Exhibit 10.1

PURCHASE AGREEMENT

by and between

ABITIBIBOWATER INC.

and

FAIRFAX FINANCIAL HOLDINGS LIMITED

Dated as of March 24, 2008

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TABLE OF CONTENTS

 

1.

   Agreement to Sell and Purchase    1   

1.1        Sale and Purchase

   1   

1.2        Escrow Deposit

   1

2.

   Closing and Delivery    1   

2.1        Closing

   1   

2.2        Delivery

   2

3.

   Representations and Warranties of the Company    2   

3.1        Organization and Power

   2   

3.2        Capitalization

   2   

3.3        Authorization

   3   

3.4        Valid Issuance

   4   

3.5        No Conflict

   4   

3.6        Consents

   5   

3.7        Securities Filings

   5   

3.8        Compliance with Law

   5   

3.9        NYSE; TSX

   5   

3.10      Investment Company Act

   6   

3.11      Broker’s Fee

   6

4.

   Representations and Warranties of Purchaser    6   

4.1        Organization and Power

   6   

4.2        Authorization

   6   

4.3        No Conflict

   6   

4.4        Consents

   7   

4.5        Purchaser’s Financing

   7   

4.6        Purchase Entirely for Own Account; Share Ownership

   7   

4.7        Investor Status

   7   

4.8        Securities Not Registered

   8   

4.9        Broker’s Fee

   8

5.

   Conditions to Company’s Obligations at The Closing    8   

5.1        Receipt of Payment

   8   

5.2        Representations, Warranties and Covenants

   8   

5.3        No Injunction or Prohibition by Law

   9   

5.4        Registration Rights

   9   

5.5        Deposit Escrow Agreement

   9

 

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6.

   Conditions to Purchaser’s Obligations At The Closing    9   

6.1        Issuance of Note

   9   

6.2        Representations, Warranties and Covenants

   9   

6.3        No Injunction or Prohibition by Law

   9   

6.4        Lender Consents

   9   

6.5        Receipt of Approvals

   9   

6.6        Financings

   10   

6.7        Registration Rights

   10   

6.8        Indenture

   10   

6.9        Opinions

   10   

6.10      Listing

   10   

6.11      Deposit Escrow Agreement

   10

7.

   Covenants and Agreements    10   

7.1        Lender Consents

   10   

7.2        Shares Issuable upon Conversion

   10   

7.3        PORTAL and CUSIP

   10   

7.4        Notice to Stockholders

   10   

7.5        Regulatory Matters

   11   

7.6        Acquisition of Additional Securities

   11   

7.7        Restrictions on Transfer

   13   

7.8        Confidential Information

   14   

7.9        Adjustments to the Board of the Company

   15   

7.10      No Solicitation of Transactions

   16   

7.11      Participation Rights

   18   

7.12      Further Assurances

   19

8.

   Survival    19

9.

   Definitions    19   

9.1        Definitions

   19   

9.2        Other Definitional Provisions

   23

10.

   Miscellaneous    24   

10.1      Termination

   24   

10.2      Specific Performance and Other Remedies

   25   

10.3      Notices

   25   

10.4      Waivers and Amendments

   26   

10.5      Headings

   26   

10.6      Severability

   26   

10.7      Governing Law

   26   

10.8      Submission to Jurisdiction

   26   

10.9      Waiver of Jury Trial

   27   

10.10    Counterparts

   27   

10.11    Successors and Assigns

   27   

10.12    Payment of Fees and Expenses

   27   

10.13    Entire Agreement

   28

 

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EXHIBITS

 

  A. Description of Note

 

  B. Financings

 

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PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (as the same may be amended, supplemented, waived or
otherwise modified from time to time, the “Agreement”) is made as of March 24,
2008, by and between AbitibiBowater Inc., a Delaware corporation with its
principal place of business at 1155 Metcalfe Street, Suite 800, Montreal, Quebec
H3B 5H2 (the “Company”), and Fairfax Financial Holdings Limited, a corporation
incorporated under the laws of Canada, with its principal place of business at
95 Wellington Street West, Suite 800, Toronto, Ontario M5J 2N7 (“Purchaser”).
Certain capitalized terms used herein are defined in Section 9.1.

WHEREAS, the Company wishes to sell to Purchaser, and Purchaser wishes to
purchase from the Company, 8.0% Convertible Notes due 2013 (the “Notes”) of the
Company in an aggregate principal amount of $350,000,000, a description of the
terms of which is attached hereto as Exhibit A, convertible at any time into
shares of common stock of the Company, par value $1.00 per share (the “Common
Stock”), at a price of $10.00 per share (such shares of Common Stock for which
the Notes are convertible, as such number of shares shall be adjusted pursuant
to the terms of the Notes, the “Conversion Shares” and, together with the Notes,
the “Securities”), on the terms and subject to the conditions set forth in this
Agreement.

AGREEMENT

In consideration of the mutual covenants contained in this Agreement, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and Purchaser, intending to be legally bound, hereby
agree as follows:

1. AGREEMENT TO SELL AND PURCHASE.

1.1 Sale and Purchase. Subject to the terms and conditions of this Agreement, at
the Closing, the Company will sell to Purchaser, and Purchaser will purchase
from the Company, free and clear of Liens, the Notes, for an aggregate purchase
price equal to $350,000,000 (the “Purchase Price”). The Notes will be governed
by an indenture (the “Indenture”), between the Company and a trustee mutually
acceptable to the Company and Purchaser, to be executed and delivered at the
Closing and dated as of the date of the Closing. A description of the terms of
the Notes and the Indenture is set forth in Exhibit A.

1.2 Escrow Deposit. Within 24 hours of the execution and delivery of this
Agreement, Purchaser shall pay to the Deposit Escrow Agent, by wire transfer of
immediately available funds, to be held and delivered by the Deposit Escrow
Agent pursuant to the Deposit Escrow Agreement, the Purchase Price (provided
that if such payment can not be made within such 24-hour period solely because
the Deposit Escrow Agent account designated to receive such funds is not timely
opened or the Deposit Escrow Agent can not otherwise receive such payment within
such period, Purchaser shall make such payment immediately upon such account
becoming available).

2. CLOSING AND DELIVERY.

2.1 Closing. The closing of the purchase and sale of the Notes pursuant to this
Agreement (the “Closing”) shall be held at the offices of Troutman Sanders LLP,
600

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Peachtree Street NE, Suite 5200, Atlanta, Georgia 30308, on March 31, 2008 or
such other date as may otherwise be agreed upon by the parties (the “Closing
Date”). At or prior to the Closing, Purchaser and the Company shall execute any
related agreements or other documents required to be executed and/or delivered
hereunder.

2.2 Delivery. At the Closing, (a) the Company shall issue and deliver to
Purchaser the Notes through the facilities of the Depository Trust Company, free
and clear of Liens, and (b) the Company and Purchaser shall deliver written
instructions to the Deposit Escrow Agent to deliver the Deposit Escrow Fund as
follows: (i) an amount equal to the Purchase Price less the amount described in
Section 2.2(b)(ii) shall be paid, by wire transfer of immediately available
funds, to the Company on behalf of the Purchaser (provided that Purchaser shall
pay to the Company any shortfall of the Deposit Escrow Fund from such amount);
(ii) an amount equal to the fees required to be paid to the Deposit Escrow Agent
pursuant to the Deposit Escrow Agreement shall be paid to the Deposit Escrow
Agent from the Deposit Escrow Fund; and (iii) after payment of the foregoing,
the balance of the Deposit Escrow Fund shall be paid, by wire transfer of
immediately available funds, to Purchaser.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the
Securities Filings, the Company hereby represents and warrants to Purchaser as
follows:

3.1 Organization and Power.

(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, with all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted.

(b) Each of the Company and its Subsidiaries is duly qualified to do business
and is in good standing as a foreign corporation (or other legal entity) in each
jurisdiction where the ownership, leasing or operation of its assets or
properties or conduct of its business requires such qualification, except where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, have a Material Adverse Effect. Neither the Company nor any
Subsidiary of the Company is in violation of its certificate of incorporation,
by laws or other equivalent organizational or governing documents, except where
the violation in the case of Subsidiaries of the Company would not, individually
or in the aggregate, have a Material Adverse Effect.

3.2 Capitalization. As of the date of this Agreement, the authorized shares
capital stock of the Company consist of 100,000,000 shares of Common Stock, and
10,000,000 shares of preferred stock, par value $1.00 per share. There are
(a) 52,614,237 shares of Common Stock issued and outstanding, (b) 3,872,391
shares of Common Stock reserved for issuance pursuant to the Company’s equity
incentive and employee benefit plans, (c) 4,959,893 shares of Common Stock
reserved for issuance upon the exchange of outstanding exchangeable shares of
AbitibiBowater Canada Inc. (the “Exchangeable Shares”), and (d) no shares of
preferred stock issued and outstanding. All shares of Common Stock outstanding
as of the date of this Agreement, and all shares of Common Stock reserved for
issuance set forth in clauses (b) and (c) of the foregoing sentence, when issued
in accordance with the respective terms thereof, are or

 

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will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive or similar rights. Since December 31, 2007, (i) the Company has
only issued options or other rights to acquire Common Stock in the normal course
of business consistent with past practice pursuant to the Company’s equity
incentive and employee benefit plans, and (ii) the only shares of capital stock
issued by the Company were pursuant to the exercise or conversion of outstanding
awards under the Company’s equity incentive and employee benefit plans and the
exchange of outstanding Exchangeable Shares.

3.3 Authorization. The Company has all requisite corporate power to enter into
this Agreement, the Notes, the Indenture, the Registration Rights Agreement and
the Deposit Escrow Agreement (collectively, the “Transaction Agreements”) and to
carry out and perform its obligations under the terms of the Transaction
Agreements. All corporate action on the part of the Company necessary for the
authorization, execution, delivery and performance of the Transaction Agreements
and the consummation of the transactions contemplated herein has been taken.
Assuming this Agreement constitutes the legal, valid and binding agreement of
Purchaser, this Agreement constitutes a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or fraudulent conveyance and
similar laws relating to or affecting creditors generally or by general equity
principles, including without limitation concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered in
a proceeding in equity or at law) and except as rights to indemnity may be
limited by applicable federal and state securities laws and principles of public
policy. Upon execution by the other parties thereto, and assuming that they
constitute legal, valid and binding agreements of the other parties thereto,
each of the other Transaction Agreements constitute a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or fraudulent
conveyance and similar laws relating to or affecting creditors generally or by
general equity principles, including without limitation concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered in
a proceeding in equity or at law) and except as rights to indemnity may be
limited by applicable federal and state securities laws and principles of public
policy. The Guarantor has all requisite corporate power to enter into the
Transaction Agreements to which it is a party and to carry out and perform its
obligations thereunder. All corporate action on the part of the Guarantor
necessary for the authorization, execution, delivery and performance of the
Transaction Agreements to which it is a party and the consummation of the
transactions contemplated herein has been taken. Upon execution by the other
parties thereto, and assuming that they constitute legal, valid and binding
agreements of the other parties thereto, the Transaction Agreements constitute a
legal, valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or fraudulent conveyance and similar laws relating to or affecting
creditors generally or by general equity principles, including without
limitation concepts of materiality, reasonableness, good faith and fair dealing
(regardless of whether considered in a proceeding in equity or at law) and
except as rights to indemnity may be limited by applicable federal and state
securities laws and principles of public policy.

 

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3.4 Valid Issuance.

(a) The Notes will, upon issuance pursuant to the terms hereof and the terms of
the Indenture and upon payment therefor, be valid and legally binding
obligations of the Company, enforceable in accordance with their terms and the
terms of the Indenture, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
fraudulent conveyance and similar laws relating to or affecting creditors
generally or by general equity principles, including without limitation concepts
of materiality, reasonableness, good faith and fair dealing (regardless of
whether considered in a proceeding in equity or at law).

(b) The Guarantee will, upon issuance pursuant to the terms hereof and the terms
of the Indenture and upon payment for the Notes, be valid and legally binding
obligations of the Guarantor, enforceable in accordance with their terms and the
terms of the Indenture, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
fraudulent conveyance and similar laws relating to or affecting creditors
generally or by general equity principles, including without limitation concepts
of materiality, reasonableness, good faith and fair dealing (regardless of
whether considered in a proceeding in equity or at law).

(c) The Company has available for issuance the Common Stock initially issuable
upon conversion of the Notes (as if such conversion occurred on the date hereof)
without giving effect to any anti-dilution provisions contained in the Indenture
and without giving effect to any conversion of PIK Notes (as defined in Exhibit
A attached hereto). The Conversion Shares have been duly authorized and reserved
for issuance, and when issued upon conversion of the Notes such Common Stock
will be validly issued, fully paid and nonassessable and free of pre-emptive or
similar rights.

