secondarily liable for payment. AbiBow Canada Inc. shall be principally liable for payment of the Retirement Benefits for Deferred Vested Participants and Legacy Participants, and AbitibiBowater Inc. shall be secondarily liable for payment. Nothing in the Plan shall be construed to give any employee or any other person rights to any specific assets of the Employer, the Company or of any other person.
      7.3 No Assignment . Plan benefits, payments or proceeds shall not be subject to any claim of any creditor of any Participant or Beneficiary and shall not be subject to attachment or garnishment or other legal process. Retirement benefits payable may not be assigned, pledged or encumbered in any manner, and any attempt to do so shall be void. Notwithstanding the above, a Participant, Spouse or Beneficiary can waive his entitlement under this Plan, and Retirement Benefits are subject to offset as provided in Section 4.13.
      7.4 Notices and Communications . All notices, statements, reports and other communications from the Plan Administrator to any employee, Participant, Beneficiary or other person required or permitted under the Plan shall be deemed to have been duly given when personally delivered to, when transmitted via facsimile or other electronic media or when mailed overnight or by first-class mail, postage prepaid and addressed to, such employee, Participant, Beneficiary or other person at his last known address on the Employer’s or Company’s records. All elections, designations, requests, notices, instructions and other communications from a Participant, Beneficiary or other person to the Plan Administrator required or permitted under the Plan shall be in such form as is prescribed from time to time by the Plan Administrator, and shall be mailed by first-class mail, transmitted via facsimile or other electronic media or delivered to such location as shall be specified by the Plan Administrator. Such communication shall be deemed to have been given and delivered only upon actual receipt by the Plan Administrator at such location.
      7.5 Limitation of Participant’s Rights . Nothing contained in the Plan shall confer upon any person a right to be employed or to continue in the employ of the Employer, or to interfere, in any way, either with the Employer’s right to terminate the employment of an

27


 

Eligible Employee at any time, with or without cause, or to modify the compensation or benefits of any Eligible Employee.
      7.6 Participants Bound . Any action with respect to the Plan taken by the Plan Administrator or a trustee (if any) or any action authorized by or taken at the direction of the Plan Administrator, the Employer or a trustee (if any) shall be conclusive upon all Participants and Beneficiaries entitled to benefits under the Plan.
      7.7 Receipt and Release . Any payment to any Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Employer, the Plan Administrator and a trustee (if any) under the Plan, and the Plan Administrator may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or Beneficiary is determined by the Plan Administrator to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Plan Administrator may cause the payment or payments becoming due to such person to be made to another person for his benefit without responsibility on the part of the Plan Administrator, the Employer or a trustee (if any) to follow the application of such funds.
      7.8 Governing Law and Severability . The Plan shall be construed, administered and governed in all respects under and by the Province of Quebec. If any provision is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.
      7.9 Headings . Headings and subheading in the Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.
* * *
IN WITNESS WHEREOF , the undersigned officer of AbitibiBowater Inc. has executed this document pursuant to Resolutions adopted by AbitibiBowater Inc. on December 9, 2010.
         
  ABITIBIBOWATER INC.
 
 
  By:   /s/ Richard Garneau    
    Richard Garneau; President   
    and Chief Executive Officer   

28


 

Appendix A

Additional Service
                         
    Additional Years of Service    
Participants   Continuous Service   Credited Service   Vesting Date
Gilbert Demers
          14.21     July 1, 2002
 
                       
Christian Gélinas
          4.97     July 1, 2002
 
                       
Yves Laflamme
          17.10     July 1, 2002
 
                       
André Piché
          9.70     July 1, 2002
 
                       
Pierre Rougeau
    5.00       5.00     September 4, 2009 (1)(2)
 
(1)   Gradual Vesting of one year for each year of employment. Vesting date represents date from which additional years of service will be fully vested.
 
(2)   For purposes of gradual vesting, years of employment are only counted from September 4, 2004 and onward.

29


 

Appendix B
Executive Employee who held an MSBA and elected to convert his defined benefit
entitlement under the prior Abitibi-Price Inc. Registered Pension Plan to a defined
contribution entitlement on January 1, 1996
Allen Dea
Alain Grandmont

30


 

EXHIBIT A
     The following individuals are former employees of the Employer and Beneficiaries of deceased employees on the Effective Date who satisfy the requirements of Section 3.1.

31


 

EXHIBIT B
     The following individuals are active employees of the Employer on the Effective Date who satisfy the requirements of Section 3.1.

32

EXHIBIT 10.5
AbitibiBowater
2010 DC Supplemental Executive Retirement Plan
Effective December 9, 2010

 


 

TABLE OF CONTENTS
         
    Page
Article 1 INTRODUCTION
    1  
 
       
1.1 Plan Introduction
    1  
1.2 Plan Purpose
    1  
1.3 409A Compliance and ERISA
    1  
 
       
Article 2 DEFINITIONS
    2  
 
       
2.1 “Account”
    2  
2.2 “Base Salary”
    2  
2.3 “Beneficiary”
    2  
2.4 “Canadian Participant”
    2  
2.5 “Code”
    2  
2.6 “Company”
    2  
2.7 “Compensation”
    2  
2.8 “Disability” or “Disabled”
    3  
2.9 “Effective Date”
    3  
2.10 “Eligible Canadian Employee”
    3  
2.11 “Eligible Employee”
    3  
2.12 “Eligible U.S. Employee”
    3  
2.13 “Employer”
    3  
2.14 “Employer Contribution”
    3  
2.15 “ERISA”
    3  
2.16 “Excess Canadian Contributions”
    3  
2.17 “Excess U.S. Automatic Company Contribution”
    3  
2.18 “Excess U.S. Contributions”
    3  
2.19 “Excess U.S. Matching Contribution”
    3  
2.20 “Incentive Award”
    4  
2.21 “Interest”
    4  
2.22 “Participant”
    4  
2.23 “Plan”
    4  
2.24 “Plan Administrator”
    4  
2.25 “Plan Year”
    4  
2.26 “Prior Plans”
    4  
2.27 “Reinstated Amounts”
    4  
2.28 “Separation from Service”
    5  
2.29 “Tax Qualified Plan”
    5  
2.30 “U.S. Participant”
    5  
2.31 “Year of Service”
    5  
 
       
Article 3 ELIGIBILITY AND PARTICIPATION
    6  
 
       
3.1 Eligibility for Participation
    6  
3.2 Participation
    6  
3.3 Cessation of Participation
    7  
 
       
Article 4 CONTRIBUTIONS AND DEFERRALS
    7  
 
       
4.1 Reinstated Amounts
    7  
4.2 Excess Canadian Contributions
    8  

i


 

TABLE OF CONTENTS
(continued)
         
    Page
4.3 Excess U.S. Matching Contributions
    8  
4.4 Excess U.S. Automatic Company Contributions
    8  
4.5 Employer Contributions
    8  
4.6 Contributions During Period of Disability
    8  
 
       
Article 5 ACCOUNTS
    9  
 
       
5.1 Accounts
    9  
5.2 Interest
    9  
5.3 Investment
    10  
5.4 Statements
    10  
 
       
Article 6 VESTING
    10  
 
       
6.1 Vesting Schedules
    10  
6.2 Accelerated Vesting
    11  
6.3 Forfeitures
    12  
 
       
Article 7 DISTRIBUTION OF ACCOUNTS
    12  
 
       
7.1 Timing of Distribution
    12  
7.2 Benefits Upon Separation from Service
    12  
7.3 Benefits Upon Death
    13  
7.4 Benefits Upon Disability
    13  
7.5 Right of Offset
    13  
7.6 Taxes
    14  
7.7 Additional Discretion to Accelerate Distribution
    14  
 
       
Article 8 NON-COMPETE AND CONFIDENTIALITY PROVISIONS
    15  
 
       
8.1 Non-Competition
    15  
8.2 Confidentiality
    15  
8.3 Non-Solicitation
    16  
8.4 Non-Disparagement
    16  
 
       
Article 9 PLAN ADMINISTRATION
    16  
 
       
9.1 Plan Administration and Interpretation
    16  
9.2 Powers, Duties, Procedures
    17  
9.3 Information
    17  
9.4 Indemnification of Plan Administrator
    17  
9.5 Claims Procedure
    17  
 
       
Article 10 AMENDMENT AND TERMINATION
    19  
 
       
10.1 Authority to Amend and Terminate
    19  
10.2 Existing Rights
    19  
 
       
Article 11 MISCELLANEOUS
    20  
 
       
11.1 No Funding
    20  
11.2 General Creditor Status
    20  
11.3 No Assignment
    20  
11.4 Notices and Communications
    20  
11.5 Limitation of Participant’s Rights
    20  
11.6 Participants Bound
    20  

ii


 

TABLE OF CONTENTS
(continued)
         
    Page
11.7 Receipt and Release
    21  
11.8 Governing Law and Severability
    21  
11.9 Currency
    21  
11.10 Headings
    21  

iii


 

AbitibiBowater
2010 DC Supplemental Executive Retirement Plan
Effective December 9, 2010
ARTICLE 1
INTRODUCTION
      1.1 Plan Introduction .
     (a) In April 2009, AbitibiBowater Inc. (the “Company”) and its U.S. and Canadian subsidiaries (the “AbitibiBowater Entities”) filed voluntary petitions seeking relief pursuant to Chapter 11 of the United States Bankruptcy Code and/or applied for protection from their creditors under Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C36, as amended (collectively, the “Creditor Protection Proceedings”). The Company and/or certain of its subsidiaries later filed proposed plans of reorganization in the Creditor Protection Proceedings (collectively, the “Reorganization Plan”). The Reorganization Plan was approved by the creditors of the AbitibiBowater Entities and the Canadian and U.S. courts. As a result, the AbitibiBowater Entities have emerged from the Creditor Protection Proceedings on December 9, 2010 (the “Emergence”).
     (b) Pursuant to the Reorganization Plan, each of the Prior Plans was terminated coincident with Emergence. On December 9, 2010, the Company adopted and established the AbitibiBowater 2010 DC Supplemental Executive Retirement Plan (the “Plan”), as may be amended from time to time. Further and pursuant to the Reorganization Plan, the Plan reinstates certain benefits on behalf of certain eligible Canadian and U.S. employees and former employees of the Employer, and their Beneficiaries, if any, if the requirements of Section 3.1(a) are met. The reinstated benefits are substantially similar to the retirement benefits eliminated with the termination of the Prior Plans, subject to reductions and limitations as set forth in the Reorganization Plan and incorporated herein.
      1.2 Plan Purpose . The purpose of the Plan is to provide certain eligible employees of the Employer with an enhanced retirement benefit that supplements the retirement benefits provided to such eligible employees under the Canadian registered defined contribution plans and U.S. qualified defined contribution plans of the Employer as well as to reinstate a portion of the benefits of the Prior Plan to certain Participants and Beneficiaries, as provided in the Reorganization Plan and described herein. For the avoidance of doubt, no retirement benefits accrued under any plan other than the Prior Plans are reinstated under, or shall be paid pursuant to, this Plan.
      1.3 409A Compliance and ERISA . The portions of the Plan governing Participants who are subject to Section 409A of the Internal Revenue Code of 1986 and any regulations issued thereunder (the “Code”) are intended to comply with the provisions of Code Section 409A with respect to all amounts credited to and deferred under the Plan on behalf of such Participants on and after the Effective Date. The Plan shall be interpreted, administered and operated as necessary to comply with the requirements of Code Section 409A and applicable Treasury Regulations. The Company reserves the right to amend or modify the Plan in order to comply with regulations promulgated by the Department of Treasury under Code Section 409A. In

 


 

addition, for purposes of coverage by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Plan is an unfunded plan maintained by the Company primarily for the purpose of providing deferred compensation for highly compensated employees and a select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of ERISA.
ARTICLE 2
DEFINITIONS
     Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:
      2.1 “Account” means a notional account established for the benefit of a Participant under Section 5.1, which may include one or more sub-accounts.
      2.2 “Base Salary” means the annual base salary paid by the Employer to an Eligible Employee for services performed during any Plan Year (for an Eligible U.S. Employee, this includes any amounts deducted from his annual base salary and contributed to the Tax Qualified Plan or any other plan maintained by the Employer permitting pre-tax contributions). Base Salary does not include income from stock option exercises, restricted stock or restricted stock units, other equity awards, the Eligible Employee’s Incentive Award or any other type of incentive award or payments, contributions to group insurance and other employee benefit plans maintained by the Employer, or any severance received as salary continuation.
      2.3 “Beneficiary” means the individual or entity designated as the Participant’s Beneficiary under the Tax Qualified Plan. If there is no Beneficiary designated under the Tax Qualified Plan, then the rules under such plan shall control for determining the Participant’s Beneficiary for purposes of the Plan.
      2.4 “Canadian Participant” means a current or former Eligible Canadian Employee who participates in the Plan in accordance with Article 3 and for whom an Account balance is maintained hereunder.
      2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations and rulings issued thereunder. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces that section or subsection.
      2.6 “Company” means AbitibiBowater Inc., a Delaware corporation, or any successor corporation thereto.
      2.7 Compensation ”means the Base Salary plus Incentive Award of a Participant for a Plan Year, provided that, when determining any Excess U.S. Automatic Company Contributions and Excess U.S. Matching Contributions to be credited on behalf of a U.S. Participant, Compensation means compensation as defined under the Tax Qualified Plan, without regard to the application of the limitation under Code Section 401(a)(17).

2


 

      2.8 Disability ” or “Disabled”
     (a) with respect to a U.S. Participant, that the U.S. Participant is determined totally disabled by the Social Security Administration.
     (b) with respect to a Canadian Participant, that the Canadian Participant is entitled to benefits under a short-term or long-term disability plan of the Employer.
      2.9 “Effective Date” means December 9, 2010, the date of Emergence.
      2.10 “Eligible Canadian Employee” means an employee of the Employer on the Canadian payroll who is an eligible employee within the meaning of the Tax Qualified Plan.
      2.11 “Eligible Employee” means an Eligible Canadian Employee and an Eligible U.S. Employee.
      2.12 “Eligible U.S. Employee” means an employee of the Employer on the U.S. payroll who is (i) an eligible employee within the meaning of the Tax Qualified Plan and (ii) a member of a select group of management or highly compensated employees within the meaning of ERISA. In addition, any employee of the Employer who is on the Canadian payroll, but is otherwise subject to Code Section 409A, shall be treated as an Eligible U.S. Employee for purposes of applying the Plan provisions required by Code Section 409A, which primarily include the provisions relating to the time and form of payment.
      2.13 “Employer” means the Company and each other entity affiliated with the Company that is a participating employer under the Tax Qualified Plan.
      2.14 “Employer Contribution” means an Employer contribution equal to a specified percentage of a Participant’s Compensation, as described in Section 4.5.
      2.15 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and rulings issued thereunder.
      2.16 “Excess Canadian Contributions” means an Employer contribution credited to a Canadian Participant’s Account under Section 4.2 that, when added to the amount contributed on the Canadian Participant’s behalf under the Tax Qualified Plan as a company contribution for a Plan Year, is equal to 10.5% of Compensation for such Plan Year.
      2.17 “Excess U.S. Automatic Company Contribution” means an Employer contribution credited to a U.S. Participant’s Account under Section 4.4 that, when added to the amount contributed on the U.S. Participant’s behalf under the Tax Qualified Plan as an automatic company contribution for a Plan Year, is equal to 6.5% of Compensation for such Plan Year.
      2.18 “Excess U.S. Contributions” means Employer contributions that are Excess U.S. Matching Contributions and/or Excess U.S. Automatic Company Contributions.
      2.19 “Excess U.S. Matching Contribution” means an Employer contribution credited to a U.S. Participant’s Account under Section 4.3 that would have been contributed to the U.S.

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Participant’s account as a matching contribution under the Tax Qualified Plan pursuant to its terms, but which could not be contributed due to the application of Code limitations.
      2.20 “Incentive Award” means the incentive award paid to a Participant under the Employer’s regular incentive plans or programs adopted by the Company from time to time or the incentive award paid under the 2010 Short Term Incentive Plan while employed with an Employer, regardless of whether a Participant is eligible for and exercises any right to defer an Incentive Award under any plan or program of the Company. Incentive Award does not include any other cash incentive, non-recurring (including any restructuring awards under the Emergence Recognition Plan) or multi-year incentive award, unless authorized by the Plan Administrator.
      2.21 “Interest” means the rate at which interest is credited to the Account of a Canadian Participant under Section 5.2.
      2.22 “Participant” means a Canadian Participant or U.S. Participant.
      2.23 “Plan” means the AbitibiBowater 2010 DC Supplemental Executive Retirement Plan, as provided herein and as may be amended from time to time.
      2.24 “Plan Administrator” means the Human Resources and Compensation/ Nominating and Governance Committee of the Board (the “HRC/NG Committee”) or its delegate.
      2.25 “Plan Year” means the calendar year.
      2.26 “Prior Plans” means each of the following nonqualified supplemental defined contribution plans or programs:
     (a) Canadian Defined Contribution Retirement Program for Executive Employees of AbitibiBowater, sponsored by AbitibiBowater Inc;
     (b) Supplemental Defined Contribution Benefit Plan (2003) for Employees of Bowater Canadian Forest Products Inc. and Bowater Mersey Paper Company Limited, sponsored by Bowater Canadian Forest Products Inc. with respect to its employees. For the avoidance of doubt, the portion of this plan as sponsored by Bowater Mersey Paper Company Limited with respect to its employees is not a Prior Plan; and
     (c) AbitibiBowater Inc. Supplemental Retirement Savings Plan, sponsored by AbitibiBowater Inc.
      2.27 “Reinstated Amounts” means, for an individual described in Section 3.1(a) who becomes a Participant, the amount of the Participant’s account balance under the Prior Plan as of the date on which the Prior Plan terminated, reduced as provided by the Reorganization Plan for individuals who are former employees of the Employers or Beneficiaries as of the Effective Date.

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      2.28 Separation from Service ”means:
     (a) For a U.S. Participant, the termination of the Participant’s employment relationship (within the meaning of Code Section 409A and Department of Treasury in regulations promulgated thereunder) with the Company and all related entities of the Company and any other service relationship defined in such regulations, other than by reason of death. For purposes of the foregoing, whether an entity is related with the Company shall be determined pursuant to the controlled group rules of Code Section 414, as modified by Code Section 409A. Notwithstanding the foregoing, the Participant’s employment relationship with the Company and all related entities of the Company is treated as continuing intact while the individual is on a military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six months (or longer, if required by statute or contract). If the period of the leave exceeds six months and the Participant’s right to reemployment is not provided either by statute or contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period for purposes of Code Section 409A only.
     (b) For a Canadian Participant, the termination of the Participant’s employment relationship with the Company and all related entities of the Company and any other service relationship, other than by reason of death. For purposes of the Plan, the Participant’s employment relationship with the Company and all related entities of the Company is treated as continuing intact while the individual is on a military leave, sick leave or other bona fide leave of absence, including any period of Disability.
      2.29 “Tax Qualified Plan” means as follows and as the context requires:
     (a) with respect to a Canadian Participant, the Defined Contribution Pension Plan for Non-Unionized Employees of Abitibi-Consolidated Inc., effective as of January 1, 2002, as amended from time to time or the DC Retirement Plan (2003) for Non-Unionized Employees of Bowater, effective as of January 1, 2003, as amended from time to time, or any successor plan or plans;
     (b) with respect to a U.S. Participant, the AbitibiBowater Inc. Retirement Savings Plan, as amended and restated effective as of January 1, 2007, and as further amended from time to time, which plan was renamed the AbiBow US Savings Plan, effective December 9, 2010 and further amended and restated January 1, 2011.
      2.30 “U.S. Participant” means a current or former Eligible U.S. Employee who participates in the Plan in accordance with Article 3 and for whom an Account balance is maintained hereunder.
      2.31 “Year of Service” means a Participant’s year of service with the Employer within the meaning of the Tax Qualified Plan.

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ARTICLE 3
ELIGIBILITY AND PARTICIPATION
      3.1 Eligibility for Participation .
     (a) An employee or former employee of the Employer or Beneficiary of a deceased former employee shall be eligible to participate in the Plan and have his Reinstated Amount recognized under the Plan if such individual:
     (i) had an account balance under one or more of the Prior Plans as of the date on which the Prior Plans terminated, which balance was not paid under the Prior Plan before its termination; and
     (ii) waived and forfeited any and all claims he had or may have had in the Creditor Protection Proceedings in respect of the Prior Plan or any other Terminated Retirement Plan as defined in the Reorganization Plan.
     (b) An Eligible Canadian Employee shall be eligible to participate in the Plan and have Excess Canadian Contributions credited on his behalf under Section 4.2 if the Eligible Canadian Employee is employed by the Employer in Salary Grade 29 or higher.
     (c) An Eligible U.S. Employee shall be eligible to participate in the Plan and have Excess U.S. Contributions credited on his behalf under Sections 4.3 and 4.4 if the Eligible U.S. Employee is employed by the Employer in Salary Grade 29 or higher.
     (d) An Eligible Employee shall be eligible to participate in the Plan and have Employer Contributions credited on his behalf under Section 4.5 if the Eligible Employee:
     (i) is the Chief Executive Officer of the Company, or
     (ii) is employed by the Employer in Salary Grade 43 or higher and directly reports to the Chief Executive Officer of the Company.
      3.2 Participation .
     (a) An individual described in Section 3.1(a) shall become a Participant in the Plan on the Effective Date and have his Reinstated Amount recognized pursuant to the Plan. Exhibit A identifies the Participants who are active employees of an Employer on the Effective Date, and Exhibit B identifies the former employees of an Employer and Beneficiaries who met the requirements of Section 3.1(a) as of the Effective Date.
     (b) An Eligible Canadian Employee described in Section 3.1(b) shall participate in the Plan and have Excess Canadian Contributions credited on his behalf under Section 4.2 for any Plan Year (or portion thereof) during which he meets the requirements of Section 3.1(b).
     (c) An Eligible U.S. Employee described in Section 3.1(c) shall participate in the Plan and have Excess U.S. Contributions credited on his behalf under Sections 4.3 and 4.4 for any Plan Year (or portion thereof) during which he meets the requirements of Section 3.1(c).

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     (d) An Eligible Employee described in Section 3.1(d) shall participate in the Plan and have Employer Contributions credited on his behalf under Section 4.5 for any Plan Year (or portion thereof) during which he meets the requirements of Section 3.1(d).
      3.3 Cessation of Participation .
     (a) Each Participant shall cease to be eligible for Excess Canadian Contributions, Excess U.S. Contributions and/or Employer Contributions, as applicable, for any Plan Year (or portion thereof) for which the Participant fails to meet the applicable requirements of Section 3.1. Such Participant shall remain an inactive participant in the Plan until his Account has been paid in full in accordance with Article 7.
     (b) Each Participant shall cease to be an active participant in the Plan upon his Separation from Service. No Excess U.S. Contributions, Excess Canadian Contributions or Employer Contributions, as applicable, shall be made to the Plan with respect to Base Salary or Incentive Award paid to the Participant after such Separation from Service. Upon Separation from Service, each Participant shall remain an inactive participant in the Plan until his Account has been paid in full in accordance with Article 7. In addition, a U.S. Participant who incurs a Disability shall become an inactive participant in the Plan and remain an inactive participant until his Account has been paid in full in accordance with Article 7.
ARTICLE 4
CONTRIBUTIONS AND DEFERRALS
      4.1 Reinstated Amounts .
     (a) A former employee of an Employer as of the Effective Date who becomes a Participant pursuant to Section 3.2(a) shall receive payment of his Reinstated Amount as provided in Article 7. The reduction applied pursuant to the Reorganization Plan to determine the Reinstated Amount for such former employee is as follows:
     (i) For U.S. Participants, the Reinstated Amount is 65% of the U.S. Participant’s account balance under the Prior Plan as of the date the Prior Plan terminated.
     (ii) For Canadian Participants, the Reinstated Amount is 90% of the Canadian Participant’s account balance under the Prior Plan as of the date the Prior Plan terminated.
     For clarification, before applying the reduction, the Reinstated Amount shall include interest on the Participant’s account balance under the Prior Plan for the period between the former employee’s Separation from Service and the date or dates, as the case may be, on which the account balance (or portion thereof) should have been made, but for the Creditor Protection Proceedings. However, no interest shall be paid, with respect to any benefit payments that were suspended, missed or delayed as a result of the Creditor Protection Proceedings.
     (b) An individual who is employed with an Employer on the Effective Date and who becomes a Participant pursuant to Section 3.2(a) shall have the Reinstated Amount credited to

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his Account as an opening balance. The Reinstated Amount for such employed Participant shall receive Interest or adjustments as provided in Article 5.
      4.2 Excess Canadian Contributions . Each Plan Year, the Employer shall credit Excess Canadian Contributions to the Account of each Eligible Canadian Employee described in Section 3.1(b) in an amount equal to the difference between (i) 10.5% of the Canadian Participant’s Compensation, and (ii) the amount contributed to the Canadian Participant’s account under the Tax Qualified Plan for such Plan Year as a company contribution. The intent of the foregoing is to provide such Eligible Canadian Employee with a total such contribution equal to 10.5% of the Canadian Participant’s Compensation between the Tax Qualified Plan and this Plan.
      4.3 Excess U.S. Matching Contributions . Each Plan Year, the Employer shall credit Excess U.S. Matching Contributions to the Account of each Eligible U.S. Employee described in Section 3.1(c) in an amount that would have been contributed to the U.S. Participant’s account under the Tax Qualified Plan pursuant to its terms, but which could not be contributed to the U.S. Participant’s account in the Tax Qualified Plan due to the application of Code limitations. Excess U.S. Matching Contributions shall be credited for a Plan Year only if the U.S. Participant elected to make salary deferrals under the Tax Qualified Plan for such Plan Year and is receiving a matching contribution thereunder. For such Plan Year, Excess U.S. Matching Contributions shall be credited to the U.S. Participant’s Account after he receives the maximum match to which he could receive under the Tax Qualified Plan based on his salary deferral elections thereunder and subject to such other limitations set forth in the Tax Qualified Plan. In the event that matching contributions are not made available under the Tax Qualified Plan, then no Excess U.S. Matching Contributions shall be credited under the Plan.
      4.4 Excess U.S. Automatic Company Contributions . Each Plan Year, the Employer shall credit Excess U.S. Automatic Company Contributions to the Account of each Eligible U.S. Employee described in Section 3.1(c) in an amount equal to the difference between (i) 6.5% of the U.S. Participant’s Compensation and (ii) the amount contributed to the U.S. Participant’s account under the Tax Qualified Plan for such Plan Year as an automatic company contribution. The intent of the foregoing is to provide such Eligible U.S. Employee with a total such contribution equal to 6.5% of the U.S. Participant’s Compensation between the Tax Qualified Plan and this Plan.
      4.5 Employer Contributions . Each Plan Year, the Employer shall credit Employer Contributions to the Account of each Eligible Employee described in Section 3.1(d) as follows: (i) for the Chief Executive Officer of the Company, in an amount equal to 12% of his Compensation; and (ii) for all other eligible Participants, in an amount equal to 10% of their Compensation.
      4.6 Contributions During Period of Disability .
     (a) With respect to a Canadian Participant who becomes eligible for short-term and/or long-term disability benefits under his Employer’s plan, the Employer shall continue to credit Excess Canadian Contributions and/or Employer Contributions, as applicable, under the Plan on behalf of the Canadian Participant for his period of disability. All such contributions

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shall be based on the Canadian Participant’s Compensation immediately before the Canadian Participant’s entitlement to benefits under the short-term or long-term disability plan.
     (b) With respect to a U.S. Participant who becomes eligible for short-term disability benefits under his Employer’s plan, the Employer shall continue to credit Excess U.S. Contributions and/or Employer Contributions, as applicable, under the Plan on behalf of the U.S. Participant for his period of short-term disability. If such U.S. Participant (i) becomes eligible for long-term disability benefits under his Employer’s plan, (ii) is not Disabled within the meaning of the Plan, (iii) has not incurred a Separation from Service and (iv) continues to be eligible for and receives automatic company contributions under the Tax-Qualified Plan, the Employer shall continue to credit Excess U.S. Automatic Company Contributions under the Plan. All such contributions shall be based on the U.S. Participant’s Compensation immediately before the U.S. Participant’s entitlement to benefits under the short-term or long-term disability plan. If such U.S. Participant becomes (i) eligible for long-term disability benefits, (ii) is not Disabled within the meaning of the Plan, (iii) has not incurred a Separation from Service and (iv) is not eligible for automatic company contributions under the Tax-Qualified Plan, then no further Excess U.S. Automatic Company Contributions shall be credited under the Plan on such Participant’s behalf. In the event the U.S. Participant becomes Disabled or incurs a Separation from Service, then distribution shall be made as described in Article 7, regardless of whether the U.S. Participant continues to be eligible for automatic company contributions under the Tax Qualified Plan.
ARTICLE 5
ACCOUNTS
      5.1 Accounts . An Account shall be established for each Participant to reflect any Reinstated Amounts, Excess U.S. Contributions, Excess Canadian Contributions and Employer Contributions, as applicable, together with any Interest in accordance with Section 5.2 or any adjustments for gains or losses due to investment experience in accordance with Section 5.3, as applicable. Separate sub-accounts may be established for each type of contribution under the Plan. Excess U.S. Contributions, Excess Canadian Contributions and Employer Contributions shall be credited to a Participant’s Account as of the end of each payroll period. Following the close of each Plan Year, the Plan Administrator shall perform an annual reconciliation of each Participant’s Account and make any necessary adjustments to a Participant’s Account. The Accounts are established solely for bookkeeping purposes to track contributions and any income adjustments thereto that are credited on the Participant’s behalf. The Accounts shall not be used to segregate assets for payment of any amounts contributed or allocated under the Plan and no Employer shall be obligated to make any actual contributions to the Accounts or actual investment on behalf of a Participant.
      5.2 Interest . Each Canadian Participant’s Account shall be credited with Interest (i) on the value of the Account as of the end of the prior Plan Year at a rate equal to the average rate of return on the balanced funds offered in the Tax Qualified Plan during the Plan Year and (2) on the Excess Canadian Contributions made during the Plan Year at such rate divided by two, unless the Plan Administrator, in its discretion, determines an alternative rate. For the Plan Year in which the Canadian Participant incurs a Separation from Service, his Account shall be credited with Interest on the value of the Account as of his Separation from Service date at a rate

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equal to the average rate of return on the balanced funds offered in the Tax Qualified Plan for the period beginning on the first day of such Plan Year through his Separation from Service date. U.S. Participants shall not be eligible for Interest under the Plan.
      5.3 Investment . The Plan Administrator shall make available one or more investment funds in which amounts credited to each U.S. Participant’s Account shall be deemed invested, in accordance with the U.S. Participant’s directions. The investment funds shall be the same as those offered under the Tax Qualified Plan, except for any self-directed brokerage option that is or may be made available under the Tax Qualified Plan. The Plan Administrator may offer any other investment options in its discretion. Any such directions shall be effective only in accordance with such rules as the Plan Administrator may establish and applicable federal and state law. If a U.S. Participant does not make investment elections with respect to amounts credited to his Account, such amounts shall be deemed invested in such investment fund as the Plan Administrator may direct. Canadian Participants shall not have investment options under the Plan.
     (a) A U.S. Participant shall make his investment fund selections at such time and in such manner as permitted by the Plan Administrator, which may include telephone or electronic delivery. Investments must be made in whole percentages. A U.S. Participant may change his investment elections at any time, or may reallocate amounts invested among the investment funds available under the Plan.
     (b) Any account maintenance fees and expense charges for transactions performed for each U.S. Participant’s Account shall be charged to the U.S. Participant’s Account. Other Plan charges and administrative expenses shall be paid by the Employer.
      5.4 Statements . At least annually, the Plan Administrator (or its designee) shall provide the Participant with a statement of such Participant’s Account reflecting the Interest or income, gains and losses (realized and unrealized), as applicable, and distributions with respect to such Account, since the prior statement.
ARTICLE 6
VESTING
      6.1 Vesting Schedules
     (a)  Canadian Participants . Subject to Section 6.2 and the Participant’s continued employment with the Employer, a Canadian Participant shall become fully vested and have a nonforfeitable right to any amounts credited to the Canadian Participant’s Account, adjusted for Interest, as provided below:
         
Vested Percentage   Age
50%
  Younger than 55
 
       
70%
    55  
 
       
80%
    56  
 
       
90%
    57  
 
       
100%
    58  
 
       

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     If a Canadian Participant incurs a Separation from Service with the Employer after attaining age 55 but before attaining age 58, the specific vesting percentage will be interpolated and rounded to the closest month of age. Subject to Section 6.2, if the Participant incurs a Separation from Service before attaining age 58, all unvested amounts credited to the Participant’s Account, and any Interest credited thereon, shall be forfeited.
     (b)  U.S. Participants . Subject to Section 6.2 and the Participant’s continued employment with the Employer, a U.S. Participant shall become fully vested and have a nonforfeitable right to any amounts credited to the U.S. Participant’s Account, adjusted for income, gains and losses attributable thereto, upon the completion of three Years of Service. Notwithstanding any other provisions of the Plan to the contrary, if a U.S. Participant has any Reinstated Amounts that were contributed as excess matching contributions under the Prior Plans before January 1, 2009, the U.S. Participant has a fully vested and nonforfeitable right to such Reinstated Amounts.
     Subject to Section 6.2, if the U.S. Participant incurs a Separation from Service before completing three Years of Service with the Employer, all amounts credited to the U.S. Participant’s Account as an Excess U.S. Contribution and/or Employer Contribution, and any income or gain attributable thereto, shall be forfeited.
      6.2 Accelerated Vesting . Under certain circumstances, a Participant shall become vested and have a nonforfeitable right to all or a portion of any Reinstated Amounts, Excess Canadian Contributions, Excess U.S. Contributions and Employer Contributions credited to the Participant’s Account, adjusted for Interest Credits or income, gains and losses attributable thereto, as applicable, pursuant to an accelerated vesting schedule, as provided below. Except as otherwise provided in a Participant’s employment or other individual agreement, if any, “cause” for purposes of this Section 6.2 shall be determined by the Company in its sole discretion.
     (a)  Canadian Participants . A Canadian Participant shall become fully vested in any Reinstated Amounts, Excess Canadian Contributions and Employer Contributions credited to the Canadian Participant’s Account, including any Interest Credits added thereto, to the extent not already fully vested, if the Canadian Participant incurs a Separation from Service due to death or to an involuntary termination by the Employer without cause.
     (b)  U.S. Participants . For any Reinstated Amounts, Excess U.S. Contributions and Employer Contributions credited to a U.S. Participant’s Account, if a U.S. Participant incurs a Separation from Service due to an involuntary termination by the Employer without cause, death or Disability before the U.S. Participant becomes vested in any such contributions, then the U.S. Participant shall become vested in a prorata portion of such contributions, if any, adjusted for income, gains and losses attributable thereto. Such prorata portion shall be determined by multiplying any such contributions by a fraction, the numerator of which is the U.S. Participant’s number of completed months of service with the Employer, and the denominator of which is 36.

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      6.3 Forfeitures . Notwithstanding any provision in the Plan to the contrary, the following shall apply:
     (a) If a Canadian Participant is terminated for “cause,” then any Excess Canadian Contributions and Employer Contributions credited to his Account (and any Interest credited thereon) shall be forfeited, regardless of the extent to which such contributions are vested before the date of his Separation from Service.
     (b) If a U.S. Participant voluntarily Separates from Service with the Employer before attaining age 55, 50% of the aggregate amount of any Reinstated Amounts, Excess U.S. Contributions and Employer Contributions credited to his Account (and any income or gain attributable thereto) shall be forfeited, regardless of whether he completed three Years of Service with the Employer before the date of his Separation from Service. The foregoing shall not apply to any Reinstated Amounts that were credited as excess matching contributions under the Prior Plans before January 1, 2009.
ARTICLE 7
DISTRIBUTION OF ACCOUNTS
      7.1 Timing of Distribution .
     (a) If a Participant is a former employee described in Section 3.2(a) whose Account is only credited with Reinstated Amounts, such Reinstated Amounts shall be paid as soon as administratively possible following Emergence.
     (b) Subject to Article 8, distribution of the vested portion of an Account shall be made on the earliest to occur of:
     (i) the date set forth in Section 7.2 with respect to the Participant’s Separation from Service;
     (ii) the date set forth in Section 7.3 with respect to the Participant’s death; or
     (iii) the date set forth in Section 7.4 with respect to the U.S. Participant’s Disability.
     Notwithstanding any other provision of the Plan to the contrary, in no event shall the distribution of a U.S. Participant’s Account be accelerated to a time earlier than it would otherwise have been paid, whether by amendment of the Plan, exercise of the Plan Administrator’s discretion or otherwise, except as permitted by the Treasury Regulations issued pursuant to Code Section 409A.
      7.2 Benefits Upon Separation from Service . Upon a Participant’s Separation from Service for any reason other than death or Disability, the balance of the Participant’s Account shall be paid in two installments as follows, subject to any reasonable administrative delays in the processing of payment:

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     (a) One-half of the Participant’s Account (determined as of his Separation from Service) shall be paid as of the first day of the seventh month following the Participant’s Separation from Service; and
     (b) The remaining portion of the Participant’s Account shall be paid the first day of the month coincident with or following the one-year anniversary date of the Participant’s Separation from Service.
If the Participant is a Canadian Participant, following the crediting of Interest for the Plan Year in which his Separation from Service occurs (as described in Section 5.2), Interest as described in 5.2 shall cease to be credited upon his Separation from Service. In lieu thereof, interest at the one-year Canadian Deposit Offered Rate (or other rate in Canada that is equivalent to the LIBOR rate as described below for U.S. Participants) as in effect on the last day of the month preceding the Canadian Participant’s Separation from Service date shall be credited to the Canadian Participant’s Account from the Separation from Service date to the date of payment.
If the Participant is a U.S. Participant, the right to invest the balance of his Account shall cease upon his Separation from Service. In lieu thereof, interest at the one-year LIBOR rate published in the Wall Street Journal and in effect as in effect on the last day of the month preceding the U.S. Participant’s Separation from Service date shall be credited to the U.S. Participant’s Account from the Separation from Service date to the date of payment.
      7.3 Benefits Upon Death . Upon the Participant’s death, the Participant’s Beneficiary shall be paid a benefit equal to the remaining balance in the Participant’s Account as of his date of death in a lump sum payment. Payment shall be made following the date of the Participant’s death; provided, however, that payment shall not be made later than the end of the calendar year in which the Participant’s death occurs or, if later, the 15 th day of the third month following the date of the Participant’s death.
      7.4 Benefits Upon Disability . A U.S. Participant shall receive the balance of his Account in a lump sum payment upon incurrence of a Disability. The U.S. Participant’s Account shall be valued as of the date of Disability as determined by the Social Security Administration, and payment shall be made following such date, but no later than the end of the calendar year following the date of Disability or, if later, the 15 th day of the third month following the date of Disability.
      7.5 Right of Offset .
     (a)  Canadian Participants . The Company and any Employer shall have the right to offset any amounts payable to a Canadian Participant under the Plan to reimburse the Company, or any of its subsidiaries or affiliates, for liabilities or obligations of the Canadian Participant to the Company or such subsidiary or affiliate, including any amounts misappropriated by the Canadian Participant.
     (b)  U.S. Participants . The Company and any Employer shall have the right to offset any amounts payable to a U.S. Participant under the Plan to reimburse the Company, or any of its subsidiaries or affiliates, for liabilities or obligations of the U.S. Participant to the Company or such subsidiary or affiliate if the following conditions are met:

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     (i) the liabilities or obligations of the Participant to the Employer were incurred in the ordinary course of the service relationship between the Participant and the Employer;
     (ii) the entire amount to be offset does not exceed $5,000 in any taxable year of the Participant; and
     (iii) the offset is made at the same time and in the same amount as the liabilities or obligations otherwise would have been due and collected from the Participant.
      7.6 Taxes . Income taxes and other taxes payable with respect to an Account shall be deducted from amounts paid under the Plan. All taxes that the Plan Administrator determines are required to be withheld from any payments made pursuant to this Article 7 shall be withheld. With respect to U.S. Participants, the Plan Administrator shall have the discretion to make a distribution, or accelerate the time or schedule of payment, from a U.S. Participant’s Account if payment is required for:
     (a) FICA, FUTA and/or the corresponding withholding provisions of applicable state and local taxes with respect to compensation deferred under the Plan. Any such distribution shall not exceed the aggregate of such tax withholding and shall reduce the U.S. Participant’s Account balance to the extent of such distributions; or
     (b) payment of state, local or foreign tax obligations arising from participation in the Plan that apply to an amount deferred under the Plan and FUTA resulting from such payment. Any such payment shall not exceed the amount of such taxes due as a result of Plan participation.
      7.7 Additional Discretion to Accelerate Distribution .
     (a) With respect to Canadian Participants, the Plan Administrator shall have the discretion to accelerate the time or schedule of payment under the Plan, subject to any restrictions or requirements under applicable Canadian law.
     (b) With respect to U.S. Participants only, the Plan Administrator shall have the discretion to accelerate the time or schedule of payment under the Plan if the Plan fails to meet the requirements of Code Section 409A and regulations promulgated thereunder, provided that any such payment does not exceed the amount required to be included in income as a result of such failure.
     (c) With respect to U.S. Participants only, the Plan Administrator shall have the discretion to require a mandatory lump sum payment of a U.S. Participant’s Account balance up to the Code Section 402(g)(1)(B) limit in effect at the time of payment provided that the payment results in the termination and liquidation of the entirety of the U.S. Participant’s interest under the Plan (as determined in accordance with plan aggregation rules set forth in Code Section 409A and Treasury Regulations promulgated thereunder).

