UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
    ____________ to ____________   Commission File No.:
    000-51826
  MERCER INTERNATIONAL
    INC.
 Exact name of Registrant as
    specified in its charter
  WashingtonState or other
    jurisdiction
    of incorporation or organization

47-0956945IRS Employer Identification
    No.   Suite 2840, 650 West Georgia Street, Vancouver,
    British Columbia, Canada, V6B 4N8
 Address of Office
  (604) 684-1099
     Title of each class

Name of each exchange on which registeredCommon Stock, par value $1.00

NASDAQ Global Market     None
  o þ
  o þ
  Securities Exchange Act of 1934 þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF
    CONTENTS
   
 PagePART IItem 1.

BUSINESS


5The Company


5Competitive Strengths


7Corporate Strategy


8The Pulp Industry


8Our Product


12Energy and Recent Energy Initiatives


12Operating Costs


13Cash Production Costs


17Sales, Marketing and Distribution


17Capital Expenditures


18Environmental


19Human Resources


21Description of Certain Indebtedness


21Discontinued Operations


24Additional Information


24Item 1A.

RISK FACTORS


25Item 1B.

UNRESOLVED STAFF COMMENTS


33Item 2.

PROPERTIES


33Item 3.

LEGAL PROCEEDINGS


35Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


35PART IIItem 5.

MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS


36Item 6.

SELECTED FINANCIAL DATA


38Item 7.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS


38Results of Operations


39Year Ended December 31, 2008 Compared to the
    Year Ended December 31, 2007


41Year Ended December 31, 2007 Compared to the
    Year Ended December 31, 2006


43Sensitivities


45Liquidity and Capital Resources


46Sources and Uses of Funds


46Debt


46Debt Covenants


47Cash Flow Analysis


47Capital Resources


48Future Liquidity


48Discontinued Operations


49Contractual Obligations and Commitments


49Foreign Currency


50Results of Operations of the Restricted Group
    Under Our Senior Note Indenture


50Restricted Group Results  Year Ended
    December 31, 2008 Compared to the Year Ended
    December 31, 2007


50Restricted Group Results  Year Ended
    December 31, 2007 Compared to the Year Ended
    December 31, 2006


52Liquidity and Capital Resources of the Restricted
    Group


54 2




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PageCritical Accounting Policies


54New Accounting Standards


56Cautionary Statement Regarding Forward-Looking
    Information


56Inflation


56Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


57Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


60Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE


60Item 9A.

CONTROLS AND PROCEDURES


60Item 9B.

OTHER INFORMATION


61PART IIIItem 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE


62Item 11.

EXECUTIVE COMPENSATION


66Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
    AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


66Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE


66Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES


66PART IVItem 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES


67Financial Statements


67Supplementary Financial Information


108SIGNATURES


109   3




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EXCHANGE
    RATES
      Years Ended December 31,2008


2007


2006


2005


2004(/$)End of period


0.7184



0.6848



0.7577



0.8445



0.7942High for period


0.8035



0.7750



0.8432



0.8571



0.8473Low for period


0.6246



0.6729



0.7504



0.7421



0.7339Average for period


0.6801



0.7294



0.7962



0.8033



0.8040(C$/$)End of period


1.2240



0.9881



1.1653



1.1659



1.2034High for period


0.9717



0.9168



1.0989



1.1507



1.1775Low for period


1.2971



1.1852



1.1726



1.2704



1.3970Average for period


1.0669



1.0740



1.1344



1.2116



1.3017   Form 10-K,
  Form 10-K
  Years Ended December 31,2008


2007


2006


2005


2004(C$/)End of period


1.7046



1.4428



1.5377



1.3805



1.6292High for period


1.4489



1.3448



1.3523



1.3576



1.5431Low for period


1.7316



1.5628



1.5377



1.6400



1.6915Average for period


1.5603



1.4690



1.4244



1.5095



1.6169    4




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PART I ITEM 1.  BUSINESS    
    references to we, our, us,
    the Company or Mercer mean Mercer
    International Inc. and its subsidiaries, unless the context
    clearly suggests otherwise, and references to Mercer
    Inc. mean Mercer International Inc. excluding its
    subsidiaries;
    references to ADMTs mean air-dried metric tonnes;
    information is provided as of December 31, 2008, unless
    otherwise stated or the context clearly suggests otherwise;
    all references to monetary amounts are to Euros, the
    lawful currency adopted by most members of the European Union,
    unless otherwise stated; and
     refers to Euros; $ refers
    to U.S. dollars; and C$ refers to Canadian dollars. The
    Company  General
      
    Rosenthal mill.  Our wholly-owned
    subsidiary, Rosenthal, owns and operates a modern, efficient
    ISO 9002 certified NBSK pulp mill that has a current annual
    production capacity of approximately 325,000 ADMTs. The
    Rosenthal mill is located near the town of Blankenstein, Germany.
    Stendal mill.  Our 70.6% owned
    subsidiary, Stendal, owns and operates a
    state-of-the-art,
    single-line NBSK pulp mill that has an annual production
    capacity of approximately 635,000 ADMTs. The Stendal mill is
    situated near the town of Stendal, Germany, approximately 300
    kilometers north of the Rosenthal mill.
    Celgar mill.  Our wholly owned
    subsidiary, Celgar, owns and operates the Celgar mill, a modern,
    efficient ISO 9001 certified NBSK pulp mill with an annual
    production capacity of approximately 495,000 ADMTs. The Celgar
    mill is located near the city of Castlegar, British Columbia,
    Canada, approximately 600 kilometers east of the port city of
    Vancouver, British Columbia, Canada.  History
    and Development of Business
     5




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6




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Organizational
    Chart
    
 Competitive
    Strengths    
    Modern and Competitive Mills.We
    operate three large, modern, competitive NBSK pulp mills that
    produce high quality NBSK pulp which is a premium grade of kraft
    pulp. The relative age and production capacity of our NBSK pulp
    mills provide us with certain manufacturing cost advantages over
    many of our competitors including lower maintenance capital
    expenditures.
    Customer Proximity and Service.We are
    the only producer of market pulp in Germany, which is the
    largest pulp import market in Europe. Due to the proximity of
    our German mills to most of our European customers, we benefit
    from lower transportation costs relative to our major
    competitors. Our Celgar mill, located in Western Canada, is well
    situated to serve Asian and North American customers. We
    primarily work directly with customers to capitalize on our
    geographic diversity, coordinate sales and enhance customer
    relationships. We believe our ability to deliver high quality
    pulp on a timely basis and our customer service makes us a
    preferred supplier for many customers.
    Renewable and Surplus Energy.Our
    modern mills generate electricity and steam in their boilers and
    are generally energy self-sufficient. Such energy is primarily
    produced from wood residuals which are a renewable carbon
    neutral source. This has permitted our German mills to benefit
    from the sales of emission allowances. All of our mills also
    generate surplus energy which we sell to third parties. Our
    Rosenthal and Stendal mills now benefit from recent amendments
    to Germanys Renewable Energy Resources Act which have
    raised the tariff for the sale of biomass energy. Additionally,
    our Celgar mill has signed a contract for the sale of power from
    its new green energy project. We believe our
    generation of surplus renewable green energy and
    high energy prices provide us with a competitive energy
    advantage.
    Advantageous Capital Investments and
    Financing.Our German mills are eligible to
    receive government grants in respect of qualifying capital
    investments. Over the last nine years, our German mills have
    benefited from approximately 383.1 million of such
    government grants. These grants are not reported in our income
    but reduce the cost basis of the assets purchased when the
    grants are received. During the last nine years, capital
    investments at our German mills have reduced the amount of
    overall wastewater fees that would otherwise be payable by over
    43 million. Further, our Stendal mill benefits from
    German governmental guarantees of its project financing which
    permitted it to obtain better credit terms and lower interest
    costs than would otherwise be available. The project debt of
    Stendal matures in 2017 and is non-recourse to our other
    operations and Mercer Inc. 7




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
    Competitive Fiber Supply.Although
    fiber is cyclical in both price and supply, there is a
    significant amount of high-quality fiber within a close radius
    of each of our mills. This fiber supply, combined with our
    purchasing power, enables us to enter into contracts and
    arrangements which have generally provided us with a competitive
    fiber supply. Corporate
    Strategy    
    Focusing on NBSK Market Pulp.We focus
    on NBSK pulp because it is a premium grade kraft pulp and
    generally obtains the highest price relative to other kraft
    pulps. Although demand is cyclical, between 1997 and 2007,
    worldwide demand for softwood kraft market pulp grew at an
    average of approximately 3.3% per annum. Since 2007, demand for
    softwood pulp has grown in emerging markets such as Asia, in
    particular China, and Eastern Europe.
    Maximizing Energy Realizations.In
    2008, our mills generated 456,059 megawatt hours, or
    MWh, of surplus energy, primarily from a renewable
    carbon-neutral source. We are pursuing several initiatives to
    increase our overall energy generation and the amount of and
    price for our surplus power sales. Such initiatives include
    targeted high return capital projects to increase generation and
    connectivity to the electric grid including the installation of
    a 48 megawatt, or MW, condensing turbine at our
    Celgar mill to substantially increase the mills generating
    capacity.
    Enhancing Sustainability/Growth.With
    the recent global economic slowdown and well reported crisis in
    financial and credit markets, our short-term focus is on
    maintaining and enhancing the sustainability of our business. To
    this end, we are working to reduce costs, cut discretionary
    spending, including capital expenditures, reduce our working
    capital consumption and otherwise enhance our liquidity. When
    economies and markets recover and access to capital improves, we
    intend to grow our operations and earning capacity both through
    organic growth and targeted strategic acquisitions.
    Operating Modern,
    World-Class Mills.In order to keep our
    operating costs as low as possible, with a goal of generating
    positive cash flow in all market conditions, we operate large,
    modern NBSK pulp mills. We believe such production facilities
    provide us with the best platform to be an efficient and
    competitive producer of high-quality NBSK pulp without the need
    for significant sustaining capital. The Pulp
    Industry  General
     8




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Markets
        build-up
    Competition
   9




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NBSK
    Pulp Pricing
              
 10




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The
    Manufacturing Process
    
           11




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Our
    Product           Energy
    and Recent Energy Initiatives      German
    Mills
  Renewable Energy Resources Act,
 12




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Celgar
      ecoEnergy for Renewable Power Program
    
 Operating
    Costs   13




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Labor
    Fiber
                 14




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15




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Energy
  start-up
  Chemicals
   16




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Cash
    Production Costs    Years Ended December 31,Cash Production Costs

2008


2007


2006(per ADMT)Fiber


247



247



192Labor


36



43



46Chemicals


44



39



42Energy


21



18



23Other


43



46



41Total cash production costs(1)


391



393



344     (1)
    
    Cost of production per ADMT
    produced excluding depreciation. Sales,
    Marketing and Distribution    Years Ended December 31,2008


2007


2006(in thousands)Revenues by Geographic AreaGermany


198,340



198,575



154,388China


131,412



159,553



141,296Italy


56,487



50,177



60,057Other European Union countries(1)


133,621



136,434



117,016Other Asia


65,192



58,242



75,522North America


78,718



66,229



39,761Other countries


17,146



26,639



28,586Total(2)


680,916



695,849



616,626     (1)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.(2)
    
    Excluding intercompany sales
    volumes of nil, nil and 13,234 tonnes of pulp and intercompany
    net sales revenues of nil, nil and
    6.4 million in 2008, 2007 and 2006, respectively.    Year Ended

Year Ended

Year EndedDecember 31, 2008

December 31, 2007

December 31, 2006(PIE CHART)

(PIE CHART)

(PIE CHART)     (1)
    
    Includes new entrant countries to
    the European Union from their time of admission. 17




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Capital
    Expenditures         18




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As at December 31,2008


2007


2006(in thousands)Properties, net (as shown on consolidated balance sheets)


881,704



933,258



972,143Add back: government grants less amortization, deducted from
    properties


290,187



304,366



341,710Properties, gross amount including government grants less
    amortization


1,171,891



1,237,624



1,313,853        Environmental     19




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state-of-the-art
         20




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Human
    Resources           Description
    of Certain Indebtedness    Senior
    Notes
   21




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Convertible
    Notes
            Stendal
    Loan Facility
  start-up
   22




