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UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, 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, 2009ORo

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

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

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

NASDAQ Global Market   None
  o þ
  o þ
  Securities Exchange Act of 1934 þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   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


5Our Competitive Strengths


7Corporate Strategy


7The Pulp Industry


8Our Product


12Generation and Sales of Green Energy
    at our Mills


13Operating Costs


14Cash Production Costs


17Sales, Marketing and Distribution


17Capital Expenditures


19Environmental


20Climate Change


21Human Resources


22Description of Certain Indebtedness


23Additional Information


26Item 1A.

RISK FACTORS


27Item 1B.

UNRESOLVED STAFF COMMENTS


35Item 2.

PROPERTIES


35Item 3.

LEGAL PROCEEDINGS


37Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY
    HOLDERS


37PART IIItem 5.

MARKET FOR REGISTRANTS COMMON EQUITY AND
    RELATED STOCKHOLDER MATTERS


38Item 6.

SELECTED FINANCIAL DATA


41Item 7.

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


42Results of Operations


42Current Market Environment


44Three-Year Snapshot


44Year Ended December 31, 2009 Compared to the
    Year Ended December 31, 2008


44Year Ended December 31, 2008 Compared to the
    Year Ended December 31, 2007


46Sensitivities


48Liquidity and Capital Resources


48Debt


49Debt Covenants


49Cash Flow Analysis


50Capital Resources


50Future Liquidity


51Off Balance Sheet Activities


51Contractual Obligations and Commitments


51Foreign Currency


52Results of Operations of the Restricted Group
    Under Our Senior Note Indenture


52Restricted Group Results  Year Ended
    December 31, 2009 Compared to the Year Ended
    December 31, 2008


52Restricted Group Results  Year Ended
    December 31, 2008 Compared to the Year Ended
    December 31, 2007


53 2




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##### Table of Contents



PageLiquidity and Capital Resources of the Restricted
    Group


55Critical Accounting Policies


56New Accounting Standards


57Cautionary Statement Regarding Forward-Looking
    Information


57Inflation


57Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


58Derivatives


58Interest Rate Risk


59Foreign Currency Exchange Risk


60Energy Price Risk


61Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


61Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE


61Item 9A.

CONTROLS AND PROCEDURES


61Evaluation of Disclosure Controls and
    Procedures


61Managements Report on Internal Control Over
    Financial Reporting


62Changes in Internal Controls


62Item 9B.

OTHER INFORMATION


62PART IIIItem 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
    GOVERNANCE


63Audit Committee


65Compensation and Human Resources Committee


65Governance and Nominating Committee


66Environmental, Health and Safety Committee


66Lead Director/Deputy Chairman


66Code of Business Conduct and Ethics


66Section 16(a) Beneficial Ownership Reporting
    Compliance


67Item 11.

EXECUTIVE COMPENSATION


67Item 12.

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


67Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
    AND DIRECTOR INDEPENDENCE


67Review, Approval or Ratification of Transactions
    with Related Persons


67Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES


67PART IVItem 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES


68Financial Statements


70SUPPLEMENTARY FINANCIAL INFORMATION


111SIGNATURES


112EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   3




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EXCHANGE
    RATES
      Years Ended December 31,2009


2008


2007


2006


2005(/$)End of period


0.6977



0.7184



0.6848



0.7577



0.8445High for period


0.6623



0.6246



0.6729



0.7504



0.7421Low for period


0.7970



0.8035



0.7750



0.8432



0.8571Average for period


0.7176



0.6801



0.7294



0.7962



0.8033(C$/$)End of period


1.0461



1.2240



0.9881



1.1653



1.1659High for period


1.0289



0.9717



0.9168



1.0989



1.1507Low for period


1.2995



1.2971



1.1852



1.1726



1.2704Average for period


1.1412



1.0669



1.0740



1.1344



1.2116   Form 10-K,
  Form 10-K
  Years Ended December 31,2009


2008


2007


2006


2005(C$/)End of period


1.5000



1.7046



1.4428



1.5377



1.3805High for period


1.4936



1.4489



1.3448



1.3523



1.3576Low for period


1.6920



1.7316



1.5628



1.5377



1.6400Average for period


1.5851



1.5603



1.4690



1.4244



1.5095    4




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##### Table of Contents



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, 2009, 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 330,000 ADMTs. The
    Rosenthal mill is located near the town of Blankenstein,
    Germany, approximately 250 kilometers south of Berlin.
    Stendal mill.  Our 74.9% owned
    subsidiary, Stendal, owns and operates a
    state-of-the-art,
    single-line NBSK pulp mill that has an annual production
    capacity of approximately 645,000 ADMTs. The Stendal mill is
    situated near the town of Stendal, Germany, approximately 100
    kilometers west of Berlin.
    Celgar mill.  Our wholly-owned
    subsidiary, Celgar, owns and operates the Celgar mill, a modern,
    efficient ISO 9001 certified NBSK pulp mill with an annual
    production capacity of approximately 500,000 ADMTs. The Celgar
    mill is located near the city of Castlegar, British Columbia,
    Canada, approximately 400 kilometers east of the port city of
    Vancouver, British Columbia, Canada.  History
    and Development of Business
     5




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Organizational
    Chart
    
 6




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Our
    Competitive Strengths    
    Modern and Competitive Mills.  We
    operate three large, modern, competitive NBSK pulp mills that
    produce high quality NBSK pulp which is a premium grade of kraft
    pulp. The relative age and production capacity of our NBSK pulp
    mills provide us with certain manufacturing cost advantages over
    many of our competitors including lower maintenance capital
    expenditures.
    Renewable Surplus Energy.  Our modern
    mills generate electricity and steam in their boilers and are
    generally energy self-sufficient. Such energy is primarily
    produced from wood residuals which are a renewable carbon
    neutral source. This has permitted our German mills to benefit
    from the sales of emission allowances. All of our mills also
    generate surplus energy which we sell to third parties. Our
    Rosenthal and Stendal mills benefit from their participation
    under Germanys Renewable Energy Resources Act which
    has materially increased their revenues from sales of surplus
    power. Additionally, our Celgar mill is in the process of
    completing the Celgar Energy Project and has entered into an
    electricity purchase agreement with British Columbias
    primary public utility provider for the sale of surplus power
    for ten years. When completed, the Celgar Energy Project is
    expected to increase our overall sales of surplus power by
    238,000 MWh per annum to over 700,000 MWh per annum.
    We believe our generation and sale of surplus renewable
    green energy provides us with a competitive energy
    advantage.
    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 nine years, our German mills have
    benefited from approximately 383.7 million of such
    government grants. In addition, in October 2009, our Celgar mill
    qualified to receive C$57.7 million of credits under the
    Canadian governments new Pulp and Paper Green
    Transformation Program, referred to as the GTP.
    These grants reduce the cost basis of the assets purchased when
    the grants are received and are not reported in our income.
    Additionally, during the last ten years, capital investments at
    our German mills have reduced the amount of overall wastewater
    fees that would otherwise be payable by over
    49.0 million. Further, our Stendal mill benefits from
    German governmental guarantees of its project financing which
    permitted it to obtain better credit terms and lower interest
    costs than would otherwise be available. The project debt of
    Stendal matures in 2017, currently bears interest at a rate of
    5.28% per annum plus an applicable margin and is non-recourse to
    our other operations and Mercer Inc.
    Competitive Fiber Supply.  Although
    fiber is cyclical in both price and supply, there is a
    significant amount of high-quality fiber within a close radius
    of each of our mills. This fiber supply, combined with our
    purchasing power, enables us to enter into contracts and
    arrangements which have generally provided us with a competitive
    fiber supply. Corporate
    Strategy    
    Focusing on NBSK Market Pulp.  We focus
    on NBSK pulp because it is a premium grade kraft pulp and
    generally obtains the highest price relative to other kraft
    pulps. Although demand is cyclical, between 1998 and 2008,
    worldwide demand for softwood kraft market pulp grew at an
    average of approximately 2.3% per annum. We focus on servicing
    customers that produce high quality printing and writing paper 7




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grades in addition to tissue producers. This allows us to
    benefit from the stable relationships we hold with paper
    suppliers in Europe as well as participate in strong growth
    markets such as China where we also have strong customer
    relationships.  
    Maximizing Renewable Energy
    Realizations.  In 2009 and 2008, our mills
    generated 478,674 MWh and 456,059 MWh, respectively,
    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, including the Celgar Energy Project. After
    completing such project and, based upon the current production
    levels of our mills, we expect to generate and sell between
    700,000 MWh and 750,000 MWh of surplus renewable
    energy per annum. We expect energy generation and sales to
    continue to be a key focus for our mills for the foreseeable
    future. We are also exploring other initiatives and potential
    high-return projects to further enhance our energy generation
    and revenues.
    Enhancing Sustainability/Growth.  With
    the recent global economic slowdown and crisis in financial and
    credit markets that started in 2008, our short-term focus has
    been on maintaining and enhancing the sustainability of our
    business. To this end, we worked to reduce costs, cut
    discretionary spending, including capital expenditures and
    reduced our working capital consumption levels. As economies and
    markets recover and access to capital improves, we intend to
    grow our operations and earning capacity both through organic
    growth and targeted strategic acquisitions.
    Operating Modern,
    World-Class Mills.  In order to keep our
    operating costs as low as possible, with a goal of generating
    positive cash flow in all market conditions, we operate large,
    modern NBSK pulp mills. We believe such production facilities
    provide us with the best platform to be an efficient and
    competitive producer of high-quality NBSK pulp without the need
    for significant sustaining capital. Such modern mills are also
    generally net exporters of renewable energy. The Pulp
    Industry  General
       8




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Markets
        build-up
      Competition
   9




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NBSK
    Pulp Pricing
           10




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




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Our
    Product           12




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Generation
    and Sales of Green Energy at our Mills      Mercer
    Electricity Generation and Exports
  
    German
    Mills
  Renewable Energy Resources Act
     13




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Celgar
    Mill
          and/or
 Operating
    Costs    Labor
    Fiber
       14




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15




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Energy
  start-up
 16




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Chemicals
   Cash
    Production Costs    Years Ended December 31,Cash Production Costs

2009


2008


2007(per ADMT)Fiber


207



247



247Labor


37



36



43Chemicals


43



44



39Energy


13



21



18Other


42



43



46Total cash production costs(1)


342



391



393     (1)
    
    Cost of production per ADMT
    produced excluding depreciation. Sales,
    Marketing and Distribution    Years Ended December 31,2009


2008


2007(in thousands)Revenues by Geographic AreaGermany


154,323



198,340



198,575China


146,613



131,412



159,553Italy


44,616



56,487



50,177Other European Union countries(1)


107,276



133,621



136,434Other Asia


38,946



65,192



58,242North America


68,213



78,718



66,229Other countries


8,312



17,146



26,639Total(2)


568,299



680,916



695,849     (1)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.(2)
    
    Excluding intercompany sales. 17




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Year Ended

Year Ended

Year EndedDecember 31, 2009

December 31, 2008

December 31, 2007(PIE CHART)

(PIE CHART)

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




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Capital
    Expenditures            As at December 31,2009


2008


2007(in thousands)Properties, gross amount including government grants less
    amortization


1,152,288



1,171,891



1,237,624Less: government grants less amortization


283,730



290,187



304,366Properties, net (as shown on consolidated balance sheets)


868,558



881,704



933,258        19




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Environmental            state-of-the-art
     20




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Fisheries Act Environmental Management Act
     Climate
    Change    and/or
          
    increased growth rates for northern softwood forests due to
    greater atmospheric
    CO2
    levels;
    the expansion of softwood forests into less developed tundra
    areas;
    more intensive forestry practices and timber salvaging versus
    harvesting standing timber;
    greater demand for sustainable energy and cellulosic biomass
    fuels; and 21




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
    governmental incentives
    and/or
    legislative requirements to enhance biomass energy production
    and prices.            
    a greater susceptibility of northern softwood forest to disease,
    fire and insect infestation. This has already occurred in
    northern British Columbia where the pine beetle infestation is
    reported to have killed over 620.0 million cubic meters of
    harvestable timber;
    the disruption of transportation systems and power supply lines
    due to more severe storms;
    the loss of water transportation for logs and our finished goods
    inventories due to lower water levels;
    decreases in quantity and quality of processed water for our
    mill operations;
    the loss of northern softwood boreal forests in areas in
    sufficient proximity to our mills to competitively acquire
    fiber; and
    lower harvest levels decreasing the supply of harvestable timber
    and, as a consequence, wood residuals. Human
    Resources       22




