##### 





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, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
    ____________ to ____________   Commission File No.: 1333274
  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
 None
    Common Stock
 Title of Class
     o þ
  o þ
  Securities Exchange Act of 1934 þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller
    reporting company)   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1.

BUSINESS


5The Company


5Competitive Strengths


7Corporate Strategy


8The Pulp Industry


9Our Product


13Operating Costs


13Cash Production Costs


17Sales, Marketing and Distribution


17Capital Expenditures


18Environmental


20Human Resources


21Description of Certain Indebtedness


22Discontinued Operations


24Additional Information


25Item 1A

RISK FACTORS


25Item 1B

UNRESOLVED STAFF COMMENTS


31Item 2.

PROPERTIES


31Item 3.

LEGAL PROCEEDINGS


32Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


33PART IIItem 5.

MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED
    STOCKHOLDER MATTERS


34Item 6.

SELECTED FINANCIAL DATA


35Item 7.

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


36Results of Operations


36Year Ended December 31, 2007
    Compared to the Year Ended December 31, 2006


38Year Ended December 31, 2006
    Compared to the Year Ended December 31, 2005


40Sensitivities


42Liquidity and Capital Resources


42Operating Activities


43Investing Activities


43Financing Activities


43Discontinued Operations


44Contractual Obligations and Commitments


44Capital Resources


45Foreign Currency


45Results of Operations of the Restricted Group
    Under Our Senior Note Indenture


45Restricted Group Results 
    Year Ended December 31, 2007
         Compared to the Year Ended
    December 31, 2006


45Restricted Group Results 
    Year Ended December 31, 2006
         Compared to the Year Ended
    December 31, 2005


47Liquidity and Capital Resources of the Restricted
    Group


48Critical Accounting Policies


49New Accounting Standards


50 2




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##### 



PageCautionary Statement Regarding Forward-Looking
    Information


51Inflation


51Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


52Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


56Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE


56Item 9A.

CONTROLS AND PROCEDURES


56Item 9B.

OTHER INFORMATION


57PART IIIItem 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE


58Item 11.

EXECUTIVE COMPENSATION


61Item 12.

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


61Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE


62Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES


62PART IVItem 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES


63Financial Statements


68Supplementary Financial Information


98SIGNATURES


99List of subsidiaries of RegistrantConsent of PricewaterhouseCoopers LLP.Consent of Deloitte & Touche LLP.Section 302 C.E.O. CertificationSection 302 C.F.O. CertificationSection 906 C.E.O. CertificationSection 302 C.F.O. Certification   3




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##### 



EXCHANGE
    RATES
      Years Ended December 31,2007


2006


2005


2004


2003(/$)End of period


0.6848



0.7577



0.8445



0.7942



0.7938High for period


0.7750



0.8432



0.8571



0.8473



0.9652Low for period


0.6729



0.7504



0.7421



0.7339



0.7938Average for period


0.7294



0.7962



0.8033



0.8040



0.8838(C$/$)End of period


0.9881



1.1653



1.1659



1.2034



1.2923High for period


0.9168



1.0989



1.1507



1.1775



1.2923Low for period


1.1852



1.1726



1.2704



1.3970



1.5751Average for period


1.0740



1.1344



1.2116



1.3017



1.3916       Years Ended December 31,2007


2006


2005


2004


2003(C$/)End of period


1.4428



1.5377



1.3805



1.6292



1.6280High for period


1.3448



1.3523



1.3576



1.5431



1.4967Low for period


1.5628



1.5377



1.6400



1.6915



1.6643Average for period


1.4690



1.4244



1.5095



1.6169



1.5826    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, 2007, 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, completed construction of a new,
    state-of-the-art, single-line NBSK pulp mill in September 2004,
    which had an initial annual production capacity of approximately
    552,000 ADMTs. The addition of two new digesters in December
    2005, along with other measures, increased its current annual
    production capacity to approximately 620,000 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 that had an annual
    production capacity of approximately 430,000 ADMTs when it was
    acquired in February 2005. A capital project completed in 2007
    and other measures have increased the mills current annual
    production capacity to approximately 480,000 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.   5




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History
    and Development of Business
        start-up
       6




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##### 



Organizational
    Chart
    
 Competitive
    Strengths    
    Modern Low-Cost Mills.  We operate three
    large, modern, low-cost 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. Through focused capital expenditures and other
    measures, we have increased the aggregate production capacity of
    our mills by over 133,000 ADMTs over the last two years.
    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.
    Advantageous Capital Investments and
    Financing.  Our German mills are eligible to
    receive government grants in respect of qualifying capital
    investments. Over the last eight years, our German mills have
    benefited from approximately 383.0 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 7




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##### 



eight years, capital investments at our German mills have
    reduced the amount of overall wastewater fees that would
    otherwise be payable by over 37 million. Further, our
    Stendal mill benefits from German governmental guarantees of its
    project financing which permitted it to obtain better terms and
    lower costs than would otherwise be available. The project debt
    of Stendal has fixed its interest cost, including fees and
    margin, at a rate of approximately 5.3% per annum plus
    applicable margins, a
    15-year term
    and matures in 2017. Such debt of Stendal is non-recourse to our
    other operations and Mercer Inc.  
    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 to reduce
    our operating costs. We believe our generation of renewable
    green energy, high energy prices and surplus power
    provides us with a competitive energy advantage.
    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, worldwide demand for kraft
    market pulp has grown at an average of approximately 3% per
    annum over the last ten years with higher growth rates in
    certain markets such as Asia, in particular China, and eastern
    Europe.
    Operating Modern, World
    Class Mills.  In order to keep our
    operating costs as low as possible, with a goal of operating
    profitably 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, low-cost producer
    of high-quality NBSK pulp without the need for significant
    sustaining capital.
    Improving Efficiency and Reducing Operating
    Costs.  We continually focus on increasing
    productivity and efficiency through cost reduction initiatives
    and targeted capital investments. We seek to make high return
    capital investments that increase production and efficiency,
    reduce costs and improve product quality. At our German mills,
    certain of these capital investments qualify for government
    grants and some offset wastewater fees that would otherwise be
    payable. We also seek to reduce operating costs by better
    managing certain operating activities such as fiber procurement,
    sales and marketing and customer service. We coordinate these
    activities at our mills to realize on potential synergies among
    them.
    Maximizing Energy Realizations.  In
    2007, our mills generated over 50 megawatts 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. They also include working with stakeholders to have our
    surplus energy recognized as green energy and
    enhancing the supply of wood residuals.
    Pursuing Growth.  We pursue growth
    through organic growth and acquisitions primarily in Europe and
    North America. We pursue organic growth through active
    management and targeted capital expenditures designed to produce
    a high return by increasing production, reducing costs and
    improving quality. We seek to acquire interests in companies and
    assets in the pulp industry and related businesses where we can
    leverage our experience and expertise in adding value through a
    focused management approach and our global production,
    maintenance, procurement and sales expertise. We view these
    types of acquisitions, which can occur at significant discounts
    to replacement costs, as having the ability to generate strong
    value. 8




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##### 



The Pulp
    Industry  General
          Markets
         9




---



##### 



build-up build-up build-up
    Competition
      NBSK
    Pulp Pricing
       10




---



##### 



Price Delivered to N. Europe (C$ and  equivalent
    indexed to 2000)
  