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
    if scheduled debt service for two consecutive periods is
    partially or wholly financed by drawings from the DSRA and as a
    result the DSRA is less than
    331/3%
    Fully Funded;
    if the DSRA is fully drawn and Stendal exercises its current
    6-month
    principal payment deferral right in respect of the next
    repayment date; and
    failure to meet the Senior Debt/EBITDA Cover Ratio or Annual
    Debt Ratio as set out above.           23




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Rosenthal
    Loan Facility
    Celgar
    Working Capital Facility
  and/or
 Discontinued
    Operations   Additional
    Information  www.mercerint.com Form 10-K, Form 10-Q Form 8-K, 1-800-SEC-0330.
 24




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ITEM 1A.  RISK
    FACTORS  Private Securities Litigation
    Reform Act of 1995 Form 10-K
    
    our markets;
    demand and prices for our products;
    raw material costs and supply;
    energy prices, sales and our initiatives to enhance sales of
    surplus energy;
    capital expenditures;
    the economy;
    foreign exchange rates  particularly the U.S. dollar
    and Canadian dollar;
    our level of indebtedness; and
    derivatives.    Form 10-K,
  Securities Act of
    1933 Securities Exchange Act
    of 1934
    Our
    business is highly cyclical in nature.
   25




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Our
    level of indebtedness could negatively impact our financial
    condition and results of operations.
    
    our ability to obtain additional financing for working capital,
    capital expenditures, general corporate and other purposes or to
    fund future operations may not be available on terms favorable
    to us or at all;
    a significant amount of our operating cash flow is dedicated to
    the payment of interest and principal on our indebtedness,
    thereby diminishing funds that would otherwise be available for
    our operations and for other purposes;
    increasing our vulnerability to current and future adverse
    economic and industry conditions;
    a substantial decrease in net operating cash flows or increase
    in our expenses could make it more difficult for us to meet our
    debt service requirements, which could force us to modify our
    operations;


    our leveraged capital structure may place us at a competitive
    disadvantage by hindering our ability to adjust rapidly to
    changing market conditions or by making us vulnerable to a
    downturn in our business or the economy in general;
    causing us to offer debt or equity securities on terms that may
    not be favorable to us or our shareholders;
    limiting our flexibility in planning for, or reacting to,
    changes and opportunities in our business and our industry; and
    our level of indebtedness increases the possibility that we may
    be unable to generate cash sufficient to pay the principal or
    interest due in respect of our indebtedness.   26




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The
    global economic crisis could adversely affect our business and
    financial results and have a material adverse effect on our
    liquidity and capital resources.
        Prolonged
    depressed pulp prices may cause us to take production downtime
    at our mills.
      In the
    current economic conditions and weak pulp price and demand
    environment, there can be no assurance that we will be able to
    generate sufficient cash flows to service, repay or refinance
    debt.
   27




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Our
    shares may be delisted from the NASDAQ Global Market if the
    closing price for our shares is not maintained at $1.00 per
    share or higher.
    and/or
    Cyclical
    fluctuations in the price and supply of our raw materials could
    adversely affect our business.
     28




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We
    operate in highly competitive markets.
    We are
    exposed to currency exchange rate and interest rate
    fluctuations.
    variable-to-fixed
  Increases
    in our capital expenditures or maintenance costs could have a
    material adverse effect on our cash flow and our ability to
    satisfy our debt obligations.
    We use
    derivatives to manage certain risk which has caused significant
    fluctuations in our operating results.
  variable-to-fixed
   29




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We are
    subject to extensive environmental regulation and we could have
    environmental liabilities at our facilities.
    
    unlawful discharges to land, air, water and sewers;
    waste collection, storage, transportation and disposal;
    hazardous waste;
    dangerous goods and hazardous materials and the collection,
    storage, transportation and disposal of such substances;
    the clean-up
    of unlawful discharges;
    land use planning;
    municipal zoning; and
    employee health and safety.     30




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We are
    subject to risks related to our employees.
    The
    Celgar Energy Project may not generate the results or benefits
    we expect.
  start-up
  We
    rely on German federal and state government grants and
    guarantees.
    The EU
    ETS and Germanys Renewable Energy Act.
    and/or
  We are
    dependent on key personnel.
    
    sales and marketing; 31




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
    reducing operating costs;
    identifying capital projects which provide a high rate of
    return; and
    prioritizing expenditures and maintaining employee relations.    We may
    experience material disruptions to our production.
  and/or
  
    unscheduled maintenance outages;
    prolonged power failures;
    equipment failure;
    design error or operator error;
    chemical spill or release;
    explosion of a boiler;
    disruptions in the transportation infrastructure, including
    roads, bridges, railway tracks and tunnels;
    fires, floods, earthquakes or other natural catastrophes;
    labor difficulties; and
    other operational problems.  and/or
  We may
    incur losses as a result of unforeseen or catastrophic events,
    including the emergence of a pandemic, terrorist attacks or
    natural disasters.
    Our
    insurance coverage may not be adequate.
   32




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We
    rely on third parties for transportation services.
      Washington
    State law and our Articles of Incorporation may have
    anti-takeover effects which will make an acquisition of our
    Company by another company more difficult.
   ITEM 1B.  UNRESOLVED
    STAFF COMMENTS.   ITEM 2.  PROPERTIES      
    an approximately 315,000 square feet fiber storage area;
    barking and chipping facilities for pulp logs;
    an approximately 300,000 square feet roundwood yard;
    a fiber line, which includes a Kamyr continuous digester and
    bleaching facilities;
    a pulp machine, which includes a dryer, a cutter and a bailing
    line;
    an approximately 63,000 square feet finished goods storage area;
    a chemical recovery system, which includes a recovery boiler,
    evaporation plant and recausticizing plant;
    a fresh water plant; 33




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
    a wastewater treatment plant; and
    a power station with a turbine capable of producing 45 MW
    of electric power from steam produced by the recovery boiler.    
    an approximately 920,000 square feet fiber storage area;
    barking and chipping facilities for pulp logs;
    a fiber line, which includes ten Superbatch digester and
    bleaching facilities;
    a pulp machine, which includes a dryer, a cutter and a bailing
    line;
    an approximately 108,000 square feet finished goods storage area;
    a recovery line, which includes a recovery boiler, evaporation
    plant, recausticizing plant and lime kiln;
    a fresh water plant;
    a wastewater treatment plant; and
    a power station with a turbine capable of producing
    approximately 100 MW of electric power from steam produced
    by the recovery boiler and a power boiler.    
    chip storage facilities consisting of four vertical silos and an
    asphalt surfaced yard with a capacity of 200,000 cubic meters of
    chips;
    a woodroom containing debarking and chipping equipment for pulp
    logs;
    a fiber line, which includes a dual vessel hydraulic digester,
    pressure knotting and screening, single stage oxygen
    delignification and a four stage bleach plant;
    two pulp machines, which each include a dryer, a cutter and a
    bailing line;
    a chemical recovery system, which includes a recovery boiler,
    evaporation plant, recausticizing area and effluent treatment
    system; and
    a turbine and generator capable of producing approximately
    52 MW of electric power from steam produced by a recovery
    boiler and power boiler fueled by natural gas.   34




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AnnualProduction


Years Ended December 31,Capacity(1)


2008


2007


2006(ADMTs)Pulp Production by Mill:Rosenthal


325,000



328,693



326,838



306,188Celgar


495,000



485,893



476,243



438,855Stendal


635,000



610,401



601,592



557,217Total pulp production


1,455,000



1,424,987



1,404,673



1,302,260     (1)
    
    Capacity is the rated capacity of
    the plants for the year ended December 31, 2008, which is
    based upon production for 365 days a year. Targeted
    production is generally based upon 355 days per year. ITEM 3.  LEGAL
    PROCEEDINGS       ITEM 4.  SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   35




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS  Market Information.
  Fiscal Quarter Ended

High


Low2007March 31

$
13.74


$
11.19June 30


13.39



9.51September 30


10.94



7.56December 31


10.10



6.992008March 31

$
9.02


$
6.70June 30


8.48



6.31September 30


7.72



3.17December 31


3.66



0.95   Shareholder Information.
  Dividend Information.
  Equity Compensation Plans.
  Number of Shares to be


Weighted-average


Number of SharesIssued Upon Exercise


Exercise Price of


Available for Futureof Outstanding Options


Outstanding Options


Issuance Under Plan2004 Stock Incentive Plan


30,000


$
7.30



166,700(1
)Amended and Restated 1992 Non-Qualified Stock Option Plan


898,334


$
6.41



 (2
)     (1)
    
    An aggregate of 232,685 restricted
    shares have been issued under the plan. Grants for up to
    570,614 shares have been made pursuant to the Performance
    Supplement under the plan (as described below).(2)
    
    The plan has expired.     36




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Private Placements Securities Act
    of 1933
  Performance Graph.
  5-YEAR
    CUMULATIVE TOTAL RETURN ASSUMES
    $100 INVESTED ON DEC. 31, 2003
    ASSUMES DIVIDEND REINVESTED
    FISCAL YEAR ENDING DEC 31, 2008
  
  Company

2003


2004


2005


2006


2007


2008Mercer International Inc.


100.00



167.72



123.78



186.93



123.31



30.24SIC Code Index


100.00



116.55



119.98



186.38



228.45



37.76NASDAQ Stock Market Index


100.00



108.41



110.79



122.16



134.29



79.25  37




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ITEM 6.  SELECTED
    FINANCIAL DATA    
    includes the operating results of the Stendal mill from its
    start up in September 2004 and the results of operations and
    financial condition of the Celgar mill from the time of its
    acquisition in February 2005; and
    excludes the results of operations of our paper operations which
    were sold in 2006 and are accounted for as discontinued
    operations. Previously reported data and the financial
    statements and related notes included herein have been
    reclassified to conform to the current presentation.  Years Ended December 31,2008


2007


2006


2005


2004(Euro in thousands, other than per share and per ADMT
    amounts)Statement of Operations DataRevenues


720,291



727,295



644,899



469,178



197,693Costs and expenses


706,962



657,709



552,395



450,528



205,894Operating income (loss) from continuing operations


13,329



69,586



92,504



18,650



(8,201
)Unrealized gains (losses) on derivative financial instruments


(25,228
)


13,537



109,358



(69,308
)


(32,331
)Realized gains (losses) on derivative financial instruments






6,820



(3,510
)


(2,455
)


44,467Interest expense(1)


65,756



71,400



91,931



86,326



23,185Investment income


(1,174
)


4,453



6,090



2,422



2,772Net income (loss) from continuing operations


(72,465
)


22,389



69,242



(112,058
)


30,139Net income (loss) (including discontinued operations)


(72,465
)


22,179



63,210



(117,146
)


19,980Net income (loss) per share from continuing operations, Basic


(2.00
)


0.62



2.08



(3.59
)


1.73Diluted


(2.00
)


0.58



1.72



(3.59
)


1.25Net income (loss) per share (including discontinued operations)


(2.00
)


0.61



1.90



(3.75
)


1.15Weighted average shares outstanding (in thousands),Basic


36,285



36,081



33,336



31,218



17,426Diluted


36,287



45,303



43,084



31,218



28,525Balance Sheet DataCurrent assets


258,901



290,259



221,800



251,522



207,409Current liabilities


104,527



121,516



120,002



140,327



229,068Working capital


154,374



168,743



101,798(2
)


111,195(2
)


(21,659
)(2)Total assets(3)


1,180,230



1,283,517



1,302,594



1,393,816



1,255,649Long-term liabilities


909,478



885,339



963,791



1,104,746



863,840Shareholders equity


166,225



276,662



218,801



148,743



162,741Other Pulp Data(4)Sales volume (ADMTs)


1,423,300



1,352,590



1,326,355



1,101,304



421,716Production


1,424,987



1,404,673



1,302,260



1,184,619



446,710Average price realized (per ADMT)


478



516



465



407



423     (1)
    
    We capitalized most of the interest
    related to the Stendal mill prior to September 18, 2004.(2)
    
    We have applied for investment
    grants from the federal and state governments of Germany and had
    claims of approximately 0.3 million outstanding at
    December 31, 2007, all of which was received in 2008,
    1.6 million outstanding at December 31, 2006,
    all of which was received in 2007 and approximately
    7.0 million outstanding at December 31, 2005,
    all of which was received in 2006. However, in accordance with
    our accounting policies, we do not record these grants until
    they are received.(3)
    
    We do not report the effect of
    government grants relating to our assets in our income. These
    grants reduce the cost basis of the assets purchased when the
    grants are received. See Item 1 
    Business  Capital Expenditures.(4)
    
