Abitibi Terminates Fiber/Bark Deal With SFK Pulp

April 27, 2009 - SFK Pulp said that on April 24 it received a notice from Abitibi-Consolidated Company of Canada terminating, effective immediately, the fiber supply agreement and the bark supply agreement it had with Abitibi.

The supply agreement was originated on August 1, 2002 when Abitibi created SFK Pulp.

According to SFK, pursuant to a court order issued by the Quebec Superior Court on April 16, 2009 in connection with Abitibi's filing for protection from its creditors, Abitibi was granted the right to terminate all of its contracts, subject to obtaining consent from the court or the court-appointed monitor, Ernst & Young Inc.

Pursuant to the terms of these agreements, Abitibi has committed to supply fiber and bark to SFK Pulp's Saint-Felicien Mill for a period of 20 years. The Saint-Felicien Mill currently purchases approximately 80% of its wood fiber and bark requirements from Abitibi. Under the fiber supply agreement, Abitibi is required to supply certain wood fiber volumes pursuant to a price formula based on the market price of wood fiber in Quebec. This formula increases or reduces the price of wood fiber purchased by SFK Pulp based on the price of NBSK pulp.

Although SFK Pulp has been working closely with Abitibi over recent days to identify solutions to secure its wood fiber and bark supply and to minimize the impact on operating costs, SFK Pulp and Abitibi have not yet reached a mutually satisfactory agreement. Both parties have agreed to meet in the coming days to continue discussions, SFK said.

The Saint-Felicien Mill is currently in the process of taking seven weeks of market-related downtime and only a few weeks away from resuming production. Abitibi's termination of the supply deal has put a re-start date into question.

"Our objective, while trying to secure the optimal fiber supply for our Saint-Felicien Mill, is to mitigate as much as possible potential negative impacts for our stakeholders. Our intention was to resume operations at the Saint-Felicien Mill in early May. We are currently reassessing our plans in light of these new circumstances," said Pierre Gabriel Cote, SFK's president and CEO.

"SFK Pulp will also continue balancing inventories with its order book and closely monitoring its liquidity until demand for its products firms up. SFK Pulp has great assets and a low debt level, and can count on a proud group of employees to continue seeking the most efficient and economic ways of operating its business and exit these historic times in an even stronger position," Cote said.

SFK said it will also be working closely with its lenders over the next few days to assess the impact of the termination of its fiber and bark supply agreements on its credit agreement, including the possibility that this event may constitute a default under the credit agreement. The company is also currently evaluating with its external counsel the possibility of contesting the termination of the fiber and bark supply agreements.

"We are also currently working with the Quebec government in order to identify potential solutions which would adequately support SFK Pulp in times where it is already facing important challenges, greatly magnified by Abitibi's situation," Cote added.

SFK Pulp produces premium virgin and recycled kraft pulp and operates three mills: Saint-Felicien, Quebec; Fairmont, West Virginia; and Menominee, Michigan.

The copmpany employs approximately 550 people, including 306 in its Saint-Felicien Mill, and has a total annual production capacity of 745,000 metric tons. The Saint-Felicien Mill supplies northern bleached softwood kraft (NBSK) pulp to various sectors of the paper industry in Canada, the United States and Europe for use in specialty products. The Fairmont and Menominee Mills manufacture air-dried market recycled bleached kraft (RBK) pulp and primarily supply manufacturers of uncoated freesheet, commercial and away-from-home tissue and coated paper in the U.S.


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