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Description
    of Certain Indebtedness    Senior
    Notes
      Convertible
    Notes
   23




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Stendal
    Loan Facility
  start-up
   24




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
    if scheduled debt service for two consecutive periods is
    partially or wholly financed by drawings from the DSRA and as a
    result the DSRA is less than
    331/3%
    Fully Funded;
    if the DSRA is fully drawn and Stendal exercises its current
    6-month
    principal payment deferral right in respect of the next
    repayment date; and
    failure to meet the Senior Debt/EBITDA Cover Ratio or Annual
    Debt Ratio as set out above.             25




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Rosenthal
    Loan Facilities
        Celgar
    Working Capital Facility
  and/or
 Additional
    Information  www.mercerint.com Form 10-K, Form 10-Q Form 8-K, 1-800-SEC-0330. www.sec.gov
 26




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ITEM 1A.
    RISK
    FACTORS  Private Securities Litigation
    Reform Act of 1995 Form 10-K
    
    our markets;
    demand and prices for our products;
    raw material costs and supply;
    energy prices, sales and our initiatives to enhance our
    generation and sales of surplus energy;
    capital expenditures and expected returns or benefits;
    the economy;
    foreign exchange rates  particularly the
    U.S. dollar and Canadian dollar;
    our level of indebtedness;
    climate change; and
    derivatives.    Form 10-K,
  Securities Act of
    1933 Securities Exchange Act of 1934
    Our
    business is highly cyclical in nature.
   27




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Our
    level of indebtedness could negatively impact our financial
    condition and results of operations.
    
    our ability to obtain additional financing for working capital,
    capital expenditures, general corporate and other purposes or to
    fund future operations may not be available on terms favorable
    to us or at all;
    a significant amount of our operating cash flow is dedicated to
    the payment of interest and principal on our indebtedness,
    thereby diminishing funds that would otherwise be available for
    our operations and for other purposes;
    increasing our vulnerability to current and future adverse
    economic and industry conditions;
    a substantial decrease in net operating cash flows or increase
    in our expenses could make it more difficult for us to meet our
    debt service requirements, which could force us to modify our
    operations;
    our leveraged capital structure may place us at a competitive
    disadvantage by hindering our ability to adjust rapidly to
    changing market conditions or by making us vulnerable to a
    downturn in our business or the economy in general;
    causing us to offer debt or equity securities on terms that may
    not be favorable to us or our shareholders;
    limiting our flexibility in planning for, or reacting to,
    changes and opportunities in our business and our
    industry; and
    our level of indebtedness increases the possibility that we may
    be unable to generate cash sufficient to pay the principal or
    interest due in respect of our indebtedness.   28




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The
    weak global economy could adversely affect our business and
    financial results and have a material adverse effect on our
    liquidity and capital resources.
        In a
    weak pulp price and demand environment, there can be no
    assurance that we will be able to generate sufficient cash flows
    to service, repay or refinance debt.
    Cyclical
    fluctuations in the price and supply of our raw materials could
    adversely affect our business.
   29




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We
    operate in highly competitive markets.
    We are
    exposed to currency exchange rate and interest rate
    fluctuations.
    variable-to-fixed
  Increases
    in our capital expenditures or maintenance costs could have a
    material adverse effect on our cash flow and our ability to
    satisfy our debt obligations.
   30




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We use
    derivatives to manage certain risk which has caused significant
    fluctuations in our operating results.
  variable-to-fixed
      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.   31




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The
    Celgar Energy Project may not generate the results or benefits
    we expect.
  start-up
  Our
    business is subject to risks associated with climate change and
    social and government responses thereto.
    and/or
    and/or and/or
 32




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and/or
    
    a greater susceptibility of northern softwood forest to disease,
    fire and insect infestation, which could diminish fiber
    availability;
    the disruption of transportation systems and power supply lines
    due to more severe storms;
    the loss of water transportation for logs and our finished goods
    inventories due to lower water levels;
    decreases in quantity and quality of processed water for our
    mill operations;
    the loss of northern softwood boreal forests in areas in
    sufficient proximity to our mills to competitively acquire
    fiber; and
    lower harvest levels decreasing the supply of harvestable timber
    and, as a consequence, wood residuals.  and/or
  We are
    subject to risks related to our employees.
    We
    rely on German federal and state government grants and
    guarantees.
    The EU
    ETS and Germanys Renewable Energy Act.
    and/or
 33




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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.    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;
    prolonged supply disruption of major inputs;
    labor difficulties; and
    other operational problems.  and/or
  We may
    incur losses as a result of unforeseen or catastrophic events,
    including the emergence of a pandemic, terrorist attacks or
    natural disasters.
    Our
    insurance coverage may not be adequate.
   34




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We
    rely on third parties for transportation services.
      Washington
    State law and our Articles of Incorporation may have
    anti-takeover effects which will make an acquisition of our
    Company by another company more difficult.
  Washington Business Corporation Act Revised Code of Washington
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES      
    an approximately 315,000 square feet fiber storage area;
    barking and chipping facilities for pulp logs;
    an approximately 300,000 square feet roundwood yard; 35




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
    a fiber line, which includes a Kamyr continuous digester and
    bleaching facilities;
    a pulp machine, which includes a dryer, a cutter and a baling
    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 57 MW
    of electric power from steam produced by the recovery boiler and
    the power boiler.    
    an approximately 920,000 square feet fiber storage area;
    debarking and chipping facilities for pulp logs;
    a fiber line, which includes ten Superbatch digesters and
    bleaching facilities;
    a pulp machine, which includes a dryer, a cutter and a baling
    line;
    an approximately 108,000 square feet finished goods storage
    area;
    a recovery line, which includes a recovery boiler, evaporation
    plant, recausticizing plant and lime kiln;
    a fresh water plant;
    a wastewater treatment plant; and
    a power station with a turbine capable of producing
    approximately 100 MW of electric power from steam produced
    by the recovery boiler and a power boiler.    
    chip storage facilities consisting of four vertical silos and an
    asphalt surfaced yard with a capacity of 200,000 cubic meters of
    chips;
    a woodroom containing debarking and chipping equipment for pulp
    logs;
    a fiber line, which includes a dual vessel hydraulic digester,
    pressure knotting and screening, single stage oxygen
    delignification and a four stage bleach plant;
    two pulp machines, which each include a dryer, a cutter and a
    baling line;
    a chemical recovery system, which includes a recovery boiler,
    evaporation plant, recausticizing area and effluent treatment
    system; and
    a turbine and generator capable of producing approximately
    52 MW of electric power from steam produced by a recovery
    boiler and power boiler. 36




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##### Table of Contents



AnnualProduction


Years Ended December 31,Capacity(1)


2009


2008


2007(ADMTs)Pulp Production by Mill:Rosenthal


330,000



310,244



328,693



326,838Celgar


500,000



466,855



485,893



476,243Stendal


645,000



620,342



610,401



601,592Total pulp production


1,475,000



1,397,441



1,424,987



1,404,673     (1)
    
    Capacity is the rated capacity of
    the plants for the year ended December 31, 2009, which is
    based upon production for 365 days a year. Targeted
    production is generally based upon 355 days per year.  ITEM 3.
    LEGAL
    PROCEEDINGS      Fisheries Act Environmental Management Act
    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   37




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##### Table of Contents



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

High


Low2008March 31

$
9.02


$
6.70June 30


8.48



6.31September 30


7.72



3.17December 31


3.66



0.952009March 31

$
2.24


$
0.25June 30


1.24



0.51September 30


4.37



0.50December 31


3.68



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

Weighted-average

Number of SharesIssued Upon Exercise

Exercise Price of

Available for Futureof Outstanding Options

Outstanding Options

Issuance Under Plan2004 Stock Incentive Plan


30,000


$
7.30



151,149
(1)Amended and Restated 1992 Non-Qualified Stock Option Plan


890,000


$
6.40




(2)     (1)
    
    An aggregate of 253,685 restricted
    shares have been issued under the plan. Grants for up to
    565,165 shares have been made pursuant to the Performance
    Supplement under the plan (as described below).(2)
    
    The plan has expired.     38




---



##### Table of Contents



Exchange Offer
 39




---



##### Table of Contents



Performance Graph.
  COMPARISON
    OF 5-YEAR
    CUMULATIVE TOTAL RETURN AMONG MERCER INTERNATIONAL, INC., NASDAQ
    MARKET INDEX, AND SIC CODE INDEX
  ASSUMES $100
    INVESTED ON JAN. 01, 2005
    ASSUMES DIVIDEND REINVESTED
    FISCAL YEAR ENDING DEC. 31, 2009
  
  2004

2005

2006

2007

2008

2009Mercer International Inc.


100.00



73.80



111.46



73.52



18.03



29.11SIC Code Index


100.00



102.94



159.91



196.01



32.40



31.43NASDAQ Stock Market Index


100.00



102.20



112.68



124.57



74.71



108.56  40




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    
    includes the operating results 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 31,2009

2008

2007

2006

2005(Euro in thousands, other than per share and per ADMT
    amounts)Statement of Operations DataRevenues


619,799



720,291



727,295



644,899



469,178Costs and expenses


632,598



706,962



657,709



552,395



450,528Operating income (loss) from continuing operations


(12,799
)


13,329



69,586



92,504



18,650Gains (losses) on derivative instruments


(5,760
)


(25,228
)


20,357



105,848



(71,763
)Interest expense


64,770



65,756



71,400



91,931



86,326Investment income (loss)


(1,804
)


(1,174
)


4,453



6,090



2,422Income (loss) from continuing operations after income taxes(2)


(72,125
)


(85,540
)


23,640



70,313



(129,732
)Net income (loss) attributable to common shareholders (including
    discontinued operations)


(62,189
)


(72,465
)


22,179



63,210



(117,146
)Net income (loss) per share attributable to common shareholders
    from continuing operations,Basic


(1.71
)


(2.00
)


0.62



2.08



(3.59
)Diluted


(1.71
)


(2.00
)


0.58



1.72



(3.59
)Net income (loss) per share attributable to common shareholders
    (including discontinued operations)


(1.71
)


(2.00
)


0.61



1.90



(3.75
)Weighted average shares outstanding (in thousands)Basic


36,297



36,285



36,081



33,336



31,218Diluted


36,297



36,287



45,303



43,084



31,218Balance Sheet DataCurrent assets


201,805



258,901



290,259



221,800



251,522Current liabilities


101,784



104,527



121,516



120,002



140,327Working capital


100,021



154,374



168,743



101,798



111,195Total assets(1)


1,083,831



1,151,600



1,272,393



1,284,089



1,379,372Long-term liabilities


896,074



914,970



895,262



967,583



1,120,784Total equity


85,973



132,103



255,615



196,504



118,261Other Pulp DataSales volume (ADMTs)


1,445,461



1,423,300



1,352,590



1,326,355



1,101,304Production (ADMTs)


1,397,441



1,424,987



1,404,673



1,302,260



1,184,619Average price realized (per ADMT)


393



478



516



465



407     (1)
    
    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.(2)
    
    The presentation for 2005, 2006 and
    2007 has been modified to conform to the presentation
    requirements as prescribed in the ConsolidationsTopic
    ASC 810 (see Note 17  Noncontrolling Interest in
    our consolidated financial statements). 41




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##### Table of Contents



ITEM 7.  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS
   Results
    of Operations  General
             42




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##### Table of Contents



variable-to-fixed
  2009
    Significant Actions
    
    Amended the Stendal Loan Facility to defer
    164.0 million of scheduled principal payments until
    the maturity of the facility in September 2017;
    Enhanced our short-term liquidity by completing the Exchange
    Agreements with certain holders of our 2010 Convertible Notes
    and commencing the Exchange Offer, which together resulted in
    the exchange of $65.0 million in aggregate principal amount
    of our 2010 Convertible Notes for $65.8 million in
    aggregate principal amount of our newly issued 2012 Convertible
    Notes;
    Applied for, and were allocated, a total of C$57.7 million
    in grants from the Canadian government under the GTP and
    subsequently entered into a non-repayable contribution agreement
    with NRCan whereby NRCan agreed to provide approximately
    C$40.0 million in financial assistance towards the
    completion of the Celgar Energy Project;
    Worked with our lenders to refinance the Rosenthal Loan Facility
    and to amend the Celgar Working Capital Facility. As a result,
    we established a new 25.0 million revolving working
    capital facility and a new investment loan agreement for our the
    Rosenthal mill and extended the maturity of the Celgar Working
    Capital Facility to May 2013; and
    Continued to focus on cost reductions and working capital
    management. 43