   11




---



##### 



The
    Manufacturing Process
    
           12




---



##### 



Our
    Product           Operating
    Costs    Labor
    Fiber
   13




---



##### 



14




---



##### 



15




---



##### 



Energy
        Mercer
    Electricity Generation and Exports
  
  Chemicals
   16




---



##### 



Cash
    Production Costs    Years Ended December 31,Costs

2007


2006


2005(1)(2)(per ADMT)Fiber


247



192



171Labor


43



46



46Chemicals


39



42



42Energy(3)


1



7



8Other


46



41



40Total cash production costs(4)


376



328



307     (1)
    
    The amounts presented are from the
    time of the acquisition of the Celgar mill in February 2005.
    Amounts in respect of the Celgar mill are included in Euros and
    have been converted at the average rate of exchange in 2007,
    2006 and 2005, respectively, for the conversion of Canadian
    dollars to Euros.(2)
    
    In 2005, the Stendal mill was
    ramping up production and cash production costs are not
    necessarily indicative of its operating capability.(3)
    
    Net of energy revenues.(4)
    
    Cost of production per ADMT
    produced excluding depreciation. Sales,
    Marketing and Distribution    Years Ended December 31,(1)2007


2006


2005(in thousands)Revenues by Geographic AreaGermany


198,575



154,388



91,460China


159,553



141,296



82,356Italy


50,177



60,057



71,742Other European Union countries(2)


136,434



117,016



91,308Other Asia


58,242



75,522



56,953North America


66,229



39,761



37,643Other countries


26,639



28,586



16,191Total(3)


695,849



616,626



447,653     (1)
    
    The data presented also includes
    results from the Celgar mill from the time we acquired the mill
    in February 2005.(2)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.(3)
    
    Excluding intercompany sales
    volumes of nil, 13,234 and 14,289 tonnes of pulp and
    intercompany net sales revenues of nil,
    6.4 million and 6.3 million in 2007, 2006
    and 2005, respectively. 17




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##### 



Year Ended

Year Ended

Year EndedDecember 31, 2007

December 31, 2006

December 31, 2005(PIE GRAPH)

(PIE GRAPH)

(PIE GRAPH)    (1)
    
    Includes new entrant countries to
    the European Union from their time of admission.         Capital
    Expenditures   18




---



##### 



As at December 31,2007


2006


2005(in thousands)Properties, net (as shown on consolidated balance sheets)


933,258



972,143



1,015,363Add back: government grants less amortization, deductedfrom properties


304,366



341,710



327,723Properties, gross amount including government grants less
    amortization


1,237,624



1,313,853



1,343,086    19




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##### 



Environmental              ramp-up
  2
 20




---



##### 



Human
    Resources           21




---



##### 



Description
    of Certain Indebtedness    Senior
    Notes
      Convertible
    Notes
       22




---



##### 



Stendal
    Loan Facility
  start-up
      start-up start-up
     23




---



##### 



Rosenthal
    Loan Facility
    Celgar
    Working Capital Facility
  and/or
 Discontinued
    Operations   24




---



##### 



Additional
    Information  www.mercerint.com Form 10-K, Form 10-Q Form 8-K, 1-800-SEC-0330. www.sec.gov
  ITEM 1A.
    RISK
    FACTORS  Form 10-K
  Our
    business is highly cyclical in nature.
           25




---



##### 



Cyclical
    fluctuations in the price and supply of our raw materials could
    adversely affect our business.
      Our
    level of indebtedness could negatively impact our financial
    condition and results of operations.
    
    our ability to obtain additional financing to fund future
    operations or meet our working capital needs or any such
    financing may not be available on terms favorable to us or at
    all;
    a certain amount of our operating cash flow is dedicated to the
    payment of principal and interest on our indebtedness, thereby
    diminishing funds that would otherwise be available for our
    operations and for other purposes;
    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; and
    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.   26




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##### 



We
    operate in highly competitive markets.
    We are
    exposed to currency exchange rate and interest rate
    fluctuations.
      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.
     27




---



##### 



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.     28




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##### 



We are
    subject to risks related to our employees.
    We
    rely on German federal and state government grants and
    guarantees.
    The
    sale of emission allowances is relatively new and volatile and
    subject to governmental amendment.
    We are
    dependent on key personnel.
    
    sales and marketing;
    reducing operating costs;
    identifying capital projects which provide a high rate of
    return; and
    prioritizing expenditures and maintaining employee relations.   29




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##### 



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
  Our
    insurance coverage may not be adequate.
    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.
   30




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##### 



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS.    ITEM 2.
    PROPERTIES      
    an approximately 723,000 square feet fiber storage area;
    barking and chipping facilities for pulp logs;
    an approximately 366,000 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;
    a wastewater treatment plant; and
    a power station with a turbine capable of producing 45 megawatts
    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; 31




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##### 




    a wastewater treatment plant; and
    a power station with a turbine capable of producing
    approximately 100 megawatts 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
    megawatts of electric power from steam produced by a recovery
    boiler and power boiler fueled by natural gas.      AnnualProduction


Years Ended December 31,Capacity(2)


2007


2006


2005(ADMTs)Pulp Production by Mill(1):Rosenthal


325,000



326,838



306,188



316,600Celgar


480,000



476,243



438,855



388,956Stendal


620,000



601,592



557,217



479,063Total pulp production


1,425,000



1,404,673



1,302,260



1,184,619    (1)
    
    As we acquired the Celgar mill in
    February 2005, the actual production for 2005 includes
    production from the Celgar mill from the time of its acquisition.(2)
    
    Capacity is the rated capacity of
    the plants for the year ended December 31, 2007, which is
    based upon production for 365 days a year. Targeted
    production is generally based upon 355 days per year.  ITEM 3.
    LEGAL
    PROCEEDINGS     32




---



##### 



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   33




---



##### 



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

High


Low2006March 31

$
9.45


$
7.46June 30


9.75



8.01September 30


9.90



8.22December 31


12.36



9.002007March 31


13.74



11.19June 30


13.39



9.51September 30


10.94



7.56December 31


10.10



6.992008Period ended February 21


9.02



6.91   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 Plan1992 Amended Stock Option Plan


898,334


$
6.41



370,0002004 Stock Incentive Plan


30,000


$
7.30



758,314
(1)     (1)
    
    An aggregate of 211,685
    restricted shares are issued and outstanding under the plan.  Private Placements. Securities Act of 1933 Form S-3
   34




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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 31,2007


2006


2005


2004


2003(Euro in thousands, other than per share and per ADMT
    amounts)Statement of Operations DataRevenues


704,391



623,977



452,437



182,242



129,282Costs and expenses


634,805



531,473



433,787



168,055



118,769Operating income (loss) from continuing operations


69,586



92,504



18,650



(8,201
)


(4,683
)Unrealized gains (losses) on derivative financial instruments


13,537



109,358



(69,308
)


(32,331
)


(13,153
)Realized gains (losses) on derivative financial instruments


6,820



(3,510
)


(2,455
)


44,467



29,321Interest expense(1)


71,400



91,931



86,326



23,185



12,576Investment income


4,453



6,090



2,422



2,772



5,912Net income (loss) from continuing operations


22,389



69,242



(112,058
)


30,139



5,409Net income (loss) (including discontinued operations)


22,179



63,210



(117,146
)


19,980



(3,593
)Net income (loss) per share from continuing operations,Basic


0.62



2.08



(3.59
)


1.73



0.32Diluted


0.58



1.72



(3.59
)


1.25



0.32Net income (loss) per share (including discontinued operations)


0.61



1.90



(3.75
)