3.5 No Conflict. The execution, delivery and performance of the Transaction
Agreements by the Company and the Guarantor, the issuance of the Conversion
Shares and the consummation of the other transactions contemplated herein and
therein will not (a) conflict with or result in any violation of any provision
of the certificate of incorporation or by-laws of the Company, (b) except with
respect to provisions necessitating the Lender Consents (which consents shall be
received prior to the Closing), result in any breach or violation of, or default
(with or without notice or lapse of time, or both) under, require consent under,
or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or to the loss of any benefit under any loan,
guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture,
lease, agreement, contract, purchase or sale order, instrument, permit,
concession, franchise, right or license binding upon the Company or any of its
Subsidiaries or result in the creation of any Liens upon any of the properties,
assets or rights of the Company or any of its Subsidiaries, or (c) assuming
(i) the accuracy of the representations made by Purchaser in Section 4 hereof,
(ii) the consents, approvals, orders and authorizations referred to in
Section 3.6 (b) hereof have been obtained and (iii) the expiration or
termination of applicable waiting periods referred to in clause (a) of
Section 3.6, conflict with or violate any Applicable Law, other than, in the
case of clauses (b) and (c), as would not, individually or in the aggregate,
have a Material Adverse Effect.

 

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3.6 Consents. All consents, approvals, orders and authorizations of any
Governmental Entity required on the part of the Company or its Subsidiaries in
connection with the execution, delivery or performance of the Transaction
Agreements and the Guarantee and the issuance of the Conversion Shares have been
obtained or made, other than (a) the expiration or termination of any applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the “HSR Act”) or any applicable requirements under foreign law in
connection with the issuance of Conversion Shares and (b) such consents,
approvals, orders and authorizations, the failure of which to make or obtain
would not reasonably be expected to have a Material Adverse Effect.

3.7 Securities Filings.

(a) Each of the Company and its Subsidiaries has timely filed all forms,
documents, statements and reports required to be filed by it with the SEC since
December 31, 2005. As of their respective dates, or, if amended or superseded by
a subsequent filing made prior to the date hereof, as of the date of the last
such amendment or superseding filing prior to the date hereof, the SEC Reports
complied in all material respects with the requirements of the Securities Act,
the Exchange Act and the Sarbanes-Oxley Act of 2002, as the case may be, and the
applicable rules and regulations promulgated thereunder. As of the date hereof,
the SEC Reports filed through the date hereof, collectively, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. As of
their respective dates, or, if amended or superseded by a subsequent filing made
prior to the date hereof, as of the date of the last such amendment or
superseding filing prior to the date hereof, all Canadian Securities Filings
filed with the Canadian Securities Regulators complied in all material respects
with the requirements of applicable Canadian Securities Laws.

(b) The financial statements (including all related notes and schedules) of the
Company and its Subsidiaries included in the SEC Reports (collectively, the
“Financial Statements“) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, fairly present
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of the dates indicated, and the results of their operations
and their cash flows for the periods therein specified, all in accordance with
GAAP throughout the periods therein specified (except as otherwise noted
therein, and in the case of quarterly financial statements except for the
absence of footnote disclosure and subject, in the case of interim periods, to
normal year-end adjustments).

3.8 Compliance with Law. The Company and each of its Subsidiaries is in
compliance with and is not in default under or in violation of any Applicable
Law, except where such non-compliance, default or violation would not,
individually or in the aggregate, have a Material Adverse Effect. The company is
a reporting issuer in each Canadian province or territory that has a concept of
a “reporting issuer.”

3.9 NYSE; TSX. The Common Stock is registered pursuant to Section 12(b) of the
Exchange Act and is listed on NYSE and TSX, and the Company has no action
pending to

 

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terminate the registration of the Common Stock under the Exchange Act or delist
the Common Stock from NYSE or TSX, nor has the Company received any notification
that the SEC, Canadian Securities Regulators, NYSE or TSX is currently
contemplating terminating such registration or listing.

3.10 Investment Company Act. The Company has been advised of the rules and
requirements under the Investment Company Act of 1940, as amended. The Company
is not, and immediately after receipt of payment for the Notes will not be, an
“investment company” within the meaning of, and required to be registered under,
the Investment Company Act of 1940, as amended.

3.11 Broker’s Fee. Except for Goldman, Sachs & Co. and CIBC World Markets Inc.,
the Company has engaged no brokers or finders entitled to compensation in
connection with the sale of the Securities.

4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to the Company as follows:

4.1 Organization and Power. Purchaser is a legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite power and authority to own, lease and operate
its properties and assets and to carry on its business as presently conducted.

4.2 Authorization. Purchaser has all requisite corporate or similar power to
enter into the Transaction Agreements to which it will be a party and to carry
out and perform its obligations under the Transaction Agreements. All corporate
action on the part of Purchaser or its stockholders, necessary for the
authorization, execution, delivery and performance of such Transaction
Agreements and the consummation of the transactions contemplated herein and
therein has been taken. Assuming the Transaction Agreements constitute the
legal, valid and binding agreements of the Company, each of the Transaction
Agreements to which Purchaser is or will be a party constitute or will when
executed, as applicable, constitute a legal, valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or fraudulent conveyance and similar laws
relating to or affecting creditors generally or by general equity principles,
including without limitation concepts of materiality, reasonableness, good faith
and fair dealing (regardless of whether considered in a proceeding in equity or
at law).

4.3 No Conflict. The execution, delivery and performance of the Transaction
Agreements by Purchaser to which it is a party and the consummation by Purchaser
of the transactions contemplated herein and therein will not (a) conflict with
or result in any violation of any provision of the certificate of incorporation
or by-laws or other equivalent organizational document, in each case as amended,
of Purchaser, (b) result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, require consent under, or give
rise to a right of termination, cancellation, modification or acceleration of
any obligation or to the loss of any benefit under any loan, guarantee of
indebtedness or credit agreement, note, bond, mortgage, indenture, lease,
agreement, contract, purchase or sale order, instrument, permit,

 

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concession, franchise, right or license binding upon Purchaser or result in the
creation of any Lien upon any of the properties, assets or rights of Purchaser,
or (c) assuming (i) the accuracy of the representations made by the Company in
Section 3 and (ii) the consents, approvals, orders and authorizations referred
to in Section 4.4(a) and (b) have been obtained, conflict with or violate any
Applicable Law, other than, in the case of clauses (b) and (c), as would not,
individually or in the aggregate, be reasonably expected to materially delay or
hinder the ability of Purchaser to perform its obligations under the Transaction
Agreements.

4.4 Consents. All consents, approvals, orders and authorizations of any
Governmental Entity required on the part of Purchaser in connection with the
execution, delivery or performance of this Agreement and the consummation by
Purchaser of the other transactions contemplated herein have been obtained or
made, other than (a) the expiration or termination of the applicable waiting
period under the HSR Act or any applicable requirements under foreign law in
connection with the issuance of the Conversion Shares to Purchaser, and (b) such
consents, approvals, orders and authorizations the failure of which to make or
obtain, individually or in the aggregate, would not reasonably be expected to
materially delay or hinder the ability of Purchaser to perform its obligations
under the Transaction Agreements.

4.5 Purchaser’s Financing. Purchaser has, and at the time of its obligation to
pay the Deposit Escrow Agent pursuant to Section 1.2 hereof will have, all funds
necessary to pay to the Company the Purchase Price in immediately available
funds.

4.6 Purchase Entirely for Own Account; Share Ownership. Neither Purchaser nor
any of its Subsidiaries Beneficially Owns, in the aggregate, more than five
percent (5%) of the outstanding shares of the Company’s Common Stock. Subject to
Section 10.11, Purchaser is acquiring the Securities for its own account, and
not with a view to, or for sale in connection with, any distribution of the
Securities in violation of the Securities Act. Purchaser has no present
agreement, undertaking, arrangement, obligation or commitment providing for the
disposition of the Securities.

4.7 Investor Status. Purchaser certifies and represents to the Company that
Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act. Purchaser also certifies and represents to
the Company that Purchaser is an “accredited investor” as defined in National
Instrument 45-106 – Prospectus and Registration Exemptions of the Canadian
Securities Regulators. Purchaser’s financial condition is such that it is able
to bear the risk of holding the Securities for an indefinite period of time and
the risk of loss of its entire investment. Purchaser has sufficient knowledge
and experience in investing in companies similar to the Company so as to be able
to evaluate the risks and merits of its investment in the Company. Purchaser has
not received or been provided with, nor has it requested, nor does it have any
need to receive, any offering memorandum, prospectus, sales or advertising
literature, or any other document describing or purporting to describe the
business and affairs of the Company which has been prepared for delivery to, and
review by, prospective purchasers in order to assist it in making an investment
decision in respect of the Securities and the decision to subscribe for
Securities and execute this Agreement has not been based upon any verbal or
written representation (other than those in this Agreement) made by or on behalf
of the Company or any employee or agent of the Company. Purchaser has been
afforded the opportunity to ask questions of and receive answers from the
management of the Company

 

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concerning this investment, has been furnished all materials related to the
business, finances and operations of the Company which it has requested of the
Company, and has sought such accounting, legal and tax advice as it deems
appropriate in connection with its proposed investment under this Agreement.

4.8 Securities Not Registered. Purchaser understands that the Securities have
not been registered under the Securities Act, by reason of their issuance by the
Company in a transaction exempt from the registration requirements of the
Securities Act, and that the Securities must continue to be held by Purchaser
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration. Purchaser understands that the exemptions
from registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depend on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts. The offer, sale and issuance of the Securities is
exempt from the requirements as to the filing of a prospectus or delivery of an
offering memorandum in prescribed form under Canadian Securities Laws and, as a
result: the Purchaser may not receive information that would otherwise be
provided to it under Canadian Securities Laws; the Company is relieved from
certain obligations that would otherwise apply under Canadian Securities Laws;
and the Subscriber is prevented from using most of the civil remedies available
to it under Canadian Securities Laws. Purchaser shall transfer the Securities
only in compliance with the transfer restrictions set forth in Section 7.7.

4.9 Broker’s Fee. Purchaser has engaged no brokers or finders entitled to
compensation in connection with the sale of the Securities for which the Company
shall be liable.

5. CONDITIONS TO COMPANY’S OBLIGATIONS AT THE CLOSING. The Company’s obligation
to sell, issue and deliver the Notes to Purchaser at the Closing shall be
subject to the following conditions to the extent not waived by the Company:

5.1 Receipt of Payment. The Company shall receive payment at the Closing by wire
transfer of immediately available funds, in the full amount of the Purchase
Price less an amount equal to the fees required to be paid to the Deposit Escrow
Agent pursuant to the Deposit Escrow Agreement.

5.2 Representations, Warranties and Covenants. The representations and
warranties of Purchaser made in this Agreement (without regard to any
qualifications therein as to materiality) shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on such date
(or, in each case, as of any earlier date as to which such representation and
warranty expressly speaks), provided, that this condition shall be deemed
satisfied unless the failure of any such other representations and warranties to
be true and correct, individually or in the aggregate, on any such date would
reasonably be expected to materially delay or hinder the ability of Purchaser to
perform its obligations under the Transaction Agreements. Purchaser shall have
performed and complied in all material respects with all obligations, covenants
and conditions to be performed and complied with by Purchaser under this
Agreement on or prior to the Closing.

 

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5.3 No Injunction or Prohibition by Law. No preliminary or permanent injunction
or order, or other Applicable Law, that would prohibit the consummation of the
transactions to be consummated at the Closing (for the avoidance of doubt,
excluding the Conversion) shall be in effect, and there shall be no proceeding
pending or threatened by any Governmental Entity that is reasonably likely to
result in such a prohibition.

5.4 Registration Rights. A Registration Rights Agreement mutually agreeable to
Purchaser and the Company (the “Registration Rights Agreement”) shall have been
executed and delivered by Purchaser.

5.5 Deposit Escrow Agreement. A Deposit Escrow Agreement mutually agreeable to
Purchaser and the Company (the “Deposit Escrow Agreement”) shall have been
executed and delivered by Purchaser and the Deposit Escrow Agent.

6. CONDITIONS TO PURCHASER’S OBLIGATIONS AT THE CLOSING. Purchaser’s obligation
to accept delivery of and pay for the Notes at the Closing shall be subject to
the following conditions to the extent not waived by Purchaser:

6.1 Issuance of Note. Purchaser shall have received the Notes, through the
facilities of the Depository Trust Company, duly executed and delivered.

6.2 Representations, Warranties and Covenants. The representations and
warranties of the Company made in this Agreement (without regard to any
qualifications therein as to materiality or material adverse effect) shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on such date (or, in each case, as of any earlier date as to which
such representation and warranty speaks), provided, that this condition shall be
deemed satisfied unless the failure of any such other representations and
warranties to be true and correct, individually or in the aggregate, on any such
date has had or would have, a Material Adverse Effect. The Company shall have
performed and complied in all material respects with all obligations, covenants
and conditions to be performed and complied with by the Company under this
Agreement on or prior to the Closing Date.

6.3 No Injunction or Prohibition by Law. No preliminary or permanent injunction
or order, or other Applicable Law, that would prohibit the consummation of the
transactions to be consummated at the Closing (for the avoidance of doubt,
excluding the Conversion) shall be in effect, and there shall be no proceeding
pending or threatened by any Governmental Entity that is reasonably likely to
result in such a prohibition.

6.4 Lender Consents. All consents from lenders of the Company or any of its
Subsidiaries required in order to consummate the transactions contemplated by
the Closing (the “Lender Consents”) shall have been received.