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##### Table of Contents



Current
    Market Environment   Three-Year
    Snapshot    Years Ended December 31,2009

2008

2007Pulp Production (000 ADMTs)


1,397.4



1,425.0



1,404.7Scheduled Production Downtime (000 ADMTs)


52.1



47.0



46.0Pulp Sales (000 ADMTs)


1,445.5



1,423.3



1,352.6Pulp Revenues (in millions)


577.3



689.3



704.4NBSK pulp list prices in Europe ($/ADMT)

$
667


$
839


$
800NBSK pulp list prices (/ADMT)


478



571



584Average pulp sales realizations (/ADMT)(1)


393



478



516Energy Production (000 MWh)


1,445.3



1,456.6



1,401.9Energy Sales (000 MWh)


478.7



456.1



430.4Energy Revenue (in millions)


42.5



31.0



22.9Average energy sales realizations (/MWh)


89



68



53Average Spot Currency Exchange Rates / $(2)


0.7176



0.6800



0.7294C$ / $(2)


1.1412



1.0669



1.0740C$ / (3)


1.5851



1.5603



1.4690     (1)
    
    List price less discounts.(2)
    
    Average Federal Reserve Bank of New
    York noon spot rate over the reporting period.(3)
    
    Average Bank of Canada noon spot
    rate over the reporting period. Year
    Ended December 31, 2009 Compared to Year Ended
    December 31, 2008         44




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45




---



##### Table of Contents



Years Ended December 31,2009


2008(in thousands)Net income (loss) attributable to common shareholders


(62,189
)


(72,465
)Net income (loss) attributable to noncontrolling interest


(9,936
)


(13,075
)Income taxes (benefits)


(5,869
)


2,477Interest expense


64,770



65,756Investment (income) loss


1,804



1,174Foreign exchange (gain) loss on debt


(2,692
)


4,234Gain on extinguishment of convertible notes


(4,447
)


Loss (gain) on derivative instruments


5,760



25,228Operating income (loss)


(12,799
)


13,329Add: Depreciation and amortization


54,170



55,762Operating EBITDA


41,371



69,091  Year
    Ended December 31, 2008 Compared to Year Ended
    December 31, 2007       46




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47




---



##### Table of Contents



Years Ended December 31,2008


2007(in thousands)Net income (loss) attributable to common shareholders


(72,465
)


22,179Net income (loss) attributable to noncontrolling interest


(13,075
)


1,251Discontinued operations after income taxes






210Income taxes (benefits)


2,477



10,314Interest expense


65,756



71,400Investment (income) loss


1,174



(4,453
)Foreign exchange (gain) loss on debt


4,234



(10,958
)Loss (gain) on derivative instruments


25,228



(20,357
)Operating income (loss)


13,329



69,586Add: Depreciation and amortization


55,762



56,658Operating EBITDA


69,091



126,244  Sensitivities    NBSK Pulp Price.
  Foreign Exchange.
 Liquidity
    and Capital Resources    Years Ended December 31,2009

2008(in thousands)Financial PositionCash and cash equivalents


51,291



42,452Cash, restricted






13,000Working capital


100,021



154,374Property, plant and equipment


868,558



881,704Total assets


1,083,831



1,151,600Long-term liabilities


896,074



914,970Total equity


85,973



132,103  Sources
    and Uses of Funds     48




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##### Table of Contents



Debt         Debt
    Covenants    once-per-fiscal-year
 49




---



##### Table of Contents



12-month
  12-month
   Cash
    Flow Analysis  Cash Flows from Operating
    Activities.
      Cash Flows from Investing
    Activities.
      Cash Flows from Financing
    Activities.
 Capital
    Resources   50




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##### Table of Contents



Future
    Liquidity     Off-Balance-Sheet
    Activities   Contractual
    Obligations and Commitments    Payments Due By PeriodContractual Obligations(8)

2010


2011-2012


2013-2014


Beyond 2014


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


2,115



43,434



233,170



35,881



314,600Debt, Stendal(2)


13,917



47,750



80,000



372,907



514,574Interest on debt(3)


58,693



108,080



68,615



87,185



322,573Capital lease obligations(4)


2,839



4,774



445



1,529



9,587Operating lease obligations(5)


3,034



4,296



1,740



4,987



14,057Purchase obligations(6)


1,093



189











1,282Contractual commitments for capital expenditures(7)


20,071















20,071Other long-term liabilities(8)


720



1,028



1,218



3,843



6,809Total(9)


102,482



209,551



385,188



506,332



1,203,553     (1)
    
    This reflects the future principal
    payments due under our long-term debt obligations, but excludes
    the Stendal Loan Facility. See Item 1 
    Business  Description of Certain Indebtedness,
    footnote 2 below and Note 7 to our annual financial
    statements included herein for a description of such
    indebtedness.(2)
    
    This reflects principal only in
    connection with the Stendal Loan Facility. See Item 1
    - Business  Description of Certain Indebtedness
    and Note 7 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)
    
    Amounts presented for interest
    payments include guarantee fees, and assume that all debt
    outstanding as of December 31, 2009 will remain outstanding
    until maturity, and interest rates on variable rate debt in
    effect as of December 31, 2009 will remain in effect until
    maturity.(4)
    
    Capital lease obligations relate to
    transportation vehicles and production equipment. These amounts
    reflect principal and interest.(5)
    
    Operating lease obligations relate
    to transportation vehicles and other production and office
    equipment.(6)
    
    Purchase obligations relate
    primarily to
    take-or-pay
    contracts, including for purchases of raw materials, made in the
    ordinary course of business.(7)
    
    Contractual commitments for capital
    expenditures relate primarily to commitments related to the
    Celgar Energy Project. The balance represents the value of this
    project remaining to be completed and will be funded by
    government grants received through the GTP. Although the full
    balance does not represent non-cancellable commitments, it is
    expected that this amount will be paid during 2010.(8)
    
    Other long-term liabilities relate
    primarily to future payments that will be made for
    post-employment benefits other than pensions. Those amounts are
    estimated using actuarial assumptions, including expected future
    service, to project the future obligations. Additionally, the
    balance also includes pension funding which is calculated on an
    annual basis. Consequently, the 2009 amount includes
    0.3 million related to pension funding.(9)
    
    We have identified approximately
    0.7 million of potential tax liabilities that are
    more likely than not to be paid and approximately
    3.9 million of asset retirement obligations. However,
    due to the uncertain timing related to these potential
    liabilities, we are unable to allocate the payments in the
    contractual obligations table. 51




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##### Table of Contents



Foreign
    Currency        Item 7A-
 Results
    of Operations of the Restricted Group Under Our Senior Note
    Indenture    Form 10-K.
 Restricted
    Group Results  Year Ended December 31, 2009
    Compared to Year Ended December 31, 2008             52




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##### Table of Contents



Years Ended December 31,2009


2008(in thousands)Restricted Group(1)Net income (loss) attributable to common shareholders


(35,927
)


(30,432
)Income taxes (benefits)


(183
)


3,728Interest expense


27,351



27,027Investment (income) loss


(5,002
)


(6,834
)Foreign exchange (gain) loss on debt


(2,692
)


4,114Gain on extinguishment of convertible notes


(4,447
)


Operating income (loss)


(20,900
)


(2,397
)Add: Depreciation and amortization


27,704



28,867Operating EBITDA


6,804



26,470     (1)
    
    See Note 19 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results. Restricted
    Group Results  Year Ended December 31, 2008
    Compared to Year Ended December 31, 2007     53




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54




---



##### Table of Contents



Years Ended December 31,2008


2007(in thousands)Restricted Group(1)Net income (loss) attributable to common shareholders


(30,432
)


17,492Discontinued operations after income taxes






210Income taxes (benefits)


3,728



6,428Interest expense


27,027



28,472Investment (income) loss


(6,834
)


(5,303
)Foreign exchange (gain) loss on debt


4,114



(10,629
)Operating income (loss)


(2,397
)


36,670Add: Depreciation and amortization


28,867



28,919Operating EBITDA


26,470



65,589     (1)
    
    See Note 19 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results. Liquidity
    and Capital Resources of the Restricted Group    Years Ended December 31,2009

2008(in thousands)Restricted Group Financial Position(1)Cash and cash equivalents


20,635



26,176Working capital


57,886



101,490Property, plant and equipment


362,311



351,009Total assets


555,977



564,374Long-term liabilities


301,173



309,235Total equity


200,247



210,179     (1)
    
    See Note 19 of the financial
    statements included in this annual report on
    Form 10-K
    for a reconciliation to our consolidated results.       55




---



##### Table of Contents



Critical
    Accounting Policies        Derivative Instruments. Derivatives and Hedging 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; 56




---



##### Table of Contents




    our projected earnings; and
    tax planning opportunities.      Inventory Provisions.
   New
    Accounting Standards  Form 10-K.
 Cautionary
    Statement Regarding Forward-Looking Information  Form 10-K Private Securities Litigation Reform Act
    of 1995 Form 10-K Form 10-K.
 Inflation   57




---



##### Table of Contents



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     Derivatives      over-the-counter
  over-the-counter
       58




---



##### Table of Contents



Recognized





RecognizedGain (Loss)





Gain (Loss)Year Ended





Year EndedNotional


December 31,


Notional


December 31,Derivative Instrument

Maturity Date


Amount


2009


Amount


2008(in millions of


(in thousands)


(in millions of


(in thousands)Euros or MWh)





Euros or MWh)Interest Rate DerivativesStendal interest rate swaps(1)


October 2017



487.0



(5,760
)


523.1



(25,228
)Energy Derivatives(2)Energy forward sales


2009











104,000 MWh



9,172Electricity forward purchases


2009











104,000 MWh



(5,901
)








3,271     (1)
    
    In connection with the Stendal Loan
    Facility, in the third quarter of 2002 Stendal entered into the
    Stendal Interest Rate Swap 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)
    
    In 2008, 104,000 MWh of
    electricity contracts were sold forward by Rosenthal and
    Stendal. Subsequently 104,000 MWh were purchased forward,
    effectively settling the forward sales. The gain associated with
    these contracts was recorded in 2008. These contracts settled in
    2009. We did not enter into any new any energy forward contracts
    in 2009. Interest
    Rate Risk   59




---



##### Table of Contents



As at December 31, 2009Carrying

Fair

Expected maturity dateValue

Value

2010

2011

2012

2013

2014

Thereafter(in thousands)LiabilitiesLong-term debt:Fixed rate($)(1)


216,299



182,773















216,299







Average interest rate


9.25
%


9.25
%














9.25
%Fixed rate($)(2)


16,749



15,912



1,587







15,162











Average interest rate


8.5
%


8.5
%


8.5
%






8.5
%Fixed rate ()(3)


26,160



27,468











26,160











Average interest rate


8.5
%


8.5
%










8.5
%Variable rate ()(4)


514,574



514,574



13,917



23,167



24,583



40,000



40,000



372,907Average interest rate


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%


6.3
%Variable rate ()(5)


3,511



3,511



528



1,056



1,056



871







Average interest rate


3.71
%


3.71
%


3.71
%


3.71
%


3.71
%


3.71
%Variable rate (C$)(6)


16,000



16,000















16,000







Average interest rate


4.16
%


4.16
%














4.16
%   Nominal

Fair

Expected maturity dateAmount

Value

2010

2011

2012

2013

2014

Thereafter(in thousands)Interest Rate DerivativesInterest rate swaps:Variable to fixed ()(7)


487,043



(52,873
)


39,280



43,315



46,873



50,794



54,959



251,822Average pay rate


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%Average receive rate


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%


5.3
%     (1)
    
    Senior Notes due February 2013,
    bearing interest at 9.25%, principal amount $310.0 million.(2)
    