1.15



(0.21
)Weighted average shares outstanding (in thousands),Basic


36,081



33,336



31,218



17,426



16,941Diluted


45,303



43,084



31,218



28,525



16,941Balance Sheet DataCurrent assets


290,259



221,800



251,522



207,409



128,401Current liabilities


121,516



120,002



140,327



229,068



177,348Working capital


168,743



101,798
(2)


111,195
(2)


(21,659
)(2)


(48,947
)Total assets(3)


1,283,517



1,302,594



1,393,816



1,255,649



935,905Long-term liabilities


885,339



963,791



1,104,746



863,840



625,702Shareholders equity


276,662



218,801



148,743



162,741



132,855Other Pulp Data(4)Sales volume (ADMTs)


1,352,590



1,326,355



1,101,304



421,716



303,655Production


1,404,673



1,302,260



1,184,619



446,710



310,244Average price realized (per ADMT)


516



465



407



423



417     (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 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. 35




---



##### 



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    
    the results of operations and financial condition of our Celgar
    mill from the time of its acquisition in February 2005;
    the disposition of our paper operations in 2006. In accordance
    with SFAS No. 144, Accounting for the Impairment or
    Disposal of Long-Lived Assets, the results of this business
    have been classified as discontinued operations and their
    financial results are reported separately as discontinued
    operations for all periods presented. Previously reported
    financial statements for all periods and certain amounts in our
    financial statements and related notes included herein have been
    reclassified to conform to the current presentation; and
    only our continuing operations except as otherwise expressly
    noted. Results
    of Operations             36




---



##### 



37




---



##### 



Years Ended December 31,2007


2006


2005(ADMTs)Pulp Production


1,404,673



1,302,260



1,184,619Pulp Sales(1)


1,352,590



1,326,355



1,101,304Revenues(1)


704,391



623,977



452,437NBSK pulp list prices in Europe ($/ADMT)

$
800


$
680


$
610Average pulp sales realizations (/ADMT)


516



465



407Average Spot Currency Exchange Rates/$


0.7294



0.7962



0.8033C$/$


1.0740



1.1344



1.2116C$/


1.4690



1.4244



1.5095     (1)
    
    Excluding intercompany sales
    volumes of nil, 13,234 and 14,289 ADMTs of pulp and intercompany
    net sales revenues of nil, 6.4 million and
    6.3 million in 2007, 2006 and 2005, respectively. Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006               38




---



##### 



39




---



##### 



Years Ended December 31,2007


2006(in thousands)Net income from continuing operations


22,389



69,242Minority interest


1,251



1,071Income taxes provision


10,314



57,443Interest expense


71,400



91,931Investment income


(4,453
)


(6,090
)Derivative financial instruments, net


(20,357
)


(105,848
)Foreign exchange gain on debt


(10,958
)


(15,245
)Operating income from continuing operations


69,586



92,504Add: Depreciation and amortization


56,658



55,834Operating EBITDA


126,244



148,338  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005           40




---



##### 



41




---



##### 



Years Ended December 31,2006


2005(in thousands)Net income (loss) from continuing operations


69,242



(112,058
)Minority interest


1,071



(17,674
)Income taxes provision (benefit)


57,443



(13,140
)Interest expense


91,931



86,326Investment income


(6,090
)


(2,422
)Derivative financial instruments, net


(105,848
)


71,763Foreign exchange (gain) loss on debt


(15,245
)


4,156Impairment of investments






1,699Operating income from continuing operations


92,504



18,650Add: Depreciation and amortization


55,834



51,160Operating EBITDA


148,338



69,810  Sensitivities    NBSK Pulp Price.
  Foreign Exchange.
 Liquidity
    and Capital Resources    Years Ended December 31,2007


2006(in thousands)Financial PositionCash and cash equivalents


84,848



69,367Working capital


168,743



101,630
(1)Property, plant and equipment


933,258



972,143Total assets


1,283,517



1,300,500
(1)Long-term liabilities


885,339



963,791Shareholders equity


276,662



218,801     (1)
    
    Excluding assets and
    liabilities of discontinued operations. 42




---



##### 



Operating
    Activities       Investing
    Activities     Financing
    Activities      and/or
 43




---



##### 



Discontinued
    Operations      Years Ended December 31,2007


2006


2005(in thousands)Revenues


128



46,351



61,471Operating income (loss) from discontinued operations


(210
)


394



(2,306
)Net loss on disposal of discontinued operations






(5,957
)


Net loss


(210
)


(6,032
)


(5,088
)     Years Ended December 31,2007


2006(in thousands)Cash flows used in operating activities


(1,519
)


(2,121
)Cash flows from investing activities


1,260



5,944Cash flows used in financing activities






(4,158
)    Contractual
    Obligations and Commitments    Payments Due By PeriodContractual Obligations

2008


2009-2010


2011-2012


Beyond 2012


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






61,304







212,285



273,589Debt, Stendal(2)


34,023



76,433



91,587



374,224



576,267Capital lease obligations(3)


3,680



3,223



1,579



1,815



10,297Operating lease obligations(4)


731



839



140



1



1,675Purchase obligations(5)


39,152



6,348



1,707



5,905



53,112Other long-term liabilities(6)


2,273



4,123



4,487



13,455



24,338Total(7)


79,859



152,270



99,464



607,685



939,278    (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 8 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 8 to our
    annual financial statements included herein for a description of
    such indebtedness. 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.(5)
    
    Purchase obligations relate
    primarily to take-or-pay contracts, including for purchases of
    raw materials, made in the ordinary course of business.(6)
    
    Other long-term liabilities
    relate primarily to pension liability. Does not include
    obligations under employment agreements.(7)
    
    We have identified
    approximately 4.0 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. 44




---



##### 



Capital
    Resources     Foreign
    Currency         Results
    of Operations of the Restricted Group Under Our Senior Note
    Indenture     Restricted
    Group Results  Year Ended December 31, 2007
    Compared to Year Ended December 31, 2006     45




---



##### 



46




---



##### 



Years Ended December 31,2007


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


17,702



9,351Income taxes benefit


6,428



11,258Interest expense


28,472



34,354Investment and other income


(5,303
)


(5,316
)Foreign exchange gain on debt


(10,629
)


(15,245
)Operating income 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 elsewhere herein for a reconciliation to our
    consolidated results. Restricted
    Group Results  Year Ended December 31, 2006
    Compared to Year Ended December 31, 2005                 47




---



##### 



Years Ended December 31,2006


2005(in thousands)Restricted Group(1)(2)Net income (loss) from continuing operations(3)


9,351



(25,206
)Income taxes benefit


11,258



1,161Interest expense


34,354



32,352Investment and other income


(5,316
)


(3,742
)Derivative financial instruments, net






295Foreign exchange (gain) loss on debt


(15,245
)


4,156Impairment of investments






1,699Operating income from continuing operations


34,402



10,715Add: Depreciation and amortization


27,819



23,898Operating EBITDA


62,221



34,613    (1)
    
    The results of the Celgar mill are
    included from the date of its acquisition in February 2005.(2)
    
    See Note 20 of the financial
    statements included elsewhere herein for a reconciliation to our
    consolidated results.(3)
    
    For the Restricted Group net income
    (loss) from continuing operations and net income (loss) are the
    same. Liquidity
    and Capital Resources of the Restricted Group    Years Ended December 31,2007


2006(in thousands)Restricted Group Financial Position(1)Cash and cash equivalents


59,371



39,078Working capital


120,486



74,961Property, plant and equipment, net


385,569



408,957Total assets


627,854



609,515Long-term liabilities


305,158



318,728Shareholders equity


278,582



243,949     (1)
    
    See Note 20 of the financial
    statements included elsewhere herein for a reconciliation to our
    consolidated results.     48