    Excluding intercompany sales. 38




---



##### 



ITEM 7.  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS   Results
    of Operations  General
               39




---



##### 



variable-to-fixed
  2008
    Significant Actions
    
    Commenced the Celgar Energy Project at our Celgar mill to
    advance our objective of increasing production of and revenues
    from green energy;
    Submitted a proposal under the bioenergy call for
    green power issued by British Columbias
    primary public utility provider which was selected and has
    resulted in the finalization of an electricity purchase
    agreement with, the utility for the supply of electrical energy
    generated from the Celgar Energy Project;
    Worked with our lenders to restructure the Stendal Loan Facility
    which resulted in the completion of an amending agreement in
    February 2009;
    Modernized the Celgar mills woodroom, established log
    purchasing programs and implemented logistical changes to
    improve Celgars fiber costs;
    Continued to focus on cost reductions and working capital
    management; and
    Developed various initiatives to enhance short-term liquidity.  Current
    Market Environment
   40




---



##### 



Three-Year
    Snapshot
    Years Ended December 31,2008


2007


2006Pulp Production (000 ADMTs)


1,425.0



1,404.7



1,302.3Scheduled Production Downtime (000 ADMTs)


47.0



46.0



60.0Pulp Sales (000 ADMTs)(1)


1,423.3



1,352.6



1,326.4Pulp Revenues (in millions)(1)


689.3



704.4



624.0NBSK pulp list prices in Europe ($/ADMT)

$
839


$
800


$
680NBSK pulp list prices (/ADMT)


571



584



542Average pulp sales realizations (/ADMT)(2)


478



516



465Energy Production (000 MWh)


1,456.6



1,401.9



1,297.4Energy Sales (000 MWh)


456.1



430.4



414.4Energy Revenue (in millions)


31.0



22.9



20.9Average energy sales realizations (/MWh)


68



53



50Average Spot Currency Exchange Rates / $(3)


0.6800



0.7294



0.7962C$ / $(3)


1.0669



1.0740



1.1344C$ / (4)


1.5603



1.4690



1.4244     (1)
    
    Excluding intercompany sales
    volumes of nil, nil and 13,234 ADMTs of pulp and intercompany
    net sales revenues of nil, nil and
    6.4 million in 2008, 2007 and 2006, respectively.(2)
    
    List price less discounts and
    commissions.(3)
    
    Average Federal Reserve Bank of New
    York noon spot rate over the reporting period.(4)
    
    Average Bank of Canada noon spot
    rate over the reporting period. Year
    Ended December 31, 2008 Compared to Year Ended
    December 31, 2007           41




---



##### 



42




---



##### 



Years Ended December 31,2008


2007(in thousands)Net income (loss) from continuing operations


(72,465
)


22,389Minority interest


(13,075
)


1,251Income taxes (benefits)


2,477



10,314Interest expense


65,756



71,400Investment (income) loss


1,174



(4,453
)Derivative financial instruments, net


25,228



(20,357
)Unrealized foreign exchange (gain) loss on debt


4,234



(10,958
)Operating income from continuing operations


13,329



69,586Add: Depreciation and amortization


55,762



56,658Operating EBITDA


69,091



126,244  Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006         43




---



##### 



44




---



##### 



Years Ended December 31,2007


2006(in thousands)Net income (loss) from continuing operations


22,389



69,242Minority interest


1,251



1,071Income taxes (benefits)


10,314



57,443Interest expense


71,400



91,931Investment (income) loss


(4,453
)


(6,090
)Derivative financial instruments, net


(20,357
)


(105,848
)Foreign exchange (gain) loss on debt


(10,958
)


(15,245
)Operating income (loss) from continuing operations


69,586



92,504Add: Depreciation and amortization


56,658



55,834Operating EBITDA


126,244



148,338  Sensitivities    NBSK Pulp Price.
  Foreign Exchange.
 45




---



##### 



Liquidity
    and Capital Resources    Years Ended December 31,2008


2007(in thousands)Financial PositionCash and cash equivalents


42,452



84,848Cash, restricted


13,000



33,000Working capital


154,374



168,743Property, plant and equipment


881,704



933,258Total assets


1,180,230



1,283,517Long-term liabilities


909,478



885,339Shareholders equity


166,225



276,662  Sources
    and Uses of Funds             Debt   46




---



##### 



Debt
    Covenants    once-per-fiscal-year
  12-month
  12-month
   Cash
    Flow Analysis  Cash Flows from Operating
    Activities.
       47




---



##### 



Cash Flows from Investing
    Activities.
      Cash Flows from Financing
    Activities.
 Capital
    Resources     Future
    Liquidity      Off-Balance-Sheet
    Activities
   48




---



##### 



Discontinued
    Operations      Years Ended December 31,2008


2007


2006(in thousands)Revenues






128



46,351Operating income (loss) from discontinued operations






(210
)


394Net loss on disposal of discontinued operations










(5,957
)Net loss






(210
)


(6,032
)     Years Ended December 31,2008


2007(in thousands)Cash flows used in operating activities






(1,519
)Cash flows from investing activities






1,260Cash flows used in financing activities






   Form 10-K
 Contractual
    Obligations and Commitments    Payments Due By PeriodContractual Obligations(7)

2009


2010-2011


2012-2013


Beyond 2013


Total(in thousands)Long-term debt(1)






66,505



222,718







289,223Debt, Stendal(2)


16,500



37,083



64,583



412,907



531,073Capital lease obligations(3)


3,419



5,734



1,547



1,537



12,237Operating lease obligations(4)


2,276



3,403



958







6,637Purchase obligations(5)


2,788



2,349



2,102



5,841



13,080Contractual commitments for capital expenditures(6)


9,420



420











9,840Other long-term liabilities(7)


1,236



927



1,121



3,679



6,963Total(8)


35,639



116,421



293,029



423,964



869,053     (1)
    
    This reflects principal only
    relating primarily to indebtedness under credit facilities
    relating to the pulp mills, but does not reflect indebtedness
    relating to the Stendal mill. See Item 1 
    Business  Description of Certain Indebtedness,
    footnote 2 below and Note 7 to our annual financial
    statements included herein for a description of such
    indebtedness. See Item 7A  Quantitative
    and Qualitative Disclosure about Market Risk for
    information about our derivatives.(2)
    
    This reflects principal only in
    connection with indebtedness relating to the Stendal mill,
    including under the Stendal Loan Facility and convertible notes.
    See Item 1  Business - Description of
    Certain Indebtedness and Note 7 to our annual
    financial statements included herein for a description of such
    indebtedness. Principal payments totaling
    101.4 million that were originally scheduled for 2009
    to 2013 have been deferred to 2017 pursuant to the Amendment to
    the Stendal Loan Facility as noted in Note 19 to our annual
    financial statements. This does not include amounts associated
    with derivatives entered into in connection with the Stendal
    Loan Facility. See Item 7A  Quantitative
    and Qualitative Disclosure about Market Risk for
    information about our derivatives.(3)
    
    Capital lease obligations relate to
    transportation vehicles and production equipment. These amounts
    reflect principal and interest.(4)
    
    Operating lease obligations relate
    to transportation vehicles and other production and office
    equipment. 49




---



##### 



(5)
    
    Purchase obligations relate
    primarily to
    take-or-pay
    contracts, including for purchases of raw materials, made in the
    ordinary course of business.(6)
    
    Contractual commitments for capital
    expenditures relate primarily to non-cancellable commitments
    related to the Celgar Energy Project and the Rosenthal bleaching
    line renewal project.(7)
    
    Other long-term liabilities relate
    primarily to future payments that will be made for
    post-employment benefits other than pensions. Those amounts are
    estimated using actuarial assumptions, including expected future
    service, to project the future obligations. Additionally, the
    balance also includes pension funding which is calculated on an
    annual basis. Consequently, the 2009 amount includes
    0.8 million related to pension funding.(8)
    
    We have identified approximately
    0.8 million of potential tax liabilities that are
    more likely than not to be paid. However, due to the uncertain
    timing related to the potential liabilities, we are unable to
    allocate the payments in the contractual obligations table. Foreign
    Currency         Results
    of Operations of the Restricted Group Under Our Senior
    Note Indenture    Form 10-K.
 Restricted
    Group Results  Year Ended December 31, 2008
    Compared to Year Ended December 31, 2007       50




---



##### 



51




---



##### 



Years Ended December 31,2008


2007(in thousands)Restricted Group(1)Net income (loss) from continuing operations(2)


(30,432
)


17,702Income taxes (benefits)


3,728



6,428Interest expense


27,027



28,472Investment (income) loss


(6,834
)


(5,303
)Unrealized foreign exchange (gain) loss on debt


4,114



(10,629
)Operating income (loss) from continuing operations


(2,397
)


36,670Add: Depreciation and amortization


28,867



28,919Operating EBITDA


26,470



65,589     (1)
    
    See Note 20 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results.(2)
    
    For the Restricted Group net income
    from continuing operations and net income are the same for 2008,
    but different for 2007. Restricted
    Group Results  Year Ended December 31, 2007
    Compared to Year Ended December 31, 2006                   52




---



##### 



Years Ended December 31,2007


2006(in thousands)Restricted Group(1)Net income (loss) from continuing operations


17,702



9,351Income taxes (benefits)


6,428



11,258Interest expense


28,472



34,354Investment (income) loss


(5,303
)


(5,316
)Unrealized foreign exchange (gain) loss on debt


(10,629
)


(15,245
)Operating income (loss) from continuing operations


36,670



34,402Add: Depreciation and amortization


28,919



27,819Operating EBITDA


65,589



62,221     (1)
    
    See Note 20 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results. 53




---



##### 



Liquidity
    and Capital Resources of the Restricted Group    Years EndedDecember 31,2008





2007(in thousands)Restricted Group Financial Position(1)Cash and cash equivalents


26,176







59,371Working capital


101,490







120,486Property, plant and equipment


351,009







385,569Total assets


579,777







627,854Long-term liabilities


324,638







305,158Shareholders equity


210,179







278,582     (1)
    
    See Note 20 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results.         Critical
    Accounting Policies       54




---



##### 



Derivative Instruments. Accounting for Derivative Instruments and Hedging
    Activities,
    Impairment of Long-Lived Assets.
    Deferred Taxes.
  
    the history of the tax loss carryforwards and their expiry dates;
    future reversals of temporary differences;
    our projected earnings; and
    tax planning opportunities.      Inventory Provisions.
 55




---



##### 



New
    Accounting Standards  Form 10-K.
 Cautionary
    Statement Regarding Forward-Looking Information  Form 10-K Private Securities Litigation Reform Act
    of 1995 Form 10-K Form 10-K.
 Inflation   56




---



##### 



ITEM 7A.  QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      Derivatives
             57




---



##### 



Recognized





RecognizedGain (Loss)





Gain (Loss)Year Ended





Year EndedNotional


December 31,


Notional


December 31,Derivative Instrument

Maturity Date


Amount


2008


Amount


2007(in millions of


(in thousands)


(in millions)


(in thousands)Euros or MWh)Interest Rate DerivativesStendal Interest Rate Contracts(1)


October 2017



523.1



(25,228
)


556.6



19,470Foreign Exchange Rate DerivativesStendal Currency Swap(2)


Settled















(181
)Stendal Currency Swap(3)


Settled















1,067








886Energy Derivative(4)Electricity forward sale


2009


MWh
104,000



9,172







Electricity forward purchase


2009


MWh
104,000



(5,901
)







3,271







     (1)
    
    In connection with the Stendal Loan
    Facility, in the third quarter of 2002 Stendal entered into the
    Stendal Interest Rate Contracts, which are
    variable-to-fixed
    interest rate swaps, for the term of the Stendal Loan Facility,
    with respect to an aggregate maximum amount of approximately
    612.6 million of the principal amount of the
    long-term indebtedness under the Stendal Loan Facility. The
    swaps took effect on October 1, 2002 and are comprised of
    three contracts. The first contract commenced in October 2002
    for a notional amount of 4.1 million, gradually
    increasing to 464.9 million, with an interest rate of
    3.795%, and matured in May 2004. The second contract commenced
    in May 2004 for a notional amount of 464.9 million,
    gradually increasing to 612.6 million, with an
    interest rate of 5.28%, and matured in April 2005. The third
    contract commenced in April 2005 for a notional amount of
    612.6 million, with an interest rate of 5.28%, and
    the notional amount gradually decreases and the contract
    terminates upon the maturity of the Stendal Loan Facility in
    October 2017. 58