6.5 Receipt of Approvals. All consents, approvals, orders and authorizations of
any Governmental Entity, NYSE or TSX required on the part of the Company in
connection with the transactions contemplated by the Closing (for the avoidance
of doubt, excluding the Conversion) shall have been received.

 

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6.6 Financings. The Company shall have consummated the financings in accordance
with the arrangements described on Exhibit B hereto (collectively, the
“Financings”).

6.7 Registration Rights. The Registration Rights Agreement shall have been
executed and delivered by the Company.

6.8 Indenture. The Company and the Trustee shall have executed and delivered an
Indenture that accurately reflects, in all material respects, the description of
the Notes set forth in Schedule A hereto.

6.9 Opinions. The Purchaser shall have received customary legal opinions from
counsel to the Company in form and substance acceptable to Purchaser, acting
reasonably.

6.10 Listing. The Company shall have listed, subject to official notice of
issuance, the Conversion Shares on NYSE and TSX.

6.11 Deposit Escrow Agreement. The Deposit Escrow Agreement shall have been
executed and delivered by the Company and the Deposit Escrow Agent.

7. COVENANTS AND AGREEMENTS.

7.1 Lender Consents. Prior to Closing, the Company will use commercially
reasonable best efforts to obtain the Lender Consents; provided that the failure
to obtain all Lender Consents, after the exercise of such efforts, shall not
constitute a breach of this Agreement for purposes of Section 10 hereof or
otherwise.

7.2 Shares Issuable upon Conversion. The Company will at all times have and keep
available for issuance such number of shares of Common Stock as shall be
sufficient to permit the conversion of the Notes (including the PIK Notes) into
Common Stock as provided for in the Indenture, including as may be adjusted in
accordance with the Notes. To the extent not already listed, subject to official
notice of issuance, the Company will use reasonable commercial efforts to cause
any Common Stock issued upon conversion of the Notes to be listed with the stock
exchange or quotation system on which the Common Stock may then be listed by the
Company

7.3 PORTAL and CUSIP. The Company will use reasonable commercial efforts to
(a) permit the Notes to be designated PORTAL securities in accordance with the
rules and regulations adopted by the Nasdaq Stock Market, Inc. relating to the
PORTAL Market as of the Closing or as promptly as practicable thereafter and
(b) obtain all necessary Committee on Uniform Securities Identification
Procedures numbers (CUSIP numbers) for the Notes required for creating a market
in Notes traded pursuant to Rule 144A under the Securities Act or which are not
“restricted securities” for purposes of Rule 144 under the Securities Act, in
each case as of the Closing or as promptly as practicable thereafter.

7.4 Notice to Stockholders. Prior to Closing, the Company shall mail to its
stockholders a notice alerting them to the Company’s omission to seek
stockholder approval to the consummation of the transactions contemplated hereby
and indicating that the audit committee of the Board has expressly approved this
exception.

 

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7.5 Regulatory Matters. Upon the request of the Purchaser, the Company and
Purchaser shall (a) make any required filing with the U.S. Federal Trade
Commission (“FTC”), Department of Justice (“DOJ”) and any other Governmental
Entity required under the HSR Act, the Competition Act (Canada) or any other
Applicable Law with respect to the transactions contemplated hereby, (b) as
promptly as practicable make or cause their Affiliates to make any filing or
notice required under any other antitrust or competition law or other law or
regulation agreed by the parties to be applicable to the transactions
contemplated thereby and (c) provide any supplemental information requested in
connection with the HSR Act, the Competition Act (Canada) or such other
antitrust, competition or other laws or regulations as promptly as practicable
after such request is made. Each of the Company and Purchaser shall, and shall
cause its Affiliates to, furnish to the other such information and assistance as
the other may reasonably request in connection with its preparation of any
filing or submission which is necessary under the HSR Act, the Competition Act
(Canada) or such other Applicable Law or which is otherwise requested by the FTC
or DOJ or other Governmental Entity in the course of any review of the
transactions contemplated hereby and shall keep each other apprised of the
status of any communications with, and inquiries or requests for additional
information from, the FTC and DOJ or other Governmental Entity.

7.6 Acquisition of Additional Securities.

(a) Prior to the Closing, Purchaser agrees that neither Purchaser nor any of its
Subsidiaries shall acquire or otherwise become the direct or indirect ultimate
“beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange
Act, “Beneficial Owner”) of any shares of Common Stock.

(b) Except as provided in Section 7.11 hereof, from and after the Closing,
during the period beginning on the Closing Date and ending on the date that is
three (3) years from the Closing Date (unless earlier terminated in accordance
with Section 7.6(c)), Purchaser agrees that neither Purchaser nor any of its
Subsidiaries shall, unless specifically invited in writing by the Company or
consented to by the Company, (i) become the direct or indirect ultimate
Beneficial Owner of any equity securities of, or debt securities convertible
into equity securities of, the Company, other than the Conversion Shares;
(ii) effect or seek, offer or propose (whether publicly or otherwise) to effect,
or announce any intention to effect or cause or participate in or in any way
assist, facilitate or encourage any other Person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in, (A) any
acquisition of any equity securities (or Beneficial Ownership thereof), or
rights or options to acquire any equity securities (or Beneficial Ownership
thereof), or any assets, or businesses of the Company or any of its Subsidiaries
(other than the Securities to be issued to Purchaser hereunder or any other
securities acquired from the Company in exchange for or in connection with such
Securities), (B) any tender or exchange offer, consolidation, business
combination, acquisition, merger, joint venture or other business combination
involving the Company or any of its Subsidiaries or any of the assets of the
Company or any of its Subsidiaries, (C) any recapitalization, stock dividend,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the Company or any of its Subsidiaries, or (D) any “solicitation” of
“proxies” (as such terms are

 

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used in the proxy rules of the SEC) to vote any voting securities of the Company
or any of its Subsidiaries or consents to any action from any holder of any
voting securities of the Company or any of its Subsidiaries or seek to advise or
influence any Person with respect to the voting of or the granting of any
consent with respect to any voting securities of the Company or any of its
Subsidiaries (excluding any Board Designee and other than with respect to the
Securities to be issued to Purchaser hereunder or any other securities acquired
from the Company in exchange for or in connection with such Securities);
(iii) form, join or in any way participate in a “group” (as defined under the
Exchange Act) in connection with the voting securities of the Company or any of
its Subsidiaries or otherwise act in concert with any person in respect of any
such securities (other than with respect to any of Purchaser’s Subsidiaries or
any of the investors in the Notes on the Closing); (iv) except with respect to
any Board Designees, otherwise act, alone or in concert with others, to seek
representation on or to control or influence the management, the Board or
policies of the Company or any of its Subsidiaries or to obtain representation
on the Board or any committee thereof; (v) enter into any discussions or
arrangements with any third party with respect to any of the foregoing;
(vi) request that the Company or any of its representatives amend or waive any
provision of this Section 7.6 (provided, however, that if any Person, other than
Purchaser or any of its Affiliates, acquires Beneficial Ownership of outstanding
Common Stock or other securities entitled to vote for the election of directors
of the Company (assuming full conversion and exercise of all outstanding
convertible or exercisable securities) in an aggregate amount that is greater
than the amount of such securities owned by the Purchaser, then the Purchaser
may request that the Company waive the restrictions set forth in Section 7.6(b)
and, in such case the Board will respond to such request within seventy-two (72)
hours of such request), or make any public announcement with respect to the
restrictions of this Section 7.6, or take any action which would reasonably be
expected to require the Company or any of its Subsidiaries to make a public
announcement regarding any potential transaction; or (vii) knowingly advise,
assist or encourage, or direct any Person to advise, assist or encourage any
other Person or Persons, in connection with any of the foregoing.

(c) Notwithstanding any other provision hereof, the restrictions set forth in
Section 7.6(b) above shall terminate if any of the following occurs not in
violation of Section 7.6(b): (i) any Person, other than Purchaser or any of its
Affiliates, acquires Beneficial Ownership of more than 50% of the outstanding
Common Stock or other securities entitled to vote for the election of directors
of the Company (assuming full conversion and exercise of all outstanding
convertible or exercisable securities); or (ii) the Company enters into an
agreement pursuant to which a Person would acquire all or substantially all of
the stock or assets of the Company or the Company would be merged or
consolidated with another Person, unless immediately following the consummation
of such transaction the stockholders of the Company immediately prior to the
consummation of such transaction would continue to hold more than 50% of all of
the outstanding common stock or other securities entitled to vote for the
election of directors of the surviving or resulting entity in such transaction
or any direct or indirect parent thereof. Nothing in Section 7.6(b) shall be
construed to prohibit any Board Designee from confidentially, in good faith and
in the performance of his or her duties as a member of the Board, discussing a
proposal made by the Company or another Person concerning any extraordinary
transaction involving the Company or its Subsidiaries or any of their securities
or assets with the Board and representatives of the Company who are involved in
the evaluation or execution of any such proposal on behalf of the Company.

 

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(d) Purchaser acknowledges that the Company would be irreparably injured by a
breach of this Section 7.6, that monetary remedies would be inadequate to
protect the Company against any actual or threatened breach or continuation of
any breach of this Section 7.6, and, without prejudice to any other rights and
remedies otherwise available to the Company, Purchaser agrees to the granting of
equitable relief, including injunctive relief and specific performance, in the
Company’s favor without proof of actual damages in the event of such Purchaser’s
actual or threatened breach of this Section 7.6.

7.7 Restrictions on Transfer.

(a) Purchaser understands and agrees that the Securities have not been
registered under the Securities Act and are “restricted securities” thereunder.
Purchaser further understands and agrees that the Securities have been offered
on a “private placement” basis under applicable Canadian Securities Laws, the
Notes are not and will not be listed on any stock exchange, the Conversion
Shares are listed and quoted for trading on the facilities of the TSX and will
be subject to resale restrictions under Applicable Canadian Securities Laws and
the rules of the TSX, and the Company may make a notation on its records or give
instructions to any transfer agent of the Securities in order to implement such
resale restrictions. Purchaser agrees that it will not Transfer any of the
Securities (or solicit any offers in respect of any Transfer of any of the
Securities), except in compliance with, or pursuant to an applicable exemption
from, the Securities Act, any applicable foreign or state securities or “blue
sky” laws, and the terms and conditions of this Agreement.

(b) Any attempt to Transfer any securities of the Company, including, without
limitation, the Securities issued hereunder, not in compliance with this
Agreement shall be null and void and the Company shall not, and shall cause any
transfer agent not to, give any effect in the Company’s stock records to such
attempted Transfer.

(c) In addition to any other legend that may be required, each certificate for
Securities that is issued to Purchaser shall bear a legend in substantially the
following form:

“THE SECURITIES REPRESENTED HEREBY (THE “SECURITIES”) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR
QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE
“RESTRICTED” AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT OR SUCH STATE SECURITIES LAWS, AND THE COMPANY SHALL
HAVE RECEIVED AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT REGISTRATION OF THE SECURITIES UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

 

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UNLESS PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS 4 MONTHS
AND A DAY AFTER THE DISTRIBUTION DATE].

(d) If any of the Securities shall be either (i) disposed of pursuant to a
registration statement that has been declared effective by the SEC or (ii) sold
under circumstances in which all of the applicable conditions of Rule 144 are
met or pursuant to any prospectus and registration exemptions under the Canadian
Securities Laws, the Company, upon the written request of the holder thereof,
shall issue to such holder a new certificate evidencing such Securities without
the legend required by Section 7.7(c) endorsed thereon.

(e) Notwithstanding anything in this Agreement to the contrary, Purchaser shall
not at any time Transfer, in one transaction or a series of transactions (other
than in a “broker’s transaction,” as defined in Section 4(4) of the Securities
Act; in a transaction directly with a “market maker,” as defined in
Section 3(a)(38) of the Exchange Act; or in an underwritten, agency, public or
144A offering) (i) more than five percent (5%) of the then outstanding Common
Stock (including Conversion Shares on an as-converted basis) to any one Person,
including any Subsidiaries and Affiliates of such Person, or (ii) any Securities
to a Competitor of the Company without the prior written consent of the Board
(excluding any Board Designees), which consent shall be granted or withheld
within twenty-four (24) hours and shall not be unreasonably withheld.

7.8 Confidential Information. Purchaser acknowledges that it has been, and from
time to time hereafter, may be given, access to non-public, proprietary
information with respect to the Company or its Subsidiaries (“Confidential
Information”) for the purpose of Purchaser evaluating and monitoring an
investment in the Securities. For purposes hereof for any Person, Confidential
Information does not include, however, information which (a) is or becomes
generally available to the public in accordance with Applicable Law other than
as a result of a disclosure by the Person or its representatives or any
Affiliate of such Person or its respective representatives in violation of this
Section 7.8 or any other confidentiality agreement to which the Company is a
party or beneficiary; (b) is, or becomes, available to the Person from a source
other than the Company or any of its Affiliates or any of its representatives;
provided, that such source was not known to Purchaser (after reasonable
investigation) to be bound by a confidentiality agreement with, or any other
contractual, fiduciary or other legal obligation of confidentiality to, the
Company or any of its Subsidiaries or any of its representatives; (c) is already
in the possession of the Person on the date hereof (other than information
furnished by or on behalf of the Company or its representatives); or (d) is
independently developed by the Person without violating any of the
confidentiality terms herein. Purchaser agrees (i) except as required by
Applicable Law, to keep all Confidential Information confidential and not to
disclose or reveal any such Confidential Information to any Person other than
those of its representatives who need to know the Confidential Information for
the purpose of evaluating, monitoring or taking any other action with respect to
the investment by Purchaser in the Securities and to cause those representatives
to observe the terms of this Section 7.8; and (ii) not to use Confidential
Information for any purpose other than in connection with evaluating, monitoring
or taking any other action with respect to the investment in the Securities.