---



##### 



Critical
    Accounting Policies        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; 49




---



##### 




    our projected earnings; and
    tax planning opportunities.     New
    Accounting Standards  Noncontrolling Interests in
    Consolidated Financial Statements,
  Business Combinations,
  Fair Value Measurements, FAS 157-2, FSP 157-2, FSP 157-2 FSP 157-2.
  The Fair Value Option for
    Financial Assets and Financial Liabilities,
 50




---



##### 



Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
   Cautionary
    Statement Regarding Forward-Looking Information  Private Securities Litigation Reform Act of 1995
 Inflation   51




---



##### 



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      Derivatives
             52




---



##### 



53




---



##### 



Recognized





RecognizedGain (Loss)





Gain (Loss)Year Ended





Year EndedNotional


December 31,


Notional


December 31,Derivative Instrument

Maturity Date


Amount


2007


Amount


2006(in millions)


(in thousands)


(in millions)


(in thousands)Interest Rate DerivativesStendal Interest Rate Contracts(1)(2)


October 2017



556.6



19,470



590.0



37,292Foreign Exchange Rate DerivativesStendal Currency Swap(3)


Settled







(181
)


295.0



33,683Stendal Currency Swap(4)


Settled











147.5



17,629Stendal Currency Swap(5)


Settled







1,067



147.5



16,654Stendal Currency Forward(6)


Settled


$







$
50.0



590
886







68,556     (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.(2)
    
    For the year ended
    December 31, 2005, the unrealized non-cash loss for the
    Stendal Interest Rate Contracts was 3.2 million.(3)
    
    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 U.S. 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.(4)
    
    For 153.2 million of the
    outstanding principal amount under the Stendal Loan Facility,
    all repayment installments from April 1, 2005 until
    October 2, 2017 were swapped into U.S. dollar amounts at a
    rate of U.S. 1.2990. 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 December 2006.(5)
    
    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 U.S. 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.(6)
    
    Currency forward entered into in
    the first quarter of 2005 in the notional amount of
    $50.0 million at a rate of 1.3108 which matured in February
    2006.  Interest
    Rate Risk
   54




---



##### 



As at December 31, 2007Carrying


Fair


Expected maturity dateValue


Value


2008


2009


2010


2011


2012


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


33,000



33,000



660



660



660



660



660



36,300LiabilitiesLong-term debt:Fixed rate ($)(2)


212,285



193,179























212,285Average interest rate


9.25
%


9.25
%






















9.25
%Fixed rate ($)(3)


46,056



60,333











46,056











Average interest rate


8.5
%


8.5
%










8.5
%Variable rate()(4)


565,096



565,096



34,000



36,600



39,800



44,000



47,600



363,096Average interest rate


5.8
%


5.8
%


5.8
%


5.8
%


5.8
%


5.8
%


5.8
%


5.8
%Variable rate (C$)(5)


15,248



15,248







15,248















Average interest rate


6.5
%


6.5
%






6.5
%   As at December 31, 2007Nominal


Fair


Expected maturity dateAmount


Value


2008


2009


2010


2011


2012


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


556,580



(21,885
)


33,520



36,020



39,280



43,315



46,870



357,575Average pay rate


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%Average receive rate


4.8
%


4.8
%


4.8
%


4.8
%


4.8
%


4.8
%


4.8
%


4.8
%     (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 2% per annum.(2)
    
    Senior notes due February 2013,
    bearing interest at 9.25%, principal amount $310 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,
    2007 the principal amount owing was C$22 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.  Foreign
    Currency Exchange Rate Risk
   55




---



##### 



As at December 31, 2007Carrying


Fair


Expected maturity dateValue


Value


2008


2009


2010


2011


2012


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


212,285



193,179























212,285Average interest rate


9.25
%


9.25
%






















9.25
%Fixed rate ($)(2)


46,056



60,333











46,056











Average interest rate


8.5
%


8.5
%










8.5
%Variable rate (C$)(3)


15,248



15,248







15,248















Average interest rate


6.5
%


6.5
%






6.5
%     (1)
    
    Senior notes due February 2013,
    bearing interest at 9.25%, principal amount $310 million.(2)
    
    Subordinated convertible notes due
    October 2010, bearing interest at 8.5%, 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,
    2007, the principal amount owing was C$22 million.  ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    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) 15d-15(e) Securities Exchange Act of 1934
   56




---



##### 



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) 15d-15(f)
  ITEM 9B.
    OTHER
    INFORMATION   57




---



##### 



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    Jimmy S.H. Lee
  William D. McCartney
  Kenneth A. Shields
  Guy W. Adams
  Eric Lauritzen
  Graeme A. Witts
  George Malpass
  David M. Gandossi
 58




---



##### 



Claes-Inge Isacson
  David K. Ure
  Leonhard Nossol
  David M. Cooper
  Eric X. Heine
  Wolfram Ridder
       59




---



##### 



Audit
    Committee
  Sarbanes-Oxley Act of
    2002
  c/o Suite 2840,
  Compensation
    and Human Resource Committee
    Governance
    and Nominating Committee
    Environmental,
    Health and Safety Committee
   60




---



##### 



Lead
    Director/Deputy Chairman
    Code of
    Business Conduct and Ethics
  (604) 684-1099) (206) 674-4639).
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS   61




---



##### 



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   62




---



##### 



PART IV ITEM 15.  EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES   
  Financial Statements
 PageIndependent Auditors Report 
    PricewaterhouseCoopers LLP


65Report of Independent Registered Chartered
    Accountants  Deloitte & Touche LLP


67Consolidated Balance Sheets


68Consolidated Statements of Operations


69Consolidated Statements of Comprehensive Income
    (Loss)


70Consolidated Statements of Changes in
    Shareholders Equity


71Consolidated Statements of Cash Flows


72Notes to the Consolidated Financial Statements


73    (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

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, 2003.4
.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

Amended and Restated 1992 Stock Option Plan. Incorporated by
    reference from
    Form S-8
    dated March 2, 2000.10
.2*

2002 Employee Incentive Bonus Plan.10
.3

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG. Incorporated by reference from
    Form 8-K
    dated September 10, 2002.10
.4

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
.5*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG. 63




---



##### 



10
.6*

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
.7*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees.10
.8

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
.9

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
.10

2004 Stock Incentive Plan. Incorporated by reference from
    Form S-8
    dated June 15, 2004.10
.11

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
.12

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
.13

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
.14

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
.15

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
.16

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
.17

Employment Agreement effective November 6, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    September 25, 2006. Incorporated by reference from
    Form 8-K
    dated October 13, 2006.99
.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, 2006.21


List of Subsidiaries of Registrant.23
.1

Consent of Independent 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.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. 64




---



##### 



INDEPENDENT
    AUDITORS REPORT  To the Board
    of Directors and Shareholders of
     Consolidated
    financial statements
          Internal
    control over financial reporting
  Internal Control 
    Integrated Framework
     65




---



##### 



Internal Control  Integrated Framework
       66




---



##### 



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)
   
 67




---



##### 



MERCER
    INTERNATIONAL INC.