---



##### 



(2)
    
    For 306.3 million of the
    outstanding principal amount under the Stendal Loan Facility,
    all repayment installments from February 7, 2005 until
    October 2, 2017 were swapped into U.S. dollar amounts at a
    rate of $1.2960. The interest rate was swapped into the
    following payments: pay six-month U.S. dollar to LIBOR plus 12
    basis points and receive the six-month Euribor. The swap was
    settled in March 2007.(3)
    
    For 153.2 million of the
    outstanding principal amount under the Stendal Loan Facility,
    all repayment installments from April 18, 2005 until
    October 2, 2017 were swapped into U.S. dollar amounts at a
    rate of $1.2799. The interest rate was swapped into the
    following payments: pay six-month U.S. dollar to LIBOR plus 13
    basis points and receive the six-month Euribor. The swap was
    settled in March 2007.(4)
    
    During the year, 104,000 MWh
    of electricity contracts were sold forward by Rosenthal and
    Stendal. Subsequently 104,000 MWh were purchased forward,
    effectively settling the forward sales. These contracts are
    expected to settle in the first quarter of 2009. In addition,
    66,000 MWh of electricity contracts were settled in 2008
    for a net gain of approximately 1.2 million.  Interest
    Rate Risk
    As at December 31, 2008Carrying


Fair


Expected maturity dateValue


Value


2009


2010


2011


2012


2013


Thereafter(in thousands)AssetsCash, restricted ()(1)


13,000



13,000



130



130



130



130



130



13,650LiabilitiesLong-term debt:Fixed rate ($)(2)


222,718



116,927



















222,718



Average interest rate


9.25
%


9.25
%


















9.25
%Fixed rate ($)(3)


48,319



31,891







48,391















Average interest rate


8.5
%


8.5
%






8.5
%Variable rate ()(4)


531,073



531,073



16,500



13,916



23,167



24,583



40,000



412,907Average interest rate


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%Variable rate (C$)(5)


18,186



18,186







18,186















Average interest rate


3.9
%


3.9
%






3.9
%   As at December 31, 2008Nominal


Fair


Expected maturity dateAmount


Value


2009


2010


2011


2012


2013


Thereafter(in thousands)Interest Rate DerivativesInterest rate swaps:Variable to fixed ()(6)


523,062



(47,112
)


36,018



39,280



43,315



46,873



50,794



306,782Average pay rate


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%Average receive rate


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%     (1)
    
    We are required to maintain a
    restricted cash account pursuant to the Stendal Loan Facility.
    The interest income on the restricted cash balance is estimated
    to be 1.0% per annum.(2)
    
    Senior Notes due February 2013,
    bearing interest at 9.25%, principal amount $310.0 million.(3)
    
    Subordinated convertible notes due
    October 2010, bearing interest at 8.5%, principal amount
    $67.3 million.(4)
    
    Stendal Loan Facility bears
    interest at varying rates of between Euribor plus 0.90% to
    Euribor plus 1.85%.(5)
    
    Celgar Working Capital Facility
    bears interest at bankers acceptance plus 2.25% or Canadian
    prime plus 0.50% on Canadian dollar denominated amounts and
    bears interest at LIBOR plus 2.25% or U.S. base plus 0.50% on
    U.S. dollar denominated amounts. As at December 31, 2008,
    the principal amount owing was C$31.0 million.(6)
    
    Interest rate swaps put in place on
    the Stendal Loan Facility, effectively converting it from a
    variable interest rate to a fixed interest rate loan. 59




---



##### 



Foreign
    Currency Exchange Rate Risk
    As at December 31, 2008Carrying


Fair


Expected maturity dateValue


Value


2009


2010


2011


2012


2013


Thereafter(in thousands)On-Balance Sheet Financial InstrumentsEuro functional currency Liabilities:Fixed rate ($)(1)


222,718



116,927



















222,718



Average interest rate


9.25
%


9.25
%


















9.25
%Fixed rate ($)(2)


48,319



31,891







48,319















Average interest rate


8.5
%


8.5
%






8.5
%Variable rate (C$)(3)


18,186



18,186







18,186















Average interest rate


3.9
%


3.9
%






3.9
%     (1)
    
    Senior Notes due February 2013,
    bearing interest at 9.25%, principal amount $310.0 million.(2)
    
    Subordinated convertible notes due
    October 2010, principal amount $67.3 million.(3)
    
    Celgar Working Capital Facility
    bears interest at bankers acceptance plus 2.25% or Canadian
    prime plus 0.50% on Canadian dollar denominated amounts and
    bears interest at LIBOR plus 2.25% or U.S. base plus 0.50% on
    U.S. dollar denominated amounts. As at December 31, 2008,
    the principal amount owning was C$31.0 million.  Energy
    Price Risk
   ITEM 8.  FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K, Form 10-K
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   ITEM 9A.  CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e)
 60




---



##### 



Form 10-K.
    Managements
    Report on Internal Control Over Financial Reporting
      
    Pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of the assets of Mercer;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures are being made only in accordance
    with authorizations of management and directors; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of
    assets that could have a material effect on the financial
    statements.    Internal Control-Integrated
    Framework,
    Changes
    in Internal Controls
  Rules 13a-15(f)
 ITEM 9B.  OTHER
    INFORMATION   61




---



##### 



PART III ITEM 10.  DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    Jimmy S.H. Lee,
  Kenneth A. Shields,
  William D. McCartney,
  Guy W. Adams,
  Eric Lauritzen,
  Graeme A. Witts,
  George Malpass,
  David M. Gandossi,
 62




---



##### 



Claes-Inge Isacson,
  David K. Ure,
  Leonhard Nossol,
  David M. Cooper,
  Eric X. Heine,
  Wolfram Ridder,
  Genevieve Stannus,
  Niklaus Gruenenfelder,
 63




---



##### 



Audit
    Committee
  Form 10-K www.mercerint.com Sarbanes-Oxley Act of 2002
    Compensation
    and Human Resource Committee
  Form 10-K www.mercerint.com
  Governance
    and Nominating Committee
  Form 10-K www.mercerint.com
 64




---



##### 



Environmental,
    Health and Safety Committee
  Form 10-K www.mercerint.com
  Lead
    Director/Deputy Chairman
    Code of
    Business Conduct and Ethics
  Form 10-K www.mercerint.com (604) 684-1099) (206) 674-4639).
  Section 16(a)
    Beneficial Ownership Reporting Compliance
   65




---



##### 



ITEM 11.  EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Review,
    Approval or Ratification of Transactions with Related
    Persons
      
    Whether the transaction is fair and reasonable to us;
    The business reasons for the transaction;
    Whether the transaction would impair the independence of one of
    our non-employee directors; and
    Whether the transaction is material, taking into account the
    significance of the transaction.    Regulation S-K
 ITEM 14.  PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   66




---



##### 



PART IV ITEM 15.  EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES  (a) (1)  Financial Statements PageReport of Independent Registered Chartered
    Accountants  PricewaterhouseCoopers LLP


70Report of Independent Registered Chartered
    Accountants  Deloitte & Touche LLP


72Consolidated Balance Sheets


73Consolidated Statements of Operations


74Consolidated Statements of Comprehensive Income (Loss)


75Consolidated Statements of Changes in Shareholders Equity


76Consolidated Statements of Cash Flows


77Notes to the Consolidated Financial Statements


78   (1)
    List of
    Exhibits  1.1

Underwriting Agreement dated February 8, 2005 between
    Mercer International Inc. and RBC Capital Markets Corporation,
    on behalf of itself and CIBC World Markets Corp., Raymond
    James & Associates, Inc. and D.A. Davidson &
    Co. Incorporated by reference from
    Form 8-K
    dated February 10, 2005.1.2

Underwriting Agreement dated February 8, 2005 among Mercer
    International Inc. and RBC Capital Markets Corporation and
    Credit Suisse First Boston LLC, on behalf of themselves and CIBC
    World Markets Corp. Incorporated by reference from
    Form 8-K
    dated February 10, 2005.2.1

Agreement and Plan of Merger among Mercer International Inc.,
    Mercer International Regco Inc. and Mercer Delaware Inc. dated
    December 14, 2005. Incorporated by reference to the Proxy
    Statement/Prospectus filed on December 15, 2005.3.1

Articles of Incorporation of the Company, as amended.
    Incorporated by reference from
    Form 8-A
    dated March 1, 2006.3.2

Bylaws of the Company. Incorporated by reference from
    Form 8-A
    dated March 1, 2006.4.1*

First Supplemental Indenture dated March 1, 2006 to
    Indenture dated as of October 10, 2003 between Mercer
    International Inc. and Wells Fargo Bank, N.A.4.2

Indenture dated as of December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form S-3
    filed December 10, 2004.4.3

First Supplemental Indenture dated February 14, 2005 to
    Indenture dated December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form 8-K
    dated February 17, 2005.10.1

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG, as amended by Amendment, Restatement and
    Undertaking Agreement dated February 3, 2009.10.2

Shareholders Undertaking Agreement dated August 26,
    2002 among Mercer International Inc., Stendal Pulp Holdings
    GmbH, RWE Industrie-Lösungen GmbH, AIG Altmark Industrie AG
    and FAHR Beteiligungen AG and Zellstoff Stendal GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated September 10, 2002.10.3*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG. 67




---



##### 



10.4*

Contract for the Engineering, Design, Procurement, Construction,
    Erection and
    Start-Up of
    a Kraft Pulp Mill between Zellstoff Stendal GmbH and RWE
    Industrie-Lösungen GmbH dated August 26, 2002. Certain
    non-public information has been omitted from the appendices to
    Exhibit 10.16 pursuant to a request for confidential
    treatment filed with the SEC. Such non-public information was
    filed with the SEC on a confidential basis. The SEC approved the
    request for confidential treatment in January 2004.10.5*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees.10.6

Employment Agreement dated for reference August 7, 2003
    between Mercer International Inc. and David Gandossi.
    Incorporated by reference from
    Form 8-K
    dated August 11, 2003.10.7

Employment Agreement effective as of April 28, 2004 between
    Mercer International Inc. and Jimmy S.H. Lee. Incorporated by
    reference from
    Form 8-K
    dated April 28, 2004.10.8

2004 Stock Incentive Plan. Incorporated by reference from
    Form S-8
    dated June 15, 2004.10.9

Asset Purchase Agreement by and among Mercer International Inc.,
    0706906 B.C. Ltd. and KPMG Inc., as receiver of all of the
    assets and undertakings of Stone Venepal (Celgar) Pulp Inc.
    dated November 22, 2004. Incorporated by reference from
    Form 8-K
    dated November 23, 2004.10.10

Revolving Credit Facility Agreement dated February 9, 2005
    among D&Z Holding GmbH, Zellstoff-und Papierfabrik
    Rosenthal GmbH & Co. KG, ZPR Beteiligungs GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated February 17, 2005.10.11

Shareholders Undertaking Agreement dated February 9,
    2005 relating to Revolving Credit Facility Agreement.
    Incorporated by reference from
    Form 8-K
    dated February 17, 2005.10.12

Revolving Term Credit Facility dated for reference May 19,
    2006 among Zellstoff Celgar Limited Partnership, as borrower,
    and the lenders from time to time parties thereto, as lenders
    and CIT Business Credit Canada Inc., as agent. Incorporated by
    reference from
    Form 8-K
    dated May 30, 2006.10.13

Employment Agreement dated October 2, 2006 between Stendal
    Pulp Holding GmbH and Wolfram Ridder. Incorporated by reference
    from
    Form 8-K
    dated October 2, 2006.10.14

Employment Agreement effective October 16, 2006 between
    Mercer International Inc. and David Ure dated September 22,
    2006. Incorporated by reference from
    Form 8-K
    dated October 13, 2006.10.15

Employment Agreement effective September 25, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    December 5, 2008.10.16

Employment Agreement effective September 1, 2005 between
    Mercer International Inc. and Leonhard Nossol dated
    August 18, 2005. Incorporated by reference from
    Form 10-Q
    dated May 6, 2008.10.17***

Electricity Purchase Agreement effective January 27, 2009
    between Zellstoff Celgar Limited Partnership and British
    Columbia Hydro and Power Authority.14

Code of Business Conduct and Ethics. Incorporated by reference
    from the definitive proxy statement on Schedule 14A dated
    August 11, 2003.99.1

Exchange Agreement dated December 4, 2006 between Mercer
    International Inc. and Nisswa Master Fund Ltd. Incorporated
    by reference from
    Form 8-K
    dated December 5, 2006.99.2