    2010 Convertible Notes due October
    2010, bearing interest at 8.5%, principal amount
    $24.0 million. On January 21, 2010, 15,162 of
    the 2010 Convertible Notes due October 2010 was tendered for
    exchange for 2012 Convertible Notes due January 2012.(3)
    
    2012 Convertible Notes due January
    2012 bearing interest at 8.5%, principal amount
    $43.8 million.(4)
    
    Stendal Loan Facility bears
    interest at varying rates of between Euribor plus 0.90% to
    Euribor plus 1.85%.(5)
    
    Rosenthal investment loan bears
    interest at Euribor plus 2.75%. As at December 31, 2009,
    3.5 million was drawn from this loan and was accruing
    interest at a rate of 3.71%.(6)
    
    Celgar Working Capital Facility
    bears interest at bankers acceptance plus 3.75% or Canadian
    prime plus 2.0% on Canadian dollar denominated amounts and bears
    interest at LIBOR plus 3.75% or U.S. base plus 2.0% on U.S.
    dollar denominated amounts. As at December 31, 2009, the
    principal amount owing was C$24.0 million.(7)
    
    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   60




---



##### Table of Contents



As at December 31, 2009Carrying

Fair

Expected maturity dateValue

Value

2010

2011

2012

2013

2014

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


216,299



182,773















216,299







Average interest rate


9.25
%


9.25
%














9.25
%Fixed rate($)(2)


16,749



15,912



1,587







15,162











Average interest rate


8.5
%


8.5
%


8.5
%






8.5
%Fixed rate($)(3)


26,160



27,468











26,160











Average interest rate


8.5
%


8.5
%










8.5
%Variable rate (C$)(4)


16,000



16,000















16,000







Average interest rate


4.16
%


4.16
%














4.16
%     (1)
    
    Senior Notes due February 2013,
    bearing interest at 9.25%, principal amount $310.0 million.(2)
    
    2010 Convertible Notes due October
    2010, principal amount $24.0 million. On January 21,
    2010, 15,162 of the 2010 Convertible Notes due October
    2010 was tendered for exchange for 2012 Convertible Notes due
    January 2012.(3)
    
    2012 Convertible Notes due January
    2012, principal amount $43.8 million.(4)
    
    Celgar Working Capital Facility
    bears interest at bankers acceptance plus 3.75% or Canadian
    prime plus 2.0% on Canadian dollar denominated amounts and bears
    interest at LIBOR plus 3.75% or U.S. base plus 2.0% on U.S.
    dollar denominated amounts. As at December 31, 2009, the
    principal amount owing was C$24.0 million. Energy
    Price Risk    ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Form 10-K, Form 10-K
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e) Form 10-K.
 61




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##### Table of Contents



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   62




---



##### Table of Contents



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    Jimmy S.H. Lee
  Kenneth A. Shields
  William D. McCartney
  Guy W. Adams
  Eric Lauritzen
  Graeme A. Witts
  George Malpass
  David M. Gandossi
 63




---



##### Table of Contents



Claes-Inge Isacson
  David K. Ure
  Leonhard Nossol
  David M. Cooper
  Eric X. Heine
  Wolfram Ridder
  Genevieve Stannus
  Niklaus Gruenenfelder
 64




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##### Table of Contents



Brian Merwin
       Audit
    Committee  Form 10-K Sarbanes-Oxley Act of
    2002
  c/o Suite 2840,
 Compensation
    and Human Resource Committee  www.mercerint.com
 65




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##### Table of Contents



Governance
    and Nominating Committee  Form 10-K www.mercerint.com
 Environmental,
    Health and Safety Committee  www.mercerint.com
 Lead
    Director/Deputy Chairman   Code of
    Business Conduct and Ethics  Form 10-K www.mercerint.com (604) 684-1099) (206) 674-4639).
 66




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##### Table of Contents



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    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE Review,
    Approval or Ratification of Transactions with Related
    Persons      
    Whether the transaction is fair and reasonable to us;
    The business reasons for the transaction;
    Whether the transaction would impair the independence of one of
    our non-employee directors; and
    Whether the transaction is material, taking into account the
    significance of the transaction.    Regulation S-K
  ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   67




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##### Table of Contents



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


70Consolidated Balance Sheets


72Consolidated Statements of Operations


73Consolidated Statements of Comprehensive Income
    (Loss)


74Consolidated Statements of Changes in
    Shareholders Equity


75Consolidated Statements of Cash Flows


76Notes to the Consolidated Financial Statements


77    (b)
    List of Exhibits  2
.1

Agreement and Plan of Merger among Mercer International Inc.,
    Mercer International Regco Inc. and Mercer Delaware Inc. dated
    December 14, 2005. Incorporated by reference to the Proxy
    Statement/Prospectus filed on December 15, 2005.3
.1

Articles of Incorporation of the Company, as amended.
    Incorporated by reference from
    Form 8-A
    dated March 1, 2006.3
.2

Bylaws of the Company. Incorporated by reference from
    Form 8-A
    dated March 1, 2006.4
.1*

First Supplemental Indenture dated March 1, 2006 to
    Indenture dated as of October 10, 2003 between Mercer
    International Inc. and Wells Fargo Bank, N.A.4
.2

Indenture dated as of December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form S-3
    filed December 10, 2004.4
.3

First Supplemental Indenture dated February 14, 2005 to
    Indenture dated December 10, 2004 between Mercer
    International Inc. and Wells Fargo Bank, N.A. Incorporated by
    reference from
    Form 8-K
    dated February 17, 2005.4
.4

Indenture dated as of December 10, 2009 between Mercer
    International Inc. and Wells Fargo Bank, National Association.
    Incorporated by reference from
    Form 8-K
    dated December 11, 2009.10
.1*

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG, as amended by Amendment, Restatement and
    Undertaking Agreement dated January 31, 2009.10
.2

Shareholders Undertaking Agreement dated August 26,
    2002 among Mercer International Inc., Stendal Pulp Holdings
    GmbH, RWE Industrie-Lösungen GmbH, AIG Altmark Industrie AG
    and FAHR Beteiligungen AG and Zellstoff Stendal GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated September 10, 2002.10
.3*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG.10
.4*

Contract for the Engineering, Design, Procurement, Construction,
    Erection and
    Start-Up of
    a Kraft Pulp Mill between Zellstoff Stendal GmbH and RWE
    Industrie-Lösungen GmbH dated August 26, 2002. Certain
    non-public information has been omitted from the appendices to
    Exhibit 10.4 pursuant to a request for confidential
    treatment filed with the SEC. Such non-public information was
    filed with the SEC on a confidential basis. The SEC approved the
    request for confidential treatment in January 2004.10
.5*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees.10
.6

Employment Agreement dated for reference August 7, 2003
    between Mercer International Inc. and David Gandossi.
    Incorporated by reference from
    Form 8-K
    dated August 11, 2003.10
.7

Employment Agreement effective as of April 28, 2004 between
    Mercer International Inc. and Jimmy S.H. Lee. Incorporated by
    reference from
    Form 8-K
    dated April 28, 2004.10
.8

2004 Stock Incentive Plan. Incorporated by reference from
    Form S-8
    dated June 15, 2004.10
.9

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. 68




---



##### Table of Contents



10
.10

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
.11*

Employment Agreement effective September 25, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    December 5, 2008.10
.12

Employment Agreement effective September 1, 2005 between
    Mercer International Inc. and Leonhard Nossol dated
    August 18, 2005. Incorporated by reference from
    Form 10-Q
    dated May 6, 2008.10
.13*

Electricity Purchase Agreement effective January 27, 2009
    between Zellstoff Celgar Limited Partnership and British
    Columbia Hydro and Power Authority. Certain non-public
    information has been omitted from the appendices to
    Exhibit 10.13 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 March 2009.10
.14*

Revolving Credit Facility Agreement dated August 19, 2009
    among D&Z Holding GmbH, Zellstoff-und Papierfabrik
    Rosenthal GmbH, D&Z Beteiligungs GmbH and ZPR Logistik GmbH
    and Bayerische Hypo-und Vereinsbank AG. Incorporated by
    reference from
    Form 8-K
    dated August 24, 2009.10
.15

Loan Agreement dated August 19, 2009 among Zellstoff-und
    Papierfabrik Rosenthal GmbH, as borrower, and Bayerische
    Hypo-und Vereinsbank Aktiengesellschaft, as lender. Incorporated
    by reference from
    Form 8-K
    dated August 24, 2009.10
.16

Amended and Restated Credit Agreement dated as of
    November 27, 2009 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 November 30, 2009.14


Code of Business Conduct and Ethics. Incorporated by reference
    from the definitive proxy statement on Schedule 14A dated
    August 11, 2003.99
.1

Audit Committee Charter. Incorporated by reference from the
    definitive proxy statement on Schedule 14A dated
    April 28, 2005.99
.2

Governance and Nominating Committee Charter. Incorporated by
    reference from the definitive proxy statement on
    Schedule 14A dated April 28, 2004.99
.3

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and IAT Reinsurance Co. Ltd. Incorporated by
    reference from
    Form 8-K
    filed November 27, 2009.99
.4

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and Alden Global Distressed Opportunities
    Fund L.P. Incorporated by reference from
    Form 8-K
    filed November 27, 2009.99
.5

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and Greenlight Capital Qualified LP,
    Greenlight Capital LP and Greenlight Capital Offshore Partners.
    Incorporated by reference from
    Form 8-K
    filed November 27, 2009.21


List of Subsidiaries of Registrant.23
.1

Consent of Independent Registered Chartered
    Accountants  PricewaterhouseCoopers 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
    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 for the
    purposes of liability thereunder or any offering memorandum,
    unless our Company specifically incorporates them by reference
    therein. 69




---



##### Table of Contents



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




---



##### Table of Contents



PricewaterhouseCoopers
    LLP
     71




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.CONSOLIDATED BALANCE SHEETS (In thousands of Euros, except per share
    data)
  December 31,2009


2008ASSETSCurrent assetsCash and cash equivalents (Note 2)


51,291



42,452Cash, restricted (Note 2)






13,000Receivables (Note 3)


71,523



100,158Inventories (Note 4)


72,629



98,457Prepaid expenses and other


6,362



4,834Total current assets


201,805



258,901Long-term assetsProperty, plant and equipment (Note 5)


868,558



881,704Deferred note issuance and other


7,315



4,430Deferred income tax (Note 9)


3,426



3,036Note receivable


2,727



3,529882,026



892,699Total assets


1,083,831



1,151,600LIABILITIESCurrent liabilitiesAccounts payable and accrued expenses (Note 6)


85,185



87,517Pension and other post-retirement benefit obligations
    (Note 8)


567



510Debt (Note 7)


16,032



16,500Total current liabilities


101,784



104,527Long-term liabilitiesDebt (Note 7)


813,142



837,918Unrealized interest rate derivative losses (Note 14)


52,873



47,112Pension and other post-retirement benefit obligations
    (Note 8)


17,902



12,846Capital leases and other (Note 15)


12,157



11,267Deferred income tax (Note 9)






5,827896,074



914,970Total liabilities


997,858



1,019,497EQUITYShareholders equityShare capital (Note 10)


202,844



202,844Paid-in capital


(6,082
)


299Retained earnings (deficit)


(97,235
)


(35,046
)Accumulated other comprehensive income (loss)


23,695



(1,872
)Total shareholders equity


123,222



166,225Noncontrolling interest (deficit) (Note 17)


(37,249
)


(34,122
)Total equity


85,973



132,103Total liabilities and equity


1,083,831



1,151,600Commitments and contingencies (Note 16)Subsequent events (Note 18)    72




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of Euros, except per share
    data)
  For the Years Ended December 31,2009


2008


2007RevenuesPulp


577,298



689,320



704,391Energy


42,501



30,971



22,904619,799



720,291



727,295Costs and expensesOperating costs


551,781



626,933



575,238Operating depreciation and amortization


53,919



55,484



56,40014,099



37,874



95,657Selling, general and administrative expenses


27,414



30,158



30,714Purchase (sale) of emission allowances


(516
)


(5,613
)


(4,643
)Operating income (loss)


(12,799
)


13,329



69,586Other income (expense)Interest expense


(64,770
)