CONSOLIDATED BALANCE SHEETS

(In thousands of Euros, Except Per Share Data)  December 31,2007


2006ASSETSCurrent AssetsCash and cash equivalents (Note 3)


84,848



69,367Receivables (Note 4)


89,890



75,022Note receivable, current portion


5,896



7,798Inventories (Note 5)


103,610



62,857Prepaid expenses and other


6,015



4,662Current assets of discontinued operations (Note 18)






2,094Total current assets


290,259



221,800Long-Term AssetsCash, restricted (Note 3)


33,000



57,000Property, plant and equipment (Note 6)


933,258



972,143Investments


96



1Unrealized foreign exchange rate derivative gain (Note 15)






5,933Deferred note issuance and other costs


5,303



6,984Deferred income tax (Note 10)


17,624



29,989Note receivable, less current portion


3,977



8,744993,258



1,080,794Total assets


1,283,517



1,302,594LIABILITIESCurrent LiabilitiesAccounts payable and accrued expenses (Note 7)


87,000



83,810Pension and other post-retirement benefit obligations, current
    portion (Note 9)


493



363Debt, current portion (Note 8)


34,023



33,903Current liabilities of discontinued operations (Note 18)






1,926Total current liabilities


121,516



120,002Long-Term LiabilitiesDebt, less current portion (Note 8)


815,832



873,928Unrealized interest rate derivative losses (Note 15)


21,885



41,355Pension and other post-retirement benefit obligations
    (Note 9)


19,983



17,954Capital leases and other


8,999



7,643Deferred income tax (Note 10)


18,640



22,911885,339



963,791Total liabilities


1,006,855



1,083,793SHAREHOLDERS EQUITYPreferred shares, U.S.$1 par value; 50,000,000 authorized
    and issuable in series Series A, 2,000,000 authorized,
    none issued and outstanding






Common shares, U.S.$1 par value; 200,000,000 authorized;
    36,285,027 issued and outstanding at December 31, 2007 and
    35,465,176 at December 31, 2006 (Note 11)


202,844



195,642Additional paid-in capital


134



154Retained earnings


37,419



15,240Accumulated other comprehensive income


36,265



7,765Total shareholders equity


276,662



218,801Total liabilities and shareholders equity


1,283,517



1,302,594Commitments and contingencies (Note 17)    68




---



##### 



MERCER
    INTERNATIONAL INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of Euros, Except Per Share Data)  For The Years Ended December 31,2007


2006


2005Revenues


704,391



623,977



452,437Costs and expenses:Operating costs


548,334



456,604



364,802Operating depreciation and amortization


56,400



55,834



51,16099,657



111,539



36,475Selling, general and administrative expenses


34,714



34,644



35,117(Sale) purchase of emission allowances


(4,643
)


(15,609
)


(17,292
)Operating income from continuing operations


69,586



92,504



18,650Other income (expense)Interest expense


(71,400
)


(91,931
)


(86,326
)Investment income


4,453



6,090



2,422Foreign exchange gain (loss) on debt and distributions


10,958



15,245



(4,156
)Realized gain (loss) on derivative instruments


6,820



(3,510
)


(2,455
)Unrealized gain (loss) on derivative instruments


13,537



109,358



(69,308
)Impairment of investments










(1,699
)Total other (expense) income


(35,632
)


35,252



(161,522
)Income (loss) before income taxes and minority interest from
    continuing operations


33,954



127,756



(142,872
)Income tax (provision) benefit (Note 10)Current


(2,170
)


(584
)


(383
)Deferred


(8,144
)


(56,859
)


13,523Income (loss) before minority interest from continuing operations


23,640



70,313



(129,732
)Minority interest


(1,251
)


(1,071
)


17,674Net income (loss) from continuing operations


22,389



69,242



(112,058
)Net loss from discontinued operations


(210
)


(6,032
)


(5,088
)Net income (loss)


22,179



63,210



(117,146
)Net income (loss) per share from continuing operations
    (Note 13)Basic


0.62



2.08



(3.59
)Diluted


0.58



1.72



(3.59
)Net income (loss) per share (Note 13)Basic


0.61



1.90



(3.75
)Diluted


0.58



1.58



(3.75
)    69




---



##### 



MERCER
    INTERNATIONAL INC.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of Euros)  For The Years Ended December 31,2007


2006


2005Net income (loss)


22,179



63,210



(117,146
)Other comprehensive income (loss)Foreign currency translation adjustment


29,214



(3,730
)


5,156Pension plan additional minimum liability










(331
)FASB 158 pension expense


(809
)






Unrealized gains on securities Unrealized holding gains arising
    during the year


95



171



134Other comprehensive income (loss)


28,500



(3,559
)


4,959Comprehensive income (loss)


50,679



59,651



(112,187
)    70




---



##### 





MERCER
    INTERNATIONAL INC.



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
    EQUITY

(In thousands of Euros)  Comprehensive IncomeCommon Shares








Accumulated OtherAmount








Foreign


Defined


UnrealizedPaid in


Additional


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


Total EquityBalance at December 31, 2004


18,074,229



13,836



69,561



14



69,176



10,459



-



(305
)


10,154



162,741Shares issued on equity offering


10,768,700



8,275



58,370



























66,645Shares issued on acquisition of Celgar


4,210,526



3,244



27,570



























30,814Shares issued on grants of restricted stock


115,685



93



637



























730Net loss


















(117,146
)


















(117,146
)Other comprehensive income (loss)






















5,156



(331
)


134



4,959



4,959Balance 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



276,662


71




---



##### 



MERCER
    INTERNATIONAL INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2007, 2006 and 2005

(In Thousands of Euros)  For The Years Ended December 31,2007


2006


2005Cash Flows from Operating ActivitiesNet income (loss)


22,179



63,210



(117,146
)Adjustments to reconcile net income (loss) to cash flows from
    operating activitiesUnrealized (gains) losses on derivatives


(13,537
)


(109,358
)


69,308Unrealized foreign exchange (gain) loss on debt


(10,958
)


(15,245
)


4,156Operating depreciation and amortization


56,400



56,085



52,041Non-operating amortization


258



269



1,385Loss on sale of assets






5,957



Impairment of investments










1,699Minority interest


1,251



1,071



(17,674
)Income from equity investee






(1,206
)


Deferred income taxes


8,144



56,859



(11,480
)Stock compensation expense


243



541



441Pension and other post-retirement expense


1,806



1,638



1,582Pension and other post-retirement benefit funding


(2,021
)


(1,941
)


(1,663
)Other


2,227



1,438



2,026Changes in current assets and liabilitiesReceivables


(11,890
)


(7,381
)


(18,810
)Inventories


(38,703
)


7,364



(4,150
)Accounts payable and accrued expenses


3,303



(9,305
)


50,582Other


447



(773
)


(959
)Net cash from operating activities


19,149



49,223



11,338Cash Flows from (used in) Investing ActivitiesCash, restricted


24,000



(25,388
)


61,221Purchase of property, plant and equipment(3)


(4,864
)


(32,937
)


(21,987
)Proceeds on sale of property, plant and equipment


881



1,765



857Note receivable


4,954



(6,870
)


Proceeds from available-for-sale securities






1,184



Acquisition of Celgar pulp mill










(146,608
)Purchases of available-for-sale securities










(1,650
)Net cash from (used in) investing activities


24,971



(62,246
)


(108,167
)Cash Flows from (used in) Financing ActivitiesRepayment of notes payable and debt


(26,719
)


(87,911
)


(272,391
)Repayment of capital lease obligations


(5,562
)


(4,091
)


(6,411
)Proceeds from investment grants


1,236



9,101



84,694Issuance of common shares


305



556



66,645Proceeds from borrowings of notes payable and debt






78,100



313,118Proceeds from minority shareholders






5,463



5,463Decrease in construction costs payable






(240
)


(64,223
)Net cash (used in) from financing activities


(30,740
)


978



126,895Effect of exchange rate changes on cash and cash equivalents


1,664



(1,698
)