Exchange Agreement dated December 4, 2006 between Mercer
    International Inc. and CC Arbitrage Ltd. Incorporated by
    reference from
    Form 8-K
    dated December 5, 2006.99.3

Audit Committee Charter. Incorporated by reference from the
    definitive proxy statement on Schedule 14A dated
    April 28, 2005.99.4

Governance and Nominating Committee Charter. Incorporated by
    reference from the definitive proxy statement on
    Schedule 14A dated April 28, 2004.21

List of Subsidiaries of Registrant.23.1

Consent of Independent Registered Chartered
    Accountants  PricewaterhouseCoopers LLP.23.2

Consent of Independent Registered Chartered
    Accountants  Deloitte & Touche LLP.31.1

Section 302 Certificate of Chief Executive Officer.31.2

Section 302 Certificate of Chief Financial Officer. 68




---



##### 



32.1**

Section 906 Certificate of Chief Executive Officer.32.2**

Section 906 Certificate of Chief Financial Officer.     *
    
    Filed in
    Form 10-K
    for prior years.**
    
    In accordance with Release
    33-8212 of
    the Commission, these Certifications: (i) are
    furnished to the Commission and are not
    filed for the purposes of liability under the
    Securities Exchange Act of 1934, as amended, or the
    Exchange Act; and (ii) are not to be subject to
    automatic incorporation by reference into any of our
    Companys registration statements filed under the
    Securities Act, as amended for the purposes of liability
    thereunder or any offering memorandum, unless our Company
    specifically incorporates them by reference therein.  ***
    
    Pursuant to
    17 CFR 240.24b-2, confidential information has been
    omitted and filed separately with the Commission pursuant to a
    confidential treatment application filed with the Commission. 69




---



##### 



INDEPENDENT
    AUDITORS REPORT
       Consolidated
    financial statements
          Internal
    control over financial reporting
  Internal Control 
    Integrated Framework
     70




---



##### 



71




---



##### 



REPORT OF
    INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
           Share-Based
    Payment, Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans  an Amendment of FASB
    Statements No. 87, 88, 106 and 132(R)
      72




---



##### 



MERCER
    INTERNATIONAL INC.
  CONSOLIDATED
    BALANCE SHEETS
 (In
    thousands of Euros, except per share data)
  December 31,2008


2007ASSETSCurrent assetsCash and cash equivalents (Note 2)


42,452



84,848Cash, restricted (Note 2)


13,000



Receivables (Note 3)


100,158



89,890Note receivable, current portion


642



5,896Inventories (Note 4)


98,457



103,610Prepaid expenses and other


4,192



6,015Total current assets


258,901



290,259Long-term assetsCash, restricted (Note 2)






33,000Property, plant and equipment (Note 5)


881,704



933,258Investments


419



96Deferred note issuance and other costs


4,011



5,303Deferred income tax (Note 9)


31,666



17,624Note receivable, less current portion


3,529



3,977921,329



993,258Total assets


1,180,230



1,283,517LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses (Note 6)


87,517



87,000Pension and other post-retirement benefit obligations, current
    portion (Note 8)


510



493Debt, current portion (Note 7)


16,500



34,023Total current liabilities


104,527



121,516Long-term liabilitiesDebt, less current portion (Note 7)


803,796



815,832Unrealized interest rate derivative losses (Note 14)


47,112



21,885Pension and other post-retirement benefit obligations
    (Note 8)


12,846



19,983Capital leases and other (Note 15)


11,267



8,999Deferred income tax (Note 9)


34,457



18,640909,478



885,339Total liabilities


1,014,005



1,006,855SHAREHOLDERS EQUITYShare capital (Note 10)


202,844



202,844Paid-in capital


299



134Retained earnings (deficit)


(35,046
)


37,419Accumulated other comprehensive income


(1,872
)


36,265Total shareholders equity


166,225



276,662Total liabilities and shareholders equity


1,180,230



1,283,517Commitments and contingencies (Note 16)Subsequent events (Note 19)    73




---



##### 



MERCER
    INTERNATIONAL INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (In
    thousands of Euros, except per share data)
  For the Years Ended December 31,2008


2007


2006Revenues:Pulp revenue


689,320



704,391



623,977Energy revenue


30,971



22,904



20,922720,291



727,295



644,899Costs and expenses:Operating costs


626,933



575,238



477,526Operating depreciation and amortization


55,484



56,400



55,83437,874



95,657



111,539Selling, general and administrative expenses


30,158



30,714



34,644(Sale) purchase of emission allowances


(5,613
)


(4,643
)


(15,609
)Operating income from continuing operations


13,329



69,586



92,504Other income (expense)Interest expense


(65,756
)


(71,400
)


(91,931
)Investment income (loss)


(1,174
)


4,453



6,090Foreign exchange gain (loss) on debt


(4,234
)


10,958



15,245Realized gain (loss) on derivative instruments (Note 14)






6,820



(3,510
)Unrealized gain (loss) on derivative instruments (Note 14)


(25,228
)


13,537



109,358Total other income (expense)


(96,392
)


(35,632
)


35,252Income (loss) before income taxes and minority interest from
    continuing operations


(83,063
)


33,954



127,756Income tax benefit (provision) (Note 9)Current


(501
)


(2,170
)


(584
)Deferred


(1,976
)


(8,144
)


(56,859
)Income (loss) before minority interest from continuing operations


(85,540
)


23,640



70,313Minority interest


13,075



(1,251
)


(1,071
)Net income (loss) from continuing operations


(72,465
)


22,389



69,242Net loss from discontinued operations






(210
)


(6,032
)Net income (loss)


(72,465
)


22,179



63,210Net income (loss) per share from continuing operations
    (Note 12)Basic


(2.00
)


0.62



2.08Diluted


(2.00
)


0.58



1.72Net income (loss) per share (Note 12)Basic


(2.00
)


0.61



1.90Diluted


(2.00
)


0.58



1.58    74




---



##### 



MERCER
    INTERNATIONAL INC.
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (In
    thousands of Euros)
  For the Years Ended December 31,2008


2007


2006Net income (loss)


(72,465
)


22,179



63,210Other comprehensive income (loss)Foreign currency translation adjustment


(41,876
)


29,214



(3,730
)FASB 158 pension income (expense)


4,079



(809
)


Unrealized gains (losses) on securities arising during the year


(340
)


95



171Other comprehensive income (loss)


(38,137
)


28,500



(3,559
)Comprehensive income (loss)


(110,602
)


50,679



59,651    75




---



##### 



MERCER
    INTERNATIONAL INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (In
    thousands of Euros)
  Accumulated OtherCommon Shares








Comprehensive Income (Loss)Amount








Foreign


Defined


UnrealizedPaid in





Retained


Currency


Benefit


GainsNumber





Excess of


Paid-in


Earnings


Translation


Pension


(Losses) on





Shareholdersof Shares


Par Value


Par Value


Capital


(Deficit)


Adjustments


Plans


Securities


Total


EquityBalance at December 31, 2005


33,169,140



25,448



156,138



14



(47,970
)


15,615



(331
)


(171
)


15,113



148,743Shares issued on exercise of stock options


60,000



41



251



























292Shares issued on grants of restricted stock


45,000



32



297



























329Shares of restricted stock cancelled


(9,999
)


(7
)


(57
)


























(64
)Shares issued on repurchase of notes


2,201,035



1,447



12,052



























13,499Stock compensation expense














140























140Adjustment to initially apply FASB Statement No. 158, net
    of tax


























(3,789
)






(3,789
)


(3,789
)Net income


















63,210



















63,210Other comprehensive income (loss)






















(3,730
)






171



(3,559
)


(3,559
)Balance at December 31, 2006


35,465,176



26,961



168,681



154



15,240



11,885



(4,120
)


-



7,765



218,801Shares issued on exercise of stock options


56,666



43



261



























304Shares issued on grants of restricted stock


21,000



15



145



























160Shares issued on repurchase of notes


742,185



557



6,181



























6,738Stock compensation expense














(20
)






















(20
)Net income


















22,179



















22,179Other comprehensive income (loss)






















29,214



(809
)


95



28,500



28,500Balance at December 31, 2007


36,285,027



27,576



175,268



134



37,419



41,099



(4,929
)


95



36,265



276,662Shares issued on grants of restricted stock


21,000











61























61Shares issued on grants of performance stock


116,460











29























29Stock compensation expense














75























75Net loss


















(72,465
)


















(72,465
)Other comprehensive income (loss)






















(41,876
)


4,079



(340
)


(38,137
)


(38,137
)Balance at December 31, 2008


36,422,487



27,576



175,268



299



(35,046
)


(777
)


(850
)


(245
)


(1,872
)


166,225    76




---



##### 



MERCER
    INTERNATIONAL INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (In
    thousands of Euros)
  For the Years Ended December 31,2008


2007


2006Cash flows from (used in) operating activitiesNet income (loss)


(72,465
)


22,179



63,210Adjustments to reconcile net income (loss) to cash flows from
    operating activitiesUnrealized (gain) loss on derivatives


25,228



(13,537
)


(109,358
)Unrealized foreign exchange (gain) loss on debt


4,234



(10,958
)


(15,245
)Operating depreciation and amortization


55,484



56,400



56,085Non-operating amortization


278



258



269Loss (gain) on sale of assets


(765
)


179



5,957Minority interest


(13,075
)


1,251



1,071Income from equity investee










(1,206
)Deferred income taxes


1,976



8,144



56,859Stock compensation expense


264



243



541Pension and other post-retirement expense


1,981



1,806



1,638Pension and other post-retirement benefit funding


(2,739
)


(2,021
)


(1,941
)Inventory provisions


11,272







Other


(123
)


2,048



1,438Changes in current assets and liabilitiesReceivables


(14,811
)


(11,890
)


(7,381
)Inventories


(13,331
)


(38,703
)


7,364Accounts payable and accrued expenses


1,240



3,303



(9,305
)Other


3,486



447



(773
)Net cash from (used in) operating activities


(11,866
)


19,149



49,223Cash flows from (used in) investing activitiesCash, restricted


20,000



24,000



(25,388
)Purchase of property, plant and equipment(3)


(25,704
)


(4,864
)


(32,937
)Proceeds on sale of property, plant and equipment


2,000



881



1,765Note receivable


5,708



4,954



(6,870
)Proceeds from
    available-for-sale
    securities










1,184Net cash from (used in) investing activities


2,004



24,971



(62,246
)Cash flows from (used in) financing activitiesRepayment of notes payable and debt


(34,023
)


(26,719
)


(87,911
)Repayment of capital lease obligations


(3,312
)


(5,562
)


(4,091
)Proceeds from investment grants


266



1,236



9,101Issuance of common shares






305



556Proceeds from borrowings of notes payable and debt


5,837







78,100Proceeds from minority shareholders










5,463Decrease in construction costs payable










(240
)Net cash from (used in) financing activities


(31,232
)


(30,740
)


978Effect of exchange rate changes on cash and cash equivalents


(1,302
)


1,664



(1,698
)Net increase (decrease) in cash and cash equivalents


(42,396
)


15,044



(13,743
)Cash and cash equivalents, beginning of year (1)


84,848



69,804



83,547Cash and cash equivalents, end of year (2)


42,452



84,848



69,804Supplemental disclosure of cash flow information:Cash paid during the period for:Interest


60,652



73,318



84,382Income taxes


1,100



452



1,304Supplemental schedule of non-cash investing and financing
    activities:Acquisition of production and other equipment under capital
    lease obligations


5,318



2,110



3,301Property, plant and equipment on acquisition of 7% interest in
    Stendal










8,067Acquisition of notes receivable on sale of paper assets










11,321Increase (decrease) in accounts payable relating to investing
    activities


2,627







     (1)
    
    Includes amounts related to
    discontinued operations of: 2008  nil,
    2007  437, 2006  772(2)
    
    Includes amounts related to
    discontinued operations of: 2008  nil,
    2007  nil, 2006  437(3)
    
    During 2007, purchases of property,
    plant, and equipment include amounts received and recorded as a
    reduction of property, plant and equipment (approximately
    9,100) upon the settlement of the Stendal engineering,
    procurement and construction (EPC) contract.   77




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The
    Company and Summary of Significant Accounting Policies  Background
        Basis of
    Presentation
    Use of
    Estimates
    Cash and
    Cash Equivalents
    Investments
    available-for-sale available-for-sale
 78