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ARTICLE 8
NON-COMPETE AND CONFIDENTIALITY PROVISIONS
      8.1 Non-Competition . Notwithstanding anything herein contained to the contrary, for Participants who are Grade 40 or above upon their date of Separation from Service, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or during a period of 12 months following his termination of employment or retirement, the Participant, directly or indirectly, without the consent of AbitibiBowater Inc.:
     (a) engages in or becomes interested, whether on his own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, partner, principal, agent, advisor, financial backer, shareholder (except as a passive investor in a public company), or in any other capacity whatsoever, in a North American business which may fairly be regarded as being in competition with the Business of AbitibiBowater (as defined below); or
     (b) assists financially or in any manner whatsoever any person, firm, association or company, whether as principal, agent, officer, employee, manager, advisor, financial backer, shareholder (except as a passive investor in a public company), or in any capacity whatsoever to enter into, develop, carry on or maintain a North American business, which may fairly be regarded as being in competition with the Business of AbitibiBowater.
     For the purposes of this Plan, “Business of AbitibiBowater” means the manufacture, sale and/or dealing in newsprint, commercial printing papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by AbitibiBowater or by any of its subsidiaries and affiliates in the context of the above described activities as of the date of the Participant’s Separation from Service.
      8.2 Confidentiality . Notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or at any time thereafter, the Participant discloses any trade secrets or other Confidential Information (as defined below) with regard to the Business of AbitibiBowater at any time, directly or indirectly, to any third party or otherwise use such Confidential Information for his or their own benefit or the benefit of others for a period of 5 years following the date of the Participant’s Separation from Service. “Confidential Information” means all valuable and/or proprietary information in any form belonging to or pertaining to AbitibiBowater and its subsidiaries, affiliates, customers and vendors, that would be useful to AbitibiBowater’s competitors or otherwise damaging to AbitibiBowater (or its subsidiaries or affiliates) if disclosed. Confidential Information may include, but is not necessarily limited to: (i) the identity of AbitibiBowater’s (or subsidiaries or affiliates) customers or potential customers, their purchasing histories, and the terms or proposed terms upon which it or they offer or may offer its products and services to such customers, (ii) the identity of any of AbitibiBowater’s or its subsidiaries’ or affiliates’ vendors or potential vendors, and the terms or proposed terms upon which it or they may purchase products and services from such vendors, (iii) technology and methods used their products and services or planned products and services,

15


 

(iv) the terms and conditions upon which AbitibiBowater (or its subsidiaries and affiliates) employs its employees and contracts with independent contractors, (v) marketing and/or business plans and strategies, and (vi) financial reports and analyses regarding AbitibiBowater’s revenues, expenses, profitability and operations. However, Confidential Information does not include information which is or becomes generally available to the public other than as a result of disclosure by the Participant.
      8.3 Non-Solicitation. Notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or for a period of 12 months following the date of the Participant’s Separation from Service, except with the Company’s prior written consent, the Participant, on his own or in conjunction with or on behalf of any other person, directly or indirectly, solicits, assists in soliciting, accepts, or facilitates the acceptance of business (which may fairly be regarded as being in competition with the Business of AbitibiBowater) of any person (i) to whom AbitibiBowater or its subsidiaries or affiliates has supplied goods or services at any time before the date of Separation from Service or (ii) with whom AbitibiBowater or its subsidiaries or affiliates has had any negotiations or discussions regarding the possible supply of goods or services before the date of Separation from Service.
      8.4 Non-Disparagement. Further, notwithstanding anything herein contained to the contrary, no amount of benefit shall be payable or continued to be paid pursuant to this Plan in the event that during his employment with the Employer or at any time thereafter the Participant, directly or indirectly, disparages, defames or speaks negatively about AbitibiBowater or any of its subsidiaries, affiliates, customers or related entities, or its products and services, or if the Participant disparages, subverts, discloses or discusses any detail or aspect of the professional careers or personal lives of any director, officer or employee of AbitibiBowater or its subsidiaries or affiliates for any reason whatsoever, except as may be required by law.
ARTICLE 9
PLAN ADMINISTRATION
      9.1 Plan Administration and Interpretation . The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete control and authority to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, Beneficiary, deceased Participant or other person having or claiming to have any interest under the Plan. Benefits under the Plan shall be paid only if the Plan Administrator decides in its discretion that the Eligible Employee, Participant or Beneficiary is entitled to them. Notwithstanding any other provision of the Plan to the contrary, the Plan Administrator shall have complete discretion to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual serving as Plan Administrator who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by a Participant, a Beneficiary, the Company, the Employer or a trustee (if any).

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      9.2 Powers, Duties, Procedures . The Plan Administrator shall have such powers and duties, may adopt such rules, may act in accordance with such procedures, may appoint such officers or agents, may delegate such powers and duties and shall follow such claims and appeal procedures with respect to the Plan (subject to the requirements of Section 9.5) as the Plan Administrator may establish. The Plan Administrator or individuals acting on its behalf shall receive reimbursement for any reasonable business expense incurred in the performance of the foregoing duties.
      9.3 Information . To enable the Plan Administrator to perform its functions, the Company and the Employer shall supply full and timely information to the Plan Administrator on all matters relating to the compensation of Participants, their employment, retirement, death, Separation from Service, Disability and such other pertinent facts as the Plan Administrator may require.
      9.4 Indemnification of Plan Administrator . The Company agrees to indemnify and to defend to the fullest extent permitted by law any officer or employee who serves as Plan Administrator (including any such individual who will have served as Plan Administrator of the Plan) against all liabilities, damages, costs and expenses (including reasonable attorneys’ fees and amounts paid in settlement of any claims approved by the Company in writing in advance) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.
      9.5 Claims Procedure . A Participant or Beneficiary shall have the right to file a claim, inquire if he has any right to benefits and the amounts thereof or appeal the denial of a claim.
     (a)  Initial Claim. A claim shall be considered as having been filed when a written communication is made by the Participant, Beneficiary or his authorized representative to the attention of the Plan Administrator (the “claimant”). The Plan Administrator shall notify the claimant in writing within 90 days after receipt of the claim if the claim is wholly or partially denied. If an extension of time beyond the initial 90-day period for processing the claim is required, written notice of the extension shall be provided to the claimant before the expiration of the initial 90-day period. In no event shall the period, as extended, exceed 180 days. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render a final decision. Written claims for benefit payments must be made within twelve months of the later of the Participant’s retirement or termination of employment for any reason or the Effective Date of the Plan. A claim shall be considered untimely filed and denied if received more than twelve months from such later date.
     (b)  Content of Denial. Notice of a wholly or partially denied claim for benefits shall be in writing in a manner calculated to be understood by the claimant and shall include:
     (i) the reason or reasons for denial;
     (ii) specific reference to the Plan provisions on which the denial is based;

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     (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
     (iv) an explanation of the Plan’s claim appeal procedure, including a statement of the claimant’s right, if applicable, to bring a civil action under Section 502(a) of ERISA following a denial of the claim upon review.
     (c)  Right to Review. If a claim is wholly or partially denied, the claimant may file an appeal requesting the Plan Administrator to conduct a full and fair review of his claim. An appeal must be made in writing no more than 60 days after the claimant receives written notice of the denial. The claimant may review or receive copies, upon request and free of charge, any documents, records or other information that the Plan Administrator determines relevant; provided that, for a claimant who is a U.S. Participant, “relevant” has the meaning set forth in U.S. Department of Labor Regulation Section 2560.503-1(m)(8). The claimant may also submit written comments, documents, records and other information relating to his claim. The Plan Administrator shall take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim. The decision of the Plan Administrator regarding the appeal shall be given to the claimant in writing no later than 60 days following receipt of the appeal. However, if the Plan Administrator, in its sole discretion, grants a hearing, or there are special circumstances involved, the decision shall be given no later than 120 days after receiving the appeal. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant before the commencement of the extension. The decision shall be written in a manner calculated to be understood by the claimant and include:
     (i) specific reasons for the decision;
     (ii) specific references to the pertinent Plan provisions on which the decision is based;
     (iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records or other information relevant to the claimant’s claim; and
     (iv) if applicable, a statement of the claimant’s right, if applicable, to bring a civil action under Section 502(a) of ERISA following a wholly or partially denied claim for benefits.
     (d)  Form of Notice and Decision. Any notice or decision by the Plan Administrator under this Section 9.5 may be furnished electronically, and for U.S. Participants, in accordance with U.S. Department of Labor Regulation Section 2520.104b-1(c)(i), (iii) and (iv).
     (e)  Exhaustion of Administrative Remedy. Notwithstanding any provision in the Plan to the contrary, no employee, Participant or Beneficiary may bring any legal or administrative claim or cause of action against the Plan, the Plan Administrator or the Employer

18


 

in court or any other venue until the employee, Participant or Beneficiary has exhausted its administrative remedies under this Section 9.5.
     (f)  Statute of Limitations. Notwithstanding any provision in the Plan to the contrary, a Participant, Spouse or other beneficiary must file any written claim for benefits with the Plan Administrator within one year from the date on which the Participant, Spouse or other beneficiary knows, or with the exercise of reasonable diligence would know, of the basis for the claim, but, in the case of a claim based upon an alleged error in the amount of benefits, in no event later than one year from the date on which the first allegedly mistaken payment is made. Any written claim submitted to the Plan Administrator after such date shall be void and denied as untimely. Further, in order for a claimant to initiate any action for any benefit under the Plan before any court or before any administrative agency or quasi-judicial tribunal, such claimant must have first filed a claim for such benefit and requested review of any adverse decision on such claim in accordance with this Section and any procedures established by the Plan Administrator pursuant to this Section. Any such action must be initiated not more than 180 days after receipt of an adverse claim decision on review, except as otherwise required by applicable law.
     (g)  Suspension of Payment. If the Plan Administrator is in doubt concerning the entitlement of any person to any payment claimed under the Plan, the Employer may suspend payment until satisfied as to the person’s entitlement to the payment. Notwithstanding the foregoing, no Participant or Beneficiary may bring a claim for Plan benefits to arbitration, court or through any other legal action or process until the administrative claims process of this Section 9.5 has been exhausted.
ARTICLE 10
AMENDMENT AND TERMINATION
      10.1 Authority to Amend and Terminate .
     (a) The Plan reserves to the Plan Administrator the right to amend or terminate the Plan at any time, without notice, subject to Section 10.2. Any amendment or termination of the Plan shall be effected by resolution of the Plan Administrator. Except as provided in paragraph (b), Account balances shall be maintained under the Plan until such amounts would otherwise have been distributed in accordance with the terms of the Plan.
     (b) Upon termination of the Plan, the Plan Administrator reserves the discretion to accelerate distribution of the Accounts of Participants, provided that any acceleration of distribution for U.S. Participants must be in accordance with regulations promulgated by the Department of Treasury under Code Section 409A.
      10.2 Existing Rights . No amendment or termination of the Plan shall materially adversely affect the rights of any Participant with respect to amounts that have been credited to his Account and are vested before the effective date of such amendment or termination. Notwithstanding the foregoing, the Plan Administrator may amend the Plan as necessary to address changes in applicable law in order to assure that amounts contributed to the Plan are not subject to federal income tax before distribution or withdrawal.

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ARTICLE 11
MISCELLANEOUS
      11.1 No Funding . The Company intends that the Plan constitute an “unfunded” plan for tax purposes. The Company may, but shall have no obligation to, authorize the creation of trusts and deposit therein cash or other property, or make other arrangements to meet the payment obligations under the Plan. Such trusts or other arrangements, if established, shall be consistent with the unfunded status of the Plan.
      11.2 General Creditor Status . The Plan constitutes a mere promise by the Company and an Active Participant’s respective Employer to make payments in accordance with the terms of the Plan and Participants and Beneficiaries shall have the status of general unsecured creditors solely of the Employer employing the Participant. An Active Participant’s Employer shall be principally liable for payment of the Active Participant’s Retirement Benefits under the Plan, and AbitibiBowater Inc. shall be secondarily liable for payment. AbiBow US Inc. or AbiBow Canada Inc. shall be respectively principally liable for payment of the Reinstated Amounts payable to former U.S. and Canadian employees, and AbitibiBowater Inc. shall be secondarily liable for payment. Nothing in the Plan shall be construed to give any employee or any other person rights to any specific assets of the Employer, the Company or of any other person.
      11.3 No Assignment . Plan benefits, payments or proceeds shall not be subject to any claim of any creditor of any Participant or Beneficiary and shall not be subject to attachment or garnishment or other legal process. Participant Accounts or benefits payable may not be assigned, pledged or encumbered in any manner, and any attempt to do so shall be void.
      11.4 Notices and Communications . All notices, statements, reports and other communications from the Plan Administrator to any employee, Participant, Beneficiary or other person required or permitted under the Plan shall be deemed to have been duly given when personally delivered to, when transmitted via facsimile or other electronic media or when mailed overnight or by first-class mail, postage prepaid and addressed to, such employee, Participant, Beneficiary or other person at his last known address on the Employer’s or Company’s records. All elections, designations, requests, notices, instructions and other communications from a Participant, Beneficiary or other person to the Plan Administrator required or permitted under the Plan shall be in such form as is prescribed from time to time by the Plan Administrator, and shall be mailed by first-class mail, transmitted via facsimile or other electronic media or delivered to such location as shall be specified by the Plan Administrator. Such communication shall be deemed to have been given and delivered only upon actual receipt by the Plan Administrator at such location.
      11.5 Limitation of Participant’s Rights . Nothing contained in the Plan shall confer upon any person a right to be employed or to continue in the employ of the Employer, or to interfere, in any way, either with the Employer’s right to terminate the employment of an Eligible Employee at any time, with or without cause, or to modify the Base Salary or Incentive Award of any Eligible Employee.
      11.6 Participants Bound . Any action with respect to the Plan taken by the Plan Administrator or a trustee (if any) or any action authorized by or taken at the direction of the

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Plan Administrator, the Employer or a trustee (if any) shall be conclusive upon all Participants and Beneficiaries entitled to benefits under the Plan.
      11.7 Receipt and Release . Any payment to any Participant or Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Employer, the Plan Administrator and a trustee (if any) under the Plan, and the Plan Administrator may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or Beneficiary is determined by the Plan Administrator to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Plan Administrator may cause the payment or payments becoming due to such person to be made to another person for his benefit without responsibility on the part of the Plan Administrator, the Employer or a trustee (if any) to follow the application of such funds.
      11.8 Governing Law and Severability . With respect to U.S. Participants, the Plan shall be construed, administered and governed in all respects under and by the laws of the State of Delaware to the extent not preempted by ERISA. With respect to Canadian Participants, the Plan shall be construed, administered and governed in all respects under and by the laws of Quebec. If any provision is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.
      11.9 Currency . Contributions credited to and payments made under the Plan shall be determined in the same currency in which a Participant’s receives his Base Salary.
      11.10 Headings . Headings and subheading in the Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.
* * *
IN WITNESS WHEREOF , the undersigned officer of AbitibiBowater Inc. has executed this document pursuant to Resolutions adopted by AbitibiBowater Inc. on December 9, 2010.
         
  ABITIBIBOWATER INC.
 
 
  By:   /s/ Richard Garneau    
    Richard Garneau   
  Its:  President and Chief Executive Officer   

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EXHIBIT A
     The following individuals are active employees of the Employer on the Effective Date who satisfy the requirements of Section 3.1(a) and are entitled to payment of Reinstated Amounts, as identified below.

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EXHIBIT B
     The following individuals are former employees of the Employer and beneficiaries of deceased employees on the Effective Date who satisfy the requirements of Section 3.1(a) and are entitled to payment of Reinstated Amounts, as identified below.

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EXHIBIT 10.6
ABITIBIBOWATER
OUTSIDE DIRECTOR DEFERRED COMPENSATION PLAN
Effective as of April 1, 2011

 


 

TABLE OF CONTENTS
         
1. Purpose
    1  
 
       
2. Definitions
    1  
 
       
3. Eligibility
    4  
 
       
4. Administration
    4  
 
       
5. Deferral Election
    4  
 
       
6. Accounts
    5  
 
       
7. Vesting
    7  
 
       
8. Distributions
    7  
 
       
9. Designation of Beneficiary
    8  
 
       
10. No Rights as Stockholder
    8  
 
       
11. Transferability
    8  
 
       
12. Covenants of Director
    8  
 
       
13. Remedies of the Company
    9  
 
       
14. Notices and Communications
    9  
 
       
15. Limitation of Rights of the Director
    9  
 
       
16. Payments To Incompetents
    9  
 
       
17. Construction
    10  
 
       
18. Amendment or Termination
    10  
 
       
19. Funding
    10  
 
       
20. Governing Law
    11  
 
       
21. Currency
    11  
 
       
22. Headings
    11  

 


 

AbitibiBowater Outside Director Deferred Compensation Plan
1.   Purpose . AbitibiBowater established this AbitibiBowater Outside Director Deferred Compensation Plan (the “Plan”) effective as of April 1, 2011 (the “Effective Date”) to enhance the Company’s ability to attract and retain talented individuals to serve as members of the Board and to promote a greater alignment of interests between non-employee members of the Board and the shareholders of the Company. All non-employee directors serving on the Board on the Effective Date are eligible to participate in the Plan and enjoy the benefits of the Plan as set forth below. Non-employee directors elected or appointed to the Board after the Effective Date are eligible to participate in the Plan on the date of election or appointment. For reference, AbitibiBowater previously maintained the AbitibiBowater Inc. Outside Director Deferred Compensation Plan, which plan was terminated and liquidated pursuant to approved plans of reorganization effective upon the Company’s emergence on December 9, 2010 from creditor protection proceedings and in accordance with US Department of Treasury Regulation Section 1.409A-3(j)(4)(ix)(A).
 
2.   Definitions . The following words and phrases, when used in this Plan with an initial capital letter, unless the context clearly indicates otherwise, shall have the following meanings, or the meanings as set forth elsewhere in this Plan. Wherever applicable, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural.
  (a)   “Account” means a bookkeeping account established for the benefit of a Director used to record (i) amounts deferred pursuant to Section 5 and (ii) any credits on and adjustments of such amounts pursuant to Section 6. A Director’s Account may include sub-accounts consisting of a Deferred Stock Unit Account and a Restricted Stock Unit Account, or such other sub-accounts as determined by the Administrator.
 
  (b)   “Administrator” means the Senior Vice President, Human Resources and Public Affairs, of the Company.
 
  (c)   “Affiliate” has the meaning ascribed to it in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
 
  (d)   “Beneficiary” means the person or persons (including, without limitation, any trustee) last designated by a Director in accordance with Section 9 to receive the balance of his Account in the event of the Director’s death. If there is no effective designated Beneficiary on file or surviving Beneficiary, the Director’s estate shall be the Director’s Beneficiary.
 
  (e)   “Board” means the Board of Directors of the Company.
 
  (f)   “Canadian Director” means a Director who is subject to taxation under the Income Tax Act (Canada) (the “Canadian Tax Act”).

 


 

  (g)   “Cause” means (i) the Director’s commission of a felony or a crime involving moral turpitude, or other material act or omission involving dishonesty or fraud, (ii) the Director’s engaging in conduct that would bring or is reasonably likely to bring the Company or any of its Affiliates or Subsidiaries into public disgrace or disrepute or that would affect the Company’s or any Affiliate’s or Subsidiary’s business in any material way, (iii) the Director’s failure to perform duties as reasonably directed by the Board (which, if reasonably curable, is not cured within 10 days after notice thereof is provided to the Director) or (iv) the Director’s gross negligence, willful malfeasance or material act of disloyalty or other breach of fiduciary duty with respect to the Company or its Affiliates or Subsidiaries (which, if reasonably curable, is not cured within 10 days after notice thereof is provided to the Director). Any determination of whether Cause exists shall be made by the Committee in its sole discretion.
 
  (h)   “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time. A reference to any provision of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulation or guidance.
 
  (i)   “Committee” means the Human Resources and Compensation/Nominating and Governance Committee of the Board or such members of the Board as are selected by the Board from time to time to administer the Plan.
 
  (j)   “Company” means AbitibiBowater Inc.
 
  (k)   “Conversion Date” means, unless otherwise determined by the Committee, the last business day of the calendar quarter.
 
  (l)   “Deferred Stock Unit” or “DSU” means a Stock Unit which, when vested, shall be settled pursuant to Section 8(a)(i).
 
  (m)   “Deferred Stock Unit Account” or “DSU Account” means the sub-account used to record (i) deferrals of cash compensation designated as DSUs and (ii) any credits on and adjustments of such amounts pursuant to Section 6.
 
  (n)   “Director” means any individual qualified to serve as a member of the Board who is elected or appointed and who is not an employee or a full-time officer of the Company or any Affiliate.
 
  (o)   “Effective Date” means April 1, 2011, the date the Company established the Plan.
 
  (p)   “Fair Market Value” means, on a given date, (i) if the Stock is listed on a national securities exchange, the simple arithmetic mean between the highest and lowest prices per share at which the Stock is traded as reported for the national securities exchange for the trading day immediately preceding that date, or if not so traded, the simple arithmetic mean between the closing bid-and-asked prices thereof as reported for such national securities exchange for the trading day immediately preceding that date, rounded to the nearest number within two decimal places; (ii)

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      if the Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the simple arithmetic mean between the closing bid-and-asked prices thereof as reported for such quotation system for the applicable date of determination, rounded to the nearest number within two decimal places; or (iii) if the Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Stock.
 
  (q)   “Plan” means the AbitibiBowater Outside Director Deferred Compensation Plan, as provided herein and as may be amended from time to time.
 
  (r)   “Premium Stock Units” means the number of Stock Units that represents a number of Stock Units determined by dividing 10% of the compensation deferred on the Conversion Date by the Fair Market Value for a share of Stock on the Conversion Date. Premium Stock Units shall be credited as Premium DSUs with respect to a DSU election and Premium RSUs with respect to an RSU election.
 
  (s)   “Restricted Stock Unit” or “RSU” means a Stock Unit which, when vested, shall be settled pursuant to Section 8(a)(ii).
 
  (t)   “Restricted Stock Unit Account” or “RSU Account” means the sub-account used to record (i) deferrals of compensation designated as RSUs and (ii) any credits on and adjustments of such amounts pursuant to Section 6.
 
  (u)   “Separation from Service” means a separation from service with the Company and other entities affiliated with the Company. For U.S. Directors, such Separation from Service shall be determined and interpreted in accordance with Code Section 409A. For purposes of interpreting Code Section 409A, whether an entity is affiliated with the Company shall be determined pursuant to the controlled group rules of Code Section 414, as modified by Code Section 409A.
 
  (v)   “Stock” means the common stock of the Company, par value $.001.
 
  (w)   “Stock Unit” means the right to receive payment in cash in an amount equal to the Fair Market Value of one share of Stock, determined as of the Valuation Date with respect to that Stock Unit. Stock Units under the Plan are designated as DSUs for Canadian Directors and RSUs for U.S. Directors. Unless otherwise provided or if the context requires otherwise, the reference to DSUs includes Premium DSUs, and the reference to RSUs includes Premium RSUs.
 
  (x)   “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.

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  (y)   “U.S. Director” means a Director who is subject to taxation under the U.S. Internal Revenue Code.
 
  (z)   “Valuation Date” means the date on which Stock Units are to be settled in accordance with Section 8(a).
 
  (aa)   “Vesting Date” means the date on which all or a portion of a Director’s Premium Stock Units become nonforfeitable.
3.   Eligibility . All Directors are eligible to participate in the Plan.
 
4.   Administration . The Committee shall administer the Plan, provided that the Committee may delegate responsibility for administration to such person or persons as it deems appropriate from time to time. The Committee shall have all the discretion and authority to take any action that it may deem necessary or desirable in connection with the administration of the Plan, including without limitation:
  (a)   to establish, modify and revoke rules relating to the Plan;
 
  (b)   to interpret and construe the terms of the Plan and any rules under the Plan;
 
  (c)   to approve the form and content of any documentation relating to deferrals of compensation or benefits under the Plan or Plan administration; and
 
  (d)   consistent with the express provisions of the Plan, to approve, establish and amend the terms governing a benefit under the Plan.
    All determinations, interpretations and decisions made by the Committee under or with respect to the Plan shall be final, conclusive and binding on the Company, and Directors and any Beneficiary. No member of the Committee shall be liable for any action taken in good faith with respect to the Plan. Notwithstanding the foregoing, the Administrator shall have the authority to approve the form and content of any election or beneficiary forms for the efficient administration of the Plan.
 
5.   Deferral Election . A Director may elect to defer 50% or 100% of his cash compensation including, without limitation, his annual retainer and/or other fees for service as a Director (for example, for serving as chair), if he completes and timely delivers to the Administrator (or his designee) a written election. To be considered timely, a Director must deliver the written election as follows and as determined by the Administrator:
  (a)   Election.
  (i)   A Canadian Director’s written election must designate the portion of his cash compensation to be deferred under the Plan and credited in DSUs. A deferral by a Canadian director cannot be credited in RSUs.

4


 

  (ii)   A U.S. Director’s written election must designate the portion of his cash compensation to be deferred under the Plan and credited in RSUs. A deferral by a U.S. director cannot be credited in DSUs.
  (b)   Time for Filing Election. To be considered timely, a Director must deliver the written deferral election as follows.
  (i)   For Directors in office on the Effective Date, the deferral election must be completed and filed with the Administrator before May 1, 2011 and will only be effective to defer cash compensation earned on and after May 1, 2011 under the Plan.
 
  (ii)   With respect to any calendar year beginning after the Effective Date, the deferral election must be made before the commencement of that calendar year. Notwithstanding the foregoing, an individual who first becomes elected or appointed as a Director must complete and file an election with the Administrator within 30 days after such individual is first elected or appointed.
    An election made in accordance with the foregoing shall be effective for the calendar year for which it was made but shall only be effective with regard to compensation earned on and after January 1 of the year to which the election relates (May 1 in the case of the 2011 calendar year) or after the expiration of the 30-day election period for newly-elected or appointed Directors, as the case may be. Once an election is made, it is irrevocable for the calendar year (or portion thereof for newly-elected or appointed Directors) for which the election relates and will continue in effect for subsequent calendar years until revoked or changed by the Director . An election may be revoked or changed only with respect to a calendar year subsequent to the date of the revocation or change. If no election to defer is made or a prior election is revoked, the Director shall be deemed to have elected to be paid compensation for his duties as a Director entirely in cash. A Director’s written election shall constitute the Director’s acceptance of the benefits and terms of the Plan.
 
6.   Accounts .
  (a)   Establishment of Accounts . As of May 1, 2011 or, if later, the date a Director elects to defer compensation to the Plan, the Administrator or its delegate shall establish an Account for each Director to reflect the deferrals of amounts made for the Director’s benefit, together with any income adjustments thereto. The Accounts shall not be used to segregate assets for payment of any amounts deferred or allocated under the Plan, and shall not constitute or be treated as a trust fund of any kind. The Director shall, at all times, have a nonforfeitable right to all amounts credited to his Account.
 
  (b)   Crediting of Accounts . An amount will be credited to a Director’s DSU Account or RSU Account, as the case may be, pursuant to the Director’s deferral election on each Conversion Date. The amount credited as DSUs or RSUs, as applicable,

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      shall be a number of Stock Units (including fractional Stock Units) determined by dividing (i) 110% of the amount of compensation elected for deferral by (ii) the Fair Market Value of the Stock as of the Conversion Date.
 
  (c)   Earnings and Adjustments .
  (i)   Dividend Equivalents . With respect to dividend record dates occurring during the period in which Stock Units are credited to a Director’s Account, the Director’s Account will be credited with additional Stock Units (including a fractional Stock Unit), the number of which will be determined by dividing: (A) the product obtained by multiplying the amount of each dividend (including extraordinary dividend if so determined by the Company) declared and paid by the Company on the Stock on a per share basis by the number of Stock Units credited to a Director’s Account on the record date for payment of any such dividend, by (B) the Fair Market Value of one share of Stock on the dividend payment date for such dividend. The additional Stock Units shall be payable at the same time and in the same proportion as the Stock Units to which the dividend equivalents relate. Dividend equivalents that relate to Premium Stock Units shall vest at the same time and in the same proportion as the Premium Stock Units to which they relate. No additional Stock Units shall be accrued for the benefit of a Director pursuant to this paragraph with respect to (A) any Stock Units settled pursuant to Section 8 or (B) any Premium Stock Units forfeited pursuant to Section 7(c), as of the dividend record date.
 
  (ii)   Adjustments . In the event of (A) a corporate transaction involving the Company (including, without limitation, any dividend (other than regular cash dividends or other distribution (whether in the form of cash, shares of Stock, other securities or other property), stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, sale of assets or subsidiaries, combination or exchange of shares, issuance of warrants or other rights to acquire Stock or other securities of the Company), (B) other similar corporate transaction or event that affects the shares of Stock, or (C) unusual or nonrecurring events affecting the Company, any Affiliate or Subsidiary, or the financial statements of the Company, any Affiliate or Subsidiary, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, then the Committee shall make an adjustment to the amount payable with respect to the Stock Units that the Committee determines to be equitable to prevent undue dilution or enlargement of the intended benefits or potential benefits of the Stock Units credited to a Director’s Account consistent with the purposes of the Plan. The Company shall give each Participant notice of any adjustment. Any such adjustment shall be conclusive and binding for all purposes.

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7.   Vesting .
  (a)   A Director shall, at all times, have a nonforfeitable right to non-Premium Stock Units, which are (i) the number of Stock Units determined by dividing 100% of the amount of cash compensation elected for deferral by the Fair Market Value of a share of Stock on the Conversion Date) and (ii) any additional Stock Units credited as dividend equivalents that relate to such non-Premium Stock Units.
 
  (b)   Subject to continued service as a Director, one third of the Premium Stock Units shall vest on March 31 of each of the first three calendar years following the calendar year in which the Premium Stock Units were credited on behalf of the Directors.
 
  (c)   In the event of a Separation from Service for any reason other than Cause (including termination of service as a Director without Cause or due to disability, or retirement) or death, the Director shall become vested in all non-vested Premium Stock Units. In the event of a Separation from Service due to Cause, the Director shall forfeit any vested, but not settled, and non-vested Premium Stock Units.
8.   Distributions .
  (a)   Time of Payment. All amounts credited to a Director’s Account shall be settled in a single lump sum cash payment on the following dates.
  (i)   DSU Account . All non-Premium DSUs and vested Premium DSUs credited to a Canadian Director’s DSU Account shall be settled upon the earlier of (as applicable):
  (A)   for a Canadian Director who is not subject to Code Section 409A, December 15 of the calendar year following the calendar year of the Canadian Director’s Separation from Service, unless the Canadian Director provides advance written notice of at least five business days to the Administrator specifying an earlier settlement date (but no earlier than the Separation from Service),
 
  (B)   for a Canadian Director who is subject to Code Section 409A, as soon as administratively feasible following the Canadian Director’s Separation from Service, or
 
  (C)   the Director’s death.
      For Canadian Directors subject to Code Section 409A, payment shall be made no later than the last day of the calendar year in which the payment event occurs, or if later, the 15 th day of the third month following such event. The latest payment date set forth in the preceding sentence has been specified for purposes of complying with the provisions of Section 409A of the Code.

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  (ii)   RSU Account . One third of the non-Premium RSUs and all vested Premium RSUs credited to a U.S. Director’s RSU Account shall be settled as soon as administratively feasible after the applicable Vesting Date described in Section 7(b); provided, however, all non-Premium RSUs and vested Premium RSUs shall be settled as soon as administratively feasible after any Vesting Date described in Section 7(c).
      For U.S. Directors, payment shall be made no later than the last day of the calendar year in which the payment event occurs, or if later, the 15 th day of the third month following such event. The latest payment date set forth in the preceding sentence has been specified for purposes of complying with the provisions of Section 409A of the Code.
 
  (b)   Amount of Payment . A Director shall be entitled to receive an amount equal to the Fair Market Value of a share of Stock multiplied by the number of non-Premium Stock Units and vested Premium Stock Units to be settled. Any amount paid to a Director shall be less any required taxes.
9.   Designation of Beneficiary .
  (a)   Each Director other than a Director residing in the Province of Québec shall designate on forms provided by the Administrator, signed by the Director and delivered to the Administrator, the Beneficiary or Beneficiaries to receive the balance credited to the Director’s Account in the event of his death. A Director may, from time to time, change the designated Beneficiary or Beneficiaries, without the consent of such Beneficiary or Beneficiaries, by delivering to the Administrator a new written and signed designation of Beneficiary. The Director’s spouse, if any, shall not be required to consent in writing to any non-spouse designation. The Director may designate primary or contingent Beneficiaries. The written designation last delivered and signed by the Director shall be effective and supersede all prior designations on file with the Administrator.
 
  (b)   Each Director residing in the Province of Québec may only designate a beneficiary by will. Upon the death of a Director residing in the Province of Québec, the Director’s Account shall be distributed to the liquidator, administrator or executor of his estate.
10.   No Rights as Stockholder . A Director shall not be a shareholder of record with respect to Stock Units and shall have no voting rights with respect to the Stock Units.
 
11.   Transferability . Unless otherwise provided by the Committee in writing, the RSUs shall not be transferable by the Director other than by will or the laws of descent and distribution.
 
12.   Covenants of Director . As a condition of participation in this Plan, each participating Director agrees to devote his best efforts and undivided loyalty to the Company and

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    devote such time to his tasks as a Director as shall be required to discharge his obligations to the best of his abilities.
13.   Remedies of the Company . Upon the occurrence of any one or more of the following circumstances:
  (a)   if the Director is at any time removed from incumbency as a Director for reasons deriving from his gross negligence or misconduct detrimental to the business interests of the Company, or for criminal conduct of any type (regardless of the effect thereof on the business interest of the Company); or
 
  (b)   if the Director at any time materially fails to comply with the requirements of Section 12;
    then, and in any such event, the Company’s obligation to pay or provide benefits hereunder to such Director shall automatically cease and terminate, and neither the Director nor any other person claiming any benefit pursuant to the Director’s participation in this Plan shall have any rights, claims or causes of action hereunder against the Board, the Company or any person acting on their behalf. The Company’s sole remedy for breach by the Director of the provisions of Section 12 shall be to cease paying or providing benefits pursuant to the provisions of Section 7 or receive from the Director repayment of any amounts paid. Such remedy shall not preclude the Company from recovering from a Director damages inflicted on the Company or its Affiliates by conduct of a Director which renders the Director liable to the Company independently of the fact that such conduct constitutes a breach of the Director’s covenants in Section 12.
 
14.   Notices and Communications . All notices, statements, reports and other communications from the Administrator to any Director, Beneficiary or other person required or permitted under the Plan shall be deemed to have been duly given when personally delivered to, when transmitted via facsimile or other electronic media or when mailed overnight or by first-class mail, postage prepaid and addressed to, such Director, Beneficiary or other person at his last known address on the Company’s records. All elections, designations, requests, notices, instructions and other communications from a Director, Beneficiary or other person to the Administrator required or permitted under the Plan shall be in such form as is prescribed from time to time by the Administrator, and shall be mailed by first-class mail, transmitted via facsimile or other electronic media or delivered to such location as shall be specified by the Administrator. Such communication shall be deemed to have been given and delivered only upon actual receipt by the Administrator at such location.
 
15.   Limitation of Rights of the Director . Inclusion under the Plan shall not give a Director any right or claim to a benefit, except as specifically defined in this Plan. The establishment of the Plan shall not be construed as giving any Director a right to be continued in service as a Director of the Company.
 
16.   Payments To Incompetents . In the event that any payment hereunder becomes payable to a person adjudicated to be incompetent, payment thereof to the guardian or legal

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    representative of such person shall constitute full and complete compliance herewith and entitle the Company to discharge with respect thereto.
 
17.   Construction .
  (a)   The decision of the Committee on all matters concerning the interpretation and administration of this Plan shall be final. Each Director agrees, as a condition to participation herein, to be bound by all actions and interpretations regarding this Plan by the Committee. Neither the Board, the Committee, any individual Director nor any persons acting on their behalf shall be subject to any liability to any Director or other person in the construction and administration of this Plan.
 
  (b)   Notwithstanding any other provision of this Plan, it is intended that all Stock Units granted under this Plan which are considered to be deferred compensation subject to Code Section 409A shall be provided and paid in a manner, and at such time, including without limitation payment only in connection with a permissible payment event contained in Code Section 409A (e.g., separation from service from the Company and its affiliates as defined for purposes of Code Section 409A), and in such form, as complies with the applicable requirements of Code Section 409A, to avoid the unfavorable tax consequences provided therein for non-compliance. In addition, it is intended that all Stock Units granted to Canadian Directors under this Plan shall be provided and paid in a manner, and at such time, and in such form, as complies with the applicable requirements of paragraph 6801(d) of the regulations to the Canadian Tax Act, to avoid the unfavorable tax consequences provided therein for non-compliance. Notwithstanding the foregoing, none of the Company or its affiliates or the Committee shall be liable to any person if such person is subject to any additional tax, penalty or interest as a result of failure to comply with Code Section 409A or paragraph 6801(d) of the regulations to the Canadian Tax Act.
18.   Amendment or Termination . The Company reserves the right at any time, and from time to time, by action of a majority of the Board at a meeting at which all members thereof are present and voting or the required notice of which contained an accurate summary of the action proposed for vote, to amend, in whole or in part, any or all of the provisions of this Plan. The Company reserves the right to terminate the Plan at any time. Notwithstanding the foregoing, no such amendment or termination shall adversely affect benefits under this Plan already being paid or having become unconditionally payable pursuant to the terms hereof. Upon termination of the Plan, the Company reserves the discretion to accelerate distribution of Directors’ Accounts in accordance with regulations promulgated by the Department of the Treasury under Code Section 409A.
 
19.   Funding . The Company’s obligations under this Plan shall be unfunded and the Company shall not be obligated under any circumstances to fund its obligations under this Plan. Notwithstanding the foregoing, the Company may, but shall have no obligation to, authorize the creation of one or more trusts and deposit therein cash or property, or make other arrangements to meet the payment obligations under the Plan; provided that such trusts or other arrangements, if established, shall be consistent with the unfunded

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    status of the Plan. The rights of a Director to the payment of benefits under the Plan shall be no greater than the rights of an unsecured creditor of the Company, and nothing in the Plan shall be construed to give any Director or any other person rights to any specific assets of the Company, any of its subsidiaries or affiliates, or any other person.
 
20.   Governing Law . This Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware and, subject to Section 17 above, shall be binding upon the Company and its successors, including any successor which acquires all or substantially all of the assets of the Company.
 
21.   Currency . Payments made under the Plan shall be determined in the same currency in which a Director receives his cash compensation.
 
22.   Headings . Headings and subheadings in the Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.
* * *
     IN WITNESS WHEREOF, the following authorized officer of the Company has executed the Plan to evidence its adoption by the Company as of the date set forth below.
         
  ABITIBIBOWATER INC.
 
 
  By:   /s/ Richard Garneau    
    Richard Garneau   
  Its:  President and Chief Executive Officer  
  Dated:   March 30, 2011  

11

EXHIBIT 10.11
ABITIBIBOWATER INC. 2010 EQUITY INCENTIVE PLAN
DIRECTOR DEFERRED STOCK UNIT AGREEMENT
     THIS DEFERRED STOCK UNIT AGREEMENT, dated as of the third trading day after the date the Company’s 2010 Form 10-K is filed with the Securities and Exchange Commission (the “ Date of Grant ”) is made by and between AbitibiBowater Inc., a Delaware corporation (the “ Company ”), and _______________ (“ Participant ”).
     WHEREAS, the Company has adopted the AbitibiBowater Inc. 2010 Equity Incentive Plan (the “ Plan ”) pursuant to which deferred stock units (“ DSUs ”) may be granted in respect of shares of the Company’s common stock, par value $0.001 per share (“ Stock ”); and
     WHEREAS, the Participant serves as a member of the Board of Directors of the Company (“ Director ”) and the Board of Directors has determined that, subject to the terms set forth herein, a portion of each Director’s compensation should be made in the form of a DSU award to more closely align their interests with those of the Company and its stockholders.
     NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
     1.  Grant of Deferred Stock Unit.
     (a)  Grant . The Company hereby grants to Participant                  DSUs, on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan (the “ Initial Grant ”). Each DSU represents the right to receive payment in respect of one share of Stock as of the Settlement Date (defined in Section 2(b)) to the extent the Participant is vested in such DSU as of the Settlement Date, subject to the terms of this Agreement and the Plan.
     (b)  Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Human Resources and Compensation/Nominating and Governance Committee (the “ Committee ”) from time to time pursuant to the Plan. Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon the Participant and his legal representative in respect of any questions arising under the Plan or this Agreement.
     (c)  Acceptance of Agreement . Unless the Participant notifies the Director, Corporate Compensation in writing within 14 days after the Date of Grant that the Participant does not wish to accept this Agreement, the Participant will be deemed to have accepted this Agreement and will be bound by the terms of the Agreement and the Plan. Any such notice may be given to the Director, Corporate Compensation at the Company’s principal executive office.