3,913Net increase (decrease) in cash and cash equivalents


15,044



(13,743
)


33,979Cash and cash equivalents, beginning of year(1)


69,804



83,547



49,568Cash and cash equivalents, end of year(2)


84,848



69,804



83,547Supplemental disclosure of cash flow information:Cash paid during the period for:Interest


73,318



84,382



46,411Income taxes


452



1,304



640Supplemental schedule of non-cash investing and financing
    activities:Acquisition of production and other equipment under capital
    lease obligations


2,110



3,301



2,864Property, plant and equipment on acquisition of 7% interest in
    Stendal


6,738



8,067



Acquisition of notes receivable on sale of paper assets






11,321



Common shares issued on acquisition of Celgar mill










30,814     (1)
    
    Includes amounts related to
    discontinued operations of: 2007  437,
    2006  772, 2005  3,019(2)
    
    Includes amounts related to
    discontinued operations of: 2007  nil,
    2006  437, 2005  772(3)
    
    Includes 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.   72




---



##### 



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  Basis of
    Presentation
        Estimates
    Cash and
    Cash Equivalents
    Investments
        Inventories
   73




---



##### 



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)  Property,
    Plant and Equipment
        Government
    Grants
  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
   74




---



##### 



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)      Revenue
    and Related Cost Recognition
    Environmental
    Conservation
    Stock-Based
    Compensation
  Share-Based Payment
  Taxes on
    Income
    Derivative
    Financial Instruments
  Accounting for Derivative Instruments
    and Hedging
 75




---



##### 



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)  Activities
  Net
    Income (Loss) Per Share
    Reclassifications
    New
    Accounting Standards
  Accounting for Uncertainty in Income Taxes  An
    Interpretation of FASB Statement No. 109 Accounting for Income Taxes
  Fair Value Measurements FAS 157-2 (FSP 157-2) FSP 157-2 FSP 157-2.
   76




---



##### 



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)  Noncontrolling Interests
    in Consolidated Financial Statements
  Business Combinations
  Note 2.
    Acquisition
    of the Celgar Mill and Related Financings  Acquisition
    Note 3.
    Cash,
    Cash Equivalents and Restricted Cash    December 312007


2006Cash and cash equivalents


84,848



69,367Long-term cash restricted


33,000



57,000   Note 4.
    Receivables  December 312007


2006Sale of pulp (net of allowance of 626 and 470,
    respectively)


81,913



69,163Value added tax


2,673



456Other


5,304



5,403
89,890



75,022  77




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 4.
    Receivables 
    (Continued)    Note 5.
    Inventories  December 312007


2006Raw materials


59,559



38,905Work in process and finished goods


44,051



23,952
103,610



62,857   Note 6.
    Property,
    Plant and Equipment  December 312007


2006Land


24,538



23,953Buildings


125,369



127,338Production equipment and other


1,069,170



1,062,0491,219,077



1,213,340Less: Accumulated depreciation


(285,819
)


(241,197
)
933,258



972,143     Note 7.
    Accounts
    Payable and Accrued Expenses  December 312007


2006Trade payables


37,245



32,591Accounts payable and other


12,356



9,509Accrued expenses


17,219



19,923Accrued interest


16,711



16,629Capital leases, current portion


3,469



5,158
87,000



83,810  78




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 7.
    Accounts
    Payable and Accrued Expenses  Note 8.
    Debt    December 312007


2006Note payable to bank, included in a total credit facility of
    827,950 to finance the construction related to the Stendal
    pulp mill(a)


565,096



599,000Senior notes due February 2013, interest at 9.25% accrued and
    payable semi-annually, unsecured (b) (Note 11)


212,285



234,902Subordinated convertible notes due October 2010, interest at
    8.5% accrued and payable semi-annually(c) (Note 11)


46,056



50,962Credit agreement with a syndicate of banks with respect to a
    revolving credit facility of Cdn.$40 million(d)


15,248



7,917Loans payable to minority shareholders of Stendal pulp mill(e)


11,170



8,307Credit agreement with bank with respect to a revolving credit
    facility of 40 million(f)






Note payable to third party(g)






6,743849,855



907,831Less: Current portion


(34,023
)


(33,903
)Debt, less current portion


815,832



873,928     Matures

Amount2008


34,0232009


51,8472010


85,8892011


43,9662012


47,621Thereafter


586,509
849,855   (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, 2007 range from 5.65% to 6.60%), 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, 2007, restricted
    cash amounting to 33,000, with 48% and 32% guaranteed by
    the Federal Republic of Germany and the State of Saxony-Anhalt,
    respectively, of up to 556,957 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.(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. At any time prior to February 15,
    2008, the Company may redeem up to 35% of the aggregate
    principal amount of notes issued under the indenture at a
    redemption price of 109.25% of the principal amount of the
    senior notes plus accrued and unpaid interest to the redemption
    date, with the net cash proceeds of a sale of equity interests
    of the Company. 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 79




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 8.
    Debt 
    (Continued)  amount) equal to 104.625% for the twelve month period beginning
    on February 15, 2009, 102.3125% 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, 2007, the subordinated convertible notes
    had approximately $67.3 million 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
    sinking fund requirements.(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%.(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 32,216 and
    30,604 as at December 31, 2007 and 2006,
    respectively. Cumulative net losses of Stendal in the amounts of
    21,305 and 22,297 were applied to these loans in
    2007 and 2006 due to a right of offset under German law. The net
    obligation of 11,170 and 8,307 is reflected for 2007
    and 2006, respectively.(f)
    Credit agreement with respect to a revolving credit facility of
    40.0 million. 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, 2007, this facility was undrawn.(g)
    Effective March 30, 2007, the note payable was converted to
    742,185 shares. The conversion was based on the 20-trading
    day average closing price of the Companys common shares at
    March 30, 2007.  Note 9.
    Pension
    and Other Post-Retirement Benefit Obligations     80




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 9.
    Pension
    and Other Post-Retirement Benefit Obligations 
    (Continued)    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 our German operations. 81




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 9.
    Pension
    and Other Post-Retirement Benefit Obligations 
    (Continued)     2006OtherPost-RetirementBenefitPension


Obligations


TotalChange in benefit obligationBenefit obligation, December 31, 2005


28,191



15,155



43,346Service cost


815



414



1,229Interest cost


1,271



695



1,966Benefit payments


(1,493
)


(210
)


(1,703
)Actuarial (gains) losses


38



(637
)


(599
)Foreign currency exchange rate changes


(2,832
)


(1,550
)


(4,382
)Benefit obligation, December 31, 2006


25,990



13,867



39,857Reconciliation of fair value of plan assetsFair value of plan assets, December 31, 2005


21,498







21,498Actual returns


2,223







2,223Contributions


1,963



210



2,173Benefit payments


(1,493
)


(210
)


(1,703
)Foreign currency exchange rate changes


(2,198
)






(2,198
)Fair value of plan assets, December 31, 2006


21,993







21,993Funded status, December 31, 2006


(3,997
)


(13,867
)


(17,864
)(1)Components of the net benefit cost recognizedService cost


815



414



1,229Interest cost


1,271



695



1,966Expected return on plan assets


(1,416
)






(1,416
)Amortization of recognized items


1



92



93Net benefit costs


671



1,201



1,872    (1)
    The total of 18,317 on the consolidated balance sheets
    also includes the pension liabilities of 453 relating to
    employees at our German operations.    Amount2008