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)   Inventories
    Property,
    Plant and Equipment
            Accounting for
    Conditional Asset Retirement Obligations
  Government
    Grants
   79




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)  and/or
  Deferred
    Note Issuance Costs
    Pensions
    Employers Accounting
    for Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statement No. 87,
    88, 106 and 132R
      Foreign
    Operations and Currency Translation
    Revenue
    and Related Cost Recognition
   80




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)     Disclosures about Segments of an Enterprise and
    Related Information
  Environmental
    Conservation
    Stock-Based
    Compensation
  Share-Based Payment,
      Taxes on
    Income
  Accounting for Income Taxes
 81




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)   Derivative
    Financial Instruments
  Accounting for Derivative Instruments
    and Hedging Activities marked-to-market
  Net
    Income (Loss) Per Share
  Note 12-Net
  Reclassifications
    Recently
    Implemented Accounting Standards
  Fair Value
    Measurements
  Fair Value
    Measurements FAS 157-2, Effective Date of FASB Statement No. 157 157-2), 157-2 157-2.
  Determining
    the Fair Value of a Financial Asset when the market for that
    Asset is not active
  157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset is Not Active 157-3),
 82




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)  157-3 157-3
  The Fair
    Value Option for Financial Assets and Financial Liabilities
  The Fair Value Option for
    Financial Assets and Financial Liabilities
  Accounting
    for Uncertainty in Income Taxes
  Accounting for Uncertainty in Income
    Taxes  An Interpretation of FASB Statement
    No. 109 Note 9-Income
  New
    Accounting Standards
  Noncontrolling Interests
    in Consolidated Financial Statements
  Business
    Combinations
  Disclosures about Derivative
    Instruments and Hedging Activities
 83




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)    No. 142-3, Determination of the Useful Life of Intangible Assets 142-3). 142-3 Goodwill and Other Intangible Assets 142-3 142-3
  The Hierarchy of Generally Accepted
    Accounting Principles The Meaning of Present Fairly in Conformity
    With Generally Accepted Accounting Principles
  14-1 Accounting for Convertible Debt Instruments that may be
    Settled in Cash upon Conversion (Including Partial
    Settlement) 14-1). 14-1 14-1 14-1
  Note 2.
    Cash,
    Cash Equivalents and Restricted Cash    December 31,2008


2007Cash and cash equivalents


42,452



84,848Cash, restricted


13,000



33,000  84




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 2.
    Cash, Cash Equivalents and Restricted Cash 
    (Continued)  Note 3.
    Receivables  December 31,2008


2007Sale of pulp (net of allowance of 614 and 626,
    respectively)


85,120



81,913Value added tax


3,433



2,673Other


11,605



5,304
100,158



89,890       Note 4.
    Inventories  December 31,2008


2007Raw materials


38,225



38,045Finished goods


37,881



43,127Work in process and other


22,351



22,438
98,457



103,610     Note 5.
    Property,
    Plant and Equipment  December 31,2008


2007Land


24,661



24,538Buildings


125,046



125,369Production equipment and other


1,061,991



1,070,2021,211,698



1,220,109Less: Accumulated depreciation


(329,994
)


(286,851
)
881,704



933,258    85




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 5.
    Property, Plant and Equipment  (Continued)   Note 16-Commitments
  Note 6.
    Accounts
    Payable and Accrued Expenses  December 31,2008


2007Trade payables


31,140



37,245Accounts payable and other


4,559



3,097Accrued expenses


31,181



25,752Accrued interest


17,202



17,437Capital leases, current portion


3,435



3,469
87,517



87,000   Note 7.
    Debt      December 31,2008


2007Note payable to bank, included in a total credit facility of
    827,950 to finance the construction related to the Stendal
    pulp mill (a)


531,073



565,096Senior notes due February 2013, interest at 9.25% accrued and
    payable semi-annually, unsecured (b) (Note 11)


222,718



212,285Subordinated convertible notes due October 2010, interest at
    8.5% accrued and payable semi-annually (c) (Note 11)


48,319



46,056Credit agreement with a syndicate of banks with respect to a
    revolving credit facility of C$40 million (d)


18,186



15,248Loans payable to minority shareholders of Stendal pulp
    mill (e)






11,170Credit agreement with bank with respect to a revolving credit
    facility of 40 million (f)






820,296



849,855Less: current portion


(16,500
)


(34,023
)Debt, less current portion


803,796



815,832  86




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 7.
    Debt  (Continued)    Matures

Amount2009


16,5002010


80,4212011


23,1672012


24,5832013


262,718Thereafter


412,907
820,296   (a)
    Note payable to bank, included in a total credit facility of
    827,950 to finance the construction related to the Stendal
    pulp mill, interest at rates varying from Euribor plus 0.90% to
    Euribor plus 1.85% (rates on amounts of borrowing at
    December 31, 2008 range from 6.19% to 6.42%), principal due
    in required installments beginning September 30, 2006 until
    September 30, 2017, collateralized by the assets of the
    Stendal pulp mill, and at December 31, 2008, restricted
    cash amounting to 13,000, with 48% and 32% guaranteed by
    the Federal Republic of Germany and the State of Saxony-Anhalt,
    respectively, of up to 516,073 of outstanding principal
    balance, subject to a debt service reserve account required to
    pay amounts due in the following twelve months under the terms
    of credit facility; payment of dividends is only permitted if
    certain cash flow requirements are met. See Note 19
    Subsequent Events.(b)
    In February 2005, the Company issued $310 million of senior
    notes due February 2013, interest at 9.25% accrued and payable
    semi-annually, unsecured. On or after February 15, 2009,
    the Company may redeem all or a part of the notes at redemption
    prices (expressed as a percentage of principal amount) equal to
    104.63% for the twelve month period beginning on
    February 15, 2009, 102.31% for the twelve month period
    beginning on February 15, 2010, and 100.00% beginning on
    February 15, 2011 and at any time thereafter, plus accrued
    and unpaid interest.(c)
    As at December 31, 2008, the subordinated convertible notes
    had approximately $67.3 million of principal outstanding.
    The subordinated convertible notes are due October 2010, bear
    interest at 8.5% accrued and payable semi-annually, are
    convertible at any time by the holder into common shares of the
    Company at $7.75 per share and are unsecured. The Company
    may redeem for cash all or a portion of these notes at any time
    on or after October 15, 2008 at 100% of the principal
    amount of the notes plus accrued and unpaid interest up to the
    redemption date. The holders of the convertible notes will have
    the option to require the Company to purchase for cash all or a
    portion of the notes not previously redeemed upon a specified
    change of control at a price equal to 100% of the principal.(d)
    Credit agreement with respect to a revolving credit facility of
    C$40 million, on a three year term. Borrowings under the
    credit agreement are secured by pulp mill inventory and
    receivables. Canadian dollar denominated amounts bear interest
    at bankers acceptance plus 2.25% or Canadian prime plus 0.50%.
    U.S. dollar denominated amounts bear interest at LIBOR plus
    2.25% or U.S. base plus 0.50%. As at December 31, 2008,
    this facility was drawn by C$31 million and was accruing
    interest at a rate of approximately 3.90%. The credit agreement
    matures May 19, 2009, but is subject to a one-year
    extension at the Companys request. On January 23,
    2009, the Company was granted a one-year extension pursuant to
    the terms of the credit agreement. The extension carries the
    same general terms and matures May 19, 2010. 87




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 7.
    Debt  (Continued)   (e)
    Loans payable to the minority shareholder of Stendal pulp mill
    bear interest at 7%, payable in September 2006 then payable
    semi-annually beginning March 2007, unsecured, subordinated to
    all liabilities of the Stendal pulp mill, due in 2017. The
    amounts outstanding on these loans were 34,122 and
    32,216 as at December 31, 2008 and 2007,
    respectively. Cumulative net losses of Stendal in the amounts of
    34,122 and 21,305 were applied to these loans in
    2008 and 2007, respectively. The net obligation of nil and
    11,170 is reflected for 2008 and 2007, respectively.(f)
    Credit agreement with respect to a revolving credit facility of
    40,000. Borrowings under the credit agreement are secured
    by pulp mill inventory and receivables. Borrowings under the
    credit agreement bear interest at Euribor plus 1.55%. As at
    December 31, 2008, this facility was undrawn.  Note 8.
    Pension
    and Other Post-Retirement Benefit Obligations          2008OtherPost-RetirementBenefitPension


Obligations


TotalChange in benefit obligationBenefit obligation, December 31, 2007


27,832



16,137



43,969Service cost


789



501



1,290Interest cost


1,356



800



2,156Benefit payments


(1,417
)


(381
)


(1,798
)Past service cost (credit)


973



(1,152
)


(179
)Actuarial (gains) losses


(5,557
)


(3,442
)


(8,999
)Foreign currency exchange rate changes


(3,948
)


(2,166
)


(6,114
)Benefit obligation, December 31, 2008


20,028



10,297



30,325Reconciliation of fair value of plan assetsFair value of plan assets, December 31, 2007


23,903







23,903Actual returns


(4,084
)






(4,084
)Contributions


2,077



381



2,458Benefit payments


(1,417
)


(381
)


(1,798
)Foreign currency exchange rate changes


(3,381
)






(3,381
)Fair value of plan assets, December 31, 2008


17,098







17,098Funded status, December 31, 2008


(2,930
)


(10,297
)


(13,227
)(1) 88




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)  2008OtherPost-RetirementBenefitPension


Obligations


TotalComponents of the net benefit cost recognizedService cost


789



501



1,290Interest cost


1,356



800



2,156Expected return on plan assets


(1,542
)






(1,542
)Amortization of recognized items


(6
)


83



77Net benefit costs


597



1,384



1,981   (1)
    
    The total of 13,356 on the
    consolidated balance sheets also includes the pension
    liabilities of 129 relating to employees at the
    Companys German operations.    2007OtherPost-RetirementBenefitPension


Obligations


TotalChange in benefit obligationBenefit obligation, December 31, 2006


25,990



13,867



39,857Service cost


840



473



1,313Interest cost


1,363



741



2,104Benefit payments


(1,593
)


(323
)


(1,916
)Actuarial (gains) losses


(481
)


442



(39
)Foreign currency exchange rate changes


1,713



937



2,650Benefit obligation, December 31, 2007


27,832



16,137



43,969Reconciliation of fair value of plan assetsFair value of plan assets, December 31, 2006


21,993







21,993Actual returns


351







351Contributions


1,698



323



2,021Benefit payments


(1,593
)


(323
)


(1,916
)Foreign currency exchange rate changes


1,454







1,454Fair value of plan assets, December 31, 2007


23,903







23,903Funded status, December 31, 2007


(3,929
)


(16,137
)


(20,066
)(1)Components of the net benefit cost recognizedService cost


840



473



1,313Interest cost


1,363



741



2,104Expected return on plan assets


(1,673
)






(1,673
)Amortization of recognized items






62



62Net benefit costs


530



1,276



1,806     (1)
    
    The total of 20,476 on the
    consolidated balance sheets also includes the pension
    liabilities of 410 relating to employees at the
    Companys German operations. 89




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)     Amount2009


1,7652010


1,8712011


1,9632012


2,0732013


2,1972014  2018


13,108     Investment
    Objective:
      December 31,2008


2007Benefit obligationsDiscount rate


7.25
%


5.25
%Rate of compensation increase


2.75
%


3.00
%Net benefit cost for year endedDiscount rate


5.25
%


5.00
%Rate of compensation increase


3.00
%


3.00
%Expected rate of return on plan assets


7.00
%


7.25
%Assumed health care cost trend rate atInitial health care cost trend rate


12.00
%


12.00
%Annual rate of decline in trend rate


1.00
%


1.00
%Ultimate health care cost trend rate


4.50
%


5.00
%Medical services plan premiums trend rate


2.50
%


2.50
%    90




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)     December 31, 2008


December 31, 20071% increase


1% decrease


1% increase


1% decreaseEffect on total service and interest rate components


235



(178
)


212



(160
)Effect on post-retirement benefit obligation


1,598



(1,251
)


2,252



(1,762
)     Target


2008


2007Equity securities


50-70
%


61
%


59
%Debt securities


30-45
%


36
%


34
%Cash and cash equivalents


0-10
%


3
%


7
%100
%


100
%   Note 9.
    Income
    Taxes      2008


2007Balance at January 1


4,000



4,400Additions  current year tax positions






200Reductions  prior year tax positions


(3,200
)