 


 

     2.  Terms and Conditions .
     (a)  Vesting . Subject to the Participant’s continued service as a Director, twenty five percent (25%) of the DSUs (rounded to the nearest whole DSU) shall vest on the last day of each calendar quarter of the year of the Date of Grant (each such date, a “ Vesting Date ”).
     (b)  Settlement . The obligation to make payments and distributions with respect to DSUs (the “ settlement ”) shall be satisfied through the issuance of one share of Stock for each vested DSU, and the settlement of the DSUs may be subject to such conditions, restrictions and contingencies as the Committee shall determine. Vested DSUs shall be settled as soon as practicable after the earliest of the Participant’s (i) termination of service as a Director, (ii) death or (iii) Disability (the “ Settlement Date ”). If vested DSUs are settled upon the Participant’s termination of service as a Director, the Settlement Date will be December 15 (or, if necessary, the next business day) of the calendar year following the calendar year in which the Participant’s termination occurs, unless the Participant provides advance written notice of at least five business days to the Director, Corporate Compensation specifying an earlier Settlement Date (but no earlier than the termination of service date). The foregoing election shall only apply if the Participant is not subject to Section 409A of the Internal Revenue Code (“Section 409A”). For a Participant who is subject to Section 409A, if vested DSUs are settled upon the Participant’s termination of service as a Director, the Settlement Date will be as soon as administratively feasible following the Director’s termination of service. For Participants subject to Code Section 409A, in no event shall settlement occur no later than the last day of the calendar year in which the Settlement Date occurs, or if later, the 15th day of the third month following the Settlement Date. For purposes of this Agreement and the extent applicable to the Participant, the term “termination of service” shall be interpreted to comply with Section 409A. To the extent payments are made during the periods permitted under Section 409A (including any applicable periods before or after the specified payment dates set forth in this Section 2(b)), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.
     (c)  Dividend Equivalents and Voting Rights . The Participant will from time to time be credited with additional DSUs (including a fractional DSU), the number of which will be determined by dividing:
          (i) The product obtained by multiplying the amount of each dividend (including extraordinary dividend if so determined by the Company) declared and paid by the Company on the Stock on a per share basis on or after the Date of Grant and before the Settlement Date by the number of DSUs recorded in Participant’s account on the record date for payment of any such dividend, by
          (ii) The Fair Market Value of one (1) share of Stock on the dividend payment date for such dividend.
     Subject to the Participant’s continued service as a Director, the additional DSUs shall vest and be settled at the same time and on the same proportion as the Initial Grant. No additional DSUs shall be accrued for the benefit of Participant with respect to record dates

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occurring prior to, or with respect to record dates occurring on or after the date, if any, on which Participant has forfeited the DSUs.
     3.  Termination of Service with Company . Notwithstanding any provision of Section 2 to the contrary, the following vesting and forfeiture provisions shall apply to the Participant’s vested but unsettled and unvested DSUs.
     (a)  Retirement and Involuntary Termination . If the Participant’s service as a Director terminates as a result of “Retirement” or a failure to be re-elected as a Director (other than due to death or Disability), then the Participant shall become vested in a prorated number of DSUs. For purposes of the preceding, the prorated portion of the DSUs that is vested as of the Participant’s date of termination, including the portion of the DSUs then already vested, shall be the total number of granted and credited DSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from January 1 of the calendar year of the Date of Grant through the date of the Participant’s termination of service as a Director and the denominator of which shall be 12. The term “Retirement” shall mean mandatory retirement at age 72 (or such other age as required by Company’s By-Laws and/or Board of Directors Corporate Governance Principles).
     (b)  Death . If the Participant dies during his period of service as a Director, then, in addition to the DSUs vested as of the date of death under Section 2(a), the DSUs scheduled to vest on the next scheduled Vesting Date shall also vest on the date of death.
     (c)  Disability . If the Participant becomes Disabled, then, in addition to the DSUs then vested under Section 2(a), the DSUs scheduled to vest on the next scheduled Vesting Date shall also vest upon the Participant’s Disability.
     (d)  Termination by the Company for Cause . If the Participant’s service as a Director terminates for Cause, then all outstanding DSUs, whether vested but unsettled or unvested, shall immediately terminate.
     (e)  Other Termination . If the Participant’s service as a Director terminates other than as described in the foregoing provisions of this Section 3, including resignation from the Board of Directors before Retirement, then the Participant shall remain vested in all previously vested DSUs, whether settled or unsettled, but all unvested DSUs shall immediately terminate.
     Notwithstanding anything contained to the contrary in this Section 3, in no event shall any DSUs be settled prior to the applicable Vesting Date except if otherwise determined by the Board of Directors and if permitted under Code Section 409A (to the extent applicable to the Participant).
     4.  Compliance with Legal Requirements . The granting and settlement of the DSUs, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required.

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     (a)  Transferability . Unless otherwise provided by the Committee in writing, the DSUs shall not be transferable by Participant other than by will or the laws of descent and distribution.
     (b)  No Rights as Stockholder . The Participant shall not be deemed for any purpose to be the owner of any shares of Stock subject to DSUs and shall have no voting rights with respect to the DSUs.
     (c)  Tax Withholding . All distributions under the Plan are subject to withholding of all applicable federal, state, provincial, local and foreign taxes, which obligations shall be satisfied through (i) the issuance by the Company of net shares of Stock, or (ii) the sale by the Company of the number of shares of Stock necessary satisfy such obligations.
     5.  Miscellaneous .
     (a)  Waiver . Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
     (b)  Notices . Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the Director, Corporate Compensation at the Company’s principal executive office.
     (c)  Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
     (d)  No Rights to Continued Service . Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained in any position as a consultant or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which is hereby expressly reserved, to remove, terminate or discharge the Participant at any time for any reason whatsoever.
     (e)  Beneficiary of Non-Québec Participant . The Participant, other than a Participant residing in the Province of Québec, may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the Director, Corporate Compensation at the Company’s principal executive office. If no designated beneficiary survives the Participant, the Participant’s estate shall be deemed to be Participant’s beneficiary.

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     (f)  Beneficiary of Québec Participant . The Participant residing in the Province of Québec may only designate a beneficiary by will. Upon the death of the Participant residing in the Province of Québec, the Company shall settle the DSUs pursuant to Section 2(b) of this Agreement to the liquidator, administrator or executor of the estate of the Participant.
     (g)  Successors . The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant.
     (h)  Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 9 of the Plan.
     (i)  Governing Law . This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Delaware.
     (j)  Headings . The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.
          IN WITNESS WHEREOF, the Company has executed this Agreement as of the day first written above.
             
    ABITIBIBOWATER, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   

5

EXHIBIT 10.12
ABITIBIBOWATER INC. 2010 EQUITY INCENTIVE PLAN
DIRECTOR RESTRICTED STOCK UNIT AGREEMENT
     THIS RESTRICTED STOCK UNIT AGREEMENT, dated as of the third trading day after the date the Company’s 2010 Form 10-K is filed with the Securities and Exchange Commission (the “ Date of Grant ”) is made by and between AbitibiBowater Inc., a Delaware corporation (the “ Company ”), and _______________ (“ Participant ”).
     WHEREAS, the Company has adopted the AbitibiBowater Inc. 2010 Equity Incentive Plan (the “ Plan ”) pursuant to which restricted stock units (“ RSUs ”) may be granted in respect of shares of the Company’s common stock, par value $0.001 per share (“ Stock ”); and
     WHEREAS, the Participant serves as a member of the Board of Directors of the Company (“ Director ”) and the Board of Directors has determined that, subject to the terms set forth herein, a portion of each Director’s compensation should be made in the form of a RSU award to more closely align their interests with those of the Company and its stockholders.
     NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
     1.  Grant of Restricted Stock Unit.
     (a)  Grant . The Company hereby grants to Participant _______________ RSUs, on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan (the “ Initial Grant ”). Each RSU represents the right to receive payment in respect of one share of Stock as of the Settlement Date (defined in Section 2(b)) to the extent the Participant is vested in such RSU as of the Settlement Date, subject to the terms of this Agreement and the Plan.
     (b)  Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Human Resources and Compensation/Nominating and Governance Committee (the “ Committee ”) from time to time pursuant to the Plan. Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon the Participant and his legal representative in respect of any questions arising under the Plan or this Agreement.
     (c)  Acceptance of Agreement . Unless the Participant notifies the Director, Corporate Compensation in writing within 14 days after the Date of Grant that the Participant does not wish to accept this Agreement, the Participant will be deemed to have accepted this Agreement and will be bound by the terms of the Agreement and the Plan. Any such notice may be given to the Director, Corporate Compensation at the Company’s principal executive office.

 


 

     2.  Terms and Conditions .
     (a)  Vesting . Subject to the Participant’s continued service as a Director, twenty five percent (25%) of the RSUs (rounded to the nearest whole RSU) shall vest on the last day of each calendar quarter of the year of the Date of Grant (each such date, a “ Vesting Date ”).
     (b)  Settlement . The obligation to make payments and distributions with respect to RSUs (the “ settlement ”) shall be satisfied through the issuance of one share of Stock for each vested RSU, and the settlement of the RSUs may be subject to such conditions, restrictions and contingencies as the Committee shall determine. One-third of the RSUs shall be settled on March 31 of each of the first three calendar years following the year of the Date of Grant; provided, however, all vested RSUs shall be settled as soon as practicable after the earliest of the Participant’s (i) termination of service as a Director, (ii) death or (iii) Disability, but in no event later than March 15 of the year following the year of such termination of service, death or Disability, as applicable. For purposes of this Agreement, each date on which RSUs are settled pursuant to the preceding sentence shall be a “ Settlement Date .” For purposes of this Agreement and to the extent applicable to the Participant, the term “termination of service” shall be interpreted to comply with Section 409A of the Internal Revenue Code (“ Section 409A ”). To the extent payments are made during the periods permitted under Section 409A (including any applicable periods before or after the specified payment dates set forth in this Section 2(b)), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payment obligations hereunder.
     (c)  Dividend Equivalents and Voting Rights . The Participant will from time to time be credited with additional RSUs (including a fractional RSU), the number of which will be determined by dividing:
          (i) The product obtained by multiplying the amount of each dividend (including extraordinary dividend if so determined by the Company) declared and paid by the Company on the Stock on a per share basis on or after the Date of Grant and before the date on which all RSUs are settled by the number of vested but unsettled and unvested RSUs recorded in Participant’s account on the record date for payment of any such dividend, by
          (ii) The Fair Market Value of one (1) share of Stock on the dividend payment date for such dividend.
     Subject to the Participant’s continued service as a Director, the additional RSUs shall vest and be settled at the same time and on the same proportion as the Initial Grant. No additional RSUs shall be accrued for the benefit of Participant with respect to record dates occurring prior to, or with respect to record dates occurring on or after the date, if any, on which Participant has forfeited the RSUs.
     3.  Termination of Service with Company . Notwithstanding any provision of Section 2 to the contrary, the following vesting and forfeiture provisions shall apply to the Participant’s vested but unsettled and unvested RSUs.
     (a)  Retirement and Involuntary Termination . If the Participant’s service as a Director terminates as a result of “Retirement” or a failure to be re-elected as a Director (other than due to

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death or Disability), then the Participant shall become vested in a prorated number of RSUs. For purposes of the preceding, the prorated portion of the RSUs that is vested as of the Participant’s date of termination, including the portion of the RSUs then already vested, shall be the total number of granted and credited RSUs multiplied by a fraction, the numerator of which shall be the number of full months elapsed from January 1 of the calendar year of the Date of Grant through the date of the Participant’s termination of service as a Director and the denominator of which shall be 12. The term “Retirement” shall mean mandatory retirement at age 72 (or such other age as required by Company’s By-Laws and/or Board of Directors Corporate Governance Principles).
     (b)  Death . If the Participant dies during his period of service as a Director, then, in addition to the RSUs vested as of the date of death under Section 2(a), the RSUs scheduled to vest on the next scheduled Vesting Date shall also vest on the date of death.
     (c)  Disability . If the Participant becomes Disabled, then, in addition to the RSUs then vested under Section 2(a), the RSUs scheduled to vest on the next scheduled Vesting Date shall also vest upon the Participant’s Disability.
     (d)  Termination by the Company for Cause . If the Participant’s service as a Director terminates for Cause, then all outstanding RSUs, whether vested but unsettled or unvested, shall immediately terminate.
     (e)  Other Termination . If the Participant’s service as a Director terminates other than as described in the foregoing provisions of this Section 3, including resignation from the Board of Directors before Retirement, then the Participant shall remain vested in all previously vested RSUs, whether settled or unsettled, but all unvested RSUs shall immediately terminate.
     Notwithstanding anything contained to the contrary in this Section 3, in no event shall any RSUs be settled prior to the applicable Vesting Date except if otherwise determined by the Board of Directors and if permitted under Code Section 409A (to the extent applicable to the Participant).
     4.  Compliance with Legal Requirements . The granting and settlement of the RSUs, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required.
     (a)  Transferability . Unless otherwise provided by the Committee in writing, the RSUs shall not be transferable by Participant other than by will or the laws of descent and distribution.
     (b)  No Rights as Stockholder . The Participant shall not be deemed for any purpose to be the owner of any shares of Stock subject to RSUs and shall have no voting rights with respect to the RSUs.
     (c)  Tax Withholding . All distributions under the Plan are subject to withholding of all applicable federal, state, provincial, local and foreign taxes, which obligations shall be

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satisfied through (i) the issuance by the Company of net shares of Stock, or (ii) the sale by the Company of the number of shares of Stock necessary satisfy such obligations.
     5.  Miscellaneous .
     (a)  Waiver . Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
     (b)  Notices . Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the Director, Corporate Compensation at the Company’s principal executive office.
     (c)  Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
     (d)  No Rights to Continued Service . Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained in any position as a consultant or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which is hereby expressly reserved, to remove, terminate or discharge the Participant at any time for any reason whatsoever.
     (e)  Beneficiary of Non-Québec Participant . The Participant, other than a Participant residing in the Province of Québec, may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the Director, Corporate Compensation at the Company’s principal executive office. If no designated beneficiary survives the Participant, the Participant’s estate shall be deemed to be Participant’s beneficiary.
     (f)  Beneficiary of Québec Participant . The Participant residing in the Province of Québec may only designate a beneficiary by will. Upon the death of the Participant residing in the Province of Québec, the Company shall settle the RSUs pursuant to Section 2(b) of this Agreement to the liquidator, administrator or executor of the estate of the Participant.
     (g)  Successors . The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant.

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     (h)  Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 9 of the Plan.
     (i)  Governing Law . This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Delaware.
     (j)  Headings . The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.
          IN WITNESS WHEREOF, the Company has executed this Agreement as of the day first written above.
             
    ABITIBIBOWATER, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   

5

EXHIBIT 10.13
ABITIBIBOWATER
EXECUTIVE RESTRICTED STOCK UNIT PLAN
Effective as of April 1, 2011

 


 

TABLE OF CONTENTS
             
1.
  Purpose     1  
             
2.
  Definitions     1  
             
3.
  Administration     4  
             
4.
  Election for RSU Award     4  
             
5.
  Restricted Stock Units     6  
             
6.
  Vesting     7  
             
7.
  Payment     8  
             
8.
  Designation of Beneficiary     8  
             
9.
  No Rights as Stockholder     9  
             
10.
  Transferability     9  
             
11.
  Notices and Communications     9  
             
12.
  Limitation of Rights of the Participant     9  
             
13.
  No Rights to Employment     9  
             
14.
  Payments To Incompetents     9  
             
15.
  Claims Procedures     10  
             
16.
  Construction     10  
             
17.
  Amendment or Termination     11  
             
18.
  Funding     11  
             
19.
  Governing Law     11  
             
20.
  Currency     12  
             
21.
  Headings     12  

 


 

AbitibiBowater Executive Restricted Stock Unit Plan
1.   Purpose . This AbitibiBowater Executive Restricted Stock Unit Plan (the “Plan”) provides eligible employees with an avenue to further align their interests with shareholders of the Company by providing eligible employees the opportunity to convert a portion of their annual cash incentive compensation (“Incentive Award”) into restricted stock units (“RSUs”). This document sets forth the terms and conditions for the grant of restricted stock units (“RSUs”) in lieu of an Incentive Award.
 
    The Plan is intended to comply with Code Section 409A and the Income Tax Act (Canada) (“Canadian Tax Act”) and shall be interpreted, administered and operated as necessary to comply with the requirements of Code Section 409A, the Canadian Tax Act and applicable regulations.
 
2.   Definitions . The following words and phrases, when used in this Plan with an initial capital letter, unless the context clearly indicates otherwise, shall have the following meanings, or the meanings as set forth elsewhere in this Plan. Wherever applicable, the masculine pronoun shall include the feminine pronoun and the singular shall include the plural.
  (a)   “Account” means a bookkeeping account established for the benefit of a Participant used to record, for each RSU Award, (i) amounts elected to be converted into RSUs, (ii) the number of corresponding RSUs, (iii) the number of Premium RSUs, (iii) any earnings or losses on such amounts, and/or (iv) any other information determined by the Administrator as necessary or appropriate.
 
  (b)   “Administrator” means the Senior Vice President, Human Resources and Public Affairs, of the Company.
 
  (c)   “Affiliate” has the meaning ascribed to it in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
 
  (d)   “Beneficiary” means the person or persons (including, without limitation, any trustee) last designated by a Participant in accordance with Section 8 to receive the balance of his Account in the event of the Participant’s death. If there is no effective designated Beneficiary on file or surviving Beneficiary, the Participant’s estate shall be the Participant’s Beneficiary.
 
  (e)   “Board” means the Board of Directors of the Company.
 
  (f)   “Canadian Participant” means a Participant who is subject to taxation under the Canadian Tax Act.
 
  (g)   “Cause” means (i) the Company, an Affiliate or a Subsidiary having “cause” to terminate a Participant’s employment or service, as defined in any employment or consulting agreement between the Participant and the Company, an Affiliate or a Subsidiary in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement (or the absence of any definition of

 


 

      “Cause” contained therein), (A) the Participant’s commission of a felony or a crime involving moral turpitude, or other material act or omission involving dishonesty or fraud, (B) Participant’s engaging in conduct that would bring or is reasonably likely to bring the Company, or any of its Affiliates or Subsidiaries into public disgrace or disrepute or that would affect the Company’s or any Affiliate’s or Subsidiary’s business in any material way, (C) the Participant’s failure to perform duties as reasonably directed by the Company (which, if reasonably curable, is not cured within 10 days after notice thereof is provided to the Participant) or (D) the Participant’s gross negligence, willful malfeasance or material act of disloyalty or other breach of fiduciary duty with respect to the Company, its Affiliates or Subsidiaries (which, if reasonably curable, is not cured within 10 days after notice thereof is provided to the Participant). Any determination of whether Cause exists shall be made by the Committee in its sole discretion.
 
  (h)   “Code” means the US Internal Revenue Code of 1986, as amended from time to time. A reference to any provision of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulation or guidance.
 
  (i)   “Committee” means the Human Resources and Compensation/Nominating and Governance Committee of the Board or such members of the Board as are selected by the Board from time to time to administer the Plan.
 
  (j)   “Company” means AbitibiBowater Inc.
 
  (k)   “Conversion Date” means, unless otherwise determined by the Committee, the date on which the Incentive Award would otherwise be paid in cash to the Participant.
 
  (l)   “Eligible Employee” means an individual employed by the Company or any Affiliate in Salary Grade 29 or higher.
 
  (m)   “Effective Date” means April 1, 2011, the date the Company established the Plan.
 
  (n)   “Fair Market Value” means, on a given date, (i) if the Stock is listed on a national securities exchange, the simple arithmetic mean between the highest and lowest prices per share at which the Stock is traded as reported for the national securities exchange for the trading day immediately preceding that date, or if not so traded, the simple arithmetic mean between the closing bid-and-asked prices thereof as reported for such national securities exchange for the trading day immediately preceding that date, rounded to the nearest number within two decimal places; (ii) if the Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the simple arithmetic mean between the closing bid-and-asked prices thereof as reported for such quotation system for the applicable date of determination, rounded to the nearest number within two decimal places; or (iii) if the Stock is not listed on a national securities

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      exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Stock.
 
  (o)   “Incentive Award” means the annual cash incentive award earned by and payable to a Participant under a regular, annual incentive plan or program established by the Company, but does not include any other cash incentive, non-recurring or multi-year incentive award, unless authorized by the Committee.
 
  (p)   “Participant” means an Eligible Employee who has made an election for a RSU Award pursuant to the Plan and for whom an Account is maintained hereunder.
 
  (q)   “Plan” means the AbitibiBowater Executive Restricted Stock Unit Plan, as provided herein and as may be amended from time to time.
 
  (r)   “Premium RSUs” means the number of RSUs covered by an RSU Award that represents a number of RSUs determined by dividing 10% of the amount of the Incentive Award elected to be subject to the RSU Award by the Fair Market Value of a share of Stock on the Conversion Date.
 
  (s)   “Restricted Stock Unit” or “RSU” means the right to receive payment in cash in an amount equal to the Fair Market Value of one share of Stock, determined as of the Vesting Date. Unless otherwise provided or if the context requires otherwise, the reference to RSUs includes Premium RSUs.
 
  (t)   “RSU Award” means the grant of RSUs pursuant to a valid and timely filed written election by an Eligible Employee to convert a permitted and elected percentage of his Incentive Award into RSUs as of the Conversion Date.
 
  (u)   “Separation from Service” means a termination of employment with the Company and other entities affiliated with the Company. For U.S. Participants, whether a Separation from Service occurs shall be determined and interpreted in accordance with Code Section 409A and applicable regulations. For purposes of interpreting Code Section 409A, whether an entity is affiliated with the Company shall be determined pursuant to the controlled group rules of Code Section 414, as modified by Code Section 409A.
 
  (v)   “Stock” means the common stock of the Company, par value $.001.
 
  (w)   “Subsidiary” means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee.
 
  (x)   “U.S. Participant” means a Participant who is subject to taxation under the US Internal Revenue Code.

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  (y)   “Vesting Date” means the date on which all or a portion of the non-Premium RSUs become payable and the Premium RSUs become nonforfeitable and payable.
3.   Administration . The Committee shall administer the Plan, provided that the Committee may delegate responsibility for administration to such person or persons as it deems appropriate from time to time. The Committee shall have all the discretion and authority to take any action that it may deem necessary or desirable in connection with the administration of the Plan, including without limitation:
  (a)   to establish, modify and revoke rules relating to the Plan;
 
  (b)   to interpret and construe the terms of the Plan, any rules under the Plan and the terms and conditions of any RSU Award granted under the Plan;
 
  (c)   to approve the form and content of any documentation relating to RSU Awards under the Plan or Plan administration; and
 
  (d)   consistent with the express provisions of the Plan, to approve, establish and amend the terms governing an RSU Award under the Plan.
    All determinations, interpretations and decisions made by the Committee under or with respect to the Plan shall be final, conclusive and binding on the Company, and Participants and any Beneficiary. No member of the Committee shall be liable for any action taken in good faith with respect to the Plan. Notwithstanding the foregoing, the Administrator shall have the authority to approve the form and content of any election or beneficiary forms for the efficient administration of the Plan.
 
4.   Election for RSU Award . For any given Incentive Award, the Committee has the discretion to offer the opportunity to Eligible Employees to make an election to receive a RSU Award. If the Committee offers such opportunity, an Eligible Employee may elect to receive 50% or 100% of his Incentive Award as an RSU Award if he completes and timely delivers to the Administrator (or his designee) a written election. Once made, the Eligible Employee shall become a Participant in the Plan. An election for an RSU Award shall only be given effect if the Incentive Award to which it relates is otherwise approved and paid in the calendar year following the calendar year in which the Incentive Award is earned (i.e. the performance period). To be considered timely, a Participant must deliver the written election as follows and as determined by the Administrator:
  (a)   General Rule.
  (i)   Canadian Participants . A Canadian Participant’s written election for an RSU Award shall be filed with the Administrator by December 15 of the calendar year preceding the Conversion Date. In this circumstance, the election shall be irrevocable as of December 16 of the calendar year preceding the Conversion Date.

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  (ii)   U.S. Participants . A U.S. Participant’s written election for an RSU Award shall be filed with the Administrator before the beginning of the calendar year in which the Incentive Award is earned (i.e. the performance period). In this circumstance, the election shall be irrevocable as of January 1 of the calendar year in which the Incentive Award is earned.
  (b)   Performance Based Exception. To the extent the Committee determines that an Incentive Award constitutes “performance based compensation” (within the meaning of Code Section 409A and regulations issued thereunder), the Administrator may permit a U.S. Participant to file a written election with the Administrator no later than June 30 (or such earlier date) of the performance period for the Incentive Award. In no event shall a written election for performance based compensation be filed when such compensation is readily ascertainable (within the meaning of Code Section 409A and regulations issued thereunder). In this circumstance, the election shall be irrevocable as of the deadline established by the Administrator.
 
  (c)   Newly Eligible Employees. Notwithstanding the foregoing, an individual who first becomes an Eligible Employee and intends to receive an RSU Award must complete and file an election with the Administrator.
  (i)   Canadian Eligible Employees . A Canadian Eligible Employee’s written election for an RSU Award shall be filed with the Administrator by December 15 of the calendar year preceding the Conversion Date. In this circumstance, the election shall be irrevocable as of December 16 of the calendar year preceding the Conversion Date.
 
  (ii)   U.S. Eligible Employees . A U.S. Eligible Employee’s written election for an RSU Award shall be filed with the Administrator within 30 days after such individual becomes an Eligible Employee. In this circumstance, the election shall be irrevocable as of the day after the 30 day period expires. Any RSU Award received in respect of such election shall be determined pursuant to Section 5(a), but taking into account only the Incentive Award earned for calendar months beginning after the election is filed and accepted by the Administrator, unless Section 4(b) permits the election to apply to the entire Incentive Award earned by such U.S. Eligible Employee.
  (d)   Annual Elections. An Eligible Employee must make a separate election for each Incentive Award that he intends to defer as an RSU Award. A Participant’s written election shall constitute the Participant’s acceptance of the terms and conditions of the Plan and each RSU Award. If no election is made or the Committee does not offer the RSU Award election opportunity, the Participant shall receive his entire Incentive Award in cash at the time it would otherwise be paid.

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  (e)   Election Forms. The election materials shall provide the Participant with all materials terms of the RSU Award, including, but not limited to, the percentage of the premium offered and vesting schedule.
 
  (f)   Termination of Employment. In the event an Eligible Employee Separates from Service after he files an election for an RSU Award and before the Conversion Date, the Eligible Employee shall not receive the RSU Award subject to such election. Instead, the Eligible Employee shall receive payment, if any, of his Incentive Award pursuant to the terms of the short-term incentive plan or program that governs such Incentive Award.
5.   Restricted Stock Units .
  (a)   Determination of RSUs . For each RSU Award elected by a Participant, a number of RSUs will be credited to the Participant’s Account as of the Conversion Date. Unless otherwise decided by the Committee, the number of RSUs (including fractional RSUs) to be credited is determined by dividing (i) 110% of the amount of the Incentive Award elected by the Participant to be subject to a RSU Award by (ii) the Fair Market Value of the Stock as of the Conversion Date. The Committee reserves the discretion to modify the premium to be applied for any given RSU Award, which premium shall be communicated when the election is solicited. The Accounts shall not be used to segregate assets for payment of any amounts deferred or allocated under the Plan, and shall not constitute or be treated as a trust fund of any kind. The Administrator shall provide a Participant with a statement, in such form as he determines, containing the material terms of the RSU Award, including the number of non-Premium RSUs and Premium RSUs covered by the RSU Award.
 
  (b)   Earnings and Adjustments .
  (i)   Dividend Equivalents . With respect to dividend record dates occurring during the period in which RSUs are credited to a Participant’s Account, the Participant’s Account will be credited with additional RSUs (including a fractional RSU), the number of which will be determined by dividing: (A) the product obtained by multiplying the amount of each dividend (including extraordinary dividend if so determined by the Company) declared and paid by the Company on the Stock on a per share basis during the Vesting Period by the number of RSUs credited to a Participant’s Account on the record date for payment of any such dividend, by (B) the Fair Market Value of one share of Stock on the dividend payment date for such dividend. The additional RSUs shall be payable at the same time and in the same proportion as the RSUs covered by the RSU Award to which the dividend equivalents relate. Dividend equivalents that relate to Premium RSUs shall vest at the same time and in the same proportion as the Premium RSUs to which they relate. No additional RSUs shall be accrued with respect to an RSU Award for the benefit of a Participant for any record dates occurring prior to, or record

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      dates occurring on or after the date, if any, on which a Participant has received payment of the RSUs and/or forfeited any Premium RSUs.
 
  (ii)   Adjustments . In the event of (A) a corporate transaction involving the Company (including, without limitation, any dividend (other than regular cash dividends or other distribution (whether in the form of cash, shares of Stock, other securities or other property), stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, sale of assets or subsidiaries, combination or exchange of shares, issuance of warrants or other rights to acquire Stock or other securities of the Company), (B) other similar corporate transaction or event that affects the shares of Stock, or (C) unusual or nonrecurring events affecting the Company, any Affiliate or Subsidiary, or the financial statements of the Company, any Affiliate or Subsidiary, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, then the Committee shall make an adjustment to the amount payable with respect to the RSUs that the Committee determines to be equitable to prevent undue dilution or enlargement of the intended benefits or potential benefits of the RSU Award consistent with the purposes of the Plan. The Company shall give each Participant notice of any adjustment. Any such adjustment shall be conclusive and binding for all purposes.
6.   Vesting .
  (a)   For any given RSU Award, a Participant shall, at all times, have a nonforfeitable right to non-Premium RSUs, which are (i) the number of RSUs determined by dividing 100% of the amount of the Incentive Award elected by a Participant to be subject to the RSU Award by the Fair Market Value of a share of Stock on the Conversion Date and (ii) any additional RSUs credited as dividend equivalents that relate to such RSUs.
 
  (b)   Subject to continued employment with the Company or any Affiliate and subsection (c), the Premium RSUs shall vest over a period that begins on January 1 preceding the Conversion Date and ending on December 15 of the second year following the year containing the Conversion Date (the “Vesting Period”). During the Vesting Period, one-third of the Premium RSUs (rounded to the nearest whole RSU) shall vest on each December 15.
 
  (c)   In the event of a Participant’s death or Separation from Service for any reason other than a voluntary termination of employment or Cause (including involuntary termination without Cause or disability), the Participant shall become vested in all non-vested Premium RSUs. In the event of a Separation from Service due to Cause, the Participant shall forfeit any vested, but not paid, and non-vested Premium RSUs. In the event of a voluntary Separation from Service, the Participant shall forfeit any non-vested Premium RSUs.

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7.   Payment .
  (a)   Time of Payment. Non-Premium RSUs and vested Premium RSUs shall be paid in a single lump sum cash payment as follows:
  (i)   Canadian Participants . Payment to Canadian Participants shall be made as soon as administratively feasible upon the earliest to occur of:
  (A)   the applicable Vesting Date described in Section 6(b),
 
  (B)   the Participant’s Separation from Service, and
 
  (C)   the Participant’s death.
      In no event shall payment of any RSUs be made later than December 31 of the second calendar year following the calendar year in which the Conversion Date occurs.
 
  (ii)   U.S. Participants . Payment to U.S. Participants shall be made as soon as administratively feasible upon the earliest to occur of:
  (A)   the applicable Vesting Date described in Section 6(b),
 
  (B)   the first day of the seventh month following the Participant’s Separation from Service, and
 
  (C)   the Participant’s death.
  (b)   Amount of Payment. The Participant shall be entitled to receive an amount equal to the Fair Market Value of a share of Stock multiplied by the number of non-Premium RSUs and vested Premium RSUs to be settled. Fair Market Value shall be determined as of the Vesting Date described in Section 6(b) or 6(c), as applicable, except that if payment for a U.S. Participant is made pursuant to Section 7(a)(ii)(B), Fair Market Value shall be determined as of the first day of the seventh month following such U.S. Participant’s Separation from Service. Any amount paid to a Participant shall be less any required taxes.
8.   Designation of Beneficiary .
  (a)   Each Participant other than a Participant residing in the Province of Québec shall designate on forms provided by the Administrator, signed by the Participant and delivered to the Administrator, the Beneficiary or Beneficiaries to receive the balance credited to the Participant’s Account in the event of his death. A Participant may, from time to time, change the designated Beneficiary or Beneficiaries, without the consent of such Beneficiary or Beneficiaries, by delivering to the Administrator a new written and signed designation of Beneficiary. The Participant’s spouse, if any, shall not be required to consent in writing to any non-spouse designation. The Participant may designate primary or

8


 

      contingent Beneficiaries. The written designation last delivered and signed by the Participant shall be effective and supersede all prior designations on file with the Administrator.
 
  (b)   Each Participant residing in the Province of Québec may only designate a beneficiary by will. Upon the death of a Participant residing in the Province of Québec, the Participant’s Account shall be distributed to the liquidator, administrator or executor of his estate.
9.   No Rights as Stockholder . A Participant shall not be a shareholder of record with respect to RSUs and shall have no voting rights with respect to the RSUs.
 
10.   Transferability . Unless otherwise provided by the Committee in writing, the RSUs shall not be transferable by the Participant other than by will or the laws of descent and distribution.
 
11.   Notices and Communications . All notices, statements, reports and other communications from the Administrator to any Participant, Beneficiary or other person required or permitted under the Plan shall be deemed to have been duly given when personally delivered to, when transmitted via facsimile or other electronic media or when mailed overnight or by first-class mail, postage prepaid and addressed to, such Participant, Beneficiary or other person at his last known address on the Company’s records. All elections, designations, requests, notices, instructions and other communications from a Participant, Beneficiary or other person to the Administrator required or permitted under the Plan shall be in such form as is prescribed from time to time by the Administrator, and shall be mailed by first-class mail, transmitted via facsimile or other electronic media or delivered to such location as shall be specified by the Administrator. Such communication shall be deemed to have been given and delivered only upon actual receipt by the Administrator at such location.
 
12.   Limitation of Rights of the Participant . Inclusion under the Plan shall not give a Participant any right or claim to a benefit, except as specifically defined in this Plan. The establishment of the Plan shall not be construed as giving any Participant a right to be continued in service as a Participant of the Company.
 
13.   No Rights to Employment . Nothing contained in the Plan or any communication provided to Participants shall be construed as giving any Participant a right to be retained, in any position, as an employee, consultant or director of the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge a Participant at any time for any reason whatsoever.
 
14.   Payments To Incompetents . In the event that any payment hereunder becomes payable to a person adjudicated to be incompetent, payment thereof to the guardian or legal representative of such person shall constitute full and complete compliance herewith and entitle the Company to discharge with respect thereto.

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15.   Claims Procedures
  (a)   Initial Claims. If an individual believes he is entitled to benefits, or to greater benefits than are paid under the Plan, the individual may file a claim for benefits with the Claims Administrator. The Director, Corporate Compensation, will serve as the Claims Administrator for all initial claims for benefits and will either accept or deny the claim, and will notify the claimant of acceptance or denial of the claim.
 
      The Administrator shall notify the claimant of an adverse benefit determination within 90 days after receipt of the claim by the Claims Administrator, unless the Claims Administrator determines that special circumstances require an extension of time for processing the claim. If the Claims Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90 day period.
 
  (b)   Right to Appeal. A claimant may appeal the denial of his claim and have the Claims Administrator reconsider the decision. The claimant or the claimant’s authorized representative has the right to request an appeal by written request to the Claims Administrator no later than 60 days after receipt of notice from the Claims Administrator denying the employee’s claim.
 
      The claimant will be advised of the Claims Administrator’s decision on the appeal in writing, no later than 60 days after receipt of the claimant’s request for review by the Claims Administrator, unless the Claims Administrator determines that special circumstances require an extension of time for processing the claim. If the Claims Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 60-day period. In no event shall such extension exceed a period of 60 days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Claims Administrator expects to render the determination on review.
 
      In no event shall a claimant or any other person be entitled to challenge a decision of the Administrator in court or in any other administrative proceeding unless and until the claim and appeal procedures described above have been complied with and exhausted. Any such action must be initiated not more than 180 days after receipt of the determination on review of the adverse claim decision.
 
      Decisions and any notices may be furnished electronically.
16.   Construction .
  (a)   The decision of the Committee on all matters concerning the interpretation and administration of this Plan shall be final. Each Participant agrees, as a condition to participation herein, to be bound by all actions and interpretations regarding this Plan by the Committee. Neither the Board, the Committee, any individual

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      Participant nor any persons acting on their behalf shall be subject to any liability to any Participant or other person in the construction and administration of this Plan.
 
  (b)   Notwithstanding any other provision of this Plan, it is intended that all RSUs granted under this Plan which are considered to be deferred compensation subject to Code Section 409A shall be provided and paid in a manner, and at such time, including without limitation payment only in connection with a permissible payment event contained in Code Section 409A (e.g., separation from service from the Company and its affiliates as defined for purposes of Code Section 409A), and in such form, as complies with the applicable requirements of Code Section 409A, to avoid the unfavorable tax consequences provided therein for non-compliance. In addition, it is intended that all RSUs granted to Canadian Participants under this Plan shall be provided and paid in a manner, and at such time, and in such form, as complies with the applicable requirements of paragraph (k) of the definition of “salary deferral arrangement” in Section 248 of the Canadian Tax Act, to avoid the unfavorable tax consequences provided therein for non-compliance. Notwithstanding the foregoing, none of the Company or its affiliates or the Committee shall be liable to any person if such person is subject to any additional tax, penalty or interest as a result of failure to comply with Code Section 409A or paragraph (k) of the definition of “salary deferral arrangement” in Section 248 of the Canadian Tax Act.
17.   Amendment or Termination . The Company reserves the right at any time, and from time to time, by action of a majority of the Committee to amend, in whole or in part, any or all of the provisions of this Plan. The Company reserves the right to terminate the Plan at any time. Notwithstanding the foregoing, no such amendment or termination shall adversely affect benefits under this Plan already being paid or having become unconditionally payable pursuant to the terms hereof. Upon termination of the Plan, the Company reserves the discretion to accelerate distribution of Participants’ Accounts in accordance with regulations promulgated by the Department of the Treasury under Code Section 409A.
 
18.   Funding . The Company’s obligations under this Plan shall be unfunded and the Company shall not be obligated under any circumstances to fund its obligations under this Plan. Notwithstanding the foregoing, the Company may, but shall have no obligation to, authorize the creation of one or more trusts and deposit therein cash or property, or make other arrangements to meet the payment obligations under the Plan; provided that such trusts or other arrangements, if established, shall be consistent with the unfunded status of the Plan. The rights of a Participant to the payment of benefits under the Plan shall be no greater than the rights of an unsecured creditor of the Company, and nothing in the Plan shall be construed to give any Participant or any other person rights to any specific assets of the Company, any of its subsidiaries or affiliates, or any other person.
 
19.   Governing Law . This Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware and, subject to Section 17 above, shall be binding upon the

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    Company and its successors, including any successor which acquires all or substantially all of the assets of the Company.
 
20.   Currency . Payments made under the Plan shall be determined in the same currency in which a Participant receives his other cash compensation.
 
21.   Headings . Headings and subheadings in the Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.
*    *    *
          IN WITNESS WHEREOF, the following authorized officer of the Company has executed the Plan to evidence its adoption by the Company as of the date set forth below.
         
  ABITIBIBOWATER INC.
 
 
  By:   /s/ Richard Garneau    
    Richard Garneau   
  Its: President and Chief Executive Officer   
  Dated: March 30, 2011  
 

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Exhibit 10.16
Summary of 2011 AbitibiBowater Inc. Short-Term Incentive Plan
On January 7, 2011, the human resources and compensation/nominating and governance committee of AbitibiBowater Inc.’s (the “Company”) board of directors adopted the material terms of the 2011 AbitibiBowater Inc. Short-Term Incentive Plan, or the “2011 STIP”. As of the date of the filing of this Annual Report on Form 10-K, the 2011 STIP has not been reduced to writing. The following is a summary of the expected terms of the 2011 STIP, as previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on January 13, 2011.
The 2011 STIP, provides that participating employees, including each of the Company’s named executive officers, are eligible to receive cash incentive awards expressed as a percentage of their base salaries, based on certain quantitative Company performance goals over the 2011 annual period. In respect of the Company’s named executive officers, the target and maximum incentive awards are 100% and 150% of base salary, with no applicable minimum, and the applicable performance metrics may include: income from operations, manufacturing cash cost reductions, reduction in selling and administrative expenses, frequency of safety incidents and severity of safety incidents.
Awards, if granted, are expected to be made in the first quarter of 2012. The aggregate amount payable under the 2011 STIP for all eligible employees is limited to 7% of the Company’s 2011 free cash flow (defined as income from operations adjusted for cash interest, cash reorganization costs, depreciation, pension funding, cash taxes, working capital variation and maintenance capital expenditures).
Employees remain eligible for pro rated awards if they voluntarily retire or are terminated other than for cause during the year. Employees who voluntarily resign or are terminated for cause will not be eligible. The 2011 STIP is administered by the human resources and compensation/nominating and governance committee. The committee may adjust financial and cost metrics, and may adjust any and all awards in its discretion. Awards are discretionary and subject to modification until they are made, including increases, decreases, cancellations, deferrals and other conditions, even if performance levels have been met.