(65,756
)


(71,400
)Investment income (loss)


(1,804
)


(1,174
)


4,453Foreign exchange gain (loss) on debt


2,692



(4,234
)


10,958Gain on extinguishment of convertible notes


4,447







Gain (loss) on derivative instruments (Note 14)


(5,760
)


(25,228
)


20,357Total other income (expense)


(65,195
)


(96,392
)


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


(77,994
)


(83,063
)


33,954Income tax benefit (provision) current


(134
)


(501
)


(2,170
) deferred (Note 9)


6,003



(1,976
)


(8,144
)Income (loss) from continuing operations after income taxes


(72,125
)


(85,540
)


23,640Discontinued operations after income taxes










(210
)Net income (loss)


(72,125
)


(85,540
)


23,430Less: net loss (income) attributable to noncontrolling interest


9,936



13,075



(1,251
)Net income (loss) attributable to common shareholders


(62,189
)


(72,465
)


22,179Retained earnings (deficit), beginning of period


(35,046
)


37,419



15,240Retained earnings (deficit), end of period


(97,235
)


(35,046
)


37,419Net income (loss) per share attributable to common shareholders
    from continuing operations (Note 12)Basic


(1.71
)


(2.00
)


0.62Diluted


(1.71
)


(2.00
)


0.58Net income (loss) per share attributable to common shareholders
    (Note 12)Basic


(1.71
)


(2.00
)


0.61Diluted


(1.71
)


(2.00
)


0.58    73




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands of Euros)
  For the Years Ended December 31,2009


2008


2007Net income (loss)


(72,125
)


(85,540
)


23,430Other comprehensive income (loss)Foreign currency translation adjustment


28,316



(41,876
)


29,214Pension income (expense) (Note 8)


(3,128
)


4,079



(809
)Unrealized gains (losses) on securities arising during the year


379



(340
)


95Other comprehensive income (loss)


25,567



(38,137
)


28,500Total comprehensive income (loss)


(46,558
)


(123,677
)


51,930Comprehensive (income) loss attributable to noncontrolling
    interest


9,936



13,075



(1,251
)Comprehensive income (loss) attributable to common shareholders


(36,622
)


(110,602
)


50,679    74




---



##### Table of Contents



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








Comprehensive Income (Loss)Amount








Foreign


Defined


UnrealizedPaid in





Retained


Currency


Benefit


GainsNumber





Excess of


Paid-in


Earnings


Translation


Pension


(Losses) on





Shareholdersof Shares


Par Value


Par Value


Capital


(Deficit)


Adjustments


Plans


Securities


Total


EquityBalance at December 31, 2006


35,465,176



26,961



168,681



154



15,240



11,885



(4,120
)


-



7,765



218,801Shares issued on exercise of stock options


56,666



43



261



























304Shares issued on grants of restricted stock


21,000



15



145



























160Shares issued on repurchase of notes


742,185



557



6,181



























6,738Stock compensation expense














(20
)






















(20
)Net income


















22,179



















22,179Other comprehensive income (loss)






















29,214



(809
)


95



28,500



28,500Balance at December 31, 2007


36,285,027



27,576



175,268



134



37,419



41,099



(4,929
)


95



36,265



276,662Shares issued on grants of restricted stock


21,000











61























61Shares issued on grants of performance stock


116,460











29























29Stock compensation expense














75























75Net loss


















(72,465
)


















(72,465
)Other comprehensive income (loss)






















(41,876
)


4,079



(340
)


(38,137
)


(38,137
)Balance at December 31, 2008


36,422,487



27,576



175,268



299



(35,046
)


(777
)


(850
)


(245
)


(1,872
)


166,225Capital contribution to acquire additional 4.32% of Stendal Mill














(6,809
)






















(6,809
)Shares issued on grants of restricted stock


21,000











52























52Stock compensation expense














376























376Net loss


















(62,189
)


















(62,189
)Other comprehensive income (loss)






















28,316



(3,128
)


379



25,567



25,567Balance at December 31, 2009


36,443,487



27,576



175,268



(6,082
)


(97,235
)


27,539



(3,978
)


134



23,695



123,222    75




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of Euros)
  For the Years Ended December 31,2009


2008


2007Cash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders


(62,189
)


(72,465
)


22,179Adjustments to reconcile net income (loss) attributable to
    common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments


5,760



25,228



(13,537
)Foreign exchange (gain) loss on debt


(2,692
)


4,234



(10,958
)Gain on extinguishment of convertible notes


(4,447
)






Depreciation and amortization


54,170



55,762



56,658Accretion (income) expense


181







Noncontrolling interest


(9,936
)


(13,075
)


1,251Deferred income taxes


(6,003
)


1,976



8,144Stock compensation expense


455



264



243Pension and other post-retirement expense, net of funding


282



(758
)


(215
)Inventory provisions






11,272



Other


2,485



3,025



3,442Changes in current assets and liabilitiesReceivables


32,105



(14,811
)


(11,890
)Inventories


32,158



(13,331
)


(38,703
)Accounts payable and accrued expenses


(2,950
)


(1,091
)


2,088Other


(2,060
)


1,904



447Net cash from (used in) operating activities


37,319



(11,866
)


19,149Cash flows from (used in) investing activitiesPurchase of property, plant and equipment(1)


(28,828
)


(25,704
)


(4,864
)Proceeds on sale of property, plant and equipment


436



2,000



881Cash, restricted


13,000



20,000



24,000Note receivable


152



5,708



4,954Net cash from (used in) investing activities


(15,240
)


2,004



24,971Cash flows from (used in) financing activitiesRepayment of notes payable and debt


(20,771
)


(34,023
)


(26,719
)Repayment of capital lease obligations


(3,178
)


(3,312
)


(5,562
)Proceeds from borrowings of notes payable and debt


3,511



5,837



Proceeds from government investment grants


9,058



266



1,236Issuance of common shares










305Payment of deferred note issuance costs


(1,969
)






Net cash from (used in) financing activities


(13,349
)


(31,232
)


(30,740
)Effect of exchange rate changes on cash and cash equivalents


109



(1,302
)


1,664Net increase (decrease) in cash and cash equivalents


8,839



(42,396
)


15,044Cash and cash equivalents, beginning of period


42,452



84,848



69,804Cash and cash equivalents, end of period


51,291



42,452



84,848Supplemental disclosure of cash flow informationCash paid (received) during the period forInterest


62,022



60,652



73,318Income taxes


377



1,100



452Supplemental schedule of non-cash investing and financing
    activitiesAcquisition of production and other equipment under capital
    lease obligations


625



5,318



2,110Increase (decrease) in accounts payable relating to investing
    activities


(1,471
)


2,627



     (1)
    
    During 2007, purchases of property,
    plant, and equipment include amounts received and recorded as a
    reduction of property, plant and equipment (approximately
    9,100) upon the settlement of the Stendal engineering,
    procurement and construction (EPC) contract.   76




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES
    TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The
    Company and Summary of Significant Accounting Policies  Background
        Basis of
    Presentation
    Use of
    Estimates
    Cash and
    Cash Equivalents
    Investments
    available-for-sale available-for-sale
 77




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)  Inventories
    Property,
    Plant and Equipment
            Asset
    Retirement and Environment Accounting for Conditional Asset Retirement
    Obligations
  Government
    Investment Grants
   78




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)  and/or
    Deferred
    Note Issuance Costs
    Pensions
    Compensation-Retirement Benefits 715-30 715-60), Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans
      Foreign
    Operations and Currency Translation
    Revenue
    and Related Cost Recognition
   79




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##### Table of Contents



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)    Segment Reporting 280-10), Disclosures about
    Segments of an Enterprise and Related Information
  Environmental
    Conservation
    Stock-Based
    Compensation
  Compensation-Stock Compensation Share-Based Payment
      Income
    Taxes
  Income
    Taxes 740-10), Accounting for Income Taxes
   80




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 1.
    The Company and Summary of Significant Accounting
    Policies  (Continued)  Derivative
    Financial Instruments
  Derivatives
    and Hedging 815-25), Accounting for Derivative Instruments and Hedging Activities marked-to-market
  Net
    Income (Loss) Per Share
  Note 12-Net
  Reclassifications
    New
    Accounting Standards
  The FASB Accounting Standards Codification and the Hierarchy
    of Generally Accepted Accounting Principles, Accounting for Leases
  Transfers and Servicing Accounting for Transfers
    of Financial Assets, an amendment of FASB Statement
    No. 140.
 81




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##### Table of Contents



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)    Recently
    Implemented Accounting Standards
    2009-05, Measuring Liabilities at Fair Value 2009-05), No. 157-f, Measuring Liabilities under FASB Statement No. 157 Fair Value Measurements,
  Defined Benefit Plans 715-20), Employers Disclosures about Pensions and Other
    Postretirement Benefits
  Derivatives and Hedging 815-10-50 815-10-65-1), ,
    Disclosures about Derivative Instruments and Hedging Activities.
  Consolidations 810-10-65), Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
 82




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 2.
    Cash and
    Cash Equivalents and Cash, restricted    December 31,2009


2008Cash and cash equivalents


51,291



42,452Cash, restricted






13,000     Note 3.
    Receivables  December 31,2009


2008Sale of pulp (net of allowance of 952 and 614,
    respectively)


64,864



85,120Value added tax


3,001



3,433Other


3,658



11,605
71,523



100,158       Note 4.
    Inventories  December 31,2009


2008Raw materials


24,888



38,225Finished goods


24,198



37,881Work in process and other


23,543



22,351
72,629



98,457    83




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 5.
    Property,
    Plant and Equipment  December 31,2009


2008Land


24,921



24,661Buildings


126,570



125,046Production equipment and other


1,098,380



1,061,9911,249,871



1,211,698Less: Accumulated depreciation


(381,313
)


(329,994
)
868,558



881,704           Note 6.
    Accounts
    Payable and Accrued Expenses  December 31,2009


2008Trade payables


31,771



31,140Accounts payable and other


1,225



4,559Accrued expenses


31,441



31,181Accrued interest


18,039



17,202Capital leases, current portion


2,709



3,435
85,185



87,517   84




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 7.
    Debt    December 31,2009


2008Note payable to bank, included in a total loan credit facility
    of 827,950 to finance the construction related to the
    Stendal mill (a)


514,574



531,073Senior notes due February 2013, interest at 9.25% accrued and
    payable
    semi-annually,
    unsecured (b)


216,299



222,718Subordinated convertible notes due October 2010, interest at
    8.5% accrued and payable semi-annually (c)(2)


16,749



48,319Subordinated convertible notes due January 2012, interest at
    8.5% accrued and payable semi-annually (d)


26,160



Credit agreement with a lender with respect to a revolving
    credit facility of C$40 million (e)


16,000



18,186Loan payable to the noncontrolling shareholder of the Stendal
    mill (f)


35,881



34,122Credit agreement with a bank with respect to a revolving credit
    facility of 25,000 (g)






Investment loan agreement with a lender with respect to the wash
    press project at the Rosenthal mill of 4,351 (h)


3,511



829,174



854,418Less: current portion


(16,032
)


(16,500
)Debt, less current portion(2)


813,142



837,918     Matures

Amount2010


16,0322011


24,2232012


66,9612013(1)


273,1702014


40,000Thereafter


408,788
829,174     (1)
    
    Includes revolving credit facility
    principal amounts totalling 16,000.(2)
    
    On January 21, 2010,
    15,162 of the subordinated convertible notes due October
    2010 were tendered for exchange for subordinated convertible
    notes due January 2012 and as such the Company has treated this
    amount as non-current. See Note 18  Subsequent
    Events.    (a)
    Note payable to bank, included in a total loan facility of
    827,950 to finance the construction related to the Stendal
    mill (Stendal Loan Facility), interest at rates
    varying from Euribor plus 0.90% to Euribor plus 1.85% (rates on
    amounts of borrowing at December 31, 2009 range from 1.92%
    to 2.52%), principal due in required 85