1,8732009


1,9792010


2,1072011


2,1922012


2,2952013 - 2017


13,455  82




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 9.
    Pension
    and Other Post-Retirement Benefit Obligations 
    (Continued)  Investment
    Objective:
      December 312007


2006Benefit obligationsDiscount rate


5.25%



5.00%Rate of compensation increase


3.00%



3.00%Net benefit cost for year endedDiscount rate


5.00%



5.00%Rate of compensation increase


3.00%



3.00%Expected rate of return on plan assets


7.25%



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


5.00%



5.00%       December 31, 2007


December 31, 20061% increase


1% decrease


1% increase


1% decreaseEffect on total service and interest rate components


212



(160
)


183



(140
)Effect on post-retirement benefit obligation


2,252



(1,762
)


1,879



(1,467
)     Target


2007


2006Equity securities


50-70%



59%



60%Debt securities


30-45%



34%



35%Cash and cash equivalents


0-10%



7%



5%100%



100%   Note 10.
    Income
    Taxes     83




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 10.
    Income
    Taxes  (Continued)    Balance at January 1, 2007


4,400Additions  current year tax positions


200Reductions  prior year tax positions


(300
)Lapse of statute of limitations


(300
)Settlements


Balance at December 31, 2007


4,000     and/or
      Year Ended December 31,2007


2006


2005U.S. Federal statutory rates


34
%


34
%


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


(11,544
)


(43,437
)


48,865Tax differential on foreign income (loss)


2,902



(4,070
)


3,951Valuation allowance


15,021



(16,145
)


(44,571
)Other


(16,693
)


6,209



4,895
(10,314
)


(57,443
)


13,140Comprised of:Current


(2,170
)


(584
)


(383
)Deferred


(8,144
)


(56,859
)


13,523
(10,314
)


(57,443
)


13,140  84




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 10.
    Income
    Taxes  (Continued)    December 312007


2006German tax loss carryforwards


50,725



68,262Canadian tax loss carryforwards


2,497



631Basis difference between income tax and financial reporting with
    respect to operating pulp mills


(6,354
)


(3,939
)Derivative financial instruments


6,144



13,457Long term debt


(2,736
)


(458
)Payables and accrued expenses


148



111Reserve for deferred pension liability


18



179Capital leases


652



177U.S. tax loss carryforwards


19,934



17,000Other


1,149



(128
)72,177



95,292Valuation allowance


(73,193
)


(88,214
)Net deferred tax (liability) asset


(1,016
)


7,078Comprised of:Deferred income tax asset


17,624



29,989Deferred income tax liability


(18,640
)


(22,911
)
(1,016
)


7,078          Note 11.
    Shareholders
    Equity   85




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 11.
    Shareholders
    Equity  (Continued)       Note 12.
    Stock-Based
    Compensation  Stock
    Options
      Number


Weighted Averageof Options


Exercise Price(In U.S. Dollars)Outstanding at December 31, 2004


1,055,000


$
6.58Granted


130,000



7.78Outstanding 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


928,334


$
6.44     Outstanding OptionsWeighted



Exercisable OptionsExercise



Average

Weighted



WeightedPrice



Remaining

Average



AverageRange

Number

Contractual Life

Exercise Price

Number

Exercise Price(In U.S. Dollars)



(Years)





(In U.S. Dollars)$5.65 - $6.375


830,000



2.50



$6.29



830,000



$6.297.30


30,000



7.50



7.30



30,000



7.307.92


68,334



7.75



7.92



68,334



7.92    86




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 12.
    Stock-Based
    Compensation  (Continued)    Stock
    Options
    Risk-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 our three year historical stock prices.        Number


Weighted Averageof Options


Exercise Price(In U.S. Dollars)Non-vested at December 31, 2006


43,333


$
7.77Vested and cancelled during the year


(43,333
)


7.77Non-vested at December 31, 2007





$
   Restricted
    Stock
          87




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
  Note 13.
    Net
    Income (Loss) Per Share  Year Ended December 31,2007


2006


2005Net income (loss) from continuing operations  basic


22,389



69,242



(112,058
)Interest on convertible notes, net of tax


3,930



4,912



Net income (loss) from continuing operations  diluted


26,319



74,154



(112,058
)Net income (loss) from continuing operations per share:Basic


0.62



2.08



(3.59
)Diluted


0.58



1.72



(3.59
)Net income (loss) from continuing operations


22,389



69,242



(112,058
)Net loss from discontinued operations


(210
)


(6,032
)


(5,088
)Net income (loss)  basic


22,179



63,210



(117,146
)Interest on convertible notes, net of tax


3,930



4,912



Net income (loss)  diluted


26,109



68,122



(117,146
)Net income (loss) per share:Basic


0.61



1.90



(3.75
)Diluted


0.58



1.58



(3.75
)Weighted average number of common shares outstanding:Basic


36,080,931



33,336,348



31,217,765Effect of dilutive shares:Stock options and awards


362,774



319,793



Convertible notes


8,859,036



9,428,022



Diluted


45,302,741



43,084,163



31,217,765      Note 14.
    Business
    Segment Information     88




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 14.
    Business
    Segment Information  (Continued)    2007


2006


2005Germany


198,575



154,388



91,460China


159,553



141,296



82,356Italy


50,177



60,057



71,742Other European Union countries(1)


136,434



117,016



91,308Other Asia


58,242



75,522



56,953North America


66,229



39,761



37,643Other countries


26,639



28,586



16,191695,849



616,626



447,653Third party transportation revenues


8,542



7,351



4,784
704,391



623,977



452,437     (1)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.    2007


2006Germany


776,839



851,290Canada


189,277



181,574Other


4,215



5,024
970,331



1,037,888      Note 15.
    Financial
    Instruments    2007


2006Carrying





CarryingAmount


Fair Value


Amount


Fair ValueCash and cash equivalents


84,848



84,848



69,367



69,367Cash, restricted


33,000



33,000



57,000



57,000Notes receivable


9,873



9,873



16,542



16,542Long-term debt


849,855



845,026



907,831



921,435Foreign exchange rate derivative contracts  asset










5,933



5,933Interest rate derivative contracts  liability


21,885



21,885



41,355



41,355   Cash and
    Debt Instruments
   89




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 15.
    Financial
    Instruments  (Continued)        Interest
    Rate Derivatives
    Foreign
    Exchange Derivatives
      Credit
    Risk
    90




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
  Note 16.
    Lease
    Commitments    Capital


OperatingLeases


Leases2008


3,680



7312009


1,748



5292010


1,475



3102011


1,353



1012012


226



3Thereafter


2,041



1Total


10,523



1,675Less imputed interest


(1,585
)Total present value of minimum capitalized payments


8,938Less current portion of capital lease obligations


(3,469
)Long-term capital lease obligations


5,469      Note 17.
    Commitments
    and Contingencies           Note 18.
    Discontinued
    Operations     91




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 18.
    Discontinued
    Operations  (Continued)      December 31,2007


2006AssetsCash and cash equivalents






437Receivables






1,657LiabilitiesAccounts payable and accrued expenses






1,926     2007


2006


2005Revenues


128



46,351



61,471Operating (loss) income from discontinued operations


(142
)


394



(2,306
)Total other expenses


(68
)


(469
)


(2,782
)Loss on disposal of business






(5,957
)


Net loss from discontinued operations


(210
)


(6,032
)


(5,088
)Loss per common share from discontinued operations basic


(0.01
)


(0.18
)


(0.16
) diluted


0.00



(0.14
)


(0.16
)     2007


2006


2005Cash flows used in operating activities


(1,519
)


(2,121
)