 

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7.9 Adjustments to the Board of the Company.

(a) Promptly, but in no event later than seven (7) days, following the Closing,
the Company shall cause two of the members of its Board to resign, and Purchaser
shall have the right to nominate, pursuant to the terms and subject to the
conditions of this Section 7.9, two (2) nominees to the Board to fill the
resulting vacancies (each, a “Board Designee”). The Company shall take all
necessary action to appoint the Board Designees to the Board (as members of a
class or classes to be determined in accordance with the Company’s by-laws)
immediately upon the resignation of the current members of the Board referenced
above. The initial Board Designees shall be Anthony F. Griffiths and Paul
Rivett. Provided that Purchaser’s right to appoint such Board Designee has not
terminated in accordance with Section 7.9(c), the Company shall nominate such
initial Board Designee for re-election as a director at the end of each term of
such Board Designee as part of the slate proposed by the Company that is
included in the proxy statement (or consent solicitation or similar document) of
the Company relating to the election of the Board. In the event that an initial
Board Designee ceases to be a member of the Board, other than by reason of
removal by the stockholders for cause, provided that Purchaser’s right to
appoint such Board Designee has not terminated in accordance with
Section 7.9(c), Purchaser may select another person as a nominee for Board
Designee to fill the vacancy created thereby and such nominee shall become such
Board Designee and shall be appointed to fill such vacancy provided, that no
such appointment of a Board Designee (other than one of the initial Board
Designees) shall be made unless such nominee shall be qualified and suitable to
serve as a member of the Board under all reasonable corporate governance
policies or guidelines of the Company and the Board and applicable legal,
regulatory and stock market requirements, in each case as then in effect.
Purchaser will take all necessary action to cause any nominee for Board Designee
to make himself or herself reasonably available for interviews, to consent to
such reference and background checks or other reasonable investigations and to
provide such information (including information necessary to determine the
nominee’s independence status under various requirements and institutional
investor guidelines as well as information necessary to determine any disclosure
obligations of the Company) as the Board or its Nominating and Governance
Committee may reasonably request as part of the Board of such Committee’s
established policies and consistent with past practice; provided that with
respect to the initial Board Designees, any such activities shall be concluded
prior to Closing. It shall be a condition to the appointment or nomination for
election or re-election of any Board Designee that such Board Designee tender a
conditional resignation letter prior to his or her appointment or nomination for
election or re-election to the Board providing such Board Designee’s irrevocable
offer of resignation from the Board effective upon the Designee Termination
Date.

(b) Each Board Designee shall be subject to the policies and requirements of the
Company and the Board, including any applicable corporate governance policies or
guidelines or standards of business conduct of the Company or the Board, in a
manner consistent with the application of such policies and requirements to
other members of the Board.

(c) The rights of Purchaser and obligations of the Company pursuant to this
Section 7.9 with respect to one of the Board Designees shall terminate, and one
of Purchaser’s Board Designees shall immediately resign, at such time as
Purchaser does not Beneficially Own more than twenty percent (20%) of the
Company’s outstanding Common Stock or securities convertible into at least
twenty percent (20%) of the Company’s outstanding Common Stock, in

 

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each case assuming full conversion and exercise of all outstanding securities of
the Company convertible or exercisable for Common Stock (other than options or
warrants, as applicable) as of the date of such determination. All rights of
Purchaser and obligations of the Company pursuant to this Section 7.9 shall
terminate, and each of Purchaser’s Board Designees shall immediately resign,
upon the first to occur of: (i) the conversion of ninety percent (90%) of the
Notes into the Conversion Shares; (ii) such time as Purchaser does not
Beneficially Own more than fifteen percent (15%) of the Company’s outstanding
Common Stock, or securities convertible into at least fifteen percent (15%) of
the Company’s outstanding Common Stock, in each case assuming full conversion
and exercise of all outstanding securities of the Company convertible or
exercisable for Common Stock (other than options or warrants, as applicable) as
of the date of such determination; (iii) the Company sells all or substantially
all of its assets; (iv) any Person or “group” (as such term is used in
Section 13 of the Exchange Act), directly or indirectly, obtains Beneficial
Ownership of more than 50% of the outstanding Common Stock; (v) the Company
participates in any merger, consolidation or similar transaction unless
immediately following the consummation of such transaction the stockholders of
the Company immediately prior to the consummation of such transaction continue
to hold 50% or more of all of the outstanding common stock or other securities
entitled to vote for the election of directors of the surviving or resulting
entity in such transaction; or (vi) Purchaser irrevocably waives and terminates
all of its rights under this Section 7.9. The date of termination pursuant to
this clause (c) of the obligations of the Company pursuant to this Section 7.9
is sometimes referred to herein as the “Designee Termination Date”.

7.10 No Solicitation of Transactions. From the date of this Agreement and until
the Closing or until the earlier termination of this Agreement:

(a) The Company agrees that neither it nor any Subsidiary nor any of the
directors, officers or employees of it or any Subsidiary will, and that it will
cause its and its Subsidiaries’ agents, advisors and other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any Subsidiary), not to, directly or indirectly, (i) solicit,
initiate or knowingly encourage (including by way of furnishing nonpublic
information), or take any other action to knowingly facilitate, any inquiries or
the making of any proposal or offer (including, without limitation, any proposal
or offer to its stockholders) that constitutes, or may reasonably be expected to
lead to, any Competing Transaction (as defined below), or (ii) enter into or
maintain or continue discussions or negotiations with any person or entity in
furtherance of such inquiries or to obtain a proposal or offer for a Competing
Transaction, or (iii) agree to, approve, endorse or recommend any Competing
Transaction or enter into any letter of intent or other contract, agreement or
commitment contemplating or otherwise relating to any Competing Transaction, or
(iv) authorize or permit any of the officers, directors or employees of the
Company or any of its Subsidiaries, or any investment banker, financial advisor,
attorney, accountant or other representative retained by the Company or any of
its Subsidiaries, to take any such action. The Company shall notify Purchaser as
promptly as practicable (and in any event within one (1) day after the Company
attains knowledge thereof), orally and in writing, if any proposal or offer, or
any inquiry or contact with any person with respect thereto, regarding a
Competing Transaction is made, specifying the material terms and conditions
thereof and the identity of the party making such proposal or offer, or inquiry
or contact, and shall provide a copy of all written materials provided in
connection therewith. After

 

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receipt by the Company of any such proposal or offer or inquiry or contact, the
Company shall promptly keep Purchaser informed of the status and details
(including material amendments or proposed material amendments) of any such
proposal or offer, or inquiry or contact and shall promptly provide Purchaser a
copy of all written materials subsequently provided in connection therewith. The
Company shall provide Purchaser with forty-eight (48) hours prior notice (or
such lesser prior notice as is provided to the members of the Board) of any
meeting of the Board at which the Board is reasonably expected to consider any
Competing Transaction. The Company immediately shall cease and cause to be
terminated all existing discussions or negotiations with any parties conducted
heretofore with respect to a Competing Transaction. The Company shall not
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which it is a party.

(b) Notwithstanding anything to the contrary in this Section 7.10, the Board may
furnish information to, and enter into discussions with, a person who has made
an unsolicited, written, bona fide proposal or offer regarding a Competing
Transaction, provided the Board has (i) determined, in its good faith judgment
(after having received the advice of a financial advisor of internationally
recognized reputation), that such proposal or offer constitutes a Superior
Proposal (as defined below), (ii) determined, in its good faith judgment upon
the receipt of advice of independent legal counsel (who may be the Company’s
regularly engaged independent legal counsel), that, in light of such Superior
Proposal, furnishing such information or entering into discussions is required
to comply with its fiduciary obligations to the Company and its stockholders
under applicable law, (iii) provided written notice to Purchaser of its intent
to furnish information or enter into discussions with such person at least 24
hours prior to taking any such action, and (iv) obtained from such person an
executed confidentiality agreement on terms that are customary for such a
transaction (it being understood that such confidentiality agreement and any
related agreements shall not include any provision calling for any exclusive
right to negotiate with such party or having the effect of prohibiting the
Company from satisfying its obligations under this Agreement.

(c) Except as set forth in this Section 7.10(c), neither the Board nor any
committee thereof shall approve or recommend, or cause or permit the Company to
enter into any letter of intent, agreement or obligation with respect to, any
Competing Transaction. Notwithstanding the foregoing, if the Board determines,
in its good faith judgment prior to the time of Closing and upon receipt of
advice of independent legal counsel (who may be the Company’s regularly engaged
independent legal counsel), that it is required to do so to comply with its
fiduciary obligations to the Company and its stockholders under applicable law,
the Board may recommend a Superior Proposal, but only (i) after providing
written notice to Purchaser (a “Notice of Superior Proposal”) advising Purchaser
that the Board has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the person making such
Superior Proposal and indicating that the Board intends to approve or recommend,
or cause or permit the Company to enter into any letter of intent, agreement or
obligation with respect to, such Competing Transaction and the manner in which
it intends (or may intend) to do so, and (ii) if Purchaser does not, within
forty-eight (48) hours of Purchaser’s receipt of the Notice of Superior
Proposal, make an offer that the Board determines, in its good faith judgment
(after having received the advice of a financial advisor of internationally
recognized reputation) to be at least as favorable to the Company’s stockholders
as such Superior Proposal. From the time of Purchaser’s receipt of the Notice of
Superior

 

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Proposal until the end of such 48-hour period, the Company shall, if requested
by Purchaser, negotiate in good faith with Purchaser to revise this Agreement so
that the Competing Transaction that constituted a Superior Proposal no longer
constitutes a Superior Proposal. Any disclosure that the Board may be compelled
to make with respect to the receipt of a proposal or offer for a Competing
Transaction or otherwise in order to comply with its fiduciary obligations to
the Company and its stockholders under applicable Law or Rule 14d-9 or 14e-2
will not constitute a violation of this Agreement, provided that such disclosure
states that no action will be taken by the Board in violation of this
Section 7.10(c).

7.11 Participation Rights. For so long as the Purchaser owns Notes, each time
the Company proposes to offer any shares of its Common Stock (or any securities
convertible into, exchangeable for or linked to its Common Stock), the Company
shall first offer an amount of Common Stock (or such other securities) to
Purchaser in accordance with the following provisions:

(a) The Company shall deliver a notice by certified mail (“Issuance Notice”) to
Purchaser stating (i) its bona fide intention to offer Common Stock (or other
securities), (ii) the number of shares of Common Stock (or other securities) to
be offered, and (iii) the price and terms, if any, upon which it proposes to
offer Common Stock (or other securities).

(b) By written notification (“Purchase Notice”) received by the Company within
ten Business Days after receipt of the Issuance Notice, Purchaser may elect to
purchase or obtain, at the price and on the terms specified in the Issuance
Notice, up to that portion of Common Stock (or other securities) being offered
which equals the proportion that the number of shares of Common Stock then held
by Purchaser (either directly or indirectly by Purchaser’s right to convert
Company securities into Common Stock) bears to the total number of shares of
Common Stock of the Company then outstanding (assuming full conversion and
exercise of all outstanding convertible or exercisable securities as of the date
of the Issuance Notice). Such Purchase Notice shall set forth the exact amount
of Common Stock (or other securities) that Purchaser wishes to purchase and
shall constitute Purchaser’s binding offer to purchase such Common Stock (or
other securities). The failure of Purchaser to deliver a Purchase Notice within
the foregoing ten day period shall be deemed to be a waiver of its right to
participate in the offering of Common Stock (or other securities) described by
such Issuance Notice.

(c) The closing of the sale of such Common Stock shall be held at the time and
place as the parties shall agree.

(d) The right of first offer in this Section 7.11 shall not be applicable to the
issuance or sale of (i) any shares of Common Stock issued or issuable to
officers, directors, employees or consultants to or of the Company pursuant to
stock option agreements, restricted stock awards, warrants or similar
arrangements; (ii) any shares of Common Stock issued or issuable pursuant to a
strategic partnership relationship or the acquisition of all or part of another
corporation or other entity by merger, reorganization or otherwise; (iii) any
shares of Common Stock issued or issuable pursuant to a joint venture or
research, development or product distribution agreement with another
corporation; (iv) any shares of Common Stock issued or issuable in connection
with any equipment leasing, bank financing transactions or to vendors of the
Company; and (v) any shares of Common Stock issued pursuant to the exchange of
any Exchangeable Shares.