(300
)Lapse of statute of limitations






(300
)Settlements






Balance at December 31


800



4,000     and/or
  non-U.S.
 91




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 9.
    Income Taxes  (Continued)     Year Ended December 31,2008


2007


2006U.S. Federal statutory rates


34
%


34
%


34
%U.S. Federal statutory rates on (income) loss from continuing
    operations before income tax and minority interest


28,241



(11,544
)


(43,437
)Tax differential on foreign income (loss)


(2,966
)


2,902



(4,070
)Effect of foreign earnings


(17,800
)






Valuation allowance


(5,530
)


15,021



(16,145
)Other


(4,422
)


(16,693
)


6,209
(2,477
)


(10,314
)


(57,443
)Comprised of:Current


(501
)


(2,170
)


(584
)Deferred


(1,976
)


(8,144
)


(56,859
)
(2,477
)


(10,314
)


(57,443
)     December 31,2008


2007German tax loss carryforwards


67,930



50,725U.S. tax loss carryforwards


5,909



19,934Canadian tax loss carryforwards


4,924



2,497Basis difference between income tax and financial reporting with
    respect to operating pulp mills


(17,118
)


(6,354
)Derivative financial instruments


13,227



6,144Long-term debt


(1,726
)


(2,736
)Payables and accrued expenses


(780
)


148Reserve for deferred pension liability


2,079



18Capital leases


531



652Other


956



1,14975,932



72,177Valuation allowance


(78,723
)


(73,193
)Net deferred tax (liability) asset


(2,791
)


(1,016
)Comprised of:Deferred income tax asset


31,666



17,624Deferred income tax liability


(34,457
)


(18,640
)
(2,791
)


(1,016
)    92




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 9.
    Income Taxes  (Continued)       Note 10.
    Shareholders
    Equity      Common
    shares
    Preferred
    shares
    Note 11.
    Stock-Based
    Compensation   93




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 11.
    Stock-Based Compensation  (Continued)   Performance
    Stock
  (
      Restricted
    Stock
          Stock
    Options
    Number


Weighted Averageof Options


Exercise Price(In U.S. Dollars)Outstanding at December 31, 2005


1,185,000


$
6.71Exercised


(60,000
)


6.38Outstanding at December 31, 2006


1,125,000



6.69Exercised


(56,666
)


7.10Cancelled


(5,000
)


7.92Expired


(135,000
)


8.50Outstanding at December 31, 2007 and 2008


928,334


$
6.44  94




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 11.
    Stock-Based Compensation  (Continued)    Outstanding OptionsWeighted



Exercisable OptionsExercise



Average

Weighted



WeightedPrice



Remaining

Average



AverageRange

Number

Contractual Life

Exercise Price

Number

Exercise Price(In U.S. Dollars)(In U.S. Dollars)



(Years)$5.65 - $6.375


830,000



1.50



$6.29



830,000



$6.297.30


30,000



6.50



7.30



30,000



7.307.92


68,334



6.75



7.92



68,334



7.92         2006Risk-free interest rate


4.1%Expected life of the options


0.5 yearsExpected volatility(1)


34.1%Expected dividend yield


0.0%Weighted average fair value per option granted (in U.S. dollars)


$2.94     (1)
    
    The expected volatility was based
    on the Companys three year historical stock prices.   95




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 11.
    Stock-Based Compensation  (Continued)   Note 12.
    Net
    Income (Loss) Per Share  Year Ended December 31,2008


2007


2006Net income (loss) from continuing operations  basic


(72,465
)


22,389



69,242Interest on convertible notes, net of tax






3,930



4,912Net income (loss) from continuing operations  diluted


(72,465
)


26,319



74,154Net income (loss) from continuing operations per share:Basic


(2.00
)


0.62



2.08Diluted


(2.00
)


0.58



1.72Net income (loss) from continuing operations


(72,465
)


22,389



69,242Net loss from discontinued operations






(210
)


(6,032
)Net income (loss)  basic


(72,465
)


22,179



63,210Interest on convertible notes, net of tax






3,930



4,912Net income (loss)  diluted


(72,465
)


26,109



68,122Net income (loss) per share:Basic


(2.00
)


0.61



1.90Diluted


(2.00
)


0.58



1.58Weighted average number of common shares outstanding:Basic(1)


36,285,027



36,080,931



33,336,348Effect of dilutive shares:Stock options and awards


2,394



362,774



319,793Convertible notes






8,859,036



9,428,022Diluted


36,287,421



45,302,741



43,084,163     (1)
    
    The basic weighted average number
    of shares excludes performance and restricted stock which have
    been issued, but have not vested as at December 31, 2008.    Note 13.
    Business
    Segment Information     96




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 13.
    Business Segment Information  (Continued)     2008


2007


2006Germany


198,340



198,575



154,388China


131,412



159,553



141,296Italy


56,487



50,177



60,057Other European Union countries(1)


133,621



136,434



117,016Other Asia


65,192



58,242



75,522North America


78,718



66,229



39,761Other countries


17,146



26,639



28,586680,916



695,849



616,626Energy revenues


30,971



22,904



20,922Third party transportation revenues


8,404



8,542



7,351
720,291



727,295



644,899     (1)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.    2008


2007Germany


732,766



776,839Canada


161,850



189,277Other


4,036



4,215
898,652



970,331     Note 14.
    Financial
    Instruments    2008


2007Carrying





CarryingAmount


Fair Value


Amount


Fair ValueCash and cash equivalents


42,452



42,452



84,848



84,848Cash, restricted


13,000



13,000



33,000



33,000Receivables


100,158



100,158



89,890



89,890Notes receivable


4,171



4,171



9,873



9,873Accounts payable and accrued expenses


87,517



87,517



87,000



87,000Debt


820,296



704,901



849,855



845,026Interest rate derivative contracts  liability


47,112



47,112



21,885



21,885  97




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 14.
    Financial Instruments  (Continued)  Cash and
    Debt Instruments
        2008


2007


2006Realized net gain on foreign exchange derivatives






6,820



(3,510
)Unrealized net gain (loss) on interest rate derivatives


(25,228
)


19,470



37,292Unrealized net gain (loss) on foreign exchange derivatives






(5,933
)


72,066Unrealized net gain (loss) on derivative financial instruments


(25,228
)


13,537



109,358   Energy
    Derivatives
    Interest
    Rate Derivatives
  variable-to-fixed
 98




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 14.
    Financial Instruments  (Continued)   Foreign
    Exchange Derivatives
    Credit
    Risk
    FAS 157 
    Fair Value Measurements
      identical
  similar
         99




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 14.
    Financial Instruments  (Continued)     Fair
    value measurements at December 31, 2008 using:
  Quoted prices


Significantin active


other


Significantmarkets for


observable


unobservableidentical assets


inputs


inputsDescription

(Level 1)


(Level 2)


(Level 3)


TotalAssetsInvestments held in restricted cash(a)


6,622











6,622Investments(a)


419











419Total assets


7,041











7,041LiabilitiesDerivatives(b) Interest rate swaps






47,112







47,112Total liabilities






47,112







47,112     (a)
    
    Based on observable market data.(b)
    
    Based on observable inputs for the
    liability (interest rates and yield curves observable at
    specific intervals).  Note 15.
    Lease
    Commitments    Capital


OperatingLeases


Leases2009


3,419



2,2762010


2,740



2,0052011


2,994



1,3982012


1,356



9532013


191



5Thereafter


1,537



Total


12,237



6,637Less imputed interest


(1,642
)Total present value of minimum capitalized payments


10,595Less current portion of capital lease obligations


(3,435
)Long-term capital lease obligations


7,160    100




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 15.
    Lease Commitments  (Continued)   Note 16.
    Commitments
    and Contingencies                  Note 17.
    Discontinued
    Operations       101




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 17.
    Discontinued Operations  (Continued)     2008


2007


2006Revenues






128



46,351Operating (loss) income from discontinued operations






(142
)


394Total other expenses






(68
)


(469
)Loss on disposal of business










(5,957
)Net loss from discontinued operations






(210
)


(6,032
)Loss per common share from discontinued operations basic






(0.01
)


(0.18
) diluted






(0.01
)


(0.18
)     2008


2007


2006Cash flows used in operating activities






(1,519
)


(2,121
)Cash flows from (used in) investing activities






1,260



5,944Cash flows used in financing activities










(4,158
)Cash flows used in discontinued operations






(259
)


(335
)   Note 18.
    Minority
    Share Purchase    Note 19.
    Subsequent
    Events        Note 20.
    Restricted
    Group Supplemental Disclosure   102




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 20.
    Restricted Group Supplemental Disclosure 
    (Continued)      Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupASSETSCurrentCash and cash equivalents


26,176



16,276







42,452Cash, restricted






13,000







13,000Receivables


57,258



42,900







100,158Note receivable, current portion


642











642Inventories


59,801



38,656







98,457Prepaid expenses and other


2,573



1,619







4,192Total current assets


146,450



112,451







258,901Property, plant and equipment


351,009



530,695







881,704Other


4,425



5







4,430Deferred income tax


18,439



13,227







31,666Due from unrestricted group


55,925







(55,925
)


Note receivable, less current portion


3,529











3,529Total assets


579,777



656,378



(55,925
)


1,180,230LIABILITIESCurrentAccounts payable and accrued expenses


44,450



43,067







87,517Pension and other post-retirement benefit obligations, current
    portion


510











510Debt, current portion






16,500







16,500Total current liabilities


44,960



59,567







104,527Debt, less current portion


289,222



514,574







803,796Due to restricted group






55,925



(55,925
)


Unrealized derivative loss






47,112







47,112Pension and other post-retirement benefit
    obligations


12,846











12,846Capital leases and other


7,167



4,100







11,267Deferred income tax


15,403



19,054







34,457Total liabilities


369,598



700,332



(55,925
)


1,014,005SHAREHOLDERS EQUITYTotal shareholders equity (deficit)


210,179



(43,954
)






166,225Total liabilities and shareholders equity


579,777



656,378



(55,925
)


1,180,230  103




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 20.
    Restricted Group Supplemental Disclosure 
    (Continued)    Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupASSETSCurrentCash and cash equivalents


59,371



25,477







84,848Receivables


37,482



52,408







89,890Note receivable, current portion


589



5,307







5,896Inventories


63,444



40,166







103,610Prepaid expenses and other


3,714



2,301







6,015Total current assets


164,600



125,659







290,259Cash, restricted






33,000







33,000Property, plant and equipment


385,569



547,689







933,258Other


5,399











5,399Deferred income tax


10,852



6,772







17,624Due from unrestricted group


57,457







(57,457
)


Note receivable, less current portion


3,977











3,977Total assets


627,854



713,120



(57,457
)


1,283,517LIABILITIESCurrentAccounts payable and accrued expenses


43,621



43,379







87,000Pension and other post-retirement benefit obligations, current
    portion


493











493Debt, current portion






34,023







34,023Total current liabilities


44,114



77,402







121,516Debt, less current portion


273,589



542,243







815,832Due to restricted group






57,457



(57,457
)


Unrealized derivative loss






21,885







21,885Pension & other post-retirement benefit obligations


19,983











19,983Capital leases and other


7,033



1,966







8,999Deferred income tax


4,553



14,087







18,640Total liabilities


349,272



715,040



(57,457
)


1,006,855SHAREHOLDERS EQUITYTotal shareholders equity (deficit)


278,582



(1,920
)






276,662Total liabilities and shareholders equity


627,854



713,120



(57,457
)


1,283,517  104




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 20.
    Restricted Group Supplemental Disclosure 
    (Continued)    Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


413,088



307,203







720,291Operating costs


369,923



257,010







626,933Operating depreciation and amortization


28,589



26,895







55,484Selling, general and administrative expenses


17,406



12,752







30,158(Sale) purchase of emission allowances


(433
)


(5,180
)






(5,613
)Operating income from continuing operations


(2,397
)


15,726







13,329Other income (expense)Interest expense


(27,027
)


(43,117
)


4,388



(65,756
)Investment income (loss)


6,834



(3,620
)


(4,388
)


(1,174
)Derivative financial instruments, net






(25,228
)






(25,228
)Foreign exchange gain on debt


(4,114
)


(120
)






(4,234
)Total other income (expense)


(24,307
)


(72,085
)






(96,392
)Income (loss) before income taxes and minority interest from
    continuing operations


(26,704
)


(56,359
)






(83,063
)Income tax benefit (provision)Current


(264
)


(237
)






(501
)Deferred


(3,464
)