EXHIBIT 10.17
[LETTERHEAD OF ABITIBIBOWATER INC.]
October 26, 2010
Mr. David J. Paterson
2350 Mt. Paran Road NW
Atlanta, GA 30327
Re: Terms of Employment Post Emergence
Dear Dave,
This letter is intended to document for you important information concerning changes in your compensation, benefits and other conditions of service upon the company’s anticipated emergence from bankruptcy in the coming weeks. As you are aware from the emergence plan, these changes become effective on the date of emergence or as otherwise described in the details that follow. Please note that this is a summary of conditions, the whole intended to be in accordance with and pursuant to the filed restructuring plans.
As of emergence, you will continue to occupy your position of President and Chief Executive Officer, in the new AbitibiBowater Inc.
The terms and conditions of your employment post emergence are detailed below.
     
Location:
  Montreal, Quebec, Canada
 
   
Effective Date:
  These terms and conditions are contingent on approval of the restructuring plans and will be effective on the date of emergence.
 
   
Compensation:
  Your annual base salary will be US$765,000.
You will be eligible to participate in a short-term incentive plan effective for quarters 3 and 4 of 2010, with target award payout of 50% of your base salary. For the 2011 short-term incentive plan, you will be eligible for a target level of 100% of base salary.
The independent directors of the current Board of Directors recommend to the Human Resources Compensation/Nominating and Governance Committee of the new Board of Directors (the “Committee”) to award you a restructuring recognition award in the amount of US$765,000, to be paid as soon as practical following emergence.
Additionally, we have put in place an equity award program, to be effective on the date of emergence. The independent directors of the current Board of Directors recommend to the Committee to award you an initial grant under this program equivalent to 225% of your base salary as soon as practical following emergence.

 


 

You will also continue to be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination and parking.
Other benefits:
You will maintain participation in various benefit plans such as pension, group insurance, and vacation.
Upon emergence, you will continue your participation in your defined contributions (DC) pension plan and you will participate in a new DC SERP to be put in place by the Company, at the following levels of contribution:
         
    Employee   Company
Contributions   Contributions   Contributions
Basic
  5% of eligible earnings*   10.5% of eligible earnings
 
       
Additional
  None   12% of eligible earnings
 
*   Up to the Compensation Limit (U.S.A.)
Provided you waive all your SERP claims in the creditor protection proceedings, your SERP benefits accrued up to the date of emergence will be reinstated and fully recognized in new SERPs to be put in place by the Company, provided that all defined benefits (DB) available under such new SERPs will be frozen as of the date of emergence. Lump sums will continue to be paid as per pre-filing practice, provided that if you have accrued benefits pursuant to a Canadian DB SERP, the Company intends to pay you such benefits as a lump sum once you retire, unless these benefits have been secured in part or in total, in which case they would be paid in the form of monthly payments.
***
You will receive shortly a separate letter providing you more details with respect to the enrolment in the DC pension plan.
Severance
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination for a “good reason”. The emergence of

 


 

the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy.
Prior Agreements
Pursuant to the restructuring plans, all your prior management agreements with the Company (e.g. employment., severance pay and change in control agreements) are being rejected as of the date of emergence.
***
Enclosed for your reference are the corresponding Fact Sheets for the various compensation and benefits programs listed above. The complete 2010 Equity Plan is also available upon request, while the complete plan text of other programs will be available at a later date.
We are excited about the outlook of the newly emerged company and look forward to your continued leadership.
/s/ Richard B. Evans
Richard B. Evans
Chairman
I have read the present letter and hereby accepted these terms and conditions.
         
/s/ David J. Paterson
 
David J. Paterson
  10/27/10
 
Date
   
Enclosures

 

EXHIBIT 10.18
EXECUTION COPY
SEPARATION AGREEMENT
      THIS SEPARATION AGREEMENT (this “Agreement”) is made and entered into this 10th day of December, 2010, by and between DAVID J. PATERSON (“Executive”) and ABITIBIBOWATER INC ., a Delaware corporation (“Company”). Executive and Company are sometimes hereinafter referred to together as the “Parties” and individually as a “Party.”
BACKGROUND:
     A. Executive is employed as the Chief Executive Officer and President of Company.
     B. Executive and Company now mutually desire to end Executive’s employment pursuant to the terms set forth herein.
     C. Company and Executive wish to avoid any disputes which could arise by agreeing to the terms of this Agreement.
      NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual promises, covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
     1.  Termination of Employment . The Parties agree that (a) Executive will resign as Chief Executive Officer and President of Company, and from the Board of Directors of the Company as well as any subsidiaries of the Company upon which Executive is serving, effective as of December 31, 2010, (b) Executive will remain employed by Company as Special Executive Advisor, reporting to the Board of Directors of the Company, effective January 1, 2011 until January 31, 2011, (c) Executive’s employment with the Company, and all benefits, privileges and authorities related to Executive’s employment with Company, will end on January 31, 2011 (the “Separation Date”), except as otherwise specifically set forth in this Agreement, and (d) the initial presentation of this Agreement on December 7, 2010 constituted written notice to Executive of the separation and delivery of the form Release (as defined below) for Executive’s consideration.
     2.  No Admission . The Parties agree that their entry into this Agreement is not and shall not be construed to be an admission of liability or wrongdoing on the part of either Party.
     3.  Future Cooperation . Executive agrees that after the termination of his employment and the Consulting Period (as defined below), Executive upon reasonable notice, and not interfering with Executive’s other full-time business endeavors, will make himself available to Company or its designated representatives for the purposes of providing information regarding any matter which Executive was involved while employed by Company. Company shall pay for all reasonable and documented travel expenses as may be incurred by Executive in connection with complying with this Section 3.

 


 

     4.  Consideration .
          (a) In consideration for Executive’s agreement to fully release Company from any and all claims as described below, and to perform the other duties and obligations of Executive contained herein, and provided Executive remains employed with Company until the Separation Date as described above, or in the event, prior to the Separation Date, Company terminates Executive’s employment without Cause (as defined below); Executives terminates his employment for Good Reason (as defined below); Executive is incapacitated due to any mental or physical impairment which makes Executive unable to perform the essential duties and responsibilities of his position, with or without reasonable accommodation (“Disability”); or Executive dies (any such events occurring prior to the Separation Date collectively referred to as an “Early Separation Date”), Company will, subject to ordinary and lawful deductions and Sections 4(b) and 22 below:
          (i) Pay cash severance to Executive in the amount of One Million Three Hundred Thirty-Eight Thousand Dollars ($1,338,000) in a single lump sum within fifteen (15) days following the Separation Date or, if earlier, the Early Separation Date.
          (ii) Continue after the Separation Date or, if earlier, the Early Separation Date, any health care (medical, dental, prescription drug and vision) plan coverage, other than under a flexible spending account which shall be provided in accordance with applicable plan terms and practices, provided to Executive and Executive’s spouse and dependents at such date, for up to eighteen (18) months following such date, on the same basis, at no cost to Executive (including tax cost), as available to similarly-situated active employees during such eighteen (18) months, provided Executive and Executive’s spouse and dependents at such date are eligible for, elect and remain eligible for such continued coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).
          (iii) Pay to Executive the cash amount of Four Hundred Thirty Thousand Dollars ($430,000), in lieu of any grant of awards under the Company’s LTIP (as described below) and any continued vesting therein, in a single lump sum on July 31, 2011.
          (b) Notwithstanding anything else contained herein to the contrary, no payments shall be made or benefits delivered under this Agreement (other than payments required to be made by Company pursuant to Section 5 below) unless, within thirty (30) days after the Separation Date or, if earlier, the Early Separation Date, (i) Executive (or his legal representative in the case of Executive’s incapacity or death) has signed and delivered to Company a Release in the form attached hereto as Exhibit A (the “Release”), which will release, discharge and hold harmless Company and its subsidiaries, divisions and affiliates and their respective officers, directors, employees, agents, insurers, assigns and successors in interest from any and all claims Executive has or might have at such time, and (ii) the applicable revocation period under the Release has expired without Executive (or his legal representative in the case of Executive’s incapacity or death) having elected to revoke the Release. Executive agrees and acknowledges that Executive would not be entitled to the consideration described herein absent execution of the Release. Any payments to be made, or benefits to be delivered, under this

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Agreement (other than the payments required to be made by Company pursuant to Section 5 below) prior to Executive’s execution of the Release and the applicable revocation period having expired without Executive having revoked same, shall be accumulated and, subject to Section 22, paid as soon as administratively practicable, but in no event later than March 15, 2011, in a lump sum after Executive (or his legal representative in the case of his incapacity or death) delivers the signed Release and the revocation period thereunder expires without Executive (or his legal representative in the case of his incapacity or death) having elected to revoke same; provided, if such payment date could occur in either of two taxable years of Executive, then such payment shall be made in the later taxable year.
          (c) As a further condition to receipt of the payments and benefits in Section 4(a) above, Executive also waives any and all rights to any other amounts payable to him upon the termination of his employment relationship with Company, other than those specifically set forth in this Agreement, including without limitation any severance, notice rights, payments, benefits and other amounts to which Executive may otherwise be entitled, and Executive agrees not to pursue or claim any such payments, benefits or rights.
          (d) For purposes of this Agreement, “Cause” shall mean:
          (i) Executive’s gross negligence or willful misconduct in connection with the performance of Executive’s duties with Company (whether as an employee or consultant); or
          (ii) Executive’s conviction of, or entering of a guilty plea or plea of no contest with respect to, any felony; or
          (iii) Executive’s material breach of a material term of this Agreement.
No act or omission to act by Executive shall be “willful” if conducted in good faith and with a reasonable belief that such act or omission was in the best interests of the Company.
          (e) For purposes of this Agreement, “Good Reason” shall mean:
          (i) any action taken by Company which results in a substantial and material reduction in Executive’s authority, duties or responsibilities, including reporting responsibilities (except for any change in the foregoing as described herein);
          (ii) the relocation of Executive to any other primary place of employment other than Montreal, Canada, prior to January 1, 2011, and Atlanta, Georgia, on and after January 1, 2011, which might require Executive to move Executive’s residence which, for this purpose, means any reassignment to a place of employment located more than fifty (50) miles from Montreal, Canada, prior to January 1, 2011, and Atlanta, Georgia, on and after January 1, 2011, without the Executive’s express written consent to such relocation; or
          (iii) any material failure by Company to comply with the material terms of this Agreement.

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     Notwithstanding the above, and without limitation, “Good Reason” shall not include any resignation by Executive where Cause for Executive’s termination by Company exists. Executive must give Company notice of any event or condition that would constitute “Good Reason” within thirty (30) days of Executive’s knowledge of the event or condition which would constitute “Good Reason,” upon which notice Company shall have thirty (30) days to remedy such event or condition, and, if such event or condition is not remedied within such period, Executive must terminate his employment for “Good Reason” within thirty (30) days after the period for remedying such condition or event has expired.
          (f) Notwithstanding the foregoing, Executive will not be entitled to receive any of the payments or benefits set forth in Section 4(a) above or Section 6 below if, prior to the Separation Date, Executive (i) terminates his employment voluntarily other than for Good Reason (and other than due to Disability) or (ii) has his employment terminated involuntarily by Company for Cause.
     5.  Other Benefits . Nothing in this Agreement or the Release shall:
          (a) alter or reduce any vested, accrued benefits (if any) Executive may be entitled to receive under any 401(k), profit sharing, pension or other qualified retirement plan established Company;
          (b) affect Executive’s right (if any) to elect and (subject to Section 4(a)(ii) above) pay for continuation of Executive’s health insurance coverage under Company’s health plans pursuant to the COBRA;
          (c) affect Executive’s right (if any) to receive (i) any base salary that accrues through the date of termination of Executive’s employment and is unpaid, (ii) any reimbursable expenses that Executive incurs before the termination of Executive’s employment and are unpaid and (iii) any unused vacation or paid time off days to which Executive is entitled to payment, all of which shall be paid as soon as administratively practicable (and in any event within thirty (30) days) after the termination of Executive’s employment;
          (d) alter or reduce the vested benefits to which Executive is entitled under Company’s short-term incentive plan (“STIP”) and Company’s deferred compensation and other non-qualified retirement/savings plans, which shall be paid in accordance with their terms and any related award agreements, except that Executive will not receive any awards under Company’s long-term incentive plan (“LTIP”) in return for the payment set forth in Section 4(a)(iii) above on the terms described therein;
          (e) affect Executive’s right to receive the emergence bonus upon confirmation of Company’s plan of reorganization; or
          (f) affect Executive’s right to continue to receive his base salary, bonuses and STIP, perquisites and benefits (other than LTIP and any awards thereunder) through the date of termination of Executive’s employment, as in effect or contemplated as of the date hereof, which will continue through the date of termination of Executive’s employment, except with respect to any changes that are applicable generally to the other executives of Company or otherwise specifically set forth in this Agreement.

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     6.  Consulting Agreement .
          (a) Effective immediately after the Separation Date or, if earlier, the Early Separation Date, and for the six (6)-month period thereafter (the “Consulting Period”), subject to Section 4(b) above, Company will retain Executive, as an independent contractor, to consult with and advise Company and to provide Company advice and other management consulting services on all aspects of Company’s operations or as otherwise assigned and directed by Company’s Chief Executive Officer or Board of Directors. Either Executive or Company may terminate this consulting arrangement prior to end of the Consulting Period by giving sixty (60) days’ prior written notice of termination to the other party.
          (b) Executive shall be reasonably available to Company during its normal business hours to consult with and advise Company upon request during the Consulting Period. Executive shall have no responsibilities or duties except the rendering of advisory services to Company when solicited for such advice by the Chief Executive Officer or Board of Directors of Company.
          (c) Subject to Section 4(b) above, Company shall pay to Executive the amount of Executive One Hundred Fifty Thousand Dollars ($150,000) per month, on the first day of each monthly period of the Consulting Period, for each month or portion thereof Executive remains available to provide consulting services as described above. Company shall reimburse Executive for all reasonable out-of-pocket expenses actually incurred by Executive while rendering consulting services under this Agreement upon the submission by Executive, from time to time but no later than thirty (30) days after incurring such expenses, of an itemized account of such expenditures in accordance with Company’s policies on expense reimbursements. In the event, if prior to the end of the Consulting Period, (i) Company terminates this consulting arrangement without Cause; (ii) Executive terminates this consulting arrangement for Good Reason; (iii) Executive is Disabled; or (iv) Executive dies, Company shall continue to pay Executive (or Executive’s estate in the event of his death) the consulting fees above, as set forth above, for the unexpired duration of the Consulting Period notwithstanding Executive is no longer rendering consulting services. No further consulting fees will be payable on and after the time this consulting arrangement terminates because (i) Executive terminates this consulting arrangement voluntarily other than for Good Reason or due to Disability or (ii) Company terminates this consulting arrangement for Cause. For purposes of this consulting arrangement, “Cause” shall mean as described in Section 4(d) above and “Good Reason” shall mean as described above in Section 4(e) (disregarding for this purpose Sections 4(e)(i) and (ii)).
          (d) Executive will not be required to maintain an office in Montreal, Canada or any other place during the Consulting Period and may perform his consulting services from a location of his selection; however, Executive agrees to reasonable travel as may be required to render the consulting services under this arrangement.
          (e) Both Company and Executive agree that Executive shall act as an independent contractor with respect to Company in the performance of any and all duties under this consulting arrangement, and that this consulting arrangement shall not be construed to create any employment or other form of business relationship, agency, partnership or joint venture between Company and Executive. Executive shall not be empowered to act on behalf of or bind

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Company with third parties as a result of this consulting arrangement. Executive acknowledges that he will not be eligible for any other compensation or benefits other than those specifically discussed in Sections 4, 5 and 6 of this Agreement. Executive shall be solely responsible for arranging withholding and payment of any taxes arising out of this consulting arrangement, including, without limitation, federal, state, and local income taxes, social security taxes, unemployment insurance taxes, and any other taxes or business license fees related to Executive’s activities or duties under this consulting arrangement. Executive agrees to indemnify Company and hold it harmless from and against all such tax obligations, as well as any penalties, assessments, liabilities, damages, fees and attorneys’ fees incurred by Company as a result of Executive’s failure to pay such amounts.
     7.  Confidentiality of Agreement Terms . Except as otherwise expressly provided in this Section 7, Executive agrees that the terms, conditions and amount of consideration set forth in this Agreement (including the Exhibits hereto) are and shall be deemed to be confidential and hereafter shall not be disclosed by Executive or Company to any other person or entity. The only disclosures excepted by this paragraph are (a) as may be required by law; (b) as may be required by either party to enforce this Agreement; (c) Executive may tell prospective employers the dates of Executive’s employment, positions held, evaluations received, Executive’s duties and responsibilities and salary history with Company; (d) Executive may disclose the terms and conditions of this Agreement to Executive’s attorneys and tax and financial advisers; and (e) Executive may disclose the terms of this Agreement to Executive’s spouse, if any; provided, however, that any spouse, attorney or tax or financial adviser learning about the terms of this Agreement must be informed about this confidentiality provision, and Executive will be responsible for any breaches of this confidentiality provision by any such person to the same extent as if Executive had directly breached this agreement. Executive acknowledges that Company may be required by law to disclose information about this Agreement and its terms, and, if and only to the extent that Company does so, Executive shall be relieved from his obligations to keep confidential under this Section 7 any such information that Company may disclose publicly.
     8.  Restrictive Covenants .
          (a) “Business of Company” means the manufacture and sale of the following forest and wood products: newsprint, coated mechanical and uncoated mechanical specialty papers, containerboard and packaging paper grades, and pulp; the recovery of old paper; and the operation of sawmills, remanufacturing and engineered wood facilities.
          (b) “Confidential Information” means all valuable and/or proprietary information (in oral, written, electronic or other forms) belonging to or pertaining to Company (including subsidiaries or affiliates of Company), its customers and vendors, that would be useful to competitors of Company or otherwise damaging to Company if disclosed. Confidential Information may include, but is not necessarily limited to: (i) the identity of Company’s customers or potential customers, their purchasing histories, and the terms or proposed terms upon which Company offers or may offer its products and services to such customers, (ii) the identity of Company’s vendors or potential vendors, and the terms or proposed terms upon which Company may purchase products and services from such vendors, (iii) technology and methods used in Company products and services or planned products and services, (iv) the terms and

6


 

conditions upon which Company employs its employees and independent contractors, (v) marketing and/or business plans and strategies, (vi) financial reports and analyses regarding the revenues, expenses, profitability and operations of Company, (vii) information provided to Company by customers and other third parties under a duty to maintain the confidentiality of such information and (viii) information relating to the plans or terms, or proposed plans or terms, of any actual, potential or contemplated acquisitions, dispositions, spin-offs, reorganizations or other transactions Company may have considered or may be considering. Confidential Information does not include any information that is in the public domain or readily ascertainable from publicly-available information, or disclosed to Executive outside the course and scope of the performance of Executive’s duties on behalf of Company by a person or entity who has the legal right to disclose such information.
          (c) “Restricted Territory” means the Countries of the United States of America, Canada, United Kingdom, Mexico, South Korea and Italy.
          (d) “Material Contact” means contact in person, by telephone or by electronic or paper correspondence in furtherance of the Business of Company.
          (e) “Trade Secrets” means Confidential Information that meets the requirements of a trade secret under applicable law.
          (f) While employed by Company under this Agreement including the period during which Executive provides consulting services to Company, and for one (1) year thereafter, Executive shall not:
          (i) In the Restricted Territory, engage in or become financially interested in, as a principal, agent, officer, employee, manager, advisor, investor, or shareholder (except as a completely passive investor in a public corporation), business activities which compete with the Business of Company; or
          (ii) Directly or indirectly solicit any customer of Company with whom Executive had Material Contact to purchase products or services which compete with the Business of Company, or
          (iii) Directly or indirectly solicit any vendor of Company with whom Executive had Material Contact to provide products or services to support business activities which compete with the Business of Company, or
          (iv) Directly or indirectly solicit any employee or contractor of Company to terminate or lessen such employment or contract.
          (g) While employed by Company under the Agreement (including the period during which Executive provides consulting services to Company), and for two (2) years thereafter, Executive shall not use on his own behalf or disclose to any other person or entity any Confidential Information. In the event of doubt regarding the confidentiality of any information, Executive shall verify the confidential nature of the information with the Company prior to its use or disclosure. Nothing herein shall limit the right of Company to protect its Trade Secrets under applicable law.

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          (h) In addition to any other remedies available at law or under this Agreement, Company may seek injunctive relief to stop any violations by Executive of the restrictive covenants set forth in (f) or (g) above.
          (i) Executive will forfeit the right to any payments or benefits set forth in Sections 4(a) and 6 above, and Company shall be entitled to seek reimbursement of, and Executive will be required to repay Company for, the gross amount of all payments made, and value of any benefits provided, to Executive under Sections 4(a) and 6 above, in the event of any breach by Executive of the covenants contained in (f) and (g) of this Section 8; except that Executive shall be entitled to retain in any event the amount of Three Hundred Thousand Dollars ($300,000) as consideration for the Release and Executive’s other obligations under the Agreement.
     9.  Return of all Property and Information of Company . Executive agrees to return all of Company’s property within fourteen (14) days following the Separation Date or, if earlier, the day Company terminates Executive’s employment without Cause or Executives terminates his employment for Good Reason, except as may be required for Executive to discharge his duties as a consultant (in which case such property shall be returned within fourteen (14) days after the termination of the consulting arrangement. Such property includes, but is not limited to, all Company-issued equipment, supplies, accessories, vehicles, access cards and/or keys, instruments, tools, devices, computers, cell phones, pagers, materials, documents, plans, records, notebooks, drawings, or papers. Upon request by Company, Executive shall certify in writing that Executive has complied with this provision, and has deleted all Company information from any computers or other electronic storage devices owned by Executive. Except as provided above, Executive may only retain information relating to Executive’s benefit plans and compensation to the extent needed to prepare Executive’s tax returns.
     10.  No Harassing or Disparaging Conduct . Executive and Company mutually further agree and promise that neither such party will engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at the other such party or, in the case of Company its subsidiaries or affiliates, the activities of the other such party (and Company’s subsidiaries or affiliates), or the Releasees (as defined in the Release) at any time in the future. For such purpose, “Company” shall refer to its officers, members of the Board of Directors of Company and Company’s human resources managers. Notwithstanding the foregoing, this Section 10 may not be used to penalize either party for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.
     11.  Construction of Agreement and Venue for Disputes . This Agreement shall be deemed to have been jointly drafted by the Parties and shall not be construed against either Party. Each of the Parties (a) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware or any court of the United States located in the State of Delaware, in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery of the State of Delaware or, if

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under applicable law exclusive jurisdiction is vested in the federal courts, any court of the United States located in the State of Delaware. Without limiting other means of service of process permissible under applicable law, the Parties agree that service of any process summons, notice or document by U.S. registered mail to their respective last known addresses shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.
     12.  Waiver of Jury Trial . EACH OF THE PARTIES IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
     13.  Severability . If any provision of this Agreement shall be held void, voidable, invalid or inoperative, no other provision of this Agreement shall be affected as a result thereof, and accordingly, the remaining provisions of this Agreement shall remain in full force and effect as though such void, voidable, invalid or inoperative provision had not been contained herein.
     14.  No Reliance Upon Other Statements . This Agreement is entered into without reliance upon any statement or representation of any Party hereto or any Party hereby released other than the statements and representations contained in writing in this Agreement (including all Exhibits hereto).
     15.  Entire Agreement . This Agreement, including all Exhibits hereto (which are incorporated herein by this reference), contains the entire agreement and understanding concerning the subject matter hereof between the Parties hereto. No waiver, termination or discharge of this Agreement, or any of the terms or provisions hereof, shall be binding upon either Party hereto unless confirmed in writing. This Agreement may not be modified or amended, except by a writing executed by both Parties hereto. No waiver by either Party hereto of any term or provision of this Agreement or of any default hereunder shall affect such Party’s rights thereafter to enforce such term or provision or to exercise any right or remedy in the event of any other default, whether or not similar.
     16.  Further Assurance . Upon the reasonable request of the other Party, each Party hereto agrees to take any and all actions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effect to the terms and conditions set forth in this Agreement.
     17.  No Assignment . Neither Party may assign this Agreement, in whole or in part, without the prior written consent of the other Party, and any attempted assignment not in accordance herewith shall be null and void and of no force or effect. The foregoing to the contrary notwithstanding, Company shall assign this Agreement and delegate all of its obligations hereunder to any successor to all or substantially all of its business.
     18.  Binding Effect . This Agreement shall be binding on and inure to the benefit of the Parties and their respective heirs, representatives, successors and permitted assigns. In the event of the death of Executive prior to payment of all amounts due under this Agreement, such amounts shall be paid to the legal representative of his estate.

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     19.  Indemnification . Company understands and agrees that any indemnification obligations under its governing documents or the indemnification agreement between Company and Executive, a copy of which is attached hereto as Exhibit B , with respect to Executive’s service as an officer of Company and/or director of Company or any of its subsidiaries shall remain in effect and survive the termination of Executive’s employment under this Agreement as set forth in such governing documents or indemnification agreement. Notwithstanding Section 6(e) of this Agreement, in the event that Executive is authorized in writing to act as an agent of Company during the Consulting Period, such indemnification, and coverage as an insured under any applicable officers’ and directors’ liability insurance, shall apply to Executive’s consulting services to the same scope and effect as applies to Executive’s acts and omissions to act while employed by Company.
     20.  Disclosure . Company and Executive agree to cooperate and collaborate on all communications, including (i) press releases, (ii) internal communications and (iii) public disclosures (including but not limited to any Form 8-K or comparable Canadian filings), as may apply to this Agreement, the transition of Executive from Chief Executive Officer and President to Special Executive Advisor and the termination of Executive’s employment with Company.
     21.  Reimbursement of Attorneys’ Fees . Company agrees to reimburse Executive for any reasonable attorneys’ fees and expenses Executive incurs in connection with the negotiation and documentation of this Agreement and any related agreements, up to a maximum of Thirty-Five Thousand Dollars ($35,000). Company will pay Executive such reimbursement as soon as administratively practicable after execution of this Agreement and upon the submission by Executive, no later than sixty (60) days after the execution of this Agreement, of an itemized account of such expenditures.
     22.  Nonqualified Deferred Compensation .
          (a) It is intended that any payment or benefit which is provided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Code shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance.
          (b) Neither Company nor Executive shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any manner which would not be in compliance with Section 409A of the Code (including any transition or grandfather rules thereunder).
          (c) If Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code at such time, any payments to be made or benefits to be delivered in connection with Executive’s “Separation from Service” (as determined for purposes of Section 409A of the Code) that constitute deferred compensation subject to Section 409A of the Code shall not be made until the earlier of (i) Executive’s death or (ii) six months after Executive’s Separation from Service (the “409A Deferral Period”) as required by Section 409A of the Code. Payments otherwise due to be made in installments or periodically during the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends,

10


 

and the balance of the payment shall be made as otherwise scheduled. Any such benefits subject to the rule may be provided under the 409A Deferral Period at Executive’s expense, with Executive having a right to reimbursement from Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled.
          (d) For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code.
          (e) For purposes of this Agreement, with respect to any amounts that that constitute deferred compensation subject to Section 409A of the Code, termination of employment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further services would be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independent contractor) would permanently decrease to less than fifty percent (50%) of the average level of bona fide services Executive performed over the immediately preceding thirty-six (36) month period. The Parties agree that a “separation from service” will occur no later than the Separation Date and Executive will not be expected to perform any consulting or other services thereafter that would negate a separation from service on the Separation Date.
          (f) Notwithstanding any other provision of this Agreement, neither Company nor its subsidiaries or affiliates shall be liable to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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      IN WITNESS WHEREOF , the Parties have executed, or caused their duly authorized representatives to execute, this Agreement as of the day and year first above written.
             
    “Executive”    
 
           
    /s/ David J. Paterson    
         
    David J. Paterson    
 
           
    “Company”    
 
           
    AbitibiBowater Inc.    
 
           
 
  By:   /s/ Richard B. Evans    
 
     
 
   
 
  Title:        
 
     
 
   

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EXHIBIT A
FORM OF RELEASE
ABITIBIBOWATER INC.
WAIVER AND RELEASE AGREEMENT
     (1)  General Release . In consideration of the benefits (the “Benefits”) to be provided to me under the terms of that certain Separation Agreement, dated December __, 2010, between me and AbitibiBowater Inc. (the “Separation Agreement”), I, on behalf of myself and my family and heirs, executors, administrators, attorneys, agents and assigns, hereby waive, release and forever discharge AbitibiBowater Inc. (the “Company”) and its subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers (including its and their respective directors, officers, associates, employees, shareholders, partners and agents, past, present and future), and each of its and their respective predecessors, successors and assigns (collectively referred to as “Releasees”), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have been or could be asserted against the Releasees arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees and/or any other occurrence up to and including the date of this Waiver and Release Agreement (this “Agreement”), including but not limited to:
  (a)   claims, actions, causes of action or liabilities arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended (the “ADEA”), Sections 1981 through 1988 of Title 42 of the United States Code, as amended, and the Civil Rights Act of 1991, as amended, the Fair Labor Standards Act, as amended, the Federal Occupational Safety and Health Act, as amended, the Employee Retirement Income Security Act, as amended, the Rehabilitation Act of 1973, as amended, the Americans with Disabilities Act, as amended, the Family and Medical Leave Act, as amended, and/or any other federal, state, municipal or local employment discrimination statutes, laws, regulations, ordinances or executive orders (including, but not limited to, claims based on age, sex, attainment of benefit plan rights or entitlement to plan benefits, race, color, religion, national origin, source of income, union activities, marital status, sexual orientation, ancestry, harassment, parental status, handicap, disability, retaliation and veteran status); and/or
 
  (b)   claims, actions, causes of action or liabilities arising under any other federal, state, municipal or local statute, law, ordinance, regulation, constitution or executive order; and/or
 
  (c)   any other claim whatsoever including, but not limited to, claims for severance pay, claims for salary/wages/commissions/bonus, claims for expense reimbursement, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other

1


 

      common law, statutory or other claim whatsoever arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees.
     (2)  Exclusions from General Release . Excluded from the general release above (i) are any claims or rights which cannot be waived by law, including my right, if any, to accrued vacation. In addition, nothing in this Waiver and Release Agreement limits my rights (or the rights of any government agency) of access to, or to cooperate or participate with, any government agency, or to file a charge with any administrative agency or participate in any agency investigation, including without limitation, the United States Equal Employment Opportunity Commission or (ii) claims for enforcement of the Separation Agreement. I am, however, freely waiving my right to any recovery of money or other relief in connection with such a charge or investigation for a claim under clause (i). I am also waiving my right to recover money or other relief in connection with a charge filed by any other individual or by the Equal Employment Opportunity Commission or any other federal, state or local agency.
     (3)  Covenant Not to Sue . I understand that a “covenant not to sue” is a legal term which means I am promising not to file a lawsuit in court. It is different from the General Release of claims contained in paragraph (1) above because, in addition to waiving and releasing the claims covered by paragraph (1) above, I further agree never to sue any of the Releasees or become party to a lawsuit in any forum for any reason, including but not limited to claims of any type or based on any laws or theories whatsoever covered by the General Release language in paragraph (1) above or arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees. Notwithstanding this covenant not to sue, I may bring a claim or lawsuit to challenge the validity of this Agreement under the ADEA or to enforce my rights under the Separation Agreement and this Agreement.
     (4)  Company’s Remedies . I further acknowledge and agree in the event that I breach the provisions of paragraph (3) above and I fail to cure such breach within thirty (30) days after I have been given notice of such breach, (a) the Company shall be entitled to apply for and receive an injunction to restrain any violation of paragraph (3) above, (b) the Company shall not be obligated to provide the Benefits, (c) the Benefits shall be deemed canceled if already granted, (d) I shall be obligated to pay to the Company its costs and expenses in enforcing this Agreement and defending against such lawsuit (including court costs, expenses, reasonable legal fees and any other litigation costs), and (e) I shall be obligated upon demand to pay to the Company all but $300,000 of the cost of the Benefits (as further set forth in the Separation Agreement) and the foregoing shall not affect the validity of this Agreement.
     (5)  Exclusion . As stated in paragraph (3), I would not violate any part of this Agreement by bringing a lawsuit against the Company to enforce my rights under the Separation Agreement or this Agreement or to challenge the validity of this Agreement under the ADEA. However, as stated in paragraph (2), I further waive my right to any monetary recovery or other relief that may become payable to me pursuant to any claim that is pursued by any federal, state, or local administrative agency for my benefit arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees.

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     (6)  Employee Acknowledgements . I further agree that I have been paid for all hours worked, including overtime. I also acknowledge that I have not suffered any on-the-job injury for which I have not already filed a claim.
     (7)  Future Employment . To the extent permitted by law, I further waive, release and discharge the Company and/or any of the other Releasees from any reinstatement rights which I have or could have. I further promise not to seek future employment with the Company and/or any of the other Releasees in any position or capacity.
     (8)  Non-Admissions . The facts and terms of this Agreement are not an admission by the Company and/or any of the other Releasees of liability or other wrongdoing under any law.
     (9)  Additional Employee Acknowledgements . I further agree that:
    I am entering into this Agreement knowingly and voluntarily;
 
    I have been advised to consult with an attorney before signing this Agreement;
 
    I understand I may take at least forty-five (45) days to consider this Agreement before signing it;
 
    I have carefully read and fully understand all the provisions of this Agreement and that I voluntarily enter into this Agreement by signing below;
 
    I am not otherwise entitled to the Benefits; and
 
    the Separation Agreement, including the exhibits attached thereto, is the entire agreement between me and the Releasees regarding the termination of my employment with the Releasees.
     (10)  Revocation/Payment . I further understand I may revoke this Agreement within seven (7) days after its signing and that any revocation shall be made in writing and submitted within this seven (7) day period to the Company’s Chief Legal Officer at the address listed on the following page. If I do not revoke this Agreement within the seven (7) day period, the Agreement shall become irrevocable. I further understand that if I revoke this Agreement, I shall not receive the Benefits.
     (11)  Known and Unknown Claims . I FURTHER UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
     (12)  Severability . I further acknowledge and agree that if any provision of this Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Agreement shall continue in full force and effect.
     (13)  Venue for Disputes . Each of the parties (a) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware or any court of the United States located in the State of Delaware, in the event any dispute arises out of this

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Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the Court of Chancery of the State of Delaware or, if under applicable law exclusive jurisdiction is vested in the federal courts, any court of the United States located in the State of Delaware. Without limiting other means of service of process permissible under applicable law, the parties agree that service of any process summons, notice or document by U.S. registered mail to their respective last known addresses shall be effective service of process for any suit or proceeding in connection with this Agreement or the transactions contemplated hereby.
     (14)  Waiver of Jury Trial . EACH OF THE PARTIES IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
         
 
  /s/ David J. Paterson    
 
 
 
   
 
  (Signature)    
 
       
 
 
 
(Date)
   
PLEASE RETURN THE SIGNED AND DATED WAIVER AND RELEASE AGREEMENT TO THE COMPANY’S CHIEF LEGAL OFFICER AT THE FOLLOWING ADDRESS:
AbitibiBowater Inc.
1155 Metcalfe Street
Suite 800
Montreal, Quebec
H3B 5H2

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EXHIBIT B
INDEMNIFICATION AGREEMENT

 

EXHIBIT 10.19
[LETTERHEAD OF ABITIBIBOWATER INC.]
October 26, 2010
Mr. Pierre Rougeau
394 Lakeshore Road
Beaconsfield (Québec)
H9W 4H9
Re: Terms of Employment Post Emergence
Dear Pierre,
This letter is intended to document for you important information concerning changes in your compensation, benefits and other conditions of service upon the company’s anticipated emergence from bankruptcy in the coming weeks. As you are aware from the emergence plan, these changes become effective on the date of emergence or as otherwise described in the details that follow. Please note that this is a summary of conditions, the whole intended to be in accordance with and pursuant to the filed restructuring plans.
As of emergence, you will continue to occupy your position of Executive Vice President, Operations and Sales, in the new AbitibiBowater Inc.
The terms and conditions of your employment post emergence are detailed below.
     
Location:
  Montreal, Quebec, Canada
 
   
Effective Date:
  These terms and conditions are contingent on approval of the restructuring plans and will be effective on the date of emergence.
 
   
Compensation:
  Your annual base salary will be US$382,500.
You will be eligible to participate in a short-term incentive plan effective for quarters 3 and 4 of 2010, with target award payout of 50% of your base salary. For the 2011 short-term incentive plan, you will be eligible for a target level of 100% of base salary.
The independent directors of the current Board of Directors recommend to the Human Resources Compensation/Nominating and Governance Committee of the new Board of Directors (the “Committee”) to award you a restructuring recognition award in the amount of US$382,500, to be paid as soon as practical following emergence.
Additionally, we have put in place an equity award program, to be effective on the date of emergence. The independent directors of the current Board of Directors recommend to the Committee to award you an initial grant under this program equivalent to 125% of your base salary as soon as practical following emergence.
You will also continue to be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination and parking.
Other benefits:
You will maintain participation in various benefit plans such as pension, group insurance, and vacation.

 


 

Upon emergence, you will continue your participation in your defined contributions (DC) pension plan and you will participate in a new DC SERP to be put in place by the Company, at the following levels of contribution:
         
    Employee   Company
Contributions   Contributions   Contributions
Basic
  5% of eligible earnings*   10.5% of eligible earnings
 
       
Additional
  None   10% of eligible earnings
 
*   Up to the Compensation Limit (U.S.A.)
Provided you waive all your SERP claims in the creditor protection proceedings, your SERP benefits accrued up to the date of emergence will be reinstated and fully recognized in new SERPs to be put in place by the Company, provided that all defined benefits (DB) available under such new SERPs will be frozen as of the date of emergence. Lump sums will continue to be paid as per pre-filling practice, provided that if you have accrued benefits pursuant to a Canadian DB SERP, the Company intends to pay you such benefits as a lump sum once you retire, unless these benefits have been secured in part or in total, in which case they would be paid in the form of monthly payments.
***
You will receive shortly a separate letter providing you more details with respect to the enrolment in the DC pension plan.
Severance
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination for a “good reason”. The emergence of the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy.
Prior Agreements
Pursuant to the restructuring plans, all your prior management agreements with the Company (e.g. employment, severance pay and change in control agreements) are being rejected as of the date of emergence.
***
Enclosed for your reference are the corresponding Fact Sheets for the various compensation and benefits programs listed above. The complete 2010 Equity Plan is also available upon request, while the complete plan text of other programs will be available at a later date.

 


 

We are excited about the outlook of the newly emerged company and look forward to your continued leadership.
     
/s/ Richard B. Evans
  /s/ David J. Paterson
Richard B. Evans
  David J. Paterson
Chairman
  President and Chief Executive Officer
I have read the present letter and hereby accepted these terms and conditions.
         
/s/ Pierre Rougeau
 
Pierre Rougeau
  Nov. 4, 2010
 
Date
   
Enclosures

 

EXHIBIT 10.20
ABITIBIBOWATER. INC.
SEVERANCE PAY PROGRAM
PIERRE ROUGEAU WAIVER AND RELEASE AGREEMENT
     (1)  General Release . In consideration for the severance and outplacement benefits described in Section B.1. of the Severance Terms (attached hereto), I, Pierre Rougeau, on behalf of myself and my spouse, family and heirs, executors, administrators, attorneys, agents and assigns, hereby waive, release and forever discharge ABITBIBOWATER INC. (the “Company”) and its respective subsidiaries, divisions and affiliates, whether direct or indirect, and their joint ventures and joint venturers, their respective directors, officers, associates, employees, shareholders, partners and agents, past, present and future), and each of their respective predecessors, successors and assigns (collectively referred to as “Releasees”), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have been or could be asserted against the Releasees related to my employment with and/or separation from employment with the Company and any of the Releasees and/or any other occurrence up to and including the date of this Waiver and Release Agreement (“Agreement”), including but not limited to:
  (a)   claims, actions, causes of action or liabilities arising under the Civil Code of Quebec, An Act Respecting Labour Standards, the Charter of Human Rights and Freedoms or under any other statute or regulation and/or any other federal, or provincial laws; and/or
 
  (b)   any other claim whatsoever including, but not limited to, claims for severance pay, claims for salary/wages/commissions/bonus/awards, claims for expense reimbursement, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other common law, statutory or other claim whatsoever relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees.
Provided that I hereby expressly retain my entitlements, if any, to pre-filing incentive awards pursuant to the AbitibiBowater 2008 Annual Incentive Plan (including the Synergy Bonus provided for therein), in the pending CCAA and Chapter 11 proceedings.
     (2)  Termination Date . My employment with the Company terminated as of March 31, 2011 (the “Termination Date”). I renounce to any and all rights of employment with the Company and/or any of the other Releasees.
     (3)  Employee Acknowledgements . I acknowledge that the money and benefits set forth in the Severance Terms attached hereto, excluding the severance pay and outplacement benefits, are all the money and benefits to which I am entitled by law or agreement or otherwise. I further agree that: (i) I have been paid for all hours worked; (ii) I have not suffered any on-the-job injury for which I have not already filed a claim; and (iii) I have received all leave I requested and for which I was eligible.