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 7.
    Debt  (Continued)  installments beginning September 30, 2006 until
    September 30, 2017, collateralized by the assets of the
    Stendal mill, and at December 31, 2009, restricted cash
    amounting to nil, with 48% and 32% guaranteed by the
    Federal Republic of Germany and the State of Saxony-Anhalt,
    respectively, of up to 484,574 of outstanding principal,
    subject to a debt service reserve account required to pay
    amounts due in the following twelve months under the terms of
    the Stendal Loan Facility; payment of dividends is only
    permitted if certain cash flow requirements are met.  On March 13, 2009, the Company finalized an agreement with
    its lenders to amend its Stendal Loan Facility. The amendment
    defers approximately 164,000 of scheduled principal
    payments until the maturity date, September 30, 2017,
    including approximately 20,000, 26,000, 21,000
    of scheduled principal payments that were originally due in
    2009, 2010, and 2011, respectively. The amendment also provides
    for a 100% cash sweep, referred to as the Cash
    Sweep, of any excess cash held by Stendal which will be
    used first to fund the debt service reserve account to a level
    sufficient to service the amounts due and payable under the
    Stendal Loan Facility during the then following 12 months,
    or Fully Funded, and second to prepay the deferred
    principal amounts. Not included in the Cash Sweep is an amount
    of 1,500 which Stendal is permitted to retain for working
    capital purposes. Additionally, the Company made a 10,000
    capital contribution to the Stendal mill, and incurred amendment
    fees totaling approximately 5,800. See
    Note 17  Noncontrolling Interest.The Company obtained a waiver from its lenders for a
    December 31, 2009 fixed charge ratio covenant on its
    Stendal Loan facility. The Company paid approximately 300
    in fees to its banking group as part of the waiver agreement.  (b)
    In February 2005, the Company issued $310 million of senior
    notes due February 2013, which bear interest at 9.25% accrued,
    are payable semi-annually, and are unsecured. On or after
    February 15, 2009, the Company may redeem all or a part of
    the notes at redemption prices (expressed as a percentage of
    principal amount) equal to 104.63% for the twelve month period
    beginning on February 15, 2009, 102.31% for the twelve
    month period beginning on February 15, 2010, and 100.00%
    beginning on February 15, 2011 and at any time thereafter,
    plus accrued and unpaid interest.(c)
    As at December 31, 2009, the Subordinated Convertible Notes
    had approximately $24.0 million of principal outstanding.
    The subordinated convertible notes are due October 2010, bear
    interest at 8.5% accrued and payable semi-annually, are
    convertible at any time by the holder into common shares of the
    Company at $7.75 per share and are unsecured. The Company may
    redeem for cash all or a portion of these notes at any time 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. See Note 7(d)  Debt and
    Note 18  Subsequent Events.(d)
    On December 10, 2009, the Company exchanged approximately
    $43.3 million of Subordinated Convertible Notes due October
    2010 through a private placement for approximately
    $43.8 million of Subordinated Convertible Notes due January
    2012. The Company recognized the refinancing of the Subordinated
    Convertible Notes as an extinguishment of debt in accordance
    with the Debt Topic ASC 470 (ASC
    470-50-40-10),
    originally released as
    EITF 96-19,
    Debtors Accounting for a Modification or Exchange of
    Debt Instruments, as the fair value of the embedded
    conversion option changed by more than 10%. As a result, the
    Company accounted for the exchange as a debt extinguishment and
    recognized a gain of 4,447 in the Consolidated Statement
    of Operations. The gain will be accreted to income through to
    January 2012 through interest expense yielding an effective
    interest rate of approximately 13%.  The Subordinated Convertible Notes due January 2012 bear
    interest at 8.5%, accrued and payable semi-annually, are
    convertible at anytime by the holder into common shares of the
    company at $3.30 per share and 86




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 7.
    Debt  (Continued)  are unsecured. The Company may redeem for cash all or a portion
    of the notes at anytime at 100% of the principal amount of the
    notes plus accrued interest up to the redemption date. The
    holders of the Subordinated Convertible Notes due January 2012
    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. See Note 18  Subsequent Events.  (e)
    Credit agreement with respect to a revolving credit facility of
    C$40.0 million for the Celgar mill. In November 2009, the
    Company amended the revolving credit facility. The amendment
    carries the same general structure and matures May 2013.
    Borrowings under the credit agreement are collateralized by the
    mills inventory and receivables; and are restricted by a
    borrowing base calculated on the mills inventory and
    receivables. Canadian dollar denominated amounts bear interest
    at bankers acceptance plus 3.75% or Canadian prime plus 2.00%.
    U.S. dollar denominated amounts bear interest at LIBOR plus
    3.75% or U.S. base plus 2.00%. As at December 31,
    2009, this facility was drawn by C$24.0 million and was
    accruing interest at a rate of approximately 4.16%.(f)
    Loans payable to the noncontrolling shareholder of Stendal mill
    bear interest at 7%, and are accrued semi-annually. The loan
    payable is unsecured, subordinated to all liabilities of the
    Stendal mill, and is due in 2017. The balance includes principal
    and accrued interest.(g)
    On August 19, 2009 the Company finalized an agreement with
    its lenders relating to the working capital facility at the
    Rosenthal mill. The working capital facility refinancing was
    completed with a new 25,000 replacement revolving facility
    set to mature in December 2012. Borrowings under the credit
    agreement are collateralized by the mills inventory and
    receivables and bear interest at approximately Euribor plus
    3.50%. As at December 31, 2009, this facility was undrawn.(h)
    On August 19, 2009 the Company finalized an investment loan
    agreement with a lender relating to the new wash press at the
    Rosenthal mill. The four-year amortizing investment loan was
    completed with a 4,351 borrowing base bearing interest at
    the rate of Euribor plus 2.75%. Borrowings under this agreement
    are secured by the new wash press equipment. As at
    December 31, 2009, this facility was drawn by 3,511
    and was accruing interest at a rate of 3.71%.  Note 8.
    Pension
    and Other Post-Retirement Benefit Obligations         87




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)    2009OtherPost-RetirementBenefitPension


Obligations


TotalChange in benefit obligationBenefit obligation, December 31, 2008


20,028



10,297



30,325Service cost


56



305



361Interest cost


1,513



785



2,298Benefit payments


(1,715
)


(373
)


(2,088
)Past service cost (credit)






(70
)


(70
)Actuarial (gains) losses


4,366



(295
)


4,071Foreign currency exchange rate changes


2,971



1,424



4,395Benefit obligation, December 31, 2009


27,219



12,073



39,292Reconciliation of fair value of plan assetsFair value of plan assets, December 31, 2008


17,098







17,098Actual returns


2,561







2,561Contributions


589



373



962Benefit payments


(1,715
)


(373
)


(2,088
)Foreign currency exchange rate changes


2,414







2,414Fair value of plan assets, December 31, 2009


20,947







20,947Funded status, December 31, 2009(1)


(6,272
)


(12,073
)


(18,345
)Components of the net benefit cost recognizedService cost


56



305



361Interest cost


1,513



785



2,298Expected return on plan assets


(1,272
)






(1,272
)Amortization of recognized items


141



(279
)


(138
)Net benefit costs


438



811



1,249     (1)
    
    The total of 18,469 on the
    consolidated balance sheets also includes the pension
    liabilities of 124 relating to employees at the
    Companys German operations. 88




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##### Table of Contents



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


Obligations


TotalChange in benefit obligationBenefit obligation, December 31, 2007


27,832



16,137



43,969Service cost


789



501



1,290Interest cost


1,356



800



2,156Benefit payments


(1,417
)


(381
)


(1,798
)Past service cost (credit)


973



(1,152
)


(179
)Actuarial (gains) losses


(5,557
)


(3,442
)


(8,999
)Foreign currency exchange rate changes


(3,948
)


(2,166
)


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


20,028



10,297



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


23,903







23,903Actual returns


(4,084
)






(4,084
)Contributions


2,077



381



2,458Benefit payments


(1,417
)


(381
)


(1,798
)Foreign currency exchange rate changes


(3,381
)






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


17,098







17,098Funded status, December 31, 2008


(2,930
)


(10,297
)


(13,227
)(1)Components of the net benefit cost recognizedService cost


789



501



1,290Interest cost


1,356



800



2,156Expected return on plan assets


(1,542
)






(1,542
)Amortization of recognized items


(6
)


83



77Net benefit costs


597



1,384



1,981     (1)
    
    The total of 13,356 on the
    consolidated balance sheets also includes the pension
    liabilities of 129 relating to employees at the
    Companys German operations.    Amount2010


2,0472011


2,1382012


2,2272013


2,3502014


2,4902015  2019


14,872    89




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)      December 31,2009


2008Benefit obligationsDiscount rate


5.75
%


7.25
%Rate of compensation increase


2.75
%


2.75
%Net benefit cost for year endedDiscount rate


7.25
%


5.25
%Rate of compensation increase


2.75
%


3.00
%Expected rate of return on plan assets


7.00
%


7.00
%Assumed health care cost trend rate atInitial health care cost trend rate


11.00
%


12.00
%Annual rate of decline in trend rate


1.00
%


1.00
%Ultimate health care cost trend rate


4.50
%


4.50
%Medical services plan premiums trend rate


6.00
%


2.50
%       December 31, 2009

December 31, 20081% increase

1% decrease

1% increase

1% decreaseEffect on total service and interest rate components


37



(38
)


235



(178
)Effect on post-retirement benefit obligation


436



(419
)


1,598



(1,251
)     Target


2009


2008Equity securities


60
%


63
%


61
%Debt securities


35
%


35
%


36
%Cash and cash equivalents


5
%


2
%


3
%100
%


100
%   Investment
    Objective:
   90




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
  Note 8.
    Pension and Other Post-Retirement Benefit
    Obligations  (Continued)    Celgar Plans asset fair value measurements at
    December 31, 2009:
  Quotedpricesin active


Significantmarkets


other


Significantfor identical


observable


unobservableassets


inputs


Inputs


TotalAsset CategoryLeith Wheeler Diversified Balanced Fund


10,374











10,374Phillips, Hagar and North Balanced Pension Trust


10,573











10,573Total assets


20,947











20,947   Concentrations
    of Risk in the Celgar Plans Assets:
    Note 9.
    Income
    Taxes  Income (740-10), Accounting for Uncertainty in Income Taxes
   91




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 9.
    Income
    Taxes  (Continued)    2009


2008Balance at January 1


800



4,000Reductions  prior year tax positions






(3,200
)Lapse of statute of limitations


(100
)


Balance at December 31


700



800     and/or
  non-U.S. taxes
    Year Ended December 31,2009


2008


2007U.S. Federal statutory rate


34
%


34
%


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


26,526



28,241



(11,544
)Tax differential on foreign income (loss)


(3,412
)


(2,966
)


2,902Effect of foreign earnings






(17,800
)


Valuation allowance


(20,806
)


(5,530
)


15,021Other


3,561



(4,422
)


(16,693
)
5,869



(2,477
)


(10,314
)Comprised of:Current


(134
)


(501
)


(2,170
)Deferred


6,003



(1,976
)


(8,144
)
5,869



(2,477
)


(10,314
)  92




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 9.
    Income
    Taxes  (Continued)    December 31,2009


2008German tax loss carryforwards


83,362



67,930U.S. tax loss carryforwards


9,409



5,909Canadian tax loss carryforwards


10,653



4,924Basis difference between income tax and financial reporting with
    respect to operating pulp mills


(15,960
)


(17,118
)Derivative financial instruments


14,844



13,227Long-term debt


(2,407
)


(1,726
)Payables and accrued expenses


(1,454
)


(780
)Reserve for deferred pension liability


3,358



2,079Capital leases


530



531Other


620



956102,955



75,932Valuation allowance


(99,529
)


(78,723
)Net deferred tax (liability) asset


3,426



(2,791
)Comprised of:Deferred income tax asset


3,426



3,036Deferred income tax liability






(5,827
)
3,426



(2,791
)       Note 10.
    Shareholders
    Equity  Common
    shares
    Preferred
    shares
   93




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##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 10.
    Shareholders
    Equity  (Continued)    Note 11.
    Stock-Based
    Compensation    Performance
    Stock
  (
      Restricted
    Stock
         94




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##### Table of Contents



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



0.50



$6.29



830,000



$6.297.30


30,000



5.50



7.30



30,000



7.307.92


60,000



5.75



7.92



60,000



7.92      95




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 11.
    Stock-Based
    Compensation  (Continued)   Note 12.
    Net
    Income (Loss) Per Share  Year Ended December 31,2009