 

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7.12 Further Assurances. Each party agrees to cooperate with each other and
their respective officers, employees, attorneys, accountants and other agents,
and, generally, do such other reasonable acts and things in good faith as may be
necessary to effectuate the intents and purposes of this Agreement, subject to
the terms and conditions hereof and compliance with applicable Law, including
taking reasonable action to facilitate the filing of any document or the taking
of reasonable action to assist the other parties hereto in complying with the
terms hereof.

8. SURVIVAL. The representations and warranties contained in this Agreement
shall survive for a period of six (6) months after the Closing and shall
terminate upon the expiration of such period.

9. DEFINITIONS.

9.1 Definitions. The following terms shall have the following meanings:

“Affiliate” means with respect to any specified Person any other Person that
controls, is controlled by or is under common control with such specified
Person. For the purposes of this definition, “control”, when used with respect
to any specified Person, means the actual power, either directly or indirectly
through one or more intermediaries, to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise, and the terms “controlled by” and “under
common control with” have meanings correlative to the foregoing.

“Agreement” has the meaning assigned to it in the preamble hereto.

“Applicable Law” means all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Entity, (ii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Entity.

“Beneficial Ownership” (and derivatives thereof) has the meaning assigned to it
in Section 7.6(a).

“Board” means the Board of Directors of the Company.

“Board Designee” has the meaning assigned to it in Section 7.9.

 

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“Business Day” means each day that is not a Saturday, Sunday or a day on which
state or federally chartered banking institutions in New York, New York are not
required to be open.

“Canadian Securities Filings” means the forms, documents, statements and reports
(including any amendments thereto) filed by the Company, Abitibi-Consolidated
Inc. or Bowater Incorporated pursuant to the Canadian Securities Laws and
applicable discretionary rulings or orders issued by the Canadian Securities
Regulators.

“Canadian Securities Laws” means the applicable securities laws, regulations and
rules of each of the provinces and territories of Canada, the policy statements,
rules, orders and companion policies of or administered by the Canadian
Securities Regulators, and applicable discretionary rulings or orders issued by
the Canadian Securities Regulators pursuant to such laws, regulations, rules and
policy statements (to the extent that such order has been issued to the Company,
Abitibi-Consolidated Inc. or Bowater Incorporated), all as amended and in effect
from time to time.

“Canadian Securities Regulators” means the British Columbia Securities
Commission; the Alberta Securities Commission; the Saskatchewan Financial
Services Commission; The Manitoba Securities Commission; the Ontario Securities
Commission; L’Autorité des marchés financiers du Québec; the Nova Scotia
Securities Commission; the Securities Commission of Newfoundland and Labrador;
the New Brunswick Securities Commission; the Registrar of Securities; Prince
Edward Island; the Registrar of Securities, Yukon, the Registrar of Securities,
Northwest Territories; the Registrar of Securities, Nunavut; any successor
entity to such a securities regulatory authority; and any other person
performing similar functions under the Canadian Securities Laws.

“Closing” has the meaning assigned to it in Section 2.1.

“Closing Date” has the meaning assigned to it in Section 2.1.

“Company” has the meaning assigned to it in the preamble hereto.

“Competing Transaction” shall mean any of the following (other than the
transactions contemplated by this Agreement or the Financings): (i) any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or other similar transaction involving the Company or
any Subsidiary; (ii) any sale, lease, exchange, transfer or other disposition of
all or a substantial part of the assets of the Company or of any Subsidiary;
(iii) any sale, exchange, transfer or other disposition of any class of equity
securities, or of any securities convertible or exchangeable into any class of
equity securities, of the Company or of any Subsidiary; (iv) any tender offer or
exchange offer that, if consummated, would result in any person beneficially
owning 15% or more of any class of equity securities, or of any securities
convertible or exchangeable into 15% or more of any class of equity securities,
of the Company or of any Subsidiary; or (v) any other transaction the
consummation of which would reasonably be expected to impede, interfere with,
prevent or materially delay the transactions contemplated by this Agreement.

 

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“Competitor” shall mean any business, foreign or domestic, which is primarily
engaged, at any time during which the Securities are outstanding, in the
manufacture, sale, or distribution of forest products, or in the providing of
related services.

“Confidential Information” has the meaning assigned to it in Section 7.8.

“Conversion” means the conversion of the Notes into the Conversion Shares.

“Conversion Shares” has the meaning assigned to it in the recitals hereto.

“Deposit Escrow Agent” means Computershare Trust Company of Canada, or such
other banking institution mutually agreed upon by the parties.

“Deposit Escrow Fund” means the Purchase Price, plus any interest and earnings
thereon, held by the Deposit Escrow Agent pursuant to the Deposit Escrow
Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Expenses” means, with respect to the Company or Purchaser, all reasonable out
of pocket expenses (including, without limitation, all reasonable fees and
expenses of counsel, accountants, auditors, investment bankers, lenders, experts
and consultants) incurred by such party or on its behalf in connection with or
related to the investigation, authorization, preparation, negotiation, execution
and performance of the Transaction Agreements and the transactions contemplated
thereby.

“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time (for all other purposes of this
Agreement), including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession.

“Governmental Entity” means any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign.

“Guarantor” means Bowater Incorporated.

“HSR Act” has the meaning assigned to it in Section 3.6.

“Lender Consents” has the meaning assigned to it in Section 6.4.

“Lien” means any security interest, pledge, mortgage, lien (statutory or other),
charge, option to purchase, lease or otherwise acquire any interest or any
claim, restriction, covenant, title defect, hypothecation, assignment, deposit
arrangement or any preference, priority or other security agreement.

“Material Adverse Effect” means any change, effect, event, occurrence or
development which, individually or in the aggregate, (a) is or would reasonably
be expected to be materially

 

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adverse to the business, assets, financial condition, liabilities or results of
operations of the Company and its Subsidiaries, taken as a whole; provided, that
none of the following shall be deemed, either alone or in combination, to
constitute, and none of the following shall be taken into account in determining
whether something has had or would reasonably be expected to have a Material
Adverse Effect: (i) any change, effect, event, occurrence or development in the
financial, securities or capital markets or the economy in general; (ii) any
change, effect, event, occurrence or development in the industries in which the
Company or any of its Subsidiaries operates in general; (iii) the performance of
obligations under this Agreement; (iv) the insolvency of Abitibi-Consolidated,
Inc.; (v) any change in the demand or pricing for paper or wood products;
(vi) any change, effect, event, occurrence or development in the currency
markets or currency fluctuations generally, including any change in the exchange
rate between the Canadian and U.S. dollars; (vii) any change, effect, event,
occurrence or development resulting from or relating to any change in the market
price of crude oil, natural gas or related hydrocarbons or other sources of
energy or the market prices of other raw materials used by the Company or any of
its Subsidiaries; (viii) any change, effect, occurrence or development resulting
from or relating to the announcement of the execution of this Agreement or the
transactions contemplated by this Agreement, or (ix) any change in the trading
prices of the Common Stock, by itself, (it being understood that the foregoing
shall not prevent a party from asserting that any change, event, occurrence,
effect or development that may have contributed to or caused such change in
trading prices independently constitutes a Material Adverse Effect); provided
further, that, with respect to clauses (i), (ii), (v), (vi) and (vii) such
change, effect, event, occurrence or development does not disproportionately
impact the Company and its Subsidiaries compared to other companies operating in
the principal industries and geographic areas in which the Company and its
Subsidiaries operate; or (b) is or would reasonably be expected to impair in any
material respect the ability of the Company to consummate the transactions
contemplated by the Transaction Agreements or to perform its obligations under
the Transaction Agreements.

“NYSE” means the New York Stock Exchange.

“Person” means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof, or
any national securities exchange.

“Purchase Price” has the meaning assigned to it in Section 1.1.

“Purchaser” has the meaning assigned to it in the preamble hereto.

“Registration Rights Agreement” has the meaning assigned to it in Section 5.4.

“SEC” means the United States Securities and Exchange Commission.

“SEC Reports” means the forms, documents, statements and reports (including any
amendments thereto) filed by the Company, Abitibi-Consolidated Inc. or Bowater
Incorporated with the SEC since December 31, 2005.

 

Execution Version   22  

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“Securities” has the meaning assigned to it in the recitals hereto.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities Filings” means the SEC Reports and the Canadian Securities Filings.

“Subsidiary” means as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person.

“Superior Proposal” shall mean an unsolicited written bona fide offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, share exchange, business combination or other similar transaction
involving the Company pursuant to which the stockholders of the Company
immediately preceding such transaction would hold less than 50% of the equity
interest in the surviving or resulting entity of such transaction; or (ii) the
acquisition by any person or group (including by means of a tender offer or an
exchange offer or a two-step transaction involving a tender offer followed with
reasonable promptness by a cash-out merger involving the Company), directly or
indirectly, of ownership of 100% of the then outstanding shares of stock of the
Company, in each case on terms (including conditions to consummation of the
contemplated transaction) that (i) the Board determines, in its good faith
judgment (after having received the advice of independent legal counsel (who may
be the Company’s regularly engaged independent legal counsel) and a financial
advisor of internationally recognized reputation), to be (A) more favorable to
the Company stockholders than the transactions contemplated by this Agreement
(taking into account probability of closing and all other terms and conditions
of such proposal and this Agreement and any changes to the financial terms of
this Agreement proposed by Purchaser in response to such offer or otherwise),
and (B) reasonably capable of being completed taking into account all legal,
regulatory and other aspects of such proposal and the Financings and (ii) for
which financing, to the extent required, is then committed.

“Termination Fee” has the meaning assigned to it in Section 10.1(b).

“Transaction Agreements” has the meaning assigned to it in Section 3.3.

“Transfer” means, with respect to any securities of the Company, (i) when used
as a verb, to sell, assign, dispose of, exchange, pledge, encumber, hypothecate
or otherwise transfer such security or any participation or interest therein,
whether directly or indirectly, or agree or commit to do any of the foregoing
and (ii) when used as a noun, a direct or indirect sale, assignment,
disposition, exchange, pledge, encumbrance, hypothecation or other transfer of
such security or any participation or interest therein or any agreement or
commitment to do any of the foregoing.

“TSX” means the Toronto Stock Exchange.

 

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9.2 Other Definitional Provisions.

(a) All capitalized terms defined in this Agreement and not specifically
referenced in Section 9.1 shall have the definition so prescribed to them
herein.

(b) As used herein and in any other Transaction Agreement, and any certificate
or other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Company and its Subsidiaries not defined in Section 9.1 and
accounting terms partly defined in Section 9.1, to the extent not defined, shall
have the respective meanings given to them under GAAP.

(c) The words “hereof,” “herein” and “hereunder” and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and Section, subsection, Schedule
and Exhibit references are to this Agreement unless otherwise specified. The
words “include,” “includes” and “including” shall be deemed to be followed by
the phrase “without limitation,” if not expressly followed by such phrase or the
phrase “but not limited to.”

(d) All references in this Agreement to “dollars” or “$” are to United States
dollars, unless expressly set forth otherwise.

10. MISCELLANEOUS.

10.1 Termination.

(a) Notwithstanding anything to the contrary contained herein, this Agreement
may be terminated at any time before the Closing (i) by mutual written consent
of the Company, duly authorized by the Board, and Purchaser, (ii) if the Board
determines, in its good faith judgment, following the receipt of advice of its
independent legal counsel (who may be the Company’s regularly engaged
independent legal counsel) and financial advisor, that, in light of such
Superior Proposal, terminating this Agreement to accept such Superior Proposal
and/or recommending such Superior Proposal to its stockholders is necessary in
order for the Board to comply with its fiduciary obligations, the Company may
terminate this Agreement and the Board may recommend such Superior Proposal to
its stockholders after such termination, and concurrently with the termination
of this Agreement enter into any agreement, understanding, letter of intent or
arrangement with respect to such Superior Proposal, as applicable; provided,
however, the Company shall not terminate this Agreement pursuant to this
Section 10.1(a)(ii), and any purported termination pursuant to this clause shall
be void and of no force or effect, unless concurrently with such termination
pursuant to this Section 10.1(a)(ii) the Company pays to Purchaser the
Termination Fee payable pursuant to Section 10.1(b); provided, further, the
Company shall not exercise its right to terminate this Agreement pursuant to
this Section 10.1(a)(ii) and the Board shall not recommend a Superior Proposal
to its stockholders pursuant to Section 7.10 unless the Company shall be in
compliance with its obligations under Section 7.10; (iii) by action of the Board
or Purchaser if any order or injunction permanently restraining, enjoining or
otherwise prohibiting consummation of the transactions contemplated by this
Agreement shall become final and non-appealable; (iv) by action of the Board or
Purchaser if this Agreement shall not have been consummated by April 7, 2008;
provided, however, that the

 

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right to terminate this Agreement pursuant to this clause (iv) shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately contributed to
the failure of the Closing to have occurred; or (v) by Purchaser if (x) the
Board shall have recommended to the stockholders of the Company a Competing
Transaction or shall have resolved to do so or shall have entered into any
letter of intent or similar document or any agreement, contract or commitment
accepting any Competing Transaction, (y) the Company shall have intentionally
breached its obligations under Section 7.10, or (z) a tender offer or exchange
offer for 15% or more of the outstanding shares of capital stock of the Company
is commenced, and the Board fails to recommend against acceptance of such tender
offer or exchange offer by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders). In the event of any termination pursuant to this Section 10.1(a),
this Agreement shall become null and void and have no effect, with no liability
on the part of the Company or Purchaser, or any of the respective directors,
officers, agents or stockholders, with respect to this Agreement, except as
provided for in this Section 10.1 and Section 10.2, and except that (A) such
termination shall not relieve any party of any liability for any breach
occurring prior to such termination; and (B) this Section 10 shall survive the
termination of this Agreement.