 


 

     (4)  Confidentiality of Agreement . I further agree that I shall keep all terms of this Agreement confidential, except that I may make necessary disclosures to attorneys or tax advisors that I retain to advise me in connection with this Agreement.
     (5)  Non-Compete . During the 12 months following the Termination Date, I shall not, without the Company’s prior written consent:
     i) engage or become interested, in North America, whether on my own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, partner, principal, agent, advisor, financial backer, shareholder (except as a passive investor in a public Company), or in any other capacity whatsoever, in a business which may fairly be regarded as being in competition with the Business of the Company; or
     ii) assist financially or in any manner whatsoever any person, firm, association or Company, in North America, whether as principal, agent, officer, employee, manager, advisor, financial backer, shareholder (except as a passive investor in a public Company), or in any capacity whatsoever to enter into, develop, carry on or maintain a business which may fairly be regarded as being in competition with the Business of the Company.
For the purpose of this Agreement, “Business of the Company” means the manufacture, sale and/or dealing in newsprint, commercial printing papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by the Company or by any of its subsidiaries and affiliates in the context of the above described activities as of December 31, 2010.
Notwithstanding the foregoing, I may act as financial advisor for competing businesses and/or be hired by a bank or an investment bank and advise competing businesses in such capacity.
     (6)  Non-Solicitation of Customers . For a period of 12 months following the Termination Date, except with the Company’s prior written consent, I agree not to, whether on my own behalf or in conjunction with or on behalf of any other person, directly or indirectly, solicit, assist in soliciting, accept, or facilitate the acceptance of the business (which may fairly be regarded as being in competition with the Business of the Company) of any person to whom the Company or its Affiliates has supplied goods or services at any time between January 1, 2008 and December 31, 2010.
     (7)  Other Confidential Information . I further agree not to disclose any trade secrets or other confidential and proprietary information (“Confidential Information”) with regard to the business of the Company and/or any of the other Releasees at any time, directly or indirectly, to any third party or otherwise use such Confidential Information for my or their own benefit or the benefit of others for a period of 2 years following the Termination Date.

2


 

“Confidential Information” means all valuable and/or proprietary information in any form belonging to or pertaining to the Company (including subsidiaries or affiliates of the Company), its customers and vendors, that would be useful to the Company’s competitors or otherwise damaging to the Company if disclosed. Confidential Information may include, but is not necessarily limited to: (i) the identity of the Company’s customers or potential customers, their purchasing histories, and the terms or proposed terms upon which the Company offers or may offer its products and services to such customers, (ii) the identity of the Company’s vendors or potential vendors, and the terms or proposed terms upon which the Company may purchase products and services from such vendors, (iii) technology and methods used in Company products and services or planned products and services, (iv) the terms and conditions upon which the Company employs its employees and contracts with independent contractors, (v) marketing and/or business plans and strategies, and (vi) financial reports and analyses regarding Company revenues, expenses, profitability and operations. However, Confidential Information does not include information which is or becomes generally available to the public other than as a result of disclosure by me. The payment of my severance pay and outplacement benefits is contingent on my keeping the confidentiality promises contained in this paragraph 7.
     (8)  Other Employees . I further agree I shall not at any time, directly or indirectly, in my own capacity or otherwise, attempt to induce, cause, or persuade another person to terminate his or her employment relationship with the Company or any other Releasee, or to violate the terms of any agreement between such person and the Company or any other Releasee.
     (9)  Non-Disparagement . I further agree I shall not, directly or indirectly, (i) at any time disparage or defame and (ii) within 2 years following the Termination Date speak negatively about the Company or any other Releasee, its affiliates, customers or related entities, or its products and services, nor shall I disparage, subvert, disclose or discuss any detail or aspect of the professional careers or personal lives of any Releasee’s directors, officers or employees for any reason whatsoever, except as may be required by law.
     (10)  Return of Material . I agree to immediately return all files, forms, brochures, books, materials, written correspondence, memoranda, documents, manuals, computer disks, software products and lists (including financial and other information and lists of customers, suppliers, products and prices) pertaining to the Company or to any of its Affiliates and containing Confidential Information in my possession or directly or indirectly under my control and to destroy all electronic copies thereof. I agree not to make, for my personal or business use or that of any other person, reproductions or copies of any such property or other property of the Company or of any of its Affiliates.
     (11)  Provisions in the Event of Breach . I agree that, in the event of my actual or threatened breach of any covenant or agreement contained in paragraphs seven (7) through fourteen (11) of this Agreement, the Company shall have the right to enforce the terms and provisions thereof by means of compelling specific performance and/or by means of injunction (including, without limitation, provisional, interlocutory and permanent).
     In addition, and without restricting the foregoing, if I breach any covenant or agreement in paragraphs 5 and/or 6 of this Agreement, the sum of $400,000 shall be deemed to have been

3


 

forfeited in its entirety and the Company shall be entitled to seek and receive reimbursement from me of this full amount.
     (12)  Construction of Agreement . I am represented by counsel in connection with negotiating the terms of this Agreement and have, through my counsel and my own review of this Agreement, had a full and fair opportunity to participate in its drafting. Accordingly, a court interpreting this Agreement should not construe it against the original drafter, but rather construe it giving equal weight to the positions of both parties regarding its meaning.
     (13)  Non-Admissions . The fact and terms of this Agreement are not an admission by the Company or any other Releasee of liability or other wrongdoing under any law.
     (14)  Additional Employee Acknowledgements . I further agree that:
    I have carefully read and fully understand all provisions of this Agreement, and am voluntarily entering into this Agreement by signing below;
 
    I understand I may take at least twenty-one (21) days to consider this Agreement before signing it;
 
    this Agreement, together with the Severance Terms attached hereto, is the entire Agreement between me and the Company regarding the termination of my employment with the Company and other subjects addressed herein or in Attachment A; and
 
    this Agreement may not be changed in any way except in a written agreement signed by both me and an authorized representative of the Company.
     (15)  Revocation/Payment . I further understand I may revoke this Agreement within seven (7) days after its signing and that any revocation shall be made in writing and submitted within this seven (7) day period to the Manager, Human Resources at the Montreal Head Office (address below). If I do not revoke this Agreement within the seven (7) day period, the Agreement shall become irrevocable. I further understand that if I revoke this Agreement, I shall not receive the severance pay and outplacement benefits.
     (16)  Known and Unknown Claims . I FURTHER UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
     (17)  Severability . I further acknowledge and agree that if any provision of this Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any controlling law, the remainder of this Agreement shall continue in full force and effect.
     (18)  Transaction . These presents constitute a transaction pursuant to Articles 2631 and following of the Civil Code of Quebec.

4


 

     (19)  Language . The parties have requested that this Agreement be drawn up in the English Language. Les parties ont demandé à ce que le présent document soit rédigé en langue anglaise.
     (20)  Jurisdiction These presents are governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable in that province, without regard to the principles of conflict of laws.
         
 
  /s/ Pierre Rougeau
 
Pierre Rougeau
   
 
       
 
  3/28/11
 
(Date)
   
PLEASE RETURN THE SIGNED AND DATED WAIVER AND RELEASE AGREEMENT TO THE MANAGER, HUMAN RESOURCES AT THE FOLLOWING ADDRESS:
Julie McMahon
Manager, Human Resources
AbitibiBowater Inc.
1155, Metcalfe Street, Suite 800
Montreal, Quebec H3B 5H2

5


 

SEVERANCE TERMS
ABITIBIBOWATER INC. (the “Company”)
AND
PIERRE ROUGEAU (“Executive”)
     
A. Status and Effective Date
  Executive transitioned from Executive Vice President, Operations and Sales to Special Executive Advisor reporting to the President and Chief Executive Officer effective January 17, 2011. Executive resigned as officer and director of the Company and all its subsidiaries and affiliates effective January 17, 2011.
 
   
 
  Executive’s employment to terminate on March 31, 2011 (“ Termination Date ”). As further set forth in C.1. below, Executive shall serve as a consultant to the Company from the Termination Date until June 30, 2011, on a special assignment to negotiate an exit of Mersey and Calhoun partners.
B. Compensation
   
 
   
1. Severance and Benefits
  Severance pay of US$761,620.
 
   
 
  Executive to be eligible to continued AbiBowFlex coverage at his own cost ($284.76 per month representing $192.11 for medical coverage and $92.65 for dental coverage, all to be paid via post-dated cheques to be provided to Human Resources) until the earlier of i) May 5, 2012 or ii) the date Executive starts employment with another employer. All other coverage (i.e. short and long term disability) ceased on the Termination Date.
 
   
 
  As a condition to the receipt of severance pay and benefits, the Executive must execute and not revoke a Waiver and Release Agreement in the form attached hereto. Pursuant the Waiver and Release Agreement, the Executive shall waive all claims against the Company, its subsidiaries and affiliates.
 
   
 
  Only severance pay amounts that exceed statutory requirements are conditioned on execution of a Waiver and Release Agreement that is not later revoked. The Executive will have 21 days to review and consider the Waiver and Release Agreement and seven (7) days for revoking same.
 
   
 
  Severance will be paid in the form of a lump sum payment 15 days after the Executive signs the Waiver and Release Agreement and the seven (7) day period for revoking such agreement expires. An amount corresponding to any personal expenses outstanding on the Corporate Amex card will be withheld from the net severance should such

 


 

     
 
  balance not be paid by the Executive prior to payment of severance.
 
   
2.  Equity and Incentive
Awards
  Executive entitlement to STIP and LTIP as follows:
 
       
o   2010 STIP was paid on March 15, 2011 (US$210,375);
 
   
 
       
o   Entitlement to 2011 STIP on a pro-rata basis up to the Termination Date, in accordance with plan text and as per normal payment terms; i.e. if and when approved for payment by the Board in 2012.
 
   
 
       
o   LTIP emergence grant: Company to allow continued vesting until December 9, 2011 (one year vesting). Options to remain exercisable for one-year following the later of June 30, 2011 or the end of the Consulting Agreement.
 
   
3. Vacation
  Accrued vacation: 4 weeks plus 8% of base salary from January 1, 2011 to the Termination Date.
 
   
4. Pension plans
  Qualified and Registered Pension Plans — entitlements in accordance with the terms of the plans to the extent then vested, consistent with payments to other participants.
 
   
 
  SERP Benefits
 
   
 
  The Executive has waived all his SERP claims in the creditor protection proceedings. As a result, his SERP benefits accrued up to emergence have been reinstated and fully recognized in the new SERPs put in place by the Company.
 
   
 
  Pursuant to the 2010 DC SERP, the Executive will be entitled to a lump sum payment in accordance with the plan text (two instalments). As regards the Executive’s entitlements under the Canadian DB SERP, the Company will pay the Executive his accrued benefits as a lump sum (two instalments) once Executive retires (i.e. not earlier than at age 55), provided that if these benefits have been secured in part or in total on the Executive’s retirement, these benefits will be paid in the form of monthly payments.
 
   
 
  Mercer to provide details on qualified and registered pension plans and SERP entitlements.
 
   
5. Indemnification/D&O
  Corporate indemnification in accordance with relevant charters, by-laws and applicable law, and consistent with the plans of reorganization.
 
   
 
  D&O coverage: applicable post-termination/post-service tail coverage.

2


 

     
6. Legal Fees
  Executive will be entitled to reimbursement of reasonable legal fees, up to $10,000 plus expenses, incurred in the negotiation and documentation of the definitive separation agreement.
 
   
C. Consulting Agreement
   
 
   
1. Term
  Executive to serve as a consultant to the Company for three months after termination of employment (the “ Consulting Period ”), taking instructions for the President and Chief Executive Officer.
 
   
 
  Subject to C.3 below, Consulting Agreement may be terminated sooner by the Company or the Executive upon 5 days notice.
 
   
2. Compensation
  Consulting fees of $32,000 per month.
 
   
 
  Executive will be treated as an independent contractor and will not be entitled to any benefits or other amounts from the Company during the consulting term (other AbiBowFlex continued coverage as per B.1 above).
 
   
 
  Reimbursement of Executive’s business expenses incurred as a result of the consultancy arrangement.
 
   
3. Termination Attainment
  Executive will be entitled to continue to receive monthly payments through the Consulting Period if the Executive’s consulting agreement is terminated prior to the end of the such period (i) by the Company other than for Cause, (ii) by Executive for Good Reason, or (iii) upon Executive’s death or disability.
 
   
D. Restrictive Covenants
  The restrictive covenants set forth in this agreement supersede any restrictive covenants provided for in other arrangements and plan texts of the Company.
 
   
1. Non-Competition
  During the 12 months following the Termination Date, the Executive shall not, without the prior written consent from the Company:
 
   
 
            i) engage or become interested, in North America, whether on his own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, partner, principal, agent, advisor, financial backer, shareholder (except as a passive investor in a public Company) or in any other capacity whatsoever, in a business which may fairly be regarded as being in competition with the Business of the Company; or
 
   
 
            ii) assist financially or in any manner whatsoever any person, firm, association or Company, in North America, whether as principal, agent, officer, employee, manager, advisor, financial

3


 

     
 
  backer, shareholder (except as a passive investor in a public Company) or in any capacity whatsoever to enter into, develop, carry on or maintain a business, which may fairly be regarded as being in competition with the Business of the Company.
 
   
 
  For the purpose of this agreement, “Business of the Company” means the manufacture, sale and/or dealing in newsprint, commercial printing papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by the Company or by any of its subsidiaries and affiliates in the context of the above described activities as of December 31, 2010.
 
   
 
  Notwithstanding the foregoing, the Executive may act as financial advisor for competing businesses and/or be hired by a bank or an investment bank and advise competing businesses in such capacity.
 
   
2. Non-Disclosure
  For a period of 2 years following the Termination Date, the Executive hereby covenants and agrees with the Company that he will not, except with the prior written consent, directly or indirectly, disclose to any person or in any way make use of in any manner, any of Confidential Information, provided that such Confidential Information shall be deemed not to include information which is or becomes generally available to the public other than as a result of disclosure by the Executive.
 
   
3. Non-Solicitation of Customers
  For a period of 12 months following the Termination Date and except with prior written consent, the Executive agrees not to, whether on his own behalf or in conjunction with or on behalf of any other person, directly or indirectly, solicit, assist in soliciting, accept, facilitate the acceptance of the business (which may fairly be regarded as being in competition with the Business of the Company) of any person to whom the Company or its Affiliates has supplied goods or services at any time between January 1, 2008 and December 31, 2010.
 
   
4. Applicability to Affiliates
  The obligations undertaken by the Executive may be enforced directly against the Executive by any Affiliate of the Company, to the extent applicable.
 
   
5. Provisions in the Event of Breach
  The Executive agrees that, in the event of any actual or threatened breach by the Executive of any of the covenants or agreements contained in this provision, without prejudice to any and all other rights and recourses of the Company, the Company shall have the right to enforce the terms and provisions thereof by means of

4


 

     
 
  compelling specific performance and/or by means of injunction (including, without limitation, provisional, interlocutory and permanent).
 
   
 
  In addition, and without restriction to the foregoing, in the event of a breach by the Executive of his non compete, non solicitation and confidentiality obligations, the sum of $400,000 hereof shall be deemed to have been forfeited in its entirety and the Company shall be entitled to seek reimbursement of this gross amount.
 
   
6. Return of Material
  Upon the Termination Date, the Executive agrees to return all files, forms, brochures, books, materials, written correspondence, memoranda, documents, manuals, computer disks, software products and lists (including financial and other information and lists of customers, suppliers, products and prices) pertaining to the Company or to any of its Affiliates and containing Confidential Information in the possession of the Executive or directly or indirectly under the control of the Executive and to destroy all electronic copies thereof, except as necessary for purposes of rendering services during the Consultation Period. Any material retained by the Executive during the Consultation Period will be returned at the end of such period. The Executive agrees not to make, for his personal or business use or that of any other person, reproductions or copies of any such property or other property of the Company or of any of its Affiliates.
     We trust that all of the foregoing is agreeable to you and would ask you to kindly confirm your agreement in principle by signing in the space below.
         
  AbitibiBowater Inc.
 
 
  Per:  /s/ Richard Garneau    
    RICHARD GARNEAU   
     
 
 
Acknowledged and accepted
     
/s/ Pierre Rougeau
 
PIERRE ROUGEAU
   
Dated: 3/28/2011

5

EXHIBIT 10.21
[LETTERHEAD OF ABITIBIBOWATER INC.]
October 26, 2010
Mr. Alain Grandmont
1100 Montée St-Elmire
Saint-Sauveur (Québec)
JOR 1R1
Re: Terms of Employment Post Emergence
Dear Alain,
This letter is intended to document for you important information concerning changes in your compensation, benefits and other conditions of service upon the company’s anticipated emergence from bankruptcy in the coming weeks. As you are aware from the emergence plan, these changes become effective on the date of emergence or as otherwise described in the details that follow. Please note that this is a summary of conditions, the whole intended to be in accordance with and pursuant to the filed restructuring plans.
As of emergence, you will continue to occupy your position of Executive Vice President, Human Resources and Supply Chain, in the new AbitibiBowater Inc.
The terms and conditions of your employment post emergence are detailed below.
     
Location:
  Montreal, Quebec, Canada
 
   
Effective Date:
  These terms and conditions are contingent on approval of the restructuring plans and will be effective on the date of emergence.
 
   
Compensation:
  Your annual base salary will be US$361,250.
You will be eligible to participate in a short-term incentive plan effective for quarters 3 and 4 of 2010, with target award payout of 50% of your base salary. For the 2011 short-term incentive plan, you will be eligible for a target level of 100% of base salary.
The independent directors of the current Board of Directors recommend to the Human Resources Compensation/Nominating and Governance Committee of the new Board of Directors (the “Committee”) to award you a restructuring recognition award in the amount of US$361,250, to be paid as soon as practical following emergence.
Additionally, we have put in place an equity award program, to be effective on the date of emergence. The independent directors of the current Board of Directors recommend to

 


 

the Committee to award you an initial grant under this program equivalent to 125% of your base salary as soon as practical following emergence.
You will also continue to be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination and parking.
Other benefits:
You will maintain participation in various benefit plans such as group insurance and vacation.
As regards pension benefits, you will start participating in the Company’s defined contributions (DC) pension plan and new DC SERP at the following levels of contribution:
         
    Employee   Company
Contributions   Contributions   Contributions
Basic
  5% of eligible earnings*   10.5% of eligible earnings
 
       
Additional
  None   10% of eligible earnings
 
*   Up to the Compensation Limit (U.S.A.)
Provided you waive all your SERP claims in the creditor protection proceedings, your SERP benefits accrued up to the date of emergence will be reinstated and fully recognized in new SERPs to be put in place by the Company, provided that all defined benefits (DB) available under such new SERPs will be frozen as of the date of emergence. Pursuant to the DC SERP, lump sums continue to be paid as per pre-filing practice. As regards your Canadian DB SERP, the Company intends to pay you such benefits as a lump sum once you retire, unless these benefits have been secured in part or in total, in which case they would be paid in the form of monthly payments.
You will receive shortly a separate letter providing you more details with respect to the enrolment in the DC pension plan.
Severance
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination for a “good reason”. The emergence of the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy.

 


 

Prior Agreements
Pursuant to the restructuring plans, all your prior management agreements with the Company (e.g. employment, severance pay and change in control agreements) are being rejected as of the date of emergence.
***
Enclosed for your reference are the corresponding Fact Sheets for the various compensation and benefits programs listed above. The complete 2010 Equity Plan is also available upon request, while the complete plan text of other programs will be available at a later date.
We are excited about the outlook of the newly emerged company and look forward to your continued leadership.
     
/s/ Richard B. Evans
  /s/ David J. Paterson
Richard B. Evans
  David J. Paterson
Chairman
  President and Chief Executive Officer
I have read the present letter and hereby accepted these terms and conditions.
         
/s/ Alain Grandmont
 
Alain Grandmont
  November 8, 2010
 
Date
   
Enclosures

 

EXHIBIT 10.23
[LETTERHEAD OF ABITIBIBOWATER INC.]
October 26, 2010
Mr. Yves Laflamme
1340, de Rouen
Boucherville (Québec)
J4B 8C3
Re: Terms of Employment Post Emergence
Dear Yves,
This letter is intended to document for you important information concerning changes in your compensation, benefits and other conditions of service upon the company’s anticipated emergence from bankruptcy in the coming weeks. As you are aware from the emergence plan, these changes become effective on the date of emergence or as otherwise described in the details that follow. Please note that this is a summary of conditions, the whole intended to be in accordance with and pursuant to the filed restructuring plans.
As of emergence, you will continue to occupy your position of Senior Vice President, Wood Products, in the new AbitibiBowater Inc.
The terms and conditions of your employment post emergence are detailed below.
     
Location:
  Montreal, Quebec, Canada
 
   
Effective Date:
  These terms and conditions are contingent on approval of the restructuring plans and will be effective on the date of emergence.
 
   
Compensation:
  Your annual base salary will be US$276,250.
You will be eligible to participate in a short-term incentive plan effective for quarters 3 and 4 of 2010, with target award payout of 50% of your base salary. For the 2011 short-term incentive plan, you will be eligible for a target level of 100% of base salary.
The independent directors of the current Board of Directors recommend to the Human Resources Compensation/Nominating and Governance Committee of the new Board of Directors (the “Committee”) to award you a restructuring recognition award in the amount of US$276,250, to be paid as soon as practical following emergence.
Additionally, we have put in place an equity award program, to be effective on the date of emergence. The independent directors of the current Board of Directors recommend to

 


 

the Committee to award you an initial grant under this program equivalent to 125% of your base salary as soon as practical following emergence.
You will also continue to be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination and parking.
Other benefits:
You will maintain participation in various benefit plans such as group insurance and vacation.
As regards pension benefits, you will start participating in the Company’s defined contributions (DC) pension plan and new DC SERP at the following levels of contribution:
         
    Employee   Company
Contributions   Contributions   Contributions
Basic
  5% of eligible earnings*   10.5% of eligible earnings
 
       
Additional
  None   10% of eligible earnings
 
*   Up to the Compensation Limit (U.S.A.)
Provided you waive all your SERP claims in the creditor protection proceedings, your SERP benefits accrued up to the date of emergence will be reinstated and fully recognized in new SERPs to be put in place by the Company, provided that all defined benefits (DB) available under such new SERPs will be frozen as of the date of emergence. Pursuant to the DC SERP, lump sums continue to be paid as per pre-filing practice. As regards your Canadian DB SERP, the Company intends to pay you such benefits as a lump sum once you retire, unless these benefits have been secured in part or in total, in which case they would be paid in the form of monthly payments.
You will receive shortly a separate letter providing you more details with respect to the enrolment in the DC pension plan.
Severance
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination for a “good reason”. The emergence of

 


 

the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy.
Prior Agreements
Pursuant to the restructuring plans, all your prior management agreements with the Company (e.g. employment, severance pay and change in control agreements) are being rejected as of the date of emergence.
***
Enclosed for your reference are the corresponding Fact Sheets for the various compensation and benefits programs listed above. The complete 2010 Equity Plan is also available upon request, while the complete plan text of other programs will be available at a later date.
We are excited about the outlook of the newly emerged company and look forward to your continued leadership,
     
/s/ Richard B. Evans
  /s/ David J. Paterson
Richard B. Evans
  David J. Paterson
Chairman
  President and Chief Executive Officer
I have read the present letter and hereby accepted these terms and conditions.
         
/s/ Yves Laflamme
 
Yves Laflamme
  10/11/2010
 
Date
Enclosures

 

EXHIBIT 10.25
[LETTERHEAD OF ABITIBIBOWATER INC.]
October 26, 2010
Mr. Jacques Vachon
484 Wood Avenue
Westmount (Québec)
H3Y 3J2
Re: Terms of Employment Post Emergence
Dear Jacques,
This letter is intended to document for you important information concerning changes in your compensation, benefits and other conditions of service upon the company’s anticipated emergence from bankruptcy in the coming weeks. As you are aware from the emergence plan, these changes become effective on the date of emergence or as otherwise described in the details that follow. Please note that this is a summary of conditions, the whole intended to be in accordance with and pursuant to the filed restructuring plans.
As of emergence, you will continue to occupy your position of Senior Vice President, Corporate Affairs and Chief Legal Officer, in the new AbitibiBowater Inc.
The terms and conditions of your employment post emergence are detailed below.
     
Location:
  Montreal, Quebec, Canada
 
   
Effective Date:
  These terms and conditions are contingent on approval of the restructuring plans and will be effective on the date of emergence.
 
   
Compensation:
  Your annual base salary will be US$289,000.
You will be eligible to participate in a short-term incentive plan effective for quarters 3 and 4 of 2010, with target award payout of 50% of your base salary. For the 2011 short-term incentive plan, you will be eligible for a target level of 100% of base salary.
The independent directors of the current Board of Directors recommend to the Human Resources Compensation/Nominating and Governance Committee of the new Board of Directors (the “Committee”) to award you a restructuring recognition award in the amount of US$289,000, to be paid as soon as practical following emergence.
Additionally, we have put in place an equity award program, to be effective on the date of emergence. The independent directors of the current Board of Directors recommend to

 


 

the Committee to award you an initial grant under this program equivalent to 125% of your base salary as soon as practical following emergence.
You will also continue to be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination and parking.
Other benefits:
You will maintain participation in various benefit plans such as group insurance and vacation.
As regards pension benefits, you will start participating in the Company’s defined contributions (DC) pension plan and new DC SERP at the following levels of contribution:
         
    Employee   Company
Contributions   Contributions   Contributions
Basic
  5% of eligible earnings*   10.5% of eligible earnings
 
Additional
  None   10% of eligible earnings
 
*   Up to the Compensation Limit (U.S.A.)
Provided you waive all your SERP claims in the creditor protection proceedings, your SERP benefits accrued up to the date of emergence will be reinstated and fully recognized in new SERPs to be put in place by the Company, provided that all defined benefits (DB) available under such new SERPs will be frozen as of the date of emergence. Pursuant to the DC SERP, lump sums continue to be paid as per pre-filing practice. As regards your Canadian DB SERP, the Company intends to pay you such benefits as a lump sum once you retire, unless these benefits have been secured in part or in total, in which case they would be paid in the form of monthly payments.
You will receive shortly a separate letter providing you more details with respect to the enrolment in the DC pension plan.
Severance
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severence pay is available in the event of involuntary termination for a “good reason’’. The emergence of

 


 

the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy.
Prior Agreements
Pursuant to the restructuring plans, all your prior management agreements with the Company (e.g. employment, severance pay and change in control agreements) are being rejected as of the date of emergence.
***
Enclosed for your reference are the corresponding Fact Sheets for the various compensation and benefits programs listed above. The complete 2010 Equity Plan is also available upon request, while the complete plan text of other programs will be available at a later date.
We are excited about the outlook of the newly emerged company and look forward to your continued leadership.
     
/s/ Richard B. Evans
  /s/ David J. Paterson
Richard B. Evans
  David J. Paterson
Chairman
  President and Chief Executive Officer
I have read the present letter and hereby accepted these terms and conditions.
         
/s/ Jacques Vachon
 
Jacques Vachon
  Nov. 3, 2010
 
Date
Enclosures

 

EXHIBIT 10.26
EXECUTIVE EMPLOYMENT AGREEMENT
           THIS AGREEMENT made as of the 1 st day of January, 2011
B E T W E E N:
ABITIBIBOWATER INC. ,
a corporation existing under the laws of Delaware
(hereinafter referred to as the “ Corporation ”),
- and -
RICHARD GARNEAU , of the City of Montréal,
in the Province of Québec,
(hereinafter referred to as the “ Executive ”).
          WHEREAS the Corporation has offered employment to the Executive in the capacity of President and Chief Executive Officer and the Executive has accepted such offer of employment; and
          WHEREAS the Corporation and the Executive have agreed that the terms and conditions of such employment relationship shall be as set out herein;
          NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the respective covenants and agreements of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), the parties covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1   Defined Terms
          For the purposes of this Agreement, unless the context otherwise requires, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
    Affiliate ” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date hereof;
    Annual Base Salary ” has the meaning set out in Section 4.1;
    Board ” means the board of directors of the Corporation;


 

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    Business Day ” means any day, other than a Saturday, Sunday or statutory holiday in the Province of Québec on which commercial banks in Montréal are open for business;
    Cause ” has the meaning set out in Section 5.2;
    Change in Control ” has the meaning ascribed thereto in the Change in Control Agreement being executed between the Executive and the Corporation in conjunction with this Agreement;
    Common Shares ” means the outstanding common shares in the capital of the Corporation at any time;
    Confidential Information ” has the meaning set out in Section 6.1;
    Date of Termination ” means the effective date of any termination of the Executive’s employment with the Corporation;
    Eligible Pay ” means Annual Base Salary as in effect at the Date of Termination and the lower of (i) the average of the last two (2) Incentive Awards paid to the Executive and (ii) 125% of the Executive’s target incentive (expressed in dollars) for the year in which the Date of Termination occurs;
    Good Reason ” has the meaning ascribed thereto in the Change in Control Agreement;
    Improvements ” has the meaning set out in Section 6.2(a);
    Incentive Award ” means the amount(s), if any, to which the Executive is entitled for the relevant period in question under a regular cash incentive plan or program of the Corporation established from time to time, including the 2011 STIP (as defined in Section 4.2), as same may be amended or replaced from time to time, it being understood that other cash recognition, non-recurring or multi-year incentive awards shall not be considered as an Incentive Award for the purpose hereof;
    Non-Disclosure Period ” has the meaning set out in Section 6.1;
    Permanent Disability ” has the meaning set out in Section 5.3;
    person ” includes, without limitation, an individual, corporation, partnership, joint venture, association, trust, firm, unincorporated organization or other legal or business entity;
    Prohibited Area ” means the territorial limits of Canada, the United States, Mexico, Italy, the United Kingdom and South Korea;
    Restricted Period ” means the period from the date hereof to (i) the Date of termination in the event of termination of this Agreement by the Corporation without Cause or


 

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    termination of this Agreement by the Executive for Good Reason pursuant to the terms of the Change in Control Agreement or (ii) the end of the ninth month following the Date of Termination in all other circumstances, except in the case of termination for Cause, in which case the Restricted Period shall end on the twelfth (12 th ) month following the Date of Termination;
    Subsidiary ” has the meaning ascribed thereto in the Canada Business Corporations Act ;
    Voting Shares ” means any securities of the Corporation ordinarily carrying the right to vote at elections of directors.
1.2 Rules of Construction
          Except as may be otherwise specifically provided in this Agreement and unless the context otherwise requires, in this Agreement:
  (a)   the terms “Agreement”, “this Agreement”, “the Agreement”, “hereto”, “hereof”, “herein”, “hereby”, “hereunder” and similar expressions refer to this Agreement in its entirety and not to any particular provision hereof;
 
  (b)   references to an “Article”, “Section”, “Schedule” or “Exhibit” followed by a number or letter refer to the specified Article or Section of or Schedule or Exhibit to this Agreement;
 
  (c)   the division of this Agreement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement;
 
  (d)   words importing the singular number only shall include the plural and vice versa and words importing the use of any gender shall include all genders;
 
  (e)   the word “including” is deemed to mean “including without limitation”;
 
  (f)   the terms “party” and “the parties” refer to a party or the parties to this Agreement;
 
  (g)   any reference to a statute, regulation or rule shall be construed to be a reference thereto as the same may from time to time be amended, re-enacted or replaced, and any reference to a statute shall include any regulations or rules made thereunder; and
 
  (h)   all dollar amounts refer to United States dollars unless expressly provided to the contrary.


 

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1.3 Severability
          If any provision of this Agreement, including the breadth or scope of the provisions contained in Article 6 (whether as to the Non-Disclosure Period, the Restricted Period, the Prohibited Area, or otherwise), shall be held by any court of competent jurisdiction to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the validity or enforceability of the remaining provisions, or part thereof, of this Agreement and such remaining provisions, or part thereof, shall remain enforceable and binding.
1.4 Prior Agreements
          This Agreement cancels and replaces any prior agreements between the Executive and the Corporation, other than (i) the indemnification agreement executed by the Executive dated December 9, 2010 (the “ Indemnification Agreement ”) and (ii) the prospective grant under the LTIP of stock options approved by the Board on December 9, 2010, granted to the Executive in his capacity as a Director of the Corporation. Such grant will be documented in an award agreement to be executed on the date of the grant (to occur on January 9, 2011), and all options so awarded will continue to vest in accordance with the terms of such award agreement.
1.5 Related Plans, Policies and Agreements
          In the event of any conflict or inconsistency between the provisions of this Agreement and any other plans, policies and agreements referred to herein, including without limitation the 2011 STIP, the LTIP (as defined in Section 4.3) and any and all related award agreements to be entered into by the Corporation and the Executive from time to time, the DC SERP (as defined in Section 4.4) and the Indemnification Agreement (as defined in Section 1.4) (all of which are collectively referred to as the “ Collateral Agreements ”), the provisions of the Collateral Agreements, as same may be amended from time to time by the Corporation, shall prevail, all of which shall be in the corporate records of the Corporation and available for review from time to time by the Executive. It is further acknowledged that in conjunction with this Agreement, the Executive and the Corporation are executing a Change in Control Agreement, the provisions of which shall govern all matters relating to the substance thereof notwithstanding anything herein to the contrary.
ARTICLE 2
EMPLOYMENT
2.1 Employment
          The Corporation hereby agrees to employ the Executive and the Executive hereby accepts such employment effective January 1, 2011, all in accordance with and subject to the terms and conditions hereof. The Executive shall serve the Corporation in the capacity of President and Chief Executive Officer.


 

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2.2 Location of Executive
          The Executive’s office will be located at the current offices of the Corporation in the Sun Life Building in Montréal, Québec, provided that the Corporation may subsequently require that the Executive relocate to such other corporate office of the Corporation in the general area of Montréal as may be determined by the Board from time to time. The Executive will furthermore be required to travel to other locations from time to time, including offices, production facilities, customers and suppliers of the Corporation or of its Affiliates.
ARTICLE 3
DUTIES
3.1 Employment Duties
          The Executive shall perform such duties and exercise such powers as are normally associated with and incidental and ancillary to the position of President and Chief Executive Officer and shall perform such additional duties and exercise such additional powers as may from time to time be assigned to him by the Board, acting reasonably. Without limiting the foregoing, during the term of his employment hereunder, the Executive shall, to the best of his ability:
  (a)   devote his full time and attention during normal business hours and such other times as may be reasonably required to the business and affairs of the Corporation and its Affiliates and shall not, without the prior written consent of the Board, undertake any other business or occupation or public office which may detract from the proper and timely performance of his duties hereunder;
 
  (b)   perform diligently and faithfully those duties as are consistent with the position and status of President and Chief Executive Officer that may be assigned to the Executive;
 
  (c)   promote the interests and goodwill of the Corporation and its Affiliates and not knowingly do, or willingly permit to be done, anything to the prejudice, loss or injury of the Corporation or any of its Affiliates; and
 
  (d)   at all times keep the Corporation regularly informed (in writing if so requested) of his conduct of the business and affairs of the Corporation and provide such explanations of his conduct as the Board may require.
3.2 Board Membership
          The Executive agrees to serve as a Director of the Corporation if elected, and further agrees to become a Director and/or Officer of the Corporation’s Subsidiaries or Affiliates as designated by the Corporation. Subject to approval of the Board, the Executive shall be permitted to serve as an outside director of one (1) public company that does not, directly or


 

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indirectly, compete with the Corporation and provided furthermore that no conflict of interest exists or would reasonably be expected to arise as a consequence thereof.
3.3 Reporting
          The Executive shall report to the Board. The Executive shall report fully on the management and operations of the Corporation and shall advise to the best of his ability and in accordance with reasonable business standards on business matters that may arise from time to time during the term of this Agreement.
ARTICLE 4
COMPENSATION
4.1 Annual Base Salary
          The annual base salary (“ Annual Base Salary ”) payable to the Executive for his services hereunder shall be $765,000, payable in equal semi-monthly instalments in arrears in accordance with the usual compensation practices of the Corporation from time to time.
          The Annual Base Salary shall be subject to a periodic increase adjustment if as and when determined by the Board from time to time at its discretion.
4.2 Short-Term Incentive Plan
          In addition to the Annual Base Salary, the Executive shall be eligible to participate in the Short-Term Incentive Plans that are adopted by the Corporation from time to time, including without limitation the 2011 Short-Term Incentive Plan (“ 2011 STIP ”), pursuant to which the Executive will be eligible to receive discretionary Incentive Awards as approved by the Human Resources and Compensation/Nominating and Governance Committee of the Board. Under the 2011 STIP, the Executive’s target Incentive Award will be one hundred percent (100%) of the Annual Base Salary, with a threshold of fifty percent (50%) and a maximum of one hundred fifty percent (150%), it being understood that Incentive Awards are based on performance targets established by the Board and that Incentive Awards under the Short-Term Incentive Plans adopted as aforesaid from time to time are discretionary and subject to modifications by the Board, including increases, decreases, cancellation, deferral or other conditions as determined by the Board, at its discretion, even if and after performance levels have been met.
4.3 Long-Term Incentive Plan
          The Executive will be eligible to participate in the long-term incentive plans adopted by the Corporation and in effect from time to time, including without limitation under the Corporation’s 2010 Equity Incentive Plan (the “ LTIP ”), and to receive grants thereunder as determined by the Board from time to time at its discretion, with an initial grant equivalent to


 

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two hundred twenty-five percent (225%) of the Executive’s Annual Base Salary to be awarded in the spring of 2011.
4.4 Pension
          The Executive shall be entitled to participate in the Corporation’s 2010 defined contribution program (comprised of a registered defined contribution pension plan for Canadian non-unionized employees and the 2010 DC Supplemental Executive Retirement Plan (“ DC SERP ”) (collectively the “ DC Program ”)), pursuant to which the Executive contributes five percent (5%) and the Corporation contributes twenty-two point five percent (22.5%) of the aggregate of the Executive’s Annual Base Salary and the Incentive Award paid to the Executive from time to time.
4.5 Fringe Benefits
          During the term of the Executive’s employment hereunder, the Executive shall be entitled to participate in all medical, dental, disability and group life plans and other employee benefit programs established by the Corporation from time to time for the benefit of its non-unionized employees in Canada. The benefits will be provided in accordance with and subject to the terms and conditions of the applicable plan, fund or arrangement relating to such benefits in effect from time to time. The Executive acknowledges that the Corporation may amend or terminate the benefits from time to time as provided in the applicable plan, fund or arrangement. The Executive shall also be provided with a fully paid club membership at the Mount-Royal Club in Montreal during the term of employment and, in addition, an annual perquisite allowance of $16,000 to cover all perquisites such as other club memberships, fiscal and financial advice and tax preparation by professionals selected by the Executive. The Corporation will provide for an annual medical examination at its expense for the Executive and his wife.
4.6 Vacation
          The Executive shall be entitled to five (5) weeks plus an additional three (3) “floating” or discretionary days of paid vacation in each calendar year in accordance with the policies of the Corporation in effect from time to time applicable to its senior executives, to be taken during such calendar year subject to the need for the timely performance of the Executive’s responsibilities hereunder. In the event that the Executive’s employment is terminated, he shall be entitled to a pro-rated vacation leave with pay for the portion of the year in which such termination occurs that he has been actively employed. It is the responsibility of the Executive to ensure that his vacation entitlement is taken in each calendar year, as there shall be no carry forward of vacation entitlement to a year other than for which it has accrued without the permission of the Board.
4.7 Expenses
          The Executive shall be reimbursed for all reasonable travel and other out-of-pocket expenses properly incurred by the Executive from time to time in connection with the carrying out of his duties hereunder in accordance with the Corporation’s travel and


 

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entertainment policy as amended from time to time. For all such expenses, the Executive shall furnish to the Corporation originals or true copies of all invoices or statements in respect of which the Executive seeks reimbursement. Any Corporation credit card shall be used only for expenses incurred in the course of carrying out the Executive’s duties.
          The Executive shall furthermore be entitled to reimbursement of reasonable legal fees and expenses incurred by him in the negotiation and documentation of this Agreement and the Change in Control Agreement.
4.8 Deductions and Withholdings
          The Corporation shall be entitled to make such deductions and withholdings from the Executive’s remuneration as may be required by law and as may be required by the Executive’s participation in or receipt of any benefit, stock option or other program contemplated hereby, and the Corporation’s obligations in respect thereof shall thereby be satisfied to the extent of such deductions and withholdings.
4.9 Compensation Exhaustive
          For greater certainty, the Executive shall not be entitled to any salary, bonus, participation in profits or other remuneration, or payment or compensation in lieu thereof, except as expressly set forth in this Agreement.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 Term of Employment
          The employment of the Executive hereunder shall continue for an indefinite period until it is terminated in accordance with the provisions of this Article 5.
5.2 Cause
          The Corporation may terminate the employment of the Executive at any time for Cause, effective immediately, by giving written notice of termination to the Executive setting out the basis for termination. “ Cause ” shall mean any of the following:
  (a)   the wilful failure of the Executive to carry out his duties hereunder, to comply in all material respects with the rules and policies of the Corporation or to follow any reasonable instruction or directive of the Board which is consistent with the Executive’s duties and responsibilities under this Agreement;
 
  (b)   the Executive acting dishonestly or fraudulently in connection with the business of the Corporation, or the wilful gross misconduct of the Executive in the course of his employment hereunder, in each case resulting in adverse consequences to the Corporation or to any of its Affiliates;


 

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  (c)   if the Executive or his spouse or child under the age of majority makes any personal profit arising out of or in connection with any transaction to which the Corporation or any of its Affiliates is a party or with which the Corporation or any of its Affiliates is associated without making disclosure to and obtaining the prior written consent of the Board, or other material breach of the Executive’s fiduciary duties to the Corporation;
 
  (d)   the conviction of the Executive for, or a guilty plea by the Executive to, any criminal offence punishable by imprisonment that may reasonably be considered to be likely to adversely affect the Corporation or any of its Affiliates or the suitability of the Executive to perform his duties hereunder, including without limitation any offence involving fraud, theft, embezzlement, forgery, wilful misappropriation of funds or property, or other fraudulent or dishonest acts;
 
  (e)   any material breach of any provisions of this Agreement by the Executive;
 
  (f)   misconduct on the part of the Executive that is materially detrimental to the business or financial position of the Corporation or to any of its Affiliates;
 
  (g)   personal misconduct by the Executive which is of such a serious and substantial nature that it has or would injure the reputation of the Corporation or of any of its Affiliates;
 
  (h)   the habitual inability by the Executive to carry out functions of his employment hereunder due to alcohol or drug related causes, provided that the Executive shall have been provided with written notice thereof at least thirty (30) days prior to the Date of Termination and shall have failed to remedy such alcohol or drug related causes during such period of time; or
 
  (i)   any serious reason pursuant to Article 2094 of the Civil Code of Québec .
          For purposes of this provision, no act or omission on the part of the Executive shall be considered “wilful” unless it is done or omitted in bad faith or without reasonable belief that the act or omission was in the best interests of the Corporation. Any act or omission based upon a resolution duly adopted by the Board or advice of counsel for the Corporation shall be conclusively presumed to have been done or omitted in good faith and in the best interests of the Corporation. Cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity to be heard before the Board) determining that the employment of the Executive is to be terminated for Cause.