2008


2007Net income (loss) attributable to common shareholders from
    continuing operations  basic


(62,189
)


(72,465
)


22,389Interest on convertible notes, net of tax










3,930Net income (loss) attributable to common shareholders from
    continuing operations  diluted


(62,189
)


(72,465
)


26,319Net income (loss) per share attributable to common shareholders
    from continuing operations:Basic


(1.71
)


(2.00
)


0.62Diluted


(1.71
)


(2.00
)


0.58Net income (loss) attributable to common shareholders from
    continuing operations


(62,189
)


(72,465
)


22,389Net loss attributable to common shareholders from discontinued
    operations










(210
)Net income (loss) attributable to common
    shareholders  basic


(62,189
)


(72,465
)


22,179Interest on convertible notes, net of tax










3,930Net income (loss) attributable to common
    shareholders  diluted


(62,189
)


(72,465
)


26,109Net income (loss) per share attributable to common shareholders:Basic


(1.71
)


(2.00
)


0.61Diluted


(1.71
)


(2.00
)


0.58Weighted average number of common shares outstanding:Basic(1)


36,296,649



36,285,027



36,080,931Effect of dilutive shares:Stock options and awards










362,774Convertible notes










8,859,036Diluted


36,296.649



36,285,027



45,302,741     (1)
    
    The basic weighted average number
    of shares excludes performance and restricted stock which have
    been issued, but have not vested as at December 31, 2009.       96




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 12.
    Net
    Income (Loss) Per Share  (Continued)      Note 13.
    Business
    Segment Information        2009


2008


2007Germany


154,323



198,340



198,575China


146,613



131,412



159,553Italy


44,616



56,487



50,177Other European Union countries(1)


107,276



133,621



136,434Other Asia


38,946



65,192



58,242North America


68,213



78,718



66,229Other countries


8,312



17,146



26,639568,299



680,916



695,849Energy revenues


42,501



30,971



22,904Third party transportation revenues


8,999



8,404



8,542
619,799



720,291



727,295     (1)
    
    Not including Germany or Italy;
    includes new entrant countries to the European Union from their
    time of admission.    2009


2008Germany


689,545



732,766Canada


178,941



161,850Other


2,934



4,036
871,420



898,652    97




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 13.
    Business
    Segment Information  (Continued)   Note 14.
    Financial
    Instruments    2009

2008Carrying



CarryingAmount

Fair Value

Amount

Fair ValueCash and cash equivalents


51,291



51,291



42,452



42,452Cash, restricted










13,000



13,000Investments


135



135



419



419Receivables


71,523



71,523



100,158



100,158Notes receivable


3,819



3,819



4,171



4,171Accounts payable and accrued expenses


85,185



85,185



87,517



87,517Debt


829,174



769,207



854,418



704,901Interest rate derivative contracts  liability


52,873



52,873



47,112



47,112   Cash and
    Debt Instruments
        2009


2008


2007Realized net gain on foreign exchange derivatives










6,820Unrealized net gain (loss) on interest rate derivatives


(5,760
)


(25,228
)


19,470Unrealized net gain (loss) on foreign exchange derivatives










(5,933
)Unrealized net gain (loss) on derivative financial instruments


(5,760
)


(25,228
)


13,537   Energy
    Derivatives
   98




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 14.
    Financial
    Instruments  (Continued)    Interest
    Rate Derivatives
  variable-to-fixed
  Foreign
    Exchange Derivatives
    Credit
    Risk
    Fair
    Value Measurement and Disclosures
  Fair Value Measurement
    identical
  similar
      over-the-counter
   99




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 14.
    Financial
    Instruments  (Continued)      Fair value measurements at December 31, 2009 using:Quoted prices


Significantin active


other


Significantmarkets for


observable


unobservableidentical assets


inputs


inputsDescription

(Level 1)


(Level 2)


(Level 3)


TotalAssetsInvestments(a)


135











135LiabilitiesDerivatives(b) Interest rate swaps






52,873







52,873     (a)
    
    Based on observable market data.(b)
    
    Based on observable inputs for the
    liability (interest rates and yield curves observable at
    specific intervals).  Note 15.
    Lease
    Commitments    Capital


OperatingLeases


Leases2010


2,839



3,0342011


3,195



2,4002012


1,579



1,8962013


224



8712014


221



869Thereafter


1,529



4,987Total


9,587



14,057Less imputed interest


1,284Total present value of minimum capitalized payments


8,303Less current portion of capital lease obligations


2,709Long-term capital lease obligations


5,594     Note 16.
    Commitments
    and Contingencies   100




---



##### Table of Contents



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




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 16.
    Commitments
    and Contingencies  (Continued)   Note 17.
    Noncontrolling
    Interest  810-10-65,
  Excerpt
    from Consolidated Balance Sheet
  Revisedbalance as atBalance as at


Application of new


December 31,December 31,


accounting standard


2008Description

2008


(a)


(b)Long-term liabilitiesDebt, less current portion


803,796



34,122



837,918Total liabilities


985,375



34,122



1,019,497EquityShareholders equityShare capital


202,844







202,844Paid-in capital


299







299Retained earnings (deficit)


(35,046
)






(35,046
)Accumulated other comprehensive income


(1,872
)






(1,872
)Total shareholders equity


166,225







166,225Noncontrolling interest






(34,122
)


(34,122
)Total equity


166,225



(34,122
)


132,103Total liabilities and equity


1,151,600







1,151,600     (a)
    
    As at December 31, 2008, the
    cumulative net losses of the Companys
    70.58% subsidiary (the Stendal mill) which were
    attributable to the noncontrolling shareholder amounted to
    34,122, and were applied to the loans payable to the
    noncontrolling shareholder. The net obligation reported at
    December 31, 2008 was nil. In accordance with ASC
    810-10-65,
    the noncontrolling shareholders equity interest is
    required to be reclassified to equity in the Consolidated
    Balance Sheet. As a result, the Company retrospectively applied
    this presentation and disclosure requirement.(b)
    
    Revised balance as at
    December 31, 2008 represents the Companys
    Consolidated Balance Sheet reclassified in accordance with ASC
    810-10-65.  810-10-65,
    810-10-65,
 102




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 17.
    Noncontrolling
    Interest  (Continued)    Note 18.
    Subsequent
    Events    Note 19.
    Restricted
    Group Supplemental Disclosure   103




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Balance Sheet
  December 31, 2009Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupASSETSCurrentCash and cash equivalents


20,635



30,656







51,291Receivables


34,588



36,935







71,523Inventories


52,897



19,732







72,629Prepaid expenses and other


4,323



2,039







6,362Total current assets


112,443



89,362







201,805Property, plant and equipment


362,311



506,247







868,558Deferred note issuance and other


2,517



4,798







7,315Deferred income tax


3,426











3,426Due from unrestricted group


72,553







(72,553
)


Note receivable


2,727











2,727Total assets


555,977



600,407



(72,553
)


1,083,831LIABILITIESCurrent LiabilitiesAccounts payable and accrued expenses


51,875



33,310







85,185Pension and other post-retirement benefit obligations


567











567Debt


2,115



13,917







16,032Total current liabilities


54,557



47,227







101,784Debt


276,604



536,538







813,142Due to restricted group






72,553



(72,553
)


Unrealized interest rate derivative losses






52,873







52,873Pension and other post-retirement benefit obligations


17,902











17,902Capital leases and other


6,667



5,490







12,157Deferred income tax














Total liabilities


355,730



714,681



(72,553
)


997,858EQUITYTotal shareholders equity (deficit)


200,247



(77,025
)






123,222Noncontrolling interest (deficit)






(37,249
)






(37,249
)Total liabilities and equity


555,977



600,407



(72,553
)


1,083,831  104




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Balance Sheet
  December 31, 2008Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupASSETSCurrentCash and cash equivalents


26,176



16,276







42,452Cash, restricted






13,000







13,000Receivables


57,258



42,900







100,158Inventories


59,801



38,656







98,457Prepaid expenses and other


3,215



1,619







4,834Total current assets


146,450



112,451







258,901Property, plant and equipment


351,009



530,695







881,704Deferred note issuance and other


4,425



5







4,430Deferred income tax


3,036











3,036Due from unrestricted group


55,925







(55,925
)


Note receivable


3,529











3,529Total assets


564,374



643,151



(55,925
)


1,151,600LIABILITIESCurrent LiabilitiesAccounts payable and accrued expenses


44,450



43,067






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


510











510Debt






16,500







16,500Total current liabilities


44,960



59,567







104,527Debt


289,222



548,696







837,918Due to restricted group






55,925



(55,925
)


Unrealized interest rate derivative losses






47,112







47,112Pension and other post-retirement benefit obligations


12,846











12,846Capital leases and other


7,167



4,100







11,267Deferred income tax






5,827







5,827Total liabilities


354,195



721,227



(55,925
)


1,019,497EQUITYTotal shareholders equity (deficit)


210,179



(43,954
)






166,225Noncontrolling interest (deficit)






(34,122
)






(34,122
)Total liabilities and equity


564,374



643,151



(55,925
)


1,151,600  105




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations
  Year Ended December 31, 2009Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenuesPulp


318,448



258,850







577,298Energy


15,183



27,318







42,501333,631



286,168







619,799Operating costs


310,537



241,244







551,781Operating depreciation and amortization


27,453



26,466







53,919Selling, general and administrative expenses and other


16,541



10,357







26,898354,531



278,067







632,598Operating income (loss)


(20,900
)


8,101







(12,799
)Other income (expense)Interest expense


(27,351
)


(41,932
)


4,513



(64,770
)Investment income (loss)


5,002



(2,293
)


(4,513
)


(1,804
)Foreign exchange gain (loss) on debt


2,692











2,692Gain on extinguishment of convertible note


4,447











4,447Gain (loss) on derivative instruments






(5,760
)






(5,760
)Total other income (expense)


(15,210
)


(49,985
)






(65,195
)Income (loss) before income taxes


(36,110
)


(41,884
)






(77,994
)Income tax benefit (provision)


183



5,686







5,869Net income (loss)


(35,927
)


(36,198
)






(72,125
)Less: net (income) loss attributable to noncontrolling interest






9,936







9,936Net income (loss) attributable to common shareholders


(35,927
)


(26,262
)






(62,189
)  106




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations
  Year Ended December 31, 2008Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenuesPulp


400,969



288,351







689,320Energy


12,119



18,852







30,971413,088



307,203







720,291Operating costs


369,923



257,010







626,933Operating depreciation and amortization


28,589



26,895







55,484Selling, general and administrative expenses and other


16,973



7,572







24,545415,485



291,477







706,962Operating income (loss)


(2,397
)


15,726







13,329Other income (expense)Interest expense


(27,027
)


(43,117
)


4,388



(65,756
)Investment income (loss)


6,834



(3,620
)


(4,388
)


(1,174
)Foreign exchange gain (loss) on debt


(4,114
)


(120
)






(4,234
)Gain (loss) on derivative instruments






(25,228
)






(25,228
)Total other income (expense)


(24,307
)


(72,085
)






(96,392
)Income (loss) before income taxes


(26,704
)


(56,359
)






(83,063
)Income tax benefit (provision)


(3,728
)


1,251







(2,477
)Net income (loss)


(30,432
)


(55,108
)






(85,540
)Less: net (income) loss attributable to noncontrolling interest






13,075







13,075Net income (loss) attributable to common shareholders


(30,432
)


(42,033
)






(72,465
)  107




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Operations
  Year Ended December 31, 2007Restricted


Unrestricted





ConsolidatedGroup


Subsidiaries


Eliminations


GroupRevenuesPulp


401,251



303,140







704,391Energy


9,118



13,786







22,904410,369



316,926







727,295Operating costs


328,954



246,284







575,238Operating depreciation and amortization


28,661



27,739







56,400Selling, general and administrative expenses and other


17,650



13,064







30,714Purchase (sale) of emission allowances


(1,566
)


(3,077
)






(4,643
)Operating income (loss)


36,670



32,916







69,586Other income (expense)Interest expense


(28,472
)


(46,653
)


3,725



(71,400
)Investment income (loss)


5,303



2,875



(3,725
)


4,453Foreign exchange gain (loss) on debt


10,629



329







10,958Gain (loss) on derivative instruments






20,357







20,357Total other income (expense)