1,488







(1,976
)Income (loss) before minority interest from continuing operations


(30,432
)


(55,108
)






(85,540
)Minority interest






13,075







13,075Net income (loss) from continuing operations


(30,432
)


(42,033
)






(72,465
)Net income (loss)


(30,432
)


(42,033
)






(72,465
)  105




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 20.
    Restricted Group Supplemental Disclosure 
    (Continued)    Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


410,369



316,926







727,295Operating costs


328,954



246,284







575,238Operating depreciation and amortization


28,661



27,739







56,400Selling, general and administrative expenses


17,650



13,064







30,714(Sale) purchase of emission allowances


(1,566
)


(3,077
)






(4,643
)Operating income from continuing operations


36,670



32,916







69,586Other income (expense)Interest income (expense)


(28,472
)


(46,653
)


3,725



(71,400
)Investment income


5,303



2,875



(3,725
)


4,453Derivative financial instruments, net






20,357







20,357Foreign exchange gain on debt


10,629



329







10,958Total other income (expense)


(12,540
)


(23,092
)






(35,632
)Income (loss) before income taxes and minority interest from
    continuing operations


24,130



9,824







33,954Income tax benefit (provision)Current


(1,394
)


(776
)






(2,170
)Deferred


(5,034
)


(3,110
)






(8,144
)Income (loss) before minority interest from continuing operations


17,702



5,938







23,640Minority interest






(1,251
)






(1,251
)Net income (loss) from continuing operations


17,702



4,687







22,389Net income (loss) from discontinued operations


(210
)










(210
)Net income (loss)


17,492



4,687







22,179  106




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 20.
    Restricted Group Supplemental Disclosure 
    (Continued)    Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


368,016



276,883







644,899Operating costs


287,867



189,659







477,526Operating depreciation and amortization


27,819



28,015







55,834Selling, general and administrative expenses


22,861



11,783







34,644(Sale) purchase of emission allowances


(4,933
)


(10,676
)






(15,609
)Operating income from continuing operations


34,402



58,102







92,504Other income (expense)Interest income (expense)


(34,354
)


(61,137
)


3,560



(91,931
)Investment income


5,316



4,334



(3,560
)


6,090Derivative financial instruments, net






105,848







105,848Foreign exchange gain on debt


15,245











15,245Total other income (expense)


(13,793
)


49,045







35,252Income (loss) before income taxes and minority interest from
    continuing operations


20,609



107,147







127,756Income tax benefit (provision)Current


(290
)


(294
)






(584
)Deferred


(10,968
)


(45,891
)






(56,859
)Income (loss)before minority interest from continuing operations


9,351



60,962







70,313Minority interest






(1,071
)






(1,071
)Net income (loss) from continuing operations


9,351



59,891







69,242Net income (loss) from discontinued operations






(6,032
)






(6,032
)Net income (loss)


9,351



53,859







63,210  107




---



##### 



Note 20.  Restricted Group Supplemental
    Disclosure  (Continued)
  SUPPLEMENTARY
    FINANCIAL INFORMATION (UNAUDITED)
    Quarterly Financial Data
    (In thousands of Euros, except per share amounts)  Quarter EndedMarch 31


June 30


September 30


December 312008Revenues


186,816



176,651



184,828



171,996Gross profit


18,643



6,216



9,854



(21,384
)Income (loss) before extraordinary items and cumulative effect
    of a change in accounting from continuing operations


2,869



871



(17,173
)


(59,032
)Income (loss) before extraordinary items and cumulative effect
    of a change in accounting from continuing operations, per share*


0.08



0.02



(0.47
)


(1.63
)Net income (loss) from discontinued operations














Net income (loss)


2,869



871



(17,173
)


(59,032
)Net income (loss) per share*


0.08



0.02



(0.47
)


(1.63
)2007Revenues


175,773



182,401



195,734



173,387Gross profit


14,477



10,943



21,457



22,709Income before extraordinary items and cumulative effect of a
    change in accounting from continuing operations


1,093



3,340



10,706



7,250Income before extraordinary items and cumulative effect of a
    change in accounting from continuing operations, per share*


0.03



0.09



0.26



0.18Net income (loss) from discontinued operations


(7
)


(181
)


(10
)


(12
)Net income (loss)


1,086



3,159



10,696



7,238Net income (loss) per share*


0.03



0.09



0.26



0.18     *
    
    On a diluted basis 108




---



##### 



SIGNATURES  Securities Exchange Act of 1934
  Mercer International
    Inc.Dated: March 2, 2009

By: /s/  Jimmy
    S.H.
    LeeJimmy
    S.H. Lee
        Chairman   Securities Exchange Act
    of 1934
  /s/  Jimmy
    S.H. LeeJimmy
    S.H. Lee
    Chairman, Chief Executive Officer and
    Director

Date: March 2, 2009/s/  David
    M. GandossiDavid
    M. Gandossi
    Secretary, Executive Vice President,
    Chief Financial Officer and
    Principal Accounting Officer

Date: March 2, 2009/s/  Kenneth
    A. ShieldsKenneth
    A. Shields
    Director

Date: March 2, 2009/s/  Eric
    LauritzenEric
    Lauritzen
    Director

Date: March 2, 2009/s/  William
    D. McCartneyWilliam
    D. McCartney
    Director

Date: March 2, 2009/s/  Graeme
    A. WittsGraeme
    A. Witts
    Director

Date: March 2, 2009/s/  Guy
    W. AdamsGuy
    W. Adams
    Director

Date: March 2, 2009/s/  George
    MalpassGeorge
    Malpass
    Director

Date: March 2, 2009  109




---



##### 



EXHIBIT INDEX
  ExhibitNo.

Description of Exhibit1
.1

Underwriting Agreement dated February 8, 2005 between
    Mercer International Inc. and RBC Capital Markets Corporation,
    on behalf of itself and CIBC World Markets Corp., Raymond
    James & Associates, Inc. and D.A. Davidson &
    Co. Incorporated by reference from
    Form 8-K
    dated February 10, 20051
.2

Underwriting Agreement dated February 8, 2005 among Mercer
    International Inc. and RBC Capital Markets Corporation and
    Credit Suisse First Boston LLC, on behalf of themselves and CIBC
    World Markets Corp. Incorporated by reference from
    Form 8-K
    dated February 10, 20052
.1

Agreement and Plan of Merger among Mercer International Inc.,
    Mercer International Regco Inc. and Mercer Delaware Inc. dated
    December 14, 2005. Incorporated by reference to the Proxy
    Statement/Prospectus filed on December 15, 20053
.1

Articles of Incorporation of the Company, as amended.
    Incorporated by reference from
    Form 8-A
    dated March 1, 20063
.2

Bylaws of the Company. Incorporated by reference from
    Form 8-A
    dated March 1, 20064
.1

Indenture dated as of October 10, 2003 between Mercer
    International Inc. and Wells Fargo Bank Minnesota, N.A.
    Incorporated by reference from
    Form 8-K
    dated October 15, 20034
.2

Indenture dated as of December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form S-3
    filed December 10, 20044
.3

First Supplemental Indenture dated February 14, 2005 to
    Indenture dated December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form 8-K
    dated February 17, 200510
.1

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG, as amended by Amendment, Restatement and
    Undertaking Agreement dated February 3, 2009.10
.2

Shareholders Undertaking Agreement dated August 26,
    2002 among Mercer International Inc., Stendal Pulp Holdings
    GmbH, RWE Industrie-Lösungen GmbH, AIG Altmark Industrie AG
    and FAHR Beteiligungen AG and Zellstoff Stendal GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated September 10, 200210
.3*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG10
.4*

Contract for the Engineering, Design, Procurement, Construction,
    Erection and
    Start-Up of
    a Kraft Pulp Mill between Zellstoff Stendal GmbH and RWE
    Industrie-Lösungen GmbH dated August 26, 2002. Certain
    non-public information has been omitted from the appendices to
    Exhibit 10.16 pursuant to a request for confidential
    treatment filed with the SEC. Such non-public information was
    filed with the SEC on a confidential basis. The SEC approved the
    request for confidential treatment in January 200410
.5*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees10
.6

Employment Agreement dated for reference August 7, 2003
    between Mercer International Inc. and David Gandossi.
    Incorporated by reference from
    Form 8-K
    dated August 11, 200310
.7

Employment Agreement effective as of April 28, 2004 between
    Mercer International Inc. and Jimmy S.H. Lee. Incorporated by
    reference from
    Form 8-K
    dated April 28, 200410
.8

2004 Stock Incentive Plan. Incorporated by reference from
    Form S-8
    dated June 15, 200410
.9

Asset Purchase Agreement by and among Mercer International Inc.,
    0706906 B.C. Ltd. and KPMG Inc., as receiver of all of the
    assets and undertakings of Stone Venepal (Celgar) Pulp Inc.
    dated November 22, 2004. Incorporated by reference from
    Form 8-K
    dated November 23, 200410
.10

Revolving Credit Facility Agreement dated February 9, 2005
    among D&Z Holding GmbH, Zellstoff-und Papierfabrik
    Rosenthal GmbH & Co. KG, ZPR Beteiligungs GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated February 17, 2005 110




---



##### 



ExhibitNo.

Description of Exhibit10
.11

Shareholders Undertaking Agreement dated February 9,
    2005 relating to Revolving Credit Facility Agreement.
    Incorporated by reference from
    Form 8-K
    dated February 17, 200510
.12

Revolving Term Credit Facility dated for reference May 19,
    2006 among Zellstoff Celgar Limited Partnership, as borrower,
    and the lenders from time to time parties thereto, as lenders
    and CIT Business Credit Canada Inc., as agent. Incorporated by
    reference from
    Form 8-K
    dated May 30, 200610
.13

Employment Agreement dated October 2, 2006 between Stendal
    Pulp Holding GmbH and Wolfram Ridder. Incorporated by reference
    from
    Form 8-K
    dated October 2, 200610
.14

Employment Agreement effective October 16, 2006 between
    Mercer International Inc. and David Ure dated September 22,
    2006. Incorporated by reference from
    Form 8-K
    dated October 13, 200610
.15

Employment Agreement effective September 25, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    December 5, 200810
.16

Employment Agreement effective September 1, 2005 between
    Mercer International Inc. and Leonhard Nossol dated
    August 18, 2005. Incorporated by reference from
    Form 10-Q
    dated May 6, 200810
.17***

Electricity Purchase Agreement effective January 27, 2009
    between Zellstoff Celgar Limited Partnership and British
    Columbia Hydro and Power Authority14


Code of Business Conduct and Ethics. Incorporated by reference
    from the definitive proxy statement on Schedule 14A dated
    August 11, 200399
.1

Exchange Agreement dated December 4, 2006 between Mercer
    International Inc. and Nisswa Master Fund Ltd. Incorporated
    by reference from
    Form 8-K
    dated December 5, 200699
.2

Exchange Agreement dated December 4, 2006 between Mercer
    International Inc. and CC Arbitrage Ltd. Incorporated by
    reference from
    Form 8-K
    dated December 5, 200699
.3

Audit Committee Charter. Incorporated by reference from the
    definitive proxy statement on Schedule 14A dated
    April 28, 200599
.4

Governance and Nominating Committee Charter. Incorporated by
    reference from the definitive proxy statement on
    Schedule 14A dated April 28, 200421


List of Subsidiaries of Registrant23
.1

Consent of Independent Registered Chartered
    Accountants  PricewaterhouseCoopers LLP23
.2

Consent of Independent Registered Chartered
    Accountants  Deloitte & Touche LLP31
.1

Section 302 Certificate of Chief Executive Officer31
.2

Section 302 Certificate of Chief Financial Officer32
.1**

Section 906 Certificate of Chief Executive Officer32
.2**

Section 906 Certificate of Chief Financial Officer     *
    
    Filed in
    Form 10-K
    for prior years.**
    
    In accordance with Release
    33-8212 of
    the Commission, these Certifications: (i) are
    furnished to the Commission and are not
    filed for the purposes of liability under the
    Securities Exchange Act of 1934, as amended; and (ii) are
    not to be subject to automatic incorporation by reference into
    any of the Companys registration statements filed under
    the Securities Act of 1933, as amended for the purposes of
    liability thereunder or any offering memorandum, unless the
    Company specifically incorporates them by reference therein.***
    
    Pursuant to
    17 CFR 240.24b-2, Confidential Information has been
    omitted and filed separately with the Commission pursuant to a
    confidential treatment application filed with the Commission. 111