 

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5.3 Termination Where Executive Disabled
          If at any time the Executive is unable to perform his duties properly because of ill health, accident or otherwise, for a period or periods totalling at least twenty-six (26) weeks in any period of twelve (12) consecutive calendar months (“ Permanent Disability ”), the Corporation may terminate the Executive’s employment in accordance with the applicable corporate practices of the Corporation in effect at the time the Executive becomes permanently disabled. The Executive shall submit to such reasonable medical examinations as may be requested by a doctor or other medical practitioner selected jointly by the Executive and the Corporation in order to determine whether the condition or conditions suffered by the Executive constitute Permanent Disability. In no event shall the Executive be considered to have a Permanent Disability for the purposes of this Agreement unless the Executive is deemed disabled and eligible for benefits pursuant to the Company’s long-term disability plan.
5.4 Death
          The Executive’s employment shall terminate automatically upon the death of the Executive.
5.5 Other Termination by the Corporation
          The Corporation may terminate this Agreement (other than as provided in the foregoing provisions of this Article 5) at any time and for any reason if the Board, in its sole discretion, so determines, by giving three (3) months’ prior written notice of termination to the Executive.
5.6 Other Termination by the Executive
          The Executive may terminate his employment at any time and for any reason by giving three (3) months’ prior notice in writing to the Corporation. For greater certainty, such notice shall not be required in respect of termination by the Executive for Good Reason pursuant to the terms of the Change in Control Agreement.
5.7 Cessation of Duties
          The Corporation shall have the right, at any time prior to the end of the applicable notice period pursuant to Sections 5.5 or 5.6, notwithstanding the provisions of the relevant Section, by giving written notice to the Executive, to require that the Executive cease to perform his duties and responsibilities and cease attending the Corporation’s premises immediately upon giving such notice and in such event, the employment of the Executive hereunder shall terminate on the termination date stipulated in the written notice of termination, it being understood that the Executive shall continue to receive the employment benefits during the balance of such three (3) month period. A termination by the Executive pursuant to Section 5.6 shall remain as such even if the Corporation exercises its right hereunder.


 

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5.8 Severance Payments
          The following severance pay provisions shall apply notwithstanding anything to the contrary in or inconsistent with the provisions of the Corporation’s Severance Policy — Chief Executive Officer and Direct Reports (“ Severance Policy ”):
  (a)   Upon termination of the Executive’s employment (i) for Cause pursuant to Section 5.2, or (ii) voluntarily by the Executive pursuant to Section 5.6, the Executive shall not be entitled to any pay in lieu of notice of termination, severance or similar payment in respect of such termination other than (A) accrued and unpaid Annual Base Salary earned by the Executive up to the Date of Termination and (B) vacation pay earned up to the Date of Termination and (C) in the event of early termination by the Corporation of the notice period in Section 5.6, the portion of the Annual Base Salary that would have otherwise been payable during such notice period, and (D) any amount of or entitlement to Incentive Awards, other awards, pension benefits and other benefits in accordance with any then applicable plans and agreements. In addition, any unvested stock option, SAR, full value award (including, without limitation, unrestricted stock, restricted stock or restricted stock units, performance stock or performance stock units, and deferred stock or deferred stock units) in the Corporation held by the Executive under a long term incentive plan adopted by the Corporation from time to time shall vest and shall remain exercisable by the Executive subject to and with in accordance with the relevant plan and award agreements.
 
  (b)   Upon termination of the Executive’s employment (i) as a result of the Permanent Disability of the Executive pursuant to Section 5.3, or (ii) by the death of the Executive pursuant to Section 5.4, the Executive (or his estate, as the case may be) shall be entitled to receive (A) accrued and unpaid Annual Base Salary earned by the Executive up to the Date of Termination, (B) vacation pay earned up to the Date of Termination and (C) any amount or entitlement to Incentive Awards, other awards, pension benefits and other benefits in accordance with any then applicable plans and agreements. In addition, any unvested stock option, SAR, full value award (including, without limitation, unrestricted stock, restricted stock or restricted stock units, performance stock or performance stock units, and deferred stock or deferred stock units) in the Corporation held by the Executive under a long term incentive plan adopted by the Corporation from time to time shall vest and shall remain exercisable by the Executive subject to and in accordance with the relevant plan and award agreements.
 
  (c)   If the Executive’s employment is terminated pursuant to Section 5.5, other than within two years following a Change in Control (in which case the Change in Control Agreement shall govern and the Executive shall not be entitled to any payment pursuant to this Agreement), the Executive shall be entitled to receive:


 

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  (i)   accrued and unpaid Annual Base Salary earned by the Executive up to the Date of Termination;
 
  (ii)   vacation pay earned up to the Date of Termination;
 
  (iii)   severance pay in an amount equal to six (6) weeks of Eligible Pay per year of continuous service, subject to a minimum of fifty-two (52) weeks and a maximum of one hundred four (104) weeks, and pro-rated for partial years of service; and
 
  (iv)   any amount or entitlement to Incentive Awards, other awards, pension benefits and other benefits in accordance with the relevant plans and agreements.
          In addition, any unvested stock option, SAR, full value award (including, without limitation, unrestricted stock, restricted stock or restricted stock units, performance stock or performance stock units, and deferred stock or deferred stock units) in the Corporation held by Executive under a long term incentive plan adopted by the Corporation from time to time shall vest and shall remain exercisable by the Executive subject to and in accordance with the relevant plan and award agreements.
          All amounts payable to the Executive as a result of the termination of the Executive’s employment pursuant to any statute, regulation or other provision of law are included in and are not in addition to the amounts payable pursuant to this Section 5.8. Amounts payable pursuant to Section 5.8(c)(i), (ii) and (iii) shall be paid on the tenth (10 th ) day following the effectiveness of the release described above; provided however that, if the sixtieth (60 th ) day following termination of employment falls in the subsequent calendar year, then the payment shall be the later of (i) the first (1 st ) business day of that subsequent year or (ii) the tenth (10 th ) day following the effectiveness of the release. For greater certainty, the Corporation agrees that payment of undisputed claims will not be delayed should there exist any disputed claims.
5.9 Resignation on Termination
          The Executive agrees that upon any termination of his employment with the Corporation he shall immediately tender his resignation from any position he may hold as an officer or director of the Corporation or any of its Affiliates. In the event of the Executive failing within three days to comply with his obligation hereunder, he hereby irrevocably authorizes and appoints any other director or officer of the Corporation as his agent and attorney to sign in his name and on his behalf any written resignations or other documents and do all other things necessary to give effect to such resignation.
5.10 Continuance in Effect
          For greater certainty, notwithstanding any termination of the employment of the Executive, the provisions of this Agreement shall continue in full force and effect in accordance with their terms, including, without limitation, (i) the provisions of Article 6, (ii) rights to


 

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indemnification and insurance under the Indemnification Agreement, Charter, By-Laws and directors’ and officers’ insurance policies maintained by the Corporation and (iii) rights to which the Executive is entitled by virtue of his participation in the employee benefits plans, policies and arrangements of the Corporation, all in accordance with the terms of the relevant plans and agreements.
ARTICLE 6
EXECUTIVE’S COVENANTS
6.1 Non-Disclosure
          The Executive acknowledges and agrees that:
  (a)   in the course of performing his duties and responsibilities hereunder, he will have access to and will be entrusted with detailed confidential information and trade secrets concerning past, present, future and contemplated company strategy, plans and activities (including acquisition plans and activities), products, services, operations, technology, intellectual property, methodologies and procedures of the Corporation or its Affiliates, whether in written, printed, pictorial, diagrammatic, electronic or any other form or medium, including, without limitation, information relating to names, addresses, contact persons, preferences, needs and requirements of past, present and prospective clients, customers, suppliers and employees of the Corporation and its Affiliates (collectively, “ Confidential Information ”), the disclosure of any of which to competitors of the Corporation or of any of its Affiliates or to the general public, or the use of any of which by the Executive or any competitor of the Corporation or of any of its Affiliates, could reasonably be expected to be detrimental to the interests of the Corporation and its Affiliates;
 
  (b)   in the course of performing his duties and responsibilities hereunder, the Executive will be a representative of the Corporation and its Affiliates to its and their customers, clients and suppliers and as such will have significant responsibility for maintaining and enhancing the goodwill of the Corporation and its Affiliates with such customers, clients and suppliers and would not have, except by virtue of his employment with the Corporation, developed a close and direct relationship with the customers, clients and suppliers of the Corporation and its Affiliates; and
 
  (c)   the right to maintain the confidentiality of the Confidential Information, the right to preserve the goodwill of the Corporation and its Affiliates and the right to the benefit of the contacts and connections previously developed by the Executive with prospective clients, customers and others and any relationships that will be developed between the Executive and the customers, clients and suppliers of the Corporation and its Affiliates by virtue of the Executive’s employment with the


 

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      Corporation constitute proprietary rights of the Corporation and its Affiliates which the Corporation and its Affiliates are entitled to protect.
          In accordance with the matters acknowledged and agreed to by the Executive above and in consideration of the payments and other benefits to be received by the Executive pursuant to this Agreement, the Executive hereby covenants and agrees with the Corporation that he will not, except with the specific prior written consent of the Board, either during the term of this Agreement or at any time within five (5) years thereafter (the “ Non-Disclosure Period ”), directly or indirectly, disclose to any person or in any way make use of (other than for the benefit of the Corporation or its Affiliates), in any manner, any of the Confidential Information, provided that such Confidential Information shall be deemed not to include information which is or becomes generally available to the public other than as a result of disclosure by the Executive.
6.2 Intellectual Property
     (a) The Executive shall disclose to the Corporation or one or more of its Affiliates, as the Board may direct, all ideas, suggestions, discoveries, inventions and improvements (collectively, the “ Improvements ”) which he may make solely, jointly or in common with other employees, during the term of his employment with the Corporation and which relate to the business activities of the Corporation or its Affiliates. Any Improvements coming within the scope of the business of the Corporation or of any of its Affiliates made and/or developed by the Executive while in the employ of the Corporation, whether or not conceived or made during regular working hours, or whether or not the Executive is specifically instructed to make or develop the same, shall be for the benefit of the Corporation and/or its Affiliates and shall be considered to have been made by virtue of this Agreement and shall immediately become the exclusive property of the Corporation and/or its Affiliates.
     (b) The Executive shall assign, set over and transfer to the Corporation or one or more of its Affiliates, as the Board may direct, his entire right, title and interest in and to any and all the Improvements and to all patents, copyrights or other intellectual property rights (or applications therefor) which may be or have been filed and/or issued by or to him or on his behalf, and the Executive agrees to execute and deliver to the Corporation or any such Affiliate, any and all instruments necessary or desirable to accomplish the foregoing and, in addition, to do all lawful acts which may be necessary or desirable to assist the Corporation or any such Affiliate to obtain and enforce protection of the Improvements.
     (c) The Executive waives all moral rights in any Improvements and all work produced by the Executive during the term of this Agreement.
6.3 Non-Competition
          The Executive represents and warrants that he is not subject to and will not bring any material that is subject to any non-competition, non-disclosure, discoveries and works or other agreements that would prevent or restrict him from rendering services to the Corporation pursuant to this Agreement. Executive further represents and warrants that his employment and


 

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use of any material he brings will not violate the rights of any third party, including without limitation, pursuant to any competition or non-solicitation agreement.
          The Executive hereby agrees that he shall not (without the prior written consent of the Board which shall not be unreasonably withheld taking into account (i) the Executive’s career in the pulp and paper industry and (ii) his non-disclosure obligations under Section 6.1) during the Restricted Period and within the Prohibited Area whether on his own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, shareholder, partner, principal, agent, or in any other capacity whatsoever other than as a consultant, in competition with the Corporation or any of its Affiliates, directly or indirectly, operate, manage, control, participate in, carry on, be employed by, be engaged in, perform services in respect of, be concerned with, be financially interested in or financially assist, or permit his name to be used in connection with the activities from time to time of the Corporation (the “ Restricted Business ”), including the manufacture, sale and/or dealing in newsprint, commercial printing and packaging papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by the Corporation or by any of its Affiliates in the context of the above described activities during the term of this Agreement.
          Notwithstanding the foregoing restrictions, the Executive may acquire securities (i) of a class or series that is traded on any stock exchange or over the counter if such securities represent not more than two percent (2%) of the issued and outstanding securities of such class or series, (ii) of a mutual fund or other investment entity that invests in a portfolio the selection and management of which is not within the control of the investor, or (iii) held in a fully managed account where the Executive does not direct or influence in any manner the selection of any investment in such securities.
6.4 Non-Solicitation of Customers
          The Executive hereby agrees that he shall not during the Restricted Period, whether on his own behalf or in conjunction with or on behalf of any other person, directly or indirectly, except on behalf of the Corporation or its Affiliates, solicit, assist in soliciting, accept, facilitate the acceptance of the business of any person (i) to whom the Corporation or its Affiliates has supplied goods or services at any time prior to the Date of Termination, or (ii) to whom the Corporation or any of its Affiliates has offered to supply goods or services prior to the Date of Termination, or (iii) to whom the Corporation or any of its Affiliates has provided details of the terms on which it would or might be willing to supply goods or services prior to the Date of Termination, or (iv) with whom the Corporation or any of its Affiliates has had any negotiations or discussions regarding the possible supply of goods or services prior to the Date of Termination.


 

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6.5 Non-Solicitation of Employees
          The Executive hereby agrees that he will not during the Restricted Period, either on his own behalf or in conjunction with or on behalf of any other person, directly or indirectly, except on behalf of or with the prior written consent of the Corporation or its Affiliates, (a) induce or solicit any person who was employed by the Corporation or by any of its Affiliates to leave such employment; or (b) hire or accept into employment or otherwise engage or use the services of any person who was so employed within the immediately preceding six months. Notwithstanding the foregoing, the general advertisement of open positions, not targeted at any individual, shall not be a violation of this provision.
6.6 Non-interference with Suppliers
          The Executive hereby agrees that he will not during the Restricted Period, either on his own behalf or in conjunction with or on behalf of any other person, directly or indirectly, interfere, seek to interfere, induce and/or incite another person to interfere, or take steps to interfere with the continuance of supplies (or the terms relating to such supplies) from any suppliers who have been supplying products, materials or services to the Corporation or any of its Affiliates at any time during the term of this Agreement.
6.7 Applicability to Affiliates or Purchasers
          The obligations undertaken by the Executive pursuant to this Article 6 may be enforced directly against the Executive by any Affiliate of the Corporation or any purchaser from the Corporation of all or any part of its business, to the extent applicable by their terms to such Affiliate or such purchased business, and shall, with respect to each Affiliate of the Corporation or such purchased business, constitute a separate and distinct covenant and the invalidity or unenforceability of any such covenant shall not affect the validity or enforceability of the covenant in favour of the Corporation or any other Affiliate of the Corporation or any such purchaser. If for any reason any of the obligations of the Executive pursuant to this Article 6 cannot be directly enforced by an Affiliate or purchaser as contemplated hereby, the Executive acknowledges that such obligations may be enforced by the Corporation on behalf of such Affiliate or purchaser, as the case may be.
6.8 Provisions in the Event of Breach
          The Executive agrees that, in the event of any actual or threatened breach by the Executive of any of the covenants or agreements contained in this Article 6, without prejudice to any and all other rights and recourses of the Corporation, the Corporation shall have the right to enforce the terms and provisions thereof by means of compelling specific performance and/or by means of injunction (including, without limitation, provisional, interlocutory and permanent). In addition, and without restriction to the foregoing, in the event of a breach by the Executive of any of the covenants or agreements contained in this Article 6, any payments otherwise payable to the Executive as severance pay pursuant to the provisions of Section 5.8(c)(iii) hereof shall be deemed to have been forfeited in their entirety by the Executive and the running of the Non-


 

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Disclosure Period and Restricted Period shall be stayed and shall recommence upon the date the Executive ceases to be in breach thereof, whether voluntarily or by injunction.
6.9 Disclosure
          During the term of this Agreement, the Executive shall promptly disclose to the Board full information concerning any interest, direct or indirect, of the Executive (whether as owner, shareholder, partner, lender or other investor, director, officer, employee, consultant or otherwise) or his spouse or child under the age of majority in any business which is reasonably known to the Executive to purchase or otherwise obtain services or products from, or to sell or otherwise provide services or products to the Corporation or to any of its Affiliates or to any of their respective suppliers or customers.
          During the Non-Disclosure Period and the Restricted Period, the Executive shall inform any prospective employer of the existence of this Agreement and the obligations which it imposes upon the Executive under Sections 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6.
6.10 Merger Transactions
          The Executive shall not, during the term of this Agreement and during the Restricted Period, solicit, initiate or encourage proposals or offers from, or provide information relating to the Corporation or any of its Affiliates to, any person in connection with or relating to any proposed acquisition or disposition of all or any material part of the issued and outstanding Common Shares or other securities of the Corporation or any of its Affiliates, or any proposed amalgamation, merger, sale of all or any material part of the assets of the Corporation or any of its Affiliates, take-over bid, reorganization, recapitalization, liquidation, winding-up, or other business combination or any similar transaction involving the Corporation or any of its Affiliates, without in each case the consent of the Board.
6.11 Consulting Services after Date of Termination
          Notwithstanding the foregoing restrictions of this Article 6, the Executive may provide consulting services to any person after the date of termination and within the Prohibited Area subject to his obligations under Article 6 and provided furthermore that the Executive shall not become an employee of or enter into an employment agreement with a Restricted Business relating to the Prohibited Area during the Restricted Period.
6.12 Return of Materials
          All files, forms, brochures, books, materials, written correspondence, memoranda, documents, manuals, computer disks, software products and lists (including financial and other information and lists of customers, suppliers, products and prices) pertaining to the Corporation or to any of its Affiliates and containing Confidential Information which may come into the possession or control of the Executive shall at all times remain the property of the Corporation or such Affiliate, as the case may be. Upon termination of the Executive’s employment hereunder for any reason, the Executive agrees to immediately return all such property of the Corporation


 

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or of any of its Affiliates in the possession of the Executive or directly or indirectly under the control of the Executive and to destroy all electronic copies thereof. The Executive agrees not to make, for his personal or business use or that of any other person, reproductions or copies of any such property or other property of the Corporation or of any of its Affiliates.
ARTICLE 7
GENERAL
7.1 Reasonableness of Restrictions and Covenants
          The Executive hereby confirms and agrees that the covenants and restrictions pertaining to the Executive contained in this Agreement, including, without limitation, those contained in Article 6, are reasonable and valid and hereby further acknowledges and agrees that the Corporation and its Affiliates would suffer irreparable injury in the event of any breach by the Executive of his obligations under any such covenant or restriction. Accordingly, the Executive hereby acknowledges and agrees that damages would be an inadequate remedy at law in connection with any such breach and that the Corporation and its Affiliates shall therefore be entitled, in addition to any other right or remedy which they may have at law, in equity or otherwise, to temporary and permanent injunctive relief enjoining and restraining the Executive from any such breach.
7.2 Amendments and Waivers
          No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by such party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.
7.3 Successors and Assigns
          This Agreement shall enure to the benefit of and shall be binding on and enforceable by and against the heirs, executors, administrators and legal personal representatives of the Executive and the successors and permitted assigns of the Corporation. This Agreement is personal to the Executive and none of his rights may be assigned, made subject to a security interest or otherwise disposed of or encumbered, nor may any of his obligations be delegated or transferred, except as permitted in writing by the Board, or in accordance with the written policies, governance procedures and management practices of the Corporation, if any, as approved by the Board from time to time.
7.4 Notices
       (a) Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered or sent in person, by courier, by registered mail, charges prepaid, or by fax in the case of the Corporation and by electronic mail in the case of the Executive, addressed as follows:


 

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  (i)   If to the Executive:
111, rue Vinet
Montréal, Québec H3J 2W2
 
      Email: rgar1234@gmail.com
 
  (ii)   If to the Corporation:
AbitibiBowater Inc.
1155 Metcalfe Street
Suite 800
Montréal, Québec H3B 5H2
 
      Attention: Chief Legal Officer
Fax number: 514-394-3644
     (b) Any such notice or other communication shall be deemed to have been given and received on the day on which it was delivered or transmitted (or, if such day is not a Business Day or if delivery or transmission is made on a Business Day after 5:00 p.m. at the place of receipt, then on the next following Business Day) or, if mailed, on the third (3 rd ) Business Day following the date of mailing; provided, however, that if at the time of mailing or within three (3) Business Days thereafter there is or occurs a labour dispute or other event which might reasonably be expected to disrupt the delivery of documents by mail, any notice or other communication hereunder shall be delivered or transmitted by any aforesaid permitted means of communication.
     (c) Any party may at any time change its address for service from time to time by giving notice to the other parties in accordance with this Section 7.4.
7.5 Entire Agreement
          This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether written or oral. There are no conditions, covenants, agreements, representations, warranties or other provisions, express or implied, collateral, statutory or otherwise, relating to the subject matter hereof except as provided herein.
7.6 Rules and Policies
          In addition to this Agreement, all written rules and policies of the Corporation adopted by the Board from time to time apply to the Executive except to the extent that they are inconsistent with the express provisions of this Agreement, in which case such provisions will prevail.


 

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7.7 Governing Law
          This Agreement shall be interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the Province of Quebec and the federal laws of Canada applicable in that province, without regard to the principles of conflict of laws.
7.8 Ack n owledgements
          The Executive acknowledges that:
  (a)   the Executive has had sufficient time to review and consider this Agreement thoroughly;
 
  (b)   the Executive has read and understands the terms of this Agreement and the Executive’s obligations hereunder;
 
  (c)   the Executive has been given an opportunity to obtain independent legal advice, or such other advice as the Executive may desire, concerning the interpretation and effect of this Agreement; and
 
  (d)   this Agreement is entered into voluntarily and without any pressure.
7.9 Counterparts
          This Agreement and all documents contemplated by or delivered under or in connection with this Agreement may be executed and delivered in any number of counterparts, with the same effect as if all parties had signed and delivered the same document, and all counterparts shall be construed together to be an original and will constitute one and the same agreement.


 

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7.10 Language
          The parties have requested that this Agreement be drawn up in the English Language. Les parties ont demandé que ce contrat soit rédigé en anglais .
          IN WITNESS WHEREOF this Agreement has been executed by the parties as of the date first above written.
             
    ABITIBIBOWATER INC.    
 
           
 
  By   /s/ Sarah Nash
 
Sarah Nash
   
 
      Chair of the Human Resources and Compensation/Nominating and Governance Committee    
 
           
 
      /s/ Richard Garneau
 
Richard Garneau
   
EXHIBIT 10.27
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT , made as of the 1 st day of January, 2011, by and between AbitibiBowater Inc., a Delaware corporation having a mailing address of 1155 Metcalfe Street, Suite 800, Montreal, Quebec H3B 5H2 (the “Corporation”), and Richard Garneau (the “Executive”).
      WHEREAS , the Executive is the President and Chief Executive Officer of the Corporation; and
      WHEREAS the Corporation and the Executive have entered into an Executive Employment Agreement as of the 1 st day of January 2011 setting forth the terms of the Executive’s employment (the “Employment Agreement”); and
      WHEREAS , the Executive is considered by the Board of Directors of the Corporation (the “Board”) to be a valued member of management of the Corporation who has outstanding skills and abilities and an extensive background in the Corporation’s business; and
      WHEREAS , the uncertainty attendant to a Change in Control of the Corporation may result in the departure or distraction of management personnel, including the Executive, to the detriment of the Corporation; and
      WHEREAS , the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation’s management, including the Executive, to their assigned duties in the event of a Change in Control of the Corporation; and
      WHEREAS , this Agreement is entered into as part of the Executive’s compensation as provided in the Employment Agreement and to maintain or increase the profitability of the Corporation; and
      WHEREAS except where otherwise provided herein, defined terms as used herein have the meanings set forth in the Employment Agreement.
      NOW THEREFORE , in consideration of the foregoing and other good and valuable consideration, the parties hereto agree as follows:
1. DEFINITIONS
     The following terms shall have the meanings assigned to them below:
  (a)   “Base Amount” shall mean the Executive’s Annual Base Salary at the rate in effect on the Termination Date.
 
  (b)   “Beneficial Owner” of securities shall mean (i) a Person who beneficially owns such securities, directly or indirectly, or (ii) a Person who has the right to acquire such securities (whether such right is exercisable immediately or only with the passage of time) pursuant to any agreement, arrangement or understanding


 

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      (whether or not in writing) or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise.
  (c)   “Incentive Amount” shall mean an amount equal to the lesser of (i) the average of the last two Incentive Awards paid to the Executive prior to the Termination Date, or (ii) 125% of the Executive’s target incentive (expressed in dollars) for the year in which the Termination Date occurs.
 
  (d)   “Change in Control” means any of the following:
  (i)   the acquisition, directly or indirectly and by any means whatsoever, by any person, or by a group of persons acting jointly or in concert, of that number of Voting Shares which is equal to or greater than 50% of the total issued and outstanding Voting Shares immediately after such acquisition;
 
  (ii)   the election or appointment by any holder of Voting Shares, or by any group of holders of Voting Shares acting jointly or in concert, of a number of members of the Board of Directors of the Corporation equal to or greater than one half (50%) of the members of the Board of Directors;
 
  (iii)   any transaction or series of transactions, whether by way of reconstruction, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, whereby assets of the Corporation become the property of any other person (other than a subsidiary of the Corporation) if such assets which become the property of any other person have a fair market value (net of the fair market value of any then existing liabilities of the Corporation assumed by such other person as part of the same transaction) equal to 50% or more of the Market Capitalization of the Corporation immediately before such transaction; or
 
  (iv)   the completion of any transaction or the first of a series of transactions which would have the same or similar effect as any transaction or series of transactions referred to in paragraphs (i), (ii) and (iii) above.
  (e)   “Disability” shall mean a physical or mental condition that is defined as a disability in the Corporation’s long term disability insurance plan covering the Executive immediately prior to the Change in Control.
 
  (f)   “Employer Contributions” shall mean an amount equal to the maximum contributions the Corporation could have made (regardless of actual circumstances) on the Executive’s behalf under the DC Program for the fiscal year in which the Executive’s Termination Date occurs.
 
  (g)   “Good Reason” shall mean:
  (i)   a material change in the Executive’s status, title, position or responsibilities (including in reporting line relationships) that represents a substantial adverse change from the Executive’s status, title, position or


 

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      responsibilities as in effect immediately preceding the date of a Change in Control or at any time within twenty-four (24) months thereafter; the assignment to the Executive of any duties or responsibilities that are materially inconsistent with the Executive’s status, title, position or responsibilities as in effect immediately preceding the date of a Change in Control or at any time within twenty-four (24) months thereafter; or any removal of the Executive from or failure to reappoint or reelect the Executive to any material office or position held immediately preceding the date of a Change in Control; or at any time within twenty-four (24) months thereafter.
  (ii)   a material reduction in compensation and benefits, in the aggregate, (in terms of benefit levels and/or reward opportunities which opportunities will be evaluated in light of the performance requirements therefor) to those provided for under the employee compensation and benefit plans, programs and practices in which the Executive was participating immediately preceding the date of the Change in Control or at any time within twenty-four (24) months thereafter;
 
  (iii)   a material reduction of the Executive’s Annual Base Salary as in effect immediately preceding the date of the Change in Control or any time within twenty-four (24) months thereafter;
 
  (iv)   a failure by the Corporation to obtain from any Successor its assent to this Agreement contemplated by Section 10 hereof; or
 
  (v)   a material change in the geographic location at which the Executive is to perform services on behalf of the Corporation from the location immediately prior to the Change in Control.
  (h)   “Market Capitalization of the Corporation” at any time means the product of (i) the number of outstanding Common Shares of the Corporation at that time, and (ii) the average of the closing prices for the Common Shares of the Corporation on the principal securities exchange (in terms of volume of trading) on which the Common Shares of the Corporation are listed at that time for each of the last 10 business days prior to such time on which the Common Shares of the Corporation traded on such securities exchange.
 
  (i)   “Notice of Termination” shall mean a notice sent by either the Executive or the Corporation to the other party terminating the Executive’s employment as of a certain date and setting forth the reasons therefor.
 
  (j)   “Successor” shall mean the direct or indirect successor by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Corporation.
 
  (k)   “Termination Date” shall mean (i) in the case of the Executive’s death, the date of death, (ii) in the case of a termination by the Executive in accordance with


 

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      Section 3, the last day of employment as set forth in the Notice of Termination given by the Executive, (iii) in the case of a termination by the Corporation for Cause, a date not less than thirty (30) days after receipt of the Notice of Termination by the Executive, (iv) in the case of a termination by the Corporation due to the Executive’s Disability, the date not less than thirty (30) days after receipt of the Notice of Termination by the Executive, provided that the Executive shall not have returned to the full-time performance of duties within thirty (30) days after such receipt, and (v) in all other cases, the date specified in the Notice of Termination or if no Notice of Termination is sent, the last day of the Executive’s active employment (an Executive receiving periodic severance pay is no longer considered employed for the purposes of this Agreement).
2. TERM OF AGREEMENT
     This Agreement shall commence as of the date hereof and terminate on the occurrence of any of the following events: (i) the date of death of the Executive; (ii) voluntary resignation by the Executive from the Corporation otherwise than in response to a Good Reason; (iii) the giving of notice by the Corporation in the event of Disability; (iv) termination for Cause; (v) termination of employment of the Executive at any time when there has been no Change in Control or more than two years after the immediately preceding Change in Control; (vi) termination of this Agreement by the Corporation in accordance with Section 12 or (vii) satisfaction by the Corporation of its obligations under Section 4 of this Agreement in the event of termination of the Executive in the circumstances contemplated by Section 4. The specific date of termination shall be as set forth in the definition of Termination Date.
     For greater certainty, Section 4 applies with respect to each separate Change in Control until the Agreement has been terminated. In addition, with respect to a particular Change in Control, Section 4 expires twenty-four (24) months following such Change in Control unless this Agreement is otherwise terminated.
3. EXECUTIVE’S RIGHT OF TERMINATION
     After a Change in Control and for twenty-four (24) months thereafter, the Executive shall have the right to terminate employment for Good Reason as set forth below. If the Executive’s employment is terminated in accordance with the provision of this Section 3, the Executive shall be entitled to the compensation and benefits described in Section 4 below. In order to resign for Good Reason, the Executive must notify the Corporation in writing not more than thirty (30) days after the occurrence of one or more events asserted to constitute Good Reason, describing such event or events in reasonable detail (a “Good Reason Notice”). If the Corporation fails to cure all events identified in the Good Reason Notice within thirty (30) days after receiving the Good Reason Notice by restoring the Executive to the position he would have been in had the event not occurred (including payment of any lost compensation or benefits), the Executive may resign for Good Reason by submitting a Notice of Termination not more than one hundred eighty (180) days after the end of such thirty (30) day period. For avoidance of doubt, the failure of the Executive to notify the Corporation of an event constituting Good Reason, or to resign as a result of such event having occurred and not having been cured, shall not constitute a waiver of any of the Executive’s other rights with respect to such event, including without limitation the right to


 

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maintain an action for breach of contract, or preclude the Executive from resigning for Good Reason upon the subsequent occurrence of any of the events described above, including an event of the same type.
4. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY CERTAIN TERMINATIONS
     If the Executive’s employment with the Corporation shall be terminated within twenty-four (24) months following a Change in Control (i) by the Corporation for any reason other than for Cause or Disability, or (ii) by the Executive for Good Reason pursuant to Section 3 (each, a “Qualifying Termination”), the Executive shall be entitled to the compensation and benefits set forth in this Section 4. If either a Notice of Termination is given by the Corporation, or an event constituting the basis for the Executive’s resignation for Good Reason occurs (and is not subsequently cured within thirty (30) days as described above) prior to the end of such twenty-four (24) month period, the Executive’s termination shall be considered to have terminated within such twenty-four (24) month period regardless of the actual Termination Date.
     If a Qualifying Termination occurs, the Executive shall be entitled to the following as of the applicable Termination Date:
  (a)   A single lump sum, paid as soon as practicable, but in no event later than sixty (60) days after the Executive’s Termination Date, equal to the sum of the following less applicable withholding taxes:
  (i)   an amount equal to the Base Amount multiplied by three;
 
  (ii)   an amount equal to the Incentive Amount multiplied by three;
 
  (iii)   an amount equal to the Employer Contributions multiplied by three; and
 
  (iv)   a cash payment of $20,000 in lieu of individual outplacement services.
      The payment of severance hereunder is intended to meet the short-term deferral exception under Section 409A of the US Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted and administered consistent with this intent, to the extent applicable.
 
  (b)   As of the Executive’s Termination Date, the Executive (and the Executive’s spouse or surviving spouse and dependents) will be provided health care (including medical, prescription drug and dental) and life insurance coverage provided by the Corporation to executives as of the date of the Change in Control for the earlier of thirty-six (36) months after the Termination Date or the date on which the Executive is covered by a subsequent employers’ health care and life insurance programs. The amount of premiums that the Executive is required to pay for such coverage shall not exceed the amount paid by executives who are active employees on the Termination Date and thereafter. If and to the extent that the benefits described in this paragraph cannot be provided under the Corporation’s plans or programs, the lump sum payment described in subsection


 

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      (a) shall be increased by an amount calculated so that the amount of such payment, after payment of all applicable income taxes, equals the present value of the difference between the full premium cost without employer subsidy of the lost benefits and the amount of premium the Executive would have been required to pay.
5. EQUITY AWARDS
     Notwithstanding anything in the applicable equity plan or any award agreement to the contrary, if, upon a Change in Control, the Executive holds options for the purchase of shares, or restricted shares or restricted share units (“Equity Awards”), all Equity Awards so held shall, unless the Executive breaches the terms of Article 6 of the Employment Agreement (as qualified by Section 14 of this Agreement in the event of a Qualifying Termination), (i) immediately vest to the extent they have not already vested at such date and (ii) continue to be held, in all cases, notwithstanding the terms of the Equity Award plans, on the same terms and conditions as if the Executive continued to be employed by the Corporation.
6. DISABILITY
     In the event of Disability of the Executive, the Agreement may be terminated by the Corporation on thirty days’ notice. Notwithstanding anything contained in this Section 6, the Executive shall be entitled to all benefits provided under any disability and pension plans of the Corporation applicable to the Executive at the date of Disability.
7. NO MITIGATION REQUIRED
     The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement, nor shall any payment or benefit provided for in this Agreement be offset by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, or otherwise.
8. EXECUTIVE’S EXPENSES
     The Corporation shall pay or reimburse the Executive for all costs, including reasonable attorney’s, accountants’ and actuary’s fees and expenses, incurred by the Executive (i) to confirm the Executive’s rights to and amounts of payments hereunder, (ii) to contest or dispute any termination of the Executive’s employment following a Change in Control or seek to obtain or enforce any right or benefit provided by this Agreement in litigation or arbitration, or (iii) in connection with any audit by a taxing authority related to any payment or benefit hereunder, or any subsequent contest or litigation relating to the tax treatment of such payment or benefit. Notwithstanding the foregoing, if the Executive does not prevail in a lawsuit or arbitration pertaining to this Agreement, the Executive shall repay to the Corporation all fees and expenses relating to such proceeding that have been previously paid by the Corporation.
9. CODE SECTION 280G
     Notwithstanding anything in this Agreement to the contrary, if the aggregate amount of the benefits and payments under this Agreement, and other payments and benefits which the


 

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Executive has the right to receive from the Corporation (including the value of any equity rights which become vested upon a Change in Control) (the “Total Payments”) would constitute a “parachute payment” as defined in Section 280G of the US Internal Revenue Code of 1986, as amended, such that the Executive would be subject to the excise tax under Code Section 4999 of the Code, then the Accounting Firm (defined below in this Section 9) shall determine which of the following has a greater aggregate value for the Executive, which greater value shall be paid to the Executive:
  (a)   The after-tax amount that would be retained by the Executive (after taking into account all required income taxes payable by the Executive and the amount of any excise taxes that would be payable by the Executive under Code Section 4999 (the “Excise Taxes”)) if the Executive were to receive the Total Payments, or
 
  (b)   The after-tax amount that would be retained by the Executive (after taking into account all federal, state and local income taxes payable by the Executive) if the Executive were to receive the Total Payments reduced to the largest amount that would result in no portion of the Total Payments being subject to Excise Taxes (the “Reduced Payments”).
     If the Total Payments are payable to the Executive, the Corporation shall not reimburse the Executive for any Excise Taxes imposed on the Executive or provide any such other compensation (whether through a tax gross-up or otherwise) to mitigate the effects of the Excise Taxes. If the Executive is to receive Reduced Payments, the Total Payments payable will be reduced or eliminated in the following order: (1) cash payments, (2) taxable benefits, (3) nontaxable benefits and (4) accelerated vesting of equity awards.
     The determination of whether the Executive will receive the Total Payments or the Reduced Payments, and the calculation of the amount of the Reduced Payments, if applicable, shall be performed by a nationally recognized certified public accounting firm selected by the Corporation (the “Accounting Firm”). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Corporation may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation.
10. BINDING AGREEMENT
     This Agreement shall inure to the benefit of and be enforceable by the Executive, and the Executive’s heirs, executors, administrators, successors and assigns. This Agreement shall be binding upon the Corporation, its Successors and assigns. The Corporation shall require any Successor to assume and agree to perform this Agreement in accordance with its terms. The Corporation shall obtain such assumption and agreement prior to the effectiveness of any such succession.


 

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11. SOLE SEVERANCE; OTHER BENEFITS
     If the Executive receives the payments and benefits due under Section 4, such payments and benefits shall be in lieu of any other severance amounts to which the Executive may be entitled under any other severance arrangement, including under any employment agreement, severance pay plan, or applicable legislation entitling the Executive to severance benefits. For greater certainty, the payments under Section 4 are in satisfaction of the Executive’s entitlement to a retiring allowance. However, the parties acknowledge that the benefits paid hereunder are only exclusive as to other severance payments and that the Executive may be entitled to other benefits or payments triggered by a Change in Control under certain other of the Corporation’s benefit or compensation arrangements, including, without limitation, any long term incentive plans or equity incentive award plans.
12. AMENDMENTS; WAIVERS
     Except as otherwise provided below, no provision of this Agreement may be modified, waived or discharged, except in a writing specifically referring to such provision and signed by the party against which enforcement of such modification, waiver or discharge is sought. No waiver by either party hereto of the breach of any condition or provision of this Agreement shall be deemed a waiver of any other condition or provision at the same or any other time. Notwithstanding the foregoing, the Board or a committee thereof may amend (or terminate) this Agreement if (a) the Board or such committee reasonably and in good faith determines that such amendment is necessary either (i) to comply with the requirements of any law or regulation applicable to the Corporation or (ii) to conform the Agreement to prevailing corporate practices for companies comparable to the Corporation, provided any such amendment or termination is not adopted less than ninety (90) days prior to or after a Change in Control, (b) the same amendment is made to all other Change in Control Agreements between the Corporation and similarly situated executives, and (c) the Executive is notified in writing of the amendment and the reason for its adoption not more than thirty (30) days after it is adopted.
13. VALIDITY
     The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
14. CONTINUANCE IN EFFECT
     In the event of a Qualifying Termination, the Executive’s covenants pursuant to Sections 6.3 (Non-Competition), 6.4 (Non-Solicitation of Customers), 6.5 (Non-Solicitation of Employees), 6.6 (Non-Interference with Suppliers) and 6.10 (Merger Transactions) of the Employment Agreement shall extinguish on the Date of Termination. Except as expressly provided for in the preceding sentence and for greater certainty, notwithstanding any Termination of the Executive, the provisions of the Employment Agreement shall continue in full force and effect in accordance with their terms, including, without limitation, (i) the provisions of Article 6, (ii) rights to indemnification and insurance under the Indemnification Agreement, Charter, By-Laws and directors’ and officers’ insurance policies maintained by


 

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the Corporation and (iii) rights to which the Executive is entitled by virtue of his participation in the employee benefits plans, policies and arrangements of the Corporation, all in accordance with the terms of the relevant plans and agreements.
15. GENERAL
     The provisions of Sections 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9 and 7.10 of the Employment Agreement are hereby incorporated by reference as if herein recited at length.
IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the day and year first above written.
             