(12,540
)


(23,092
)






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


24,130



9,824







33,954Income tax benefit (provision)


(6,428
)


(3,886
)






(10,314
)Income (loss) from continuing operations after income taxes


17,702



5,938







23,640Discontinued operations after income taxes


(210
)










(210
)Net income (loss)


17,492



5,938







23,430Less: net loss (income) attributable to noncontrolling interest






(1,251
)






(1,251
)Net income (loss) attributable to common shareholders


17,492



4,687







22,179  108




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  Combined
    Condensed Statement of Cash Flows
  Year Ended December 31, 2009Restricted


Unrestricted


ConsolidatedGroup


Group


GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders


(35,927
)


(26,262
)


(62,189
)Adjustments to reconcile net income (loss) attributable to
    common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments






5,760



5,760Foreign exchange (gain) loss on debt


(2,692
)






(2,692
)Gain on extinguishment of convertible notes


(4,447
)






(4,447
)Depreciation and amortization


27,704



26,466



54,170Accretion (income) expense


181







181Noncontrolling interest






(9,936
)


(9,936
)Deferred income taxes


(176
)


(5,827
)


(6,003
)Stock compensation expense


455







455Pension and other post-retirement expense, net of funding


282







282Other


934



1,551



2,485Changes in current assets and liabilitiesReceivables


26,140



5,965



32,105Inventories


13,234



18,924



32,158Accounts payable and accrued expenses


5,839



(8,789
)


(2,950
)Other(1)


(18,265
)


16,205



(2,060
)Net cash from (used in) operating activities


13,262



24,057



37,319Cash flows from (used in) investing activitiesPurchase of property, plant and equipment


(26,839
)


(1,989
)


(28,828
)Proceeds on sale of property, plant and equipment


158



278



436Cash, restricted






13,000



13,000Note receivable


152







152Net cash from (used in) investing activities


(26,529
)


11,289



(15,240
)Cash flows from (used in) financing activitiesRepayment of notes payable and debt


(4,272
)


(16,499
)


(20,771
)Repayment of capital lease obligations


(680
)


(2,498
)


(3,178
)Proceeds from borrowings of notes payable and debt


3,511







3,511Proceeds from government investment grants


9,058







9,058Payment of deferred note issuance costs






(1,969
)


(1,969
)Net cash from (used in) financing activities


7,617



(20,966
)


(13,349
)Effect of exchange rate changes on cash and cash equivalents


109







109Net increase (decrease) in cash and cash equivalents


(5,541
)


14,380



8,839Cash and cash equivalents, beginning of period


26,176



16,276



42,452Cash and cash equivalents, end of period


20,635



30,656



51,291     (1)
    
    Includes intercompany working
    capital related transactions. 109




---



##### Table of Contents



MERCER
    INTERNATIONAL INC.
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of Euros, except per share data)
   Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)   Combined
    Condensed Statement of Cash Flows
  Year Ended December 31, 2008Restricted


Unrestricted


ConsolidatedGroup


Group


GroupCash flows from (used in) operating activitiesNet income (loss) attributable to common shareholders


(30,432
)


(42,033
)


(72,465
)Adjustments to reconcile net income (loss) attributable to
    common shareholders to cash flows from operating activitiesLoss (gain) on derivative instruments






25,228



25,228Foreign exchange (gain) loss on debt


4,114



120



4,234Gain on extinguishment of convertible notes










Depreciation and amortization


28,868



26,894



55,762Accretion (income) expense










Noncontrolling interest






(13,075
)


(13,075
)Deferred income taxes


3,464



(1,488
)


1,976Stock compensation expense


264







264Pension and other post-retirement expense, net of funding


(758
)






(758
)Inventory provisions


8,637



2,635



11,272Other


2,046



979



3,025Changes in current assets and liabilitiesReceivables


(24,427
)


9,616



(14,811
)Inventories


(12,207
)


(1,124
)


(13,331
)Accounts payable and accrued expenses


861



(1,952
)


(1,091
)Other(1)


(2,321
)


4,225



1,904Net cash from (used in) operating activities


(21,891
)


10,025



(11,866
)Cash flows from (used in) investing activitiesPurchase of property, plant and equipment


(20,776
)


(4,928
)


(25,704
)Proceeds on sale of property, plant and equipment


189



1,811



2,000Cash, restricted






20,000



20,000Note receivable


5,708







5,708Net cash from (used in) investing activities


(14,879
)


16,883



2,004Cash flows from (used in) financing activitiesRepayment of notes payable and debt






(34,023
)


(34,023
)Repayment of capital lease obligations


(1,226
)


(2,086
)


(3,312
)Proceeds from borrowings of notes payable and debt


5,837







5,837Proceeds from government investment grants


266







266Payment of deferred note issuance costs










Net cash from (used in) financing activities


4,877



(36,109
)


(31,232
)Effect of exchange rate changes on cash and cash equivalents


(1,302
)






(1,302
)Net increase (decrease) in cash and cash equivalents


(33,195
)


(9,201
)


(42,396
)Cash and cash equivalents, beginning of period


59,371



25,477



84,848Cash and cash equivalents, end of period


26,176



16,276



42,452     (1)
    
    Includes intercompany working
    capital related transactions. 110




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##### Table of Contents



Note 19.
    Restricted
    Group Supplemental Disclosure  (Continued)  SUPPLEMENTARY
    FINANCIAL INFORMATION (UNAUDITED)

Quarterly Financial Data

(Thousands, except per share amounts) Quarter EndedMarch 31


June 30


September 30


December 312009Revenues


139,572



158,884



156,231



165,112Gross profit


(12,413
)


(9,736
)


(493
)


9,843Net income (loss) attributable to common shareholders


(39,350
)


(11,476
)


(14,112
)


2,749Net income (loss) per share attributable to common shareholders*


(1.08
)


(0.32
)


(0.39
)


0.072008Revenues


186,816



176,651



184,828



171,996Gross profit


18,643



6,216



9,854



(21,384
)Net income (loss) attributable to common shareholders


2,869



871



(17,173
)


(59,032
)Net income (loss) per share attributable to common shareholders*


0.08



0.02



(0.47
)


(1.63
)     *
    
    On a diluted basis 111




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##### Table of Contents



SIGNATURES  Securities Exchange Act of 1934
  Mercer International
    Inc.Dated: February 26, 2010

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 26, 2010/s/  David
    M. GandossiDavid
    M. Gandossi
    Secretary, Executive Vice President,
    Chief Financial Officer 
    and Principal Accounting Officer

Date: February 26, 2010/s/  Kenneth
    A. ShieldsKenneth
    A. Shields 
    Director

Date: February 26, 2010/s/  Eric
    LauritzenEric
    Lauritzen
    Director

Date: February 26, 2010/s/  William
    D. McCartneyWilliam
    D. McCartney 
    Director

Date: February 26, 2010/s/  Graeme
    A. WittsGraeme
    A. Witts 
    Director

Date: February 26, 2010/s/  Guy
    W. AdamsGuy
    W. Adams 
    Director

Date: February 26, 2010/s/  George
    MalpassGeorge
    Malpass 
    Director

Date: February 26, 2010  112




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.

Description of Exhibit2
.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, 2005.4
.4

Indenture dated as of December 10, 2009 between Mercer
    International Inc. and Wells Fargo Bank, National Association.
    Incorporated by reference from
    Form 8-K
    dated December 11, 2009.10
.1*

Project Financing Facility Agreement dated August 26, 2002
    between Zellstoff Stendal GmbH and Bayerische Hypo-und
    Vereinsbank AG, as amended by Amendment, Restatement and
    Undertaking Agreement dated January 31, 2009.10
.2

Shareholders Undertaking Agreement dated August 26,
    2002 among Mercer International Inc., Stendal Pulp Holdings
    GmbH, RWE Industrie-Lösungen GmbH, AIG Altmark Industrie AG
    and FAHR Beteiligungen AG and Zellstoff Stendal GmbH and
    Bayerische Hypo-und Vereinsbank AG. Incorporated by reference
    from
    Form 8-K
    dated September 10, 2002.10
.3*

Shareholders Agreement dated August 26, 2002 among
    Zellstoff Stendal GmbH, Stendal Pulp Holdings GmbH, RWE
    Industrie-Lösungen GmbH and FAHR Beteiligungen AG.10
.4*

Contract for the Engineering, Design, Procurement, Construction,
    Erection and
    Start-Up of
    a Kraft Pulp Mill between Zellstoff Stendal GmbH and RWE
    Industrie-Lösungen GmbH dated August 26, 2002. Certain
    non-public information has been omitted from the appendices to
    Exhibit 10.4 pursuant to a request for confidential
    treatment filed with the SEC. Such non-public information was
    filed with the SEC on a confidential basis. The SEC approved the
    request for confidential treatment in January 2004.10
.5*

Form of Trustees Indemnity Agreement between Mercer
    International Inc. and its Trustees.10
.6

Employment Agreement dated for reference August 7, 2003
    between Mercer International Inc. and David Gandossi.
    Incorporated by reference from
    Form 8-K
    dated August 11, 2003.10
.7

Employment Agreement effective as of April 28, 2004 between
    Mercer International Inc. and Jimmy S.H. Lee. Incorporated by
    reference from
    Form 8-K
    dated April 28, 2004.10
.8

2004 Stock Incentive Plan. Incorporated by reference from
    Form S-8
    dated June 15, 2004.10
.9

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
.10

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
.11*

Employment Agreement effective September 25, 2006 between
    Mercer International Inc. and Claes-Inge Isacson dated
    December 5, 2008.10
.12

Employment Agreement effective September 1, 2005 between
    Mercer International Inc. and Leonhard Nossol dated
    August 18, 2005. Incorporated by reference from
    Form 10-Q
    dated May 6, 2008. 113




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##### Table of Contents



ExhibitNo.

Description of Exhibit10
.13*

Electricity Purchase Agreement effective January 27, 2009
    between Zellstoff Celgar Limited Partnership and British
    Columbia Hydro and Power Authority. Certain non-public
    information has been omitted from the appendices to
    Exhibit 10.13 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 March 2009.10
.14

Revolving Credit Facility Agreement dated August 19, 2009
    among D&Z Holding GmbH, Zellstoff-und Papierfabrik
    Rosenthal GmbH, D&Z Beteiligungs GmbH and ZPR Logistik GmbH
    and Bayerische Hypo-und Vereinsbank AG. Incorporated by
    reference from
    Form 8-K
    dated August 24, 2009.10
.15

Loan Agreement dated August 19, 2009 among Zellstoff-und
    Papierfabrik Rosenthal GmbH, as borrower, and Bayerische
    Hypo-und Vereinsbank Aktiengesellschaft, as lender. Incorporated
    by reference from
    Form 8-K
    dated August 24, 2009.10
.16

Amended and Restated Credit Agreement dated as of
    November 27, 2009 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 November 30, 2009.14


Code of Business Conduct and Ethics. Incorporated by reference
    from the definitive proxy statement on Schedule 14A dated
    August 11, 2003.99
.1

Audit Committee Charter. Incorporated by reference from the
    definitive proxy statement on Schedule 14A dated
    April 28, 2005.99
.2

Governance and Nominating Committee Charter. Incorporated by
    reference from the definitive proxy statement on
    Schedule 14A dated April 28, 2004.99
.3

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and IAT Reinsurance Co. Ltd. Incorporated by
    reference from
    Form 8-K
    filed November 27, 2009.99
.4

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and Alden Global Distressed Opportunities
    Fund L.P. Incorporated by reference from
    Form 8-K
    filed November 27, 2009.99
.5

Exchange Agreement dated November 25, 2009 between Mercer
    International Inc. and Greenlight Capital Qualified LP,
    Greenlight Capital LP and Greenlight Capital Offshore Partners.
    Incorporated by reference from
    Form 8-K
    filed November 27, 2009.21


List of Subsidiaries of Registrant.23
.1

Consent of Independent Registered Chartered
    Accountants  PricewaterhouseCoopers 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 SEC, these Certifications: (i) are
    furnished to the SEC and are not filed
    for the purposes of liability under the Exchange Act; 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 for the purposes of liability
    thereunder or any offering memorandum, unless the Company
    specifically incorporates them by reference therein. 114