(b) If this Agreement is terminated pursuant to Section 10.1(a)(ii) or
Section 10.1(a)(v), then the Company shall pay to Purchaser promptly (but in any
event no later than one business day after the first of such events shall have
occurred, except that in the case of a termination pursuant to
Section 10.1(a)(ii) the Company shall make such payment prior to or concurrently
with such termination) a fee of $20,000,000 (the “Termination Fee”), which
amount shall be payable in immediately available funds, plus an amount equal to
the amount of Purchaser’s reasonable and documented expenses (not to exceed
$1,000,000).

(c) If this Agreement is terminated then, as soon as practicable, the parties
shall instruct the Deposit Escrow Agent to pay, by wire transfer of immediately
available funds, the entire Deposit Escrow Fund to the Purchaser.

10.2 Specific Performance and Other Remedies. 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 its specific terms or were otherwise
breached. Each party agrees that, in the event of any breach or threatened
breach by the other party of any covenant or obligation contained in this
Agreement, the non-breaching party shall be entitled (in addition to any other
remedy that may be available to it whether in law or equity, including monetary
damages) to seek and obtain (a) a decree or order of specific performance to
enforce the observance and performance of such covenant or obligation, and
(b) an injunction restraining such breach or threatened breach. Each party
further agrees that no other party hereto or any other Person shall be required
to obtain, furnish or post any bond or similar instrument in connection with or
as a condition to obtaining any remedy referred to in this Section 10.2, and
each party hereto irrevocably waives any right it may have to require the
obtaining, furnishing or posting of any such bond or similar instrument.

10.3 Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be sent by confirmed facsimile or mailed by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, and shall be deemed given when so sent in the
case of facsimile transmission, or when so received in the case of mail or
courier, and addressed as follows:

 

Execution Version   25  

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  (a) If to the Company:

AbitibiBowater Inc.

1155 Metcalfe Street

Suite 800

Montreal, Quebec H3B 5H2

Attention: Jacques Vachon, Chief Legal Officer

with a copy to:

Troutman Sanders LLP

600 Peachtree Street, N.E.

Suite 5200

Atlanta, Georgia 30308

Attention: Cal Smith

or to such other person at such other place as the Company shall designate to
Purchaser in writing.

 

  (b) If to Purchaser:

Fairfax Financial Holdings Limited

85 Wellington Street West

Toronto, ON M

Attention: Paul Rivett, Chief Legal Officer and Vice President

with a copy to:

Shearman & Sterling LLP

Commerce Court West, Suite 4405

Toronto, ON M5L 1E8

Attention: Christopher J. Cummings

or to such other person at such other place as Purchaser shall designate to the
Company in writing.

10.4 Waivers and Amendments. Except as otherwise expressly provided herein,
neither this Agreement nor any provision hereof may be changed, waived,
discharged, terminated, modified or amended except upon the written consent of
the Company and Purchaser.

10.5 Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.

 

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10.6 Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.

10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to conflicts
of law principles.

10.8 Submission to Jurisdiction. All actions and proceedings arising out of or
relating to this Agreement or any of the other Transaction Agreements shall be
heard and determined exclusively in the Chancery Court of the State of Delaware
and the appellate courts thereof. The parties hereto hereby (a) submit to the
exclusive jurisdiction of such courts for the purpose of any action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Agreements brought by any party hereto, and (b) irrevocably waive,
and agree not to assert by way of motion, defense, or otherwise, in any such
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the action or proceeding is brought in an
inconvenient forum, that the venue of the action or proceeding is improper, or
that this Agreement, the other Transaction Agreements or the transactions
contemplated hereby and thereby may not be enforced in or by any of the
above-named courts. Each party further agrees that service of any process,
summons, notice or document by U.S. registered mail to such person’s respective
address set forth herein shall be effective service of process for any action,
suit or proceeding in Delaware with respect to any matters to which it has
submitted to jurisdiction as set forth in the immediately preceding sentence.

10.9 Waiver of Jury Trial. Each party hereby waives to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any litigation directly or indirectly arising out of, under or in connection
with this Agreement. Each party (a) certifies that no representative of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of litigation, seek to enforce the foregoing waiver and
(b) acknowledges that it and the other party hereto have been induced to enter
into this Agreement by, among other things, the mutual waivers and
certifications in this Section 10.9.

10.10 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other parties.

10.11 Successors and Assigns. This Agreement and all obligations hereunder shall
not be assignable or otherwise transferable by any party hereto without the
prior written consent of the other parties hereto, and any purported assignment
or other transfer without such consent shall be void and unenforceable.
Notwithstanding the previous sentence, prior to Closing, Purchaser may assign
rights to purchase a portion of the Notes to one or more of Purchaser’s
Subsidiaries; provided that no assignment pursuant to this Section 10.11 shall
in any manner limit or impair Purchaser’s obligations hereunder or release
Purchaser from its obligations hereunder. Except as otherwise expressly provided
herein, and subject to the previous sentence, the provisions hereof shall inure
to the benefit of, and be binding upon, the successors or assigns of the parties
hereto (and for the avoidance of doubt references herein to a party shall also
be deemed to also refer to successors and assigns).

 

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10.12 Payment of Fees and Expenses. Each of the Company and Purchaser shall bear
its own expenses and legal fees incurred on its behalf with respect to this
Agreement and the transactions contemplated hereby; provided, however, upon the
Closing, the Company shall reimburse Purchaser for up to $300,000 of such
documented out-of-pocket fees and expenses incurred by Purchaser in connection
with its legal representation in connection with this Agreement and the
transactions contemplated hereby. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney’s fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

10.13 Entire Agreement. This Agreement, including the schedules, exhibits and
attachments hereto, contain the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.

[SIGNATURE PAGE TO FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.

 

ABITIBIBOWATER INC. By:  

/s/ John W. Weaver

Name:   John W. Weaver Title:   Executive Chairman FAIRFAX FINANCIAL HOLDINGS
LIMITED By:  

/s/ Paul Rivett

Name:   Paul Rivett Title:   Vice President and CLO

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Exhibit A

DESCRIPTION OF THE NOTES

We will issue the notes under an indenture, to be dated as of the date of
initial issuance of the notes, between AbitibiBowater Inc., as issuer, Bowater
Incorporated, as guarantor, and [—], as trustee. As used in this description of
the notes, the words “our company,” “we,” “us,” “our” or “AbitibiBowater” refer
only to AbitibiBowater Inc. and do not include any of our current or future
subsidiaries. We have summarized the material provisions of the notes below.

General

The notes will be general unsecured senior obligations of AbitibiBowater. The
notes are limited to $350,000,000 aggregate principal amount plus any PIK Notes
issued as paid-in-kind interest thereon (as described below). The notes will
mature on April 15, 2013. The notes will be issued in denominations of $1,000 or
in integral multiples of $1,000 or if PIK Notes are issued or PIK Interest is
paid, in denominations of $1.00 and integral multiples of $1.00. The notes will
be payable at the principal corporate trust office of the paying agent, which
initially will be an office or agency of the trustee.

Subject to the next paragraph, the notes bear cash interest at the rate of
8% per year on the principal amount from the issue date, or from the most recent
date to which interest has been paid or provided for. Interest will be payable
semiannually in arrears on April 15 and October 15 of each year, beginning on
October 15, 2008, to holders of record at the close of business on the April 1
or the October 1 immediately preceding such interest payment date. Each payment
of cash interest on the notes will include interest accrued for the period
commencing on and including the immediately preceding interest payment date,
provided that the first interest payment on October 15, 2008, will include
interest from the date of initial issuance of the notes through the day before
the applicable interest payment date (or purchase date, as the case may be). Any
payment required to be made on any day that is not a business day will be made
on the next succeeding business day. Interest will be calculated using a 360-day
year composed of twelve 30-day months. A “business day” is any weekday that is
not a day on which banking institutions in New York, New York are authorized or
obligated to close.

We may, at our option, if our board of directors determines in good faith that
we will not have sufficient cash resources on hand to pay cash interest on the
notes at the time of the relevant interest payment date, pay interest on the
notes entirely by increasing the principal amount of the outstanding notes or by
issuing additional notes (“PIK Notes”) in an aggregate principal amount equal to
the amount of interest then due and payable in accordance with the following
sentence, rounded up to the nearest whole dollar (“PIK Interest”). PIK Interest
will accrue at the rate of 10% per annum. Interest shall accrue on PIK Notes
issued pursuant to the indenture from and including the date of issuance of such
PIK Notes. Any such PIK Notes shall be issued on the same terms as the notes and
shall constitute part of the same series of securities as the notes and will
vote together as one series on all matters with respect to the notes. All
references to notes herein shall include any PIK Notes.

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We must elect the form of interest payment with respect to each interest period
by delivering a notice to the trustee at least ten business days prior to the
applicable interest payment date; provided, however, that in respect of the
first full interest period during which the initial purchasers of the Notes own
less than 90% of the Notes, and in respect of all subsequent interest periods,
such notice must be delivered to the trustee at least ten business days prior to
the beginning of such interest period. The trustee shall promptly deliver a
corresponding notice to the holders. In the absence of such an election,
interest on the notes will be payable according to the election for the previous
interest period.

Interest will cease to accrue on a note upon its maturity, conversion or
purchase by us at the option of a holder. We may not reissue a note that has
matured or been converted, has been purchased by us at your option or otherwise
cancelled, except for registration of transfer, exchange or replacement of such
note.

Notes may be presented for conversion at the office of the conversion agent and
for exchange or registration of transfer at the office of the registrar. The
conversion agent and the registrar shall initially be the trustee. No service
charge will be made for any registration of transfer or exchange of notes.
However, we may require the holder to pay any tax, assessment or other
governmental charge payable as a result of such transfer or exchange.

Ranking

The notes will be unsecured senior obligations and will be:

Equal in right of payment with any of our senior indebtedness, and

Senior in right of payment to all of our existing and future subordinated
indebtedness.

Our subsidiaries are separate and distinct legal entities. Our existing
subsidiaries (other than Bowater Incorporated) and any future subsidiaries will
not guarantee the notes or have any obligation to pay any amounts due on the
notes or to provide us with funds for our payment obligations, whether by
dividends, distributions, loans or other payments. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries’ earnings and
business considerations.

Our right to receive any assets of our existing subsidiaries and any future
subsidiaries upon their liquidation or reorganization, and therefore, our right
to participate in those assets, will be structurally subordinated to the claims
of that subsidiary’s creditors, including trade creditors.

We are obligated to pay reasonable compensation to the trustee. We will
indemnify the trustee against any losses, liabilities or expenses incurred by it
in connection with its duties. The trustee’s claims for such payments will be
senior to the claims of the note holders.

 

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Guarantee

The notes will be guaranteed by Bowater Incorporated (the “Guarantor”). The
Guarantor will fully and unconditionally guarantee the payment of principal of
and interest, and premium, if any, on the notes. The obligations of the
Guarantor under its guarantee (the “Guarantee”) will be limited as necessary to
prevent the Guarantee from constituting a fraudulent conveyance under applicable
law.

The Guarantee will be a senior unsecured obligation of the Guarantor. The
Guarantee will rank equally in right of payment with all existing and future
senior indebtedness of the Guarantor.

Conversion Rights

Holders may convert their notes into shares of our common stock prior to the
close of business on the business day immediately preceding the stated maturity
date based on an initial conversion rate of 100 shares per $1,000 principal
amount of notes (equivalent to an initial conversion price of approximately
$10.00 per share). The conversion rate will be subject to adjustment as
described below. If a holder has already delivered a fundamental change purchase
notice as described under “—Fundamental Change Permits Holders to Require Us to
Purchase Notes” with respect to a note, however, the holder may not surrender
that note for conversion until the holder has withdrawn the purchase notice in
accordance with the indenture. A holder may convert fewer than all of such
holder’s notes so long as the notes converted are an integral multiple of $1,000
principal amount.

A holder of a note otherwise entitled to a fractional share will receive cash
equal to the applicable portion of the closing price of our common stock for the
trading day immediately preceding the conversion date. As used in this
Description of the Notes, all references to our common stock are to our common
stock, par value $1.00.

The ability to surrender notes for conversion will expire at the close of
business on the business day immediately preceding the stated maturity date.

To convert a note, a holder must:

complete and manually sign a conversion notice, a form of which is on the back
of the note, and deliver the conversion notice to the conversion agent;

surrender the note to the conversion agent;

if required by the conversion agent, furnish appropriate endorsements and
transfer documents; and

if required, pay all transfer or similar taxes.