ABITIBIBOWATER INC.   THE EXECUTIVE
Per:
      Per:    
 
           
 
  /s/ Sarah Nash       /s/ Richard Garneau
 
           
 
  Sarah Nash       Richard Garneau
 
  Chair of the Human Resources and Compensation/Nominating and Governance Committee        
EXHIBIT 10.28
[LETTERHEAD OF ABITIBIBOWATER INC.]
February 7, 2011
Alain Boivin
Re: Employment agreement between Alain Boivin and AbitibiBowater Inc.
Dear Alain,
This letter will serve to confirm your position of Senior Vice President, Pulp and Paper Operations in the post-emergence AbitibiBowater Inc.
The terms and conditions of your employment are as follows
     
Location:
  Montreal, Quebec, Canada
 
   
Effective date:
  March 4, 2011
 
   
Compensation:
  Your annual base salary will be US$375,000.
 
   
Short-Term Incentive Plan (STIP):
  You will be eligible to participate in a short-term incentive plan for the year 2011 with a target level of 100% of base salary. Please refer to the documentation enclosed.
 
   
Long-Term Incentive Plan (LTIP):
  You will be eligible to participate in the Company’s long-term incentive plan and to receive grants under such plan, as determined by the Board of Directors from time to time, at its discretion. For 2011, you will be eligible to an annual grant equivalent to 125% of your annual base salary. The LTIP plan will be available shortly.
Other benefits:
As per policy, you will be eligible to participate in the AbitibiBowater benefits program (see attached document for an overview) and you will be entitled to 5 weeks of vacation per year as of the 2011 calendar year.

 


 

Defined contributions (DC) retirement program for executive employees:
As regards pension benefits, you will be eligible to participate in the new Company’s defined contributions (DC) retirement program for executive employees comprised of a registered DC plan and a supplemental retirement executive plan (DC SERP) at the following levels of contribution:
     
Employee    
Contributions   Company Contributions
5% of eligible earnings*   20.5% of eligible earnings
 
*   Up to the US compensation limit
Please refer to the documentation enclosed.
Perquisite allowance:   You will be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination.
Severance:
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination or voluntary termination for a “good reason”. Please refer to the documentation enclosed.
At your first week of employment, Julie McMahon from Human Resources will schedule a meeting with you to cover the details of those plans and proceed with your enrolment.

 


 

We are excited about the outlook of the newly emerged company and look forward to your involvement.
/s/ Richard Garneau
Richard Garneau
President and Chief Executive Officer
To indicate your acceptance of this employment offer, please sign in the space provided below and return an original to Julie McMahon by February 14, 2011.
I have read the present employment agreement and hereby accept the terms and conditions of my employment contract with AbitibiBowater Inc. as described herein.
     
/s/ Alain Boivin   February 22, 2011
 
Alain Boivin
   
Enclosures

 

EXHIBIT 10.29
[LETTERHEAD OF ABITIBIBOWATER INC.]
February 7, 2011
John Lafave
Re: Employment agreement between John Lafave and AbitibiBowater Inc.
Dear John,
This letter will serve to confirm your new position of Senior Vice President, Pulp and Paper Sales and Marketing in the post-emergence AbitibiBowater Inc.
The terms and conditions of your employment are as follows:
     
Location:
  Montreal, Quebec, Canada
 
   
Effective date:
  January 17, 2011
 
   
Compensation:
  Your annual base salary will be US$300,000.
 
   
Short-Term Incentive Plan (STIP):
  You will be eligible to participate in a short-term incentive plan for the year 2011, with a target level of 100% of base salary. Please refer to the documentation enclosed.
 
   
Long-Term Incentive Plan (LTIP):
  You will be eligible to participate in the Company’s long-term incentive plan and to receive grants under such plan, as determined by the Board of Directors from time to time, at its discretion. For 2011, you will be eligible to an annual grant equivalent to 125% of your annual base salary. The LTIP plan will be available shortly.
Other benefits:
As per policy, you will maintain participation in various benefit plans such as group insurance. You will be entitled to 5 weeks of vacation per year as of the 2011 calendar year.

 


 

Defined Contributions (DC) retirement program for executive employees:
As regards pension benefits, you will continue to participate in the new Company’s defined contributions (DC) retirement program for executive employees at the following levels of contribution:
     
Employee    
Contributions   Company Contributions
5% of eligible earnings*   20.5% of eligible earnings
 
*   Up to the US compensation limit
Please refer to the documentation enclosed.
Perquisite allowance:   You will be eligible for a perquisite allowance of US$12,000 per year as well as a complete annual medical examination.
Severance:
You will be covered by the Company’s severance policy for the Chief Executive Officer and his direct reports. Pursuant to this policy, you will be entitled to six weeks of eligible pay per year of continuous service, with a minimum of 52 weeks and up to a maximum of 104 weeks. For a period of 12 months following a “change in control”, the severance pay is available in the event of involuntary termination or voluntary termination for a “good reason”. The emergence of the Company from creditor protection and all related transactions will not constitute a change in control for the purpose of this policy. Please refer to the documentation enclosed.
Prior agreements:
As previously communicated, all your pre-emergence management agreements with the Company have been repudiated as of the date of emergence.

 


 

We are excited about the outlook of the newly emerged company and look forward to your continued leadership.
/s/ Richard Garneau
Richard Garneau
President and Chief Executive Officer
To indicate your acceptance of this employment offer, please sign in the space provided below and return an original to Julie McMahon by February 14, 2011.
I have read the present employment agreement and hereby accept the terms and conditions of my employment contract with AbitibiBowater Inc. as described herein.
     
/s/ John Lafave   February 14, 2011
 
John Lafave
   
Enclosures

 

EXHIBIT 10.31
FORM OF INDEMNIFICATION AGREEMENT
      THIS INDEMNIFICATION AGREEMENT (this “ Agreement ”) is made as of ______, 2010 by and between ABITIBIBOWATER INC. , a Delaware corporation (the “ Corporation ”), and ______ (“ Indemnitee ”).
RECITALS
      WHEREAS , Indemnitee performs a valuable service for the Corporation;
      WHEREAS , the Third Amended and Certificate of Incorporation of the Corporation, effective as of ______, 2010, as the same has been or may be amended from time to time (the “ Certificate of Incorporation ”) provides that the Corporation shall indemnify the officers and directors of the Corporation to the fullest extent permitted by Section 145 of the Delaware General Corporation Law (“ DGCL ”);
      WHEREAS , the Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that agreements may be entered into between the Corporation and members of the Board of Directors of the Corporation (the “ Board ”) and officers with respect to indemnification;
      WHEREAS , it is reasonable and prudent for the Corporation contractually to obligate itself to indemnify, hold harmless and exonerate, and to advance expenses on behalf of, the Indemnitee to the fullest extent permitted by law so that the Indemnitee will serve or continue to serve the Corporation free from undue concern that the Indemnitee will not be indemnified, held harmless or exonerated; and
      WHEREAS , this Agreement is separate and independent of the Certificate of Incorporation and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder, nor shall the existence of any rights under the Certificate of Incorporation, the Corporation’s By-Laws (the “ By-Laws ”) (as either may be amended from time to time) or any other agreement be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee under this Agreement.
      NOW, THEREFORE , in consideration of the promises and the covenants contained herein, the Corporation and Indemnitee do hereby covenant and agree as follows:
     1.  Services to the Corporation . Indemnitee will serve or continue to serve, at the will of the Corporation or under separate contract, if such exists, as an officer and/or director of the Corporation for so long as Indemnitee is duly elected or appointed and qualified in accordance with the Certificate of Incorporation and By-Laws or until Indemnitee tenders his or her resignation. If Indemnitee is an employee at will of the Corporation, nothing herein shall change such employee’s status as an employee at will.
     2.  Definitions . As used in this Agreement:

 


 

          (a) The terms “ Beneficial Owner ” and “ Beneficial Ownership ” shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act (as defined below) as in effect on the date hereof.
          (b) A “ Change in Control ” shall be deemed to occur upon the earliest after the date of this Agreement of any of the following events:
               (i)  Acquisition of Stock by Third Party . Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote generally in the election of directors, unless (1) the change in the relative Beneficial Ownership of the Corporation’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors or (2) such acquisition was approved in advance by the Continuing Directors and such acquisition would not constitute a Change in Control under part (iii) of this definition;
               (ii)  Change in Board of Directors . Individuals who, as of the date hereof, constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a Change in Control) whose election by the Board or nomination for election by the Corporation’s stockholders was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (collectively, the “ Continuing Directors ”), cease for any reason to constitute at least a majority of the members of the Board;
               (iii)  Corporate Transactions . The effective date of any reorganization, merger or consolidation involving the Corporation (a “ Business Combination ”), in each case, unless, immediately following such Business Combination: (1) all or substantially all of the individuals and entities who were the Beneficial Owners of securities entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities of the Corporation entitled to vote generally in the election of directors resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the securities entitled to vote generally in the election of directors; (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 20% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to the Business Combination; and (3) at least a majority of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination;

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               (iv)  Liquidation . The approval by the stockholders of the Corporation of a complete liquidation of the Corporation, or an agreement or series of agreements for the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets, other than factoring the Corporation’s current receivables or escrows due (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale or disposition in one transaction or a series of related transactions); or
               (v)  Other Events . The occurrence of any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Corporation is then subject to such reporting requirement.
          (c) “ Covered Capacity ” means present or former status as a director, officer, trustee, general partner, managing member or fiduciary of the Corporation, any Subsidiary or any other corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of or to represent the interests of the Corporation or any Subsidiary.
          (d) “ Delaware Court ” means the Court of Chancery of the State of Delaware.
          (e) “ Disinterested Director ” shall mean a director of the Corporation who is not and was not a party to the Proceeding for which indemnification or hold harmless or exoneration rights is sought by Indemnitee.
          (f) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
          (g) “ Expenses ” shall include all direct and indirect costs, fees and expenses of any type or nature whatsoever, including, without limitation, all attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, fees of private investigators and professional advisors, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, fax transmission charges, secretarial services and all other disbursements, obligations or expenses in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settlement or appeal of, or otherwise participating in, a Proceeding, including reasonable compensation for time spent by the Indemnitee for which he or she is not otherwise compensated by the Corporation or any third party. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the principal, premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments, penalties or fines against Indemnitee, other than excise taxes and penalties paid under the Employee Retirement Income Security Act of 1974, as amended.
          (h) “ Independent Counsel ” shall mean a law firm, or a member of a law firm, with significant experience in matters of corporation law and neither presently is, nor in the past

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five years has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification or to be held harmless or exonerated hereunder. Notwithstanding the foregoing, the term “ Independent Counsel ” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
          (i) A person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the Corporation ” as referred to in this Agreement.
          (j) The term “ Person ” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act as in effect on the date hereof; provided , however , that “Person” shall exclude: (i) the Corporation; (ii) any Subsidiary of the Corporation; (iii) any employment benefit plan of the Corporation or of a Subsidiary of the Corporation or of any corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation; and (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or of a Subsidiary of the Corporation or of a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation.
          (k) A “ Potential Change in Control ” shall be deemed to have occurred if: (i) the Corporation enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person or the Corporation publicly announces an intention to take or consider taking actions which if consummated would constitute a Change in Control; (iii) any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing 5% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote generally in the election of directors increases his or her Beneficial Ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof unless such acquisition was approved in advance by the Board; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
          (l) The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Corporation, another Person or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee was, is, will or might be involved as a party or otherwise by reason of the fact that Indemnitee is or was serving in a Covered Capacity, by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while serving in a Covered Capacity, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification or a right to be held harmless or exonerated or for reimbursement or

4


 

advancement of expenses can be provided under this Agreement, including any such proceedings or matters pending on or before the date of this Agreement.
          (m) References to “ serving at the request of the Corporation ” shall include any service as a director, officer, employee, agent or fiduciary of the Corporation which imposes duties on or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or beneficiaries.
          (n) In connection with any merger or consolidation, references to “ the Corporation ” shall include not only the resulting or surviving corporation but also any constituent corporation or any constituent of a constituent corporation, which, if its separate existence had continued, would have had power and authority to indemnify, hold harmless or exonerate its directors or officers and employees or agents. The intent of this provision is that a person who is or was a director of such constituent corporation after the date hereof or is or was serving at the request of such constituent corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise after the date hereof, shall stand in the same position under this Agreement with respect to the resulting or surviving corporation as the person would have under this Agreement with respect to such constituent corporation if its separate existence had continued.
          (o) The term “ Subsidiary ” shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that corporation or entity.
          (p) The meaning of the phrase “ to the fullest extent permitted by law ” shall include, but not be limited to:
               (i) to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification or rights to be held harmless or exonerated by agreement or the corresponding provision or provisions of any amendment to or replacement of the DGCL; and
               (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify, hold harmless or exonerate its officers, directors and/or key employees.
          (q) The following terms shall have the meanings given them in the Sections indicated below:
     
Term   Section
Agreement
  Preamble
Board
  Recitals
By-Laws
  Recitals
Certificate of Incorporation
  Recitals
Continuing Directors
  Section 2(b)(ii)
Corporation
  Preamble

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Term   Section
DGCL
  Recitals
Indemnitee
  Preamble
Section 409A
  Section 15
     3.  Indemnification .
          (a) The Corporation shall indemnify, hold harmless and exonerate Indemnitee in accordance with the provisions of this Section 3(a) when Indemnitee was, is or is threatened to be made, a party to or is otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor). Pursuant to this Section 3(a), Indemnitee shall be indemnified, held harmless and exonerated against all Expenses, judgments, liabilities, losses, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if, and only if, Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, in the case of any criminal Proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful.
          (b) The Corporation shall indemnify, hold harmless and exonerate Indemnitee in accordance with the provisions of this Section 3(b) when Indemnitee was, is or is threatened to be made, a party to or is otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor. Pursuant to this Section 3(b), Indemnitee shall be indemnified, held harmless and exonerated against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if, and only if, Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation. No indemnification for or rights to be held harmless or exonerated from Expenses shall be made under this Section 3(b) in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Corporation, unless and only to the extent that the court in which the Proceeding was brought or the Delaware Court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification or to be held harmless or exonerated.
          (c) Any indemnification under this Section 3 (unless otherwise ordered by a court) shall be made by the Corporation in accordance with the procedures set forth in Sections 7, 8 and 9 hereof.
          (d) Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or with respect to any claim, issue or matter therein, in whole or in part, the Corporation shall indemnify for and hold harmless and exonerate Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to

6


 

one or more but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify for and hold harmless and exonerate Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 3(d) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, or the settlement of any claim, issue or matter in such a Proceeding without admission of liability, shall be deemed to be a successful result as to such claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding but is partially successful, the Corporation also shall indemnify for and hold harmless and exonerate Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue or matter on which the Indemnitee was successful.
          (e) Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Covered Capacity, a witness in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified for and held harmless and exonerated against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
     4.  Additional Indemnification Rights .
          (a) Notwithstanding any limitation in Section 3 of this Agreement, the Corporation shall indemnify, hold harmless and exonerate Indemnitee to the fullest extent permitted by law if Indemnitee was, is or is threatened to be made, a party to or is otherwise involved in any Proceeding (including a Proceeding by or in the right of the Corporation to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnification shall be made, and the Indemnitee shall not be held harmless or exonerated, under this Section 4(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Corporation or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.
     5.  Contribution in the Event of Joint Liability .
          (a) To the fullest extent permitted by law, if the indemnification or rights to be held harmless or exonerated provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, then in any Proceeding in which the Corporation is jointly liable with Indemnitee (or would be if joined in such Proceeding) the Corporation shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Corporation hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.
          (b) The Corporation shall not enter into any settlement with respect to any claim for which Indemnitee may be entitled to indemnification or hold harmless or exoneration

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rights hereunder without the prior written consent of Indemnitee unless such settlement provides for a full and final release of all claims asserted against Indemnitee. The Corporation shall not be liable to Indemnitee under this Agreement for amounts paid in settlement of any Proceeding effected without the Corporation’s prior written consent. Neither the Corporation nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided , however , that Indemnitee may withhold consent to any settlement that does not provide full, final, complete and unconditional release.
          (c) The Corporation hereby agrees to fully indemnify, hold harmless and exonerate Indemnitee from any claims for contribution which may be brought by officers, directors or employees of the Corporation other than Indemnitee who may be jointly liable with Indemnitee.
     6.  Exclusions . Notwithstanding any other provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnification or to hold harmless or exonerate the Indemnitee in connection with any claim made against Indemnitee:
          (a) for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision or agreement (other than this Agreement), either by the Corporation or otherwise, except with respect to any excess beyond the amount actually received under any insurance policy, contract, agreement, other indemnity provision or otherwise;
          (b) for an accounting or disgorgement of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Corporation within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law;
          (c) except as otherwise provided in Sections 11(e) and (f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, and not brought by way of defense, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Corporation or its directors, officers, employees or other indemnitees, unless (i) the Board of Directors of the Corporation authorized the Proceeding (or any part of any Proceeding) prior to its initiation; (ii) such payment arises in connection with any mandatory counterclaim or cross-claim that the Indemnitee asserts against the Corporation or its directors, officers, employees or other indemnitees or any affirmative defense Indemnitee raises or (iii) the Corporation otherwise provides such indemnification or holds harmless or exonerates the Indemnitee in its sole discretion, pursuant to the powers vested in the Corporation under applicable law;
          (d) for the payment of amounts required to be reimbursed to the Corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, as amended, Section 10D of the Exchange Act or any similar successor statute; or
          (e) for any payment to Indemnitee that is finally determined to be unlawful under the procedures and subject to the presumptions of this Agreement.

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     7.  Advances of Expenses; Defense of Claim .
          (a) Notwithstanding any provision of this Agreement to the contrary, and to the fullest extent permitted by law, the Corporation shall advance to Indemnitee the Expenses incurred by Indemnitee in connection with any Proceeding. The Corporation will advance such Expenses within 30 days after the receipt by the Corporation from Indemnitee of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. The statement(s) shall be in a form reasonably acceptable to the Corporation and shall set forth in reasonable detail the Expenses to be advanced. All advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to be indemnified, held harmless or exonerated under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing a Proceeding to enforce this right of advancement, including Expenses incurred preparing and forwarding statement(s) to the Corporation to support the advances claimed. The Indemnitee shall qualify for advances, to the fullest extent permitted by law, solely upon the execution and delivery to the Corporation of an Undertaking in the form of Exhibit A hereto, providing that Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified, held harmless or exonerated by the Corporation under the provisions of this Agreement, the Certificate of Incorporation, the By-Laws, applicable law or otherwise. This Section 7(a) shall not apply to any claim made by Indemnitee for which indemnification or the right to be held harmless or exonerated is excluded pursuant to Section 6 hereof.
          (b) If the Corporation disputes a portion of the Expenses for which advancement is requested, the undisputed portion shall be advanced and only the disputed portion withheld pending resolution of the dispute.
          (c) The Corporation shall be entitled to conduct at its own expense the defense of any Proceeding for which indemnification or the right to be held harmless or exonerated is sought hereunder (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor); provided , that the Indemnitee may retain separate co-counsel at its sole cost and expense and participate in the defense of the Proceeding. Notwithstanding the foregoing, the Corporation shall not have the right to assume control of the defense of any Proceeding and shall pay the reasonable fees and out-of-pocket expenses of counsel retained by the Indemnitee with respect to such Proceeding if: (i) the Corporation does not conduct the defense of the Proceeding with reasonable diligence; or (ii) the Proceeding (1) seeks non-monetary, equitable or injunctive relief, (2) alleges violations of criminal law or (3) includes as the named parties in any such Proceeding both the Indemnitee and the Corporation and the Indemnitee reasonably determines that representation by both parties by the same counsel would be prohibited by applicable codes of professional conduct. If the Corporation has assumed such defense as provided in this Section 7(c), the Corporation will not be liable for any legal expenses subsequently incurred by any Indemnitee in connection with the defense of such Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor). If the Corporation does not assume the defense of any Proceeding in accordance with this Section 7(c), the Indemnitee may continue to defend such claim at the reasonable cost of the Corporation and the Corporation may still participate in, but not control, the defense of such Proceeding at the Corporation’s sole cost and expense.

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     8.  Procedure for Notification and Application for Indemnification .
          (a) Indemnitee agrees to notify promptly the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment or document relating to any Proceeding or matter which may be subject to indemnification or a right to be held harmless or exonerated or for advancement of Expenses covered hereunder. The failure of Indemnitee to so notify or keep the Corporation generally informed shall not relieve the Corporation of any obligation which it may have to the Indemnitee under this Agreement or otherwise, unless, and then only to the extent that, such delay is materially prejudicial to the defense of or against such Proceeding or matter.
          (b) Indemnitee may deliver to the Corporation a written application to indemnify, or to be held harmless or exonerated in accordance with this Agreement. The Chief Legal Officer of the Corporation (or in the absence of the Chief Legal Officer, the Corporate Secretary of the Corporation) shall, promptly upon receipt of such a request for indemnification held harmless or exoneration, advise the Board in writing that Indemnitee has requested indemnification. Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification or rights to be held harmless or exonerated shall be determined in accordance with Section 9(a) of this Agreement.
     9.  Procedure upon Application for Indemnification .
          (a) Upon delivery of the written application by Indemnitee for indemnification pursuant to Section 8(b) of this Agreement, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following methods: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (1) by a majority vote of the Disinterested Directors (provided there is a minimum of three Disinterested Directors), even though less than a quorum of the Board, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors (provided there is a minimum of three Disinterested Directors), even though less than a quorum of the Board or (3) if there are fewer than three Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. The Corporation will promptly advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification or to be held harmless or exonerated, including a description of any reason or basis for which indemnification or the right to be held harmless or exonerated has been denied. If it is so determined that Indemnitee is entitled to indemnification or to be held harmless or exonerated, payment to Indemnitee shall be made within 30 days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification or to be held harmless or exonerated, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses (including attorneys’ fees and

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disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to Indemnitee’s entitlement to indemnification or to be held harmless or be exonerated) and the Corporation hereby indemnifies, holds harmless and exonerates Indemnitee therefrom.
          (b) If the determination of entitlement to indemnification or to be held harmless or to be exonerated is to be made by Independent Counsel pursuant to Section 9(a) hereof, the Independent Counsel shall be selected as provided in this Section 9(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Corporation advising it of the identity of the Independent Counsel so selected. The Corporation may, within ten business days after such written notice of selection shall have been given, deliver to Indemnitee a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification or to be held harmless or exonerated pursuant to Section 8(b) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Indemnitee to the Corporation’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Delaware Court or by such other person as the Delaware Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 9(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 11(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
          (c) The Corporation agrees to pay the reasonable fees and expenses of Independent Counsel and to fully indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto, other than for such Independent Counsel’s gross negligence or willful misconduct.
          (d) If the Corporation disputes a portion of the amounts for which indemnification or hold harmless or exoneration rights are requested, the undisputed portion shall be paid and only the disputed portion withheld pending resolution of the disputes.
     10.  Presumptions and Effect of Certain Proceedings.
          (a) In making a determination with respect to entitlement to indemnification or to be held harmless or exonerated hereunder, any person or entity making such determination shall presume that Indemnitee is entitled to indemnification or to be held harmless or exonerated

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under this Agreement if Indemnitee has submitted a request for indemnification or to be held harmless or exonerated in accordance with Section 8(b) of this Agreement, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Corporation (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification or the right to be held harmless or exonerated is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation (including its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
          (b) If the person, persons or entity empowered or selected under Section 9(a) of this Agreement to determine whether Indemnitee is entitled to indemnification or to be held harmless or exonerated shall not have made a determination within 30 days after receipt by the Corporation of the request therefor (or, if such determination is to be made by an Independent Counsel, and if later, 20 days after the appointment of the Independent Counsel), the requisite determination of entitlement to indemnification or to be held harmless or exonerated shall be deemed to have been made and Indemnitee shall be entitled to such indemnification or to be held harmless or exonerated, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or to be held harmless or exonerated rights; or (ii) a final judicial determination that any or all such indemnification or the right to be held harmless or exonerated is expressly prohibited under applicable law; provided , however , that such 30-day period shall be extended for a reasonable time, not to exceed an additional 30 days, if the person, persons or entity making the determination with respect to entitlement to indemnification or the right to be held harmless or exonerated rights in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.
          (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or to be held harmless or exonerated or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
          (d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Corporation or a Subsidiary, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Corporation or a Subsidiary in the course of their duties, or on the advice of legal counsel for the Corporation or a Subsidiary, its Board, any committee of the Board or any director, or on information or records given or reports made to the Corporation or a Subsidiary, its Board, any committee of the Board or any director, by an independent certified public accountant or by an appraiser or other expert selected by the

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Corporation or a Subsidiary, its Board, any committee of the Board or any director. The provisions of this Section 10(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.
          (e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Corporation or a Subsidiary shall not be imputed to Indemnitee for purposes of determining the right to indemnification or to be held harmless or exonerated under this Agreement.
          (f) The Corporation acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. If any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
     11.  Remedies of Indemnitee .
          (a) If (i) a determination is made pursuant to Section 9(a) of this Agreement that Indemnitee is not entitled to indemnification or to be held harmless or exonerated under this Agreement, (ii) advancement of Expenses, to the fullest extent permitted by law, is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification or to be held harmless or exonerated shall have been made pursuant to Section 9(a) of this Agreement within the time period specified in Section 10(b) of this Agreement, (iv) payment of Expenses is not made pursuant to Sections 3(d) or 3(e), 4(a) or the last sentence of Section 9(a) of this Agreement within 30 days after receipt by the Corporation of a written request therefor, (v) a contribution payment is not made in a timely manner pursuant to Section 5 of this Agreement or (vi) payment of indemnification pursuant to Section 3(a), Section 3(b) or Section 4 of this Agreement is not made within 30 days after a determination has been made that Indemnitee is entitled to indemnification or to be held harmless or exonerated, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification, the right to be held harmless or exonerated, contribution or advancement. Alternatively, Indemnitee, in his or her sole discretion, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Except as set forth herein, the provisions of Delaware law (without regard to its conflict of laws rules) shall apply to any such arbitration. The Corporation shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration. The award rendered by such arbitration shall be final and binding upon the parties hereto, and final judgment on the arbitration award may be entered in any court of competent jurisdiction.
          (b) Upon the occurrence or non-occurrence of any of the events set forth in Section 11(a) of this Agreement, any judicial proceeding or arbitration commenced pursuant to this Section 11 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial

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proceeding or arbitration commenced pursuant to this Section 11, Indemnitee shall be presumed to be entitled to be indemnified, held harmless, exonerated and to receive contribution and advances of Expenses under this Agreement and the Corporation shall have the burden of proving Indemnitee is not entitled to be indemnified, held harmless or exonerated and to receive advances of Expenses, as the case may be, and the Corporation may not refer to or introduce into evidence any determination pursuant to Section 9(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 11, Indemnitee shall not be required to reimburse the Corporation for any advances pursuant to Section 7 until a final determination is made with respect to Indemnitee’s entitlement to indemnification or to be held harmless or exonerated (as to which all rights of appeal have been exhausted or lapsed).
          (c) If a determination shall have been made pursuant to Section 9(a) of this Agreement that Indemnitee is entitled to indemnification or to be held harmless or exonerated, the Corporation shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification or to be held harmless or exonerated; or (ii) a prohibition of such indemnification or against being held harmless or exonerated under applicable law.
          (d) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 11 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Agreement.
          (e) Pursuant to this Agreement, Corporation shall indemnify, hold harmless and exonerate Indemnitee to the fullest extent permitted by law, and, if requested by Indemnitee, advance Expenses which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee (i) to enforce his or her rights under, or to recover damages for breach of, this Agreement or any other indemnification, advancement or contribution agreement or provision of the Certificate of Incorporation or the By-Laws now or hereafter in effect; or (ii) for recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee. Expenses subject to Section 11(e) of this Agreement shall be paid by the Corporation regardless of the outcome of the judicial proceeding or arbitration and regardless of whether Indemnitee ultimately is determined to be entitled to indemnification, advancement, contribution or insurance recovery, as the case may be (unless such judicial proceeding or arbitration was not brought by Indemnitee in good faith).
          (f) Interest shall be paid by the Corporation to Indemnitee at the legal rate under Delaware law, compounded monthly, commencing with the date on which Indemnitee requests indemnification, contribution or advancement of any Expenses and ending with the date on which such payment is made to Indemnitee by the Corporation.
     12.  Establishment of Trust . In the event of a Potential Change in Control, the Corporation shall, upon written request by Indemnitee, create a “Trust” for the benefit of

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Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in or defending any Proceedings, and any and all judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines penalties and amounts paid in settlement) in connection with any and all Proceedings from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The trustee of the Trust (the “ Trustee ”) shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable to the Corporation. Nothing in this Section 12 shall relieve the Corporation of any of its obligations under this Agreement. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by mutual agreement of the Indemnitee and the Corporation or, if the Corporation and the Indemnitee are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 9(b) of this Agreement. The terms of the Trust shall provide that, except upon the consent of both the Indemnitee and the Corporation, upon a Change in Control: (a) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee; (b) the Trustee shall advance, to the fullest extent permitted by law, within two business days of a request by the Indemnitee and upon the execution and delivery to the Corporation of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified, held harmless or exonerated by the Corporation; (c) the Trust shall continue to be funded by the Corporation in accordance with the funding obligations set forth above; (d) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification or to be held harmless or exonerated pursuant to this Agreement or otherwise; and (e) all unexpended funds in such Trust shall revert to the Corporation upon mutual agreement by the Indemnitee and the Corporation or, if the Indemnitee and the Corporation are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 9(b) of this Agreement, that the Indemnitee has been fully indemnified, held harmless and exonerated under the terms of this Agreement. The Trust shall be governed by Delaware law (without regard to its conflicts of laws rules) and the Trustee shall consent to the exclusive jurisdiction of the Delaware Court in accordance with Section 21 of this Agreement.
     13.  Security . Notwithstanding anything herein to the contrary, to the extent requested by the Indemnitee and approved by the Board, the Corporation may at any time and from time to time provide security to the Indemnitee for the Corporation’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
     14.  Non-Exclusivity; Survival of Rights; Insurance; Subrogation .
          (a) The rights of Indemnitee as provided by this Agreement (i) shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation or the By-Laws, any agreement, a vote of stockholders, a resolution of directors or otherwise and (ii) shall be enforced and this Agreement shall be interpreted independently of and without reference to or limitation or constraint (whether

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procedural, substantive or otherwise) by any other such rights to which Indemnitee may at any time be entitled. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Covered Capacity prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or judicial decision, permits greater indemnification or greater rights to be held harmless or exonerated or greater advancement rights than would be afforded currently under the Certificate of Incorporation, the By-Laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. To the extent that a change in Delaware law, whether by statute or judicial decision, narrows or limits indemnification, rights to be held harmless or exonerated or advancement of Expenses than are afforded currently under the Certificate of Incorporation, the By-Laws and this Agreement, it is the intent of the parties hereto that such change, except to the extent required by applicable law, shall have no effect on this Agreement or the parties’ rights and obligations hereunder. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law, in equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
          (b) The purchasing or maintaining of insurance or the furnishing of similar protection or the making of other arrangements including, but not limited to, providing a trust fund, letter of credit or surety bond on behalf of Indemnitee against any liability in a Covered Capacity whether or not the Corporation would have the power to indemnify the Indemnitee or to hold harmless or exonerate the Indemnitee against such liability under the provisions of this Agreement, shall not in any way limit or affect the rights and obligations of the Corporation or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Corporation and the Indemnitee shall not in any way limit or affect the rights and obligations of the Corporation or the other party or parties thereto under any such arrangement.
          (c) To the extent that the Corporation maintains an insurance policy or policies providing liability insurance for directors, officers, trustees, partners, managing members, fiduciaries, employees or agents of the Corporation, any Subsidiary or any other enterprise which such person serves at the request of the Corporation, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, trustee, partner, managing member, fiduciary, officer, employee or agent under such policy or policies. The Corporation shall maintain directors’ and officers’ insurance programs providing coverage to Indemnitee during the time period Indemnitee serves the Corporation in a Covered Capacity, and for a period of no less than six years following the conclusion of such service. If, at the time the Corporation receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Corporation has director and officer liability insurance in effect, the Corporation shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

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          (d) In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights.
          (e) The Corporation’s obligation to indemnify, hold harmless, exonerate or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Corporation as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any Subsidiary shall be reduced by any amount Indemnitee has actually received as payments in respect of indemnification, the right to be held harmless or exonerated or in respect of advancement of expenses from such Subsidiary or other enterprise. Notwithstanding any other provision of this Agreement to the contrary, (i) Indemnitee shall have no obligation to reduce, offset, allocate, pursue or apportion amounts in respect of any indemnification, rights to be held harmless or exonerated, advancement, contribution or insurance coverage among multiple parties possessing such duties to Indemnitee prior to the Corporation’s satisfaction and performance of all its obligations under this Agreement, and (ii) the Corporation shall perform fully its obligations under this Agreement without regard to whether Indemnitee holds, may pursue or has pursued any indemnification, rights to be held harmless or exonerated or advancement, contribution or insurance coverage rights against any person or entity other than the Corporation.
     15.  Section 409A. It is intended that any indemnification, hold harmless or exoneration payment or advancement of Expenses made hereunder shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the guidance issued thereunder (“ Section 409A ”) pursuant to Treasury Regulation Section 1.409A-1(b)(10). Notwithstanding the foregoing, if any payments in respect of indemnification or rights to be held harmless or exonerated or advancement of Expenses made hereunder shall be determined to be “nonqualified deferred compensation” within the meaning of Section 409A, then (a) the amount of the indemnification, hold harmless or exoneration payment or advancement of Expenses during one taxable year shall not affect the amount of such payments or advancement of Expenses during any other taxable year, (b) payments in respect of indemnification or rights to be held harmless or exonerated or advancement of Expenses must be made on or before the last day of the Indemnitee’s taxable year following the year in which the expense was incurred and (c) the right to indemnification, to be held harmless or exonerated or advancement of Expenses hereunder is not subject to liquidation or exchange for another benefit.
     16.  Duration of Agreement . All agreements and obligations of the Corporation contained herein shall continue during the period Indemnitee serves in a Covered Capacity and continue and survive thereafter, regardless of the termination of Indemnitee’s service in a Covered Capacity, so long as Indemnitee shall be subject to any possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement) by reason of serving in a Covered Capacity, whether or not he or she is acting in any Covered Capacity at the time any liability or expense is incurred for which other rights exist under this Agreement.

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     17.  Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent permitted by law, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
     18.  Enforcement and Binding Effect .
          (a) The Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to encourage Indemnitee to continue to serve in a Covered Capacity, and the Corporation acknowledges that Indemnitee is relying upon this Agreement in serving.
          (b) Subject to Section 14(a), and without limiting the rights of Indemnitee under the Certificate of Incorporation or By-Laws, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
          (c) The rights to be indemnified, held harmless and exonerated and to receive contribution and advancement of Expenses provided by or granted Indemnitee pursuant to this Agreement shall apply to Indemnitee’s service in a Covered Capacity prior to the date of this Agreement.
          (d) The rights to indemnification, to be held harmless or exonerated, contribution and advancement of Expenses provided by or granted pursuant to this Agreement (i) shall be binding upon, be enforceable by, and inure to the benefit of the parties hereto and their respective successors and assigns, including any direct or indirect successor by purchase, merger, consolidation, reorganization or otherwise to all or substantially all of the business or assets of the Corporation (and such successor will thereafter be deemed the “Corporation” for purposes of this Agreement); (ii) shall continue as to an Indemnitee who has ceased to serve in a Covered Capacity; and (iii) shall be enforceable by and inure to the benefit of Indemnitee and his or her spouse, assigns, estate, heirs, devisees, executors and administrators and other legal representatives.
          (e) The Corporation shall require and cause any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Corporation, by written agreement in the form and substance reasonably satisfactory to Indemnitee and his or her counsel, expressly to

18


 

assume and agree to perform this Agreement in the same manner and to the same extent the Corporation would be required to perform if no such succession had taken place.
          (f) The Corporation and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking, among other things, injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he or she may be entitled. The Corporation and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Corporation acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Delaware Court, and the Corporation hereby waives any such requirement of such a bond or undertaking.
     19.  Modification and Waiver . No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
     20.  Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed; or (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
          (a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Corporation.
          (b) If to the Corporation to:
AbitibiBowater Inc.
1155 Metcalfe Street, Suite 800
Montreal, Quebec
Canada H3B 5H2
Attn.: Chief Legal Officer
or to any other address as may have been furnished to Indemnitee in writing by the Corporation.
     21.  Applicable Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 11(a) of this Agreement, the Corporation and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United

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States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) appoint irrevocably, to the extent such party is not a resident of the State of Delaware, [ Name and address of Delaware counsel ] as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware; (d) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court; and (e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum, or is subject (in whole or in part) to a jury trial.
     22.  Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
     23.  Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or in the right of the Corporation against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Corporation shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.
     24.  Additional Acts . If for the validation of any of the provisions in this Agreement any act, resolution, approval or other procedure is required, the Corporation undertakes to cause such act, resolution, approval or other procedure to be affected or adopted in a manner that will enable the Corporation to fulfill its obligations under this Agreement.
     25.  Headings . The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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      IN WITNESS WHEREOF , the parties have caused this Agreement to be signed as of the day and year first above written.
             
    ABITIBIBOWATER INC.    
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   
 
           
    INDEMNITEE    
 
           
 
  Name:  
 
[ Name ]
   
             
 
  Address:        
 
     
 
   
 
     
 
   
 
     
 
   
 
     
 
   

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Exhibit A
UNDERTAKING
     Reference is made to that certain Indemnification Agreement between AbitibiBowater Inc., a Delaware corporation (the “Corporation”), and the Indemnitee dated as of ______, 2010 (the “ Indemnification Agreement ”).
     In regard to any advancements made by the Corporation to the Indemnitee pursuant to the terms of the Indemnification Agreement, the Indemnitee hereby undertakes and agrees to repay to the Corporation any and all amounts so paid promptly and in any event within 30 days after the disposition, including exhaustion of all appeals therefrom, of any litigation or threatened litigation on account of which advancements were made if it is determined that the Indemnitee is not entitled to indemnification pursuant to the Indemnification Agreement.
             