(347
)Cash flows from (used in) investing activities


1,260



5,944



(1,200
)Cash flows used in financing activities






(4,158
)


(700
)Cash flows used in discontinued operations


(259
)


(335
)


(2,247
)    Note 19.
    Minority
    Share Purchase     Note 20.
    Restricted
    Group Supplemental Disclosure   92




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 20.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Balance Sheet  December 31,
    2007
  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-retirementbenefit 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







21,885Capital leases and other


27,016



1,966







28,982Deferred 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  93




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 20.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Balance Sheet  December 31,
    2006
  Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupASSETSCurrentCash and cash equivalents


39,078



30,289







69,367Receivables


38,662



36,360







75,022Note receivable, current portion


620



7,178







7,798Inventories


41,087



21,770







62,857Prepaid expenses and other


2,352



2,310







4,662Current assets from discontinued operations






2,094







2,094Total current assets


121,799



100,001







221,800Cash, restricted






57,000







57,000Property, plant and equipment


408,957



563,186







972,143Other


8,155



4,763







12,918Deferred income tax


14,316



15,673







29,989Due from unrestricted group


51,265







(51,265
)


Note receivable, less current portion


5,023



3,721







8,744Total assets


609,515



744,344



(51,265
)


1,302,594LIABILITIESCurrentAccounts payable and accrued expenses


46,475



37,335







83,810Pension and other post-retirement benefitobligations, current portion


363











363Debt, current portion






33,903







33,903Current liabilities from discontinued operations






1,926







1,926Total current liabilities


46,838



73,164







120,002Debt, less current portion


293,781



571,840







865,621Due to restricted group






51,265



(51,265
)


Unrealized derivative loss






41,355







41,355Capital leases and other


22,115



11,789







33,904Deferred income tax


2,832



20,079







22,911Total liabilities


365,566



769,492



(51,265
)


1,083,793SHAREHOLDERS EQUITYTotal shareholders equity (deficit)


243,949



(25,148
)






218,801Total liabilities and shareholders equity


609,515



744,344



(51,265
)


1,302,594  94




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 20.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations  December 31,
    2007
  Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


401,251



303,140







704,391Operating costs


315,836



232,498







548,334Operating depreciation and amortization


28,661



27,739







56,400Selling, general and administrative expenses


21,650



13,064







34,714(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 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 and distributions


10,629



329







10,958Total other expense


(12,540
)


(23,092
)






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


24,130



9,824







33,954Income tax provisionCurrent


(1,394
)


(776
)






(2,170
)Deferred


(5,034
)


(3,110
)






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


17,702



5,938







23,640Minority interest






(1,251
)






(1,251
)Net income from continuing operations


17,702



4,687







22,389Net loss from discontinued operations


(210
)










(210
)Net income


17,492



4,687







22,179  95




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 20.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations  December 31,
    2006
  Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


360,986



262,991







623,977Operating costs


280,837



175,767







456,604Operating 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 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 and distributions


15,245











15,245Total other (expense) income


(13,793
)


49,045







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


20,609



107,147







127,756Income tax provisionCurrent


(290
)


(294
)






(584
)Deferred


(10,968
)


(45,891
)






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


9,351



60,962







70,313Minority interest






(1,071
)






(1,071
)Net income from continuing operations


9,351



59,891







69,242Net loss from discontinued operations






(6,032
)






(6,032
)Net income


9,351



53,859







63,210  96




---



##### 



MERCER
    INTERNATIONAL INC.
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In Thousands of Euros, Except Per Share Data)
   Note 20.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations  December 31,
    2005
  Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenues


276,406



176,031







452,437Operating costs


226,689



139,718



(1,605
)


364,802Operating depreciation and amortization


23,898



27,262







51,160Selling, general and administrative


22,375



12,742







35,117(Sale) purchase of emission allowances


(7,271
)


(10,021
)






(17,292
)Operating income from continuing operations


10,715



6,330



1,605



18,650Other income (expense)Interest expense


(32,352
)


(56,789
)


2,815



(86,326
)Investment income


3,742



1,495



(2,815
)


2,422Derivative financial instruments, net


(295
)


(71,468
)






(71,763
)Foreign exchange loss on debt and distributions


(4,156
)










(4,156
)Impairment of investments


(1,699
)










(1,699
)Total other expense


(34,760
)


(126,762
)






(161,522
)Loss before income taxes and minority interest from continuing
    operations


(24,045
)


(120,432
)


1,605



(142,872
)Income tax (provision) benefitCurrent


(383
)










(383
)Deferred


(778
)


14,301







13,523Loss before minority interest from continuing operations


(25,206
)


(106,131
)


1,605



(129,732
)Minority interest






17,674







17,674Net loss from continuing operations


(25,206
)


(88,457
)


1,605



(112,058
)Net loss from discontinued operations






(5,088
)






(5,088
)Net loss


(25,206
)


(93,545
)


1,605



(117,146
)   97




---



##### 



SUPPLEMENTARY
    FINANCIAL INFORMATION (UNAUDITED)



Quarterly
    Financial Data

(Thousands,
    Except per Share Amounts)  Quarter EndedMarch 31


June 30


September 30


December 312007Revenues


169,531



176,603



191,111



167,146Gross 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 loss from discontinued operations


(7
)


(181
)


(10
)


(12
)Net income


1,086



3,159



10,696



7,2382006Revenues


141,668



150,594



171,248



160,467Gross profit


10,994



10,583



34,758



36,169Income before extraordinary items and cumulative effect of a
    change in accounting from continuing operations


16,184



18,324



6,128



28,606Income before extraordinary items and cumulative effect of a
    change in accounting from continuing operations, per share*


0.40



0.45



0.18



0.67Net income (loss) from discontinued operations


404



97



600



(7,133
)Net income


16,588



18,421



6,728



21,473     *
    
    on a diluted basis 98




---



##### 



SIGNATURES  Securities Exchange Act of 1934
  Mercer International
    Inc.Dated: February 22, 2008

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: February 22, 2008/s/  David
    M. GandossiDavid
    M. Gandossi
    Secretary, Executive Vice President
    and Chief Financial Officer

Date: February 22, 2008/s/  Kenneth
    A. ShieldsKenneth
    A. Shields
    Director

Date: February 22, 2008/s/  Eric
    LauritzenEric
    Lauritzen
    Director

Date: February 22, 2008/s/  William
    D. McCartneyWilliam
    D. McCartney
    Director

Date: February 22, 2008/s/  Graeme
    A. WittsGraeme
    A. Witts
    Director

Date: February 22, 2008/s/  Guy
    W. AdamsGuy
    W. Adams
    Director

Date: February 22, 2008/s/  George
    MalpassGeorge
    Malpass
    Director

Date: February 22, 2008  99




---



##### 



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, 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

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, 2003.4
.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

Amended and Restated 1992 Stock Option Plan. Incorporated by
    reference from
    Form S-8
    dated March 2, 2000.10
.2*

2002 Employee Incentive Bonus Plan.10
.3

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG. Incorporated by reference from
    Form 8-K
    dated September 10, 2002.10
.4

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
.5*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG.10
.6*

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
.7*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees.10
.8

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
.9

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
.10

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




---



##### 



ExhibitNo.

Description of Exhibit10
.11

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
.12

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
.13

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
.14

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
.15

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
.16

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
.17

Employment Agreement effective November 6, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    September 25, 2006. Incorporated by reference from
    Form 8-K
    dated October 13, 2006.99
.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, 2006.21


List of Subsidiaries of Registrant.23
.1

Consent of Independent 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.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; 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.