On conversion of a note, a holder will not receive, except as described below,
any cash payment representing any accrued interest. Instead, accrued interest
will be deemed paid by the shares of common stock (or any cash in lieu thereof)
received by the holder on conversion. Delivery to the holder of the full number
of shares of common stock into which the note is convertible, together with any
cash payment of such holder’s fractional shares, will thus be deemed:

to satisfy our obligation to pay the principal amount of a note; and

 

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to satisfy our obligation to pay accrued and unpaid interest.

As a result, accrued interest is deemed paid in full rather than cancelled,
extinguished or forfeited. Holders of notes surrendered for conversion during
the period from the close of business on any regular record date next preceding
any interest payment date to the opening of business of such interest payment
date will receive the semiannual interest payable on such notes on the
corresponding interest payment date notwithstanding the conversion, and such
notes upon surrender must be accompanied by funds equal to the amount of such
payment, provided that no such payment need be made:

in connection with any conversion following the regular record date immediately
preceding the final interest payment date;

if we have specified a fundamental change purchase date that is after a record
date and on or prior to the business day following the corresponding interest
payment date; or

to the extent of any overdue interest, if any overdue interest exists at the
time of conversion with respect to such note.

The conversion rate will not be adjusted for accrued interest.

We will adjust the conversion rate for certain events, including:

 

  1. the issuance of our common stock as a dividend or distribution on our
common stock;

 

  2. certain subdivisions and combinations of our common stock;

 

  3. the issuance to all or substantially all holders of our common stock of
certain rights or warrants entitling them for a period expiring within 45 days
of such issuance to purchase our common stock, or securities convertible into
our common stock, at less than, or having a conversion price per share less
than, the then current market price of our common stock;

 

  4. the dividend or other distribution to all or substantially all holders of
our common stock of shares of our capital stock, other than common stock, or
evidences of our indebtedness or our assets, including securities, but excluding
those rights and warrants referred to above and dividends and distributions in
connection with a reclassification, consolidation, merger, combination, sale or
conveyance resulting in a change in the conversion consideration, or pursuant to
any stockholder rights plan or dividends or distributions paid exclusively in
cash;

 

  5. dividends or other distributions consisting exclusively of cash to all or
substantially all holders of our common stock; and

 

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  6. payments to holders in respect of a tender offer or exchange offer for our
common stock by us or any of our subsidiaries to the extent that the cash and
fair market value of any other consideration included in the payment per share
exceeds the closing price of our common stock on the trading day following the
last date on which tenders or exchanges may be made pursuant to such tender
offer or exchange offer.

In the event that we pay a dividend or make a distribution on our common stock
consisting of capital stock of, or similar equity interests in, a subsidiary or
other business unit of ours, the conversion rate will be adjusted, unless we
make an equivalent distribution to holders of notes, based on the market value
of the securities so distributed relative to the market value of our common
stock, in each case based on the average closing prices of those securities for
the 10 trading days commencing on and including the fifth trading day after the
date on which “ex-dividend trading” commences for such dividend or distribution
on the New York Stock Exchange or such other national or regional exchange or
market on which the securities are then listed or quoted.

In addition, the indenture will provide that upon conversion of the notes,
holders will receive the rights related to such common stock pursuant to any
stockholder rights plan that we may adopt whether or not such rights have
separated from the common stock at the time of such conversion to the extent
such rights remain in place at such time. However, in the case of any future
rights plan that so provides, there will not be any adjustment to the conversion
privilege or conversion rate as a result of:

the issuance of such rights;

the distribution of separate certificates representing such rights;

the exercise or redemption of such rights in accordance with any rights
agreement; or

the termination or invalidation of such rights.

Notwithstanding the foregoing, if a holder of notes exercising its right of
conversion after the distribution of rights pursuant to such rights plan in
effect at the time of such conversion is not entitled to receive the rights that
would otherwise be attributable (but for the date of conversion) to the shares
of common stock to be received upon such conversion, if any, the conversion rate
will be adjusted as though the rights were being distributed to holders of
common stock on the date the rights become separable from such stock. If such an
adjustment is made and such rights are later redeemed, repurchased, invalidated
or terminated, then a corresponding reversing adjustment will be made to the
conversion rate on an equitable basis.

In the case of the following events (each, a “business combination”):

any recapitalization, reclassification or change of our common stock, other than
changes resulting from a subdivision or combination;

a consolidation, merger or combination involving us;

 

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a sale, conveyance or lease to another corporation of all or substantially all
of our property and assets, other than to one or more of our subsidiaries; or

a statutory share exchange

in each case as a result of which holders of our common stock are entitled to
receive stock, other securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our common stock, the
holders of the notes then outstanding will be entitled thereafter to convert
those notes into the kind and amount of shares of stock, other securities or
other property or assets (including cash or any combination thereof) which they
would have owned or been entitled to receive upon such business combination had
such notes been converted into our common stock immediately prior to such
business combination. In the event holders of our common stock have the
opportunity to elect the form of consideration to be received in such business
combination, the notes will be convertible into the weighted average of the kind
and amount of consideration received by the holders of our common stock that
affirmatively make such an election. We may not become a party to any such
transaction unless its terms are consistent with the preceding. None of the
foregoing provisions shall affect the right of a holder of notes to convert its
notes into shares of our common stock prior to the effective date of any
fundamental change.

The indenture permits us to increase the conversion rate, to the extent
permitted by law, for any period of at least 20 days if our board of directors
has made a determination that this increase would be in our best interests. In
that case we will give at least 15 days’ notice of such increase. We may also
make such increase in the conversion rate, in addition to those set forth above,
as our Board of Directors deems advisable to avoid or diminish any income tax to
holders of our common stock resulting from any dividend or distribution of stock
(or rights to acquire stock) or from any event treated as such for income tax
purposes.

We will not be required to adjust the conversion rate unless the adjustment
would result in a change of at least 1% of the conversion rate. However, we will
carry forward any adjustments that are less than 1% of the conversion rate and
take them into account when determining subsequent adjustments. We will also
adjust for any carry forward amount upon conversion regardless of the 1%
threshold. We will not make any adjustments if holders of notes are permitted to
participate in the transactions described above in clauses (1) through (7) that
would otherwise require adjustment of the conversion rate. Except as stated
above, the conversion rate will not be adjusted for the issuance of our common
stock or any securities convertible into or exchangeable for our common stock or
carrying the right to purchase our common stock or any such security.

Fundamental Change Permits Holders to Require Us to Purchase Notes

If a fundamental change occurs, each holder of notes will have the right to
require us to repurchase all or any portion of that holder’s notes that is equal
to $1,000 or an integral multiple of $1,000, on the date fixed by us, which we
refer to as the fundamental change purchase date, that is not less than 30 nor
more than 45 days after the date we give notice of the fundamental change, at a
fundamental change purchase price equal to 110% of the principal amount of the
notes to be repurchased, together with interest accrued and unpaid to, but
excluding, the

 

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fundamental change purchase date. If such purchase date is after a record date
but on or prior to an interest payment date, however, then the interest payable
on such date will be paid to the holder of record of the notes on the relevant
record date.

As promptly as practicable following the date we publicly announce such
transaction, but in no event less than 20 days prior to the anticipated
effective date of a fundamental change, we are required to give notice to all
holders of notes, as provided in the indenture, of the occurrence of the
fundamental change and of their resulting repurchase right. We must also deliver
a copy of our notice to the trustee.

In order to exercise the repurchase right upon a fundamental change, a holder
must deliver prior to the purchase date a fundamental change purchase notice
stating among other things:

if certificated notes have been issued, the certificate numbers of the notes to
be delivered for purchase;

the portion of the principal amount of notes to be purchased, in integral
multiples of $1,000; and

that the notes are to be purchased by us pursuant to the applicable provisions
of the notes and the indenture.

If the notes are not in certificated form, a holder’s fundamental change
purchase notice must comply with appropriate DTC procedures.

A holder may withdraw any fundamental change purchase notice by a written notice
of withdrawal delivered to the paying agent prior to the close of business on
the business day prior to the fundamental change purchase date. The notice of
withdrawal must state:

the principal amount of the withdrawn notes;

if certificated notes have been issued, the certificate numbers of the withdrawn
notes; and

the principal amount, if any, of the notes which remains subject to the
fundamental change purchase notice.

In connection with any purchase offer in the event of a fundamental change, we
will, if required:

comply with the provisions of Rule 13e-4, Rule 14e-1, and any other tender offer
rules under the Securities Exchange Act of 1934, or the Exchange Act, which may
then be applicable; and

file a Schedule TO or any other required schedule under the Exchange Act.

Payment of the fundamental change purchase price for a note for which a
fundamental change purchase notice has been delivered and not validly withdrawn
is conditioned upon delivery of the note, together with necessary endorsements,
to the paying agent at any time after

 

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delivery of such fundamental change purchase notice. Payment of the fundamental
change purchase price for the note will be made promptly following the later of
the fundamental change purchase date or the time of delivery of the note.

If the paying agent holds money or securities sufficient to pay the fundamental
change purchase price of the note on the business day following the fundamental
change purchase date in accordance with the terms of the indenture, then,
immediately after the fundamental change purchase date, the note will cease to
be outstanding and interest on such note will cease to accrue, whether or not
the note is delivered to the paying agent. Thereafter, all other rights of the
holder will terminate, other than the right to receive the fundamental change
purchase price upon delivery of the note.

A “fundamental change” will be deemed to have occurred upon a change of control
or a termination of trading, each as defined below.

A “change of control” will be deemed to have occurred at such time after the
original issuance of the notes when the following has occurred:

the acquisition by any person of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of
transactions of shares of our capital stock entitling that person to exercise
50% or more of the total voting power of all shares of our capital stock
entitled to vote generally in elections of directors, other than any acquisition
by us, any of our subsidiaries or any of our employee benefit plans; or

our consolidation or merger with or into any other person, any merger of another
person into us, or any conveyance, transfer, sale, lease or other disposition of
all or substantially all of our properties and assets to another person other
than to one or more of our wholly owned subsidiaries, other than:

any transaction:

that does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of our capital stock, and

pursuant to which holders of our capital stock immediately prior to the
transaction have the entitlement to exercise, directly or indirectly, 50% or
more of the total voting power of all shares of our capital stock entitled to
vote generally in the election of directors of the continuing or surviving
person immediately after the transaction; or

any merger solely for the purpose of changing our jurisdiction of incorporation
and resulting in a reclassification, conversion or exchange of
outstanding shares of common stock solely into shares of common stock of the
surviving entity; or

during any consecutive two-year period, individuals who at the beginning of that
two-year period constituted our board of directors, together with any new
directors whose

 

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election to our board of directors, or whose nomination for election by our
stockholders, was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of our board of directors then in office.

A “termination of trading” will be deemed to have occurred if our common stock
or other common stock into which the notes are convertible is not listed for
trading on a United States national securities exchange.

For purposes of the foregoing, beneficial ownership shall be determined in
accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act. The
term “person” includes any syndicate or group which would be deemed to be a
“person” under Section 13(d)(3) of the Exchange Act.

Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders if an issuer tender offer occurs and may apply
if the repurchase option becomes available to holders of the notes. We will
comply with this rule to the extent applicable at that time.

We may, to the extent permitted by applicable law, at any time purchase the
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us will be surrendered to the trustee for cancellation and
will be canceled promptly.

No notes may be purchased by us at the option of holders upon the occurrence of
a fundamental change if there has occurred and is continuing an event of default
with respect to the notes, other than a default in the payment of the
fundamental change purchase price with respect to the notes.

Voting Rights

Without the consent of the holders of not less than a majority in aggregate
principal amount of the notes then outstanding, voting as a class, (i) we will
not, and will not permit any of our subsidiaries to, directly or indirectly,
incur, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, “incur”) any
indebtedness if after the incurrence of such indebtedness our total
indebtedness, on a consolidated basis, would exceed $7.5 billion and (ii) we
will not pay any dividends on our common stock.

Reporting Obligations

We will file in a timely fashion all reports and other information and documents
which we are required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act, including our Annual Report on Form 10-K and our Quarterly
Reports on Form 10-Q, and deliver such reports to the trustee within 15 days
after we are required to file such reports with the SEC.

 

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In the event we are at any time no longer subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, we shall continue to provide the
trustee, the holders, and, upon request, beneficial owners of notes with reports
containing substantially the same information as would have been required to be
filed with the SEC had we continued to have been subject to such reporting
requirements. In such event, such reports will be provided at the times we would
have been required to provide reports had we continued to have been subject to
such reporting requirements. In addition, in such event we will (i) hold a
quarterly conference call to discuss the quarterly and annual information
contained in the reports no later than five business days from the time we
furnish such information to the trustee; (ii) no fewer than three business days
prior to the date of the conference call required to be held in accordance with
clause (i) above, issue a press release to the appropriate wire services for
broad dissemination in the United States and Canada announcing the time and date
of such conference call and directing the beneficial owners of the notes,
prospective investors and securities analysts to contact the investor relations
office of AbitibiBowater to obtain the reports and information and how to access
such conference call; and (iii) either (x) maintain an unrestricted public
website on which the reports and conference call access details are posted;
(y) maintain a non-public website to which beneficial owners of the notes,
prospective investors and securities analysts are given access and to which the
reports and conference call access details are posted or (z) distribute via
e-mail such reports and conference call details to beneficial owners of the
notes, prospective investors and securities analysts who request to receive such
distributions.