 
  INDEMNITEE    
 
           
 
     
 
   
 
  Name:   [ Name ]    
 
           
 
  Address:        
 
     
 
   
 
     
 
   
 
     
 
   
 
     
 
   

A-1

EXHIBIT 10.32
AGREEMENT CONCERNING THE
PULP AND PAPER OPERATIONS OF ABIBOW CANADA IN ONTARIO
     
BETWEEN:
  BOWATER CANADIAN FOREST PRODUCTS INC., a company duly constituted under the laws of Nova Scotia and having its registered office in Halifax, Nova Scotia, and ABITIBI-CONSOLIDATED COMPANY OF CANADA , a company duly constituted under the laws of Quebec and having its head office in Montreal, Quebec, on their own behalf and on behalf of any Canadian successor thereof upon emergence from the current restructuring process described herein
 
   
 
  (hereinafter collectively called “ AbiBow Canada ”);
 
   
AND:
  HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO, as represented by the Minister Of Northern Development, Mines And Forestry
 
   
 
  (hereinafter called the “ Province ”).
Recitals
Whereas AbiBow Canada and the group formed with its holding company AbitibiBowater Inc. (hereafter referred to collectively as “ AbiBow ”), and the entire pulp and paper industry generally, have been affected by a significant reduction in demand for newsprint and by the general economic climate;
Whereas the Canadian subsidiaries of AbiBow sought creditor protection under the Companies’ Creditors Arrangement Act (R.S.C. 1985, c. C-36) (hereinafter called the “ CCAA ”), on April 17, 2009;
Whereas AbiBow, in cooperation with its creditors, its stakeholders, the CCAA Monitor and its financial advisors, has developed a 5-year business plan based on its current outlook, that provides for improved profit margins and cash flow, and these improvements will be possible in part because of the efforts of AbiBow and its employees to concentrate on the manufacturing operations of highly competitive facilities;
Whereas AbiBow intends to combine Abitibi-Consolidated Company of Canada and Bowater Canadian Forest Products Inc., AbiBow’s two primary operating companies in Canada, to form a new company (AbiBow Canada) upon their emergence from the current restructuring process, and whereas these two companies have significant solvency deficits in their Ontario-registered pension plans;
Whereas AbiBow Canada has initiated discussions and actively worked with the Province and other competent authorities throughout its restructuring process, to further the interests of its business and of all its stakeholders, including to (i) identify measures to protect its employees and retirees, and (ii) promote its emergence from the restructuring process as a stronger and more sustainable company, including so as to resume contributions to these plans;
Whereas a significant proportion of the Canadian activities of AbiBow are in Ontario;
Whereas pursuant to the business plan established by AbiBow, it intends to (i) keep all its Ontario pulp and paper mills active, which mills have a production capacity of approximately 1,398,000 million metric tons, and (ii) make or take every reasonably required effort and measure to ensure the viability of its Ontario pulp and paper mills, in the same way it does for mills of the AbiBow group located outside Ontario having similar delivered costs for similar products;
Whereas in connection with its emergence from the restructuring process, AbiBow Canada has entered into discussions with the Ontario Ministry of Finance with respect to relief measures for the registered pension plans in Ontario for AbiBow Canada’s pulp and paper operations (“ pension plans ”) to facilitate payment of pensions due to their retirees and beneficiaries and the Minister of Finance has provided a letter to AbiBow Canada in respect thereof (the “ Ontario Pension Letter ”);

 


 

Whereas (i) the Iroquois Falls and Fort Frances mills (the “ Mills ”) of AbiBow Canada currently purchase electricity from the IESO power grid and ACH Limited Partnership (“ ACH ”) at the Ontario market clearing prices; (ii) as a result of the meter and delivery point configuration with respect to the IESO power grid, the Mills do not pay certain regulatory charges on its purchased power from ACH, including for example global adjustment, network and line connection charges; and (iii) in keeping with the spirit of the existing arrangements, in connection with its proposed disposition of AbiBow Canada’s interest in ACH and acknowledging that it does not own 100% of ACH, (A) AbiBow Canada has informed potential buyers that they will have to continue the Mills’ current power cost advantages and (B) it is a condition to any such proposed disposition that a new Power Purchase Agreement (“ PPA ”) between ACH and AbiBow Canada, a draft form of which has already been provided to potential buyers, be entered into, which PPA will stipulate specific measures to enforce the preservation of the Mills’ power cost advantages, namely that power produced by ACH is to be delivered to the Mills on a first priority basis, that there be no bypassing of the Mills or that metered delivery points not be moved;
Whereas in order to ensure the completion of AbiBow Canada’s restructuring the Province’s support in various forms is required;
CONSEQUENTLY, THE PARTIES AGREE TO THE FOLLOWING
1   AbiBow Canada Covenants
 
1.1   Governance
AbiBow Canada agrees:
1.1.1   not to declare or pay any dividends while the weighted average solvency ratio of its Ontario-registered pension plans is below 80%;
1.1.2   to abide by the AbiBow compensation plan with respect to salaries, bonuses and severance, a description of which was filed with the Court and its creditors in the context of its restructuring process in the materials listed in Schedule A hereto and separately delivered to the Province;
1.1.3   to present to the Province as soon as they are made public in accordance with applicable securities laws the annual audited financial results of AbiBow for each fiscal year during the term of this Agreement;
1.1.4   to report annually to the Province on the implementation of AbiBow’s business plan, a description of which was filed with the Court and its creditors in the context of its restructuring process in the materials listed in Schedule B hereto and separately delivered to the Province; and
1.1.5   that Sections 1.3 and 1.4 of this Agreement shall be deemed also to apply to the pulp and paper operations, if any, which AbiBow may hold from to time in Ontario otherwise than through AbiBow Canada.
1.2   Pension Plans
AbiBow Canada agrees:
1.2.1   that it will not voluntarily terminate any of its Ontario-registered pension plans before it emerges from Court protection under the CCAA; and
1.2.2   that it shall comply with any arrangements made with the Ontario Ministry of Finance including any obligations required to be performed by it as set forth in the Ontario Pension Letter and any related regulations that come into force.
1.3   Investments
AbiBow Canada agrees:

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1.3.1   that at least 30% of its maintenance and value-creation investments with respect to its pulp and paper operations shall be made in Ontario, such that, for example, investments of $60 million per year would result in a minimum investment of $90 million during a 5-year period for Ontario; and
1.3.2   that it shall invest a minimum amount of $50 million over a 2-3 year construction period at its facility in Thunder Bay, Ontario for a new condensing turbine. The parties acknowledge that the commitment of AbiBow Canada set forth in this Section 1.3.2 is subject to (i) approval by the new board of directors of AbiBow upon emergence from the current restructuring process, (ii) satisfactory resolution of labour issues at its Thunder Bay facility, AbiBow Canada agreeing to use its ongoing commercially reasonable efforts to resolve such issues promptly following the execution of this Agreement, (iii) the receipt of financial assistance from the Province under its forest sector prosperity fund and loan guarantee programs and (iv) the execution of a power purchase agreement with the Ontario Power Authority (“ OPA ”) substantially on the terms and conditions set out in the term sheet dated September 8, 2009 and amended on July 16, 2010 provided by OPA to AbiBow Canada, with such further amendments as AbiBow Canada and OPA may agree.
1.4   Business Continuity
AbiBow Canada agrees:
1.4.1   that if any of its pulp and paper mills is permanently shut down in Ontario, it shall work constructively with the Province and any affected communities to develop economic recovery opportunities which may include the sale of such facilities, in accordance with Section 1.4.2;
1.4.2   that in the event of the sale of any of its pulp and paper assets, it shall offer favourable conditions to enable potential buyers to purchase such assets located in Ontario at market value, including where necessary, reasonable non-competition provisions in favour of AbiBow Canada as determined on a case-by-case basis;
1.4.3   that, having regard to its intent described in the recital to maintain the production capacity of its Ontario pulp and paper mills, it shall pay to one or more of its pension plans, as additional solvency special payments, $75 for every metric ton reduction in such production capacity resulting from a definitive shutdown of at least one machine, including a temporary shutdown for more than 6 consecutive months or 9 cumulative months over a period of 18 months, without any duplication in the production capacity levels of its pulp and paper mills in Ontario or otherwise, such payments being payable over 4 years and only once for any given circumstance; provided however that no payment shall be made in respect of any pension plan having an excess surplus under applicable tax laws;
1.4.4   that, where delivered costs are equivalent to those of its mills located outside Ontario, not to transfer outside Ontario any pulp and paper production (or part thereof) located in its Ontario mills as of the date this Agreement become effective;
1.4.5   that it shall pay, as instructed by the Province, an aggregate amount of $5 million over a period of five years (at the rate of $1 million per year with the first payment on January 14, 2011) to be used for such environmental remediation purposes as deemed necessary or desirable by the Province in those locations in Ontario where AbiBow Canada or its affiliates has, or has had, facilities, and for greater certainty any such instruction can be given and followed in each case without prejudice to or admission by either party in respect of any pending or future disputes between them;
1.4.6   that, without admission of any liability or obligation, it shall maintain and renew the $2,350,764.00 of financial assurances listed in Schedule C currently held by Ontario in respect of the properties listed in Schedule C , until such financial assurances are returned or released in accordance with the Environmental Protection Act (Ontario); and

3


 

1.4.7   that, in the event of a future disposition of AbiBow Canada’s interest in ACH and acknowledging that it does not own 100% thereof, it is AbiBow Canada’s intent and objective to work with the Province to ensure that the power cost advantage to the Mills are not otherwise impacted.
2   Term
2.1   This Agreement will become effective as of the time of AbiBow Canada’s emergence from Court protection under the CCAA and will expire 5 years after such emergence, except that Section 1.2.1 shall become effective upon execution of this Agreement.
2.2   The parties agree to re-evaluate the covenants of this Agreement at the end of the initial 5-year term in light of AbiBow’s situation, the conditions affecting the pulp and paper industry as a whole and the solvency of its pension plans.
3   Assignment
3.1   The rights and obligations provided herein shall not be assigned, in whole or in part, without the written consent of the Province and of AbiBow Canada. This Agreement is binding and enures to the benefit of any successor or permitted assign of any party thereto. Notwithstanding the foregoing, upon any consolidation, amalgamation or merger, or any sale, transfer, lease or other disposition of all or substantially all of the properties or assets of AbiBow Canada, the successor formed by such consolidation or amalgamation or into or with which AbiBow Canada is amalgamated or to which such sale, transfer, lease or other disposition is made shall succeed to, and be substituted for AbiBow Canada (so that from and after the date of such consolidation, amalgamation, merger, sale, transfer, lease or other disposition, the provisions of this Agreement referring to “AbiBow Canada” shall refer instead to the successor and not AbiBow Canada), and shall be subject to the obligations and may exercise the rights of AbiBow Canada under this Agreement with the same effect as if such successor had been named as AbiBow Canada herein, and AbiBow Canada shall thereupon be relieved from its obligations hereunder.
4   Notice
4.1   Any notice and other communication given pursuant to this Agreement must be in writing and sent to the parties to their respective addresses by registered or certified mail, by fax or by messenger. Such notice and communication shall be deemed to have been received the same day it was sent by fax or messenger, and if it was sent by mail, on the fifth business day following. In all cases, the party giving notice must be able to evidence the sending of the notice if required to do so by the other party, absent which the notice is deemed null and void.
To:   the Province
Her Majesty The Queen in Right of
The Province of Ontario
Ministry of Northern Development, Mines and Forestry
Suite 210, Roberta Bondar Pl.
70 Foster Drive
Sault Ste. Marie, ON P6A 6V5

Facsimile: (705) 945-5977

Attention:   Mr. Bill Thornton
                   Assistant Deputy Minister, Forestry Division
To:   AbiBow Canada
1155 Metcalfe Street, Suite 800
Montreal (Quebec) H3B 5H2 Canada

Fax :    (514) 394-3644

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    Attention: Senior Vice-President, Corporate Affairs and Chief Legal Officer
5   General provisions
5.1   This Agreement (except Schedules A and B ) may only be modified by a written amendment duly signed by the parties. The plans listed in Schedules A and B herein may be modified or supplemented by AbiBow from time to time, provided that AbiBow Canada shall notify the Province promptly of any material change, and shall promptly provide any information with respect thereto that the Province reasonably requests. AbiBow Canada shall report annually to the Province all changes made to the said plans. The recitals to this Agreement do not confer rights or obligations in respect of either one of the parties.
5.2   Time is of the essence of this Agreement.
5.3   Each party to this Agreement represents and warrants to the other party (i) that it has the required authorizations and full powers to sign this Agreement and execute all its obligations contemplated herein, (ii) that by the signing and performance of this Agreement it is not violating its constituting act, as applicable, nor any law or regulation, and (iii) that following its signing this Agreement will create contractual obligations as described herein, will have full effect and will be fully enforceable against it pursuant to its terms, subject, except as otherwise provided, in the case of AbiBow Canada, to insolvency laws of general application and to its emergence from the restructuring process under the CCAA, and any required authorizations relating to that process.
5.4   Any covenant or condition in favour of a party may only be waived by such party. If any provision herein, or arrangement entered into in connection with this Agreement, is found to be invalid by a Court for any reason whatsoever, the other provisions contained therein shall continue to have their full effect between the parties and, if any invalidated provision has a significant negative impact on either one of the parties, they will negotiate in good faith to revise or replace such invalidated provision in order to compensate the affected party in an equivalent manner.
5.5   This Agreement shall be governed by and interpreted in accordance with the laws applicable in Ontario.
5.6   All references herein to dollars shall be understood as a reference to Canadian dollars.
5.7   This Agreement may be signed in several counterparts, each one deemed to be an original counterpart, but all the counterparts constitute one and the same agreement.
5.8   The representatives and signatories for AbiBow Canada and the Province declare that they have read this Agreement and its schedules and that they accept its terms, conditions and modalities and sign it in good faith in the name of AbiBow Canada and the Province, respectively. No party is authorized to bind the other party towards a third party without first obtaining the other party’s written consent. The covenants contained herein only benefit the parties and their respective subsidiaries. Nothing herein shall be construed as a stipulation for another.
5.9   The arrangements set forth in the Ontario Pension Letter are essential conditions to this Agreement without which AbiBow Canada would not have entered into this Agreement.
5.10   In the event of a disagreement or conflict resulting from or in connection with this Agreement, including with its interpretation and application, the parties hereto will first try to resolve it amicably through informal negotiations.
5.11   If as a result of an event of force majeure (as defined hereunder) AbiBow Canada is unable to perform an obligation under this Agreement or any arrangement related thereto:
  (a)   it shall promptly give notice to the Province of the occurrence of such event indicating, as correctly as possible, the effect of such event on its obligations under this Agreement and any arrangements relating thereto, including any foreseeable delays resulting therefrom;

5


 

  (b)   the parties will meet to review such affected obligations or arrangements and shall negotiate in good faith to modify this Agreement or arrangements with respect to such affected obligations to take any such event into account and to preserve, to the fullest extent possible, any benefits to be provided to the Province in respect thereof; and
 
  (c)   subject to the foregoing (i) AbiBow Canada may suspend the performance of any such affected obligations or arrangements until the effect of the event of force majeure has been eliminated or sufficiently reduced to allow performance to continue provided that AbiBow Canada shall act with ongoing reasonable diligence in order to eliminate or correct, in the case where it is reasonably possible, the causes and effects of the event of force majeure, it being understood however that except as otherwise provided by applicable law, the resolution of any labour dispute will be left to AbiBow Canada’s discretion, and (ii) the non-performance of any affected obligation or arrangement in the circumstances and for the period described above shall not be considered a default, and shall not lead to a right of action against AbiBow Canada.
    For the purposes of this Agreement, the expression “ force majeure ” means any event which is unforeseeable, irresistible and beyond the control of AbiBow Canada and which delays, interrupts or prevents complete or partial performance of its obligations pursuant to this Agreement, including any one of the following events: war, embargo, insurrection, invasion, riot, rebellion, social problems, epidemic, flood, fire, explosion, thunder, earthquake, ice storm, storm, sabotage or labour dispute. However, the parties agree that an event shall not be considered beyond AbiBow Canada’s control to the extent that a reasonable business person applying due diligence in the same or similar circumstances under the same or similar obligations as those contained in the Agreement would have put in place contingency plans to either materially mitigate or negate the effects of such event.
 
5.12   Nothing in this Agreement shall be taken as a waiver or release of the rights preserved for Ontario under section 31 of the Sanction Order. This Agreement, and any action taken under this Agreement, is without prejudice to the positions of either AbiBow Canada or the Province of Ontario (including, for greater certainty, the Minister of the Environment, the Ministry of the Environment and any person exercising an environmental regulatory authority) in respect of any pending or future dispute between them.
5.13   The parties agree to make reasonable efforts to consult with each other, to the extent possible, on the timing and content of any written press release or public announcement (a “ Public Statement ”) made in connection with this Agreement or the provisions hereof.
5.14   AbiBow Canada acknowledges that the Province is subject to the Freedom of Information and Protection of Privacy Act (“ FIPPA ”) and is accountable to the Executive Council of the Ontario Government, its committees, the Legislative Assembly and the general public of Ontario and the commitments and agreements flowing from this Agreement and any related documents may form part of the public record. Each of the parties will advise the other of any documents and information supplied in connection with this Agreement which it considers to be sensitive commercial or financial information or otherwise confidential (the “ Confidential Information ”).
 
    The parties agree to keep the Confidential Information confidential except as follows: (a) each party may disclose Confidential Information on mutually agreed terms; (b) each party may disclose Confidential Information to its attorneys, accountants, lenders or creditors and other professional advisors (including those of AbiBow or its affiliates in the case of AbiBow Canada) who are under a duty to preserve the confidentiality of such information; (c) each party may disclose Confidential Information to a mediator, arbitrator or court to the extent necessary in connection with the resolution of a dispute; (d) each party may disclose Confidential Information where required by law, including without limitation, where required by FIPPA, any securities law or any other applicable law or legal process requiring the disclosure thereof or by the requirement of any government agency having the power to require disclosure thereof; (e) AbiBow Canada may disclose the Confidential Information to AbiBow and its other affiliates, provided they are under a duty to preserve the confidentiality of such information and (f) the Province may disclose the Confidential Information to persons within the Ontario Government, including without limitation, its

6


 

    Ministries and agencies, the Executive Council, its committees and their respective staff, the Legislative Assembly to the extent any such person is required to report thereto, and to the general public to the extent any such report is required to be disclosed to the general public under applicable law.

7


 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of November 10, 2010.
         
  BOWATER CANADIAN FOREST PRODUCTS INC.
ABITIBI-CONSOLIDATED COMPANY OF CANADA
,
for themselves and on behalf of any Canadian
successor thereof upon emergence from their
current restructuring process
 
 
  Per:   /s/David J. Paterson    
         David J. Paterson   
         President   
 
  HER MAGESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO, AS REPRESENTED BY THE MINISTER OF NORTHERN DEVELOPMENT, MINES AND FORESTRY
 
 
  Per:   /s/Michael Gravelle    
         Michael Gravelle   
         Minister of Northern Development, Mines and Forestry   
 

8


 

SCHEDULE “A”
Compensation Plan
CCAA Notice of meeting and Information Circular dated August 2, 2010, at pages 11-116.
  Plan Supplement 6.8(a) dated September 3, 2010.
 
  Plan Supplement 6.8(b) dated September 3, 2010.
 
  Amended Plan Supplement 6.8(b) dated September 13, 2010.
 
  Plan Supplement 6.8(d) dated September 3, 2010.
 
  Plan Supplement 6.9(1) dated September 3, 2010.
 
  Amended Plan Supplement 6.9(1) dated September 17, 2010.
 
  Plan Supplement 6.9(2) dated September 3, 2010.
 
  Amended Plan Supplement 6.9(1) dated September 17, 2010.
US Disclosure Statement dated August 2, 2010, at pages 1-12.
  [US] Plan Supplement 1 dated September 1, 2010.
 
  [US] Plan Supplement 2 dated September 1, 2010.
 
  [US] Plan Supplement 6A dated September 3, 2010.
 
  [US] Amended Supplement 6A-4 dated September 10, 2010.
 
  [US] Plan Supplement 6B dated September 3, 2010.
 
  [US] Plan Supplement 7A dated September 3, 2010.
 
  [US] Plan Supplement 7B dated September 3, 2010.
 
  [US] Amended Plan Supplement 7A and 7B dated September 17, 2010.

9


 

Schedule “B”
Business Plan
CCAA Notice of Meeting and Information Circular dated August 2, 2010, at pages G-1 — G-11. US Disclosure Statement dated August 2, 2010, at pages 116-119.

10


 

Schedule “C”
                 
    Certificate of        
    Approval   Form of   FA Dollar Amount
    Number   Financial Assurance   Held
Margach Landfill
  A600606   Irrevocable Letter of Credit   $ 1,796,511.00  
 
Mud Lake Landfill
  A600605   Irrevocable Letter of Credit   $ 258,748.00  
 
Iroquois Falls
  A7045801   Irrevocable Letter of Credit   $ 116,208.00  
 
Georgetown Landfill
  A210207   Irrevocable Letter of Credit   $ 179,297.00  
 
 
          $ 2,850,764.00  

11

EXHIBIT 10.33
ENGLISH TRANSLATION OF FRENCH LANGUAGE ORIGINAL
AGREEMENT CONCERNING THE
PULP AND PAPER OPERATIONS OF ABITIBIBOW CANADA IN QUEBEC
     
BETWEEN :
  BOWATER CANADIAN FOREST PRODUCTS INC. , a legal person duly constituted under the laws of Nova Scotia, having its registered office in Halifax, Nova Scotia, and ABITIBI- CONSOLIDATED COMPANY OF CANADA , a legal person duly constituted under the laws of Quebec, having its head office in Montreal, Quebec, both acting and duly represented for the purposes hereof by Mr David J. Paterson , President, on their own behalf and on behalf of any Canadian successor upon emergence from the current restructuring process described herein
 
   
 
  (hereinafter collectively called “ AbiBow Canada ”);
 
   
AND:
  THE GOVERNMENT OF QUEBEC , acting and duly represented for the purposes hereof by Mr. Clément Gignac, Minister of Economic Development, Innovation and Export Trade

(hereinafter called the “ Government ”).
Recitals
Whereas the pulp and paper industry is experiencing a very difficult period;
Whereas AbiBow Canada, as well as the group formed with its holding company AbitibiBowater Inc. (hereafter referred to as “ AbiBow ”), is affected as is the entire industry, notably as a result of the significant reduction in the demand for newsprint and of the economic context;
Whereas the Canadian subsidiaries of AbiBow sought the protection of the Companies’ Creditors Arrangement Act (R.S.C. 1985, c. C-36) (hereinafter called the “ CCAA ”), on April 17, 2009;
Whereas the Minister of Finance, the Minister of Economic Development, Innovation and Export Trade and the Minister of Natural Resources and Wildlife announced, on April 17, 2009, an exceptional intervention by authorizing Investissement Quebec to grant a guarantee of a loan for a maximum of US$100 million to certain members of the AbiBow group, which loan has since been repaid;
Whereas AbiBow, in cooperation with its creditors, its stakeholders, the CCAA Monitor and its financial advisors, has developed a 5-year business plan based on its current outlook that provides for improved profit margins and cash flow, and these improvements will be possible in part because of the efforts of AbiBow and its employees to concentrate on the manufacturing operations of highly competitive facilities;
Whereas AbiBow currently has two primary operating companies in Canada, Abitibi-Consolidated Company of Canada and Bowater Canadian Forest Products Inc., the combination of which to form AbiBow Canada is planned upon emergence from the current restructuring process, and these two companies have significant solvency deficits in their pension plans;
Whereas , since the start of its restructuring process AbiBow Canada has initiated discussions and actively worked with the Government and competent authorities, in the interest of its business and of all its stakeholders, including in order to (i) identify measures to protect its employees and retirees, and (ii) promote its emergence from the restructuring process as a stronger and more sustainable company, including so as to resume contributions to these plans;
Whereas a significant proportion of the Canadian activities of AbiBow are in Quebec;

 


 

 2
Whereas pursuant to the business plan established by AbiBow, AbiBow Canada intends to (i) keep all its Quebec pulp and paper mills active, which mills have a theoretical capacity of approximately two million metric tons, and (ii) make or take every reasonably required effort and measure to ensure the viability of its Quebec pulp and paper mills, in the same way it does for mills of the AbiBow group located outside Quebec having similar delivered costs for similar products;
Whereas in connection with its emergence from the restructuring process, AbiBow Canada has been discussing with the competent authorities with respect to relief measures in order for the registered pension plans in Quebec for its pulp and paper operations (“ pension plans ”) to continue to pay 100% of the pensions to their retirees and beneficiaries;
Whereas in order to ensure the completion of AbiBow Canada’s restructuring the Government’s support in various forms is required;
CONSEQUENTLY, THE PARTIES AGREE TO THE FOLLOWING :
1.   AbiBow Canada Covenants
 
1.1.   Governance
AbiBow Canada agrees:
1.1.1.   not to pay any dividend while the weighted average solvency ratio of its pension plans is less than 80%;
1.1.2.   to abide by the AbiBow compensation plan with respect to salaries, bonuses and severance, which description was filed with the Court and its creditors in the context of its restructuring process is attached hereto as Schedule I ;
 
1.1.3.   to present to the Government the annual financial results of AbiBow as soon as they are made public; and
 
1.1.4.   to report annually to the Government on the implementation of its business plan, which description was filed with the Court and its creditors in the context of its restructuring process is attached hereto as Schedule II ;
 
1.2.   Pension Plans
AbiBow Canada agrees, subject to the arrangements made with the competent authorities:
1.2.1.   that it will not voluntarily terminate any of its pension plans in Quebec before it emerges from the Court protection under the CCAA;
1.2.2.   that it will continue its discussions with the Régie des rentes du Québec to examine solutions in order to avoid termination of pension plans; and
1.2.3.   that the undertakings set forth in this Section 1.2 will also be complied with by its subsidiaries that participate in a supplemental pension plan governed by the Supplemental Pension Plans Act (R.S.Q., c. R-15.1);
1.3.   Investments
AbiBow Canada agrees:
1.3.1.   in its pulp and paper operations, that at least 60% of its maintenance and value-creation investments shall be made in Quebec, such that, for example, investments of $60 million per year would result in a minimum investment of $180 million during a 5-year period for Quebec;
1.3.2.   to make investments in strategic projects in Quebec in a minimum amount of $75 million over a 5-year period, to which an amount of $10 million may be added in the event no amount becomes payable in

 


 

 3
connection with the maintenance of AbiBow Canada production capacity in Quebec, as provided in Section 1.4.4.
1.4.   Business Continuity
AbiBow Canada agrees:
1.4.1.   that the head office of AbiBow and all its actual related functions shall remain in Quebec;
 
1.4.2.   that if a pulp and paper mill is permanently shut down in Quebec, it shall give the Government and the affected communities the opportunity to find recovery alternatives;
 
1.4.3.   that it shall offer favourable conditions to enable potential buyers to purchase its pulp and paper assets at market value, in the event of a sale of such assets located in Quebec, such favourable conditions including the analysis on a case-by-case basis of the need to have non-competition provisions;
 
1.4.4.   that, having regard to its intent described in the recital to maintain the production capacity of the Quebec pulp and paper mills, it shall pay to one or more pension plans, as additional solvency special payments, a total compensation of $75 for every metric ton reduction in such production capacity resulting from a definitive shutdown of at least one machine, including a temporary shutdown for more than 6 consecutive months or 9 cumulative months over a period of 18 months, without any duplication in the capacity levels of pulp and of paper or otherwise, such compensation being payable over 4 years and only once for any given circumstance; it being understood that no payment shall be made in respect of any pension plan having an excess surplus under applicable tax laws;
 
1.4.5.   that, where delivered costs are equivalent to those of its mills located outside Quebec, not to transfer outside Quebec any pulp and paper production (or part thereof) located in its mills located in Quebec at the time all of the terms of this letter become effective; and
 
1.4.6.   to create a diversification fund by contributing 2 million dollars per year for 5 years for the benefit of the municipalities and the workers where the Company’s Quebec mills are located.
 
2.   Term
 
2.1.   The present letter will become effective as of the time of AbiBow Canada’s emergence from Court protection under the CCAA and will expire 5 years after such emergence, except Section 1.2.1 that becomes effective upon its signing.
 
2.2.   The parties agree to re-evaluate, after the 5 year term, the covenants of this letter, in light of AbiBow Canada’s situation, the conditions affecting the pulp and paper industry as a whole and the solvency of its pension plans.
 
3.   Assignment
 
3.1.   The rights and obligations provided herein shall not, under penalty of being null and void, be assigned, in whole or in part, without consent of the Government and of AbiBow Canada.
 
4.   Notice
 
4.1.   A notice and other communication must be in writing and sent to the parties to their respective addresses by recommended or certified mail, or by fax or messenger. Such notice and communication is deemed to have been received the same day it was sent by fax or messenger, and if it was sent by mail, on the fifth business day following.
 
    In all cases, the party giving notice must be able to evidence the sending of the notice if required to do so by the other party, absent which the notice is deemed null and void.

 


 

 4
TO:   Government
Minister of Economic Development, Innovation and Export Trade
710 Place D’Youville, 9 th floor
Québec (Québec) G1R 4Y4

Fax: 418 643-0221
Attention: Mr. Mario Bouchard
TO:   AbiBow Canada
1155 Metcalfe Street, Suite 800
Montréal (Québec) H3B 5H2 Canada

Fax: 514 394-3644
Attention: Senior Vice-President, Corporate Affairs and Chief Legal Officer
5.   General provisions
 
5.1.   The present letter (except the schedules) can only be modified by an amendment duly signed by the parties. The plans described in the schedules herein may be modified by AbiBow from time to time, AbiBow Canada agrees to notify the Government promptly of any important changes to these, including for all information that the Government considers reasonably necessary on this subject, and to report annually to the Government all the changes made to the said plans. The recitals to the present letter do not confer rights or obligations in respect of either one of the parties.
 
5.2.   Time is of the essence of this letter.
 
5.3.   Each party to this letter represents and warrants to the other party (i) that it has the required authorizations and full powers to sign this letter and execute all its obligations contemplated herein, (ii) that by the signing and performance of this letter it is not violating its constituting act, as applicable, nor any law or regulation, and (iii) that following its signing this letter will create contractual obligations as described herein, will have full effect and will be fully enforceable against it pursuant to its terms, subject, except as otherwise provided, in the case of AbiBow Canada, to the insolvency laws of general application, to its emergence from the restructuring process under the CCAA, and any required authorizations.
 
5.4.   Any covenant or condition in favour of a party may only be waived by this party. If one or several provisions herein, or arrangements entered into in connection with this letter, were found to be invalid by a Court for any reason whatsoever, the other provisions contained therein would continue to have their full effect between the parties and, if an invalidated provision had a significant negative impact on either one of the parties, they will negotiate in good faith the relevant terms in order to compensate the affected party in an equivalent manner.
 
5.5.   This letter is governed by and must be interpreted pursuant to the laws applicable in Quebec.
 
5.6.   No party is authorized to bind the other party towards a third party without first obtaining the other party’s written consent. The covenants contained herein only benefit the parties and their respective subsidiaries. Nothing herein shall be construed as a stipulation for another.
 
5.7.   Except as otherwise provided, all references herein to dollars must be understood as a reference to Canadian dollars.
 
5.8.   This letter can be signed in several counterparts, each one deemed to be an original counterpart, but all the counterparts constitute one and the same agreement.

 


 

 5
5.9.   The representatives and signatories for AbiBow Canada and the Government declare that they have read this letter and its schedules and that they accept its terms, conditions and modalities and sign it in good faith in the name of AbiBow Canada and the Government, respectively.
 
5.10.   The necessary arrangements in respect of AbiBow Canada’s pensions plans and their continued existence are for AbiBow Canada essential conditions to this letter and related arrangements taken in connection with it, without which AbiBow Canada would not have entered into them.
 
5.11.   In the event of a disagreement or conflict resulting from or in connection with this letter, including with its interpretation and application, the parties will first try to resolve it amicably through informal negotiations.
 
5.12.   If AbiBow Canada is subject to an event of force majeure (as defined hereunder):
  5.12.1.1.   it must promptly give notice to the Government and indicate, as correctly as possible, the effect on its obligations under this letter and any arrangements relating thereto, and any foreseeable delays resulting therefrom;
 
  5.12.1.2.   the parties will review in good faith the terms of this letter and of the arrangements relating thereto in order to take any such circumstance into account ;and
 
  5.12.1.3.   (i) its obligations will be suspended as long as it acts with reasonable diligence in order to eliminate or correct, in the case where it is reasonably possible, the causes and effects of this force majeure, it being understood however that the resolution of any labour dispute will be left to its entire discretion, and (ii) the non-performance of an obligation is not considered a default, and does not lead to a right of action of any nature whatsoever; as applicable, there is a deferral of the delays resulting from a suspended obligation.
    For these purposes, the expression “ force majeure ” means any event which is unforeseeable, irresistible and beyond the control of AbiBow Canada and delays, interrupts or prevents complete or partial performance of its obligations pursuant to this letter, including any one of the following events: war, embargo, insurrection, invasion, riot, rebellion, social problems, epidemic, flood, fire, explosion, thunder, earthquake, ice storm, storm, sabotage or labour dispute, as well as any act, omission or constraint by a government, court or public authority.
 
5.13.   This letter, as well as any document, communication or other information relating directly or indirectly to it, are confidential and may not be communicated to anybody, unless to the extent it is required by any applicable law. If a party believes that it is held by law to disclose information or receives a request to that effect, it must immediately notify the other party so that it may have the opportunity to take all appropriate recourse and, in any event, take all reasonable steps in order to maintain confidentiality. These obligations apply to any information whether communicated in writing, verbally or by electronic means and whether it was communicated prior or subsequent to the date of this letter. AbiBow Canada confirms that this letter and the arrangements with the competent authorities are disclosed in the context of its restructuring process and with the Court, creditor committees and competent authorities in Quebec or otherwise.

 


 

IN WITNESS WHEREOF , the Parties have executed this letter as of September 13, 2010.
BOWATER CANADIAN FOREST PRODUCTS INC.
ABITIBI-CONSOLIDATED COMPANY OF CANADA
     
By :
  (Signed)
 
   
Name :
  David J. Paterson
 
   
Title :
  President
 
   
THE GOVERNMENT OF QUEBEC
 
   
By :
  (Signed)
 
   
Name :
  Clément Gignac
 
   
Title :
  Minister of Economic Development, Innovation and Export Trade

 


 

LETTER AGREEMENT CONCERNING THE
PULP AND PAPER OPERATIONS OF ABITIBIBOW CANADA IN QUEBEC
SCHEDULES
Schedule I Business Plan
  Notice of Meeting and Information Circular dated August 2, 2010, at pages G-1 — G-11.
 
  Disclosure Statement dated August 2, 2010, at pages 116-119.
Schedule II Compensation Plan
  Notice of meeting and Information Circular dated August 2, 2010, at pages 11-116.
 
  Disclosure Statement dated August 2, 2010, Exhibit B, at pages 1-12.

 

EXHIBIT 12.1
ABITIBIBOWATER INC.
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars)
(Unaudited)
                                         
    Predecessor
    Years Ended December 31,
    2010   2009   2008   2007   2006
     
Earnings (loss):
                                       
 
Earnings (loss) before income taxes and cumulative effect of accounting changes (a)
  $     1,169     $    (1,682 )   $    (2,299 )   $    (649 )   $    (111 )
 
                                       
Add: Fixed charges from below
    489       606       727       266       203  
Less: Capitalized interest
          (1 )           (1 )     (4 )
     
 
  $ 1,658     $ (1,077 )   $ (1,572 )   $ (384 )   $ 88  
     
 
                                       
Fixed Charges:
                                       
 
                                       
Interest expense, net of interest capitalized
  $ 469     $ 540     $ 594     $ 248     $ 200  
Capitalized interest
          1             1       4  
Estimate of interest within rental expense
    6       8       10       9       3  
Amortized premium and discounts related to indebtedness
    14       57       123       8       (4 )
     
 
  $ 489     $ 606     $ 727     $ 266     $ 203  
     
 
                                       
Ratio of Earnings to Fixed Charges
    3.4 x     (b )     (b )     (b )     (b )
     
 
(a)   For the year ended December 31, 2008, loss before income taxes and cumulative effect of accounting changes included an extraordinary loss on expropriation of assets of $256 million.
 
(b)   For the years ended December 31, 2009, 2008, 2007 and 2006, earnings were inadequate to cover fixed charges, resulting in a deficiency of $1,683 million, $2,299 million, $650 million and $115 million, respectively.

 

EXHIBIT 21.1
ABITIBIBOWATER INC.
SUBSIDIARY LISTING
As of December 31, 2010
             
Name   Jurisdiction of Incorporation  
3239432 Nova Scotia Company
  Nova Scotia        
9192-8515 Quebec Inc.
  Quebec        
AbitibiBowater Canada Inc.
  Canada        
Abitibi-Consolidated Alabama Corporation (1)
  Alabama        
AbiBow Recycling LLC
  Delaware        
Abitibi Consolidated Europe
  Belgium        
Abitibi-Consolidated Hydro Inc.
  Canada        
AbiBow Canada Inc.
  Canada        
Abitibi Consolidated Sales LLC
  Delaware        
ACH Limited Partnership (2)
  Manitoba        
ACH Calm Lake Inc. (3)
  Canada        
ACH Fort Frances Inc. (3)
  Canada        
ACH Iroquois Falls Inc. (3)
  Canada        
ACH Island Falls Inc. (3)
  Canada        
ACH Kenora Inc. (3)
  Canada        
ACH Norman Inc. (3)
  Canada        
ACH Sturgeon Falls Inc. (3)
  Canada        
ACH Twin Falls Inc. (3)
  Canada        
Alabama River Newsprint Company (4)
  Alabama        
Augusta Newsprint Company (5)
  Georgia        
Bowater Asia Pte. Ltd.
  Singapore        
Bowater Canada Finance Corporation (6)
  Nova Scotia        
Bowater Canadian Holdings Incorporated
  Nova Scotia        
Bowater Canadian Limited
  Canada        
Bowater Europe Limited
  United Kingdom        
AbiBow US Inc.
  Delaware        
Bowater-Korea Ltd.
  Korea        
Bowater LaHave Corporation
  Nova Scotia        
Bowater Mersey Paper Company Limited (7)
  Nova Scotia        
Bowater Newsprint South LLC
  Delaware        
Bowater Nuway Mid-States Inc.
  Delaware        
Bowater S. America Ltda.
  Brazil        
Bowater South American Holdings Incorporated
  Delaware        
Bridgewater Paper Leasing Ltd.
  United Kingdom        
Bridgewater Paper Company Limited (8)
  United Kingdom        
Calhoun Newsprint Company (9)
  Delaware        
Donohue Corp.
  Delaware        
Donohue Malbaie Inc. (10)
  Quebec        
The International Bridge and Terminal Company
  Canada/Special Act        
Lake Superior Forest Products Inc.
  Delaware        
Produits Forestiers Mauricie L.P. (11)
  Quebec        
Star Lake Hydro Partnership (12)
  Newfoundland and Labrador      
Note: Except as otherwise indicated, each of the above entities is a wholly-owned direct or indirect subsidiary of AbitibiBowater Inc. The names of certain other direct and indirect subsidiaries of AbitibiBowater Inc. have been

 


 

omitted from the list above because such unnamed subsidiaries in the aggregate as a single subsidiary would not constitute a significant subsidiary.
 
(1)   Merged into AbiBow US Inc. on January 3, 2011.
 
(2)   75 percent owned. On February 11, 2011, AbiBow Canada Inc. entered into an agreement to sell its 75% equity interest in ACH Limited Partnership. For additional information, reference is made to Note 29, “Subsequent Events,” to the Consolidated Financial Statements of AbitibiBowater Inc., included in AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
(3)   100 percent owned by ACH Limited Partnership.
 
(4)   Liquidated into AbiBow US Inc. on January 3, 2011.
 
(5)   52.5 percent owned. On January 13, 2011, Augusta Newsprint Company was converted as a limited liability company under the laws of Delaware and changed its name to Augusta Newsprint Company LLC. On January 14, 2011, Augusta Newsprint Company LLC became a wholly-owned subsidiary of AbitibiBowater Inc. For additional information, reference is made to Note 29, “Subsequent Events,” to the Consolidated Financial Statements of AbitibiBowater Inc., included in AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
(6)   Bowater Canada Finance Corporation filed under the Bankruptcy and Insolvency Act (Canada) and has been dismissed from the CCAA Proceedings and is expected to be dismissed from the Chapter 11 Cases. For additional information, reference is made to Note 22, “Commitments and Contingencies — BCFC Bankruptcy and Insolvency Act filing,” to the Consolidated Financial Statements of AbitibiBowater Inc., included in AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
(7)   51 percent owned.
 
(8)   Effective February 2, 2010, Bridgewater Paper Company Limited filed for administration pursuant to U.K. insolvency law. For additional information, reference is made to Note 1, “Organization and Basis of Presentation — Bridgewater Administration,” to the Consolidated Financial Statements of AbitibiBowater Inc., included in AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
(9)   51 percent owned.
 
(10)   51 percent owned.
 
(11)   93.2 percent owned.
 
(12)   51 percent owned. On December 16, 2008, the Government of Newfoundland and Labrador passed legislation to, among other things, expropriate all of the long-lived assets, excluding vehicles, of Star Lake Hydro Partnership. For additional information, reference is made to Note 22, “Commitments and Contingencies — Extraordinary loss on expropriation of assets,” to the Consolidated Financial Statements of AbitibiBowater Inc., included in AbitibiBowater Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-171602, No. 333-156145 and No. 333-146982) of AbitibiBowater Inc. of our report dated April 5, 2011 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting of AbitibiBowater Inc. (Successor Company), and our report dated April 5, 2011 relating to the consolidated financial statements and financial statement schedule of AbitibiBowater Inc. (Predecessor Company) which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
April 5, 2011
Montréal, Quebec, Canada

EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS , ABITIBIBOWATER INC., a Delaware corporation (the “ Company ”), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934 as amended (the “ Act ”), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act.
WHEREAS , each of the undersigned is a Director of the Company.
NOW, THEREFORE , each of the undersigned hereby constitutes and appoints Richard Garneau, William G. Harvey and Jacques P. Vachon and each of them, as true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, in any and all capacities, to sign said Annual Report and any and all amendments thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF , each of the undersigned has hereunto set his or her hand this 23 day of March 2011.
     
/s/ Richard B. Evans
  /s/ Pierre Dupuis
 
   
Richard B. Evans
  Pierre Dupuis
Chairman of the Board
  Director
 
   
/s/ Richard Falconer
  /s/ Jeffery A. Hearn
 
   
Richard Falconer
  Jeffery A. Hearn
Director
  Director
 
   
/s/ Sarah E. Nash
  /s/ Alain Rhéaume
 
   
Sarah E. Nash
  Alain Rhéaume
Director
  Director
 
   
/s/ Paul C. Rivett
  /s/ Michael Rousseau
 
   
Paul C. Rivett
  Michael Rousseau
Director
  Director
 
   
/s/ David H. Wilkins
 
David H. Wilkins
   
Director
   

Exhibit 31.1
Certification
I, Richard Garneau, certify that:
1.   I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of ABITIBIBOWATER INC.;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 5, 2011
/s/ Richard Garneau
 
Richard Garneau
President and Chief Executive Officer

 

Exhibit 31.2
Certification
I, William G. Harvey, certify that:
1.   I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of ABITIBIBOWATER INC.;
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 5, 2011
/s/ William G. Harvey
 
William G. Harvey
Senior Vice President and Chief Financial Officer

 

EXHIBIT 32.1
Certification
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ABITIBIBOWATER INC. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s annual report on Form 10-K for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
Dated: April 5, 2011  /s/ Richard Garneau    
  Name:   Richard Garneau   
  Title:   President and Chief Executive Officer   
 
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AbitibiBowater Inc. and will be retained by AbitibiBowater Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed as part of the Report or as a separate disclosure document.

 

EXHIBIT 32.2
Certification
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ABITIBIBOWATER INC. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s annual report on Form 10-K for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
Dated: April 5, 2011
  /s/ William G. Harvey
 
Name: William G. Harvey
   
 
  Title: Senior Vice President and Chief Financial Officer    
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AbitibiBowater Inc. and will be retained by AbitibiBowater Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed as part of the Report or as a separate disclosure document.