We will comply with the other provisions of Section 314(a) of the Trust
Indenture Act. Furthermore, within 90 days after the end of each fiscal year, we
will deliver to the trustee an officer’s certificate stating whether the
signatory knows of any default or event of default under the indenture, and
describe any default or event of default and the efforts to remedy the same.

In addition, we will agree that, for so long as any notes remain outstanding, we
will furnish to holders of the notes and to prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.

Events of Default and Acceleration

The following are events of default under the indenture:

default in the payment of any principal amount or any purchase price, or
fundamental change purchase price due with respect to the notes, when the same
becomes due and payable;

default in payment of any interest (including liquidated damages) under the
notes, which default continues for 30 days;

default in the delivery when due of shares of common stock and any cash payable
upon conversion with respect to the notes, which default continues for 5 days;

our or the Guarantor’s failure to comply with any of our or its other agreements
in the notes, the guarantee or the indenture upon our receipt of notice of such
default from the trustee or from holders of not less than 25% in aggregate
principal amount of the notes, and the failure to cure (or obtain a waiver of)
such default within 60 days after receipt of such notice;

 

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default in the payment of principal by the end of any applicable grace period or
resulting in acceleration of other indebtedness of us, the Guarantor or any of
the Guarantor’s subsidiaries for borrowed money where the aggregate principal
amount with respect to which the default or acceleration has occurred exceeds
$50 million, provided that if any such default is cured, waived, rescinded or
annulled, then the event of default by reason thereof would be deemed not to
have occurred;

the Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or the
Guarantor, or any person acting on behalf of the Guarantor, shall deny or
disaffirm its obligations under the Guarantee; and

certain events of bankruptcy, insolvency or reorganization affecting us, the
Guarantor or any of the Guarantor’s subsidiaries.

If an event of default shall have happened and be continuing, either the trustee
or the holders of not less than 25% in aggregate principal amount of the notes
then outstanding may declare the principal of the notes and any accrued and
unpaid interest through the date of such declaration immediately due and
payable. In the case of certain events of bankruptcy or insolvency with respect
to us, the principal amount of the notes together with any accrued interest
through the occurrence of such event shall automatically become and be
immediately due and payable.

Consolidation, Mergers or Sales of Assets

The indenture provides that neither we nor the Guarantor may consolidate with or
merge into any person or convey, transfer or lease our properties and assets
substantially as an entirety to another person, other than to one or more of our
wholly owned subsidiaries, unless:

the resulting, surviving or transferee corporation, limited liability company,
partnership, trust or other business entity organized and existing under the
laws of the United States, any state thereof or the District of Columbia, and
such corporation (if other than us) assumes all our obligations under the notes
and the indenture and, in the case of the Guarantor, the Guarantee;

after giving effect to the transaction, no event of default, and no event that,
after notice or passage of time, would become an event of default, has occurred
and is continuing; and

other conditions described in the indenture are met.

Upon the assumption of our or the Guarantor’s obligations by such entity in such
circumstances, except for a lease of our or the Guarantor’s properties
substantially as an entirety and, subject to certain other exceptions, we or the
Guarantor, as applicable, shall be discharged from all obligations under the
notes and the indenture and, in the case of the Guarantor, the Guarantee.
Although such transactions are permitted under the indenture, certain of the
foregoing transactions occurring could constitute a fundamental change of our
company, permitting each holder to require us to purchase the notes of such
holder as described above.

 

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Modification

The trustee and we may amend the indenture or the notes with the consent of the
holders of not less than a majority in aggregate principal amount of the notes
then outstanding. However, the consent of the holder of each outstanding note
affected is required to:

alter the manner of calculation or rate of accrual of interest on the note or
change the time of payment;

make the note payable in money or securities other than that stated in the note;

change the stated maturity of the note;

reduce the principal amount or fundamental change purchase price with respect to
the note;

make any change that adversely affects the right to require us to purchase the
note;

impair the right to institute suit for the enforcement of any payment with
respect to the note or with respect to conversion of the note;

change the currency of payment of principal of, or interest on, the note;

except as otherwise permitted or contemplated by provisions of the indenture
concerning specified reclassification or corporation reorganizations, adversely
affect the conversion rights of the note;

release the Guarantor from any of its obligations under the Guarantee or the
indenture, except in accordance with the indenture; or

change the provisions in the indenture that relate to modifying or amending the
indenture.

Without the consent of any holder of notes, the trustee and we may amend the
indenture:

to evidence a successor to us and the assumption by that successor of our
obligations under the indenture and the notes;

to add to our covenants for the benefit of the holders of the notes or to
surrender any right or power conferred upon us;

to secure our obligations in respect of the notes;

to add a Guarantor;

to evidence and provide the acceptance of the appointment of a successor trustee
under the indenture;

 

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to comply with the requirements of the SEC in order to effect or maintain
qualification of the indenture under the Trust Indenture Act, as contemplated by
the indenture or otherwise;

to cure any ambiguity, omission, defect or inconsistency in the indenture; or

to make any change that does not adversely affect the rights of the holders of
the notes in any material respect.

The holders of a majority in aggregate principal amount of the outstanding notes
may, on behalf of all the holders of all notes:

waive compliance by us with restrictive provisions of the indenture, as detailed
in the indenture; or

waive any past default under the indenture and its consequences, except a
default in the payment of any amount due, or in the obligation to deliver common
stock or cash, with respect to any note or in respect of any provision which
under the indenture cannot be modified or amended without the consent of the
holder of each outstanding note affected.

Discharge of the Indenture

We may satisfy and discharge our obligations under the indenture by delivering
to the trustee for cancellation all outstanding notes or by depositing with the
trustee, the paying agent or the conversion agent, if applicable, after the
notes have become due and payable, whether at stated maturity, or any purchase
date, or a fundamental change purchase date, or upon conversion or otherwise,
cash or shares of common stock (as applicable under the terms of the indenture)
sufficient to pay all of the outstanding notes and paying all other sums payable
under the indenture.

Calculations in Respect of Notes

We are responsible for making all calculations called for under the notes. These
calculations include, but are not limited to, determination of the average
market prices of the notes and of our common stock. We will make all these
calculations in good faith and, absent manifest error, our calculations are
final and binding on holders of notes. We will provide a schedule of our
calculations to the trustee, and the trustee is entitled to conclusively rely
upon the accuracy of our calculations without independent verification.

Governing Law

The indenture and the notes and the Guarantee are governed by, and construed in
accordance with, the law of the State of New York.

 

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Information Concerning the Trustee

[—], a [national banking association duly organized and existing under the laws
of the United States of America] will be the trustee, registrar, paying agent
and conversion agent under the indenture for the notes.

Global Notes; Book Entry; Form

We will initially issue the notes in the form of one or more global securities.
The global security will be deposited with the trustee as custodian for DTC and
registered in the name of a nominee of DTC. Except as set forth below, the
global security may be transferred, in whole and not in part, only to DTC or
another nominee of DTC. You will hold your beneficial interests in the global
security directly through DTC if you have an account with DTC or indirectly
through organizations that have accounts with DTC. Notes in definitive
certificated form (called “certificated securities”) will be issued only in
certain limited circumstances described below.

DTC has advised us that it is:

a limited purpose trust company organized under the laws of the State of New
York;

a member of the Federal Reserve System;

a “clearing corporation” within the meaning of the New York Uniform Commercial
Code; and

a “clearing agency” registered pursuant to the provisions of Section 17A of the
Exchange Act.

DTC was created to hold securities of institutions that have accounts with DTC
(called “participants”) and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. DTC’s
participants include securities brokers and dealers, which may include the
initial purchaser, banks, trust companies, clearing corporations and certain
other organizations. Access to DTC’s book-entry system is also available to
others such as banks, brokers, dealers and trust companies (called, the
“indirect participants”) that clear through or maintain a custodial relationship
with a participant, whether directly or indirectly.

We expect that pursuant to procedures established by DTC upon the deposit of the
global security with DTC, DTC will credit, on its book-entry registration and
transfer system, the principal amount of notes represented by such global
security to the accounts of participants. The accounts to be credited shall be
designated by the initial purchaser. Ownership of beneficial interests in the
global security will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in the global
security will be shown on, and the transfer of those beneficial interests will
be effected only through, records maintained by DTC (with respect to
participants’ interests), the participants and the indirect participants.

 

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The laws of some jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form. These limits and
laws may impair the ability to transfer or pledge beneficial interests in the
global security.

Owners of beneficial interests in global securities who desire to convert their
interests into common stock should contact their brokers or other participants
or indirect participants through whom they hold such beneficial interests to
obtain information on procedures, including proper forms and cut-off times, for
submitting requests for conversion. So long as DTC, or its nominee, is the
registered owner or holder of a global security, DTC or its nominee, as the case
may be, will be considered the sole owner or holder of the notes represented by
the global security for all purposes under the indenture and the notes. In
addition, no owner of a beneficial interest in a global security will be able to
transfer that interest except in accordance with the applicable procedures of
DTC.

Except as set forth below, as an owner of a beneficial interest in the global
security, you will not be entitled to have the notes represented by the global
security registered in your name, will not receive or be entitled to receive
physical delivery of certificated securities and will not be considered to be
the owner or holder of any notes under the global security. We understand that
under existing industry practice, if an owner of a beneficial interest in the
global security desires to take any action that DTC, as the holder of the global
security, is entitled to take, DTC would authorize the participants to take such
action. Additionally, in such case, the participants would authorize beneficial
owners owning through such participants to take such action or would otherwise
act upon the instructions of beneficial owners owning through them.

We will make payments of principal of, premium, if any, and interest (including
any liquidated damages) on the notes represented by the global security
registered in the name of and held by DTC or its nominee to DTC or its nominee,
as the case may be, as the registered owner and holder of the global security.
Neither we, the trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial interests in the global security or for maintaining, supervising
or reviewing any records relating to such beneficial interests. We will make any
payments of PIK Interest in respect of notes represented by global securities by
increasing the principal amount of such global securities for the benefit of the
accounts of participants specified by DTC or its nominee. We will make any
payments of PIK Interest in respect of notes represented by certificated notes
by issuing PIK Notes in the form of certificated notes and delivering them to
holders.

We expect that DTC or its nominee, upon receipt of any payment of principal of,
premium, if any, or interest (including liquidated damages) on the global
security, will credit participants’ accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global security as shown on the records of DTC or its nominee. We also
expect that payments by participants or indirect participants to owners of
beneficial interests in the global security held through such participants or
indirect participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants or indirect
participants. We will not have any responsibility or liability for any aspect of
the records relating to, or payments made on account of, beneficial interests in
the global security for any note or for maintaining, supervising or reviewing
any records relating to such beneficial interests or for any other aspect of the
relationship between DTC and its

 

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participants or indirect participants or the relationship between such
participants or indirect participants and the owners of beneficial interests in
the global security owning through such participants.

Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds.

DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account the DTC interests in the global security is credited and only in respect
of such portion of the aggregate principal amount of notes as to which such
participant or participants has or have given such direction. However, if DTC
notifies us that it is unwilling to be a depositary for the global security or
ceases to be a clearing agency or there is an event of default under the notes
(and the holder so requests), DTC will exchange the global security for
certificated securities which it will distribute to its participants and which
will be legended, if required, as set forth under “Transfer Restrictions.”
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the global security among participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither we nor
the trustee will have any responsibility, or liability for the performance by
DTC or the participants or indirect participants of their respective obligations
under the rules and procedures governing their respective operations.

The notes and the common stock issuable on the conversion thereof may only be
sold (a) to AbitibiBowater Inc. or any subsidiary thereof, (b) pursuant to a
registration statement that has been declared effective under the Securities Act
of 1933, (c) for so long as the securities are eligible for resale pursuant to
Rule 144A, to a person the transferor reasonably believes is a Qualified
Insitutional Buyer, as defined in Rule 144A, that purchases for its own account
or for the account of a Qualified Institutional Buyer to whom notice is given
that the transfer is being made in reliance on Rule 144A, or (d) pursuant to any
other available exemption from the registration requirements of the Securities
Act of 1933, subject to AbitibiBowater’s and the trustee’s right prior to any
such offer, sale or transfer pursuant to clause (d) to require the delivery of
an opinion of counsel, certifications and/or other information satisfactory to
each of them. These restrictions shall apply until such securities may be resold
without restriction pursuant to Rule 144 under the Securities Act of 1933.

 

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Exhibit B

FINANCINGS

The debt tranches of the Company’s previously announced refinancing plan consist
of the following:

 

  •  

US$250-325 million of new senior unsecured exchange notes of
Abitibi-Consolidated Inc. (“Abitibi”) due 2010;

 

  •  

US$350-450 million of new 364-day senior secured term loan of Abitibi; and

 

  •  

Approximately US$400 million of new senior secured notes or a term loan of
Abitibi not to exceed a five-year term.

Abitibi may replace or amend the financings described above so long as such
replacement or amendment consists of non-convertible debt financings of Abitibi
that are not guaranteed by, or secured by the assets of, the Guarantor or any of
its Subsidiaries and would not reduce the aggregate amount of proceeds reflected
above on this Exhibit B in excess of $50 million.

 

B–1